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As filed with the Securities and Exchange Commission
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on November 14, 2002
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2002
Commission File Number 0-17440
FEDERAL AGRICULTURAL MORTGAGE CORPORATION
(Exact name of registrant as specified in its
charter)
Federally chartered instrumentality
of the United States 52-1578738
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification number)
1133 Twenty-First Street, N.W.,
Suite 600 20036
Washington, D.C. (Zip code)
(Address of principal executive
offices)
(202) 872-7700
(Registrant's telephone number, including area code)
----------------------------------------------------
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [ ]
As of November 1, 2002, there were 1,030,780 shares of Class A Voting
Common Stock, 500,301 shares of Class B Voting Common Stock and 10,106,180
shares of Class C Non-Voting Common Stock outstanding.
PART I - FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
The following interim condensed consolidated financial statements of the
Federal Agricultural Mortgage Corporation ("Farmer Mac" or the "Corporation")
have been prepared, without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission. These condensed consolidated financial
statements reflect all normal and recurring adjustments that are, in the opinion
of management, necessary to present a fair statement of the results for the
interim periods presented. Certain information and footnote disclosures normally
included in annual consolidated financial statements have been condensed or
omitted as permitted by such rules and regulations. Management believes that the
disclosures are adequate to present fairly the condensed consolidated financial
position, condensed consolidated results of operations and condensed
consolidated cash flows as of the dates and for the periods presented. These
condensed consolidated financial statements should be read in conjunction with
the audited 2001 consolidated financial statements of Farmer Mac included in the
Corporation's Form 10-K for the year ended December 31, 2001. Results for
interim periods are not necessarily indicative of those to be expected for the
fiscal year.
The following information concerning Farmer Mac's condensed consolidated
financial statements is included in this Form 10-Q beginning on the pages listed
below:
Condensed Consolidated Balance Sheets as of September 30, 2002 and
December 31, 2001.............................................. 3
Condensed Consolidated Statements of Operations for the three and nine
months ended September 30, 2002 and 2001....................... 4
Condensed Consolidated Statements of Cash Flows for the nine months ended
September 30, 2002 and 2001.................................... 5
Notes to Condensed Consolidated Financial Statements............. 6
FEDERAL AGRICULTURAL MORTGAGE CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
September 30, December 31,
2002 2001
------------------ ---------------
(unaudited)
Assets:
Cash and cash equivalents $ 493,202 $ 437,831
Investment securities 942,827 1,007,954
Farmer Mac Guaranteed Securities 1,636,639 1,690,376
Loans 878,845 199,355
Allowance for loan losses (see Note 1(c) and (g)) (4,228) (1,352)
Real estate owned, net of valuation allowance of 3,678 2,457
$1.1 million and zero (see Note 1(c) and (g))
Financial derivatives 3,660 15
Interest receivable 47,854 56,253
Guarantee fees receivable 4,368 6,004
Prepaid expenses and other assets 24,779 16,963
--------------- --------------
Total Assets $ 4,031,624 $ 3,415,856
--------------- --------------
Liabilities and Stockholders' Equity:
Liabilities:
Notes payable
Due within one year $ 2,589,382 $ 2,233,267
Due after one year 1,118,338 968,463
--------------- --------------
Total notes payable 3,707,720 3,201,730
Financial derivatives 67,688 20,762
Accrued interest payable 31,803 26,358
Accounts payable and accrued expenses 15,125 18,037
Reserve for losses (see Note 1(c) and (g)) 13,772 14,532
--------------- --------------
Total Liabilities 3,836,108 3,281,419
Stockholders' Equity:
Preferred Stock:
Series A, stated at redemption/liquidation value,
$50 per share, 700,000 shares authorized,
issued and outstanding as of September 30, 2002 35,000 -
Common Stock:
Class A Voting, $1 par value, no maximum authorization,
1,030,780 shares issued and outstanding 1,031 1,031
Class B Voting, $1 par value, no maximum authorization,
500,301 shares issued and outstanding 500 500
Class C Non-Voting, $1 par value, no maximum authorization,
10,098,435 and 10,033,037 shares issued and outstanding
as of September 30, 2002 and December 31, 2001 10,098 10,033
Additional paid-in capital 82,445 80,960
Accumulated other comprehensive income 14,407 8,395
Retained earnings 52,035 33,518
--------------- --------------
Total Stockholders' Equity 195,516 134,437
--------------- --------------
Total Liabilities and Stockholders' Equity $ 4,031,624 $ 3,415,856
--------------- --------------
See accompanying notes to condensed consolidated financial statements.
FEDERAL AGRICULTURAL MORTGAGE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
Three Months Ended Nine Months Ended
Sept. 30, 2002 Sept. 30, 2001 Sept. 30, 2002 Sept. 30, 2001
---------------- ----------------- ---------------- ----------------
(unaudited) (unaudited)
Interest income:
Investments and cash equivalents $ 10,234 $ 15,604 $ 31,117 $ 53,840
Farmer Mac Guaranteed Securities 22,793 27,714 68,353 84,935
Loans 12,734 1,842 26,926 3,185
--------------- ----------------- ---------------- ----------------
Total interest income 45,761 45,160 126,396 141,960
Interest expense 35,784 37,292 100,099 122,218
--------------- ----------------- ---------------- ----------------
Net interest income 9,977 7,868 26,297 19,742
Gains/(Losses) on financial derivatives
and trading assets (1,451) (295) (1,457) (1,043)
Other income:
Guarantee fees (incl. commitment fees) 4,874 4,177 14,164 11,273
Miscellaneous 458 137 1,218 420
--------------- ----------------- ---------------- ----------------
Total other income 5,332 4,314 15,382 11,693
--------------- ----------------- ---------------- ----------------
Total revenues 13,858 11,887 40,222 30,392
Expenses:
Compensation and employee benefits 1,325 1,414 3,904 4,147
Regulatory fees 397 245 790 712
General and administrative 2,168 883 4,765 3,137
--------------- ----------------- ---------------- ----------------
Total operating expenses 3,890 2,542 9,459 7,996
Provision for losses 2,037 1,962 6,075 4,739
--------------- ----------------- ---------------- ----------------
Total expenses 5,927 4,504 15,534 12,735
--------------- ----------------- ---------------- ----------------
Income before income taxes 7,931 7,383 24,688 17,657
Income tax expense 2,341 2,455 7,477 6,132
--------------- ----------------- ---------------- ----------------
Net income before cumulative effect 5,590 4,928 17,211 11,525
of change in accounting principles and
extraordinary gain
Cumulative effect of change in accounting
principles, net of taxes of $400 - - - (726)
Extraordinary gain, net of taxes of $1,186. - - 2,203 -
--------------- ----------------- ---------------- ----------------
Net income 5,590 4,928 19,414 10,799
--------------- ----------------- ---------------- ----------------
Preferred stock dividends 560 896 -
--------------- ----------------- ---------------- ----------------
Net income available to common stockholders $ 5,030 $ 4,928 $ 18,518 $ 10,799
--------------- ----------------- ---------------- ----------------
Earnings per common share:
Basic earnings per common share $ 0.43 $ 0.43 $ 1.60 $ 0.95
Diluted earnings per common share $ 0.42 $ 0.41 $ 1.54 $ 0.91
Earnings per common share before cumulative
effect of change in accounting principles
and extraordinary gain:
Basic earnings per common share $ 0.43 $ 0.43 $ 1.41 $ 1.02
Diluted earnings per common share $ 0.42 $ 0.41 $ 1.35 $ 0.98
See accompanying notes to condensed consolidated financial statements.
FEDERAL AGRICULTURAL MORTGAGE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Nine Months Ended
--------------------------------------
Sept. 30, 2002 Sept. 30, 2001
----------------- -----------------
(unaudited) (unaudited)
Cash flows from operating activities:
Net income $ 19,413 $ 10,799
Adjustments to reconcile net income to net cash provided by
operating activities:
Net amortization of investment premiums and discounts 536 (680)
Decrease in interest receivable 8,399 15,174
Decrease in guarantee fees receivable 1,636 1,396
(Increase) decrease in other assets (12,354) (2,881)
Amortization of debt premiums, discounts and issuance costs 34,383 75,745
Increase (decrease)in accrued interest payable 5,445 (1,885)
Decrease in other liabilities (4,863) (1,788)
(Purchases of) proceeds from trading investment securities (31,530) 18,185
Mark to market on trading securities and derivatives 1,460 116
Amortization of settled financial derivatives contracts 768 153
Extraordinary gain on debt repurchase 2,203 -
Provision for losses 6,075 4,739
----------------- -----------------
Net cash provided by operating activities 31,572 119,073
Cash flows from investing activities:
Purchases of investment securities (179,146) (434,561)
Purchases of Farmer Mac Guaranteed Securities (161,739) (217,304)
Purchases of loans (725,821) (212,135)
Proceeds from repayment of investment securities 295,789 281,400
Proceeds from repayment of Farmer Mac Guaranteed Securities 213,436 217,498
Proceeds from repayment of loans 52,654 1,042
Proceeds from sale of Farmer Mac Guaranteed Securities 29,342 65,929
Settlement of financial derivatives (4,314) (5,757)
Purchases of office equipment (138) (41)
----------------- -----------------
Net cash used in investing activities (479,937) (303,929)
Cash flows from financing activities:
Proceeds from issuance of discount notes 53,832,987 76,929,322
Proceeds from issuance of medium-term notes 286,428 138,200
Payments to redeem discount notes (53,524,678) (76,777,540)
Payments to redeem medium-term notes (126,654) (169,210)
Net proceeds from preferred stock issuance 34,694 -
Proceeds from common stock issuance 1,855 4,345
Preferred stock dividends (896) -
----------------- -----------------
Net cash provided by financing activities 503,736 125,117
----------------- -----------------
Net increase (decrease) in cash and cash equivalents 55,371 (59,739)
Cash and cash equivalents at beginning of period 437,831 537,871
----------------- -----------------
Cash and cash equivalents at end of period $ 493,202 $ 478,132
----------------- -----------------
See accompanying notes to condensed consolidated financial statements.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Accounting Policies
(a) Cash and Cash Equivalents
Farmer Mac considers highly liquid investment securities with original
maturities of three months or less to be cash equivalents. Changes in the
balance of cash and cash equivalents are reported in the Condensed Consolidated
Statements of Cash Flows. The following table sets forth information regarding
certain cash and non-cash transactions for the nine months ended September 30,
2002 and 2001.
Nine Months Ended
September 30,
--------------------------
2002 2001
------------ -----------
(in thousands)
Cash paid for:
Interest $44,118 $ 62,372
Income taxes 9,200 5,000
Non-cash activity:
Real estate owned acquired through foreclosure 6,566 -
Loans securitized as Farmer Mac Guaranteed Securities 29,342 99,862
(b) Loans
As of September 30, 2002, loans held by Farmer Mac included $37.0 million
held for sale and $841.8 million held for investment. As of December 31, 2001,
loans held by Farmer Mac included $25.8 million held for sale and $173.6 million
held for investment. Detailed information regarding the allowance for loan
losses is presented in Note 1(c).
(c) Allowance for Losses
As of September 30, 2002, Farmer Mac maintained a $19.1 million allowance
for losses to cover estimated probable losses on loans held, real estate owned,
and loans underlying securities guaranteed by Farmer Mac under the Farmer Mac I
program after the 1996 revision to its charter ("Post-1996 Act Farmer Mac I
Guaranteed Securities") and Long-Term Standby Purchase Commitments ("LTSPCs").
(See Note 2 for a description of LTSPCs.) In estimating probable losses,
management considers factors such as economic conditions, geographic and
agricultural commodity concentrations, the credit profile of the portfolio,
delinquency trends and historical charge-off and recovery activity and evaluates
the results of its proprietary Loan Pool Simulation and Guarantee Model. The
allowance is increased through periodic provisions charged to expense and
reduced by charge-offs for actual losses, net of recoveries.
The table below summarizes the three components of the allowance for losses
as of September 30, 2002 and December 31, 2001.
September 30, December 31,
2002 2001
---------------- -----------------
(in thousands)
Allowance for loan losses $ 4,228 $ 1,352
Real estate owned valuation allowance 1,136 -
Reserve for losses 13,772 14,532
---------------- -----------------
Total allowance for losses $ 19,136 $ 15,884
---------------- -----------------
For the period ended September 30, 2002, Farmer Mac reclassified the
portion of its allowance for losses attributed to its on-balance sheet loans
held for investment as a contra-asset account on the balance sheet labeled
"Allowance for loan losses." Farmer Mac also reclassified the specific valuation
allowance attributed to its real estate owned as a contra-asset account on the
balance sheet that is included within the line item labeled "Real estate owned,
net of valuation allowance." Reclassifications of the allowance for losses as of
December 31, 2001 were made to conform to the current period presentation. These
reclassifications are for presentation purposes only and have no impact on the
Corporation's risk exposure or financial position.
Farmer Mac's provision for losses was $2.0 million for third quarter 2002,
compared to $2.0 million for third quarter 2001. During third quarter 2002,
Farmer Mac charged off $1.5 million in losses against the allowance for losses
and recovered $0.3 million from previously charged off losses, for net
charge-offs of $1.2 million. Net charge-offs for the nine months ended September
30, 2002 were $2.8 million. The net charge-offs for third quarter and the nine
months ended September 30, 2002 included $0.4 million and $0.6 million related
to previously accrued or advanced interest on Farmer Mac I Guaranteed
Securities, compared to $0.2 million and $0.4 million for the same periods in
2001.
No allowance for losses has been made for loans underlying Farmer Mac I
Guaranteed Securities issued prior to the 1996 Act or securities issued under
the Farmer Mac II program ("Farmer Mac II Guaranteed Securities"). Farmer Mac I
Guaranteed Securities issued prior to the 1996 Act are supported by unguaranteed
first loss subordinated interests, which are expected to exceed the estimated
credit losses on those loans. Guaranteed Portions collateralizing Farmer Mac II
Guaranteed Securities are guaranteed by the United States Department of
Agriculture ("USDA") and are obligations backed by the full faith and credit of
the United States. Farmer Mac has experienced no losses on any pre-1996 Act
Farmer Mac I Guaranteed Securities or on any Farmer Mac II Guaranteed Securities
and does not expect to incur any such losses in the future.
(d) Financial Derivatives
A financial derivative is a financial instrument that has one or more
underlyings and one or more notional amounts, requires no significant initial
net investment, and has terms that require net settlement. Farmer Mac enters
into financial derivative contracts as an end-user for hedging purposes, not for
trading or speculative purposes. Farmer Mac enters into interest rate swap
contracts principally to adjust the characteristics of its short-term debt to
match more closely the cash flow and duration characteristics of its longer-term
mortgage and other assets, and also to adjust the characteristics of its
long-term debt to match more closely the cash flow and duration characteristics
of its short-term assets, thereby reducing interest rate risk. These
transactions also provide an overall lower effective cost of borrowing than
would otherwise be available in the conventional debt market.
When financial derivatives meet the specific hedge criteria of Statement of
Financial Accounting Standards No. 133, Accounting for Derivative Instruments
and Hedging Activities ("SFAS 133"), they are accounted for as either fair value
hedges or cash flow hedges. Financial derivatives that do not satisfy those
hedge criteria are not accounted for as hedges and changes in the fair values of
those financial derivatives are reported in income or expense.
Net after-tax charges against earnings under SFAS 133 during third quarter
2002 totaled $0.9 million, and the net after-tax decrease to other comprehensive
income totaled $19.0 million. Substantially all of this amount represented
changes in the fair values of forward sale contracts, interest rate swap
contracts and settled forward sale contracts using fair values as of September
30, 2002. As of September 30, 2002, Farmer Mac had approximately $45.8 million
of net after-tax unrealized losses on cash flow hedges included in accumulated
other comprehensive income. These amounts will be reclassified into earnings in
the same period or periods during which the hedged forecasted transactions
(issuance of fixed-rate funding) affect earnings or immediately when it becomes
probable that the original hedged forecasted transaction will not occur within
two months of the originally specified date. In accordance with SFAS 133, Farmer
Mac estimates that $0.7 million of the amount currently reported in accumulated
other comprehensive income will be reclassified into earnings within the next
twelve months. For the quarter ended September 30, 2002, the ineffectiveness of
designated hedges included in Farmer Mac's net income was immaterial.
SFAS 133 also required, as the change in the fair value of a hedged item, a
$0.5 million decrease in the line item "Farmer Mac guaranteed securities" on the
balance sheet for third quarter 2002. For the year ended 2001, the recorded
change in the fair value of a hedged item was a $0.3 million increase in "Farmer
Mac guaranteed securities."
(e) Earnings Per Common Share
Basic earnings per common share are based on the weighted-average number of
common shares outstanding. Diluted earnings per common share are based on the
weighted-average number of common shares outstanding adjusted to include all
potentially dilutive common stock options. The following schedule reconciles
basic and diluted earnings per common share for the three and nine months ended
September 30, 2002 and 2001:
September 30, 2002 September 30, 2001
--------------------------------- -----------------------------------
Dilutive Dilutive
Basic stock Diluted Basic stock Diluted
EPS options EPS EPS options EPS
---------------------------------- ---------------------------------
(in thousands, except per share amounts)
Three months ended:
Net income available to $ 5,030 $ 5,030 $ 4,928 $ 4,928
common stockholders
Weighted-average shares 11,629 330 11,959 11,366 524 11,890
Earnings per common share $ 0.43 $ 0.42 $ 0.43 $ 0.41
Nine months ended:
Net income available to $ 18,518 $ 18,518 $ 10,799 $ 10,799
common stockholders
Weighted-average shares 11,605 454 12,059 11,276 477 11,753
Earnings per common share $ 1.60 $ 1.54 $ 0.95 $ 0.91
Effects of:
Extraordinary gain $ 0.19 $ 0.19 - -
Cumulative effect of change in
accounting principles - - $ (0.07) $ (0.07)
(f) Preferred Stock
On May 6, 2002 the Corporation issued 700,000 shares of 6.40% Cumulative
Preferred Stock, Series A, which has a redemption price and liquidation
preference of $50.00 per share, plus accrued and unpaid dividends ("Series A
Preferred Stock"). The Series A Preferred Stock does not have a maturity date.
Beginning on June 30, 2012, Farmer Mac has the option to redeem the Series A
Preferred Stock at any time, in whole or in part, at the redemption price of
$50.00 per share, plus accrued and unpaid dividends through and including the
redemption date. Farmer Mac will pay cumulative dividends on the Series A
Preferred Stock quarterly in arrears, when and if declared by the Board of
Directors. The costs of issuing the Series A Preferred Stock were charged to
additional paid-in capital.
On August 1, 2002, Farmer Mac's Board of Directors declared a dividend of
$0.80 per share on the Series A Preferred Stock for the period from July 1, 2002
to September 30, 2002, which was paid on September 27, 2002.
(g) Reclassifications
Certain reclassifications of prior period information were made to conform
to the current period presentation. As a result of the continued increase in
loans held for investment and to further clarify the various components of
Farmer Mac's allowance for losses (previously referred to as reserve for
losses), Farmer Mac reclassified certain components of its allowance for losses
during the quarter ended September 30, 2002. Farmer Mac also reclassified its
December 31, 2001 presentation of the allowance for losses to conform to the
current period presentation. The following table summarizes the
reclassifications on the September 30, 2002 balance sheet information under
prior period classification and the current presentation to demonstrate the
effects of the reclassifications.
Presentation
in Prior Reclass- Current
Filings ifications Presentation
--------------- ------------ ----------------
(in thousands)
Allowance for loan losses $ - $ 4,228 $ 4,228
Real estate owned valuation allowance - 1,136 1,136
Reserve for losses 19,136 (5,364) 13,772
--------------- ------------ ----------------
Total $ 19,136 $ - $ 19,136
--------------- ------------ ----------------
The following table summarizes the reclassifications on the December 31,
2001 balance sheet to conform to the current presentation.
Presentation
in Prior Reclass- Current
Filings ifications Presentation
--------------- ----------- ---------------
(in thousands)
Allowance for loan losses $ - $ 1,352 $ 1,352
Reserve for losses 15,884 (1,352) 14,532
--------------- ----------- ---------------
Total $ 15,884 $ - $ 15,884
--------------- ----------- ---------------
(h) New Accounting Standards
In April 2002, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 145, Rescission of FASB
Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13 and Technical
Corrections ("SFAS 145"). Effective January 1, 2003, SFAS 145 requires gains and
losses from the extinguishment or repurchase of debt to be classified as
extraordinary items only if they meet the criteria for such classification in
Accounting Principles Board Opinion No. 30, Reporting the Results of Operations,
Reporting the Effects of Disposal of a Segment of a Business and Extraordinary,
Unusual and Infrequently Occurring Events and Transactions ("APB 30"). Until
January 1, 2003, gains and losses from the extinguishment or repurchase of debt
must be classified as extraordinary items. After January 1, 2003, any gain or
loss resulting from the extinguishment or repurchase of debt classified as an
extraordinary item in a prior period that does not meet the criteria for such
classification under APB 30 must be reclassified.
Note 2. Off-Balance Sheet Program Activities
Farmer Mac provides a secondary market for agricultural mortgage loans
eligible for the Farmer Mac I program by: purchasing eligible loans for cash
through its "cash window"; guaranteeing securities backed by eligible loans; and
committing to purchase eligible loans for securitization. To be eligible for any
Farmer Mac I secondary market transaction, a loan must meet the Corporation's
credit underwriting, appraisal and documentation standards. Farmer Mac believes
the credit risk it assumes in each of these three alternatives is the same.
Farmer Mac further considers the effects of all on- and off-balance sheet Farmer
Mac I program activities on its overall portfolio diversification.
Farmer Mac offers approved agricultural and rural residential mortgage
lenders ("Sellers") two Farmer Mac I off-balance sheet alternatives to increase
their liquidity or lending capacity while retaining the cash flow benefits of
their loans.
o The first alternative is a swap transaction, in which Farmer Mac
acquires eligible loans from Sellers in exchange for Farmer Mac I
Guaranteed Securities backed by such loans. In consideration for
Farmer Mac's assumption of the credit risk on loans underlying the
Farmer Mac I Guaranteed Securities issued in connection with a swap,
Farmer Mac receives an annual guarantee fee on the outstanding balance
of the Farmer Mac I Guaranteed Securities.
o The second alternative is an LTSPC, which is not a guarantee of loans
or securities, but is a commitment by Farmer Mac to purchase eligible
loans from Sellers on an undetermined future date. In consideration
for Farmer Mac's assumption of the credit risk on loans underlying an
LTSPC, Farmer Mac receives an annual commitment fee (included in
guarantee fees in the Consolidated Statements of Operations) on the
outstanding balance of those loans, at a level approximating what
would have been the guarantee fee in a swap.
A swap or an LTSPC may involve loans with payment, maturity and interest
rate characteristics that differ from those purchased through the cash window.
Like a swap, an LTSPC permits a Seller to nominate from its portfolio a
segregated pool of loans, subject to review by Farmer Mac for conformance with
its standards. Upon Farmer Mac's acceptance of the conforming loans, whether
under a swap or an LTSPC, the Seller effectively transfers the credit risk on
those loans to Farmer Mac, thereby reducing its credit and concentration
exposures and, consequently, its regulatory capital requirements and its loss
reserve requirements. Only the LTSPC structure, however, permits the Seller to
retain the segregated loans in its portfolio. Unlike a swap, in which Farmer Mac
I Guaranteed Securities backed by those loans are delivered to the Seller, an
LTSPC commits Farmer Mac to future purchase of loans in that pool of loans based
upon Farmer Mac's original credit review of those loans: (a) at par plus accrued
interest, if the loans become four months delinquent; (b) at a mark-to-market
price, if the loans are not delinquent and are standard cash window loan
products; (c) at a negotiated price for all loans in the pool, if they are not
four months delinquent; or (d) in exchange for Farmer Mac I Guaranteed
Securities issued to the Seller in a swap transaction.
In addition to swaps and LTSPCs, Farmer Mac's off-balance sheet activities
include the guarantee of Farmer Mac Guaranteed Securities issued through
mortgage-backed securities trusts to third-party investors in publicly offered
transactions registered under the Securities Act of 1933.
The following table presents the balance of outstanding LTSPCs and
off-balance sheet Farmer Mac Guaranteed Securities as of September 30, 2002 and
December 31, 2001:
Outstanding Balance of LTSPCs and
Off-Balance Sheet Farmer Mac Guaranteed Securities
- -----------------------------------------------------------------------------
September 30, December 31,
2002 2001
----------------- ---------------
(in thousands)
Farmer Mac I:
Post-1996 Act obligations:
Farmer Mac I Guaranteed Securities $ 290,444 $ 366,749
LTSPCs 2,407,469 1,884,260
----------------- ---------------
Total Post-1996 Act obligations 2,697,913 2,251,009
Pre-1996 Act Farmer Mac I 128 461
Guaranteed Securities ----------------- ---------------
Total Farmer Mac I 2,698,041 2,251,470
Farmer Mac II Guaranteed Securities 68,869 78,409
----------------- ---------------
Total Farmer Mac I and II $ 2,766,910 $2,329,879
----------------- ---------------
As of September 30, 2002:
o the weighted-average remaining maturity for all loans held and
loans underlying on- and off-balance sheet Farmer Mac Guaranteed
Securities and LTSPCs was 13.7 years;
o the weighted-average remaining maturity for all loans underlying
off-balance sheet Farmer Mac Guaranteed Securities and LTSPCs was
15.0 years;
o the weighted-average remaining maturity of all loans underlying
off-balance sheet Farmer Mac Guaranteed Securities and LTSPCs was
12.5 years and 15.3 years, respectively;
o the weighted-average remaining maturity for all loans held and
loans underlying on-balance sheet Farmer Mac Guaranteed
Securities was 12.1 years; and
o the range of remaining maturities for all loans held and loans
underlying on- and off-balance sheet Farmer Mac I and II
activities, including LTSPCs, was 1 month to 38 years (the amount
with remaining maturities greater than 30 years had an aggregate
outstanding balance of $2.6 million, consisting entirely of USDA
guaranteed portions of adjustable rate loans).
Farmer Mac's policy for recognizing revenue from guarantee fees on Farmer
Mac Guaranteed Securities and commitment fees on LTSPCs is to recognize them on
an accrual basis over the life of the underlying loans. As such, no guarantee
fees or commitment fees are unearned at the end of any reporting period. If
Farmer Mac purchases a delinquent loan underlying a Farmer Mac Guaranteed
Security or an LTSPC, Farmer Mac stops accruing the guarantee or commitment fee
upon the loan purchase. If the loan becomes current and is repurchased by the
Seller under the terms of the LTSPC, Farmer Mac resumes accrual of the fee.
Note 3. Comprehensive Income
Comprehensive income (loss) is comprised of net income plus other changes
in stockholders' equity not resulting from investments by or distributions to
stockholders. The following table sets forth comprehensive income (loss) for the
three and nine months ended September 30, 2002 and 2001. The changes in
unrealized gains on securities available-for-sale are net of the related
deferred tax expense of $13.2 million and $19.6 million for the three and nine
months ended September 30, 2002, respectively, and $15.1 million and $2.7
million for the three and nine months ended September 30, 2001. The changes in
the fair value of the financial derivatives classified as cash flow hedges for
the three and nine months ended September 30, 2002 are net of deferred tax
benefit of $10.2 million and $16.3 million, respectively, and $7.8 million and
$7.9 million for the three and nine months ended September 30, 2001.
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------- -------------------------
2002 2001 2002 2001
------------ ------------ ----------- ------------
(in thousands)
Net income $ 5,590 $ 4,928 $ 19,414 $ 10,799
Change in unrealized gain on securities
available-for-sale, net of taxes 24,495 27,445 36,311 4,966
Cumulative effect of change in accounting principles - - - (8,632)
Change in the fair value of financial derivatives
classified as cash flow hedges, net of taxes and
reclassification adjustments (19,020) (14,148) (30,299) (14,429)
------------ ------------ ----------- ------------
Comprehensive income (loss) $ 11,065 $ 18,225 $ 25,426 $ (7,296)
------------ ------------ ----------- ------------
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Special Note Regarding Forward-Looking Statements
Certain statements made in this Form 10-Q are "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995
pertaining to management's current expectations as to Farmer Mac's future
financial results, business prospects and business developments. Forward-looking
statements include, without limitation, any statement that may predict,
forecast, indicate or imply future results, performance or achievements, and
typically are accompanied by, and identified with, such terms as "anticipates,"
"believes," "expects," "intends," "should" and similar phrases. The following
management's discussion and analysis includes forward-looking statements
addressing Farmer Mac's prospects for earnings and growth in loan purchase,
guarantee, LTSPC and securitization volume; trends in net interest income and
provision for losses; changes in capital position; and other business and
financial matters.
Management's expectations for Farmer Mac's future necessarily involve a
number of assumptions, estimates and the evaluation of risks and uncertainties.
Various factors could cause Farmer Mac's actual results or events to differ
materially from the expectations as expressed or implied by the forward-looking
statements, including uncertainties regarding:
o the rate and direction of development of the secondary market for
agricultural mortgage loans;
o the possible establishment of additional statutory or regulatory
restrictions on Farmer Mac;
o substantial changes in interest rates, agricultural land values,
commodity prices, export demand for U.S. agricultural products and the
general economy;
o protracted adverse weather, market or other conditions affecting
particular geographic regions or particular commodities related to
agricultural mortgage loans backing Farmer Mac I Guaranteed
Securities;
o legislative or regulatory developments or interpretations of Farmer
Mac's statutory charter that could adversely affect Farmer Mac or the
ability of certain lenders to participate in its programs or the terms
of any such participation;
o Farmer Mac's continuing access to the debt markets at favorable rates
and terms;
o the possible effect of the risk-based capital requirement which could,
under certain circumstances, be in excess of the statutory minimum
capital level;
o the outcome of the pending analysis of Farmer Mac by the General
Accounting Office;
o the rate of growth in agricultural mortgage indebtedness;
o the size of the agricultural mortgage market;
o borrower preferences for fixed-rate agricultural mortgage
indebtedness;
o the willingness of lenders to sell agricultural mortgage loans into
the Farmer Mac secondary market;
o the willingness of investors to invest in agricultural mortgage-backed
securities;
o competition in the origination or purchase of agricultural mortgage
loans and the sale of agricultural mortgage-backed and debt
securities;
o the effects on the agricultural economy of the government payments
that are provided for in the Farm Bill signed into law May 13, 2002;
or
o changes in Farmer Mac's status as a government-sponsored enterprise.
The foregoing factors are not exhaustive. Other sections of this report may
include additional factors that could adversely affect Farmer Mac's business and
its financial performance. Furthermore, new risk factors emerge from time to
time and it is not possible for management to predict all such risk factors, nor
assess the effects of such factors on Farmer Mac's business or the extent to
which any factor, or combination of factors, may cause actual results to differ
materially from the expectations expressed or implied by the forward-looking
statements. In light of these potential risks and uncertainties, no undue
reliance should be placed on any forward-looking statements expressed in this
report. Furthermore, Farmer Mac undertakes no obligation to release publicly the
results of revisions to any forward-looking statements that may be made to
reflect any future events or circumstances except as otherwise mandated by the
Securities and Exchange Commission.
Critical Accounting Policies and Estimates
The preparation of our financial results of operations and financial
position require us to make estimates and assumptions that affect the amounts
reported in these condensed consolidated financial statements and related notes
for the periods presented, and actual results could differ from our estimates.
The critical accounting policy that is both important to the portrayal of our
financial condition and requires complex, subjective judgments is the accounting
policy for Farmer Mac's allowance for losses (previously referred to as reserve
for losses). The allowance for losses is presented in three components on the
consolidated balance sheet:
o an "Allowance for loan losses" on loans held for investment;
o a valuation allowance on real estate owned, which is included in the
balance sheet under "Real estate owned, net of valuation allowance";
and
o an allowance for losses on loans underlying Post-1996 Act Farmer Mac I
Guaranteed Securities and LTSPCs, which is included in the balance
sheet under "Reserve for losses."
During the quarter ended September 30, 2002, Farmer Mac reclassified certain
components of its allowance for losses to further clarify the presentation of
the allowance for losses. See Note 1(c) and (g) to the condensed consolidated
financial statements for additional information.
The purpose of the allowance for losses is to provide for estimated losses
that are probable to have occurred as of the balance sheet date, and not to
predict or account for future potential losses. The determination of the
allowance for losses requires management to make significant estimates based on
information available as of the balance sheet date, including the amounts and
timing of losses and current market and economic conditions. These estimates are
subject to change in future reporting periods if such conditions and information
change. For example, a continued decline in the national or agricultural
economies could result in an increase in delinquencies or foreclosures, which
may require additional allowances for losses in future periods.
Farmer Mac maintains an allowance for losses to cover estimated probable
losses on its loans held for investment, real estate owned and loans underlying
Post-1996 Act Farmer Mac I Guaranteed Securities and LTSPCs. In estimating
probable losses, management considers factors such as economic conditions,
geographic and agricultural commodity concentrations, the credit profile of the
portfolio, delinquency trends and historical charge-off and recovery activity
and evaluates the results of its proprietary Loan Pool Simulation and Guarantee
Model. The allowance is increased through periodic provisions for losses charged
to expense and reduced by charge-offs for actual losses, net of recoveries.
No allowance for losses has been made for loans underlying Farmer Mac I
Guaranteed Securities issued prior to the 1996 Act or Farmer Mac II Guaranteed
Securities. Farmer Mac I Guaranteed Securities issued prior to the 1996 Act are
supported by unguaranteed first loss subordinated interests, which are expected
to exceed the estimated credit losses on those loans. Guaranteed Portions
collateralizing Farmer Mac II Guaranteed Securities are guaranteed by the USDA
and are obligations backed by the full faith and credit of the United States.
Farmer Mac has experienced no losses on any pre-1996 Act Farmer Mac I Guaranteed
Securities or on any Farmer Mac II Guaranteed Securities and does not expect to
incur any such losses in the future.
Further information regarding the allowance for losses is included in "-
Risk Management - Credit Risk."
Results of Operations
Overview. Net income available to common stockholders for third quarter
2002, was $5.0 million or $0.42 per diluted common share compared to $4.9
million or $0.41 per diluted common share for third quarter 2001.
Farmer Mac's revenue growth continued in third quarter 2002, reflecting the
effects of outstanding guarantee volume as of September 30, 2002 that was more
than $1.2 billion higher than at the close of third quarter 2001 and increased
net interest income due to a higher average net interest yield on
interest-earning assets. During third quarter 2002, Farmer Mac: o added $140.2
million of Farmer Mac I eligible loans under LTSPCs; o purchased $58.5 million
of newly originated Farmer Mac I eligible loans; and o purchased $37.4 million
of Farmer Mac II Guaranteed Portions of loans guaranteed by USDA.
USDA is currently forecasting net cash income on farms for 2002 to be $50.8
billion, which includes government payments of $17.0 billion. In 2001, $20.7
billion in government payments were made to the agricultural sector and net cash
income on farms was $59.7 billion. According to USDA, much of the net decrease
in forecasted net cash income on farms for 2002 compared to 2001 results from
the record livestock receipts during 2001, which are anticipated to return to
more normal levels in 2002. USDA currently expects farm real estate values to
rise during 2002 by about one percent. Regionally, farm real estate values may
vary with differing rates of increase, or even decrease, depending on
commodities grown and regional economic factors.
Set forth below is a more detailed discussion of Farmer Mac's results of
operations.
Net Interest Income. Net interest income was $10.0 million for third
quarter 2002 and $26.3 million year-to-date, compared to $7.9 million and $19.7
million for the same periods in 2001. The net interest yield, which does not
include guarantee fees for loans purchased prior to April 1, 2001 (the effective
date of Statement of Financial Accounting Standards No. 140, Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities
("SFAS 140")), was 95 basis points for year-to-date 2002, compared to 82 basis
points for year-to-date 2001. The net interest yields for year-to-date 2002 and
year-to-date 2001 included the benefits of yield maintenance payments of 10
basis points and 9 basis points, respectively. The income realized from yield
maintenance payments is, in effect, the accelerated present value of an expected
future interest income stream, which, in turn, leads to slightly reduced net
interest income in future reporting periods. Because the timing and size of
these payments varies greatly, variations should not be considered indicative of
positive or negative trends to gauge future financial results. The effect of the
adoption of SFAS 140 was a reclassification of approximately $1.3 million (4
basis points) of guarantee fee income as interest income for the year-to-date
2002. Adjusted for the effects of yield maintenance and excluding the effects of
SFAS 140, the net interest yields for year-to-date 2002 and year-to-date 2001
were 81 basis points and 73 basis points, respectively.
The following table provides information regarding the average balances and
rates of interest-earning assets and funding for the nine months ended September
30, 2002 and 2001. The balance of non-accruing loans is included in the average
balance of interest earning loans presented, though no related income is
included in the income figures presented. The decreases in the average rates for
cash and cash equivalents reflect their short-term nature. The decreases in the
average rates for investments and loans and Farmer Mac Guaranteed Securities
reflect the relatively large proportion of adjustable rates in those asset
categories (74 percent of investments and 59 percent of loans and Farmer Mac
Guaranteed Securities). The decrease in the average rate for discount notes also
reflects their short-term nature. The decreases in all of these rates track the
general decrease in market rates between the two periods.
Nine Months Ended September 30,
--------------------------------------------------------------------------------------
2002 2001
----------------------------------------- ---------------------------------------
Average Income/ Average Average Income/ Average
Balance Expense Rate Balance Expense Rate
------------ ----------- ---------- ------------ ----------- ----------
(dollars in thousands)
Interest-earning assets:
Cash and cash equivalents $ 524,593 $ 7,677 1.95% $ 541,659 $ 18,724 4.61%
Investments 923,986 23,440 3.38% 893,184 35,116 5.24%
Loans & Farmer Mac Guaranteed Securities 2,238,503 95,279 5.68% 1,770,840 88,120 6.63%
-------------- -------------- ------------- ------------- ------------ ---------
Total interest earning assets 3,687,082 126,396 4.57% 3,205,683 141,960 5.90%
-------------- -------------- ------------- ------------
Funding:
Discount notes 2,462,176 48,309 2.62% 2,174,237 79,034 4.85%
Medium-term notes 1,094,387 51,790 6.31% 905,744 43,184 6.36%
-------------- -------------- ------------- ------------- ------------ ---------
Total interest-bearing liabilities 3,556,563 100,099 3.75% 3,079,981 122,218 5.29%
Net non-interest-bearing funding 130,519 - - 125,702 - -
-------------- -------------- ------------- ------------- ------------ ---------
Total funding $ 3,687,082 100,099 3.62% $3,205,683 122,218 5.08%
-------------- -------------- ------------- ------------- ------------ ---------
Net interest income/yield $ 26,297 0.95% $ 19,742 0.82%
-------------- ------------- ------------ ---------
The following table sets forth information regarding the changes in the
components of Farmer Mac's net interest income for the periods indicated. For
each category, information is provided on changes attributable to changes in
volume (change in volume multiplied by old rate) and changes in rate (change in
rate multiplied by old volume). Combined rate/volume variances, the third
element of the calculation, are allocated based on their relative size. The
decreases due to rate reflect the short-term or adjustable-rate nature of the
assets or liabilities and the general decreases in market rates described above.
Nine Months Ended September 30, 2002
Compared to Nine Months Ended
September 30, 2001
-------------------------------------------
Increase/(Decrease) Due to
-------------------------------------------
Rate Volume Total
-------------- -------------- -------------
(in thousands)
Income from interest-earning assets
Cash and cash equivalents $ (10,475) $ (572) $ (11,047)
Investments (12,113) 437 (11,676)
Loans & Farmer Mac Guaranteed Securities (8,447) 15,606 7,159
-------------- -------------- -------------
Total (31,035) 15,471 (15,564)
Expense from interest-bearing liabilities (34,813) 12,694 (22,119)
-------------- -------------- -------------
Change in net interest income $ 3,778 $ 2,777 $ 6,555
-------------- -------------- -------------
Other Income. Other income, which is comprised of guarantee fee income
(which includes commitment fee income on LTSPCs) and miscellaneous income,
totaled $5.3 million for third quarter 2002 compared to $4.3 million for the
same period in 2001. Guarantee fee income, the largest component of other
income, was $4.9 million for third quarter 2002, compared to $4.2 million for
third quarter 2001. The relative increase in guarantee fee income reflects an
increase in the average balance of outstanding guarantees and LTSPCs. Excluding
the effects of the adoption of SFAS 140 that reclassified $0.6 million of
guarantee fee income as interest income, guarantee fees for third quarter 2002
would have been $5.5 million. The difference or "spread" between the cost of
Farmer Mac's debt funding for loans and Post-1996 Act Farmer Mac I Guaranteed
Securities held on its books and the yield on those assets is composed of one
component that compensates for credit risk, which would continue to be received
by Farmer Mac as a guarantee fee if the assets were sold, and another component
that compensates for interest rate risk, which would not typically continue to
be received by Farmer Mac (except to the extent attributable to any retained
interest-only strip) if the asset were sold. Miscellaneous income was $0.5
million for third quarter 2002, compared to $0.1 million for third quarter 2001.
Expenses. During third quarter 2002, operating expenses totaled $3.9
million, compared to $2.5 million for third quarter 2001. The increase in
operating expenses in third quarter 2002 primarily reflects higher legal,
consulting and regulatory fees. In addition to the estimated additional
regulatory costs incurred during third quarter 2002, the Farm Credit
Administration ("FCA"), the federal agency with direct regulatory authority over
Farmer Mac, has advised Farmer Mac that its regulatory assessment for October 1,
2002 through September 30, 2003 will be an estimated $1.4 million, an increase
from the estimated $0.7 million for October 1, 2001 through September 30, 2002.
Farmer Mac expects that legal and consulting fees will continue at the current
increased level of approximately $300,000 to $400,000 per quarter above the
prior level until the effects of certain inaccurate and misleading publicity
about Farmer Mac have dissipated, which we believe will not occur until sometime
after the General Accounting Office ("GAO") completes and releases its report of
its analysis of Farmer Mac (see "Other Matters" below for further information on
the GAO's analysis of Farmer Mac). At this time, we are not certain when the GAO
will complete or release its report. Farmer Mac expects that, when such effects
have dissipated, legal and consulting fees will continue at a level of
approximately $100,000 to $150,000 per quarter above the prior level to assure
compliance with the new statutory and regulatory requirements relating to
corporate governance.
Farmer Mac's provision for losses was $2.0 million for third quarter 2002
and $6.1 million for the nine months ending September 30, 2002, compared to $2.0
million and $4.7 million for the same periods in 2001. (See "- Risk Management,
- - Credit Risk" for additional information.) As of September 30, 2002, Farmer
Mac's total allowance for losses totaled $19.1 million, or 0.42 percent of
outstanding loans held or loans underlying Post-1996 Act Farmer Mac I Guaranteed
Securities and LTSPCS, compared to $15.9 million (0.45 percent) as of December
31, 2001 and $14.7 million (0.44 percent) as of September 30, 2001.
The provision for income taxes totaled $2.3 million for third quarter 2002
compared to $2.5 million for the same period in 2001. Farmer Mac's effective tax
rate for third quarter 2002 was 29.5 percent, compared to 33.3 percent for third
quarter 2001. The reduction in the effective tax rate reflects the effects of
certain tax-advantaged investment securities.
Extraordinary Gain. During second quarter 2002, Farmer Mac recognized a net
after-tax extraordinary gain of $0.6 million resulting from the repurchase of
$18.9 million of outstanding Farmer Mac debt that had a maturity date of October
14, 2011 and an interest rate of 5.4 percent. During first quarter 2002, Farmer
Mac recognized a net after-tax extraordinary gain of $1.6 million resulting from
the repurchase of $43.8 million of outstanding Farmer Mac debt that had a
maturity date of October 14, 2011 and an interest rate of 5.4 percent. These
debt securities were replaced with new fixed-rate funding to the same maturity
dates at more attractive interest rates, which preserves Farmer Mac's
asset-liability match and reduces future interest expense.
Effects of SFAS 133. SFAS 133 requires the change in the fair values of
certain financial derivatives to be reflected in the Corporation's net income or
other comprehensive income. Management believes that reporting results excluding
the cumulative effects of the change in accounting principles recognized on
January 1, 2001 under SFAS 133, and its ongoing effects during the reporting
periods, provides meaningful operating measures of Farmer Mac's financial
performance. Such information is presented to supplement, not replace, net
income, net income available to common stockholders, revenues, cash from
operations or any other operating or liquidity performance measures prescribed
by accounting principles generally accepted in the United States.
For third quarter 2002, the net effects of SFAS 133 on net income available
to common stockholders was a reduction of approximately $0.9 million, or $0.07
per diluted common share, compared to $0.1 million, or $0.01 per diluted share,
for third quarter 2001. The following table presents the effects of SFAS 133 on
net income available to common stockholders and earnings per diluted common
share.
Reconciliation of the effects of SFAS 133
Three Months Ended September 30, Nine Months Ended September 30,
2002 2001 2002 2001
------------------- ------------------- ---------------- ----------------
(in thousands, except per share amounts)
Net income available to common stockholders
excluding extraordinary items $ 5,030 $ 4,928 $ 16,315 $ 10,799
Less the effects of SFAS 133:
Cumulative effect of change
in accounting principles, net of tax - - - (726)
Gains (Losses) on financial derivatives
and trading assets, net of tax (943) (190) (947) (1,043)
Benefit from non-amortization of
premium payments, net of tax 92 101 294 303
Net income available to common stockholders
excluding extraordinary items
and the effects of SFAS 133 ------------------- ------------------- ---------------- ----------------
$ 5,881 $ 5,017 $ 16,968 $ 12,265
------------------- ------------------- ---------------- ----------------
Earnings per diluted common share
excluding extraordinary items $ 0.42 $ 0.41 $ 1.35 $ 0.91
Less:
Net effects of SFAS 133 (0.07) (0.01) (0.06) (0.10)
Earnings per diluted common share
excluding extraordinary items
and the effects of SFAS 133 ------------------- ------------------- ---------------- ----------------
$ 0.49 $ 0.42 $ 1.41 $ 1.01
------------------- ------------------- ---------------- ----------------
Business Volume. Farmer Mac purchases eligible loans or USDA guaranteed
portions of loans, securitizes those loans and guarantees timely payments of
principal and interest on securities backed by those loans. Farmer Mac may
retain those securities in its portfolio or sell them to third parties through
the capital markets. Farmer Mac also enters into LTSPCs for eligible loans and
exchanges of Farmer Mac Guaranteed Securities for eligible loans or USDA
guaranteed portions of loans ("swaps").
o Farmer Mac's purchases of eligible loans and guarantees of securities
backed by those loans are part of the Farmer Mac I program (whether
the securities are retained by Farmer Mac or sold);
o Farmer Mac's purchases of USDA guaranteed portions of loans and
guarantees of securities backed by those guaranteed portions are part
of the Farmer Mac II program (whether the securities are retained by
Farmer Mac or sold);
o Farmer Mac's commitments through LTSPCs, which may include either
newly originated or seasoned eligible loans, are part of the Farmer
Mac I program; and
o Farmer Mac enters into swaps under both the Farmer Mac I program and
the Farmer Mac II program, with swaps involving USDA guaranteed
portions of loans included in the Farmer Mac II program and swaps
involving all other eligible loans included in the Farmer Mac I
program.
The following table sets forth the amount of all Farmer Mac I and Farmer
Mac II loan purchase and guarantee activities during the periods indicated.
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------------- ------------------------------
2002 2001 2002 2001
-------------- ------------- -------------- --------------
(in thousands)
Loan purchase and guarantee activity:
Farmer Mac I
Loans $ 58,475 $ 69,561 $ 685,040 $ 203,600
LTSPCs 140,157 246,472 759,882 795,675
Farmer Mac II Guaranteed Securities 37,374 42,396 134,297 147,115
-------------- ------------- -------------- --------------
Total purchases, guarantees
and commitments $ 236,006 $ 358,429 $ 1,579,219 $ 1,146,390
-------------- ------------- -------------- --------------
Farmer Mac I Guaranteed Securities issuances:
Retained $ - $ - $ - $ 33,932
Sold - 15,117 29,342 65,930
-------------- ------------- -------------- --------------
Total $ - $ 15,117 $ 29,342 $ 99,862
-------------- ------------- -------------- --------------
The purchase price of newly originated and seasoned eligible loans and
portfolios purchased by Farmer Mac through the cash window (none of which were
delinquent at the time of purchase) is the fair value based on current market
interest rates and Farmer Mac's target net yield, which includes an amount to
compensate Farmer Mac for credit risk that is similar to the guarantee or
commitment fee it receives for accepting credit risk on loans underlying
Post-1996 Act Farmer Mac I Guaranteed Securities and LTSPCs. As part of
fulfilling its guarantee obligations for Farmer Mac I Guaranteed Securities and
assumption of credit risk on commitments to purchase eligible loans underlying
LTSPCs, Farmer Mac purchases defaulted loans (all of which were at least 90 days
delinquent at the time of purchase) out of those securities and pools. The
purchase price for defaulted loans purchased out of Farmer Mac I Guaranteed
Securities is the current outstanding principal balance of the loan plus accrued
and unpaid interest. The purchase price for defaulted loans purchased under an
LTSPC is the current outstanding principal balance of the loan, with accrued and
unpaid interest on the defaulted loans payable out of any future loan payments
or liquidation proceeds received. The following table presents Farmer Mac's loan
purchases of newly originated and current seasoned loans and defaulted loans
purchased underlying Farmer Mac I Guaranteed Securities and LTSPCs.
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------------- -------------------------------
2002 2001 2002 2001
-------------- ------------ -------------- --------------
(in thousands)
Farmer Mac I newly originated
and current seasoned loan purchases $ 58,475 $ 69,561 $ 685,040 $ 203,600
Defaulted loans purchased underlying
Farmer Mac I Guaranteed Securities
and LTSPCs $ 11,474 $ 8,347 $ 40,781 $ 8,535
The weighted-average age of the Farmer Mac I newly originated and current
seasoned loans purchased during third quarter 2002 and the nine months ended
September 30, 2002 was one month and 3.5 years, respectively. Of the combined
total of Farmer Mac I newly originated and current seasoned loans purchased
during third quarter 2002, 72 percent had amortization periods longer than the
maturity date, resulting in balloon payments at maturity, with a
weighted-average remaining term to maturity of 14.7 years. Of the combined total
of Farmer Mac I newly originated and current seasoned loans purchased during the
nine months ended September 30, 2002, 76 percent had amortization periods longer
than the maturity date, resulting in balloon payments at maturity, with a
weighted-average remaining term to maturity of 10.7 years.
The weighted-average age of the Farmer Mac I newly originated and current
seasoned loans purchased during third quarter 2001 and the nine months ended
September 30, 2001 was one month and one month, respectively. Of the combined
total of Farmer Mac I newly originated and current seasoned loans purchased
during third quarter 2001, 70 percent had amortization periods longer than the
maturity date, resulting in balloon payments at maturity, with a
weighted-average remaining term to maturity of 14 years. Of the combined total
of Farmer Mac I newly originated and current seasoned loans purchased during the
nine months ended September 30, 2001, 74 percent had amortization periods longer
than the maturity date, resulting in balloon payments at maturity, with a
weighted-average remaining term to maturity of 13.9 years.
The weighted-average age of delinquent loans purchased out of securitized
pools and LTSPCs during third quarter 2002 and the nine months ended September
30, 2002 was 3.6 years and 4.0 years, respectively, compared to 4.4 years and
4.6 years, respectively, during the third quarter 2001 and the nine months ended
September 30, 2001.
See "Overview" above for a discussion regarding Farmer Mac I program
activities, including loans purchased and held as loans and those underlying
Farmer Mac I Guaranteed Securities or an LTSPC; and USDA guaranteed portions
purchased and retained under the Farmer Mac II program.
Indicators of future loan purchase and guarantee volume (but not of future
LTSPC, swap or cash window portfolio purchase volume) in the immediately
succeeding reporting period include outstanding commitments to purchase loans
(other than under an LTSPC) and the total balance of loans submitted for
approval or approved but not yet purchased. Many purchase commitments entered
into by Farmer Mac are mandatory delivery commitments. If a Seller obtains a
mandatory commitment and is unable to deliver the loans as required thereunder,
Farmer Mac requires the Seller to pay a fee to modify, extend or cancel the
commitment. As of September 30, 2002, outstanding commitments to purchase Farmer
Mac I loans totaled $12.0 million, compared to $19.0 million as of September 30,
2001. Of the total Farmer Mac I commitments outstanding as of September 30, 2002
and 2001, $9.7 million and $15.8 million, respectively, were mandatory
commitments. Loans submitted for approval or approved but not yet committed to
purchase totaled $69.0 million as of September 30, 2002, compared to $137.1
million as of September 30, 2001. Not all of these loans are purchased, as some
are denied for credit reasons or withdrawn by the Seller.
While significant progress has been made in developing the secondary market
for agricultural mortgages, Farmer Mac continues to face the challenges of
establishing a market where none previously existed. Acceptance of Farmer Mac's
programs is increasing among lenders, reflecting the competitive rates, terms
and products offered and the advantages Farmer Mac believes its programs
provide. As of September 30, 2002, Farmer Mac's outstanding program volume was
$5.2 billion, which represented approximately 11% of management's estimate of a
$46 billion market of eligible agricultural mortgage loans. For Farmer Mac to
succeed in realizing its business development and profitability objectives over
the longer term, the use of Farmer Mac's programs and products by agricultural
mortgage lenders, whether traditional or non-traditional, must continue to
expand. The drop in new business volume during the third quarter 2002 was a
result of the normal seasonal slowdown in new agricultural mortgage loans,
anticipated in the third quarter of each year, compounded by the dampening
effect of inaccurate and misleading media coverage on business during the spring
and summer months. For the fourth quarter, Farmer Mac's new business prospects
appear to have looked past that media coverage and management is seeing a
resumption of normal interest in its business.
As of September 30, 2002, there were 213 approved loan Sellers in the
Farmer Mac I program (an increase of 5 Sellers over the prior quarter), ranging
from single-office to multi-branch institutions, spanning community banks, Farm
Credit System associations, mortgage companies, large multi-state Farm Credit
System banks, commercial banks and insurance companies. To be considered for
approval as a Farmer Mac I Seller, a financial institution must meet criteria
established by Farmer Mac, including:
o own a requisite amount of Farmer Mac Class A or Class B voting common
stock according to a schedule prescribed for the size and type of
institution;
o have the ability and experience to make or purchase and sell
agricultural mortgage loans of the type that will qualify for purchase
by Farmer Mac and service such mortgage loans in accordance with the
Farmer Mac requirements either through its own staff or through
contractors and originators;
o maintain a minimum adjusted net worth of $1.0 million;
o maintain a fidelity bond and errors and omissions insurance coverage
(or acceptable substitute insurance coverage) in a prescribed amount
according to the size of the institution; and
o enter into a Seller/Servicer agreement to comply with the terms of the
Farmer Mac Seller/Servicer Guide, including representations and
warranties regarding the origination of eligible loans.
Any lender authorized by the USDA to obtain a USDA guarantee on a loan may
be a Seller in the Farmer Mac II program. As of September 30, 2002, there were
141 active Sellers in the Farmer Mac II program (an increase of 10 Sellers over
the prior quarter), consisting mostly of community and regional banks.
Balance Sheet Review
During the nine months ended September 30, 2002, total assets increased by
$615.8 million, with increases in program assets (Farmer Mac Guaranteed
Securities and loans) of $622.9 million (exclusive of real estate owned)
attributable to a $489.3 million portfolio of loans purchased in April 2002 and
other Farmer Mac I and Farmer Mac II purchases. For further information
regarding on- and off-balance sheet program activities, see "Supplemental
Information" below. Consistent with the increase in total assets during the
period, total liabilities increased by $554.7 million from December 31, 2001 to
September 30, 2002.
During the nine months ended September 30, 2002, accumulated other
comprehensive income increased $6.0 million, which is the net effect of a $36.3
million increase in unrealized gains on securities available for sale and a
$30.3 million decrease in the fair value of financial derivatives classified as
cash flow hedges. Accumulated other comprehensive income is not a component of
Farmer Mac's core capital or regulatory capital.
Average return on common equity was 12.9 percent for third quarter 2002,
compared to 16.4 percent for third quarter 2001. The effects of SFAS 133 and
SFAS 115 reduced the average return on common equity by 3.4 percent for third
quarter 2002 and by 1.3 percent for third quarter 2001.
As of September 30, 2002, Farmer Mac's core capital totaled $181.1 million,
compared to $126.0 million as of December 31, 2001. As of September 30, 2002,
the actual core capital balance exceeded Farmer Mac's statutory minimum capital
requirement of $129.7 million by $51.4 million.
The FCA issued its final risk-based capital regulation for Farmer Mac on
April 12, 2001 and the Corporation was required to meet the risk-based capital
standards beginning on May 23, 2002. The risk-based capital stress test
promulgated by the FCA ("RBC test") is intended to determine the amount of
regulatory capital (core capital plus allowance for losses) Farmer Mac would
need to maintain positive capital during a ten-year period in which:
o annual losses occur at a rate of default and severity "reasonably
related" to the rates of the highest sequential two-years in a limited
U.S. geographic area; and
o there is an initial interest rate shock at the lesser of 600 basis
points or 50 percent of the ten-year U.S. Treasury rate, and remain at
such level for the remainder of the period.
The RBC test then adds an additional 30 percent to the resulting capital
requirement for management and operational risk.
Farmer Mac was in compliance with the risk-based capital standards under
the regulation as of September 30, 2002 and is confident that it will continue
to be in compliance. As of September 30, 2002, the RBC test generated a
regulatory capital requirement of $59.4 million. Farmer Mac's regulatory capital
of $200.2 million exceeded that amount by approximately $140.8 million. The
decrease in the risk-based capital requirement from June 30, 2002 ($80.1
million) to September 30, 2002 ($59.4 million) was a result of changes in
interest rates and the seasoning of Farmer Mac's portfolio. The Corporation is
required to hold capital at the higher of the statutory minimum capital
requirement or the amount required by the RBC test.
Risk Management
Interest Rate Risk. Farmer Mac is subject to interest rate risk on all
assets held for investment because of possible timing differences in the cash
flows of the assets and related liabilities. This risk is primarily related to
loans held and Farmer Mac Guaranteed Securities because of the ability of
borrowers to prepay their mortgages before the scheduled maturities, thereby
increasing the risk of asset and liability cash flow mismatches. Cash flow
mismatches in a changing rate environment can reduce the value of earnings of
the Corporation if assets repay sooner than expected and the resulting cash
flows must be reinvested in lower-yielding investments when Farmer Mac's funding
costs cannot be correspondingly reduced, or if assets repay more slowly than
expected and the associated debt must be replaced by higher-cost debt.
Yield maintenance provisions and other prepayment penalties contained in
many agricultural mortgage loans reduce, but do not eliminate, this risk. Those
provisions require borrowers to make an additional payment when they prepay
their loans, and so also serve as a disincentive to prepayment. When reinvested
with the prepaid principal, yield maintenance payments generate substantially
the same cash flows that would have been generated had the loan not prepaid. As
of September 30, 2002, 60 percent of the outstanding balance of all loans held
and loans underlying on-balance sheet Farmer Mac I Guaranteed Securities (91
percent of those with fixed rates) was covered by yield maintenance provisions
and other prepayment penalties. As of September 30, 2002, 52 percent of the
total outstanding balance of retained Farmer Mac I loans and Guaranteed
Securities had yield maintenance provisions and 8 percent had another form of
prepayment protection. Of the Farmer Mac I loans purchased in third quarter 2002
and the nine months ended September 30, 2002, 5 percent and 60 percent,
respectively, had yield maintenance or another form of prepayment protection.
None of the guaranteed portions underlying Farmer Mac II Guaranteed Securities
had yield maintenance provisions.
The goal of interest-rate-risk management at Farmer Mac is to create a
portfolio that generates stable earnings and value across a variety of interest
rate environments. Farmer Mac's primary strategy for managing interest rate risk
is to fund asset purchases with liabilities that have similar durations and
therefore interest rate sensitivities. To achieve this match, Farmer Mac issues
discount notes and both callable and non-callable medium-term notes across a
spectrum of maturities and purchases financial derivatives to alter the duration
and interest rate sensitivities of its liabilities. By using a blend of
liabilities that includes callable debt, the interest rate sensitivities of the
liabilities tend to increase or decrease as interest rates change in a manner
similar to changes in the interest rate sensitivities of the assets.
Farmer Mac's cash and cash equivalents mature within three months and are
match-funded with discount notes having similar maturities. Investment
securities consist predominately of floating rate securities that re-price
within one year. These floating rate investments are funded using a series of
Discount Note issuances. Each successive Discount Note issuance matures on the
corresponding re-pricing date of the related investment.
Farmer Mac is also subject to interest rate risk on loans, including loans
that Farmer Mac has committed to acquire but has not yet purchased. When Farmer
Mac commits to purchase a loan, it is exposed to interest rate risk between the
time it commits to purchase the loan and the time it either: (a) sells Farmer
Mac I Guaranteed Securities backed by the loan, or (b) issues debt to retain the
loan in its portfolio (although issuing debt to fund the loan as an investment
does not fully mitigate interest rate risk due to the possible timing
differences in the cash flows of the assets and related liabilities, as
discussed above). Farmer Mac manages the interest rate risk related to such
loans, and the Farmer Mac I Guaranteed Securities to be issued and guaranteed or
debt to be issued to fund the loans as retained investments, through the use of
forward sale contracts on the debt and mortgage-backed securities of other
government-sponsored enterprises and futures contracts involving U.S. Treasury
securities. Farmer Mac uses government-sponsored enterprise forward sale
contracts to reduce Farmer Mac's interest rate exposure to changes in both
Treasury rates and spreads on Farmer Mac I Guaranteed Securities.
Farmer Mac regularly assesses its interest rate sensitivity and rebalances
its portfolio of assets and liabilities as necessary through:
o the purchase of mortgage assets in the ordinary course of business;
o the refunding of existing liabilities; or
o the use of derivatives to alter the characteristics of existing assets
or liabilities.
The most comprehensive measure of Farmer Mac's interest rate risk is the
sensitivity of its Market Value of Equity ("MVE") to parallel yield curve
shocks. MVE represents the present value of all future cash flows from on- and
off-balance sheet assets, liabilities and financial derivatives discounted at
current interest rates. The following schedule summarizes the results of Farmer
Mac's MVE sensitivity analysis as of September 30, 2002 and December 31, 2001 to
an immediate and instantaneous parallel shift in the yield curve.
Percentage Change in MVE from Base Case
---------------------------------------
Interest Rate September 30, December 31,
Scenario 2002 2001
--------------- ---------------- ----------------
+ 300 bp 21.3% -1.3%
+ 200 bp 14.8% -0.1%
+ 100 bp 7.9% 0.6%
- 100 bp -7.5% -2.4%
- 200 bp N/A* -6.4%
- 300 bp N/A* -16.2%
* As of September 30, 2002, a -200 bp parallel
shift of the U.S. Treasury yield curve produced
negative interest rates for maturities of 2 years
and shorter.
Net Interest Income ("NII") sensitivity, a shorter-term measure of interest
rate risk, demonstrates a similar lack of exposure to interest rate movements.
As of September 30, 2002, a uniform or "parallel" increase of 100 basis points
would increase NII by 5.5 percent, while a parallel decrease of 100 basis points
would decrease NII by 3.9 percent. Farmer Mac also measures the sensitivity of
both MVE and NII to a variety of non-parallel interest rate shocks, including
flattening and steepening yield curve scenarios. Both MVE and NII continue to be
less sensitive to non-parallel shocks than to the parallel shocks. Finally,
Farmer Mac's duration gap, another measure of interest rate risk, was minus 4.4
months as of September 30, 2002. The sensitivity of Farmer Mac's MVE and NII to
both parallel and non-parallel interest rate shocks, and the duration gap,
demonstrate the effectiveness of the Corporation's approach to managing its
interest rate risk exposures.
During the first three quarters of 2002, interest rates have fallen to
historic lows and interest rate volatilities have increased dramatically. For
example, the five-year Treasury yield declined from 4.3% on December 31, 2001 to
2.6% on September 30, 2002. It is expected that Farmer Mac's interest-rate-risk
profile would also shift in such an interest rate environment. As interest rates
have declined dramatically and expected prepayments increased, the duration of
Farmer Mac's assets that do not have prepayment protection has shortened
somewhat faster than that of its liabilities. Therefore, this rapid decrease in
interest rates has widened the duration gap of Farmer Mac's assets and
liabilities somewhat and has given both MVE and NII positive sensitivity to
increasing interest rates and negative sensitivity to continued decreases in
interest rates. While Farmer Mac's interest rate sensitivity increased during
the third quarter, it remained relatively stable and at relatively low levels,
despite the volatile interest rate environment.
The economic effects of financial derivatives, including interest rate
swaps, are included in the MVE, NII and duration gap analyses. Farmer Mac
generally enters into interest rate swap contracts in which it pays fixed rates
of interest to, and receives floating rates of interest from, counterparties;
and also enters into interest rate swap contracts in which it receives fixed
rates of interest from, and pays floating rates of interest to, counterparties.
These swaps are used to reduce interest rate risk as follows:
o "floating-to-fixed interest rate swaps" adjust the characteristics of
short-term debt to match more closely the cash flow and duration
characteristics of longer-term reset and fixed-rate mortgage and other
assets; and
o "fixed-to-floating interest rate swaps" adjust the characteristics of
its long-term debt to match more closely the cash flow and duration of
its short-term assets.
These swaps also provide an overall lower effective cost of borrowing than would
otherwise be available in the conventional debt market. As of September 30,
2002, Farmer Mac had $741.5 million combined notional amount of interest rate
swaps, of which $656.5 million were floating-to-fixed interest rate swaps and
$85.0 million were fixed-to-floating interest rate swaps, with terms ranging
from 2 to 15 years.
Farmer Mac uses derivative instruments as an end-user for hedging purposes,
not for trading or speculative purposes. When financial derivatives meet the
specific hedge criteria under SFAS 133, they are accounted for as either fair
value hedges or cash flow hedges. Financial derivatives that do not satisfy
those hedge criteria are not accounted for as hedges and changes in the fair
value of those financial derivatives are reported in income or expense. All of
Farmer Mac's derivatives transactions are conducted under standard
collateralized agreements that limit Farmer Mac's potential credit exposure to
any counterparty. As of September 30, 2002, Farmer Mac had no uncollateralized
net exposure to any counterparty.
Credit Risk. Farmer Mac I credit underwriting standards require that the
loan-to-value ratio for any loan (other than a part-time farm loan or a loan on
an agricultural facility with a related integrator contract) not exceed 70
percent. In the case of newly originated loans that are not part-time farm
loans, the underwriting standards require, among other things, that borrowers
also meet the following standard credit ratios: (1) a pro forma (after closing
the new loan) debt-to-asset ratio of 50 percent or less; (2) a pro forma cash
flow debt service coverage ratio on the mortgaged property of not less than 1:1;
(3) a pro forma total debt service coverage ratio, including farm and non-farm
income, of not less than 1.25:1; and (4) a pro forma ratio of current assets to
current liabilities of not less than 1:1.
Farmer Mac's underwriting standards provide for, on a loan-by-loan basis,
acceptance of loans that do not conform to one or more of the standard
underwriting ratios -- other than loan-to-value -- when: (1) those loans exceed
one or more of the underwriting standards to a degree that compensates for
noncompliance with one or more other standards ("compensating strengths"); and
(2) those loans are made to producers of particular agricultural commodities in
a segment of agriculture in which such compensating strengths are typical of the
financial condition of sound borrowers. Farmer Mac's use of compensating
strengths is not intended to provide a basis for waiving or lessening the
requirement that loans be of consistently high quality. As of September 30,
2002, a total of $1.4 billion (31 percent) of the outstanding balance of loans
held and loans underlying Post-1996 Act Farmer Mac I Guaranteed Securities and
LTSPCs were approved based upon compensating strengths ($40.1 million of which
had original loan to value ratios of greater than 70 percent). During third
quarter 2002, $48.7 million (25 percent) of the loans purchased or added under
LTSPCs were approved based upon compensating strengths ($515 thousand of which
had original loan to value ratios of greater than 70 percent). Loans approved on
the basis of compensating strengths show a lower rate of default than that of
loans that conformed to all of the standard credit ratios.
In the case of a seasoned loan (a loan that has been outstanding for five
or more years), Farmer Mac considers sustained performance to be a reliable
alternative indicator of a borrower's ability to pay the loan according to its
terms. A seasoned loan generally will be deemed an eligible loan if it has been
outstanding for at least five years and has a loan-to-value ratio (based on an
updated estimate of value) of 60 percent or less, and there have been no
payments more than 30 days past due during the previous three years and no
material restructurings or modifications for credit reasons during the previous
five years. Loans that have been outstanding for fewer than five years must
comply with the underwriting standards for newly originated loans when the loan
was originated. The due diligence Farmer Mac performs prior to purchase,
guarantee or commitment of such loans depends upon the size, age and collateral
for the loans:
o Loans originated more than five years before the purchase, guarantee
or commitment are reviewed based on the payment record on the loan,
the commodity produced on the underlying property and the original
appraised value.
o Loans originated within one year are subject to the same collateral
underwriting criteria as newly-originated loans purchased through the
cash window.
Because Farmer Mac effectively assumes the credit risk on all loans under an
LTSPC, Farmer Mac's commodity and geographic diversification disclosures reflect
all loans under LTSPCs and any such loans that have been purchased out of LTSPC
pools.
Farmer Mac maintains an allowance for losses (previously referred to as
reserve for losses) to cover estimated probable losses on loans held for
investment, real estate owned and loans underlying Post-1996 Act Farmer Mac I
Guaranteed Securities and LTSPCs in accordance with SFAS No. 5, Accounting for
Contingencies, ("SFAS 5") and SFAS No. 114, Accounting by Creditors for
Impairment of a Loan ("SFAS 114"). The methodology for determining the allowance
for losses is the same for loans held for investment and loans underlying
Post-1996 Act Farmer Mac I Guaranteed Securities and LTSPCs because Farmer Mac
believes the ultimate credit risk is the same, i.e., the credit risk of
underlying agricultural mortgage loans that all meet the same credit
underwriting and appraisal standards. For accepting the credit risk on loans
underlying Post-1996 Act Farmer Mac I Guaranteed Securities and LTSPCs, Farmer
Mac receives guarantee fees and commitment fees, respectively. For loans held,
Farmer Mac receives interest income that includes a component that correlates to
its guarantee fee, which Farmer Mac views as compensation for accepting credit
risk.
No allowance for losses has been made for loans underlying Farmer Mac I
Guaranteed Securities issued prior to the 1996 Act or Farmer Mac II Guaranteed
Securities. Farmer Mac I Guaranteed Securities issued prior to the 1996 Act are
supported by unguaranteed first loss subordinated interests, which are expected
to exceed the estimated credit losses on those loans. Guaranteed Portions
collateralizing Farmer Mac II Guaranteed Securities are guaranteed by the USDA
and are obligations backed by the full faith and credit of the United States.
Farmer Mac has experienced no losses on any pre-1996 Act Farmer Mac I Guaranteed
Securities or on any Farmer Mac II Guaranteed Securities and does not expect to
incur any such losses in the future.
The allowance for losses is presented in three components on the
consolidated balance sheet: o an "Allowance for loan losses" on loans held for
investment; o a valuation allowance on real estate owned, which is included in
the balance sheet under "Real estate owned, net of valuation allowance"; and o
an allowance for losses on loans underlying Post-1996 Act Farmer Mac I
Guaranteed Securities and LTSPCs, which is included in the balance sheet under
"Reserve for losses."
During the quarter ended September 30, 2002, Farmer Mac reclassified certain
components of its allowance for losses to further clarify its presentation. See
Note 1(c) and (g) to the condensed consolidated financial statements for
additional information.
Farmer Mac's allowance for losses consists of both general and specific
reserves. Farmer Mac's general reserves represent management's best estimate of
probable losses inherent in Farmer Mac's portfolio of performing loans,
including loans held for investment and loans underlying Post-1996 Act Farmer
Mac I Guaranteed Securities and LTSPCs, at the balance sheet date in accordance
with SFAS 5. In estimating probable losses to determine the level of general
reserves, management considers factors, such as economic conditions, geographic
and agricultural commodity concentrations, the credit profile of the portfolio,
delinquency trends and historical charge-off and recovery activity, and
evaluates the results of its proprietary Loan Pool Simulation and Guarantee
Model. That econometric risk-simulation model runs various configurations of
loan types, terms, economic conditions, and borrower eligibility criteria to
generate a distribution of possible loss exposures over time for Farmer Mac's
portfolio. The model uses historical agricultural real estate industry loan
origination and servicing data that reflect varied general economic conditions
and stress levels in the agricultural sector. The model contains features that
allow variation for changes in loan portfolio characteristics specific to Farmer
Mac's portfolio and credit underwriting standards. The model considers the
effects of the ageing of the loan portfolio along the expected loss curves
associated with individual cohort origination years, including the segments that
are entering into or coming out of their peak default years. Farmer Mac analyzes
various runs of the model to evaluate its allowance for losses and back tests
results to validate the model by using prior period data to project losses
expected in a current period, and comparing those projections to actual losses
incurred during the current period.
Farmer Mac's specific reserves represent management's best estimate of the
impairment inherent in its portfolio of non-performing loans as of the balance
sheet date in accordance with SFAS 114. The portfolio of non-performing loans
consists of all loans held and loans underlying Post-1996 Act Farmer Mac I
Guaranteed Securities and LTSPCs that were 90 days or more past due, in
foreclosure, restructured, in bankruptcy (including loans performing under
either their original loan terms or a court-approved bankruptcy plan) and real
estate owned. Farmer Mac measures impairment based on the fair value of the
underlying collateral for each non-performing loan. Farmer Mac conducts regular
loan-by-loan analyses of its non-performing loans to assess the value of the
collateral supporting each individual loan relative to the total amount due,
including principal, interest and advances. In the event that the updated
appraisal or management's estimate of discounted collateral value does not
support the total amount due, Farmer Mac specifically allocates reserves to the
loan for the difference between the recorded investment and its fair value, less
management's estimate of the costs to liquidate the collateral.
The allowance for losses is increased through periodic provisions for
losses charged to expense and reduced by charge-offs for actual loan losses, net
of recoveries that are recognized if liquidation proceeds exceed previous
estimates. Charge-offs represent losses on the outstanding principal balance,
any interest payments previously accrued or advanced and expected costs of
liquidation. Additionally, specific reserves for losses on loans underlying
Post-1996 Act Farmer Mac I Guaranteed Securities or LTSPCs are reclassified to
the allowance for loan losses when loans for which specific reserves have been
allocated are reported as loans on the balance sheet after purchase (a) out of
Farmer Mac I Guaranteed Securities or (b) in fulfillment of the commitment under
an LTSPC. The following schedules summarize the changes in the components of the
allowance for losses for the three-month and nine-month periods ended September
30, 2002 and 2001:
Three Months Ended Three Months Ended
September 30, 2002 September 30, 2001
------------------------------------------------------ -----------------------------------------------------
Allowance REO Total Allowance REO Total
for Loan Valuation Reserve Allowance for Loan Valuation Reserve Allowance
Losses Allowance for Losses for Losses Losses Allowance for Losses for Losses
--------------------------- -------------------------- ------------- ------------ ------------ -------------
(in thousands) (in thousands)
Beginning balance $ 4,672 $ - $ 13,655 $ 18,327 $ 288 $ - $ 12,892 $ 13,180
Provision for losses - - 2,037 2,037 - - 1,962 1,962
Net allocation of
allowance 708 1,297 (2,005) - 39 (141) 102 -
Net charge-offs (1,152) (161) 85 (1,228) 211 141 (750) (398)
--------------------------- -------------------------- ------------- ------------ ------------ -------------
Ending balance $ 4,228 $ 1,136 $ 13,772 $ 19,136 $ 538 $ - $ 14,206 $ 14,744
--------------------------- -------------------------- ------------- ------------ ------------ -------------
Nine Months Ended Nine Months Ended
September 30, 2002 September 30, 2001
------------------------------------------------------ -----------------------------------------------------
Allowance REO Total Allowance REO Total
for Loan Valuation Reserve Allowance for Loan Valuation Reserve Allowance
Losses Allowance for Losses for Losses Losses Allowance for Losses for Losses
--------------------------- -------------------------- ------------- ------------ ------------ -------------
(in thousands) (in thousands)
Beginning balance $ 1,352 $ - $ 14,532 $ 15,884 $ 420 $ - $ 10,903 $ 11,323
Provision for losses - - 6,075 6,075 - - 4,739 4,739
Net allocation of
allowance 5,344 1,307 (6,651) - (219) (57) 276 -
Net charge-offs (2,468) (171) (184) (2,823) 337 57 (1,712) (1,318)
--------------------------- -------------------------- ------------- ------------ ------------ -------------
Ending balance $ 4,228 $ 1,136 $ 13,772 $ 19,136 $ 538 $ - $ 14,206 $ 14,744
--------------------------- -------------------------- ------------- ------------ ------------ -------------
Farmer Mac's provision for losses was $2.0 million for third quarter 2002,
compared to $2.0 million for third quarter 2001. During third quarter 2002,
Farmer Mac charged off $1.5 million in losses against the allowance for losses
and recovered $0.3 million from previously charged off losses, for net
charge-offs of $1.2 million. Net charge-offs for the nine months ended September
30, 2002 were $2.8 million. The net charge-offs for third quarter and
year-to-date 2002 included $0.4 million and $0.6 million related to previously
accrued or advanced interest on Farmer Mac I Guaranteed Securities, compared to
$0.2 million and $0.4 million for the same periods in 2001.
As of September 30, 2002, Farmer Mac's allowance for losses totaled $19.1
million, or 42 basis points of the outstanding loans held held for investment
and loans underlying Post-1996 Act Farmer Mac I Guaranteed Securities and
LTSPCs, compared to $15.9 million (46 basis points) as of December 31, 2001 and
$14.7 million (44 basis points) as of September 30, 2001.
As of September 30, 2002, loans held and loans underlying Post-1996 Act
Farmer Mac I Guaranteed Securities and LTSPCs that were 90 days or more past
due, in foreclosure, restructured, in bankruptcy (including loans performing
under either their original loan terms or a court-approved bankruptcy plan) and
real estate owned ("Post-1996 Act delinquencies") totaled $91.3 million and
represented 2.03 percent of the principal balance of all loans held and loans
underlying Post-1996 Act Farmer Mac I Guaranteed Securities and LTSPCs, compared
to $65.2 million (1.45 percent) as of June 30, 2002, $58.3 million (1.70
percent) as of December 31, 2001, and $71.3 million (2.16 percent) as of
September 30, 2001. Loans that have been restructured were insignificant and are
included within the reported delinquency disclosures. From quarter to quarter,
Farmer Mac anticipates fluctuations in the delinquencies, both in dollars and as
a percentage of the outstanding portfolio, with higher levels likely at the end
of the first and third quarters of each year due to the semi-annual payment
characteristics of most Farmer Mac I loans.
Post-1996 Act Delinquencies
- ------------------------------------------------------------------------------
------------------ ------------------ -------------
As of: Outstanding Loans,
Guarantees and
Delinquencies Commitments Percentage
------------------ ------------------ --------------
(dollars in thousands)
September 30, 2002 $ 91,286 $ 4,506,330 2.03%
June 30, 2002 65,196 4,489,735 1.45%
March 31, 2002 87,097 3,754,171 2.32%
December 31, 2001 58,279 3,428,176 1.70%
September 30, 2001 71,686 3,318,796 2.16%
June 30, 2001 53,139 3,089,460 1.72%
March 31, 2001 67,134 2,562,374 2.62%
As expected, the increasing proportions of Farmer Mac's portfolio of loans,
guarantees and commitments entering their peak delinquency and default years
(years three through five after origination) caused the dollars of delinquent
loans and period-over-period charge-offs to increase year-over-year. As of
September 30, 2002, approximately $1.8 billion (39 percent) of Farmer Mac's
outstanding loans held and loans underlying Post-1996 Act Farmer Mac I
Guaranteed Securities and LTSPCs were in their peak delinquency and default
years compared to $1.1 billion (32 percent) of such loans as of September 30,
2001. Farmer Mac's Loan Pool Simulation and Guarantee Model takes that portfolio
distribution and maturation into consideration. Accordingly, those trends did
not cause management to alter the model's projection for the quarterly provision
for losses compared to prior quarters.
Farmer Mac charges off losses against the allowance for losses when
management believes a loss has occurred, but no later than the time at which the
Corporation takes possession of the property. As of September 30, 2002, Farmer
Mac's loan-by-loan analysis of its $91.3 million of delinquent loans and their
updated appraisals or management's estimates of discounted values indicated that
$12.1 million had insufficient collateral to cover the loan balance, accrued
interest and expenses. Farmer Mac has specifically allocated $2.2 million of
allowances to those under-collateralized loans. Farmer Mac's loan-by-loan
analyses indicated that the remaining $79.2 million of delinquent loans were
adequately collateralized, based on updated appraisals or management's estimates
of discounted collateral values, and that the allocation of specific allowances
to those loans was not necessary. As of September 30, 2002, after the allocation
of specific allowances to under-collateralized loans, Farmer Mac had additional
non-specific or general allowances of $16.9 million, bringing the total
allowance for losses to $19.1 million. The following table summarizes the
Corporation's delinquencies and allowance for losses:
Farmer Mac Post-1996 Act Delinquencies and Allowance for Losses
- ---------------------------------------------------------------------------------------------------------------
As of September 30, 2002 As of December 31, 2001
------------------------------------ -----------------------------------
(in thousands)
Specific Specific
Allowance Allowance
Delinquencies for Losses Delinquencies for Losses
------------------- --------------- ------------------- -------------
Loans 90 days or more past due $ 49,310 $ 180 $ 24,701 $ 482
Loans in foreclosure 10,014 326 16,701 1,940
Loans in bankruptcy * 26,144 587 12,505 1,028
Real Estate Owned 5,818 1,136 2,457 -
------------------- --------------- ------------------- --------------
$ 91,286 $ 2,229 $ 58,279 $ 3,450
------------------- --------------- ------------------- --------------
Allowance Allowance
for Losses for Losses
--------------- --------------
Specific allowance for losses $ 2,229 $ 3,450
General allowance for losses 16,907 12,434
--------------- --------------
Total allowance for losses $ 19,136 $ 15,884
--------------- --------------
* Includes loans that are performing under either their original loan terms or a court-approved bankruptcy plan.
Based on Farmer Mac's loan-by-loan analyses, loan collection experience and
continuing provisions for the allowance for losses, Farmer Mac believes that
ongoing losses will be covered adequately by the allowance for losses.
As of September 30, 2002, the weighted-average original loan-to-value ratio
for all Post-1996 Act loans was 49 percent, and the weighted-average original
loan-to-value ratio for all Post-1996 Act delinquent loans was 56 percent.
Original loan-to-value ratios are one of many factors Farmer Mac considers in
evaluating loss severity. Other factors include, but are not limited to, other
underwriting standards, commodity and farming forecasts and regional economic
and agricultural conditions. The following table summarizes the Post-1996 Act
delinquencies by original loan-to-value ratio (calculated by dividing the loan
principal balance at the time of guarantee, purchase or commitment by the
appraised value at the date of loan origination or, when available, updated
appraised value at the time of guarantee, purchase or commitment):
As of September 30, 2002
- ------------------------------------------------------------
(dollars in thousands)
- ------------------------------------------------------------
Post - 1996 Act
Original LTV Ratio Delinquencies Percentage
- -------------------------- ---------------- ---------------
0.00% to 40.00% $ 8,485 9%
40.01% to 50.00% 16,161 18%
50.01% to 60.00% 27,853 31%
60.01% to 70.00% 36,890 40%
70.01% to 80.00% 1,790 2%
80.01% + 107 0%
---------------- ---------------
Total $ 91,286 100%
---------------- ---------------
The following table presents outstanding loans held and loans underlying
Farmer Mac I Guaranteed Securities and LTSPCs, Post-1996 Act delinquencies and
specific allowances for losses as of September 30, 2002 by year of origination,
geographic region and commodity.
Farmer Mac Post-1996 Act Delinquencies and Specific Allowance for Losses
- -------------------------------------------------------------------------------------------------------
Distribution of
Outstanding Outstanding
Loans, Loans, Post-1996 Act Specific
Guarantees Guarantees Delinquencies Delinquency Allowance
and LTSPCs and LTSPCs (1) Rate for Losses
---------------- ------------- --------------- ------------- ------------
(dollars in thousands)
By year of origination:
Before 1994 16% $ 699,653 $ 3,871 0.55% $ -
1994 4% 168,906 532 0.31% -
1995 3% 152,651 1,704 1.12% -
1996 8% 359,691 15,527 4.32% 298
1997 9% 387,700 20,366 5.25% -
1998 15% 686,476 18,821 2.74% 705
1999 17% 743,989 13,426 1.80% 1,145
2000 9% 422,464 9,853 2.33% 81
2001 13% 582,509 7,186 1.23% -
2002 7% 302,291 - 0.00% -
----------------- --------------- -------------- ------------ ------------
Total 100% $ 4,506,330 $ 91,286 2.03% $ 2,229
----------------- --------------- -------------- ------------ ------------
By geographic region (2):
Northwest 26% $ 1,178,187 $ 47,981 4.07% $ 1,710
Southwest 46% 2,055,716 25,493 1.24% 436
Mid-North 11% 517,251 5,923 1.15% -
Mid-South 5% 207,505 7,174 3.46% 34
Northeast 5% 234,593 1,130 0.48% 9
Southeast 7% 313,078 3,585 1.15% 40
----------------- --------------- -------------- ------------ ------------
Total 100% $ 4,506,330 $ 91,286 2.03% $ 2,229
----------------- --------------- -------------- ------------ ------------
By commodity:
Crops 45% $ 2,022,606 $ 39,182 1.94% $ 190
Permanent plantings 29% 1,301,013 34,513 2.65% 1,918
Livestock 20% 924,104 15,822 1.71% 8
Part-time farm 5% 218,069 1,769 0.81% 113
Other 1% 40,538 - 0.00% -
----------------- --------------- -------------- ------------ ------------
Total 100% $ 4,506,330 $ 91,286 2.03% $ 2,229
----------------- --------------- -------------- ------------ ------------
(1) Includes loans 90 days or more past due, in foreclosure, restructured, in
bankruptcy (including loans performing under either their original loan
terms or a court-approved bankruptcy plan), and real estate owned.
(2) Geographic regions - Northwest (ID, MT, ND, NE, OR, SD, WA, WY); Southwest
(AZ, CA, CO, HI, NM, NV, UT); Mid-North (IA, IL, IN, MI, MN, MO, WI);
Mid-South (KS, OK, TX); Northeast (CT, DE, KY, MA, MD, ME, NC, NH, NJ, NY,
OH, PA, RI, TN, VA, VT, WV); and Southeast (AL, AR, FL, GA, LA, MS, SC).
The following table presents Farmer Mac's current delinquencies, cumulative
charge-offs and current specific allowances relative to the cumulative original
purchased, guaranteed or committed principal balance of all loans held and loans
underlying Post-1996 Act Farmer Mac I Guaranteed Securities and LTSPCs. This
information is presented by cohort year (origination date of the loan),
geographic region and commodity. The purpose of this information is to present
Farmer Mac's delinquencies and cumulative charge-offs relative to the
Corporation's original purchases, guarantees and commitments--which include both
newly originated and seasoned loans--and to present information regarding loans
held and loans underlying Post-1996 Act Farmer Mac I Guaranteed Securities and
LTSPCs that have generated losses or are collateral deficient relative to
original guarantees and commitments.
Farmer Mac Post-1996 Act Charge-offs and Specific Allowance for Losses
Relative to all Cumulative Original Loans, Guarantees and Commitments
- ----------------------------------------------------------------------------------------------------------------------
Cumulative
Original Combined
Cumulative Loans, Current Charge-off
Net Guarantees Charge-off Specific and Specific
Charge-offs and LTSPCs Rate Allowances Allowance Rate
----------------- --------------- -------------- ------------ --------------
(dollars in thousands)
By year of origination:
Before 1994 $ - $ 1,699,287 0.00% $ - 0.00%
1994 - 298,811 0.00% - 0.00%
1995 200 257,882 0.08% - 0.08%
1996 800 535,674 0.15% 298 0.20%
1997 2,355 563,601 0.42% - 0.42%
1998 2,078 905,748 0.23% 705 0.31%
1999 - 923,902 0.00% 1,145 0.12%
2000 200 529,316 0.04% 81 0.05%
2001 - 644,124 0.00% - 0.00%
2002 - 312,976 0.00% - 0.00%
----------------- --------------- -------------- ------------ -------------
Total $ 5,633 $ 6,671,321 0.08% $ 2,229 0.12%
----------------- --------------- -------------- ------------ -------------
By geographic region (1):
Northwest $ 2,968 $ 1,877,471 0.16% $ 1,710 0.25%
Southwest 2,665 2,866,216 0.09% 436 0.11%
Mid-North - 743,730 0.00% - 0.00%
Mid-South - 285,689 0.00% 34 0.01%
Northeast - 370,862 0.00% 9 0.00%
Southeast - 527,353 0.00% 40 0.01%
----------------- --------------- -------------- ------------ ------------
Total $ 5,633 $ 6,671,321 0.08% $ 2,229 0.12%
----------------- --------------- -------------- ------------ ------------
By commodity:
Crops $ 1,296 $ 2,956,634 0.04% $ 190 0.05%
Permanent plantings 3,690 1,860,209 0.20% 1,918 0.30%
Livestock 647 1,452,039 0.04% 8 0.05%
Part-time farm - 307,957 0.00% 113 0.04%
Other - 94,492 0.00% - 0.00%
----------------- --------------- -------------- ------------ ------------
Total $ 5,633 $ 6,671,331 0.08% $ 2,229 0.12%
----------------- --------------- -------------- ------------ ------------
(1) Geographic regions - Northwest (ID, MT, ND, NE, OR, SD, WA, WY); Southwest
(AZ, CA, CO, HI, NM, NV, UT); Mid-North (IA, IL, IN, MI, MN, MO, WI);
Mid-South (KS, OK, TX); Northeast (CT, DE, KY, MA, MD, ME, NC, NH, NJ, NY,
OH, PA, RI, TN, VA, VT, WV); and Southeast (AL, AR, FL, GA, LA, MS, SC).
An analysis of Farmer Mac's actual losses and identified specific
collateral deficiencies within the portfolio (by origination year) indicates
that Farmer Mac has experienced peak loss years as loans have aged between their
third and fifth years subsequent to origination, regardless of the year the
loans were added to the Farmer Mac's portfolio. As a consequence of the
combination of principal amortization and collateral value appreciation, there
are few loans in the portfolio originated prior to 1997 with known collateral
deficiencies. While Farmer Mac expects that loans which have aged past their
fifth year may become delinquent and possibly default, Farmer Mac does not
anticipate significant losses as a consequence of collateral shortfalls on any
such loans.
Analysis of the portfolio by its geographic distribution indicates that
losses and collateral deficiencies have been and remain most prevalent in the
loans concentrated in the Northwest. This is consistent with the corresponding
commodity analysis which indicates that Farmer Mac has experienced higher loss
and collateral deficiency rates in its loans classified as permanent plantings
(many of which are located in the Northwest). Most of the loans classified as
permanent plantings do not receive significant government support and are
therefore more susceptible to adverse commodity-specific economic trends.
Further, as adverse economic conditions persist for a particular commodity that
is a long-term improvement on the land, such as permanent plantings, the
prospective sale value of the land is likely to decrease and the related loans
may become under-collateralized. Farmer Mac anticipates that one or more
particular commodity groups will be under economic pressure at any one time and
actively manages its portfolio to mitigate concentration risks while preserving
the ability to meet the financing needs of all commodity groups.
Farmer Mac's methodologies for pricing its guarantee fee, managing credit
risks and providing adequate allowances for losses consider all of the foregoing
factors and information.
Liquidity and Capital Resources
Farmer Mac has sufficient liquidity and capital resources to support its
operations for the next twelve months.
Debt Issuances. Farmer Mac funds its program operations primarily by
issuing debt obligations of various maturities in the public capital markets.
Farmer Mac's debt obligations consist of discount notes and medium-term notes
issued to obtain funds principally to cover the costs of purchasing and holding
loans and securities (including Farmer Mac Guaranteed Securities). Farmer Mac
also issues discount notes and medium-term notes to obtain funds for
investments, transaction costs and guarantee payments. The Corporation's
discount notes and medium-term notes are obligations of Farmer Mac only, are not
rated by any rating agency and the interest and principal thereon are not
guaranteed by and do not constitute debts or obligations of the Farm Credit
Administration or the United States or any agency or instrumentality of the
United States other than Farmer Mac. Farmer Mac is an institution of the Farm
Credit System, but is not liable for any debt or obligation of any other
institution of the Farm Credit System. Likewise, neither the Farm Credit System
nor any other individual institution of the Farm Credit System is liable for any
debt or obligation of Farmer Mac. Income on Farmer Mac's discount notes and
medium-term notes has no tax exemption under federal law from federal, state or
local taxation.
Effective June 6, 2002, Farmer Mac's Board of Directors has authorized the
issuance of up to $5.0 billion of discount notes and medium-term notes (of which
$3.7 billion was outstanding as of September 30, 2002), subject to periodic
review of the adequacy of that level relative to Farmer Mac's borrowing
requirements. Farmer Mac invests the proceeds of such issuances in loans, Farmer
Mac Guaranteed Securities and non-program investment assets in accordance with
guidelines established by its Board of Directors.
Liquidity. The funding and liquidity needs of Farmer Mac's business
programs are driven by the purchase and retention of eligible loans and Farmer
Mac Guaranteed Securities, the maturities of Farmer Mac's discount notes and
medium-term notes and payment of principal and interest on Farmer Mac Guaranteed
Securities. Farmer Mac's primary sources of funds to meet these needs are
issuances of new discount notes and medium-term notes, principal and interest
payments and ongoing guarantee and commitment fees received on Farmer Mac
Guaranteed Securities and LTSPCs and the Corporation's net operating cash flows.
Farmer Mac projects its expected cash flows from loans and securities,
other earnings and the sale of assets and matches those with its obligations to
retire debt and pay other liabilities as they come due. Farmer Mac issues
discount notes and medium-term notes to meet the needs associated with its
business operations, including liquidity, and also to increase its presence in
the capital markets in order to enhance the liquidity and pricing efficiency of
its discount notes and medium-term notes and Farmer Mac Guaranteed Securities
transactions and so improve the mortgage rates available to farmers, ranchers
and rural homeowners. Though Farmer Mac's mortgage purchases do not currently
necessitate daily debt issuance, Farmer Mac continued its strategy of using its
non-program investment portfolio (referred to as Farmer Mac's liquidity
portfolio) to facilitate increasing its ongoing presence in the capital markets
during third quarter 2002. To meet investor demand for daily presence in the
capital markets, Farmer Mac issues discount notes in maturities ranging from one
day to approximately 90 days and invests the proceeds not needed for program
asset purchases in highly rated securities. Investments are predominantly
short-term money market securities with maturities closely matched to the
discount note maturities and floating-rate securities with reset terms of less
than one year and closely matched to the maturity of the discount notes. The
positive spread earned from these investments enhances the net interest income
Farmer Mac earns, thereby improving the net yields at which Farmer Mac can
purchase mortgages from lenders who may pass that benefit to farmers, ranchers
and rural homeowners through the Farmer Mac programs. Subject to dollar
limitations, the current Board guidelines authorize Farmer Mac to invest in U.S.
Treasury, agency and instrumentality obligations and other highly-rated money
market and medium-term securities, including:
o money market funds;
o repurchase agreements;
o commercial paper;
o certificates of deposit;
o federal funds and bankers acceptances;
o guaranteed investment contracts;
o medium-term debt obligations of corporate and municipal issuers; and
o asset-backed securities.
As of September 30, 2002, Farmer Mac was in compliance with the dollar
limitations and investment authorizations set forth in its investment
guidelines.
As a result of Farmer Mac's regular issuance of discount notes and
medium-term notes and its status as a federally chartered instrumentality of the
United States, Farmer Mac has been able to access the capital markets at
favorable rates. Throughout the recent period of inaccurate and misleading
publicity about the Corporation, Farmer Mac has maintained regular daily access
to the discount note market at rates comparable to the issuance and trading
levels of other government-sponsored enterprise discount notes. Farmer Mac's
continued ability to access the discount note market at such favorable rates
could be affected by continued inaccurate and misleading publicity about Farmer
Mac or unusual trading in its securities. Farmer Mac believes such factors
caused spread levels in secondary market trading of its outstanding medium-term
notes to widen during second quarter 2002. Although those trading spreads
appeared to improve and Farmer Mac returned to issuing MTNs on a limited basis
during third quarter 2002 and achieved favorable issuance spreads, the foregoing
factors could affect future medium-term note issuance spreads adversely and
cause Farmer Mac to continue to emphasize floating-to-fixed interest rate swaps,
combined with discount note issuances, as a source of fixed-rate funding. While
the swap market provides favorable fixed rates, swap transactions expose Farmer
Mac to basis risk. If the spreads on the Farmer Mac discount notes were to
increase relative to LIBOR, Farmer Mac would be exposed to a commensurate
reduction on its net interest yield on the notional amount of its
floating-to-fixed interest rate swaps and other LIBOR-based floating rate
assets. Farmer Mac compensates for this risk by pricing the required net yield
on program asset purchases to reflect the higher cost of medium-term notes
issuance versus the savings achieved in the interest rate swap market.
Farmer Mac maintains an investment portfolio of cash and cash equivalents
(including commercial paper and other short-term money market instruments) and
investment securities consisting mostly of floating rate securities that reprice
within one year, which can be drawn upon for liquidity needs. As of September
30, 2002, Farmer Mac's cash and cash equivalents and investment securities
totaled $493.2 million and $942.8 million, respectively, a combined 36 percent
of total assets. For third quarter 2002, exclusive of daily overnight discount
note issuances that were invested overnight, the average discount note issuance
term and re-funding frequency was approximately 69 days.
Other Matters
On June 26, 2002, the Senate Committee on Agriculture, Nutrition, and
Forestry requested that the GAO conduct an independent analysis of a number of
issues relating to Farmer Mac. The Committee made this request of the GAO in
response to recent misleading reports and speculation about Farmer Mac produced
by certain stock traders, known as "short sellers," who are seeking to depress
the price of Farmer Mac securities for their own gain, and by corresponding
articles by a reporter for a major newspaper. Farmer Mac made it clear that
those reports were flawed and unfounded and welcomed this independent analysis
by the GAO as an opportunity to confirm that Farmer Mac's mission continues to
be met in a financially sound manner.
Farmer Mac is confident that the GAO's analysis will confirm its integrity
and financial stability, as presented in its public financial disclosures.
Farmer Mac expects the GAO report will show that it is appropriately and
effectively fulfilling its mission to increase the availability of borrower
credit at stable rates, lender liquidity and capital markets funding in the
agricultural sector of the U.S. economy for the benefit of farmers, ranchers and
rural homeowners, lenders participating in Farmer Mac programs and the investing
public.
The GAO report was requested by the Committee specifically to address
Farmer Mac's financial stability; corporate governance; compensation policies;
investment practices; the non-voting status of Farmer Mac's Class C Common
Stock; and the fulfillment of Farmer Mac's Congressionally-established mission.
Farmer Mac looks forward to the GAO report as an opportunity to remove the
confusion that has been cast over it, so that it may continue its Congressional
mission in a safe and sound manner.
Supplemental Information
The following tables present quarterly and annual information regarding
loan purchases, guarantees and commitments and outstanding guarantees and
commitments.
Farmer Mac Purchases, Guarantees and Commitments
- --------------------------------------------------------------------------------------------
Farmer Mac I
-----------------------------
Loans &
Guaranteed
Securities LTSPC Farmer Mac II Total
--------------- ------------- ------------------ ----------
(in thousands)
For the quarter ended:
September 30, 2002 $ 58,475 $ 140,157 $ 37,374 $ 236,006
June 30, 2002 551,690 280,904 57,769 890,363
March 31, 2002 74,875 338,821 39,154 452,850
December 31, 2001 62,953 237,292 51,056 351,301
September 30, 2001 69,561 246,472 42,396 358,429
June 30, 2001 85,439 499,508 57,012 641,959
March 31, 2001 48,600 49,695 47,707 146,002
For the year ended:
December 31, 2001 266,553 1,032,967 198,171 1,497,691
December 31, 2000 442,246 373,202 193,505 1,008,953
Outstanding Balance of Farmer Mac Loans and On- and Off-Balance Sheet Guarantees and Commitments (1)
- ---------------------------------------------------------------------------------------------------------------------------------
Farmer Mac I
----------------------------------------------
Post-1996 Act
-------------------------------
Loans &
Guaranteed Held in
Securities (2) LTSPC Pre-1996 Act Farmer Mac II Total Portfolio (3)
---------------- -------------- -------------- ----------------- ------------- --------------
(in thousands)
As of:
September 30, 2002 $2,127,460 $2,407,469 $ 35,297 $ 630,452 $5,200,678 $2,433,768
June 30, 2002 2,180,948 2,336,886 37,873 617,503 5,173,210 2,426,626
March 31, 2002 1,655,485 2,126,485 41,414 592,836 4,416,220 1,899,484
December 31, 2001 1,658,716 1,884,260 48,979 595,156 4,187,111 1,857,232
September 30, 2001 1,605,160 1,731,861 58,813 608,944 4,004,778 1,804,391
June 30, 2001 1,572,800 1,537,061 65,709 579,251 3,754,821 1,763,676
March 31, 2001 1,466,443 1,083,528 72,646 549,003 3,171,620 1,648,896
December 31, 2000 1,615,914 862,804 83,513 517,703 3,079,934 1,581,905
September 30, 2000 1,621,516 707,850 92,536 491,820 2,913,722 1,571,315
June 30, 2000 1,354,623 575,143 100,414 467,352 2,497,532 1,292,359
March 31, 2000 1,310,710 551,423 107,403 387,992 2,357,528 1,268,889
December 31, 1999 1,266,522 575,097 118,214 383,266 2,343,099 1,237,623
(1) Farmer Mac assumes 100 percent of the credit risk on Post-1996 Act loans.
Pre-1996 Act loans back securities that are supported by unguaranteed first
loss subordinated interests representing approximately 10 percent of the
balance of the loans. Farmer Mac II loans are guaranteed by the USDA.
(2) Periods prior to June 30, 2001 include only Farmer Mac I Guaranteed
Securities.
(3) Included in total Farmer Mac On- and Off-Balance Sheet Guarantees and
Commitments.
Outstanding Balance of Loans Held and Loans Underlying
On-Balance Sheet Farmer Mac Guaranteed Securities
- --------------------------------------------------------------------------------------------------------------------------
Total
Fixed Rate 5-to-10-Year 1-Month-to-3-Year Held in
(10-yr. wtd. avg. term) ARMs & Resets ARMs Portfolio
------------------------ ---------------- ---------------------- ------------------
(in thousands)
As of:
September 30, 2002 $ 1,000,518 $ 934,435 $ 498,815 $ 2,433,768
June 30, 2002 1,016,997 892,737 516,892 2,426,626
March 31, 2002 751,222 797,780 350,482 1,899,484
December 31, 2001 764,115 790,948 302,169 1,857,232
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Farmer Mac is exposed to market risk attributable to changes in interest
rates. Farmer Mac manages this market risk by entering into various financial
transactions, including derivative financial instruments, and by monitoring its
exposure to changes in interest rates. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations - Risk Management - Interest
Rate Risk" for further information regarding Farmer Mac's exposure to interest
rate risk and strategies to manage such risk. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations - Liquidity and
Capital Resources" for further information regarding Farmer Mac's debt issuance
and liquidity risks.
Item 4. Controls and Procedures
(a) Farmer Mac's Chief Executive Officer and Chief Financial Officer have
evaluated the effectiveness of the design and operation of the Corporation's
disclosure controls and procedures (as defined under Rules 13a-14 and 15d-14 of
the Securities Exchange Act of 1934, as amended) as of a date within ninety days
of the filing date of this report. Based upon that evaluation, Farmer Mac's
Chief Executive Officer and Chief Financial Officer have concluded that the
Corporation's disclosure controls and procedures are adequate and effective.
(b) There were no significant changes in Farmer Mac's internal controls or
in other factors that could significantly affect the Corporation's internal
controls subsequent to the date of such evaluation.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Farmer Mac is not a party to any material pending legal proceedings.
Item 2. Changes in Securities and Use of Proceeds
(a) Not applicable.
(b) Not applicable.
(c) Farmer Mac is a federally chartered instrumentality of the United
States and its Common Stock is exempt from registration pursuant
to Section 3(a)(2) of the Securities Act of 1933.
Pursuant to Farmer Mac's policy that permits Directors of Farmer
Mac to elect to receive shares of Class C Non-Voting Common Stock
in lieu of their annual cash retainers, on July 3, 2002, Farmer
Mac issued an aggregate of 898 shares of its Class C Non-Voting
Common Stock, at an issue price of $26.70 per share, to the
eleven Directors who elected to receive such stock in lieu of
their cash retainers.
On August 31, 2002, an employee of Farmer Mac vested in 200
shares of previously unissued Class C Non-Voting Common Stock
granted as incentive compensation, at a vesting price of $28.00
per share.
On September 12, 2002, Farmer Mac granted options under its 1997
Stock Option Plan to purchase an aggregate of 15,000 shares of
Class C Non-Voting Common Stock, at an exercise price of $26.25
per share, to sixteen non-officer employees as incentive
compensation. On September 16, 2002, Farmer Mac granted options
to purchase 1,000 shares of Class C Non-Voting Common Stock, at
an exercise price of $29.56 per share, to a non-officer employee
in connection with such employee's commencement of employment.
(d) Not applicable.
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
* 3.1 - Title VIII of the Farm Credit Act of 1971, as most recently amended
by the Farm Credit System Reform Act of 1996, P.L. 104-105 (Form 10-K filed
March 29, 1996).
* 3.2 - Amended and restated By-Laws of the Registrant (Form 10-Q filed
August 12, 1999).
+* 10.1 - Stock Option Plan (Previously filed as Exhibit 19.1 to Form 10-Q
filed August 14, 1992).
+* 10.1.1 - Amendment No. 1 to Stock Option Plan (Previously filed as Exhibit
10.2 to Form 10-Q filed August 16, 1993).
+* 10.1.2 - 1996 Stock Option Plan (Form 10-Q filed August 14, 1996).
+* 10.1.3- Amended and Restated 1997 Incentive Plan (Form 10-Q filed August
14, 1997).
+* 10.2 - Employment Agreement dated May 5, 1989 between Henry D. Edelman and
the Registrant (Previously filed as Exhibit 10.4 to Form 10-K filed
February 14, 1990).
+* 10.2.1 - Amendment No. 1 dated as of January 10, 1991 to Employment
Contract between Henry D. Edelman and the Registrant (Previously filed as
Exhibit 10.4 to Form 10-K filed April 1, 1991).
+* 10.2.2 - Amendment to Employment Contract dated as of June 1, 1993 between
Henry D. Edelman and the Registrant (Previously filed as Exhibit 10.5 to
Form 10-Q filed November 15, 1993).
+* 10.2.3 - Amendment No. 3 dated as of June 1, 1994 to Employment Contract
between Henry D. Edelman and the Registrant (Previously filed as Exhibit
10.6 to Form 10-Q filed August 15, 1994).
+* 10.2.4 - Amendment No. 4 dated as of February 8, 1996 to Employment
Contract between Henry D. Edelman and the Registrant (Form 10-K filed March
29, 1996).
+* 10.2.5 - Amendment No. 5 dated as of June 13, 1996 to Employment Contract
between Henry D. Edelman and the Registrant (Form 10-Q filed August 14,
1996).
* Incorporated by reference to the indicated prior filing.
** Filed herewith
+ Management contract or compensatory plan.
+* 10.2.6 - Amendment No. 6 dated as of August 7, 1997 to Employment Contract
between Henry D. Edelman and the Registrant (Form 10-Q filed November 14,
1997).
+* 10.2.7 - Amendment No. 7 dated as of June 4, 1998 to Employment Contract
between Henry D. Edelman and the Registrant (Form 10-Q filed August 14,
1998).
+* 10.2.8 - Amendment No. 8 dated as of June 3, 1999 to Employment Contract
between Henry D. Edelman and the Registrant (Form 10-Q filed August 12,
1999).
+* 10.2.9 - Amendment No. 9 dated as of June 1, 2000 to Employment Contract
between Henry D. Edelman and the Registrant (Form 10-Q filed August 14,
2000).
+* 10.2.10- Amendment No. 10 dated as of June 7, 2001 to Employment Contract
between Henry D. Edelman and the Registrant (Form 10-Q filed August 14,
2001).
+* 10.2.11- Amendment No. 11 Dated as of June 6, 2002 to Employment Contract
between Henry D. Edelman and the Registrant (Form 10-Q filed August 14,
2002).
+* 10.3 - Employment Agreement dated May 11, 1989 between Nancy E. Corsiglia
and the Registrant (Previously filed as Exhibit 10.5 to Form 10-K filed
February 14, 1990).
+* 10.3.1 - Amendment dated December 14, 1989 to Employment Agreement between
Nancy E. Corsiglia and the Registrant (Previously filed as Exhibit 10.5 to
Form 10-K filed February 14, 1990).
+* 10.3.2 - Amendment No. 2 dated February 14, 1991 to Employment Agreement
between Nancy E. Corsiglia and the Registrant (Previously filed as Exhibit
10.7 to Form 10-K filed April 1, 1991).
+* 10.3.3 - Amendment to Employment Contract dated as of June 1, 1993 between
Nancy E. Corsiglia and the Registrant (Previously filed as Exhibit 10.9 to
Form 10-Q filed November 15, 1993).
+* 10.3.4 - Amendment No. 4 dated June 1, 1993 to Employment Contract between
Nancy E. Corsiglia and the Registrant (Previously filed as Exhibit 10.10 to
Form 10-K filed March 31, 1994).
* Incorporated by reference to the indicated prior filing.
** Filed herewith
+ Management contract or compensatory plan.
+* 10.3.5 - Amendment No. 5 dated as of June 1, 1994 to Employment Contract
between Nancy E. Corsiglia and the Registrant (Previously filed as Exhibit
10.12 to Form 10-Q filed August 15, 1994).
+* 10.3.6 - Amendment No. 6 dated as of June 1, 1995 to Employment Contract
between Nancy E. Corsiglia and the Registrant (Form 10-Q filed August 14,
1995).
+* 10.3.7 - Amendment No. 7 dated as of February 8, 1996 to Employment
Contract between Nancy E. Corsiglia and the Registrant (Form 10-K filed
March 29, 1996).
+* 10.3.8 - Amendment No. 8 dated as of June 13, 1996 to Employment Contract
between Nancy E. Corsiglia and the Registrant (Form 10-Q filed August 14,
1996).
+* 10.3.9 - Amendment No. 9 dated as of August 7, 1997 to Employment Contract
between Nancy E. Corsiglia and the Registrant (Form 10-Q filed November 14,
1997).
+* 10.3.10- Amendment No. 10 dated as of June 4, 1998 to Employment Contract
between Nancy E. Corsiglia and the Registrant (Form 10-Q filed August 14,
1998).
+* 10.3.11- Amendment No. 11 dated as of June 3, 1999 to Employment Contract
between Nancy E. Corsiglia and the Registrant (Form 10-Q filed August 12,
1999).
+* 10.3.12- Amendment No. 12 dated as of June 1, 2000 to Employment Contract
between Nancy E. Corsiglia and the Registrant (Form 10-Q filed August 14,
2000).
+* 10.3.13- Amendment No. 13 dated as of June 7, 2001 to Employment Contract
between Nancy E. Corsiglia and the Registrant (Form 10-Q filed August 14,
2001).
+* 10.3.14- Amendment No.14 dated as of June 6, 2002 to Employment Contract
between Nancy E. Corsiglia and the Registrant (Form 10-Q filed August 14,
2002).
+* 10.4 - Employment Contract dated as of September 1, 1997 between Tom D.
Stenson and the Registrant (Previously filed as Exhibit 10.8 to Form 10-Q
filed November 14, 1997).
* Incorporated by reference to the indicated prior filing.
** Filed herewith
+ Management contract or compensatory plan.
+* 10.4.1 - Amendment No. 1 dated as of June 4, 1998 to Employment Contract
between Tom D. Stenson and the Registrant (Previously filed as Exhibit
10.8.1 to Form 10-Q filed August 14, 1998).
+* 10.4.2 - Amendment No. 2 dated as of June 3, 1999 to Employment Contract
between Tom D. Stenson and the Registrant (Form 10-Q filed August 12,
1999).
+* 10.4.3 - Amendment No. 3 dated as of June 1, 2000 to Employment Contract
between Tom D. Stenson and the Registrant (Form 10-Q filed August 14,
2000).
+* 10.4.4 - Amendment No. 4 dated as of June 7, 2001 to Employment Contract
between Tom D. Stenson and the Registrant (Form 10-Q filed August 14,
2001).
+* 10.4.5- Amendment No. 5 dated as of June 6, 2002 to Employment Contract
between Tom D. Stenson and the Registrant (Form 10-Q filed August 14,
2002).
+* 10.5 - Employment Contract dated February 1, 2000 between Jerome G. Oslick
and the Registrant (Previously filed as Exhibit 10.6 to Form 10-Q filed May
11, 2000).
+* 10.5.1- Amendment No. 1 dated as of June 1, 2000 to Employment Contract
between Jerome G. Oslick and the Registrant (Previously filed as Exhibit
10.6.1 to Form 10-Q filed August 14, 2000).
+* 10.5.2- Amendment No. 2 dated as of June 7, 2001 to Employment Contract
between Jerome G. Oslick and the Registrant (Previously filed as Exhibit
10.6.2 to Form 10-Q filed August 14, 2001).
+* 10.5.3- Amendment No. 3 dated as of June 6, 2002 to Employment Contract
between Jerome G. Oslick and the Registrant (Form 10-Q filed August 14,
2002).
* 10.6 - Lease Agreement dated June 28, 2001 between EOP - Two Lafayette,
L.L.C. and the Registrant (Previously filed as Exhibit 10.10 to (Form 10-K
filed March 27, 2002).
* Incorporated by reference to the indicated prior filing.
** Filed herewith
+ Management contract or compensatory plan.
** 10.7 - Farmer Mac I Seller/Servicer Agreement dated as of August 7, 1996
between Zions First National Bank and the Registrant.
** 10.8 - Medium-Term Notes U.S. Selling Agency Agreement dated as of October
1, 1998 between Zions First National Bank and the Registrant.
** 10.9 - Discount Note Dealer Agreement dated as of September 18, 1996
between Zions First National Bank and the Registrant.
**# 10.10 - ISDA Master Agreement and Credit Support Annex dated as of June 26,
1997 between Zions First National Bank and the Registrant.
**# 10.11 - Master Central Servicing Agreement dated as of December 17, 1996
between Zions First National Bank and the Registrant.
**# 10.11.1 - Amendment No. 1 dated as of February 26, 1997 to Master Central
Servicing Agreement dated as of December 17, 1996 between Zions First
National Bank and the Registrant.
**# 10.12 - Loan File Review and Underwriting Agreement dated as of December
17, 1996 between Zions First National Bank and the Registrant.
**# 10.12.1 - Amendment No. 1 dated as of January 20, 2000 to Loan File Review
and Underwriting Agreement dated as of December 17, 1996 between Zions
First National Bank and the Registrant.
**# 10.13 - Long Term Standby Commitment to Purchase dated as of August 1, 1998
between AgFirst Farm Credit Bank and the Registrant.
**# 10.13.1 - Amendment No. 1 dated as of January 1, 2000 to Long Term Standby
Commitment to Purchase dated as of August 1, 1998 between AgFirst Farm
Credit Bank and the Registrant.
** 10.13.2 - Amendment No. 2 dated as of September 1, 2002 to Long Term
Standby Commitment to Purchase dated as of August 1, 1998, as amended by
Amendment No. 1 dated as of January 1, 2000, between AgFirst Farm Credit
Bank and the Registrant.
21 - Farmer Mac Mortgage Securities Corporation, a Delaware corporation.
* 99.1 - Map of U.S. Department of Agriculture (Secretary of Agriculture's)
Regions (Previously filed as Exhibit 1.1 to Form 10-K filed April 1, 1991).
* Incorporated by reference to the indicated prior filing.
** Filed herewith
+ Management contract or compensatory plan.
# Portions of this exhibit have been omitted pursuant to a request for
confidential treatment with the SEC.
(b) Reports on Form 8-K.
On July 16, 2002, the Registrant filed a Current Report on Form 8-K that
attached a press release announcing the details of the release of the
Registrant's second quarter financial results and a conference call to discuss
those results.
On July 19, 2002, the Registrant filed a Current Report on Form 8-K that
attached a press release announcing the Registrant's financial results for
second quarter 2002.
On August 2, 2002, the Registrant filed a Current Report on Form 8-K that
reported the declaration of a dividend on the Registrant's Preferred Stock.
On August 15, 2002, the Registrant filed a Current Report on Form 8-K that
attached as exhibits the certifications of the Registrant's Chief Executive
Officer and the Registrant's Chief Financial Officer that accompanied the
Registrant's Quarterly Report on Form 10-Q for the period ended June 30, 2002 as
required pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
On August 20, 2002, the Registrant filed a Current Report on Form 8-K that
reported changes to the membership of the Registrant's Board of Directors.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
FEDERAL AGRICULTURAL MORTGAGE CORPORATION
November 14, 2002
By: /s/ Henry D. Edelman
--------------------------------------------------
Henry D. Edelman
President and Chief Executive Officer
(Principal Executive Officer)
/s/ Nancy E. Corsiglia
--------------------------------------------------
Nancy E. Corsiglia
Vice President - Finance
(Principal Financial Officer)
CERTIFICATIONS
I, Henry D. Edelman, certify that:
1. I have reviewed this quarterly report on Form 10-Q of the Federal
Agricultural Mortgage Corporation;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: November 14, 2002
/s/ Henry D. Edelman
---------------------
Henry D. Edelman
Chief Executive Officer
I, Nancy E. Corsiglia, certify that:
1. I have reviewed this quarterly report on Form 10-Q of the Federal
Agricultural Mortgage Corporation;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: November 14, 2002
/s/ Nancy E. Corsiglia
-----------------------
Nancy E. Corsiglia
Chief Financial Officer
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FEDERAL AGRICULTURAL MORTGAGE CORPORATION
EXHIBITS
TO
FORM 10-Q
FOR THE PERIOD ENDING SEPTEMBER 30, 2002
EXHIBIT INDEX
Exhibit No. Description Page No.
- ----------- ----------- --------
10.7 Farmer Mac I Seller/Servicer Agreement dated as of August 7, 1996
between Zions First National Bank and the Registrant.
10.8 Medium-Term Notes U.S. Selling Agency Agreement dated as of October
1, 1998 between Zions First National Bank and the Registrant.
10.9 Discount Note Dealer Agreement dated as of September 18, 1996
between Zions First National Bank and the Registrant.
10.10* ISDA Master Agreement and Credit Support Annex dated as of June 26,
1997 between Zions First National Bank and the Registrant.
10.11* Master Central Servicing Agreement dated as of December 17, 1996
between Zions First National Bank and the Registrant.
10.11.1* Amendment No. 1 dated as of February 26, 1997 to Master Central
Servicing Agreement dated as of December 17, 1996 between Zions
First National Bank and the Registrant.
10.12* Loan File Review and Underwriting Agreement dated as of December 17,
1996 between Zions First National Bank and the Registrant.
10.12.1* Amendment No. 1 dated as of January 20, 2000 to Loan File Review
and Underwriting Agreement dated as of December 17, 1996 between
Zions First National Bank and the Registrant.
10.13* Long Term Standby Commitment to Purchase dated as of August 1, 1998
between AgFirst Farm Credit Bank and the Registrant.
10.13.1* Amendment No. 1 dated as of January 1, 2000 to Long Term Standby
Commitment to Purchase dated as of August 1, 1998 between AgFirst
Farm Credit Bank and the Registrant.
10.13.2 Amendment No. 2 dated as of September 1, 2002 to Long Term Standby
Commitment to Purchase dated as of August 1, 1998, as amended by
Amendment No. 1 dated as of January 1, 2000, between AgFirst Farm
Credit Bank and the Registrant.
- ---------------------------------
* Portions of this exhibit have been omitted pursuant to a request for
confidential treatment with the SEC.
Exhibit 10.7
FARMER MAC I
SELLER/SERVICER AGREEMENT
This Seller/Servicer Agreement (the "Agreement") is dated as of August 7th,
1996, between the FEDERAL AGRICULTURAL MORTGAGE CORPORATION, a federal
instrumentality of the United States ("Farmer Mac") and Zions First National
Bank, a National Association (the "Seller"). All capitalized terms used in this
Agreement and not otherwise defined shall have the meanings set forth in the
Selling and Servicing Guide (the "Guide").
Farmer Mac operates a mortgage loan purchase program to provide
agricultural mortgage lenders an agricultural secondary mortgage market. Farmer
Mac is willing to purchase Qualified Loans from approved sellers pursuant to
mortgage purchase programs announced by Farmer Mac from time to time. As such,
Farmer Mac has developed the Guide which sets forth the requirements for, and
conditions respecting, participation in any mortgage purchase program announced
by Farmer Mac to purchase Qualified Loans.
The Seller intends to originate or purchase Qualified Loans and sell such
loans to Farmer Mac.
Farmer Mac, either itself or through a Farmer Mac designated Loan Reviewer,
will review loan files with respect to mortgage loans submitted by approved
sellers for purchase and may approve such loans for sale to Farmer Mac if they
meet the requirements set forth in the Guide. Farmer Mac, either itself or
through a Farmer Mac designated Central Servicer, will also service Qualified
Loans it purchases and will delegate certain servicing responsibilities with
respect to such Qualified Loans to the approved sellers under the conditions and
in accordance with the provisions of the Guide.
The purpose of this Agreement is to establish the Seller as an approved
seller of Qualified Loans to Farmer Mac; to provide the terms and conditions of
sales; to specify the requirements with respect to loan file review; to
establish the Seller as a Field Servicer of Qualified Loans on behalf of Farmer
Mac and any Central Servicer; and to provide the terms and conditions of
servicing.
In consideration of the purpose of this Agreement and of all the provisions
and mutual promises contained herein, the Seller and Farmer Mac agree as
follows:
Section 1. Seller/Servicer Guide. Farmer Mac has provided the Guide to the
Seller and the Seller has received and reviewed the Guide which is incorporated
herein by reference as though fully set forth in this Agreement. Farmer Mac and
the Seller agree to comply with and be bound by all of the terms and provisions
of the Guide which Farmer Mac may, in its discretion and without the consent of
the Seller, amend or supplement at any time by written notice to the Seller.
From and after the date of each amendment or supplement, the Guide, as so
amended or supplemented, shall be a part of this Agreement; however, no such
amendment or supplement will affect any Commitment to Purchase (rate lock)
issued prior to the date of the amendment or supplement or any servicing
obligations undertaken prior to such date.
Section 2. Selling. Seller eligibility and sales of Qualified Loans to
Farmer Mac hereunder shall be governed by Chapters 2 and 3 of the Guide.
2.1 Individual Commitments, Separate Agreements. Each purchase by Farmer
Mac hereunder will be made only pursuant to a written Commitment to Purchase
(rate lock). Each Commitment to Purchase (rate lock) constitutes a separate
agreement between the Seller and Farmer Mac with respect to each Qualified Loan
required to be delivered or actually delivered thereunder, and each such
separate agreement may be separately assigned, and separately enforced, by
Farmer Mac or any assignee, without affecting the rights of any party to, or
assignee under, such Commitment to Purchase (rate lock) with respect to any
other mortgage loan.
2.2 Basic Seller Obligations. There are certain basic obligations imposed
upon the Seller under this Agreement, including but not limited to obligations
to:
o sell Qualified Loans to Farmer Mac once a Commitment to Purchase (rate
lock) has been issued by Farmer Mac;
o pay a Pairoff fee to Farmer Mac in the event a Qualified Loan or substitute
is not delivered in accordance with the terms of such Commitment to
Purchase (rate lock), as set forth in 303.5 of the Guide; and
o make representations and warranties with respect to each Qualified Loan and
incur certain consequences in connection with the breach of such
representations and warranties, as set forth in 303 and 304 of the Guide.
2.3 No Purchase Obligation. The fact that Farmer Mac signed this Agreement
does not mean that Farmer Mac must issue a Commitment to Purchase (rate lock)
any mortgage loan submitted to Farmer Mac for review and approval. Any
obligation to purchase will arise only after review and approval and the
issuance by Farmer Mac of a Commitment to Purchase (rate lock).
Section 3. Loan File Review. Submission of documents for review and
approval by Farmer Mac shall be governed by Chapter 3 of the Guide.
Section 4. Servicing. Servicing of Qualified Loans hereunder shall be
governed by Chapter 4 of the Guide or by a field servicing contract between the
Seller and a Central Servicer, if Farmer Mac assigns the central servicing of
such Qualified Loans to a Central Servicer. The field servicing contract, the
form of which will have been reviewed by Farmer Mac, will neither increase the
duties of nor reduce the field servicing fee to be paid to the Seller.
Section 5. Events of Default; Remedies; Indemnification. Seller will be in
default under this Agreement upon the occurrence of any Event of Default under
the Guide, and will be subject to any remedies available to Farmer Mac,
including, but not limited to, indemnification of Farmer Mac and Seller's
obligation to repurchase one or more of the Qualified Loans, as more fully set
forth in the Guide.
Section 6. Termination and Effect of Termination. This Agreement and the
Guide may be terminated as set forth in the Guide. The Guide sets forth the
effect of any such termination.
Section 7. Miscellaneous.
-------------
7.1 Notice. Any notice shall be given and shall be effective as specified
in 101.1 of the Guide and shall be given to Farmer Mac at the address specified
in 101.1 of the Guide, and to the Seller at the following address, or to such
other address as may be given by one party to the other party in writing:
Seller's Address: ZIONS FIRST NATIONAL BANK
Agriculture Group
190 North Main, P.O. Box 279
Spanish Fork, Utah 84660
7.2 Severability and Enforcement. If any provision of this Agreement
conflicts with applicable law, the other provisions of this Agreement that can
be carried out without the conflicting provision will not be affected.
All rights and remedies under this Agreement are distinct and cumulative
not only as to each other but as to any rights or remedies afforded by law or
equity. They may be exercised together, separately or successively. Any failure
by Farmer Mac to exercise any of its remedies does not constitute a waiver of
that remedy in the future as to the same or any other Event of Default. These
rights and remedies are for the benefit of Farmer Mac and any of its respective
successors and assigns.
7.3 Governing Law. This Agreement will be governed by, and construed in
accordance with, federal law; to the extent federal law incorporates state law,
that state law shall be the laws of the District of Columbia.
7.4 Assignability. As more fully set forth in the Guide, it is understood
and agreed that: (i) Seller may not transfer or assign any of its rights or
duties under this Agreement or the Guide without Farmer Mac's prior written
consent; and (ii) Farmer Mac may assign its rights and duties under such
documents without Seller's consent or approval.
7.5 Entire Agreement. This Agreement and the Guide, including the exhibits
attached to the Guide and all updates and other documents incorporated by
reference in the Guide, constitute the entire understanding between Farmer Mac
and the Seller and supersede all other agreements, covenants, representations,
warranties, understandings and communications between the parties, whether oral
or written, with respect to the transactions contemplated by the Guide.
This Agreement may be executed in two or more counterparts, which, when
combined, will constitute one instrument.
This Agreement has been executed as of the date first written by duly
authorized representatives of Farmer Mac and the Seller.
Farmer Mac
By: /s/ Nancy E. Corsiglia
-------------------------------------
Name: Nancy E. Corsiglia
Title: Vice President - Business Development
Seller
ZIONS FIRST NATIONAL BANK
By: /s/ Kim D. Butters
-------------------------------------
Name: Kim D. Butters
Title: Senior Vice President
Exhibit 10.8
FEDERAL AGRICULTURAL MORTGAGE CORPORATION
Medium-Term Notes
U.S. Selling Agency Agreement
Zions First National Bank
One South Main Street
Salt Lake City, Utah 84111
Ladies and Gentlemen:
Federal Agricultural Mortgage Corporation ("Farmer Mac"), a federally
chartered instrumentality of the United States established by Title VIII of the
Farm Credit Act of 1971, as amended (the "Charter Act"), proposes to issue and
sell from time to time its Medium-Term Notes (any such Medium-Term Notes that
are issued and sold pursuant to this Agreement are referred to herein as the
"Notes") to or through Zions First National Bank ("Zions") and the other Agents,
if any, appointed pursuant to Section 1(c) hereof (collectively, the "Agents").
The Notes will be issued under a fiscal agency agreement, dated as of June 1,
1996, as amended from time to time (the "Fiscal Agency Agreement"), between
Farmer Mac and the Federal Reserve Banks, as fiscal agent (collectively, the
"Fiscal Agent").
The Notes will have various interest rates or interest rate formulas,
maturities, selling prices, and other terms. Farmer Mac will issue the Notes and
establish their terms from time to time in accordance with the Notes, the Master
Terms Agreement, dated as of July 1, 1996, among Farmer Mac and Holders of the
Notes and the Fiscal Agency Agreement.
Farmer Mac has prepared an offering circular, dated August 14, 1998 (as
amended or supplemented from time to time, including the documents incorporated
by reference therein, the "Offering Circular"), relating to the Notes. The Notes
are described therein and may be further described in amendments or supplements
thereto.
As of the date hereof, Farmer Mac has authorized the issuance and sale of
Notes to or through the Agents in an aggregate principal amount which, when
added to its Discount Notes and previously issued Medium-Term Notes, will not
exceed $4,000,000,000 aggregate principal amount (or, based on the rate of
exchange on the applicable trade date, the equivalent thereof in one or more
foreign or composite currencies) at any one time outstanding. It is understood,
however, that Farmer Mac may from time to time authorize the issuance of
additional Notes and that such additional Notes may be sold to or through the
Agents pursuant to the terms of this Agreement, all as though the issuance of
such Notes were authorized as of the date hereof. Farmer Mac will not authorize
the Agents to sell any more Notes than Farmer Mac is authorized to sell.
Farmer Mac and the Agents wish to record their arrangements for the
solicitation of offers to purchase and the sale of the Notes as follows:
1. Appointment of Agents.
(a) The Agents shall not have any obligation to purchase Notes from Farmer
Mac as principal but may agree from time to time to purchase Notes as principal
for resale to investors and other purchasers. The purchase of Notes by one or
more Agents as principal shall be in accordance with terms agreed upon by such
Agent or Agents and Farmer Mac (which terms, unless otherwise agreed, shall, to
the extent applicable, include those terms specified in Exhibit A hereto and be
agreed upon orally (with written confirmation prepared by such Agent or Agents
and mailed to Farmer Mac) or in writing (each, a "Terms Agreement")). An Agent's
commitment to purchase Notes as principal pursuant to the applicable Terms
Agreement shall be deemed to have been made on the basis of the representations
and warranties of Farmer Mac herein contained and shall be subject to the terms
and conditions herein set forth. Unless the context otherwise requires,
references herein to "this Agreement" shall include the applicable Terms
Agreement of one or more Agents to purchase Notes from Farmer Mac as principal.
(b) If agreed upon by an Agent and Farmer Mac, such Agent, acting solely as
agent of Farmer Mac, will solicit purchases of Notes only in the denominations,
in the form or forms, and at the purchase prices specified in, or established in
accordance with, this Agreement and the Offering Circular, as from time to time
amended or supplemented.
Each Agent shall use its reasonable best efforts, consistent with the
business objectives that Farmer Mac expressly communicates to such Agent from
time to time, to solicit offers to purchase the Notes upon the terms and
conditions set forth herein and in the Offering Circular, as from time to time
amended or supplemented, and shall make such solicitation in compliance with the
applicable law of any jurisdiction.
Each Agent shall communicate to Farmer Mac, by telephone to those persons
identified by Farmer Mac, any offer to purchase Notes that such Agent receives
and does not reject. Farmer Mac shall have the sole right to accept offers to
purchase the Notes and may reject any such offer, in whole or in part. Each
Agent may, in its discretion reasonably exercised, reject any offer to purchase
Notes received by it, in whole or in part.
Each Agent shall use its reasonable best efforts to assist Farmer Mac in
obtaining performance by each purchaser whose offer to purchase Notes has been
solicited by such Agent and accepted by Farmer Mac, but shall not have any
liability to Farmer Mac in the event such purchase for any reason is not
consummated. Under no circumstances shall any Agent, in its capacity as agent of
Farmer Mac, be obligated to purchase any Notes for its own account.
Farmer Mac, in its sole discretion, may suspend solicitation of offers to
purchase the Notes through an Agent as agent at any time, for any period of
time, or permanently. Upon receipt of notice from Farmer Mac, such Agent agrees
to promptly suspend solicitation of offers to purchase Notes from Farmer Mac
until such time as Farmer Mac has advised such Agent to resume such
solicitation.
(c) Farmer Mac may, in its sole discretion, at any time and from time to
time appoint one or more additional agents to solicit or receive offers from
others to purchase Notes. Any such additional agent shall, if directed by Farmer
Mac, execute and deliver to Farmer Mac an instrument (in form and substance
acceptable to Farmer Mac) accepting such appointment, and thereupon such agent
shall become a party to this Agreement and be subject to all the terms hereof
for the time or times and to the extent specified in such instrument. Farmer Mac
shall forthwith notify the existing Agents of any such appointment.
Farmer Mac may also sell Notes directly to investors, other investment
banking firms, investment dealers, or dealer banks on its own behalf. The Agents
also acknowledge that Farmer Mac may enter into a Placement Agency Agreement
relating to the offer and sale of Euro-Medium-Term Notes.
(d) At the time of delivery of, and payment for, any Note that Farmer Mac
sells as a result of an offer to purchase such Note that an Agent communicated
to Farmer Mac, Farmer Mac agrees to pay the Agent a commission, in full
compensation for its services pursuant to this Agreement, equal to the
percentage of the principal amount of such Note specified in the Schedule set
forth in Exhibit B hereto (or as may be otherwise agreed to in writing between
the parties hereto), provided that in the case of the sale of a Note that is a
Note issued with original issue discount, Farmer Mac shall pay a commission
equal to the percentage of the issue price of the Note, as specified in the
Schedule set forth in Exhibit B hereto.
Selling commissions shall be paid by deduction by the appropriate Agent of
the commission payable to such Agent from the amount payable to Farmer Mac in
settlement for the Notes.
The purchase price (i.e., underwriting discount) of Notes purchased by one
or more Agents as principal from Farmer Mac will be set forth in the applicable
Terms Agreement.
(e) Without the prior approval of Farmer Mac, the Agents shall not reallow
any portion of the commission or discount payable pursuant hereto to investment
dealers or dealer banks in connection with the offer or sale of any Notes
(whether through an Agent as principal or to an Agent as agent). Unless
otherwise approved by Farmer Mac, the concession will not be in excess of
66-2/3% of the commission or discount received by such Agent from Farmer Mac.
Farmer Mac may rescind such authorization by notice to the Agents at any time
prior to the acceptance of an offer with respect to such Note.
2. Representations and Warranties of Farmer Mac. Farmer Mac represents and
warrants to the Agents as of the date hereof, as of the date of each acceptance
by Farmer Mac of an offer for the purchase of Notes (whether through an Agent as
principal or to an Agent as agent), as of the date of each delivery of Notes
(whether through an Agent as principal or to an Agent as agent) and as of any
time that the Offering Circular shall be amended or supplemented or that there
is filed with Securities and Exchange Commission any document incorporated by
reference into the Offering Circular (each of the dates or times referenced
above is referred to herein as a "Representation Date") that:
(a) Farmer Mac is duly organized and validly existing as a federally
chartered instrumentality of the United States.
(b) This Agreement has been duly authorized, executed and delivered by
Farmer Mac.
(c) The Notes have been duly authorized by Farmer Mac, and each Note, when
its terms have been established, and it has been issued, authenticated and
delivered pursuant to this Agreement and the Fiscal Agency Agreement, will
constitute a valid and legally binding obligation of Farmer Mac enforceable in
accordance with its terms, subject, as to enforcement, to bankruptcy,
insolvency, receivership (including but not limited to 12 U.S.C. Part 650,
Subpart C), reorganization and other laws of general applicability relating to
or affecting creditors' rights and to general equity principles, and in the case
of a Note the principal or interest of which is payable in a foreign currency or
a composite currency, to provisions of law that may require that a judgment for
money damages rendered by a court in the United States be expressed only in U.S.
dollars.
(d) The Offering Circular does not include any untrue statement of a
material fact or omit to state any material fact necessary to make the
statements therein, in light of the circumstances in which they were made, not
misleading, except that the foregoing does not apply to statements in or
omissions from such document based upon written information furnished to Farmer
Mac by any Agent specifically for use therein.
(e) The documents incorporated by reference in the Offering Circular, at
the time they were or hereafter are filed with the Securities and Exchange
Commission and at each Representation Date, complied or will comply as to form
in all material respects with the requirements of the Securities Exchange Act of
1934, as amended (the "1934 Act"), and the rules and regulations thereunder.
(f) No consent, approval, authorization, order, registration or
qualification of or with any court or any regulatory authority or other
governmental agency or body (including the Securities and Exchange Commission),
except as may have otherwise been previously obtained (other than in connection
or compliance with the securities or "blue sky" laws of any jurisdiction), is
required for or in connection with the issuance, offer or sale of the Notes by
Farmer Mac in accordance with the terms of this Agreement or for the
consummation of the transactions contemplated by this Agreement, the Fiscal
Agency Agreement, the Offering Circular or the Notes.
Any certificate signed by any director or officer of Farmer Mac and
delivered to the Agents in connection with an offering of the Notes or the sale
of the Notes to any of the Agents as principal shall be deemed a representation
and warranty by Farmer Mac to such Agent as to the matters covered thereby on
the date of such certificate and at each Representation Date subsequent thereto.
3. Secondary Market. Each Agent will use its reasonable best efforts to
facilitate secondary market transactions in the Notes purchased by it as
principal or for which it was the Agent, and in so acting will do so for its own
account, as principal, and not as an agent of Farmer Mac. Each Agent also will
submit to Farmer Mac, as requested by Farmer Mac, written reports regarding
secondary market transactions in the Notes. The form of such reports shall be as
reasonably requested by Farmer Mac. In such reports, the Agent will advise
Farmer Mac of the name and address of each beneficial purchaser of Notes sold
through the Agent or of the line of business of each such beneficial purchaser.
Each Agent also will advise Farmer Mac promptly of any material development in
the secondary market for the Notes.
4. Covenants of Farmer Mac and the Agents. Farmer Mac and each Agent
covenant and agree that:
(a) Farmer Mac will amend or supplement the Offering Circular as it may
deem necessary or appropriate. Farmer Mac will furnish to the Agents copies of
the Offering Circular and amendments and supplements thereto, if any, as soon as
available and in such quantities as each Agent to receive such materials
reasonably requests. Farmer Mac will give each Agent reasonable advance notice
of any such amendments or supplements (provided, however, that a Pricing
Supplement relating to the sale of a particular Note or Notes shall not be
deemed to supplement the Offering Circular for purposes of this Section 4). Each
of the Agents covenants that such Agent will distribute the most recently dated
Offering Circular provided to such Agent, including any amendments or applicable
supplements thereto, in connection with any offer or sale of the Notes on the
initial distribution thereof, unless otherwise instructed by Farmer Mac by a
notice in accordance with Section 10 hereof.
(b) If, at any time when the Offering Circular is used in connection with
the offer or sale of Notes contemplated hereby and Farmer Mac has not suspended
solicitations pursuant to Section 1(b) nor has this Agreement or the applicable
Terms Agreement, as the case may be, been terminated, an event occurs as a
result of which the Offering Circular, as then amended or supplemented, would
include any untrue statement of a material fact or omit to state a material fact
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading, Farmer Mac promptly will advise the
Agents to suspend any solicitations of offers to purchase any Notes and delivery
of the Offering Circular, and promptly will prepare an amendment or supplement
to the Offering Circular that will correct such statement or omission.
Thereafter, the Agents will deliver only such amended or supplemented Offering
Circular. Notwithstanding the foregoing, if an Agent has agreed to purchase
Notes from Farmer Mac as principal, Farmer Mac's obligations under this Section
4(b) will terminate thirty (30) days after the date of the applicable Terms
Agreement unless such Agent notifies Farmer Mac prior to the end of such 30-day
period that the distribution of such Notes has been completed, in which case
Farmer Mac's obligations will terminate when the distribution has been
completed. In addition, the cost of complying with the requirements of this
Section 4(b) with respect to offerings of Notes on a principal basis shall be
borne (i) during the 60-day period after the date of the applicable Terms
Agreement, by Farmer Mac and (ii) after the expiration of such 60-day period, by
the applicable Agent.
(c) On or prior to the date on which there shall be released to the general
public financial statement information related to Farmer Mac with respect to
financial statements for other than any fiscal year, or preliminary financial
statement information with respect to any fiscal year, Farmer Mac shall furnish
such information to each Agent and shall cause the Offering Circular to be
amended or supplemented to include or incorporate by reference financial
information with respect thereto and corresponding information for the
comparable period of the preceding fiscal year, as well as such other
information and explanations as shall be necessary for an understanding thereof.
(d) On or prior to the date on which there shall be released to the general
public financial information included in or derived from the audited financial
statements of Farmer Mac for the preceding fiscal year, Farmer Mac shall cause
the Offering Circular to be amended, by the filing of documents pursuant to the
1934 Act or otherwise, to include or incorporate by reference such audited
financial statements and the report or reports of the independent accountants
with respect thereto, as well as such other information and explanations as
shall be necessary for an understanding of such financial statements.
(e) Farmer Mac will use its reasonable best efforts to arrange for the
qualification of the Notes for sale and the determination of their eligibility
for investment under the laws of such jurisdictions in the United States as the
Agents reasonably may designate and will continue such qualifications in effect
so long as required for the distribution of the Notes; provided, however, that
Farmer Mac shall not be required in connection therewith to qualify as a foreign
corporation, to execute a general consent to service of process or to take other
actions that would subject it to general or unlimited service of process in any
jurisdiction or to any other requirement that Farmer Mac deems unduly
burdensome. Farmer Mac will not have any responsibility or liability in respect
of the legality of offering and selling the Notes in any jurisdiction outside
the United States or in respect of the use of any offering circular relating to
the Notes in any jurisdiction outside the United States or the compliance of
such offering circular with the requirements of any such jurisdiction.
(f) Farmer Mac will pay all expenses incidental to the performance of its
obligations in connection with the issuance and sale of the Notes under this
Agreement, including the fees and expenses of accountants and legal counsel for
Farmer Mac and expenses relating to: (i) the preparation and delivery to the
Agents of the Notes; (ii) the registration or qualification of the Notes for
offer and sale under the securities or "blue sky" laws of the various
jurisdictions referred to in Section 4(e) above, including fees and
disbursements of its counsel in connection therewith; and (iii) the preparation
and reproduction of the Offering Circular, including the reasonable costs of
delivering the Offering Circular to the Agents. The Agents shall pay all of
their own expenses, including the fees and expenses of their counsel, transfer
taxes and the fees and expenses incurred in connection with any resale of Notes
purchased by any Agent as principal and any advertising expenses connected with
any offers they may make.
(g) Each time that the Offering Circular is amended or supplemented, Farmer
Mac will furnish the Agents with a certificate, dated the date of such amendment
or supplement, of Farmer Mac, executed on Farmer Mac's behalf by (i) the
President and Chief Executive Officer of Farmer Mac and (ii) a Vice President of
Farmer Mac, to the effect that the representations and warranties of Farmer Mac
in this Agreement are true and correct as of the date of such amendment or
supplement and that since the respective dates as of which information is given
(or incorporated by reference) in the Offering Circular, as amended and other
than as set forth therein, there has not been any material adverse change in
Farmer Mac's financial position or results of operations.
(h) Each time that the Offering Circular is amended or supplemented, Farmer
Mac will furnish the Agents with a written opinion or opinions, dated the date
of such amendment or supplement, of the Vice President, General Counsel and
Secretary of Farmer Mac, to the effect that:
(i) Farmer Mac is duly organized and validly existing as a federally chartered
instrumentality of the United States.
(ii) This Agreement has been duly authorized, executed and delivered by Farmer
Mac.
(iii)The Fiscal Agency Agreement has been duly authorized, executed and
delivered by Farmer Mac and constitutes the valid and legally binding
agreement of Farmer Mac, enforceable in accordance with its terms, subject,
as to enforcement, to bankruptcy, insolvency, receivership (including but
not limited to 12 U.S.C. Part 650, Subpart C), reorganization, and other
laws of general applicability relating to or affecting creditors' rights
and to general equity principles.
(iv) The Notes have been duly authorized by Farmer Mac; and each Note, when its
terms have been established and it has been issued, authenticated and
delivered pursuant to this Agreement and the Fiscal Agency Agreement, will
constitute a valid and binding obligation of Farmer Mac, enforceable in
accordance with its terms, subject, as to enforcement, to bankruptcy,
insolvency, receivership (including but not limited to 12 U.S.C. Part 650,
Subpart C), reorganization and other laws of general applicability relating
to or affecting creditors' rights and to general equity principles, and, in
the case of a Note the principal or interest of which is payable in a
foreign currency or a composite currency, to provisions of law that may
require that a judgment for money damages rendered by a court in the United
States be expressed only in U.S. dollars.
(v) The execution and delivery by Farmer Mac of this Agreement, the Fiscal
Agency Agreement and the Notes and the incurrence of the obligations and
consummation of the transactions contemplated therein will not conflict
with or constitute a breach of, or default under, the Charter Act or bylaws
of Farmer Mac or any material contract, indenture, mortgage, loan
agreement, note or lease known to such counsel to which Farmer Mac is a
party or by which it may be bound; and Farmer Mac has full corporate power
and authority to authorize, issue and sell the Notes as contemplated by
this Agreement.
(vi) The issuance and sale of the Notes under the circumstances contemplated by
this Agreement and the Fiscal Agency Agreement do not require registration
of the Notes under the Securities Act of 1933, as amended (the "1933 Act"),
by reason of Section 3(a)(2) thereof, or compliance with any provisions of
the Trust Indenture Act of 1939, as amended, by reason of Section 304
thereof.
(vii)Farmer Mac is not, and will not become, as a result of the consummation of
the transactions contemplated by this Agreement and the Fiscal Agency
Agreement or the conducting of its business as described in the Offering
Circular, subject to the provisions of the Investment Company Act of 1940,
as amended.
(viii) Farmer Mac is not required to register as an "investment company" within
the meaning of the Investment Company Act of 1940, as amended.
(ix) No consent, approval, authorization, order, registration or qualification
of or with any court or any regulatory authority or other governmental
agency or body (including the Securities and Exchange Commission), except
as may have otherwise been previously obtained (other than in connection or
compliance with the securities or "blue sky" laws of any jurisdiction as to
which such counsel may express no opinion), is required for or in
connection with the issuance, offer or sale of the Notes by Farmer Mac in
accordance with the terms of this Agreement or for the consummation of the
transactions contemplated by this Agreement, the Fiscal Agency Agreement,
the Offering Circular or the Notes.
Such counsel also shall state that such counsel has participated in the
preparation of the Offering Circular and the documents incorporated by reference
therein and that, while such counsel has not independently verified the accuracy
or completeness of the information contained or incorporated by reference
therein, based on such counsel's participation in the preparation of the
Offering Circular, no facts have come to the attention of such counsel to lead
him to believe that the Offering Circular (as then amended or supplemented, if
then amended or supplemented), as of its date and as of the date of the opinion,
included or includes any untrue statement of a material fact or omitted or omits
to state any material fact necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading; it being
understood that such counsel need not comment on the section in the Offering
Circular under the caption "Certain United States Federal Income Tax
Considerations" or on the financial statements or other financial, accounting or
statistical information or data contained or incorporated by reference in the
Offering Circular.
In rendering such opinion, such counsel may rely (A) as to matters
involving the application of laws other than the laws of the United States and
jurisdictions in which such counsel is admitted, upon an opinion or opinions of
other counsel familiar with the applicable laws and (B) on certificates of
government officials in any jurisdiction.
In lieu of such opinion or opinions, counsel may furnish the Agents with a
letter or letters to the effect that the Agents may rely on a prior opinion
delivered under this Section 4(h) to the same extent as if it were dated the
date of such letter (except that statements in such prior opinion will relate to
the Offering Circular as amended or supplemented).
(i) Farmer Mac shall not be required to comply with the provisions of
Section 4(a) through 4(h) during any period from the time when Farmer Mac has
suspended solicitations pursuant to Section 1(b) to the time Farmer Mac
determines that solicitations should be resumed or enters into a new Terms
Agreement with an Agent; provided that during the time that (i) an Agent holds
any Notes purchased as principal pursuant to a Terms Agreement or (ii) an offer
to purchase any of the Notes has been accepted by Farmer Mac but the time of
delivery to the purchaser has not occurred, Farmer Mac shall comply with such
provisions notwithstanding the suspension of solicitations; provided further
that the expenses of complying with the requirements of this Section 4(i) in the
case of the purchase of Notes by an Agent as principal pursuant to a Terms
Agreement shall be borne (i) during the 60-day period after the date of such
Terms Agreement, by Farmer Mac and (ii) after the expiration of such 60-day
period, by such Agent.
Farmer Mac will furnish the Agents with such conformed copies of such
opinions, certificates, letters and documents as they may reasonably request.
5. Conditions of the Agents' Obligations. The obligations of any Agent to
purchase Notes as principal pursuant to a Terms Agreement, the obligations of
any Agent to solicit offers to purchase the Notes as agent of Farmer Mac, the
obligations of any purchasers of the Notes sold through any Agent as agent will
be subject to the accuracy of the representations and warranties on the part of
Farmer Mac herein and to the performance and observance by Farmer Mac of all its
covenants and agreements herein contained.
6. Indemnification
(a) Farmer Mac agrees to indemnify and hold harmless each Agent and
each person, if any, who controls any Agent within the meaning of Section 15 of
the 1933 Act or Section 20 of the 1934 Act as follows:
(i) against any and all loss, liability, claim, damage and
expense whatsoever, as incurred, arising out of any untrue statement
or alleged untrue statement of a material fact contained in the
Offering Circular (or any amendment thereto), or the omission or
alleged omission therefrom of a material fact necessary to make the
statements therein in the light of the circumstances under which they
were made, not misleading;
(ii) against any and all loss, liability, claim, damage and
expense whatsoever, as incurred, to the extent of the aggregate amount
paid in settlement of any litigation, or the investigation or
proceeding by any governmental agency or body, commenced or
threatened, or of any claim whatsoever based upon any such untrue
statement or omission, or any such alleged untrue statement or
omission, if such settlement is effected with the written consent of
Farmer Mac; and
(iii) against any and all expense whatsoever, as incurred
(including the fees and disbursements of counsel chosen by the
Agents), reasonably incurred in investigating, preparing or defending
against any litigation, or investigation or proceeding by any
governmental agency or body, commenced or threatened, or any claim
whatsoever based upon any such untrue statement or omission or any
such alleged untrue statement or omission, to the extent that any such
expense is not paid under (i) or (ii) above;
provided, however, that this indemnity agreement shall not apply to any loss,
liability, claim, damage or expense to the extent arising out of any untrue
statement or omission or alleged untrue statement or omission made in reliance
upon and in conformity with written information furnished to Farmer Mac by an
Agent expressly for use in the Offering Circular (or any amendment or supplement
thereto).
(b) Each Agent agrees to indemnify and hold harmless Farmer Mac, its
directors, its officers, and each person, if any, who controls Farmer Mac within
the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act against
any and all loss, liability, claim, damage and expense described in the
indemnity contained in subsection (a) of this Section 6, as incurred, but only
with respect to untrue statements or omissions, or alleged untrue statements or
omissions made in the Offering Circular (or any amendment or supplement
thereto), in reliance upon and in conformity with written information furnished
to Farmer Mac by such Agent expressly for use in the Offering Circular (or any
amendment or supplement thereto).
(c) Each indemnified party shall give prompt notice to each indemnifying
party of any action commenced against it in respect of which indemnity may be
sought hereunder, but failure to so notify an indemnifying party shall not
relieve such indemnifying party from any liability which it may have otherwise
than on account of this indemnity agreement. An indemnifying party may
participate at its own expense in the defense of such action. In no event shall
the indemnifying parties be liable for the fees and expenses of more than one
counsel (in addition to any local counsel) for all indemnified parties in
connection with any one action or separate but similar or related actions in the
same jurisdiction arising out of the same general allegations or circumstances.
7. Contribution. In order to provide for just and equitable contribution in
circumstances in which the indemnity agreement provided for in Section 6 hereof
is for any reason held to be unavailable to or insufficient to hold harmless the
indemnified parties although applicable in accordance with its terms, Farmer Mac
and the Agents shall contribute to the aggregate losses, liabilities, claims,
damages and expenses of the nature contemplated by such indemnity agreement
incurred by Farmer Mac and one or more of the Agents, as incurred, in such
proportions that each Agent is responsible for that portion represented by the
percentage that the total commissions and underwriting discounts received by
such Agent to the date of such liability bears to the total sales price from the
sale of Notes sold to or through such Agent to the date of such liability, and
Farmer Mac is responsible for the balance; provided, however, that no person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the 1933 Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. For purposes of this Section 7,
each person, if any, who controls an Agent within the meaning of Section 15 of
the 1933 Act or Section 20 of the 1934 Act shall have the same rights to
contribution as such Agent, and each director of Farmer Mac, each officer of
Farmer Mac, and each person, if any, who controls Farmer Mac within the meaning
of Section 15 of the 1933 Act or Section 20 of the 1934 Act shall have the same
rights to contribution as Farmer Mac.
8. Termination.
(a) Farmer Mac may terminate this Agreement (excluding any Terms Agreement)
for any reason at any time either in whole or as to any one or more Agents, and
any Agent may terminate this Agreement (excluding any Terms Agreement), insofar
as this Agreement relates to such Agent. In either case, such a termination will
be effective on the seventh day following the giving of written notice of such
termination to the Agent or Farmer Mac, as the case may be (provided that, if
the notice of termination states that the Agreement is being terminated because
of violation of this Agreement by the other party, the termination will be
effective upon the giving of the written notice). Any settlement with respect to
Notes placed by an Agent occurring after termination of this Agreement shall be
made as if this Agreement had not been terminated with respect to such
settlement, subject to Section 8(b) hereof, and each Agent agrees, if requested
by Farmer Mac, to take the steps necessary to be taken by such Agent in
connection with such settlement.
(b) An Agent shall have the right to terminate the applicable Terms
Agreement, whether oral or in writing, between such Agent and Farmer Mac by
notice to Farmer Mac at any time at or prior to the time of settlement on the
settlement date specified in such Terms Agreement in the event that, subsequent
to the execution and delivery of such Terms Agreement, there shall have occurred
(i) a suspension or material limitation of trading in securities generally on
the New York Stock Exchange, or any setting of minimum prices for trading on
such exchange, or any suspension of trading of any securities of Farmer Mac on
any exchange or in the over-the-counter market; (ii) a general banking
moratorium declared by the federal or New York authorities; or (iii) an outbreak
or material escalation of hostilities in which the United States is involved or
other substantial calamity or crisis the effect of which on the financial
markets of the United States is such as to make it, in the reasonable judgment
of such Agent, impracticable to market the Notes.
(c) In the event of any such termination, no terminated party shall have
any liability to the other parties hereto, nor shall the terminating party have
any liability to the terminated party (and, if the terminating party is an
Agent, to any other Agent), except as provided in Section 9.
9. Survival of Certain Representations and Obligations. The respective
indemnities, agreements, representations, and warranties of Farmer Mac and of
the Agents herein, or contained in certificates of officers of Farmer Mac
submitted pursuant hereto, will remain in full force and effect, regardless of
any investigation, or statement as to the results thereof, made by or on behalf
of any Agent, or Farmer Mac, or any of its officers or directors and will
survive delivery of and payment for the Notes. If this Agreement is terminated
pursuant to Section 8 or for any other reason, the respective obligations of
Farmer Mac and the Agents pursuant to Sections 4(f) and 6 and 7 shall remain in
effect. In addition, if any such termination shall occur after Farmer Mac has
accepted an offer to purchase Notes and prior to the related settlement, the
obligations of the applicable Agent under Section 4(a) and the second sentence
of the fourth paragraph of Section 1(b) and of Farmer Mac under Sections 1(d),
4(a), 4(b), 4(c) and 4(d) also shall remain in effect until the Notes are sold
by such Agent.
10. Notices. Unless otherwise provided herein, all notices and other
communications hereunder shall be in writing and shall be deemed to have been
duly given if mailed, delivered or telexed and confirmed in writing by means
reasonably calculated to result in delivery on the next business day to the
address specified below:
If to Farmer Mac:
Federal Agricultural Mortgage Corporation
919 18th Street, N.W.
Suite 200
Washington, D.C. 20006
Telecopier: (202) 872-7713
Attention: Vice President--Treasurer
(with a copy to the same address to the
attention of the Vice President, General Counsel
and Secretary)
If to Zions
Zions First National Bank.
One South Main Street
Salt Lake City, Utah 84111
Telecopier: (801) 524-4659
Attention: Joseph T. Tamburo
or, in the case of any party hereto, to such other address or person as such
party shall specify to each other party by a notice given in accordance with the
provisions of this Section 10. Any such notice shall take effect at the time of
receipt.
11. Successors. This Agreement will inure to the benefit of and be binding
upon the parties hereto and their respective successors (and, to the extent
provided in Sections 6 and 7, the officers and directors and controlling persons
referred to in Sections 6 and 7), and no other person will have any right or
obligation hereunder. No purchaser of any Notes as such will be deemed to be a
successor of any party hereto, and this Agreement will not inure to the benefit
of the holders of Notes by reason of their status as such.
12. Assignment. This Agreement shall not be assignable by any party hereto
without the express written consent of the counterparty.
13. Farmer Mac's Sales of Notes. Farmer Mac may offer and sell, from time
to time or continuously, any notes or other securities, in any manner and to or
through any person, without the consent of any Agent, whether in a firm
commitment underwriting pursuant to an underwriting agreement, through a selling
group, through Agents, or otherwise.
14. Agreements of Agents. (a) Each Agent represents, warrants and agrees
that such Agent and its Affiliates will comply with the Guidelines on Delivery
of Offering Materials Relating to Securities of Government-Sponsored
Enterprises, a copy of which is attached hereto as Exhibit C (the "Guidelines"),
and will maintain quality control procedures relating to its compliance with the
Guidelines. The phrase "as soon as it is available", as used in Paragraph 2 of
the Guidelines with respect to delivery of the Offering Circular by such Agent
and its Affiliates to purchasers during the applicable Distribution Period (as
defined in the Guidelines), shall mean that such action shall be taken as shall
be necessary to ensure that the Offering Circular is delivered to purchasers of
Notes promptly following the receipt thereof by such Agent and in any event
before settlement of such Notes. The term "Offering Documentation", as used in
the Guidelines, means the Offering Circular (but not including the documents
incorporated by reference therein). Each Agent agrees to indemnify Farmer Mac,
its directors, its officers, and each person, if any, who controls Farmer Mac
within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act
against any and all loss, liability, claim, damage and expense that any of them
may incur or that may be made against any of them arising out of, or in relation
to, or in connection with, the failure by such Agent or any of its Affiliates to
observe or comply with any of the restrictions or requirements contemplated in
this paragraph.
(b) In connection with the offering and sale of the Notes, each Agent
represents, warrants and agrees that it has complied and will comply with the
applicable law of any jurisdiction, including, without limitation, any
applicable laws, rules or regulations, and with any selling or solicitation
restriction set forth in the Offering Circular at the time relating to the Notes
and any applicable supplement thereto.
15. Sales of Notes Denominated in a Currency Other Than U.S. Dollars. If at
any time Farmer Mac determines to issue and sell, and any Agent determines to
purchase or solicit offers to purchase, Notes denominated in a currency other
than U.S. dollars, which other currency may include a composite currency, Farmer
Mac and such Agent may execute and deliver to one another a Foreign Currency
Amendment establishing, as appropriate, additions to and modifications of the
terms of this Agreement with respect to such Notes.
16. Amendment. This Agreement and the Exhibits hereto may be amended only
by written agreement of Farmer Mac and all of the Agents party to this Agreement
at such time.
17. Applicable Law. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of New York applicable to contracts made
and to be performed therein.
18. Counterparts. This Agreement may be executed by any one or more of the
parties hereto in any number of counterparts, each of which shall be deemed to
be an original, but all such respective counterparts together shall constitute
one and the same instrument.
If the foregoing correctly sets forth our agreement, kindly sign and return
a copy to us, whereupon it will become a binding agreement between Farmer Mac
and Zions in accordance with its terms.
Dated as of: October 1, 1998
Very truly yours,
FEDERAL AGRICULTURAL MORTGAGE CORPORATION
By: /s/ Nancy E. Corsiglia
---------------------------
Name: Nancy E. Corsiglia
Title: Vice President - Treasurer
The foregoing U.S. Selling Agency Agreement is confirmed, agreed to and accepted
as of the date above:
Zions First National Bank
By: /s/ Charles Loughridge Jr.
--------------------------
Name: Charles Loughridge Jr.
Title: Trading Manager
EXHIBIT A
TERMS AGREEMENT
__________ , 199__
Federal Agricultural Mortgage Corporation
919 18th Street, N.W.
Washington, D.C. 20006
The undersigned Agent agrees to purchase from you, as principal, the Notes
described in the Pricing Supplement attached hereto (the "Notes") on the terms
set forth therein and in the U.S. Selling Agency Agreement, dated as of October
1, 1998 (the "Agency Agreement"), to which we both are parties. The Pricing
Supplement supplements the Offering Circular (as defined in the Agency
Agreement), copies of which we have received. In so purchasing the Notes, we
understand and agree that we are not acting as agent of Farmer Mac in the sale
of the Notes.
The commission or discount to be paid to the Agent shall be as specified in
the attached Pricing Supplement.
This Terms Agreement may be executed in any number of counterparts, each of
which shall be deemed to be an original, but which together shall constitute one
and the same instrument.
Sincerely,
Zions First National Bank
By:
------------------------------
Name:
Title:
Confirmed, accepted and agreed to as of the
date first written above
FEDERAL AGRICULTURAL MORTGAGE CORPORATION
By:
------------------------------------------
Name:
Title:
EXHIBIT B
Commission Rate
Term of the Note (as a percentage of principal amount*)
---------------- --------------------------------------
One year to less than 2 years 0.100%
2 years to less than 3 years 0.125
3 years to less than 4 years 0.150
4 years to less than 5 years 0.175
5 years to less than 6 years 0.200
6 years to less than 7 years 0.225
7 years to less than 8 years 0.250
8 years to less than 9 years 0.250
9 years to less than 10 years 0.250
10 years to less than 15 years 0.300
*As a percentage of the issue price of the Note in the case of a Note issued
with significant original issue discount.
EXHIBIT C
Guidelines on Delivery of Offering Materials Relating to GSE Securities*
The following guidelines (the "Guidelines") have been established for the
distribution of offering materials to investors in securities issued by the Farm
Credit System, the Federal Home Loan Bank System, the Federal Agricultural
Mortgage Corporation, the Federal Home Loan Mortgage Corporation, the Federal
National Mortgage Association and the Student Loan Marketing Association (each,
an "Issuer"). The purpose of these Guidelines is to facilitate the timely
distribution of information to purchasers of Securities (as defined herein). All
firms participating in the distribution of Securities are expected to follow
these Guidelines. Certain capitalized terms used in these Guidelines are defined
in paragraph 6.
1. Each Principal Dealer for Securities being issued by an Issuer**
should request, as promptly as practicable, that the Issuer or its
agent deliver to the Principal Dealer (or, if the Issuer agrees to
distribute Offering Documentation to other Dealers, to such Dealers)
before settlement for that Security, a specific number of copies of
the Offering Documentation. The Principal Dealer should consult with
each Dealer to whom the Principal Dealer intends to sell such
Securities during the applicable Distribution Period, and each such
Dealer should consult with each Dealer to whom it intends to sell
Securities during the applicable Distribution Period, to ensure that
the number of copies the Principal Dealer requests from the Issuer
includes a quantity deemed adequate by each Dealer to satisfy its
obligations under these Guidelines. Each Issuer or its agent should
deliver the number of copies of the Offering Documentation requested
pursuant to this paragraph, and should deliver, if requested, any
documents incorporated by reference in such Offering Documentation to
the Principal Dealer requesting such documents (or, if the Issuer
agrees to distribute Offering Documentation to other Dealers, to such
Dealers). Nothing herein shall be construed to prevent an Issuer and a
Principal Dealer from agreeing to any other arrangements with respect
to the responsibility for duplication of Offering Documentation. Each
Principal Dealer should deliver to the Dealers to whom the Principal
Dealer sells Securities during the applicable Distribution Period the
number of copies of the Offering Documentation requested pursuant to
this paragraph, unless the Issuer agrees to deliver such copies to
such Dealers.
2. During the applicable Distribution Period, each Dealer participating
in a distribution of Securities should deliver or cause to be
delivered the applicable Offering Documentation to each offeree who
requests such documentation and to each person or entity who purchases
Securities from the Dealer. The Dealer should deliver such Offering
Documentation to each purchaser of the Securities during the
applicable Distribution Period as soon as it is available. If the
Dealer decides to send a Confirmation before all of the Offering
Documentation is available, the Dealer should note on such
Confirmation that if not previously provided or enclosed, Offering
Documentation will follow. In addition, any Dealer who receives a
request from any offeree or purchaser for documents incorporated by
reference in the Offering Documentation should provide such documents
to such offeree or purchaser or provide information on how to obtain
such documents from the Issuer. If a Dealer has previously furnished a
purchaser who is not a Dealer with all or some of the applicable
Offering Documentation in connection with an earlier transaction, the
Dealer need not furnish another copy of the material previously
furnished unless the purchaser requests an additional copy.
- --------
* Developed by the Government Sponsored Enterprises identified herein and the
Public Securities Association.
** With respect to securities issued by the Federal Agricultural Mortgage
Corporation, only its unsecured Debt Securities shall be covered by these
Guidelines.
3. For any Single Class Security that is TBA eligible, the Dealer should
note on all confirmations sent in connection with sales of such
Securities during the applicable Distribution Period that additional
pool information is available to each purchaser by telephoning
1-800-879-FARM for the Federal Agricultural Mortgage Corporation.
4. All Dealers in Securities who sell such Securities during the
Distribution Period should establish written policies and procedures
to implement these Guidelines.
5. Each Dealer should designate one or more contact persons or units as
responsible for the distribution of Offering Documentation and make
the name of such contact persons or units available to other Dealers
with whom it does business in the purchase and sale of Securities to
ensure efficient communication among Dealers concerning the
distribution of Offering Documentation for Securities. Each Issuer
should also designate one or more contact persons or units responsible
for distribution of Offering Documentation for Securities.
6. For purposes of these Guidelines, the following terms have the
meanings set forth below:
a) Act means the Securities Act of 1933, as amended from time to
time.
b) Confirmation means the written or electronic confirmation sent by
a Dealer to the purchaser of a Security setting forth the terms
of the sale of the Security.
c) Dealer means any person or entity (other than an Issuer) that
engages, either for all or part of such person's or entity's
time, directly or indirectly, as agent, broker or principal, in
the business of offering, buying, selling or otherwise dealing or
trading in Securities.
d) Debt Security means any discount note, medium-term note,
debenture, bond or other general obligation (secured or
unsecured) of an Issuer, including any strips of any of the
foregoing.
e) Distribution Period means:
i. with respect to any sale of a Debt Security by a Dealer, the
period of time in which such Dealer is (a) acting as an
underwriter with respect to such sale (as the term
"underwriter" is defined in the Act) or (b) offering or
selling Securities constituting the whole or a part of an
unsold allotment to, or subscription by, or allocation to,
such Dealer as a participant in the distribution of such
Securities by the Issuer or by or through an underwriter (as
defined in the Act);
ii. with respect to any sale of a Single Class Security by a
Dealer, from pricing of the Security until sixty (60) days
after its Issue Date;
iii. with respect to any sale of a Mortgage-Related Security by a
Principal Dealer, from pricing of the Security until the
later of (a) ninety (90) days after the settlement date for
the initial issuance of the Security or (b) the end of the
period in which such Principal Dealer is (1) acting as an
underwriter with respect to such sale (as the term
"underwriter" is defined in the Act) or (2) offering or
selling Securities of the same tranche (in case of a REMIC)
or the same class (in the case of any other Mortgage-Related
Security) constituting the whole or a part of an unsold
allotment to, or subscription by, or allocation to such
Principal Dealer as a participant in the distribution of
such Securities by the Issuer or by or through an
underwriter (as defined in the Act); and
iv. with respect to any sale of a Mortgage-Related Security by a
Dealer other than a Principal Dealer, from pricing of the
Security until one hundred and twenty (120) days after the
settlement date for the initial issuance of the Security.
f) Issue Date means, for any Single Class Security, the first day of the
calendar month that includes the settlement date for the initial
issuance of the Security.
g) Mortgage-Related Security means any security of an Issuer that is (i)
a Real Estate Mortgage Investment Conduit ("REMIC"), (ii) any other
security that directly or indirectly represents an interest in a pool
of mortgage loans which is not a Single Class Security or (iii) a
strip of any of the foregoing or of any other security that directly
or indirectly represents an interest in a pool of mortgage loans.
h) Offering Documentation means, with respect to any offering and issue
of Securities, any documents prepared by an Issuer for distribution in
connection with that offering of and issue of Securities (as specified
by the Issuer) including all generic offering documents prepared for
use in connection with such offering as well as other offerings, but,
for purposes of these Guidelines, shall not include documents
incorporated by reference, which are discussed elsewhere in these
Guidelines.
i) Principal Dealer means any Dealer that is acting as (i) an underwriter
(as defined in the Act) for a particular issuance of Securities
pursuant to an underwriting or similar agreement with the Issuer, (ii)
a member of a primary selling group of the Issuer pursuant to any
selling group or similar distribution agreement with the Issuer, (iii)
an agent for the Issuer pursuant to any selling agency agreement with
the Issuer or (iv) a Dealer engaged in a swap with the Issuer of
Securities in exchange for Mortgage-Related Securities pursuant to an
agreement. If the Issuer has specified that only one Dealer should
contact the Issuer regarding the number of copies of Offering
Documentation required for a particular issue of Securities, then for
purposes of paragraph 1 above "Principal Dealer" means only such
Dealer.
j) Security means any Debt Security, Mortgage-Related Security or Single
Class Security offered for sale by and issued or guaranteed by an
Issuer.
k) Single Class Security means any security that directly or indirectly
represents an interest in a pool of mortgage loans where there are no
securities of another class that also represent an interest in such
pool.
l) TBA eligible means that under Guidelines adopted by the Public
Securities Association, the security may be the subject of a delayed
delivery contract (i.e., a contract for the purchase or sale of the
security with delivery to occur on an agreed upon future date) when
certain terms of the contract, such as pool number, are not known as
of the trade date.
Exhibit 10.9
FEDERAL AGRICULTURAL MORTGAGE CORPORATION
Discount Notes
Discount Note Dealer Agreement
This DISCOUNT NOTE DEALER AGREEMENT (the "Agreement") is dated as of the
18th day of September, 1996, by and between FEDERAL AGRICULTURAL MORTGAGE
CORPORATION ("Farmer Mac"), a federally charted instrumentality of the United
States established by Title VIII of the Farm Credit Act of 1971, as amended, (12
U.S.C. ss.ss. 2279aa et seq. (the "Act") and ZIONS FIRST NATIONAL BANK, a
national association ("Dealer").
WHEREAS, Farmer Mac was established to attract new capital for the
financing of agricultural and rural housing mortgage loans and to provide
liquidity to agricultural and rural housing lenders;
WHEREAS, Farmer Mac is intended to facilitate the development of a
secondary market for qualified mortgage loans secured by first liens on
agricultural real estate or rural housing and for portions of farm ownership and
operating loans guaranteed by the United States acting through the Secretary of
Agriculture;
WHEREAS, from time to time, Farmer Mac intends to sell debt obligations
pursuant to its authority in section 8.6(e) of the Farm Credit Act of 1971, as
amended (12 U.S.C. Section 2279aa-6(e)(2) (the "Discount Notes") through members
of a dealer group (the "Discount Note Dealer Group"); and
WHEREAS, Dealer has indicated its desire to become a member of the Discount
Note Dealer Group and to use its best efforts to effectuate the wide
distribution of Discount Notes upon such terms as Discount Notes are offered for
sale by Farmer Mac;
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and adequacy of which are hereby
acknowledged, the parties agree as follows:
Section 1. Certain Definitions.
(a) Business Day: A day other than: (i) a Saturday or Sunday; (ii) a day on
which the Federal Reserve Bank of New York is authorized or required by law,
regulation or executive order to be closed; or (iii) a day on which the Federal
Reserve Bank at which a Holder's account is maintained is authorized or
obligated by law, regulation or executive order to be closed. (b) Cash Sale: As
defined in Section 5.
(c) Discount Notes: The promissory notes of Farmer Mac described in Section
2.
(d) Discount Rate: The rate of discount applicable to establish the
purchase price for a Discount Note having a specific Maturity Date.
(e) Exchange Act: The Securities Exchange Act of 1934, as amended.
(f) Fed Book-Entry System: The book-entry system of the Federal Reserve
Banks which provides book-entry holding and settlement for U.S. dollar
denominated securities issued by the U.S. Government, certain of its agencies,
instrumentalities, government-sponsored enterprises and international
organizations of which the United Stated is a member.
(g) forward sale: As defined in Section 5.
(h) Holder: The entity whose name appears on the books and records of a
Federal Reserve Bank as the entity for whose account a Discount Note has been
deposited.
(i) Maturity Date: The specified date on which a Discount Note is payable.
(j) Offering Circular: The Farmer Mac Medium-Term Notes and Discount Notes
Offering Circular dated July 1, 1996 and successors thereto, as amended and
supplemented from time to time.
(k) Securities Act: The Securities Act of 1933, as amended.
(l) Settlement Date: The date specified by Farmer Mac for payment to Farmer
Mac by Dealer for, and delivery by Farmer Mac to Dealer of, the Discount Notes.
(m) Trade Date: The date on which Farmer Mac and Dealer establish final
terms applicable to an issuance of Discount Notes.
Section 2. Description of the Discount Notes. The Discount Notes shall
constitute general unsecured obligations of Farmer Mac and shall be sold at a
discount from their face amount. Farmer Mac will offer Discount Notes in
book-entry form through the Fed Book-Entry System in minimum amounts of $1,000
and additional integral multiples thereof. Farmer Mac will offer Discount Notes
having maturities of one year or less from their date of issue.
The face amount of each Discount Note will be payable on a Maturity Date.
Farmer Mac will not offer a Discount Note having a Maturity Date on a day other
than a day expected to be a Business Day. Farmer Mac reserves the right to
advise the Discount Note Dealer Group by telephone of other dates that will not
be acceptable as a Maturity Date for the Discount Notes.
Although Farmer Mac may borrow up to $1,500,000,000 from the Secretary of
the Treasury, subject to certain restrictions, to enable it to fulfill its
guarantee obligations, Farmer Mac may not borrow from Treasury to pay debt
obligations, such as the Discount Notes issued by Farmer Mac. The Discount Notes
will be obligations of Farmer Mac only and are not guaranteed by and do not
constitute debts or obligations of the Farm Credit Administration, the United
States or any agency or instrumentality thereof other than Farmer Mac. Income
from the Discount Notes has no exemption from federal, and no federal exemption
from state or local, taxation. The Discount Notes are exempt from the
registration requirements of the Securities Act. The Discount Notes will not be
issued under an indenture, and no trustee is provided with respect to the
Discount Notes.
Farmer Mac has entered into a Fiscal Agency Agreement, dated as of June 1,
1996 (the "Fiscal Agency Agreement"), with the Federal Reserve Banks pursuant to
which the Federal Reserve Banks will act as fiscal agents (collectively, the
"Fiscal Agent") with respect to the Discount Notes. Farmer Mac will issue
Discount Notes and establish their terms from time to time in accordance with
the provisions of a Master Terms Agreement, dated as of July 1, 1996, among
Farmer Mac and the Holders of the Discount Notes and the Fiscal Agency
Agreement.
Section 3. Pricing Procedures. From time to time, Farmer Mac will notify
Dealer as to the approximate amount of Discount Notes to be sold during a stated
period and will, in connection with authorizing Dealer to proceed with offering
such Discount Notes to the public, notify Dealer as to the aggregate face amount
of Discount Notes to be offered, the applicable Maturity Date(s) for such
Discount Notes and the Discount Rate(s) applicable to Discount Notes having such
Maturity Date(s). Farmer Mac will give such information by telephone to Dealer's
designated representative. Dealer will apprise Farmer Mac of any pertinent
market conditions that may affect the marketing of the Discount Notes and of the
status of Dealer's marketing efforts and will, upon request, provide rate
recommendations to Farmer Mac.
Farmer Mac reserves the right, in its sole discretion and without prior
notice to Dealer, to: (i) reject any offer for the purchase of Discount Notes;
(ii) allot less than the face amount of Discount Notes requested by Dealer; or
(iii) terminate the sale of Discount Notes at any time prior to completion of
the sale on the Trade Date; provided, however, that Farmer Mac agrees that, in
the event that Farmer Mac takes any such actions, it will as promptly as
practicable give Dealer notice thereof. Farmer Mac reserves the right, in its
sole discretion and with prior notice to Dealer, to change the Discount Rate
then applicable to unissued Discount Notes of any Maturity Date. The foregoing
is subject to the limitation that, in the event that Farmer Mac confirms by
telephone its acceptance of an offer to purchase any Discount Note in accordance
with Section 5 hereof, Farmer Mac shall be obligated to proceed with such sale.
Section 4. Offering Procedures. Dealer shall offer for sale and sell
Discount Notes purchased under this Agreement at the appropriate Discount Rates
for the appropriate Maturity Dates as specified by Farmer Mac in accordance with
Section 3 hereof. Subject to the prior approval of Farmer Mac, Dealer may accept
orders for delayed delivery. Without the express authorization of Farmer Mac,
Dealer may not purchase Discount Notes sold by Farmer Mac to Dealer for its own
account under this Agreement. Dealer may purchase Discount Notes for its own
account following the commencement of trading of Discount Notes in the secondary
market.
Section 5. Transmittal of Orders and Acceptance of Offers for Discount
Notes. Dealer will advise a designated representative of Farmer Mac by telephone
of offers to purchase Discount Notes for either immediate or delayed delivery.
Dealer shall confirm such offers with Farmer Mac as to face amount, Discount
Rate, date of issue and Maturity Date, and Farmer Mac shall promptly accept or
reject any such offer to purchase. Farmer Mac shall have no obligation to accept
any offer to purchase Discount Notes prior to its telephone acceptance of such
offer. Farmer Mac's telephone acceptance of an offer shall bind Farmer Mac and
Dealer to proceed with such sale in accordance with the terms as so confirmed.
Such confirmation shall occur on the Trade Date. Telephone offers for "cash
sales" shall be given to Farmer Mac not later than 11:00 a.m., New York City
time, on the Trade Date, and all telephone offers for "forward sales" shall be
given to Farmer Mac not later than 3:00 p.m., New York City time, on the Trade
Date. For purposes of this Agreement, a "cash sale" is a sale in which payment
for, and issuance of, the related Discount Note is made on the Trade Date; a
"forward sale" is a sale in which payment for, and issuance of, the related
Discount Note is made on a Business Day after the Trade Date. A uniform delivery
instruction form satisfactory to Farmer Mac shall be provided to Farmer Mac by
Dealer.
Section 6. Issuance of and Payment for Discount Notes. The Discount Notes
shall be issued and may be redeemed by Farmer Mac. Issuance of, and payment for,
Discount Notes shall occur by approximately 2:00 p.m., New York City time on the
Settlement Date. Delivery of the Discount Notes shall be made against payment of
the purchase price therefor in immediately available funds payable to the
account of Farmer Mac through the Fed Book-Entry System. Failure of Dealer to
make payment on the Settlement Date for the Discount Notes allotted to Dealer
shall result in a charge to Dealer for accrued interest on the aggregate unpaid
principal of the Discount Notes for which payment was not made on the Settlement
Date, calculated on a daily basis to the date of payment, at a per annum rate
equal to: (i) the Discount Rate applicable to such Discount Notes plus (ii) the
concession to Dealer as described in Section 7 herein; provided, however, that
no such charge will be made to Dealer in the event that (A) Farmer Mac fails to
deliver the Discount Notes on the Settlement Date, or (B) Dealer fails to
receive the Discount Notes by 3:00 p.m. on the Settlement Date. In the event
settlement does not occur on the date otherwise scheduled therefor, settlement
shall be automatically rescheduled for the following Business Day. On the
Maturity Date, Farmer Mac will make payment of the face amount of the Discount
Notes by prompt payment of immediately available funds to the Fiscal Agent for
prompt payment to the Holder of the Discount Notes. In the event that the
Maturity Date for a Discount Note is not a Business Day, the Maturity Date shall
be the next succeeding Business Day.
Section 7. Concession. Farmer Mac agrees to allow a concession to Dealer of
..05% of the face amount of the Discount Notes sold by Dealer. Dealer may deduct
the amount of the concession from the gross amount owed to Farmer Mac by Dealer
in respect of such Discount Notes. The concession may be withheld in whole or in
part as to Dealer at Farmer Mac's discretion upon Farmer Mac's determination
that the offering or sale of Discount Notes by Dealer is in violation of the
terms hereof or is otherwise improper. No other concessions or other amounts
will be paid to Dealer. The amount of the concession may be changed by Farmer
Mac from time to time in its sole discretion. Farmer Mac shall notify Dealer at
least five (5) Business Days prior to the effective date of any such change.
Section 8. Secondary Market. Dealer shall use its best efforts to offer for
sale and to sell Discount Notes purchased under this Agreement and to maintain
an orderly secondary market for the Discount Notes. Dealer agrees to provide, on
a continuous basis, bid and ask prices for the Discount Notes and to quote such
prices in the secondary market. All such prices shall be quoted by observing the
standards and principles of the industry and at a price that is fair, taking
into consideration all relevant circumstances, including market conditions at
the time of the transaction regarding the Discount Notes and similar securities.
Any bid and ask price quoted by Dealer may be published by Farmer Mac. No later
than the fifth Business Day of each month, Dealer shall submit a written report
to Farmer Mac, in a form mutually acceptable to Farmer Mac and Dealer, of its
purchases and sales of Discount Notes in the secondary market during the
previous month. Dealer shall also be responsible for continually advising Farmer
Mac of conditions and developments in the secondary market that may have an
effect on the price or marketability of the Discount Notes.
Section 9. Offering Material. Dealer will not make any representations or
give any information in connection with the offering and sale of the Discount
Notes other than those contained in the current Offering Circular and any other
descriptive materials relating to the Notes (a) furnished to Dealer by Farmer
Mac or (b) approved by Farmer Mac in writing prior to their use.
Dealer represents, warrants and agrees that Dealer (and any of its
affiliates) will comply with the Guidelines on Delivery of Offering Materials
Relating to Securities of Government-Sponsored Enterprises, a copy of which is
attached hereto as Exhibit A (the "Guidelines"), and will maintain quality
control procedures relating to its compliance with the Guidelines. The phrase
"as soon as it is available," as used in Paragraph 2 of the Guidelines with
respect to delivery of the Offering Circular by such Dealer (and its affiliates)
to purchasers during the applicable Distribution Period (as defined in the
Guidelines), shall mean that such action shall be taken as shall be necessary to
ensure that the Offering Circular is delivered to purchasers of Discount Notes
promptly following the receipt thereof by Dealer and in any event before
settlement of such Discount Notes. The term "Offering Documentation," as used in
the Guidelines, means the Offering Circular (but not including the documents
incorporated by reference therein). Dealer agrees to indemnify Farmer Mac, its
directors, its officers, and each person, if any, who controls Farmer Mac within
the meaning of Section 15 of the Securities Act or Section 20 of the Exchange
Act against any and all loss, liability, claim, damage and expense that any of
them may incur or that may be made against any of them arising out of, or in
relation to, or in connection with, the failure by Dealer (or any of its
affiliates) to observe or comply with any of the restrictions or requirements
contemplated in this paragraph.
Section 10. Expenses. Farmer Mac shall pay all expenses incurred by Farmer
Mac in connection with the matters contemplated by this Agreement and in
connection with the matters herein to be performed by Farmer Mac, including all
expenses in connection with the preparation, printing and delivery to Dealer of
the Offering Circular and the fees and expenses of its own counsel and
accountants. Dealer shall have no authority to obligate Farmer Mac or the Fiscal
Agent for any expenses incurred by Dealer. Farmer Mac shall not be liable for
any expenses incurred by Dealer in connection with the purchase and sale of
Discount Notes, and Dealer agrees to pay its expenses relating to the
performance of its obligations under this Agreement.
Section 11. Maturity Schedule. Farmer Mac will maintain a record of the
aggregate face amount of Discount Notes outstanding, each future Maturity Date
of outstanding Discount Notes and the aggregate face amount of Discount Notes
due on each such Maturity Date. When requested, Farmer Mac will advise Dealer of
such amounts and dates.
Section 12. Representations, Warranties and Covenants of Dealer and Farmer
Mac.
(a) Dealer hereby represents, warrants and covenants to Farmer Mac that:
(i) Dealer shall be solely responsible for determining the
application of federal and state laws with respect to Dealer's ability
to sell, offer for sale or induce the purchase of Discount Notes and
for complying with such laws, notwithstanding any information which
may be furnished by Farmer Mac relating to this matter. Dealer
represents and warrants that Dealer is and shall remain in compliance
with the laws of any jurisdiction in which Dealer sells, offers for
sale or induces the purchase of Discount Notes.
(ii) Dealer shall not offer or sell Discount Notes to any type of
investor in any jurisdiction which requires that any such offer or
sale to such type of investor be made only by a person registered or
licensed as a broker or dealer in such jurisdiction unless Dealer and
its relevant representatives are so registered or licensed.
(iii)By execution of this Agreement, Dealer has received a copy
of the then current Offering Circular.
(iv) In connection with the offer or sale of Discount Notes,
Dealer shall not give any information or make any representations with
respect to the Discount Notes not contained in the current Offering
Circular or in any documents incorporated therein by reference.
(b) Farmer Mac hereby represents, warrants and covenants to Dealer as
of the date hereof and as of each Trade Date and Settlement Date with
respect to an offering of Discount Notes that:
(i) Farmer Mac is duly organized and validly existing as a
federally chartered instrumentality of the United States.
(ii) This Agreement has been duly authorized, executed and
delivered by Farmer Mac.
(iii)The Discount Notes have been duly authorized by Farmer Mac,
and each Discount Note, when its terms have been established, and it
has been issued, authenticated and delivered pursuant to this
Agreement and the Fiscal Agency Agreement, will constitute a valid and
legally binding obligation of Farmer Mac enforceable in accordance
with its terms, subject, as to enforcement, to bankruptcy, insolvency,
reorganization and other laws of general applicability relating to or
affecting creditors' rights and to general equity principles.
(iv) The Offering Circular (including the documents incorporated
by reference therein) does not include any untrue statement of a
material fact or omit to state any material fact necessary to make the
statements therein, in light of the circumstances in which they were
made, not misleading.
(v) No consent, approval, authorization, order, registration or
qualification of or with any court or any regulatory authority or
other governmental agency or body (including the Securities and
Exchange Commission), except as may have otherwise been previously
obtained (other than in connection or compliance with the securities
or "blue sky" laws of any jurisdiction), is required for or in
connection with the issuance, offer or sale of the Discount Notes by
Farmer Mac in accordance with the terms of this Agreement or for the
consummation of the transactions contemplated by this Agreement, the
Fiscal Agency Agreement, the Offering Circular or the Discount Notes.
Section 13. Indemnification. Dealer agrees to indemnify and hold Farmer Mac
harmless from and against any losses, liabilities, damages or claims (or actions
in respect thereof) to which it may become subject insofar as such losses,
liabilities, damages or claims (or actions in respect thereof) arise out of or
relate to the making by Dealer of any representation or the giving by Dealer of
any information in connection with the offering or sale of the Discount Notes
that is not contained in the Offering Circular, the documents incorporated
therein by reference, and any other descriptive material relating to the
Discount Notes furnished to Dealer by Farmer Mac or approved by Farmer Mac in
writing prior to their use. Dealer further agrees to reimburse Farmer Mac for
any legal or other expense reasonably incurred by Farmer Mac in connection with
investigation of or defending any such losses, liabilities, damages, claims or
actions as such expenses are incurred. Farmer Mac agrees to give prompt written
notice to Dealer of any claim or the commencement of any action as to which
indemnification will be requested. Dealer will not be liable, under this Section
13, in any case in which any such loss, liability, damage or claim arises out of
or is based upon any untrue statement or alleged untrue statement of a material
fact contained in the Offering Circular, any supplement or amendment thereto or
any documents incorporated by reference therein, or arises out of or is based
upon the omission, or alleged untrue statement of a material fact contained in
the Offering Circular, any supplement or amendment thereto or any documents
incorporated by reference therein, or arises out of or is based upon the
omission or alleged omission to state therein a material fact necessary to make
the statement therein, in the light of the circumstances under which they are
made, not misleading, on the part of Farmer Mac in information provided Dealer
specifically for use in connection with the preparation of the Offering
Circular. Dealer's obligation under this Section 13 shall be in addition to any
liability that Dealer may otherwise have and shall extend, upon the same terms
and conditions, to each director, officer, and person, if any, who controls
Farmer Mac within the meaning of Section 15 of the Securities Act or Section 20
of the Exchange Act.
Section 14. Non-Exclusivity. Dealer acknowledges that the Discount Note
Dealer Group includes a number of members, and that the composition of the
Discount Note Dealer Group may be changed by Farmer Mac from time to time
without prior notice to Dealer. Any change in the composition of the Discount
Note Dealer Group shall not affect the rights and obligations of Farmer Mac and
Dealer under this Agreement.
Section 15. Authorized Personnel. Dealer and Farmer Mac shall exchange,
from time to time, and shall maintain as current as reasonably practicable, a
list of personnel involved with the sale of the Discount Notes, such list to
designate the respective areas of responsibility of each person.
Section 16. Effective Date. This Agreement shall be effective as of the
date set forth above and shall be applicable to all purchases and sales of
Discount Notes having a Trade Date on or after the date set forth above. Any
purchase or sale of Discount Notes having a Trade Date prior to the date set
forth above shall be governed by the terms and provisions of the agreement
between Dealer and Farmer Mac in effect on such Trade Date.
Section 17. Amendment. This Agreement may not be amended or modified in any
manner except by written agreement signed by both parties hereto.
Section 18. Termination. Either party to this Agreement may terminate this
Agreement, at its sole option, by giving written notice to the other party. Any
such termination shall be effective immediately upon receipt, but shall not
affect any obligation of the parties outstanding at the time of termination.
Section 19. Governing Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of New York, applicable to
contracts made and to be performed therein.
Section 20. Entire Agreement. This Agreement constitutes the entire
understanding of the parties with respect to sale and distribution of the
Discount Notes, except as provided in Section 17 hereof, and supersedes all
other agreements, covenants, representations, warranties, understandings and
communications between the parties, whether oral or written.
Section 21. Notice. Written notice required to be given pursuant to this
Agreement shall be sent, if to Farmer Mac, 919 18th Street, N.W., Suite 200,
Washington, D.C. 20006, telecopier (202) 872-7713, and to the attention of
Farmer Mac's Treasurer, and if to Dealer, to One South Main Street, Suite 1340,
Salt Lake City, Utah 84111 and to the attention of Scott R. Burnett. Notice
shall be effective upon actual receipt or refusal thereof.
Section 22. Successors. This Agreement shall be binding upon and inure to
the benefits of the parties hereto and their respective successors and assigns.
Section 23. Counterparts. This Agreement may be executed in several
counterparts, each of which shall be deemed an original hereof.
Section 24. Assignment. This Agreement shall not be assignable by either
party without the consent of the other party.
Section 25. Section Headings. Section headings are for convenience only and
shall not be construed as part of this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
FEDERAL AGRICULTURAL MORTGAGE CORPORATION
By: __/s/ Nancy E. Corsiglia
----------------------------
Nancy E. Corsiglia
Treasurer
ZIONS FIRST NATIONAL BANK
By: /s/ Scott R. Burnett
-------------------------
Scott R. Burnett
Vice President
Exhibit 10.10
(Multicurrency-Cross Border)
ISDA(R)
International Swap Dealers Association. Inc.
MASTER AGREEMENT
dated as of June 26, 1997
Zions First National Bank and Federal Agricultural Mortgage Corporation
have entered and/or anticipate entering into one or more transactions (each a
"Transaction") that are or will be governed by this Master Agreement, which
includes the schedule (the "Schedule"), and the documents and other confirming
evidence (each a "Confirmation") exchanged between the parties confirming those
Transactions.
Accordingly, the parties agree as follows:
1. Interpretation
(a) Definitions. The terms defined in Section 14 and in the Schedule will have
the meanings therein specified for the purpose of this Master Agreement.
(b) Inconsistency. In the event of any inconsistency between the provisions of
the Schedule and the other provisions of this Master Agreement, the Schedule
will prevail. In the event of any inconsistency between the provisions of any
Confirmation and this Master Agreement (including the Schedule), such
Confirmation will prevail for the purpose of the relevant Transaction.
(c) Single Agreement. All Transactions are entered into in reliance on the fact
that this Master Agreement and all Confirmations form a single agreement between
the parties (collectively referred to as this -Agreement), and the parties would
not otherwise enter into any Transactions.
2. Obligations
(a) General Conditions.
(i) Each party will make each payment or delivery specified in each
Confirmation to be made by it, subject to the other provisions of this
Agreement.
(ii) Payments under this Agreement will be made on the due date for value
on that date in the place or the account specified in the relevant
Confirmation or otherwise pursuant to this Agreement, in freely
transferable funds and in the manner customary for payments in the required
currency. Where settlement is by delivery (that is, other than by payment),
such delivery will be made for receipt on the due date in the manner
customary for the relevant obligation unless otherwise specified in the
relevant Confirmation or elsewhere in this Agreement.
(iii) Each obligation of each party under Section 2(a)(i) is subject to (1)
the condition precedent that no Event of Default or Potential Event of
Default with respect to the other party has occurred and is continuing, (2)
the condition precedent that no Early Termination Date in respect of the
relevant Transaction has occurred or been effectively designated and (3)
each other applicable condition precedent specified in this Agreement.
(b) Change of Account. Either party may change its account for receiving a
payment or delivery by giving notice to the other party at least five Local
Business Days prior to the scheduled date for the payment or delivery to which
such change applies unless such other party gives timely notice of a reasonable
objection to such change.
(c) Netting. If on any date amounts would otherwise be payable:-
(i) in the same currency; and
(ii) in respect of the same Transaction.
by each party to the other, then, on such date, each party's obligation to make
payment of any such amount will be automatically satisfied and discharged and,
if the aggregate amount that would otherwise have been payable by one party
exceeds the aggregate amount that would otherwise have been payable by the other
party, replaced by an obligation upon the party by whom the larger aggregate
amount would have been payable to pay to the other party the excess of the
larger aggregate amount over the smaller aggregate amount.
The parties may elect in respect of two or more Transactions that a net amount
will be determined in respect of all amounts payable on the same date in the
same currency in respect of such Transactions, regardless of whether such
amounts are payable in respect of the same Transaction. The election may be made
in the Schedule or a Confirmation by specifying that subparagraph (ii) above
will not apply to the Transactions identified as being subject to the election,
together with the starting date (in which case subparagraph (ii) above will not,
or will cease to, apply to such Transactions from such date). This election may
be made separately for different groups of Transactions and will apply
separately to each pairing of Offices through which the parties make and receive
payments or deliveries.
(d) Deduction or Withholding for Tax.
(i) Gross-Up. All payments under this Agreement will be made without any
deduction or withholding for or on account of any Tax unless such deduction
or withholding is required by any applicable law, as modified by the
practice of any relevant governmental revenue authority, then in effect. If
a party is so required to deduct or withhold, then that party ("X") will:
(1) promptly notify the other party ("Y") of such requirement;
(2) pay to the relevant authorities the full amount required to be
deducted or withheld (including the full amount required to be
deducted or withheld from any additional amount paid by X to Y under
this Section 2(d)) promptly upon the culler of determining that such
deduction or withholding is required or receiving notice that such
amount has been assessed against Y;
(3) promptly forward to Y an official receipt (or a certified copy),
or other documentation reasonably acceptable to Y, evidencing such
payment to such authorities; and
(4) if such Tax is an Indemnif`iable Tax, pay to Y, in addition to the
payment to which Y is otherwise entitled under this Agreement, such
additional amount as is necessary to ensure that the net amount actually
received by Y (free and clear of Indemnifiable Taxes, whether assessed
against X or Y) will equal the full amount Y would have received had no
such deduction or withholding been required. However, X will not be
required to pay any additional amount to Y to the extent that it would not
be required to be paid but for:
(A) the failure by Y to comply with or perform any agreement
contained in Section 4(a)(i), 4(a)(iii) or 4(d); or
(B) the failure of a representation made by Y pursuant to Section 3(f) to
be accurate and true unless such failure would not have occurred but for (I) any
action taken by a taxing authority, or brought in a court of competent
jurisdiction, on or after the date on which a Transaction is entered into
(regardless of whether such action is taken or brought with respect to a party
to this Agreement) or (II) a Change in Tax Law.
(ii) Liability. If:-
(1) X is required by any applicable law, as modified by the practice of any
relevant governmental revenue authority, to make any deduction or withholding in
respect of which X would not be required to pay an additional amount to Y under
Section 2(d)(i)(4);
(2) X does not so deduct or withhold; and
(3) a liability resulting from such Tax is assessed directly against X,
then, except to the extent Y has satisfied or then satisfies the liability
resulting from such Tax, Y will promptly pay to X the amount of such liability
(including any related liability for interest, but including any related
liability for penalties only if Y has failed to comply with or perform any
agreement contained in Section 4(a)(i), 4(a)(iii) or 4(d)).
(e) Default Interest; Other Amounts. Prior to the occurrence or effective
designation of an Early Termination Date in respect of the relevant Transaction,
a party that defaults in the performance of any payment obligation will, to the
extent permitted by law and subject to Section 6(c), be required to pay interest
(before as well as after judgment) on the overdue amount to the other party on
demand in the same currency as such overdue amount, for the period from (and
including) the original due date for payment to (but excluding) the date of
actual payment, at the Default Rate. Such interest will be calculated on the
basis of daily compounding and the actual number of days elapsed. If, prior to
the occurrence or effective designation of an Early Termination Date in respect
of the relevant Transaction, a party defaults in the performance of any
obligation required to be settled by delivery, it will compensate the other
party on demand if and to the extent provided for in the relevant Confirmation
or elsewhere in this Agreement.
3. Representations
Each party represents to the other party (which representations will be deemed
to be repeated by each party on each date on which a Transaction is entered into
and, in the case of the representations in Section 3(f), at all times until the
termination of this Agreement) that:
(a) Basic Representations.
(i) Status. It is duly organised and validly existing under the laws of the
jurisdiction of its organisation or incorporation and, if relevant under
such laws, in good standing;
(ii) Powers. It has the power to execute this Agreement and any other
documentation relating to this Agreement to which it is a party, to deliver
this Agreement and any other documentation relating to this Agreement that
it is required by this Agreement to deliver and to perform its obligations
under this Agreement and any obligations it has under any Credit Support
Document to which it is a party and has taken all necessary action to
authorise such execution, delivery and performance;
(iii) No Violation or Conflict. Such execution, delivery and performance do
not violate or conflict with any law applicable to it, any provision of its
constitutional documents, any order or judgment of any court or other
agency of government applicable to it or any of its assets or any
contractual restriction binding on or affecting it or any of its assets;
(iv) Consents. All governmental and other consents that are required to
have been obtained by it with respect to this Agreement or any Credit
Support Document to which it is a party have been obtained and are in full
force and effect and all conditions of any such consents have been complied
with; and
(v) Obligations Binding. Its obligations under this Agreement and any
Credit Support Document to which it is a party constitute its legal, valid
and binding obligations, enforceable in accordance with their respective
terms (subject to applicable bankruptcy, reorganisation, insolvency,
moratorium or similar laws affecting creditors' rights generally and
subject, as to enforceability, to equitable principles of general
application (regardless of whether enforcement is sought in a proceeding in
equity or at law)).
(b) Absence of Certain Events. No Event of Default or Potential Event of Default
or, to its knowledge, Termination Event with respect to it has occurred and is
continuing and no such event or circumstance would occur as a result of its
entering into or performing its obligations under this Agreement or any Credit
Support Document to which it is a party.
(c) Absence of Litigation. There is not pending or, to its knowledge, threatened
against it or any of its Affiliates any action, suit or proceeding at law or in
equity or before any court, tribunal, governmental body, agency or official or
any arbitrator that is likely to affect the legality, validity or enforceability
against it of this Agreement or any Credit Support Document to which it is a
party or its ability to perform its obligations under this Agreement or such
Credit Support Document.
(d) Accuracy of Specified Information. All applicable information that is
furnished in writing by or on behalf of it to the other party and is identified
for the purpose of this Section 3(d) in the Schedule is, as of the date of the
information, true, accurate and complete in every material respect.
(e) Payer Tax Representation. Each representation specified in the Schedule as
being made by it for the purpose of this Section 3(e) is accurate and true.
(f) Payee Tax Representations. Each representation specified in the Schedule as
being made by it for the purpose of this Section 3(f) is accurate and true.
4. Agreements
Each party agrees with the other that, so long as either party bas or may have
any obligation under this Agreement or under any Credit Support Document to
which it is a party:
(a) Furnish Specified Information. It will deliver to the other party or, in
certain cases under subparagraph (iii) below, to such government or taxing
authority as the other party reasonably directs:
(i) any forms, documents or certificates relating to taxation specified in the
Schedule or any Confirmation;
(ii) any other documents specified in the Schedule or any Confirmation; and
(iii) upon reasonable demand by such other party, any form or document that may
be required or reasonably requested in writing in order to allow such other
party or its Credit Support Provider to make a payment under this Agreement or
any applicable Credit Support Document without any deduction or withholding for
or on account of any Tax or with such deduction or withholding at a reduced rate
(so long as the completion, execution or submission of such form or document
would not materially prejudice the legal or commercial position of the party in
receipt of such demand), with any such form or document to be accurate and
completed in a manner reasonably satisfactory to such other party and to be
executed and to be delivered with any reasonably required certification,
in each case by the date specified in the Schedule or such Confirmation or, if
none is specified, as soon as reasonably practicable.
(b) Maintain Authorisations. It will use all reasonable efforts to maintain in
full force and effect all consents of any governmental or other authority that
are required to be obtained by it with respect to this Agreement or any Credit
Support Document to which it is a party and will use all reasonable efforts to
obtain any that may become necessary in the future.
(c Comply with Laws. It will comply in all material respects with all applicable
laws and orders to which it may be subject if failure so to comply would
materially impair its ability to perform its obligations under this Agreement or
any Credit Support Document to which it is a party.
(d) Tax Agreement. It will give notice of any failure of a representation made
by it under Section 3(f), to be accurate and true promptly upon learning of such
failure.
(e) Payment of Stamp Tax. Subject to Section 11, it will pay any Stamp Tax
levied or imposed upon it or in respect of its execution or performance of this
Agreement by a jurisdiction in which it is incorporated, organised, managed and
controlled, or considered to have its seat, or in which a branch or office
through which it is acting for the purpose of this Agreement is located ("Stamp
Tax Jurisdiction") and will indemnify the other party against any Stamp Tax
levied or imposed upon the other party or in respect of the other party's
execution or performance of this Agreement by any such Stamp Tax Jurisdiction
which is not also a Stamp Tax Jurisdiction with respect to the other party.
5. Events or Default and Termination Events
(a) Events of Default. The occurrence at any time with respect to a party or, if
applicable, any Credit Support Provider of such party or any Specified Entity of
such party of any of the following events constitutes an event of default (an
"Event of Default") with respect to such party:
(i) Failure to Pay or Deliver. Failure by the party to make, when due, any
payment under this Agreement or delivery under Section 2(a)(i) or 2(e) required
to be made by it if such failure is not remedied on or before the third Local
Business Day after notice of such failure is given to the party;
(ii) Breach of Agreement. Failure by the party to comply with or perform any
agreement or obligation (other than an obligation to make any payment under this
Agreement or delivery under Section 2(a)(i) or 2(e) or to give notice of a
Termination Event or any agreement or obligation under Section 4(a)(i),
4(a)(iii) or 4(d)) to be complied with or performed by the party in accordance
with this Agreement if such failure is not remedied on or before the thirtieth
day after notice of such failure is given to the party;
(iii) Credit Support Default.
(1) Failure by the party or any Credit Support Provider of such party to comply
with or perform any agreement or obligation to be complied with or performed by
it in accordance with any Credit Support Document if such failure is continuing
after any applicable grace period has elapsed;
(2) the expiration or termination of such Credit Support Document or the failing
or ceasing of such Credit Support Document to be in full force and effect for
the purpose of this Agreement (in either case other than in accordance with its
terms) prior to the satisfaction of all obligations of such party under each
Transaction to which such Credit Support Document relates without the written
consent of the other party, or
(3) the party or such Credit Support Provider disaffirms, disclaims, repudiates
or rejects, in whole or in part, or challenges the validity of, such Credit
Support Document;
(iv) Misrepresentation. A representation (other than a representation under
Section 3(e) or (f)) made or repeated or deemed to have been made or repeated by
the party or any Credit Support Provider of such party in this Agreement or any
Credit Support Document proves to have been incorrect or misleading in any
material respect when made or repeated or deemed to have been made or repeated;
(v) Default under Specified Transaction. The party, any Credit Support Provider
of such party or any applicable Specified Entity of such party (1) defaults
under a Specified Transaction and, after giving effect to any applicable notice
requirement or grace period, there occurs a liquidation of, an acceleration of
obligations under, or an early termination of, that Specified Transaction, (2)
defaults, after giving effect to any applicable notice requirement or grace
period, in making any payment or delivery due on the last payment, delivery or
exchange date of, or any payment on early termination of, a Specified
Transaction (or such default continues for at least three Local Business Days if
there is no applicable notice requirement or grace period) or (3) disaffirms,
disclaims, repudiates or rejects, in whole or in part, a Specified Transaction
(or such action is taken by any person or entity appointed or empowered to
operate it or act on its behalf);
(vi) Cross Default. If "Cross Default" is specified in the Schedule as applying
to the party, the occurrence or existence of (1) a default, event of default or
other similar condition or event (however described) in respect of such party,
any Credit Support Provider of such party or any applicable Specified Entity of
such party under one or more agreements or instruments relating to Specified
Indebtedness of any of them (individually or collectively) in an aggregate
amount of not less than the applicable Threshold Amount (as specified in the
Schedule) which has resulted in such Specified Indebtedness becoming, or
becoming capable at such time of being declared, due and payable under such
agreements or instruments, before it would otherwise have been due and payable
or (2) a default by such party, such Credit Support Provider or such Specified
Entity (individually or collectively) in making one or more payments on the due
date thereof in an aggregate amount of not less than the applicable Threshold
Amount under such agreements or instruments (after giving effect to any
applicable notice requirement or grace period);
(vii) Bankruptcy. The party, any Credit Support Provider of such party or any
applicable Specified Entity of such party:
(1) is dissolved (other than pursuant to a consolidation, amalgamation or
merger); (2) becomes insolvent or is unable to pay its debts or fails or admits
in writing its inability generally to pay its debts as they become due; (3)
makes a general assignment, arrangement or composition with or for the benefit
of its creditors; (4) institutes or his instituted against it a proceeding
seeking a judgment of insolvency or bankruptcy or any other relief under any
bankruptcy or insolvency law or other similar law affecting creditors' rights,
or a petition is presented for its winding-up or liquidation, and, in the case
of any such proceeding or petition instituted or presented against it, such
proceeding or petition (A) results in a judgment of insolvency or bankruptcy or
the entry of an order for relief or the making of an order for its winding-up or
liquidation or (B) is not dismissed, discharged, stayed or restrained in each
case within 30 days of the institution or presentation thereof; (5) bas a
resolution passed for its winding-up, official management or liquidation (other
than pursuant to a consolidation, amalgamation or merger); (6) seeks or becomes
subject to the appointment of an administrator, provisional liquidator,
conservator, receiver, trustee, custodian or other similar official for it or
for all or substantially all its assets; (7) has a secured party take possession
of all or substantially all its assets or has a distress, execution, attachment,
sequestration or other legal process levied, enforced or sued on or against all
or substantially all its assets and such secured party maintains possession, or
any such process is not dismissed, discharged, stayed or restrained, in each
case within 30 days thereafter; (8) causes or is subject to any event with
respect to it which, under the applicable laws of any jurisdiction, bas an
analogous effect to any of the events specified in clauses (1) to (7)
(inclusive); or (9) takes any action in furtherance of, or indicating its
consent to, approval of, or acquiescence in, any of the foregoing acts; or
(viii) Merger Without Assumption. The party or any Credit Support Provider of
such party consolidates or amalgamates with, or merges with or into, or
transfers all or substantially all its assets to, another entity and, at the
time of such consolidation, amalgamation, merger or transfer:-
(1) the resulting, surviving or transferee entity fails to assume all the
obligations of such party or such Credit Support Provider under this Agreement
or any Credit Support Document to which it or its predecessor was a party by
operation of law or pursuant to an agreement reasonably satisfactory to the
other party to this Agreement; or
(2) the benefits of any Credit Support Document fail to extend (without the
consent of the other party) to the performance by such resulting, surviving or
transferee entity of its obligations under this Agreement.
(b) Termination Events. The occurrence at any time with respect to a party or,
if applicable, any Credit Support Provider of such party or any Specified Entity
of such party of any event specified below constitutes an illegality if the
event is specified in (i) below, a Tax Event if the event is specified in (ii)
below or a Tax Event Upon Merger if the event is specified in (iii) below, and,
if specified to be applicable, a Credit Event Upon Merger if the event is
specified pursuant to (iv) below or an Additional Termination Event if the event
is specified pursuant to (v) below:-
(i) Illegality. Due to the adoption of, or any change in, any applicable law
after the date on which a Transaction is entered into, or due to the
promulgation of, or any change in, the interpretation by any court, tribunal or
regulatory authority with competent jurisdiction of any applicable law after
such date, it becomes unlawful (other than as a result of a breach by the party
of Section 4(b)) for such party (which will be the Affected Party):
(1) to perform any absolute or contingent obligation to make a payment or
delivery or to receive a payment or delivery in respect of such Transaction or
to comply with any other material provision of this Agreement relating to such
Transaction; or
(2) to perform, or for any Credit Support Provider of such party to perform, any
contingent or other obligation which the party (or such Credit Support Provider)
has under my Credit Support Document relating to such Transaction;
(ii) Tax Event. Due to (x) any action taken by a taxing authority, or brought in
a court of competent jurisdiction, on or after the date on which a Transaction
is entered into (regardless of whether such action is taken or brought with
respect to a party to this Agreement) or (y) a Change in Tax Law, the party
(which will be the Affected Party) will, or there is a substantial likelihood
that it will, on the next succeeding Scheduled Payment Date (1) be required to
pay to the other party an additional amount in respect of an Indemnifiable Tax
under Section 2(d)(i)(4) (except in respect of interest under Section 2(e),
6(d)(ii) or 6(e)) or (2) receive a payment from which an amount is required to
be deducted or withheld for or on account of a Tax (except in respect of
interest under Section 2(e), 6(d)(ii) or 6(e)) and no additional amount is
required to be paid in respect of such Tax under Section 2(d)(i)(4) (other than
by reason of Section 2(d)(i)(4)(A) or (B));
(iii) Tax Event Upon Merger. The party (the "Burdened Party") on the next
succeeding Scheduled Payment Date will either (1) be required to pay an
additional amount in respect of an Indemnifiable Tax under-Section 2(d)(i)(4)
(except in respect of interest under Section 2(e), 6(d)(ii) or 6(e)) or (2)
receive a payment from which an amount has been deducted or withheld for or on
account of any Indemnifiable Tax in respect of which the other party is not
required to pay an additional amount (other than by reason of Section
2(d)(i)(4)(A) or (B)), in either case as a result of a party consolidating or
amalgamating with, or merging with or into, or transferring all or substantially
all its assets to, another entity (which will be the Affected Party) where such
action does not constitute an event described in Section 5(a)(viii);
(iv) Credit Event Upon Merger. If "Credit Event Upon Merger" is specified in the
Schedule as applying to the party, such party (-X-), any Credit Support Provider
of X or any applicable Specified Entity of X consolidates or amalgamates with,
or merges with or into, or transfers all or substantially all its assets to,
another entity and such action does not constitute an event described in Section
5(a)(viii) but the creditworthiness of the resulting, surviving or transferee
entity is materially weaker than that of X, such Credit Support Provider or such
Specified Entity, as the case may be, immediately prior to such action (and, in
such event, X or its successor or transferee, as appropriate, will be the
Affected Party); or
(v) Additional Termination Event. If any "Additional Termination Event" is
specified in the Schedule or any Confirmation as applying, the occurrence of
such event (and, in such event, the Affected Party or Affected Parties shall be
as specified for such Additional Termination Event in the Schedule or such
Confirmation).
(c) Event of Default and Illegality. If an event or circumstance which would
otherwise constitute or
give rise to an Event of Default also constitutes an Illegality, it will be
created as an Illegality and will not constitute an Event of Default.
6. Early Termination
(a) Right to Terminate Following Event of Default. If at any time an Event of
Default with respect to a party (the "Defaulting Party") has occurred and is
then continuing, the other party (the "Non-defaulting Party") may, by not more
than 20 days notice to the Defaulting Party specifying the relevant Event of
Default, designate a day not earlier than the day such notice is effective as in
Early Termination Date in respect of all outstanding Transactions. If, however,
"Automatic Early Termination" is specified in the Schedule as applying to a
party, then an Early Termination Date in respect of all outstanding Transactions
will occur immediately upon the occurrence with respect to such party of an
Event of Default specified in Section 5(a)(vii)(1), (3), (5), (6) or, to the
extent analogous thereto, (8), and as of the time immediately preceding the
institution of the relevant proceeding or the presentation of the relevant
petition upon the occurrence with respect to such party of an Event of Default
specified in Section 5(a)(vii)(4) or, to the extent analogous thereto, (8).
(b) Right to Terminate Following Termination Event.
(i) Notice. If a Termination Event occurs, an Affected Party will, promptly upon
becoming aware of it, notify the other party, specifying the nature of that
Termination Event and each Affected Transaction and will also give such other
information about that Termination Event as the other party may reasonably
require.
(ii) Transfer to Avoid Termination Event. If either an Illegality under Section
5(b)(i)(1) or a Tax Event occurs and there is only one Affected Party, or if a
Tax Event Upon Merger occurs and the Burdened Party is the Affected Party, the
Affected Party will, as a condition to its right to designate in Early
Termination Date under Section 6(b)(iv), use all reasonable efforts (which will
not require such party to incur a loss, excluding immaterial, incidental
expenses) to transfer within 20 days after it gives notice under Section 6(b)(i)
all its rights and obligations under this Agreement in respect of the Affected
Transactions to another of its Offices or Affiliates so that such Termination
Event ceases to exist.
If the Affected Party is not able to make such a transfer it will give notice to
the other party to that effect within such 20 day period, whereupon the other
party may effect such a transfer within 30 days after the notice is given under
Section 6(b)(i).
Any such transfer by a party under this Section 6(b)(ii) will be subject to and
conditional upon the prior written consent of the other party, which consent
will not be withheld if such other party's policies in effect at such time would
permit it to enter into transactions with the transferee on the terms proposed.
(iii) Two Affected Parties. If an Illegality under Section 5(b)(i)(1)) or a Tax
Event occurs and there are two Affected Parties, each party will use all
reasonable efforts to reach agreement within 30 days after notice thereof is
given under Section 6(b)(i) on action to avoid that Termination Event.
(iv) Right to Terminate. If:-
(1) a transfer under Section 6(b)(ii) or an agreement under Section 6(b)(iii),
as the case may be, has not been effected with respect to all Affected
Transactions within 30 days after an Affected Party gives notice under Section
6(b)(i); or
(2) an Illegality under Section 5(b)(i)(2), a Credit Event Upon Merger or an
Additional Termination Event occurs, or a Tax Event Upon Merger occurs and the
Burdened Party is not the Affected Party,
either party in the case of an Illegality, the Burdened Party in the case of a
Tax Event Upon Merger, any Affected Party in the case of a Tax Event or an
Additional Termination Event if there is more than one Affected Party, or the
party which is not the Affected Party in the case of a Credit Event Upon Merger
or an Additional Termination Event if there is only one Affected Party may, by
not more than 20 days notice to the other party and provided that the relevant
Termination Event is then continuing, designate a day not earlier than the day
such notice is effective as an Early Termination Date in respect of all Affected
Transactions.
(c) Effect of Designation.
(i) If notice designating an Early Termination Date is given under Section 6(a)
or (b), the Early Termination Date will occur on the date so designated, whether
or not the relevant Event of Default or Termination Event is then continuing.
(ii) Upon the occurrence or effective designation of an Early Termination Date,
no further payments or deliveries under Section 2(a)(i) or 2(e) in respect of
the Terminated Transactions will be required to be made, but without prejudice
to the other provisions of this Agreement. The amount, if any, payable in
respect of an Early Termination Date shall be determined pursuant to Section
6(e).
(d) Calculations.
(i) Statement. On or as soon as reasonably practicable following the occurrence
of an Early Termination Date, each party will make the calculations on its part,
if any, contemplated by Section 6(e) and will provide to the other party a
statement (1) showing, in reasonable detail, such calculations (including all
relevant quotations and specifying any amount payable under Section 6(e)) and
(2) giving details of the relevant account to which any amount payable to it is
to be paid. In the absence of written confirmation from the source of a
quotation obtained in determining a Market Quotation, the records of the party
obtaining such quotation will be conclusive evidence of the existence and
accuracy of such quotation.
(ii) Payment Date. An amount calculated as being due in respect of any Early
Termination Date under Section 6(e) will be payable on the day that notice of
the amount payable is effective (in the case of an Early Termination Date which
is designated or occurs as a result of an Event of Default) and on the day which
is two Local Business Days after the day on which notice of the amount payable
is effective (in the case of an Early Termination Date which is designated as a
result of a Termination Event). Such amount will be paid together with (to the
extent permitted under applicable law) interest thereon (before as well as after
judgment) in the Termination Currency, from (and including) the relevant Early
Termination Date to (but excluding) the date such amount is paid, at the
Applicable Rate. Such interest will be calculated on the basis of daily
compounding and the actual number of days elapsed.
(e) Payments on Early Termination. If an Early Termination Date occurs, the
following provisions shall apply based on the parties' election in the Schedule
of a payment measure, either "Market Quotation" or "Loss", and a payment method,
either the "First Method- or the "Second Method". If the parties fail to
designate a payment measure or payment method in the Schedule. it will be deemed
that "Market Quotation" or the "Second Method", as the case may be, shall apply.
The amount, if any, payable in respect of an Early Termination Date and
determined pursuant to this Section will be subject to any Set-off.
(i) Events of Default. If the Early Termination Date results from an Event of
Default:
(1) First Method and Market Quotation. If the First Method and Market Quotation
apply, the Defaulting Party will pay to the Non-defaulting Party the excess, if
a positive number, of (A) the sum of the Settlement Amount (determined by the
Non-defaulting Party) in respect of the Terminated Transactions and the
Termination Currency Equivalent of the Unpaid Amounts owing to the
Non-defaulting Party over (B) the Termination Currency Equivalent of the Unpaid
Amounts owing to the Defaulting Party.
(2) First Method and Loss. If the First Method and Loss apply, the Defaulting
Party will pay to the Non-defaulting Party, if a positive number, the
Non-defaulting Party's Loss in respect of this Agreement.
(3) Second Method and Market Quotation. If the Second Method and Market
Quotation apply, an amount will be payable equal to (A) the sum of the
Settlement Amount (determined by the Non-defaulting Party) in respect of the
Terminated Transactions and the Termination Currency Equivalent of the Unpaid
Amounts owing to the Non-defaulting Party less (B) the Termination Currency
Equivalent of the Unpaid Amounts owing to the Defaulting Party. If that amount
is a positive number, the Defaulting Party will pay it to the Non-defaulting
Party; if it is a negative number, the Non-defaulting Party will pay the
absolute value of that amount to the Defaulting Party.
(4) Second Method and Loss. If the Second Method and Loss apply, an amount will
be payable equal to the Non-defaulting Party's Loss in respect of this
Agreement. If that amount is a positive number, the Defaulting Party will pay it
to the Non-defaulting Party; if it is a negative number, the Non-defaulting
Party will pay the absolute value of that amount to the Defaulting Party.
(ii) Termination Events. If the Early Termination Date results from a
Termination Event:
(1) One Affected Party. If there is one Affected Party, the amount payable will
be determined in accordance with Section 6(e)(i)(3), if Market Quotation
applies, or Section 6(e)(i)(4), if Loss applies, except that, in either case,
references to the Defaulting Party and to the Non-defaulting Party will be
deemed to be references to the Affected Party and the party which is not the
Affected Party, respectively, and, if Loss applies and fewer than all the
Transactions are being terminated, Loss shall be calculated in respect of all
Terminated Transactions.
(2) Two Affected Parties. If there are two Affected Parties:
(A) if Market Quotation applies, each party will determine a Settlement Amount
in respect of the Terminated Transactions, and an amount will be payable equal
to (1) the sum of (a) one-half of the difference between the Settlement Amount
of the party with the higher Settlement Amount ("X") and the Settlement Amount
of the party with the lower Settlement Amount ("Y") and (b) the Termination
Currency Equivalent of the Unpaid Amounts owing to X less (11) the Termination
Currency Equivalent of the Unpaid Amounts owing to Y; and
(B) if Loss applies, each party will determine its Loss in respect of this
Agreement (or, if fewer than all the Transactions are being terminated, in
respect of all Terminated Transactions) and an amount will be payable equal to
one-half of the difference between the Loss of the party with the higher Loss
("X") and the Loss of the party with the lower Loss ("Y").
If the amount payable is a positive number, Y will pay it to X; if it is a
negative number, X will pay the absolute value of that amount to Y.
(iii) Adjustment for Bankruptcy. In circumstances where an Early Termination
Date occurs because "Automatic Early Termination" applies in respect of a party,
the amount determined under this Section 6(e) will be subject to such
adjustments as are appropriate and permitted by law to reflect any payments or
deliveries made by one party to the other under this Agreement (and retained by
such other party) during the period from the relevant Early Termination Date to
the date for payment determined under Section 6(d)(ii).
(iv) Pre-Estimate. The parties agree that if Market Quotation applies an amount
recoverable under this Section 6(e) is a reasonable pre-estimate of loss and not
a penalty. Such amount is payable for the loss of bargain and the loss of
protection against future risks and except as otherwise provided in this
Agreement neither party will be entitled to recover any additional damages as a
consequence of such losses.
7. Transfer
Subject to Section 6(b)(ii), neither this Agreement nor any interest or
obligation in or under this Agreement may be transferred (whether by way of
security or otherwise) by either party without the prior written consent of the
other party, except that:-
(a) a party may make such a transfer of this Agreement pursuant to a
consolidation or amalgamation with, or merger with or into, or transfer of all
or substantially all its assets to, another entity (but without prejudice to any
other right or remedy under this Agreement); and
(b) a party may make such a transfer of all or any part of its interest in any
amount payable to it from a Defaulting Party under Section 6(e).
Any purported transfer that is not in compliance with this Section will be void.
8. Contractual Currency
(a) Payment in the Contractual Currency. Each payment under this Agreement will
be made in the relevant currency specified in this Agreement for that payment
(the "Contractual Currency"). To the extent permitted by applicable law, any
obligation to make payments under this Agreement in the Contractual Currency
will not be discharged or satisfied by any tender in any currency other than the
Contractual Currency, except to the extent such tender results in the actual
receipt by the party to which payment is owed, acting in a reasonable manner and
in good faith in converting the currency so tendered into the Contractual
Currency, of the full amount in the Contractual Currency of all amounts payable
in respect of this Agreement. If for any reason the amount in the Contractual
Currency so received falls short of the amount in the Contractual Currency
payable in respect of this Agreement, the party required to make the payment
will, to the extent permitted by applicable law, immediately pay such additional
amount in the Contractual Currency as may be necessary to compensate for the
shortfall. If for any reason the amount in the Contractual Currency so received
exceeds the amount in the Contractual Currency payable in respect of this
Agreement, the party receiving the payment will refund promptly the amount of
such excess.
(b) Judgments. To the extent permitted by applicable law, if any judgment or
order expressed in a currency other than the Contractual Currency is rendered
(i) for the payment of any amount owing in respect of this Agreement, (ii) for
the payment of any amount relating to any early termination in respect of this
Agreement or (iii) in respect of a judgmcnt or order of another court for the
payment of any amount described in (i) or (ii) above, the party seeking
recovery, after recovery in full of the aggregate amount to which such party is
entitled pursuant to the judgment or order, will be entitled to receive
immediately from the other party the amount of any shortfall of the Contractual
Currency received by such party as a consequence of sums paid in such other
currency and will refund promptly to the other party any excess of the
Contractual Currency received by such party as a consequence of sums paid in
such other currency if such shortfall or such excess arises or results from any
variation between the rate of exchange at which the Contractual Currency is
converted into the currency of the judgment or order for the purposes of such
judgment or order and the rate of exchange at which such party is able, acting
in a reasonable manner and in good faith in converting the currency received
into the Contractual Currency, to purchase the Contractual Currency with the
amount of the currency of the judgment or order actually received by such party.
The term "rate of exchange" includes, without limitation, any premiums and costs
of exchange payable in connection with the purchase of or conversion into the
Contractual Currency.
(c) Separate Indemnities. To the extent permitted by applicable law, these
indemnities constitute separate and independent obligations from the other
obligations in this Agreement, will be enforceable as separate and independent
causes of action, will apply notwithstanding any indulgence granted by the party
to which any payment is owed and will not be affected by judgment being obtained
or claim or proof being made for any other sums payable in respect or this
Agreement.
(d) Evidence of Loss. For the purpose of this Section 8, it will be sufficient
for a party to demonstrate that it would have suffered a loss had an actual
exchange or purchase been made.
9. Miscellaneous
(a) Entire Agreement. This Agreement constitutes the entire agreement and
understanding of the parties with respect to its subject matter and supersedes
all oral communication and prior writings with respect thereto.
(b) Amendments. No amendment, modification or waiver in respect of this
Agreement will be effective unless in writing (including a writing evidenced by
a facsimile transmission) and executed by each of the parties or confirmed by an
exchange of telexes or electronic messages on an electronic messaging system.
(c) Survival of Obligations. Without prejudice to Sections 2(a)(iii) and
6(c)(ii), the obligations of theparties under this Agreement will survive the
termination of any Transaction.
(d) Remedies Cumulative. Except as provided in this Agreement, the rights,
powers, remedies and privileges provided in this Agreement are cumulative and
not exclusive of any rights, powers, remedies and privileges provided by law.
(e) Counterparts and Confirmations.
(i) This Agreement (and each amendment, modification and waiver in respect of
it) may be executed and delivered in counterparts (including by facsimile
transmission), each of which will be deemed an original.
(ii) The parties intend that they are legally bound by the terms of each
Transaction from the moment they agree to those terms (whether orally or
otherwise). A Confirmation shall be entered into as soon as practicable and may
be executed and delivered in counterparts (including by facsimile transmission)
or be created by an exchange of telexes or by an exchange of electronic messages
on an electronic messaging system, which in each case will be sufficient for all
purposes to evidence a binding supplement to this Agreement. The parties will
specify therein or through another effective means that any such counterpart,
telex or electronic message constitutes a Confirmation.
(f) No Waiver of Rights. A failure or delay in exercising any right, power or
privilege in respect of this Agreement will not be presumed to operate as a
waiver, and a single or partial exercise of any right, power or privilege will
not be presumed to preclude any subsequent or further exercise, of that right,
power or privilege or the exercise of any other right, power or privilege.
(g) Headings. The headings used in this Agreement are for convenience of
reference only and are not to affect the construction of or to be taken into
consideration in interpreting this Agreement.
10. Offices; Multibranch Parties
(a) If Section 10(a) is specified in the Schedule as applying, each party that
enters into a Transaction through an Office other than its head or home office
represents to the other party that, notwithstanding the place of booking office
or jurisdiction of incorporation or organisation of such party, the obligations
of such party are the same as if it had entered into the Transaction through its
head or home office. This representation will be deemed to be repeated by such
party on each date on which a Transaction is entered into.
(b) Neither party may change the Office through which it makes and receives
payments or deliveries for the purpose of a Transaction without the prior
written consent of the other party.
(c) If a party is specified as a Multibranch Party in the Schedule, such
Multibranch Party may make and receive payments or deliveries under any
Transaction through any Office listed in the Schedule, and the Office through
which it makes and receives payments or deliveries with respect to a Transaction
will be specified in the relevant Confirmation.
11. Expenses
A Defaulting Party will, on demand, indemnify and hold harmless the other party
for and against all reasonable out-of-pocket expenses, including legal fees and
Stamp Tax, incurred by such other party by reason of the enforcement and
protection of its rights under this Agreement or any Credit Support Document to
which the Defaulting Party is a party or by reason of the early termination of
any Transaction, including, but not limited to, costs of collection.
12. Notices
(a) Effectiveness. Any notice or other communication in respect of
this Agreement may be given in any manner set forth below (except
that a notice or other communication under Section 5 or 6 may not
be given by facsimile transmission or electronic messaging
system) to the address or number or in accordance with the
electronic messaging system details provided (see the Schedule)
and will be deemed effective as indicated:
(i) if in writing and delivered in person or by courier, on the
date it is delivered;
(ii) if sent by telex, on the date the recipient's answerback is
received;
(iii)if sent by facsimile transmission, on the date that
transmission is received by a responsible employee of the
recipient in legible form (it being agreed that the burden
of proving receipt will be on the sender and will not be met
by a transmission report generated by the sender's facsimile
machine);
(iv) if sent by certified or registered mail (airmail, if overseas) or the
equivalent (return receipt requested), on the date that mail is delivered or its
delivery is attempted; or
(v) if sent by electronic messaging system, on the date that electronic message
is received,
unless the date of that delivery (or attempted delivery) or that receipt, as
applicable, is not a Local Business Day or that communication is delivered (or
attempted) or received, as applicable, after the close of business on a Local
Business Day, in which case that communication shall be deemed given and
effective on the first following day that is a Local Business Day.
(b) Change of Addresses. Either party may by notice to the other change the
address, telex or facsimile number or electronic messaging system details at
which notices or other communications are to be given to it.
13. Governing Law and Jurisdiction
(a) Governing Law. This Agreement will be governed by and construed in
accordance with the law specified in the Schedule.
(b) Jurisdiction. With respect to any suit, action or proceedings relating to
this Agreement ("Proceedings"), each party irrevocably:
(i) submits to the jurisdiction of the English courts, if this Agreement is
expressed to be governed by English law, or to the non-exclusive jurisdiction of
the courts of the State of New York and the United States District Court located
in the Borough of Manhattan in New York City, if this Agreement is expressed to
be governed by the laws of the State of New York; and
(ii) waives any objection which it may have at any time to the laying of venue
of any Proceedings brought in any such court, waives any claim that such
Proceedings have been brought in an inconvenient forum and further waives the
right to object, with respect to such Proceedings, that such court does not have
any jurisdiction over such party.
Nothing in this Agreement precludes either party from bringing Proceedings in
any other jurisdiction (outside, if this Agreement is expressed to be governed
by English law, the Contracting States, as defined in Section 1(3) of the Civil
Jurisdiction and Judgments Act 1982 or any modification, extension or
re-enactment thereof for the time being in force) nor will the bringing of
Proceedings in any one or more jurisdictions preclude the bringing of
Proceedings in any other jurisdiction.
(c) Service of Process. Each party irrevocably appoints the Process Agent (if
any) specified opposite its name in the Schedule to receive, for it and on its
behalf, service of process in any Proceedings. If for any reason any party's
Process Agent is unable to act as such, such party will promptly notify the
other party and within 30 days appoint a substitute process agent acceptable to
the other party. The parties irrevocably consent to service of process given in
the manner provided for notices in Section 12. Nothing in this Agreement will
affect the right of either party to serve process in any other manner permitted
by law.
(d) Waiver of Immunities. Each party irrevocably waives, to the fullest extent
permitted by applicable law, with respect to itself and its revenues and assets
(irrespective of their use or intended use), all immunity on the grounds of
sovereignty or other similar grounds from (i) suit, (ii) jurisdiction of any
court, (iii) relief by way of injunction, order for specific performance or for
recovery of property, (iv) attachment of its assets (whether before or after
judgment) and (v) execution or enforcement of any judgment to which it or its
revenues or assets might otherwise be entitled in any Proceedings in the courts
of any jurisdiction and irrevocably agrees, to the extent permitted by
applicable law, that it will not claim any such immunity in any Proceedings.
14. Definitions
As used in this Agreement:
"Additional Termination Event" bas the meaning specified in Section 5(b).
"Affected Party" has the meaning specified in Section 5(b).
"Affected Transactions" means (a) with respect to any Termination Event
consisting of an Illegality, Tax Event or Tax Event Upon Merger, all
Transactions affected by the occurrence of such Termination Event and (b) with
respect to any other Termination Event, all Transactions.
"Affiliate" means, subject to the Schedule, in relation to any person, any
entity controlled, directly or indirectly, by the person, any entity that
controls, directly or indirectly, the person or any entity directly or
indirectly under common control with the person. For this purpose, "control" of
any entity or person means ownership of a majority of the voting power of the
entity or person.
"Applicable Rate"`means:-
(a) in respect of obligations payable or deliverable (or which would have been
but for Section 2(a)(iii)) by a Defaulting Party, the Default Rate;
(b) in respect of an obligation to pay an amount under Section 6(e) of either
party from and after the date (determined in accordance with Section 6(d)(ii))
on which that amount is payable, the Default Rate;
(c) in respect of a other obligations payable or deliverable (or which would
have been but for Section 2(a)(iii)) by a Non-defaulting Party, the Non-default
Rate; and
(d) in all other cases, the Termination Rate.
"Burdened Party" bas the meaning specified in Section 5(b).
"Change in Tar Law" means the enactment, promulgation, execution or ratification
of, or any change in or amendment to, any law (or in the application or official
interpretation of any law) that occurs on or after the date on which the
relevant Transaction is entered into.
"consent" includes a consent, approval, action, authorisation, exemption,
notice, filing, registration or exchange control consent.
"Credit Event Upon Merger" has the meaning specified in Section 5(b).
"Credit Support Document" means any agreement or instrument that is specified as
such in this Agreement.
"Credit Support Provider" has the meaning specified in the Schedule.
"Default Rate" means a rate per annum equal to the cost (without proof or
evidence of any actual cost) to the relevant payee (as certified by it) if it
were to fund or of funding the relevant amount plus 1% per annum.
Defaulting Party" has the meaning specified in Section 6(a).
"Early Termination Date" means the date determined in accordance with Section
6(a) or 6(b)(iv).
"Event of Default" has the meaning specified in Section 5(a) and, if applicable,
in the Schedule.
"Illegality" has the meaning specified in Section 5(b).
"Indemnifliable Tax" means any Tax other than a Tax that would not be imposed in
respect of a payment under this Agreement but for a present or former connection
between the jurisdiction of the government or taxation authority imposing such
Tax and the recipient of such payment or a person related to such recipient
(including, without limitation, a connection arising from such recipient or
related person being or having been a citizen or resident of such jurisdiction,
or being or having been organised, present or engaged in a trade or business in
such jurisdiction, or having or having had a permanent establishment or fixed
place of business in such jurisdiction, but excluding a connection arising
solely from such recipient or related person having executed, delivered,
performed its obligations or received a payment under, or enforced, this
Agreement or a Credit Support Document).
"law" includes any treaty, law, rule or regulation (as modified, in the case of
tax, matters, by the practice of any relevant governmental revenue authority)
and "Lawful" and "unlawful" will be construed accordingly.
"Local Business Day" means, subject to the Schedule, a day on which commercial
banks are open for business (including dealings in foreign exchange and foreign
currency deposits) (a) in relation to any obligation under Section 2(a)(i), in
the place(s) specified in the relevant Confirmation or, if not so specified, as
otherwise agreed by the parties in writing or determined pursuant to provisions
contained, or incorporated by reference, in this Agreement, (b) in relation to
any other payment, in the place where the relevant account is located and, if
different, in the principal financial centre, if any, of the currency of such
payment, (c) in relation to any notice or other communication, including notice
contemplated under Section 5(a)(i), in the city specified in the address for
notice provided by the recipient and, in the case of a notice contemplated by
Section 2(b), in the place where the relevant new account is to be located and
(d) in relation to Section 5(a)(v)(2), in the relevant locations for performance
with respect to such Specified Transaction.
"Loss" means, with respect to this Agreement or one or more Terminated
Transactions, as the case may be, and a party, the Termination Currency
Equivalent of an amount that party reasonably determines in good faith to be
its, total losses and costs (or gain, in which case expressed as a negative
number) in connection with ibis Agreement or that Terminated Transaction or
group of Terminated Transactions, as the case may be, including any loss of
bargain, cost of funding or, at the election of such party but without
duplication, loss or cost incurred as a result of its terminating, liquidating,
obtaining or reestablishing any hedge or related trading position (or any gain
resulting from any of them). Loss includes losses and costs (or gains) in
respect of any payment or delivery required to have been nude (assuming
satisfaction of each applicable condition precedent) on or before the relevant
Early Termination Date and not made, except, so as to avoid duplication, if
Section 6(e)(i)(1) or (3) or 6(e)(ii)(2)(A) applies. Loss does not include a
party's legal fees and out-of-pocket expenses referred to under Section 11. A
party will determine its Loss as of the relevant Early Termination Dam or, if
that is not reasonably practicable, as of the earliest date thereafter as is
reasonably practicable. A party may (but need not) determine its Loss by
reference to quotations of relevant rates or prices from one or more leading
dealers in the relevant markets.
"Market Quotation" means, with respect to one or more Terminated Transactions
and a party making the determination, an amount determined on the basis of
quotations from Reference Market-makers. Each quotation will be for an amount,
if any, that would be paid to such party (expressed as a negative number) or by
such party (expressed as a positive number) in consideration of an agreement
between such party (taking into account any existing Credit Support Document
with respect to the obligations of such party) and the quoting Reference
Market-maker to enter into a transaction (the "Replacement Transaction") that
would have the effect of preserving for such party the economic equivalent of
any payment or delivery (whether the underlying obligation was absolute or
contingent and assuming the satisfaction of each applicable condition precedent)
by the parties under Section 2(a)(i) in respect of such Terminated Transaction
or group of Terminated Transactions that would, but for the occurrence of the
relevant Early Termination Date, have been required after that date. For this
purpose, Unpaid Amounts in respect of the Terminated Transaction or group of
Terminated Transactions are to be excluded but, without limitation, any payment
or delivery that would, but for the relevant Early Termination Date, have been
required (assuming satisfaction of each applicable condition precedent) after
that Early Termination Date is to be included. The Replacement Transaction would
be subject to such documentation as such party and the Reference Market-maker
may, in good faith, agree. The party making the determination (or its agent)
will request each Reference Market-maker to provide its quotation to the extent
reasonably practicable as of the same day and time (without regard to different
time zones) on or as soon as reasonably practicable after the relevant Early
Termination Date. The day and time as of which those quotations are to be
obtained will be selected in good faith by the party obliged to make a
determination under Section 6(c), and, if each party is so obliged, after
consultation with the other. If more than three quotations are provided, the
Market Quotation will be the arithmetic mean of the quotations, without regard
to the quotations having the highest and lowest values. If exactly three such
quotations are provided, the Market Quotation will be the quotation remaining
after disregarding the highest and lowest quotations. For this purpose, if more
than one quotation has the same highest value or lowest value, then one of such
quotations shall be disregarded. If fewer than three quotations are provided, it
will be deemed that the Market Quotation in respect of such Terminated
Transaction or group of Terminated Transactions cannot be determined.
"Non-default Rate" means a rate per annum equal to the cost (without proof or
evidence of any actual cost) to the Non-defaulting Party (as certified by it) if
it were to fund the relevant amount.
"Non-defaulting Party" has the meaning specified in Section 6(a).
"Office" means a branch or office of a party, which may be such party's head or
home office.
"Potential Event of Default" means any event which, with the giving of notice or
the lapse of time or both, would constitute an Event of Default.
"Reference Market-makers" means four leading dealers in the relevant market
selected by the party determining a Market Quotation in good faith (a) from
among dealers of the highest credit standing which satisfy all the criteria that
such party applies generally at the time in deciding whether to offer or to make
an extension of credit and (b) to the extent practicable, from among such
dealers having an office in the same city.
"Relevant Jurisdiction" means, with respect to a party, the jurisdictions (a) in
which the party is incorporated, organised, managed and controlled or considered
to have its seat, (b) where an Office through which the party is acting for
purposes of this Agreement is located, (c) in which the party executes this
Agreement and (d) in relation to any payment, from or through which such payment
is made.
"Scheduled Payment Date" means a date on which a payment or delivery is to be
made under Section 2(a)(i) with respect to a Transaction.
"Set-off" means set-off, offset, combination of accounts, right of retention or
withholding or similar right or requirement to which the payer of an amount
under Section 6 is entitled or subject (whether arising under this Agreement,
another contract, applicable law or otherwise) that is exercised by, or imposed
on, such payer.
"Settlement Amount" means, with respect to a party and any Early Termination
Date, the sum of:-
(a) the Termination Currency Equivalent of the Market Quotations (whether
positive or negative) for each Terminated Transaction or group of Terminated
Transactions for which a Market Quotation is determined; and
(b) such party's Loss (whether positive or negative and without reference to any
Unpaid Amounts) for each Terminated Transaction or group or Terminated
Transactions for which a Market Quotation cannot be determined or would not (in
the reasonable belief of the party making the determination) produce a
commercially reasonable result.
"Specified Entity" has the meaning specified in the Schedule.
"Specified Indebtedness" means, subject to the Schedule, any obligation (whether
present or future, contingent or otherwise, as principal or surety or otherwise)
in respect of borrowed money.
"Specified Transaction" means, subject to the Schedule, (a) any transaction
(including an agreement with respect thereto) now existing or hereafter entered
into between one party to this Agreement (or any Credit Support Provider of such
party or any applicable Specified Entity of such party) and the other party to
this Agreement (or any Credit Support Provider of such other party or any
applicable Specified Entity of such other party) which is a rate swap
transaction, basis swap, forward rate transaction, commodity swap, commodity
option, equity or equity index swap, equity or equity index option, bond option,
interest rate option, foreign exchange transaction, cap transaction, floor
transaction, collar transaction, currency swap transaction, cross-currency rate
swap transaction, currency option or any other similar transaction (including
any option with respect to any of these transactions), (b) any combination of
these transactions and (c) any other transaction identified as a Specified
Transaction in this Agreement or the relevant confirmation.
"Stamp Tax" means any stamp, registration, documentation or similar tax.
"Tax" means any present or future tax, levy, impost, duty, charge, assessment or
fee of any nature (including interest, penalties and additions thereto) that is
imposed by any government or other taxing authority in respect of any payment
under this Agreement other than a stamp, registration, documentation or similar
tax.
"Tax Event" has the meaning specified in Section 5(b).
"Tax Event Upon Merger" has the meaning specified in Section 5(b).
"Terminated Transactions" means with respect to any Early Termination Date (a)
if resulting from a Termination Event, all Affected Transactions and (b) if
resulting from an Event of Default, all Transactions (in either case) in effect
immediately before the effectiveness of the notice designating that Early
Termination Date (or, if "Automatic Early Termination" applies, immediately
before that Early Termination Date).
"Termination Currency" has the meaning specified in the Schedule.
"Termination Currency Equivalent" means, in respect of any amount denominated in
the Termination Currency, such Termination Currency amount and, in respect of
any amount denominated in a currency other than the Termination Currency (the
"Other Currency"), the amount in the Termination Currency determined by the
party making the relevant determination as being required to purchase such
amount of such Other Currency as at the relevant Early Termination Date, or, if
the relevant Market Quotation or Loss (as the case may be), is determined as of
a later date, that later date, with the Termination Currency at the rate equal
to the spot exchange rate of the foreign exchange agent (selected as provided
below) for the purchase or such Other Currency with the Termination Currency at
or about 11:00 a.m. (in the city in which such foreign exchange agent is
located) on such date as would be customary for the determination of such a rate
for the purchase of such Other Currency for value on the relevant Early
Termination Date or that later date. The foreign exchange agent will, if only
one party is obliged to make a determination under Section 6(e), be selected in
good faith by that party and otherwise will be agreed by the parties.
"Termination Event" means an Illegality, a Tax Event or a Tax Event Upon Merger
or, if specified to be applicable, a Credit Event Upon Merger or an Additional
Termination Event.
"Termination Rate" means a rate per annum equal to the arithmetic mean of the
cost (without proof or evidence of any actual cost) to each party (as certified
by such party) if it were to fund or of funding such amounts.
"Unpaid Amounts" owing to any party means, with respect to an Early Termination
Date, the aggregate of (a) in respect of all Terminated Transactions, the
amounts that became payable (or that would have become payable but for Section
2(a)(iii)) to such party under Section 2(a)(i) on or prior to such Early
Termination Data and which remain unpaid as at such Early Termination Date and
(b) in respect of each Terminated Transaction, for each obligation under Section
2(a)(i) which was (or would have been but for Section 2(a)(iii)) required to be
settled by delivery to such party on or prior to such Early Termination Date and
which bas not been so settled as at Such Early Termination Date, an amount equal
to the fair market value of that which was (or would have been) required to be
delivered as of the originally scheduled date for delivery, in each case
together with (to the extent permitted under applicable law) interest, in the
currency of such amounts, from (and including) the date such amounts or
obligations were or would have been required to have been paid or performed to
(but excluding) such Early Termination Date, at the Applicable Rate. Such
amounts of interest will be calculated on the basis of daily compounding and the
actual number of days elapsed. The fair market value of any obligation referred
to in clause (b) above shall be reasonably determined by the party obliged to
make the determination under Section 6(e) or, if each party is so obliged, it
shall be the average of the Termination Currency Equivalents of the fair market
values reasonably determined by both parties.
IN WITNESS WHEREOF the parties have executed this document on the respective
dates specified below with effect from the date spec ified on the first page of
this document.
Zions First National Bank Federal Agricultural Mortgage
Corporation
........................................ ......................................
(Name of Party) (Name of Party)
By: /s/ W. David Hemingway...............
-------------------------------------
By: /s/ Nancy E. Corsiglia...
-------------------------
Name: W. David Hemingway Name: Nancy E. Corsiglia
Title: Executive V.P. Title:Treasurer & Vice President
of Business Development
Date: Date: March 2, 1998
By: /s/ Christopher A. Dunn
-------------------------
Name: Christopher A. Dunn
Title: Vice President of Mortgage
Backed Securities
Date: March 2, 1998
SCHEDULE
to the
MASTER AGREEMENT
dated as of June 26, 1997
between ZIONS FIRST NATIONAL BANK, a bank organized under the laws of the United
States ("Party A"), and the FEDERAL AGRICULTURAL MORTGAGE CORPORATION, a
corporation organized under the laws of the United States ("Party B").
Part 1
Termination Provisions
(a) "Specified Entity" means in relation to Party A for the purpose of:
Section 5(a)(v), Not Applicable
Section 5(a)(vi), Not Applicable
Section 5(a)(vii), Not Applicable
Section 5(b)(iv), Not Applicable
and in relation to Party B for the purpose of:
Section 5(a)(v), Not Applicable
Section 5(a)(vi), Not Applicable
Section 5(a)(vii), Not Applicable
Section 5(b)(iv), Not Applicable
(b) "Specified Transaction" will have the meaning specified in Section 14 of
this Master Agreement.
(c) The "Cross Default" provisions of Section 5(a)(vi) of this Agreement will be
amended by deleting the phrase, "or becoming capable at such time of being
declared," and, as amended, will apply to Party A and will apply to Party B.
(i) "Specified Indebtedness" will have the meaning set forth in Section 14
but shall not include obligations in respect of deposits received in
the ordinary course of a party's banking business.
(ii) "Threshold Amount" means [material omitted pursuant to a
request for confidential treatment and filed separately with the SEC]
(d) The "Credit Event Upon Merger" provisions of Section 5(b)(iv) will apply to
Party A and will apply to Party B.
(e) The "Automatic Early Termination" provision of Section 6(a) will not apply
to Party A and will not apply to Party B.
(f) Payments on Early Termination. For the purposes of Section 6(e) of this
Agreement:
(i) Market Quotation will apply. (ii) The Second Method will apply.
(g) The Termination Currency shall be U.S. dollars.
(h) Additional Termination Event will not apply.
Part 2
Tax Representations
(a) Payor Representations. None
(b) Payee Representations. The following will apply to Party A and Party B,
respectively:
Party A is a bank created or organized under the laws of the United States
and its U.S. taxpayer identification number is 870189025.
Party B is a corporation created or organized under the laws of the United
States and its U.S. taxpayer identification number is 52-1578738.
Part 3
Agreement to Deliver Documents
For the purpose of Section 4(a)(i) and (ii) of this Master Agreement, each
party agrees to deliver the following documents, as applicable:
(a) Tax forms, documents or certificates to be delivered are:
Party required to Form/Document Certificate Date by which to be Covered by Section
deliver document delivered 3(d) Representation
Party A and Party B Any document required or (i) Before the first Yes
reasonably requested to payment date under
allow the other Party to this Agreement.
make payments under this
Agreement without any
deduction or withholding (ii) Promptly upon
for or on account of any reasonable demand
tax or with such deduction by the other Party
or withholding at reduced and
rate.
(iii) Promptly upon
learning that any
such form previously
provided by the Party
has become obsolete
or incorrect.
Party A and Party B United States Internal (i) Before the first Yes
Revenue Service Form payment date with
W-9, or any successor form, respect to this
duly completed and Agreement,
executed and in a form
reasonably satisfactory to (ii) promptly upon
the other Party. reasonable demand
by the other Party,
and
(iii) promptly upon
learning that any
such form previously
provided by the
Party has become obsolete
or incorrect.
(b) Other documents to be delivered are:
Party required to Form/Document/Certificate Date by which to be Covered by Section
deliver document delivered 3(d) Representation
Party A and Party B Evidence of the party's Upon execution of Yes
authority to enter into this this Agreement and
Agreement and the as deemed
Transactions contemplated necessary.
hereby and authorizing a
specified person or persons
to execute, deliver and
perform (as appropriate) on
its behalf this Agreement
and the Confirmations
hereunder.
Party A and Party B A signature book or Upon execution of Yes
secretary's certificate and this Agreement and
incumbency certificate for as deemed
such party reasonably necessary for any
satisfactory in form and further
substance to the other documentation.
party as to the names, true
signatures and authority of
its officers signing under
this Agreement and the
Transactions contemplated
hereunder.
Party required to Form/Document/Certificate Date by which to be Covered by Section
deliver document delivered 3(d) Representation
Party A and Party B Annual audited financial Upon demand of the Yes
statements prepared in other Party after
accordance with U.S. becoming publicly
generally accepted available.
accounting principles,
which, in the case of Party
A, shall be the audited
financial statements of
Zions Bancorporation.
Party A and Party B Unaudited consolidated Upon demand by Yes
financial statements, the the other party after
consolidated balance sheet publicly available.
and related statements of
income for each fiscal
quarter prepared in
accordance with U.S.
generally accepted accounting principles,
which, in the case
of Party A, shall be the financial
statements, balance sheet
and statements of income of
Zions Bancorporation.
Part 4
Miscellaneous
(a) Addresses for Notices. For the purpose of Section 12(a) of this Master
Agreement:
Address for notices or communications to Party A:
Address: 1 South Main, Suite 1340
Salt Lake City, Utah 84111
Attention: Executive Vice President, Investments
Facsimile: 801-524-4659
Address for notices or communication to Party B:
Address: 919 1 18th Street, NW
Washington, D.C. 20006
Attention:Vice President Mortgage Backed Securities
Copy to: Vice President General Counsel
Facsimile: 202-872-7713
(b) Process Agent. For the purpose of Section 13(a) of this Master Agreement:
Party A appoints as its process agent - Not Applicable.
Party B appoints as its process agent - Not Applicable.
(c) Offices. The provisions of Section 10(a) will apply to this Agreement.
(d) Multibranch Party. For the purpose of Section 10(c) of this Agreement:
Party A is not a Multibranch Party.
Party B is not a Multibranch Party.
(e) Calculation Agent. The Calculation Agent shall be Party A unless an Event of
Default has occurred and is continuing with respect to Party A, in which case,
Party B shall be the Calculation Agent.
(f) Credit Support Document. In the case of Party A: Applicable. In the case of
Party B: Applicable.
(g) Credit Support Provider. In the case of Party A: Not Applicable. With
respect to Party B: Not Applicable.
(h) Governing Law. This Agreement will be governed by and construed in
accordance with the laws ofthe State of New York, without reference to the
choice of law doctrine.
(i) Netting of Payments. Subparagraph (ii) of Section 2(c) will not apply to any
Transactions with effect from the date of this Agreement unless provided
otherwise in the Confirmation relating to a specific Transaction.
(j) Affiliate. Affiliate will have the meaning specified in Section 14 of this
Agreement.
Part 5
Other Provisions
(a) Definitions. Unless otherwise specified in a Confirmation, this Agreement,
each Confirmation, and each Transaction are subject to the 1991 ISDA Definitions
(the "Definitions") and to paragraphs (3) and (4) of the May 1989 Addendum to
Schedule to Interest Rate and Currency Exchange Agreement -- Interest Rate Caps,
Collars and Floors (the "Cap Addendum"), each as published by the International
Swaps and Derivatives Association, Inc. ("ISDA"), and will be governed in all
respects by the Definitions and such paragraphs of the Cap Addendum. The
Definitions and such paragraphs of the Cap Addendum are incorporated by
reference in, and made part of, this Agreement. In the event of any
inconsistency between the provisions of this Agreement, the Definitions, or such
paragraphs of the Cap Addendum, this Agreement will prevail. Subject to Section
1(b), in the event of any inconsistency between the provisions of any
Confirmation and this Agreement, the Definitions, or such paragraphs of the Cap
Addendum, such Confirmation will prevail for the purpose of the relevant
Transaction.
(b) Set-Off. Section 6 of this Agreement is hereby amended by adding the
following subsection (f) at the end thereof:
(f) Set-off. Any amount (the "Early Termination Amount") payable by the
Non-Defaulting Party to the Defaulting Party under Section (e), as a consequence
of the occurrence of an event set forth in Section 5(a)(vii), may, at the option
of the Non-Defaulting Party (and without prior notice to the Defaulting Party),
be reduced by its set-off against any amount(s) (the "Other Agreement Amount")
payable (whether at such time or in the future or upon the occurrence of a
contingency) by the Defaulting Party to the Non-Defaulting Party (irrespective
of the currency, place of payment or booking office of the obligation) under
this agreement or any other agreement(s) between the Defaulting Party and the
Non-Defaulting Party or instrument(s) or undertaking(s) issued or executed by
one party to, or in favor of, the other party (and the Other Agreement Amount
will be discharged promptly and in all respects to the extent it is so set-off).
The Non-Defaulting Party will give notice to the Defaulting Party of any set-off
effected under this Section 6(f).
For this purpose, either the Early Termination Amount or the Other Agreement
Amount (or the relevant portion of such amounts) may be converted by the
Non-Defaulting Party into the currency in which the other is denominated at the
rate of exchange at which the Non-Defaulting Party would be able, acting in a
reasonable manner and in good faith, to purchase the relevant amount of such
currency.
Nothing in this Section 6(f) shall be effective to create a charge or other
security interest. This Section 6(f) shall be without prejudice and in addition
to any right of set-off, combination of accounts, lien or other right to which
any party is at any time otherwise entitled (whether by operation of law,
contract or otherwise).
(c) Severability. If any term, provision, covenant, or condition of this
Agreement, or the application thereof to any party or circumstance, shall be
held to be invalid or unenforceable (in whole or in part) for any reason, the
remaining terms, provision covenants, and conditions hereof shall continue in
full force and effect as if this Agreement had been executed with the invalid or
unenforceable portion eliminated. The parties shall endeavor, in good faith, to
replace the invalid, illegal or unenforceable provisions with valid provisions
the economic effect of which comes as close as possible to that of the invalid,
illegal or unenforceable provision.
(d) Consent to Recording. Each party hereby agrees that the other party or its
agents may electronically record all telephone conversations between officers or
employees of the consenting party and the officers or employees of the other
party who quote transactions on behalf of the party. Any such recordings will be
used only in connection with any misunderstanding or question arising with
respect to any transaction discussed over the telephone by or on behalf of the
parties; it being understood that no such recordings shall constitute evidence
of a Transaction unless all material terms of such Transaction have been
expressly agreed to by the parties. Each party further agrees to notify its
officers or employees that telephone conversations with such persons acting on
behalf of the other party may be recorded.
(e) Additional Representations, Each Party represents to the other (which
representations shall be deemed to be repeated by each party on each date on
which a Transaction is entered into) that:
(i) it is an "eligible swap participant" as such term is defined in Section
35.1(b)(2) of the Regulations of the Commodity Futures Trading Commission; and
(ii) it is entering into this Agreement and each Transaction hereunder as a
principal and not as an agent for any third party.
Part 6
Additional Provisions
(a) Representations.
(i) Section 3 is hereby amended to add the following Subparagraph:
(vi) Additional Representations. Each party hereby further
represents and warrants to the other party (which representations
will be deemed to be repeated by such party at all times until
the termination of this Agreement) that:
(1) Non-Speculation. This Agreement and each Transaction has been
and will be, entered into not for the purpose of speculation but
solely in connection with its financing activities, including,
without limitation, increasing the predictability of cash flow,
including earnings on invested funds, and otherwise improving its
ability to manage its funds and revenues.
(2) No Immunity. It is not entitled to claim immunity on the
grounds of sovereignty or other similar grounds with respect to
itself or its revenues or assets (irrespective of their use or
intended use) from (i) suit, (ii) jurisdiction of any court,
(iii) relief by way of injunction, order for specific performance
or for recovery of property, (iv) attachment of its assets
(whether before or after judgment) or (v) execution or
enforcement of any judgment to which it or its revenues or assets
might otherwise be made subject to in any suit, action or
proceedings relating to this Agreement in the courts of any
jurisdiction, and no such immunity (whether or not claimed) may
be attributed to such party or its revenues or assets.
(3) Legal Investment. This Agreement and each Transaction
hereunder do not constitute any kind of investment by such party
that is proscribed by any constitution, charter, law, rule,
regulation, investment guideline, restriction or policy,
government code, constituent or governing instrument, resolution,
guideline, ordinance, order, writ, judgment, decree, charge, or
ruling to which such party (or any of its officials in their
respective capacities as such) or its property or revenues is
subject.
(ii) Powers. Section 3(a)(ii) is hereby amended by (i) deleting in the fifth
line thereof after the word "party" the word "and" and replacing it with ", it";
and (iii) adding in the fifth line thereof after the word "performance" and
before the semicolon the words ", the individual(s) executing and delivering
this Agreement or any other documentation (including any Credit Support
Document) relating to this Agreement to which such individual's employer or
principal is a party or that it is required to deliver are duly authorized to do
so, and such individual's employer or principal has duly executed and delivered
this Agreement".
(b) Additional Agreements. Section 4 of this Agreement is hereby amended by
adding the following Section (f) thereto:
(f) Notice of a Proposed Change in Law. If a Proposed Change of Law
occurs, Party B will, promptly upon becoming aware of it, use
reasonable efforts to notify the other party, specifying the nature of
that Proposed Change of Law and will also give such other information
about that Proposed Change of Law as the other party may reasonably
require.
(c) Events of Default and Termination Events.
(i) Section 5(a)(viii) is hereby amended by:
(1) deleting the introductory paragraph in its entirety and replacing
it with the following:
(viii) Merger Without Assumption. The party or any Credit Support
Provider of such party consolidates or amalgamates with, or
merges with or into, or transfers all or substantially all its
assets to, or reorganizes, incorporates, reincorporates,
reconstitutes or reforms into or as, another entity and, at the
time of such consolidation, amalgamation, merger, transfer,
reorganization, incorporation, reincorporation, reconstitution,
reformation or succession:
(2) adding in the first line of Subparagraph (1) thereof and in the
second line of Subparagraph (2) thereof between the words
"surviving" and "or" the words, "reorganized, reincorporated,
reconstituted,", (iii) deleting in the first line of Subparagraph
(1) thereof and in the second line of Subparagraph (2) thereof
the words "or transferee" and replacing them with the words
"transferee or successor".
(iii)Section 5(b)(iv) is hereby amended by adding the following
phrase between the closing parenthesis and the semicolon at the
end thereof: "provided, however, that the foregoing action or
event shall not constitute a Termination Event so long as in
connection with or after such action or event X or its successor
or transferee provides (or causes to be provided) to the other
party ("Y") within two Local Business Days of Y's written demand
therefor Eligible Credit Support in an amount satisfactory to Y
in its sole discretion. If such Eligible Credit Support is
provided, it shall be in addition to any Eligible Credit Support
required under the ISDA Credit Support Annex attached hereto as
Annex A but it shall be otherwise administered under Annex A.
(e) Definitions
(i) Section 14 is hereby amended by inserting the following
definition in alphabetical order:
"Proposed Change of Law" means (a) the enactment by any
legislative body with competent jurisdiction over Party B of
legislation which, if adopted as law, would render unlawful (i)
the performance by Party B of any absolute or contingent
obligation to make a payment or deliver or to receive a payment
or delivery in respect of a Transaction, or the compliance by
Party B with any other material provisions of this Agreement
relating to such Transaction, or (ii) the performance by Party B
or a Credit Support Provider of Party B of any contingent or
other obligation which Party B (or such Credit Support Provider)
has under any Credit Support Document relating to such
Transaction; or (b) any assertion in any proceeding, forum or
action by Party B , in respect of Party B to the effect that
performance under this Agreement or similar agreements is
unlawful.
(Bilateral Form)
ISDA(R)
International Swaps and Derivatives Association, Inc.
CREDIT SUPPORT ANNEX
to the Schedule to the
..................ISDA MASTER AGREEMENT..........................
dated as of June 26, 1997
between
ZIONS FIRST NATIONAL BANK ("Party A") and FEDERAL AGRICULTURAL MORTGAGE
CORPORATION ("Party B")
This Annex supplements, forms part of, and is subject to, the above-referenced
Agreement, is part of its Schedule and is a Credit Support Document under this
Agreement with respect to each party.
Accordingly, the parties agree as follows:-
Paragraph 1. Interpretation
(a) Definitions and Inconsistency. Capitalized terms not otherwise defined
herein or elsewhere in this Agreement have the meanings specified pursuant to
Paragraph 12, and all references in this Annex to Paragraphs are to Paragraphs
of this Annex. In the event of any inconsistency between this Annex and the
other provisions of this Schedule, this Annex will prevail, and in the event of
any inconsistency between Paragraph 13 and the other provisions of this Annex,
Paragraph 13 will prevail.
(b) Secured Party and Pledgor. All references in this Annex to the "Secured
Party" will be to either party when acting in that capacity and all
corresponding references to the "Pledgor" will be to the other party when acting
in that capacity; provided, however, that if Other Posted Support is held by a
party to this Annex, all references herein to that party as the Secured Party
with respect to that Other Posted Support will be to that party as the
beneficiary thereof and will not subject that support or that party as the
beneficiary thereof to provisions of law generally relating to security
interests and secured parties.
Paragraph 2. Security Interest
Each party, as the Pledgor, hereby pledges to the other party, as the Secured
Party, as security for its Obligations, and grants to the Secured Party a first
priority continuing security interest in, lien on and right of Set-off against
all Posted Collateral Transferred to or received by the Secured Party hereunder.
Upon the Transfer by the Secured Party to the Pledgor of Posted Collateral, the
security interest and lien granted hereunder on that Posted Collateral will be
released immediately and, to the extent possible, without any further action by
either party.
Paragraph 3. Credit Support Obligations
(a) Delivery Amount Subject to Paragraphs 4 and 5, upon a demand made by the
Secured Party on or promptly following a Valuation Date, if the Delivery Amount
for that Valuation Date equals or exceeds the Pledgor's Minimum Transfer Amount,
then the Pledgor will Transfer to the Secured Party Eligible Credit Support
having a Value as of the date of Transfer at least equal to the applicable
Delivery Amount (rounded pursuant to Paragraph 13). Unless otherwise specified
in Paragraph 13, the "Delivery Amount" applicable to the Pledgor for any
Valuation Date will equal the amount by which:
(i) the Credit Support Amount
exceeds
(ii) the Value as of that Valuation Date of all Posted Credit Support held by
the Secured Party.
(b) Return Amount. Subject to Paragraphs 4 and 5, upon a demand made by the
Pledgor on or promptly following a Valuation Date, if the Return Amount for that
Valuation Date equals or exceeds the Secured Party's Minimum Transfer Amount,
then the Secured Party will Transfer to the Pledgor Posted Credit Support
specified by the Pledgor in that demand having a Value as of the date of
Transfer as close as practicable to the applicable Return Amount (rounded
pursuant to Paragraph 13). Unless otherwise specified in Paragraph 13, the
"Return Amount" applicable to the Secured Party for any Valuation Date will
equal the amount by which:
(i) the Value as of that Valuation Date of all Posted Credit Support
held by the Secured Party
exceeds
(ii) the Credit Support Amount.
"Credit Support Amount" means, unless otherwise specified in Paragraph 13, for
any Valuation Date (i) the Secured Party's Exposure for that Valuation Date plus
(ii) the aggregate of all Independent Amounts applicable to the Pledgor, if any,
minus (iii) all Independent Amounts applicable to the Secured Party, if any,
minus (iv) the Pledgor's Threshold; provided, however, that the Credit Support
Amount will be deemed to be zero whenever the calculation of Credit Support
Amount yields a number less than zero.
Paragraph 4. Conditions Precedent, Transfer Timing, Calculations and
Substitutions
(a) Conditions Precedent. Each Transfer obligation of the Pledgor under
Paragraphs 3 and 5 and of the Secured Party under Paragraphs 3, 4(d)(ii), 5 and
6(d) is subject to the conditions precedent that:
(i) no Event of Default, Potential Event of Default or Specified Condition has
occurred and is continuing with respect to the other party; and
(ii) no Early Termination Date for which any unsatisfied payment obligations
exist has occurred or been designated as the result of an Event of Default or
Specified Condition with respect to the other party.
(b) Transfer Timing. Subject to Paragraphs 4(a) and 5 and unless otherwise
specified, if a demand for the
Transfer of Eligible Credit Support or Posted Credit Support is made by the
Notification Time, then the relevant Transfer will be made not later than the
close of business on the next Local Business Day; if a demand is made after the
Notification Time, then the relevant Transfer will be made not later than the
close of business on the second Local Business Day thereafter.
(c) Calculations. All calculations of Value and Exposure for purposes of
Paragraphs 3 and 6(d) will be made by the Valuation Agent as of the Valuation
Time, The Valuation Agent will notify each party (or the other party, if the
Valuation Agent is a party) of its calculations not later than the Notification
Time on the Local Business Day following the applicable Valuation Date (or in
the case of Paragraph 6(d), following the date of calculation).
(d) Substitutions.
(i) Unless otherwise specified in Paragraph 13, upon notice to the Secured Party
specifying the items of Posted Credit Support to be exchanged, the Pledgor may,
on any Local Business Day, Transfer to the Secured Party substitute Eligible
Credit Support (the "Substitute Credit Support"); and
(ii) subject to Paragraph 4(a), the Secured Party will Transfer to the Pledgor
the items of Posted Credit Support specified by the Pledgor in its notice not
later than the Local Business Day following the date on which the Secured Party
receives the Substitute Credit Support, unless otherwise specified in Paragraph
13 (the "Substitution Date"); provided that the Secured Party will only be
obligated to Transfer Posted Credit Support with a Value as of the date of
Transfer of that Posted Credit Support equal to the Value as of that date of the
Substitute Credit Support.
Paragraph 5. Dispute Resolution
If a party (a "Disputing Party") disputes (1) the Valuation Agent's calculation
of a Delivery Amount or a Return Amount or (11) the Value of any Transfer of
Eligible Credit Support or Posted Credit Support, then (1) the Disputing Party
will notify the other party and the Valuation Agent (if the Valuation Agent is
not the other party) not later than the close or business on the Local Business
Day following (X) the date that the demand is made under Paragraph 3 in the case
of (1) above or (Y) the date of Transfer in the case of (II) above, (2) subject
to Paragraph 4(a), the appropriate party will Transfer the undisputed amount to
the other party not later than the close of business on the Local Business Day
following (X) the date that the demand is made under Paragraph 3 in the case of
(1) above or (Y) the date of Transfer in the case of (11) above, (3) the parties
will consult with each other in an attempt to resolve the dispute and (4) if
they fail to resolve the dispute by the Resolution Time, then:
(i) In the case of a dispute involving a Delivery Amount or Return Amount,
unless otherwise specified in Paragraph 13, the Valuation Agent will recalculate
the Exposure and the Value as of the Recalculation Date by:
(A) utilizing any calculations of Exposure for the Transactions (or Swap
Transactions) that the parties have agreed are not in dispute;
(B) calculating the Exposure for the Transactions (or Swap Transactions) in
dispute by seeking four actual quotations at mid-market from Reference
Market-makers for purposes of calculating Market Quotation, and taking the
arithmetic average of those obtained; provided that if four quotations are not
available for a particular Transaction (or Swap Transaction), then fewer than
four quotations may be used for that Transaction (or Swap Transaction); and if
no quotations are available for a particular Transaction (or Swap Transaction),
then the Valuation Agent's original calculations will be used for that
Transaction (or Swap Transaction); and
(C) utilizing the procedures specified in Paragraph 13 for calculating the
Value, if disputed, of Posted Credit Support.
(ii) In the case of a dispute involving the Value of any Transfer of Eligible
Credit Support or Posted Credit Support, the Valuation Agent will recalculate
the Value as of the date of Transfer pursuant to Paragraph 13.
Following a recalculation pursuant to this Paragraph, the Valuation Agent will
notify each party (or the other party, if the Valuation Agent is a party) not
later than the Notification Time on the Local Business Day following the
Resolution Time. The appropriate party will, upon demand following that notice
by the Valuation Agent or a resolution pursuant to (3) above and subject to
Paragraphs 4(a) and 4(b), make the appropriate Transfer.
Paragraph 6. Holding and Using Posted Collateral
(a) Care of Posted Collateral. Without limiting the Secured Party's rights under
Paragraph 6(c), the Secured Party will exercise reasonable care to assure the
safe custody of all Posted Collateral to the extent required by applicable law,
and in any event the Secured Party will be deemed to have exercised reasonable
care if it exercises at least the same degree of care as it would exercise with
respect to its own property. Except as specified in the preceding sentence, the
Secured Party will have no duty with respect to Posted Collateral, including,
without limitation, any duty to collect any Distributions, or enforce or
preserve any rights pertaining thereto.
(b) Eligibility to Hold Posted Collateral; Custodians.
(i) General. Subject to the satisfaction of any conditions specified in
Paragraph 13 for holding Posted Collateral, the Secured Party will be entitled
to hold Posted Collateral or to appoint an agent (a "Custodian") to hold Posted
Collateral for the Secured Party. Upon notice by the Secured Party to the
Pledgor of the appointment of a Custodian, the Pledgor's obligations to make any
Transfer will be discharged by making the Transfer to that Custodian. The
holding of Posted Collateral by a Custodian will be deemed to be the holding of
that Posted Collateral by the Secured Party for which the Custodian is acting,
(ii) Failure to Satisfy Conditions. If the Secured Party or its Custodian fails
to satisfy any conditions for holding Posted Collateral, then upon a demand made
by the Pledgor, the Secured Party will, not later than five Local Business Days
after the demand, Transfer or cause its Custodian to Transfer all Posted
Collateral held by it to a Custodian that satisfies those conditions or to the
Secured Party if it satisfies those conditions.
(iii) Liability. The Secured Party will be liable for the acts or omissions of
its Custodian to the same extent that the Secured Party would be liable
hereunder for its own acts or omissions.
(c) Use ofPosted Collateral. Unless otherwise specified in Paragraph 13 and
without limiting the rights and obligations of the parties under Paragraphs 3,
4(d)(ii), 5, 6(d) and 8, if the Secured Party is not a Defaulting Party or an
Affected Party with respect to a Specified Condition and no Early Termination
Date has occurred or been designated as the result of an Event of Default or
Specified Condition with respect to the Secured Party, then the Secured Party
will, notwithstanding Section 9-207 of the New York Uniform Commercial Code,
have the right to:
(i) sell, pledge, rehypothecate, assign, invest, use, commingle or otherwise
dispose of, or otherwise use in its business any Posted Collateral it holds,
free from any claim or right of any nature whatsoever of the Pledgor, including
any equity or right of redemption by the Pledgor; and
(ii) register any Posted Collateral in the name of the Secured Party, its
Custodian or a nominee for either.
For purposes of the obligation to Transfer Eligible Credit Support or Posted
Credit Support pursuant to Paragraphs 3 and 5 and any rights or remedies
authorized under this Agreement, the Secured Party will be deemed to continue to
hold all Posted Collateral and to receive Distributions made thereon, regardless
of whether the Secured Party has exercised any rights with respect to any Posted
Collateral pursuant to (i) or (ii) above.
(d) Distributions and Interest Amount
(i) Distributions. Subject to Paragraph 4(a), if the Secured Party receives or
is deemed to receive Distributions on a Local Business Day, it will Transfer to
the Pledgor not later than the following Local Business Day any Distributions it
receives or is deemed to receive to the extent that a Delivery Amount would not
be created or increased by that Transfer, as calculated by the Valuation Agent
(and the date of calculation will be deemed to be a Valuation Date for this
purpose).
(ii) Interest Amount. Unless otherwise specified in Paragraph 13 and subject to
Paragraph 4(a), in lieu of any interest, dividends or other amounts paid or
deemed to have been paid with respect to Posted Collateral in the form of Cash
(all of which may be retained by the Secured Party), the Secured Party will
Transfer to the Pledgor at the times specified in Paragraph 13 the Interest
Amount to the extent that a Delivery Amount would not be created or increased by
that Transfer, as calculated by the Valuation Agent (and the date of calculation
will be deemed to be a Valuation Date for this purpose). The Interest Amount or
portion thereof not Transferred pursuant to this Paragraph will constitute
Posted Collateral in the form of Cash and will be subject to the security
interest granted under Paragraph 2.
Paragraph 7. Events of Default
For purposes of Section 5(a)(iii)(1) of this Agreement, an Event of Default will
exist with respect to a party if:
(i) that party fails (or fails to cause its Custodian) to make, when due, any
Transfer of Eligible Collateral, Posted Collateral or the Interest Amount, as
applicable, required to be made by it and that failure continues for two Local
Business Days after notice of that failure is given to that party;
(ii) that party fails to comply with any restriction or prohibition specified in
this Annex with respect to any of the rights specified in Paragraph 6(c) and
that failure continues for five Local Business Days after notice of that failure
is given to that party; or
(iii) that party fails to comply with or perform any agreement or obligation
other than those specified in Paragraphs 7(i) and 7(ii) and that failure
continues for 30 days after notice of that failure is given to that party,
Paragraph 8. Certain Rights and Remedies
(a) Secured Party's Rights and Remedies. If at any time (1) an Event of Default
or Specified Condition with respect to the Pledgor has occurred and is
continuing or (2) an Early Termination Date has occurred or been designated as
the result of an Event of Default or Specified Condition with respect to the
Pledgor, then, unless the Pledgor has paid in full all of its Obligations that
are then due, the Secured Party may exercise one or more of the following rights
and remedies:
(i) all rights and remedies available to a secured party under applicable law
with respect to Posted Collateral held by the Secured Party;
(ii) any other rights and remedies available to the Secured Party under the
terms of Other Posted Support, if any;
(iii) the right to Set-off any amounts payable by the Pledgor with respect to
any Obligations against any Posted Collateral or the Cash equivalent of any
Posted Collateral held by the Secured Party (or any obligation of the Secured
Party to Transfer that Posted Collateral); and
(iv) the right to liquidate any Posted Collateral held by the Secured Party
through one or more public or private sales or other dispositions with such
notice, if any, as may be required under applicable law, free from any claim or
right of any nature whatsoever of the Pledgor, including any equity or right of
redemption by the Pledgor (with the Secured Party having the right to purchase
any or all of the Posted Collateral to be sold) and to apply the proceeds (or
the Cash equivalent thereof) from the liquidation of the Posted Collateral to
any amounts payable by the Pledgor with respect to any Obligations in that order
as the Secured Party may elect.
Each party acknowledges and agrees that Posted Collateral in the form of
securities may decline speedily in value and is of a type customarily sold on a
recognized market, and, accordingly, the Pledgor is not entitled to prior notice
of any sale of that Posted Collateral by the Secured Party, except any notice
that is required under applicable law and cannot be waived.
(b) Pledgor's Rights and Remedies. If at any time an Early Termination Date has
occurred or been designated as the result of an Event of Default or Specified
Condition with respect to the Secured Party, then (except in the case of an
Early Termination Date relating to less than all Transactions (or Swap
Transactions) where the Secured Party has paid in full all of its obligations
that are then due under Section 6(e) of this Agreement):
(i) the Pledgor may exercise all rights and remedies available to a pledgor
under applicable law with respect to Posted Collateral held by the Secured
Party;
(ii) the Pledgor may exercise any other rights and remedies avail-able to the
Pledgor under the terms of Other Posted Support, if any;
(iii) the Secured Party will be obligated immediately to Transfer all Posted
Collateral and the Interest Amount to the Pledgor; and
(iv) to the extent that Posted Collateral or the Interest Amount is not so
Transferred pursuant to (iii) above, the Pledgor may:
(A) Set-off any amounts payable by the Pledgor with respect to any Obligations
against any Posted Collateral or the Cash equivalent of any Posted Collateral
held by the Secured Party (or any obligation of the Secured Party to Transfer
that Posted Collateral); and
(B) to the extent that the Pledgor does not Set-off under (iv)(A) above,
withhold payment of any remaining amounts payable by the Pledgor with respect to
any Obligations, up to the Value of any remaining Posted Collateral held by the
Secured Party, until that Posted Collateral is Transferred to the Pledgor.
(c) Deficiencies and Excess Proceeds The Secured Party will Transfer to the
Pledgor any proceeds and
Posted Credit Support remaining after liquidation, Set-off and/or application
under Paragraphs 8(a) and 8(b) after satisfaction in fall of all amounts payable
by the Pledgor with respect to any Obligations; the Pledgor in all events will
remain liable for any amounts remaining unpaid after any liquidation, Set-off
and/or application under Paragraphs 8(a) and 8(b).
(d) Final Returns. When no amounts are or thereafter may become payable by the
Pledgor with respect to any Obligations (except for any potential liability
under Section 2(d) of this Agreement), the Secured Party will Transfer to the
Pledgor all Posted Credit Support and the Interest Amount, if any.
Paragraph 9. Representations
Each party represents to the other party (which representations will be deemed
to be repeated as of each date on which it, as the Pledgor, Transfers Eligible
Collateral) that:
(i) it has the power to grant a security interest in and lien on any Eligible
Collateral it Transfers as the Pledgor and has taken all necessary actions to
authorize the granting of that security interest and lien,
(ii) it is the sole owner of or otherwise has the right to Transfer all Eligible
Collateral it Transfers to the Secured Party hereunder, free and clear of any
security interest, lien, encumbrance or other restrictions other than the
security interest and lien granted under Paragraph 2;
(iii) upon the Transfer of any Eligible Collateral to the Secured Party under
the terms of this Annex, the Secured Party will have a valid and perfected first
priority security interest therein (assuming that any central clearing
corporation or any third-party financial intermediary or other entity not within
the control of the Pledgor involved in the Transfer of that Eligible Collateral
gives the notices and takes the action required of it under applicable law for
perfection of that interest); and
(iv) the performance by it of its obligations under this Annex will not result
in the creation of any security interest, lien or other encumbrance on any
Posted Collateral other than the security interest and lien granted under
Paragraph 2.
Paragraph 10. Expenses
(a) General. Except as otherwise provided in Paragraphs 10(b) and 10(c), each
party will pay its own costs and expenses in connection with performing its
obligations under this Annex and neither party will be liable for any costs and
expenses incurred by the other party in connection herewith.
(b) Posted Credit Support. The Pledgor will promptly pay when due all taxes,
assessments or charges of any nature that are imposed with respect to Posted
Credit Support held by the Secured Party upon becoming aware of the same,
regardless of whether any portion of that Posted Credit Support is subsequently
disposed of under Paragraph 6(c), except for those taxes, assessments and
charges that result from the exercise of the Secured Party's rights under
Paragraph 6(c).
(c) Liquidation/Application of Posted Credit Support. All reasonable costs and
expenses incurred by or on behalf of the Secured Party or the Pledgor in
connection with the liquidation and/or application of any Posted Credit Support
under Paragraph 8 will be payable, on demand and pursuant to the Expenses
Section of this Agreement, by the Defaulting Party or, if there is no Defaulting
Party, equally by the parties.
Paragraph 11. Miscellaneous
(a) Default Interest. A Secured Party that fails to make, when due, any Transfer
of Posted Collateral or the Interest Amount will be obligated to pay the Pledgor
(to the extent permitted under applicable law) an amount equal to interest at
the Default Rate multiplied by the Value of the items of property that were
required to be Transferred, from (and including) the date that Posted Collateral
or Interest Amount was required to be Transferred to (but excluding) the date of
Transfer of that Posted Collateral or Interest Amount. This interest will be
calculated on the basis of daily compounding and the actual number of days
elapsed.
(b) Further Assurances. Promptly following a demand made by a party, the other
party will execute, deliver, file and record any financing statement, specific
assignment or other document and take any other action that may be necessary or
desirable and reasonably requested by that party to create, preserve, perfect or
validate any security interest or lien granted under Paragraph 2, to enable that
party to exercise or enforce its rights under this Annex with respect to Posted
Credit Support or an Interest Amount or to effect or document a release of a
security interest on Posted --Collateral or an Interest Amount.
(c) Further Protection. The Pledgor will promptly give notice to the Secured
Party of, and defend against, any suit, action, proceeding or lien that involves
Posted Credit Support Transferred by the Pledgor or that could adversely affect
the security interest and hen granted by it under Paragraph 2, unless that suit,
action, proceeding or lien results from the exercise of the Secured Party's
rights under Paragraph 6(c).
(d) Good Faith and Commercially Reasonable Manner. Performance of all
obligations under this Annex, including, but not limited to, all calculations,
valuations and determinations made by either party, will be made in good faith
and in a commercially reasonable manner.
(e) Demands and Notices. All demands and notices made by a party under this
Annex will be made as specified in the Notices Section of this Agreement, except
as otherwise provided in Paragraph 13.
(f) Specifications of Certain Matters. Anything referred to in this Annex as
being specified in Paragraph 13 also may be specified in one or more
Confirmations or other documents and this Annex will be construed accordingly.
Paragraph 12. Definitions
As used in this Annex:
"Cash" means the lawful currency of the United States of America.
"Credit Support Amount" has the meaning specified in Paragraph 3.
"Custodian" has the meaning specified in Paragraphs 6(b)(i) and 13.
"Delivery Amount" has the meaning specified in Paragraph 3(a).
"Disputing Party" has the meaning specified in Paragraph 5.
"Distributions" means with respect to Posted Collateral other than Cash, all
principal, interest and other payments and distributions of cash or other
property with respect thereto, regardless of whether the Secured Party has
disposed of that Posted Collateral under Paragraph 6(c). Distributions will not
include any item of property acquired by the Secured Party upon any disposition
or liquidation of Posted Collateral or, with respect to any Posted Collateral in
the form of Cash, any distributions on that collateral, unless otherwise
specified herein.
"Eligible Collateral means, with respect to a party, the items, if any,
specified as such for that party in Paragraph 13.
"Eligible Credit Support" means Eligible Collateral and Other Eligible Support.
"Exposure" means for any Valuation Date or other date for which Exposure is
calculated and subject to Paragraph 5 in the case of a dispute, the amount, if
any, that would be payable to a party that is the Secured Party by the other
party (expressed as a positive number) or by a party that is the Secured Party
to the other party (expressed as a negative number) pursuant to Section
6(e)(ii)(2)(A) of this Agreement as if all Transactions (or Swap Transactions)
were being terminated as of the relevant Valuation Time; provided that Market
Quotation will be determined by the Valuation Agent using its estimates at
mid-market of the amounts that would be paid for Replacement Transactions (as
that term is defined in the definition of "Market Quotation").
"Independent Amount" means, with respect to a party, the amount specified as
such for that party in Paragraph 13; if no amount is specified, zero.
"Interest Amount" means, with respect to an Interest Period, the aggregate sum
of the amounts of interest calculated for each day in that Interest Period on
the principal amount of Posted Collateral in the form of Cash held by the
Secured Party on that day, determined by the Secured Party for each such day as
follows:
(x) the amount of that Cash on that day; multiplied by
(y) the Interest Rate in effect for that day; divided by
(z) 360.
"Interest Period' means the period from (and including) the last Local Business
Day on which an Interest Amount was Transferred (or, if no Interest Amount has
yet been Transferred, the Local Business Day on which Posted Collateral in the
form of Cash was Transferred to or received by the Secured Party) to (but
excluding) the Local Business Day on which the current Interest Amount is to be
Transferred.
"Interest Rate means the rate specified in Paragraph 13.
"Local Business Day", unless otherwise specified in Paragraph 13, has the
meaning specified in the Definitions Section of this Agreement, except that
references to a payment in clause (b) thereof will be deemed to include a
Transfer under this Annex.
"Minimum Transfer Amount" means, with respect to a party, the amount specified
as such for that party in Paragraph 13; if no amount is specified, zero.
"Notification Time" has the meaning specified in Paragraph 13.
"Obligations" means, with respect to a party, all present and future obligations
of that party under this Agreement and any additional obligations specified for
that party in Paragraph 13.
"Other Eligible Support" means, with respect to a party, the items, if any,
specified as such for that party in Paragraph 13.
"Other Posted Support" means all Other Eligible Support Transferred to the
Secured Party that remains in effect for the benefit of that Secured Party.
"Pledgor" means either party, when that party (i) receives a demand for or is
required to Transfer Eligible Credit Support under Paragraph 3(a) or (ii) has
Transferred Eligible Credit Support under Paragraph 3(a).
"Posted Collateral" means all Eligible Collateral, other property,
Distributions, and all proceeds thereof that have been Transferred to or
received by the Secured Party under this Annex and not Transferred to the
Pledgor pursuant to Paragraph 3(b), 4(d)(ii) or 6(d)(i) or released by the
Secured Party under Paragraph 8. Any Interest Amount or portion thereof not
Transferred pursuant to Paragraph 6(d)(ii) will constitute Posted Collateral in
the form of Cash.
"Posted Credit Support" means Posted Collateral and Other Posted Support.
"Recalculation Date means the Valuation Date that gives rise to the dispute
under Paragraph 5; provided, however, that if a subsequent Valuation Date occurs
under Paragraph 3 prior to the resolution of the dispute, then the
"Recalculation Date" means the most recent Valuation Date under Paragraph 3.
"Resolution Time" has the meaning specified in Paragraph 13.
"Return Amount" has the meaning specified in Paragraph 3(b).
"Secured Party" means either party, when that party (i) makes a demand for or is
entitled to receive Eligible Credit Support under Paragraph 3(a) or (ii) holds
or is deemed to hold Posted Credit Support.
"Specified Condition" means, with respect to a party, any event specified as
such for that party in Paragraph 13.
"Substitute Credit Support" has the meaning specified in Paragraph 4(d)(i).
"Substitution Date" has the meaning specified in Paragraph 4(d)(ii).
"Threshold" means, with respect to a party, the amount specified as such for
that party in Paragraph 13; if no amount is specified, zero.
"Transfer" means, with respect to any Eligible Credit Support, Posted Credit
Support or Interest Amount, and in accordance with the instructions of the
Secured Party, Pledgor or Custodian, as applicable:
(i) in the case of Cash, payment or delivery by wire transfer into one or more
bank accounts specified by the recipient;
(ii) in the case of certificated securities that cannot be paid or delivered by
book-entry, payment or delivery in appropriate physical form to the recipient or
its account accompanied by any duly executed instruments of transfer,
assignments in blank, transfer tax stamps and any other documents necessary to
constitute a legally valid transfer to the recipient;
(iii) in the case of securities that can be paid or delivered by book-entry, the
giving of written instructions to the relevant depository institution or other
entity specified by the recipient, together with a written copy thereof to the
recipient, sufficient if complied with to result in a legally effective transfer
of the relevant interest to the recipient; and
(iv) in the case of Other Eligible Support or Other Posted Support, as specified
in Paragraph 13,
"Valuation Agent" has the meaning specified in Paragraph 13.
"Valuation Date," means each date specified in or otherwise determined pursuant
to Paragraph 13.
"Valuation Percentage means, for any item of Eligible Collateral, the percentage
specified in Paragraph 13.
"Valuation Time" has the meaning specified in Paragraph 13.
"Value" means for any Valuation Date or other date for which Value is calculated
and subject to Paragraph 5 in the case of a dispute, with respect to:
(i) Eligible Collateral or Posted Collateral that is:
(A) Cash, the amount thereof; and
(B) a security, the bid price obtained by the Valuation Agent multiplied by the
applicable Valuation Percentage, if any;
(ii) Posted Collateral that consists of items that are not specified as Eligible
Collateral, zero; and
(iii) Other Eligible Support and Other Posted Support, as specified in Paragraph
13.
Annex A
CREDIT SUPPORT ANNEX
to the Schedule to the
Master Agreement
dated as of June 26, 1997
between
Zions First National Bank ("Zions") and
Federal Agricultural Mortgage Corporation (the "Counterparty")
Paragraph 13. Elections and Variables
(a) Security Interest for "Obligations". The term "Obligations" as used in this
Annex includes no additional obligations with respect to Zions and the
Counterparty.
(b) Credit Support Obligations.
(i) Delivery Amount, Return Amount and Credit Support Amount.
(A) "Delivery Amount" will have the meaning specified in
Paragraph 3(a).
(B) "Return Amount" will have the meaning specified in Paragraph
3(b).
(C) "Credit Support Amount" will have the meaning specified in
Paragraph 3(b).
(ii) Eligible Collateral. The following items will qualify as "Eligible
Collateral":
"Valuation
Zions Percentage"
(A) Cash [X] 100%
(B) Negotiable debt obligations issued by the U.S. [X] 98%
Treasury Department in book- entry form having an original
maturity at issuance of not more than one year ("Treasury
Bills")
(C) Negotiable debt obligations issued by the U.S. [X] 98%
Treasury Department having an original maturity at issuance
of more than one year but not more than
ten years ("Treasury Notes")
(D) Negotiable debt obligations issued by the U.S. [X] 95%
Treasury Department having an original maturity at issuance
of more than ten years ("Treasury
Bonds")
(E) Other: Agency Securities having an original maturity [X] 97%
at issuance of not more than ten years
(F) Other: Agency Securities having an original maturity [X] 95%
at issuance of more than ten years
(G) Such other property as the Secured Party, in its sole
discretion, may deem acceptable, with such Valuation
Percentages as may be agreed to between the parties.
As used herein, "Agency Securities" means obligations issued by or fully
guaranteed as to both principal and interest by the Federal National Mortgage
Association, the Federal Home Loan Mortgage Corporation, the Government National
Mortgage Association, the Federal Home Loan Banks, the Federal Farm Credit Banks
Funding Corporation or the Counterparty, but excluding (i) interest only and
principal only securities, such as collateralized mortgage obligations,
multi-class REMIC securities and other similar structured securities, and (y)
pass-through securities (whether REMICs or otherwise) backed by adjustable rate
mortgage loans, except adjustable rate pass-through securities guaranteed by the
Counterparty.
(iii)Other Eligible Support. There shall be no "Other Eligible
Support" for either party for purposes of this Annex.
(iv)Thresholds.
(A)"Independent Amount" shall not apply.
(B)"Threshold' shall mean [material omitted pursuant to a
request for confidential treatment and filed separately
with the SEC]
(C)"Minimum Transfer Amount" shall mean [material omitted
pursuant to a request for confidential treatment and
filed separately with the SEC]
(D) Rounding. The Delivery Amount and the Return Amount
will be rounded to the nearest integral multiple of US$
1,000, with amounts above US$ 500 being rounded up.
(c) Valuation and Timing.
(i) "Valuation Agent" means the Counterparty.
(ii) "Valuation Date" means the last day of each calendar quarter (or, if
such date is not a Business Day, the next succeeding Business Day) and
any other Local Business Day which a party specifies to the other as a
Valuation Date.
(iii)"Valuation Time" means the close of business in the city of the
Valuation Agent on the Valuation Date or date of calculation, as
applicable; provided that the calculations of Value and Exposure will
be made as of approximately the same time on the same date.
(iv) "Notification Time" means by 1:00 p.m., New York time, on a Local
Business Day.
(d) Conditions Precedent. There shall be no "Specified Conditions" for either
party.
(e) Substitution.
(i) "Substitution Date" has the meaning specified in Paragraph 4(d)(ii).
(ii) Consent. Inapplicable.
(f) Dispute Resolution.
(i) "Resolution Time" means 1:00 p.m., New York time, on the Local
Business Day following the date on which notice is given that gives
rise to a dispute under Paragraph 5.
(ii) Value. For the purpose of Paragraphs 5(i)(C) and 5(ii), the Value of
Posted Credit Support other than Cash (which will have a Value equal
to its amount) will be calculated as follows:
(A) the sum of (l) (x) the mean of the high bid and low asked prices quoted on
such date by any principal market maker for such Posted Credit Support chosen by
the Disputing Party, or (y) if no quotations are available from a principal
market maker for such date, the mean of such high bid and low asked prices as of
the day, next preceding such date, on which such quotations were available, plus
(11) the accrued interest on such Posted Credit Support (except to the extent
Transferred pursuant to any applicable provision of this Agreement or included
in the applicable price referred to in (1) of this clause (A)) as of such date.
(iii) The provisions of Paragraph 5 will apply.
(g) Holding and Using Posted Collateral.
(i) Eligibility to Hold Posted Collateral; Custodians. The Counterparty
will be entitled to hold Posted Collateral itself or through a
Custodian pursuant to Paragraph 6(b) provided that the following
conditions applicable to it are satisfied:
(1) No Event of Default or Potential Event of Default shall be
continuing with respect to the Counterparty;
(2) The Custodian is either (i) the Federal Reserve Bank of New York
or (ii) a Bank (as defined in the Federal Deposit Insurance Act)
whose rating with respect to its long term unsecured,
unsubordinated indebtedness is at least BBB+ by S&P or Baa l by
Moody's; and
(3) The Posted Collateral shall be held in the United States.
(ii) Use of Posted Collateral. The provisions of Paragraph 6(c) will not
apply to Zions or the Counterparty.
(h) Distributions and Interest Amount.
(i) Interest Rate. The "Interest Rate" will be USD - Federal Funds - H.15.
(ii) Transfer of Interest Amount. The provisions of Paragraph 6(d)(ii) will
not apply.
(i) Additonal Representations.
None.
(j) Other Eligible Support and Other Posted Support.
(i) "Value" shall have no meaning with respect to Other Eligible Support
and Other Posted Support.
(ii) "Transfer" shall have no meaning with respect to Other Eligible
Support and Other Posted Support.
(k) Demands and Notices.
All demands, specifications and notices made by a party to this Annex will be
made pursuant to the Notices Section of this Agreement, unless otherwise
specified here:
With respect to Zions:
[As set forth in the Schedule.]
With respect to the Counterparty:
[As set forth in the Schedule.]
(1) Other Provisions.
(i) Modification to Paragraph 1: The following subparagraph (b) is
substituted for subparagraph (b) of the Annex.
"(b) Secured Party and Pledgor. All references in this Annex
to the "Secured Party" will be to the Counterparty and all
corresponding references to the "Pledgor" will be to Zions;
provided, however, that if Other Posted Support is held by a
party to this Annex, all references herein to that party as the
Secured Party with respect to that Other Posted Support will be
to that party as the beneficiary thereof and will not subject
that support or that party as beneficiary thereof to provisions
of law generally relating to security interests and secured
parties."
(ii) Modification to Paragraph 2: The following Paragraph 2 is
substituted for Paragraph 2 of this Annex:
" Paragraph 2. Security Interest. The Pledgor hereby pledges to
the Secured Party, as security for its Obligations, and grants to the
Secured Party a first priority continuing security interest in, lien
on and right of Set-off against all Posted Collateral which is deemed
to be Transferred to or received by the Secured Party hereunder. Upon
the Transfer by the Secured Party to the Pledgor of Posted Collateral,
the security interest and lien granted hereunder on that Posted
Collateral will be released immediately and, to the extent possible,
without any further action by either party."
(iii) Modification to Paragraph 9: The following first clause of
Paragraph 9 is substituted for the first clause of Paragraph 9 of this
Annex.
"Paragraph 9. Representations. The Pledgor represents to the
Secured Party (which representations will be deemed to be repeated as
of each date on which it Transfers Eligible Collateral) that:"
(iv) Modifications to Paragraph 12: The following definitions of
"Pledgor" and "Secured Party" are substituted for the definitions of those
terms contained in Paragraph 12 of this Annex.
"Pledgor" means Zions, when that party (i) receives a demand
for or is required to Transfer Eligible Credit Support under
Paragraph 3(a) or (ii) has Transferred Eligible Credit Support
under Paragraph 3(a).
"Secured Party" means the Counterparty, when that party (i)
makes a demand for or is entitled to receive Eligible Credit
Support under Paragraph 3(a) or (ii) holds or is deemed to hold
Posted Credit Support.
Please confirm your agreement to the terms of the foregoing Paragraph
13 by signing below.
ZIONS FIRST NATIONAL BANK
By: /s/ W. David Hemingway
-----------------------------
Name: W. David Hemingway
Title: Executive Vice President
FEDERAL AGRICULTURAL MORTGAGE
CORPORATION
By: /s/ Nancy E. Corsiglia
-----------------------------
Name: Nancy E. Corsiglia
Title: Treasurer & Vice President
of Business Development
By: /s/ Christopher A. Dunn
------------------------------
Name: Christopher A. Dunn
Title: Vice President of Mortgage
Backed Securities
Exhibit 10.11
================================================================================
MASTER CENTRAL SERVICING AGREEMENT
between
FEDERAL AGRICULTURAL MORTGAGE CORPORATION,
as Owner/Master Servicer
and
ZIONS FIRST NATIONAL BANK
as Central Servicer
dated as of
December 17, 1996
================================================================================
MASTER CENTRAL SERVICING AGREEMENT
THIS MASTER CENTRAL SERVICING AGREEMENT (this "Agreement") entered into as
of December 1, 1996, between the Federal Agricultural Mortgage Corporation, a
federally chartered instrumentality of the United States and an institution of
the Farm Credit System ("Farmer Mac") and Zions First National Bank, a national
bank (the "Central Servicer").
WITNESSETH
WHEREAS, Farmer Mac is the beneficial owner of certain agricultural real
estate mortgage loans and Master Servicer with respect to certain other
agricultural real estate mortgage loans; and
WHEREAS, Farmer Mac and the Central Servicer have agreed that the Central
Servicer is to service on behalf of Farmer Mac certain of such agricultural real
estate mortgage loans (the "Qualified Loans") to be identified on the Schedule
of Qualified Loans (as hereinafter defined) attached to each Central Servicing
Supplement.
NOW, THEREFORE, in consideration of these premises, the parties agree as
follows:
ARTICLE I
DEFINED TERMS
Section 1.01 Defined Terms. All capitalized terms used but not defined
herein have the meanings assigned to them in the Securities Guide and the
following terms shall have the following meanings:
"Amount Held for Future Distribution": As to any Remittance Date, the total
of all amounts held in the Collection Account at the close of business on such
Remittance Date on account of (i) Installment Payments due after the preceding
Due Date and (ii) prepayments received after the preceding Due Date.
"Appraisal Standards": The appraisal standards established by Farmer Mac
and set forth in the Securities Guide.
"Appraised Value": The appraised value of a Mortgaged Property as indicated
on the Schedule of Qualified Loans, which is the appraised value based upon the
appraisal conducted in accordance with the Appraisal Standards less than one
year prior to Farmer Mac's acquisition of the Qualified Loan.
"Borrower": The obligor under a Qualified Loan.
"Business Day": Any other day than (i) a Saturday or a Sunday, (ii) a day
on which banking institutions in the States of Minnesota, New York or Utah are
required or authorized by law to be closed or (iii) a day on which Farmer Mac is
closed.
"Central Servicer": Zions First National Bank, and in its permitted
successors and assigns.
"Central Servicer Advance": As to any Remittance Date, the amounts advanced
by the Central Servicer as specified in the definition of Central Servicer
Advance Requirement.
"Central Servicer Advance Requirement": The amount, if any, required to be
advanced by the Central Servicer on any Remittance Date, such amount being equal
to the total of all Installment Payments (with each interest component thereof
being adjusted to interest at the applicable Net Mortgage Rate) on the Qualified
Loans (including, for this purpose, REO Qualified Loans) that were due on or
prior to the preceding Due Date, and such Installments Payments were not the
subject of any previous unreimbursed Central Servicer Advance and were known by
the Central Servicer to be past due (irrespective of any moratorium, waiver or
other postponement) as of the close of business on such related Remittance Date;
provided, however, that no such advance in respect of a particular Qualified
Loan shall be required on any Remittance Date to the extent the Central Servicer
determines that any such advance if made would be a Nonrecoverable Advance.
"Central Servicer's Report": A report (which shall be in electronic machine
readable form) of the Central Servicer to Farmer Mac and Farmer Mac's designee,
if any, conforming to Section 4.01.
"Central Servicing Supplement": An instrument substantially in the form of
Exhibit B hereto executed by Farmer Mac and the Central Servicer pursuant to
Section 2.01 hereof which supplements this Master Central Servicing Agreement
and identifies the Qualified Loans the Central Servicing of which is being
delegated to the Central Servicer by Farmer Mac on the Closing Date identified
therein and sets forth the terms of the servicing of such Qualified Loans.
"Closing Date": As identified in the Central Servicing Supplement.
"Collection Account": The Eligible Account or Accounts created and
maintained pursuant to Section 3.02. Funds required to be deposited in the
Collection Account shall be held in trust for Farmer Mac.
"Collection Period": As defined in the Central Servicing Supplement.
"Cut-Off Date": As defined in the Central Servicing Supplement.
"Due Date": As to any Qualified Loan, any date upon which a scheduled
installment of principal and interest on such Qualified Loan is due in
accordance with the terms of the related Mortgage Note.
"Eligible Account": An account that is either (i) maintained with a
depository institution the obligations of which would qualify as Permitted
Investments pursuant to clause (iii) of the definition thereof, (ii) an account
or accounts the deposits in which are fully insured by the Federal Deposit
Insurance Corporation or (iii) an account or accounts in a depository
institution acting in its fiduciary capacity in which the deposits in such
accounts are held in trust and are invested in an account as described in (i) or
(ii) above or in Permitted Investments. Funds deposited in each Eligible Account
shall be held in trust pending application in accordance with the provisions of
this Agreement.
"Eligible Substitute Mortgaged Property": A Mortgaged Property that is
substituted for an Existing Mortgaged Property pursuant to Section 3.02(a)
which, as evidenced by an Servicing Officer's certificate delivered to Farmer
Mac, shall:
(i) secure the same Qualified Loan that such Existing Mortgaged
Property secures; and
(ii) on the date of substitution, have a current appraised value
at least equal to the Appraised Value of such Existing Mortgaged
Property.
"Environmental Review Report": The report required to be prepared pursuant
to the Securities Guide prior to the foreclosure or other conversion of any
defaulted Qualified Loan.
"Environmental Statute": Any Federal, state or local law, ordinance, rule
or regulation including, but not limited to, the Comprehensive Environmental
Response, Compensation, and Liability Act of 1980, as amended; the Hazardous
Materials Transportation Act, as amended; the Resource Conservation and Recovery
Act, as amended; and any regulations adopted and publications promulgated
pursuant to each of the foregoing.
"Existing Mortgaged Property": A Mortgaged Property that is replaced by an
Eligible Substitute Mortgaged Property pursuant to Section 3.02(a).
"Farmer Mac": The Federal Agricultural Mortgage Corporation, a federally
chartered institution of the Farm Credit System and instrumentality of the
United States, or any successor corporation or entity or Farmer Mac's designee.
The term Farmer Mac, when used to refer to the entity owning the Qualified
Loans, shall also include any entity designated by Farmer Mac to be the holder
of the Qualified Loans.
"Field Servicer": Any Person with whom the Central Servicer has entered
into a Servicing Agreement or any Person who otherwise is acting as a Field
Servicer.
"Field Servicing Fee Rate": As to any Qualified Loan, the per annum rate
identified as the Field Servicing Fee Rate in the Schedule of Qualified Loans.
"Hazardous Materials": Any flammable explosives, radioactive materials or
any other materials, wastes or substances defined as hazardous materials,
hazardous wastes or hazardous or toxic substances by any Environmental Statute
or by any Federal, state or local governmental authority having or claiming
jurisdiction over the Mortgaged Property.
"Independent": When used with respect to any specified Person, such a
Person who (i) is in fact independent of the Seller and the Central Servicer,
(ii) does not have any direct financial interest or any material indirect
financial interest in the Seller or the Central Servicer or in an affiliate
thereof, and (iii) is not connected with the Seller or the Central Servicer as
an officer, employee, promoter, underwriter, partner, director or person
performing similar functions.
"Installment Payment": As to any Qualified Loan and any Due Date, any
payment of principal and/or interest thereon in accordance with the amortization
schedule of such Qualified Loan (after adjustment for any curtailments occurring
prior to the Due Date but before any adjustment to such amortization schedule by
reason of any bankruptcy or similar proceeding or any moratorium or similar
waiver or grace period).
"Insurance Proceeds": Proceeds paid to Farmer Mac or the Central Servicer
(including any Field Servicer) by any insurer pursuant to any insurance policy
covering a Qualified Loan or Mortgaged Property, reduced by any expenses
incurred by Farmer Mac or the Central Servicer (including any Field Servicer) in
connection with the collection of such Insurance Proceeds and not otherwise
reimbursed to Farmer Mac or the Central Servicer, such expenses including,
without limitation, legal fees and expenses.
"Insured Expenses": Expenses covered by any insurance policy covering a
Qualified Loan or Mortgaged Property that are paid by or on behalf of Farmer Mac
or the Central Servicer.
"Liquidated Qualified Loan": Any defaulted Qualified Loan (including any
REO Qualified Loan) as to which the Central Servicer has determined that all
amounts it expects to recover from or on account of such Qualified Loan have
been recovered and have been deposited into the Collection Account.
"Liquidation Expenses": Expenses incurred by or on behalf of Farmer Mac or
the Central Servicer in connection with the liquidation of any defaulted
Qualified Loan, including, without limitation, legal fees and expenses,
brokerage commissions paid to third parties, any unreimbursed amounts expended
by Farmer Mac or the Central Servicer pursuant to Sections 3.05(a), 3.07(a) and
3.07(e) (to the extent such amounts are reimbursable under the terms of such
Sections) respecting the related Qualified Loan and any related and unreimbursed
expenditures for real estate and conveyance taxes or for property restoration or
preservation. Liquidation Expenses shall not include any previously incurred
expenses in respect of a defaulted Qualified Loan that have been netted against
related REO Proceeds, and shall not include Insured Expenses.
"Liquidation Proceeds": Cash (including Insurance Proceeds) received in
connection with the liquidation of defaulted Qualified Loans and REO Qualified
Loans, whether through trustee's sale, foreclosure sale or otherwise.
"Loan-to-Value Ratio": As of any date, the fraction, expressed as a
percentage, the numerator of which is the principal balance of the related
Qualified Loan at the date of determination and the denominator of which is the
Appraised Value of the related Mortgaged Property as of the date of the
appraisal performed in accordance with the Appraisal Standards.
"Mortgage": A mortgage, deed of trust or other instrument that constitutes
a first lien on an interest in real property securing a Mortgage Note.
"Mortgage File": The legal documents (including the Mortgage Note,
Mortgage, assignment of the Mortgage, evidence of title to the Mortgaged
Property and any additional security documents) relating to a Qualified Loan.
"Mortgage Note": The originally executed note or other evidence of
indebtedness evidencing the indebtedness of a Borrower under a Qualified Loan.
"Mortgage Rate": As to any Qualified Loan, the rate of interest borne by
the related Mortgage Note.
"Mortgage Servicing Documents": The custodial documents, servicing
documents, escrow documents, if any, the original appraisal, including any
updates thereto, which was the basis for the Appraised Value, and all other
documents, records, and tapes necessary for prudent servicing in accordance with
the Central Servicer's standards for mortgage loan servicing, and such other
papers and documents, tax receipts, insurance policies, insurance premium
receipts, water stock certificates, ledger sheets, payment records, insurance
claim files and correspondence, foreclosure files and correspondence, current
and historical computerized data files and other papers and records of whatever
kind or description.
"Mortgaged Property": The property securing a Qualified Loan.
"Net Liquidation Proceeds": As to any Liquidated Qualified Loan,
Liquidation Proceeds net of Liquidation Expenses not theretofore reimbursed to
the Central Servicer.
"Net Mortgage Rate": As to each Qualified Loan, the Mortgage Rate less the
sum of (a) the Servicing Fee Rate and (b) the Field Servicing Fee Rate.
"Net REO Proceeds": As to any REO Qualified Loan, REO Proceeds net of any
related and otherwise unreimbursed expenses of the Central Servicer.
"Nonrecoverable Advance": Any portion of a Central Servicer Advance
previously made or proposed to be made in respect of a Qualified Loan which has
not been previously reimbursed to the Central Servicer and which, in the good
faith judgment of the Central Servicer, will not or, in the case of a proposed
Central Servicer Advance, would not be ultimately recoverable from future
Borrower payments or from Net Liquidation Proceeds, REO Proceeds or other
recoveries in respect of the related Qualified Loan. The determination by the
Central Servicer that it has made a Nonrecoverable Advance or that any proposed
advance, if made, would constitute a Nonrecoverable Advance shall be evidenced
by a written certification of a Servicing Officer delivered to Farmer Mac,
stating (i) the amount of such Nonrecoverable Advance and (ii) that the Central
Servicer has determined in good faith that such advance is or would be a
Nonrecoverable Advance in accordance with the terms hereof and setting forth the
reasons therefor.
"Permitted Investments": One or more of the following, but only to the
extent permitted by applicable regulations:
(i) obligations of, or guaranteed as to principal and interest
by, Farmer Mac or the United States or any agency or instrumentality
thereof;
(ii) repurchase agreements on obligations specified in clause
(i), which repurchase agreements will mature not later than the day
preceding the immediately following Remittance Date, provided that (a)
the unsecured short-term obligations of the party agreeing to
repurchase such obligations are at the time rated not less than A-1 by
Standard & Poor's and not less than Prime-1 by Moody's, (b) such
repurchase agreements are effected with a primary dealer recognized by
a Federal Reserve Bank or (c) such repurchase agreements are secured
by obligations specified in clause (i) above at not less than 102% of
market value determined on a daily basis;
(iii) demand and time deposits in, certificates of deposit of, or
bankers' acceptances maturing in not more than 60 days and issued by,
any depository institution or trust company incorporated under the
laws of the United States of America or any state thereof and subject
to supervision and examination by federal and/or state banking
authorities, so long as at the time of such investment or contractual
commitment providing for such investment the commercial paper or other
short-term debt obligations of such depository institution or trust
company (or, in the case of a depository institution that is the
principal subsidiary of a holding company, the commercial paper or
other short-term obligations of such holding company) have a rating of
not less than A-1 from Standard & Poor's and a rating of not less than
Prime-1 from Moody's;
(iv) commercial paper (having remaining maturities of not more
than 60 days) of any corporation incorporated under the laws of the
United States or any state thereof, which on the date of acquisition
has been rated not less than A-1 from Standard & Poor's and not less
than Prime-1 by Moody's; and
(v) securities bearing interest or sold at a discount issued by
any corporation incorporated under the laws of the United States of
America or any state thereof if such securities are rated in the
highest long-term unsecured rating categories at the time of
investment or the contractual commitment providing for such investment
by Standard & Poor's and Moody's; provided, however, that securities
issued by any particular corporation will not be Permitted Investments
to the extent that investment therein will cause the then outstanding
principal amount of securities issued by such corporation and held as
part of the Collection Account to exceed 10% of the outstanding
principal balance of the Qualified Loans being serviced under this
Agreement (it being understood that the entity directing the
investment shall be responsible for compliance with the foregoing
restriction on investments);
(vi) units of a taxable money-market portfolio rated "P-1" by
Moody's and "AAAm" by Standard & Poor's and restricted to investments
in obligations issued or guaranteed by the United States of America or
entities whose obligations are backed by the full faith and credit of
the United States of America and repurchase agreements collateralized
by such obligations;
(vii) units of a taxable money-market portfolio restricted to
investments which would be `Permitted Investments' under paragraphs
(i) through (vi) of this definition of `Permitted Investments'; and
(viii) other obligations or securities that are acceptable to
(and specified in writing by) Farmer Mac.
The foregoing is qualified to the extent that no instrument described above
shall be a Permitted Investment if such instrument evidences either (x) a right
to receive only interest payments with respect to the obligations underlying
such instrument or (y) both principal and interest payments derived from
obligations underlying such instrument and the interest and principal payments
with respect to such instrument provide a yield to maturity of greater than 120%
of the yield to maturity at par of such underlying obligations.
"Person": Any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization or
government or any agency or political subdivision thereof.
"Principal Prepayment": Any payment (other than an Installment Payment) or
other recovery of principal on a Qualified Loan that is received in advance of
its scheduled Due Date.
"Principal Prepayment in Full": Any payment received on a Qualified Loan
that is in excess of the installment of principal and interest due thereon in an
amount sufficient to pay the entire principal balance of such Qualified Loan.
"Purchase Price": With respect to any Qualified Loan to be purchased on any
date pursuant to Section 3.07(g), an amount equal to the sum of (i) 100% of the
unpaid principal balance thereof as shown on the Schedule of Qualified Loans
less any principal payments made in respect of such Qualified Loan; (ii) the
unpaid accrued interest at the Net Mortgage Rate on the unpaid principal balance
thereof from the Due Date to which interest was last paid by the Borrower to the
next Due Date for such Qualified Loan; and (iii) if the date of purchase by the
Central Servicer occurs after the Qualified Loan has been securitized, any Yield
Maintenance Amount that would be payable under the terms of the related Mortgage
Note as if a Principal Prepayment in Full were made on the date of purchase by
the Central Servicer and such Yield Maintenance Amount were calculated based on
interest accruing at the Net Mortgage Rate less the sum of (x) the Guarantee Fee
Rate and (y) the Trustee Fee Rate (each of the Guarantee Fee Rate and the
Trustee Fee Rate having the meaning given such term in the applicable
securitization documents).
"Qualified Loan Receipts": With respect to any Collection Period, an amount
equal to (a) the sum of (i) the amount attributable to the Qualified Loans that
is on deposit in the Collection Account as of the close of business on the
following Remittance Date, including Borrower payments, including any related
Central Servicer Advance Requirement, Net REO Proceeds and Net Liquidation
Proceeds and any amount deposited in the Collection Account after the preceding
Remittance Date in respect of defaulted Qualified Loans purchased by the Central
Servicer or the Seller pursuant to Section 3.07(g) and (ii) any amount on
deposit in the Collection Account on the Due Date(s) in such Collection Period
in respect of the repurchase of any Qualified Loan repurchased by the seller
thereof, reduced by (b) the sum of (i) any Amount Held for Future Distribution
and (ii) all amounts permitted to be retained by the Central Servicer pursuant
to Section 3.02 or withdrawn by the Central Servicer from the Collection Account
in respect of the Qualified Loans pursuant to clauses (ii) through (iv),
inclusive, of Section 3.04(a).
"Qualified Loans": As defined in the recitals.
"Recourse Obligation": A Mortgage Note that permits the mortgagee
thereunder to seek a deficiency judgment that is enforceable under applicable
state law.
"Remittance Account": The account or accounts established by Farmer Mac
into which the Central Servicer will make deposits on each Remittance Date.
"Remittance Date": As to any Collection Period, the 15th day (or if such
15th day is not a Business Day, the next succeeding Business Day) of the month
in which such Collection Period ends.
"REO Account": The account established by the Central Servicer in which it
shall segregate all funds collected and received in connection with the
operation of any REO Qualified Loans separate and apart from its own funds and
general assets and held in trust for the benefit of Farmer Mac, which shall be
an Eligible Account and may be located in the same account as the Collection
Account, but as to which separate records (or entries) shall be maintained.
"REO Principal Amortization Amount": With respect to any REO Qualified Loan
for any Remittance Date (other than an REO Qualified Loan which has a Scheduled
Principal Balance of zero), any amount transferred during the preceding
Collection Period to the REO Account and not allocated pursuant to clauses first
and second of Section 3.07(c).
"REO Proceeds": Proceeds, other than Liquidation Proceeds, received in
respect of any REO Qualified Loan (including, without limitation, proceeds from
the rental of the related Mortgaged Property).
"REO Property": Any Mortgaged Property that has been acquired by Farmer Mac
(or an assignee of Farmer Mac and as to which Farmer Mac is the master servicer)
by foreclosure, deed-in-lieu of foreclosure or otherwise.
"REO Qualified Loan": Any Qualified Loan that is not a Liquidated Qualified
Loan and as to which the related Mortgaged Property is held by Farmer Mac (or an
assignee of Farmer Mac and as to which Farmer Mac is the master servicer).
"Schedule of Qualified Loans": The list of Qualified Loans the servicing of
which has been assigned by Farmer Mac to the Central Servicer on the applicable
Closing Date and attached to and made part of the Central Servicing Supplement
in the form and containing the information set forth in Attachment I thereto,
which list may be amended from time to time by Farmer Mac and the Central
Servicer. Such schedule, which shall be in hard copy and in machine readable
format to Farmer Mac and the Central Servicer shall be prepared by Farmer Mac
(based on information provided to Farmer Mac by the seller of the Qualified
Loans) and may consist of multiple reports that collectively set forth all of
the information requested.
"Securities Guide": The publication entitled "Federal Agricultural Mortgage
Corporation Securities Guide," release dated April 10, 1992, as modified by any
guide update or bulletin or as replaced by any other publication of Farmer Mac
identified by Farmer Mac as a "Servicing Guide."
"Servicing Agreement": An agreement between the Central Servicer and a
Field Servicer providing for the servicing and administration of some or all of
the Qualified Loans by such Field Servicer. A Servicing Agreement does not
relieve the Central Servicer of any of its duties or obligations under this
Agreement.
"Servicing Fee Rate": [material omitted pursuant to a request for
confidential treatment and filed separately with the SEC]
"Servicing Officer": Any officer of the Central Servicer involved in, or
responsible for, the administration and servicing of the Qualified Loans whose
name and specimen signature appears on a list of servicing officers furnished to
Farmer Mac by the Central Servicer on the Closing Date, as such list may from
time to time be amended by delivery of written notice by an existing Servicing
Officer.
"Standard Hazard Insurance Policy": A standard fire insurance policy with
extended coverage, which shall provide standard coverage against loss by fire,
lightning, windstorm, hail, explosion, riot not attending a strike, civil
commotion, aircraft, vehicles, smoke, vandalism or malicious mischief.
"Yield Maintenance Amount": As to any Qualified Loan, the amount payable by
the Borrower thereunder in connection with a Principal Prepayment thereof
(whether voluntary or involuntary) or other acceleration by the legal holder
thereof upon a default by such Borrower thereunder, as specified in the Mortgage
Note.
ARTICLE II
MORTGAGE SERVICING DOCUMENTS
Section 2.01 Mortgage Servicing Documents. Not later than each Closing
Date, the Central Servicer shall be in possession of the Mortgage Servicing
Documents with respect to each Qualified Loan. To the extent such Mortgage
Servicing Documents are not in the possession of the Central Servicer, the
Central Servicer will immediately notify Farmer Mac in writing of the missing
documents.
ARTICLE III
CENTRAL SERVICING OF QUALIFIED LOANS
Section 3.01. Central Servicer to Act as Servicer.
(a) Commencing with each Closing Date, the Central Servicer shall service
the Qualified Loans (including REO Qualified Loans) identified in the related
Schedule of Qualified Loans in conformity with this Agreement and the Securities
Guide as it applies to the Qualified Loans and shall have full power and
authority, acting alone and/or through field servicers as provided in Section
3.15, to do any and all things which it may deem necessary or desirable in
connection with such servicing.
(b) Without limiting the generality of the foregoing, the Central Servicer
is hereby authorized and empowered by Farmer Mac when the Central Servicer
believes it appropriate, in its best judgment, but consistent with and subject
to the terms of this Agreement, to execute and deliver, on behalf of Farmer Mac,
any and all instruments of satisfaction or cancellation, or of partial or full
release or discharge and all other comparable instruments, with respect to the
Qualified Loans and with respect to the Mortgaged Properties. Farmer Mac shall
cause the Central Servicer to be furnished from time to time with such Powers of
Attorney and other documents necessary or appropriate to enable the Central
Servicer to service and administer the Qualified Loans upon the request of the
Central Servicer. The Central Servicer shall provide Farmer Mac with the form of
any such Power(s) of Attorney or other document(s) (reasonably acceptable to
Farmer Mac) and Farmer Mac agrees to cause such Power(s) of Attorney or other
documents to be executed and returned promptly after hard copy receipt thereof
by Farmer Mac. Farmer Mac acknowledges and understands that the Central Servicer
may submit Power(s) of Attorney to Farmer Mac on an annual basis for recording
each year in accordance with local law requirements, and Farmer Mac agrees to
cause such Power(s) of Attorney to be executed and returned as provided in the
preceding sentence.
Section 3.02. Collection of Certain Qualified Loan Payments; Collection
Account.
(a) The Central Servicer shall, consistent with this Agreement and, to the
extent not inconsistent with the Securities Guide, in accordance with customary
industry standards for agricultural mortgage loan servicing, make reasonable
efforts to collect all payments called for under the terms and provisions of the
Qualified Loans. The Central Servicer may in its discretion waive, postpone,
reschedule, modify or otherwise compromise the terms of payment of any Qualified
Loan so long as any such waiver, postponement, rescheduling, modification or
compromise shall not be inconsistent with this Agreement, or be consented to in
advance in writing by Farmer Mac. No such arrangement shall alter or modify the
amortization schedule of such Qualified Loan for purposes of calculating any
Central Servicer Advance Requirement in respect thereof without the prior
written consent of Farmer Mac. In addition, the Central Servicer may in its
discretion permit the substitution of an Eligible Substitute Mortgaged Property
for an Existing Mortgaged Property so long as the Mortgage Note relating to the
Qualified Loan that the Existing Mortgaged Property secures is a Recourse
Obligation. The Central Servicer may waive, in whole or in part, the obligation
of a Borrower to pay a Yield Maintenance Amount only with the prior written
consent of Farmer Mac.
(b) The Central Servicer shall establish and maintain a Collection Account
in its name for the benefit of Farmer Mac (and for which Farmer Mac shall bear
any costs and expenses incurred with respect to withdrawals with respect to
Remittance Date) in which the Central Servicer shall deposit as promptly as
practicable following receipt (but in no event later than one (1) Business Day
following receipt) except as otherwise specifically provided herein or in a
Central Servicing Supplement, the following payments and collections received by
it subsequent to the Cut-Off Date (other than in respect of principal and
interest on the Qualified Loans due on or before the Cut-Off Date):
(i) All payments on account of principal on the Qualified Loans;
(ii) All payments on account of interest on the Qualified Loans
adjusted, in each case, to interest at the applicable Net Mortgage Rate,
except that the portion of any such payment on account of interest accruing
on any delinquent Installment Payment with respect to which a Central
Servicer Advance is outstanding need not be deposited in the Collection
Account;
(iii) Net Liquidation Proceeds, Net REO Proceeds and Insurance
Proceeds (other than Insurance Proceeds to be applied to the restoration or
repair of the related Mortgaged Property or released to the Borrower in
accordance with the Central Servicer's normal servicing procedures) net of
any amounts permitted to be withheld by the Central Servicer as servicing
compensation pursuant to Section 3.09 or permitted to be paid to the
Central Servicer pursuant to the last sentence of Section 3.07(e) and not
paid directly by Farmer Mac;
(iv) All proceeds of any Qualified Loans purchased by the Central
Servicer or repurchased by the seller of such Qualified Loan;
(v) All Yield Maintenance Amounts paid by Borrowers;
(vi) Any deposit required by the second paragraph of Section 3.05(a);
and
(vii) Any late charge or interest on the Qualified Loans accruing at a
default rate related to delinquent Installment Payments with respect to
which no Central Servicer Advance was made.
Notwithstanding the foregoing, the Central Servicer shall not be required
to deposit and may retain late collections, including Liquidation Proceeds,
Insurance Proceeds and REO Proceeds to the extent of unpaid Central Servicer
Advances and servicing advances with respect to the related Qualified Loans. The
foregoing requirements for deposit in the Collection Account shall be exclusive,
it being understood and agreed that, without limiting the generality of the
foregoing, payments or collections in the nature of late payment charges,
assumption fees or other service charges imposed upon Borrowers in connection
with servicing the Qualified Loans may but need not be deposited by the Central
Servicer in the Collection Account. In the event the Central Servicer shall
deposit in the Collection Account any amount not required to be deposited
therein, it may at any time withdraw such amount from the Collection Account,
any provision herein to the contrary notwithstanding.
(c) The Central Servicer shall cause the institution with which the
Collection Account is maintained to invest the funds in the Collection Account
attributable to the Qualified Loans in those Permitted Investments specified in
writing by Farmer Mac which shall mature in immediately available funds not
later than the day preceding the next Remittance Date and shall not be sold or
disposed of prior to maturity. All earnings and gains realized from any such
investments in the Collection Account shall be for the benefit of Farmer Mac.
The amount of any losses or expenses incurred in connection with the investment
of amounts in the Collection Account shall be deducted from the amount to be
distributed to Farmer Mac.
(d) The Central Servicer shall give notice to Farmer Mac of the location of
the Collection Account, and of any change in the location thereof, prior to the
use thereof.
Section 3.03. Payment of Taxes, Assessments and Other Items; Advances by
Central Servicer.
(a) The Central Servicer shall use its best efforts to cause the Borrowers
to pay any taxes, assessments, Standard Hazard Insurance Policy premiums, or
other charges with respect to which the failure to pay would result in a lien on
the related Mortgaged Property by operation of law or comparable items relating
to the Mortgaged Properties.
(b) The Central Servicer shall advance the payments referred to in
subsection (a) that are not timely paid by the Borrowers on the date when the
tax, premium or other cost for which such payment is intended is due, but the
Central Servicer shall be required so to advance only (x) to the extent
necessary, in the good faith judgment of the Central Servicer, to protect Farmer
Mac against any loss and (y) so long as in the good faith judgment of the
Central Servicer, such advances ultimately would be recoverable from payments
(other than Installment Payments) made by the Borrower or from Liquidation
Proceeds.
Section 3.04. Permitted Withdrawals from the Collection Account;
Maintenance of Accounting Records.
(a) The Central Servicer may, from time to time as provided herein, make
withdrawals from the Collection Account for the following purposes:
(i) to make distributions to Farmer Mac on each Remittance Date;
(ii) at any time to withdraw any amount deposited in the Collection
Account that was not required to be deposited therein pursuant to Section
3.02(b);
(iii) to reimburse itself for previously unreimbursed Central Servicer
Advances and servicing advances, the Central Servicer's right to withdraw
amounts pursuant to this clause (iii) being limited to amounts received on
particular Qualified Loans (including, for this purpose, Borrower payments,
Insurance Proceeds, Liquidation Proceeds, REO Proceeds and proceeds from
the repurchase of the related Qualified Loan) which represent late
recoveries of Installment Payments respecting which any such Central
Servicer Advance was made; and
(iv) to reimburse itself for any Nonrecoverable Advance and to pay to
an Independent contractor any fee to be paid or reimbursed by Farmer Mac
pursuant to the last sentence of Section 3.07(e).
(b) The Central Servicer shall keep and maintain or cause to be kept and
maintained separate accounting, on a Qualified Loan-by-Qualified Loan basis, for
the purpose of providing Farmer Mac or its designee with the information
necessary for the preparation of such reports as may be requested by Farmer Mac.
Section 3.05. Maintenance of Hazard Insurance and Errors and Omissions and
Fidelity Coverage.
(a) The Central Servicer shall cause to be maintained for each Qualified
Loan a Standard Hazard Insurance Policy insuring against loss or damage to the
insurable improvements included in the Appraised Value in an amount not less
than the value assigned to such improvements in the related appraisal. The
Central Servicer shall also cause to be maintained on property acquired upon
foreclosure, or deed in lieu of foreclosure, of any Qualified Loan, a Standard
Hazard Insurance Policy in an amount at least equal to the amount necessary to
avoid the application of any co-insurance clause contained in the related hazard
insurance policy. Pursuant to Section 3.02, any amounts collected by the Central
Servicer under any such policies (other than amounts to be applied to the
restoration or repair of the related Mortgaged Property or property thus
acquired or amounts released to the Borrower in accordance with the Central
Servicer's normal servicing procedures) shall be deposited in the Collection
Account, subject to withdrawal pursuant to Section 3.04. Any cost incurred by
the Central Servicer in maintaining any such insurance shall not, for the
purpose of calculating amounts required to be deposited in the Collection
Account, be added to the amount owing under the Qualified Loan, notwithstanding
that the terms of the Qualified Loan so permit. Such costs shall be reimbursable
to the Central Servicer in accordance with Section 3.04(a)(iii) as if such costs
were contained in a Central Servicer Advance. It is understood and agreed that
no earthquake or other additional insurance is to be required of any Borrower or
maintained on property acquired in respect of a Qualified Loan other than
pursuant to such laws and regulations applicable to such Borrower as shall at
any time be in force and as shall require such additional insurance.
If the Central Servicer shall maintain a blanket policy issued by an
insurer having a Moody's financial strength rating of A3 or higher and insuring
against hazard losses on all of the Qualified Loans, it shall conclusively be
deemed to have satisfied its obligation as set forth in this Section 3.05(a).
Such policy may contain a deductible clause, in which case, if there shall not
have been maintained on the related Mortgaged Property or acquired property an
insurance policy complying with the first sentence of the first paragraph of
this Section 3.05(a), and there shall have been a loss that would have been
covered by such a policy had it been maintained, the Central Servicer shall be
required to deposit from its own funds into the Collection Account the amount
not otherwise payable under the blanket policy because of such deductible
clause.
(b) The Central Servicer shall obtain and maintain at its own
(non-reimbursable) expense and keep in full force and effect throughout the term
of this Agreement a blanket fidelity bond and an errors and omissions insurance
policy (which errors and omissions insurance policy shall provide coverage in
accordance with the Securities Guide) covering the Central Servicer's officers
and employees and other persons acting on behalf of the Central Servicer in
connection with its activities under this Agreement, except that such policies
need not specifically insure against the acts of Field Servicers, except to the
extent the Field Servicer is receiving payments on Qualified Loans, or executing
documents under a power of attorney granted by the Central Servicer. In the
event that any such required bond or policy ceases to be in effect, the Central
Servicer shall obtain a comparable replacement bond or policy from an issuer or
insurer, as the case may be, providing such coverage as shall satisfy the
requirements set forth in the Securities Guide. Coverage of the Central Servicer
under a policy or bond obtained by an Affiliate of the Central Servicer and
providing the coverage required by this Section 3.05(b) shall satisfy the
requirements of this Section 3.05(b).
Section 3.06. Enforcement of Due-on-Sale Clauses; Assumption Agreements.
(a) When any Mortgaged Property is conveyed by the Borrower, the Central
Servicer may, but shall not be required to, enforce any due-on-sale or
due-on-encumbrance clause contained in any Mortgage Note or Mortgage, in
accordance with the provisions of such Mortgage Note or Mortgage and in the best
interests of Farmer Mac, and may approve the assumption of the Mortgage Note by
the transferee of the Mortgaged Property; provided, however, that after giving
due effect to any such additional encumbrance, the loan-to-value ratio of the
related Qualified Loan is not in excess of the Loan-to-Value Ratio thereof as of
the Cut-Off Date.
(b) In any case in which a Mortgaged Property is to be conveyed to a Person
by a Borrower, and such Person is to enter into an assumption agreement or
substitution agreement or supplement to the Mortgage Note or Mortgage which
requires the signature of Farmer Mac, or if an instrument of release to be
signed by Farmer Mac is required releasing the Borrower from liability on the
Qualified Loan, the Central Servicer shall deliver or cause to be delivered to
Farmer Mac (or its designee) for signature the assumption agreement with the
Person to whom the Mortgaged Property is to be conveyed and such substitution
agreement or supplement to the Mortgage Note or Mortgage or other instruments as
are reasonable or necessary to carry out the terms of the Mortgage Note or
Mortgage or otherwise to comply with any applicable laws regarding assumptions
or the transfer of the Mortgaged Property to such Person. The Central Servicer
shall also deliver or cause to be delivered to Farmer Mac with the foregoing
documents a letter explaining the nature of such documents and the reason or
reasons why Farmer Mac's signature is required. With such letter, the Central
Servicer shall deliver to Farmer Mac a certificate of a Servicing Officer in
form reasonably satisfactory to Farmer Mac certifying that: (i) a Servicing
Officer has examined and approved such documents as to form and substance, (ii)
Farmer Mac's execution and delivery thereof will not conflict with or violate
any terms of this Agreement; (iii) subsequent to the closing of the transaction
involving the assumption or transfer (A) the Qualified Loan will continue to be
secured by a first mortgage lien pursuant to the terms of the Mortgage and (B)
no material term (including, but not limited to, the Mortgage Rate, the amount
of any Installment Payment and any term affecting the amount or timing of
payment) of the Qualified Loan will be altered and the term of the Qualified
Loan will not be increased and (iv) if the seller/transferor of the Mortgaged
Property is to be released from liability on the Qualified Loan, the Central
Servicer has evaluated the creditworthiness of the buyer/transferee and has
determined that if the buyer/transferee were applying for the Qualified Loan
being assumed, such loan would be a Qualified Loan, and such release will not
adversely affect the collectibility of the Qualified Loan (based on the Central
Servicer's good faith determination). Upon receipt of and in reliance upon such
certificate, Farmer Mac (or its designee) shall execute any necessary
instruments for such assumption or substitution of liability. Upon the closing
of the transactions contemplated by such documents, the Central Servicer shall
cause the originals of the assumption agreement, the release (if any), or the
modification or supplement to the Mortgage Note or Mortgage to be delivered to
Farmer Mac.
(c) The Central Servicer shall be entitled to approve a request from a
Borrower for the granting of an easement on the related Mortgaged Property in
favor of another Person, any alteration or demolition of the related Mortgaged
Property or other similar matters if (A) it has determined, exercising its good
faith business judgment in the same manner as it would if it were the owner of
the related Qualified Loan, that (i) the security for such Qualified Loan would
not be materially adversely affected thereby; (ii) the timely and full
collectibility of such Qualified Loan would not be adversely affected thereby;
and (iii) as a result of such easement, alteration, demolition or other similar
matter, the loan-to-value ratio would not be in excess of the Loan-to-Value
Ratio with respect to such Qualified Loan as of the Cut-Off Date; and (B) it
follows the requirements and procedures therefor as set forth in the Securities
Guide, if applicable.
Section 3.07. Realization Upon Defaulted Qualified Loans.
(a) (i) Notwithstanding anything to the contrary in this Agreement, the
Central Servicer shall not, on behalf of Farmer Mac, obtain title to a
Mortgaged Property as a result of foreclosure or otherwise, and shall not
otherwise acquire possession of, or take any other action with respect to,
any Mortgaged Property, if, as a result of any such action, Farmer Mac
would be considered to hold title to, to be a "mortgagee-in-possession" of,
or to be an "owner" or "operator" of, such Mortgaged Property within the
meaning of any Environmental Statute or a "discharger" or "responsible
party" thereunder, unless the Central Servicer has prepared or caused to be
prepared an Environmental Review Report and obtained any consents in
connection therewith as shall be required by the Securities Guide. The
Central Servicer shall foreclose upon or otherwise comparably convert the
ownership of Mortgaged Properties securing such of the Qualified Loans as
come into and continue in default and as to which no arrangements
consistent with this Agreement and the Securities Guide have been made for
collection of delinquent payments pursuant to Section 3.02. In connection
with such foreclosure or other conversion, and in connection with any
restoration of any Mortgaged Property after foreclosure or conversion and
before disposal thereof, the Central Servicer shall follow such practices
and procedures as it shall deem, in its best judgment, necessary or
advisable in accordance with applicable law and as shall be required or
permitted by this Agreement and the Securities Guide. The foregoing is
subject to the proviso that the Central Servicer shall not be authorized to
incur expenses in connection with any foreclosure or conversion, or towards
the restoration of any property, unless it shall determine in good faith
that such conversion, foreclosure and/or restoration will increase the
proceeds of liquidation of the Qualified Loan to Farmer Mac after
reimbursement for the expenses therefor. In the event that the Central
Servicer makes such a determination, it shall advance any Liquidation
Expenses from its own funds. Any Liquidation Expenses incurred by the
Central Servicer in accordance with the foregoing shall be reimbursable to
the Central Servicer, out of REO Proceeds or Liquidation Proceeds relating
to such Qualified Loan in accordance with Section 3.04(a)(iii) as if such
costs were contained in a Central Servicer Advance. The Central Servicer
shall be entitled to receive interest on such Liquidation Expenses to the
extent such interest is collected under the terms of the related Mortgage
Note; provided, however, that, the Central Servicer shall only be entitled
to such interest after an aggregate amount equal to the sum of (i) the
outstanding principal balance of the related Qualified Loan; (ii) interest
accrued and unpaid on such Qualified Loan at the applicable Net Mortgage
Rate; and (iii) any applicable Yield Maintenance Amount has been deposited
in the Remittance Account with respect to such Qualified Loan.
(ii) If the Environmental Review Report discloses any adverse
information with respect to any Mortgaged Property or if any questions
required to be answered in the Environmental Review Report cannot be
answered, the Central Servicer shall either (x) recommend to Farmer Mac in
writing that foreclosure, trustee's sale or a deed-in-lieu of foreclosure
should be delayed or abandoned, stating the reasons for the Central
Servicer's conclusions and attaching a copy of Part I of the Environmental
Review Report or (y) conduct Phase II of an Environmental Review (as such
terms are defined in the Securities Guide).
(iii) If the Environmental Review Report or Phase II of the
Environmental Review discloses the presence, disposal, escape, seepage,
leakage, spillage, discharge, emission, release or threatened release of
any Hazardous Materials on, from or affecting the Mortgaged Property and if
the cost of eliminating such Hazardous Materials exceeds the potential
recovery upon liquidation of the related Qualified Loan the Central
Servicer shall not allow such Qualified Loan to become an REO Qualified
Loan and shall take such action as it deems to be in the best interest of
Farmer Mac, including, if the Central Servicer deems it so appropriate, and
after making reasonable efforts to locate a purchaser, the release of all
or a portion of the lien of the related Mortgage.
(b) In the event that title to any Mortgaged Property is acquired for the
benefit of Farmer Mac (or Farmer Mac's assignee or designee) in foreclosure, by
delivery of a deed-in-lieu of foreclosure or otherwise, the named grantee of the
deed or certificate of sale shall be "First Trust National Association, as
Custodian/Trustee" or such successor custodian/trustee as identified by Farmer
Mac. The Central Servicer, on behalf of Farmer Mac, shall use its best efforts
to dispose of any REO Property in a reasonably expeditious manner and otherwise
in accordance with any applicable Environmental Statute.
(c) The Central Servicer shall separately account for all funds collected
and received in connection with the operation of any REO Property in the REO
Account. The aggregate of the amounts deposited in the REO Account during a
Collection Period in respect of an REO Property pursuant to this Section shall
be allocated first to all amounts payable to the Central Servicer with respect
to such REO Property or the related Qualified Loan pursuant to this Section and
remaining unpaid, second to all interest accrued and unpaid thereon from the
last date to which interest was paid by the Borrower (or deemed to have been
paid through previous applications to interest pursuant to this clause second)
and third to any REO Principal Amortization Amount. Interest and earnings on
funds deposited in the REO Account shall accrue to the benefit of Farmer Mac.
(d) The Central Servicer shall have full power and authority, subject only
to the specific requirements and prohibitions of this Agreement, to do any and
all things in connection with any REO Property as are consistent with the manner
in which the Central Servicer manages and operates similar property owned by the
Central Servicer or any of its Affiliates, all on such terms and for such period
as the Central Servicer deems to be in the best interests of Farmer Mac. In
connection therewith, the Central Servicer shall deposit, or cause to be
deposited, on a daily basis in the REO Account all revenues received by it with
respect to the related REO Property and shall withdraw therefrom funds necessary
for the proper operation, management and maintenance of the related REO Property
including:
(i) all insurance premiums due and payable in respect of any REO
Property;
(ii)all real estate taxes and assessments in respect of any REO
Property that may result in the imposition of a lien thereon; and
(iii)all costs and expenses necessary to maintain and operate
such REO Property.
To the extent that amounts on deposit in the REO Account are insufficient
for the purposes set forth in (i) through (iii) above with respect to any REO
Property, the Central Servicer shall advance from its own funds such amount as
is necessary for such purposes if, but only if, the Central Servicer would make
such advances if the Central Servicer owned such REO Property and if, in the
Central Servicer's good faith business judgment, the payment of such amounts
will be recoverable from the operation or sale of that REO Property.
(e) The Central Servicer on behalf of Farmer Mac may contract with any
Independent contractor for the operation and management of any REO Property,
provided that:
(i) the terms and conditions of any such contract shall not be
inconsistent with the terms of this Agreement;
(ii) any such contract shall require, or shall be administered to
require, that the Independent contractor pay all costs and expenses
incurred in connection with the operation and management of such REO
Property, including those listed above, and remit all related revenues
(net of such costs and expenses) to the Central Servicer as soon as
practicable, but in no event later than thirty days following the
receipt thereof by such Independent contractor;
(iii) none of the provisions of this Section 3.07(e) relating to
any such contract or to actions taken through any such Independent
contractor shall be deemed to relieve the Central Servicer of any of
its duties and obligations to Farmer Mac with respect to the operation
and management of any such REO Property; and
(iv) the Central Servicer shall be obligated with respect thereto
to the same extent as if it alone were performing all duties and
obligations in connection with the operation and management of such
REO Property.
The Central Servicer shall be entitled to enter into any agreement with any
Independent contractor performing services for it related to its duties and
obligations hereunder for indemnification of the Central Servicer by such
Independent contractor, and nothing in this Agreement shall be deemed to limit
or modify such indemnification. The Central Servicer (provided it act as an
independent contractor with respect to properties held by other entities) or any
Independent contractor shall be entitled to a fee, based on the prevailing
market rate (determined after consultation with Farmer Mac), for the operation
and management of any REO Property. If such fee is not covered by gross revenues
from the related REO Property, the Central Servicer or other Independent
contractor shall be paid by Farmer Mac for all fees owed it.
(f) On or before each Remittance Date, the Central Servicer shall withdraw
from the REO Account and deposit into the Collection Account Net REO Proceeds
received or collected during the related Collection Period less amounts
reasonably anticipated to be needed to pay recurring expenses relating to REO
Properties in the next twelve months.
(g) Notwithstanding anything in this Agreement to the contrary, the Central
Servicer shall have the right but not the obligation to purchase any Qualified
Loan from Farmer Mac at such time as such Qualified Loan comes into and
continues in default for a period of at least 90 days. If the Central Servicer
exercises its right so to purchase, the Central Servicer shall deposit the
Purchase Price with respect to such defaulted Qualified Loan into the Collection
Account not later than the Remittance Date next succeeding the Collection Period
during which the Central Servicer notifies Farmer Mac of its intention to
purchase such defaulted Qualified Loan.
(i) If applicable state law permits an action for a deficiency judgment,
the Central Servicer shall have the right to determine whether to seek a
deficiency judgment or enforce any applicable additional security documents
following foreclosure, exercising its good faith business judgment in the same
manner as it would if it had been the owner of the related Qualified Loan.
(j) The Central Servicer shall neither be required to take nor to omit to
take any action in any case where such action or omission, in its good faith
business judgment, would cause it to be liable under an Environmental Statute.
If the Central Servicer determines that any action or omission would so subject
it to such liability, it shall promptly notify Farmer Mac.
Section 3.08. Farmer Mac to Cooperate; Release of Mortgage Files.
(a) Upon receipt of the payment in full of any Qualified Loan, or upon the
receipt by the Central Servicer of a notification that payment in full will be
escrowed in a manner customary for such purposes, the Central Servicer shall
immediately notify Farmer Mac (or its designee) by a certification of a
Servicing Officer in form reasonably acceptable to Farmer Mac (which
certification shall include a statement to the effect that all amounts received
or to be received in connection with such payment required to be deposited in
the Collection Account pursuant to Section 3.02 have been or will be so
deposited) and shall request delivery to it of the Mortgage File. Upon receipt
of such certification and request, Farmer Mac shall cause the related Mortgage
File to be released to the Central Servicer and the request for reconveyance,
deed of reconveyance or release or satisfaction of mortgage or such instrument
releasing or reassigning the lien of the Mortgage prepared by the Central
Servicer, together with the Mortgage Note with written evidence of cancellation
thereon to be executed and delivered to the Central Servicer. Farmer Mac shall
cause the Mortgage File to be released and such other documents or instruments
in accordance with this Section 3.08 to be executed and delivered promptly
(generally within 2 Business Days) after receipt by Farmer Mac of the foregoing
request. No expenses incurred in connection with recording any instrument of
satisfaction or deed of reconveyance shall be chargeable to the Collection
Account.
(b) From time to time as is appropriate for the servicing or foreclosure of
any Qualified Loan, Farmer Mac shall cause the related Mortgage File or any
document therein to be delivered to the Central Servicer upon Farmer Mac's
receipt of a request for release (in form satisfactory to Farmer Mac) from the
Central Servicer requesting delivery of such file or document. Farmer Mac shall
cause such release promptly (generally within 2 Business Days after receipt by
Farmer Mac of the foregoing request for release. The Central Servicer shall
return each Mortgage File or any document therein so released to Farmer Mac when
the need therefor by the Central Servicer no longer exists, unless (i) the
Qualified Loan has been liquidated and the Liquidation Proceeds relating to the
Qualified Loan have been deposited in the Collection Account or (ii) the
Mortgage File or such document has been delivered to any attorney, or to a
public trustee or other public official as required by law, for purposes of
initiating or pursuing legal action or other proceedings for the foreclosure of
the Mortgaged Property either judicially or nonjudicially, and the Central
Servicer has delivered to Farmer Mac a certificate of a Servicing Officer
certifying as to the name and address of the Person to which such Mortgage File
or such document was delivered and the purpose or purposes of such delivery. In
the event of the liquidation of a Qualified Loan, Farmer Mac shall cause the
request for release with respect thereto to be delivered to the Central Servicer
upon deposit of the related Liquidation Proceeds in the Collection Account and
the Central Servicer's request for delivery of the request for release.
(c) Farmer Mac shall cause the execution and delivery to the Central
Servicer of any court pleadings, requests for trustee's sale or other documents
prepared by the Central Servicer and necessary to the foreclosure or Farmer
Mac's sale, bankruptcy sale or work out settlement in respect of a Mortgaged
Property or to any legal action brought to obtain judgment against any Borrower
on the Mortgage Note, Mortgage or Additional Collateral Documents or to obtain a
deficiency judgment, or to enforce any other remedies or rights provided by the
Mortgage Note, Mortgage or Additional Collateral Documents or otherwise
available at law or in equity. Together with such documents or pleadings, the
Central Servicer shall deliver to Farmer Mac a certificate of a Servicing
Officer requesting that such pleadings or documents be caused to be executed by
Farmer Mac and certifying as to the reason such documents or pleadings are
required and that the execution and delivery thereof will not invalidate any
insurance coverage under any required insurance policy or invalidate or
otherwise affect the lien of the Mortgage, except for the termination of such a
lien upon completion of the foreclosure or trustee's sale.
Section 3.09. Servicing and Other Compensation.
(a) The Central Servicer, as compensation for its activities and
obligations hereunder, shall be entitled to withhold (i) from each payment on
account of interest on a Qualified Loan (x) the amount of interest calculated at
the Servicing Fee Rate to the extent, if any, that the interest component of the
payment received is in excess of interest calculated at the Net Mortgage Rate
and (y) the amount, if any, of each such payment representing interest accruing
on any delinquent Installment Payment with respect to which a Central Servicer
Advance has been made by and not reimbursed to the Central Servicer, (ii) from
Net REO Proceeds, the amount, if any, by which the portion thereof allocable to
interest is in excess of interest at the Net Mortgage Rate but not to exceed
interest at the Servicing Fee Rate for the period deemed to be covered thereby,
and (iii) from Net Liquidation Proceeds the amount, if any, by which such Net
Liquidation Proceeds are in excess of the sum of (x) the unpaid principal
balance of the related Qualified Loan together with accrued and unpaid interest
thereon at the Net Mortgage Rate to the date of the final liquidation thereof
and (y) any applicable Yield Maintenance Amount, but not in excess of interest
calculated at the Servicing Fee Rate from the date of the last payment of fees
to the Central Servicer with respect to each related Liquidated Qualified Loan.
The Central Servicer shall also be entitled to additional servicing compensation
in the form of assumption fees, late payment charges, interest calculated at a
penalty rate (but only with respect to Installment Payments for which a Central
Servicer Advance is outstanding) and other service charges imposed upon
Borrowers in connection with servicing the Qualified Loans.
(b) The Central Servicer shall be required to pay all expenses incurred by
it in connection with its servicing activities hereunder and shall not be
entitled to reimbursement therefor except as specifically provided in this
Agreement or the applicable Central Servicing Supplement.
Section 3.10. Access to Certain Documentation Regarding the Qualified
Loans.
(a) Upon the prior written request of Farmer Mac received reasonably in
advance, the Central Servicer shall provide reasonable access to representatives
of Farmer Mac (including its assignee or designee) to documentation regarding
the Qualified Loans during normal business hours at the offices of the Central
Servicer designated by it. The Central Servicer shall permit such
representatives to photocopy any such documentation and shall provide equipment
for that purpose. The Central Servicer shall forward to Farmer Mac such reports
as may be required by Farmer Mac with respect to delinquent Qualified Loans,
which reports shall include information broken down by aging of delinquency,
specifying the Qualified Loans included in each category.
(b) The Central Servicer shall maintain or cause to be maintained adequate
books and records pertaining to each Qualified Loan serviced hereunder
including, but not limited to, copies of all Mortgage Servicing Documents and
any additional documentation customarily contained in an agricultural loan
servicing file. The Central Servicer agrees that such documents shall be
maintained until the earlier of (a) seven years after the maturity of the
Qualified Loan; and (b) the date such documentation is transferred to a
successor servicer that shall have assumed the Central Servicer's
responsibilities and obligations in accordance with this Agreement. Such
documentation may be in the form of microfilm, microfiche, ledger cards,
magnetic media or other "machine readable" records, or any combination thereof.
Section 3.11. Annual Statement as to Compliance. The Central Servicer will
deliver to Farmer Mac, on or before March 31 of each year, beginning with the
first March 31 that occurs at least six months after the Cut-Off Date, an
Officers' Certificate stating, as to each signer thereof, that (i) a review of
the activities of the Central Servicer during the preceding calendar year and of
its performance under this Agreement has been made under such officer's
supervision; (ii) to the best of such officer's knowledge, based on such review,
the Central Servicer has fulfilled all its obligations under this Agreement
throughout such year, or, if there has been a default in the fulfillment of any
such obligation, specifying each such default known to such officer and the
nature and status thereof; and (iii) with respect to each Mortgaged Property,
except as identified in writing to Farmer Mac, all Hazard Insurance Premiums,
assessments, taxes and other charges that may become liens having precedence
over the related Mortgage have been paid current.
Section 3.12. Submission of Independent Public Accountants' Reports.
(a) Within 120 days after the close of each fiscal year of the Central
Servicer, beginning with the fiscal year ending in 1996, the Central Servicer
shall deliver to Farmer Mac a copy of the report of Independent accountants
respecting the Central Servicer's, or the Central Servicer's parent
corporation's, consolidated financial statements for the preceding fiscal year.
(b) On or before September 1 of each year, beginning September 1, 1997,
the Central Servicer shall cause a firm of Independent accountants (who may also
render other services to the Central Servicer) to furnish an agreed upon
procedures report to Farmer Mac indicating that such firm has performed the
procedures set forth as Exhibit A hereto and detailing any findings.
Notwithstanding the foregoing, the Central Servicer shall cause such reports to
be delivered at such less frequent as Farmer Mac, in its sole discretion,
consents to in writing.
Section 3.13. Inspections of the Mortgaged Properties. The Central Servicer
shall cause each Mortgaged Property to be physically inspected at least annually
to determine that (a) the Mortgaged Property has not been abandoned and (b) the
agricultural activities conducted thereon appear to be conducted in accordance
with customary and reasonable farming practices. Such inspections shall be
conducted (i) at no expense to Farmer Mac, (ii) by a Person knowledgeable
regarding good farming practices for the agriculture being conducted on the
Mortgaged Property and (iii) during the production season for the particular
type of agricultural product being produced thereon. If either of the foregoing
conditions set forth in clauses (a) and (b) above is not present with respect to
any Mortgaged Property, the Central Servicer shall promptly notify Farmer Mac
and shall take such action with respect thereto as may be permitted by the
related Mortgage and as may be reasonably determined by the Central Servicer to
be in the best interests of Farmer Mac.
Section 3.14. Partial Releases. At the request of a Borrower, the Central
Servicer may release a portion of any Mortgaged Property from the lien of the
related Mortgage provided that: (i) the remaining portion of the Mortgaged
Property is reappraised by an appraiser in accordance with the Appraisal
Standards, (ii) the Borrower makes a prepayment in part (and pays any applicable
Yield Maintenance Amount), if necessary, such that the loan-to-value ratio of
the remaining principal amount of the related Qualified Loan outstanding after
such partial prepayment to the reappraised value of the remaining portion of the
Mortgaged Property is no greater than the maximum loan-to-value ratio provided
for similar loans in the Securities Guide, (iii) the cash flow from the
remaining portion of the Mortgaged Property is sufficient to service the
remaining indebtedness under the related Mortgage Note, and (iv) the Central
Servicer delivers to Farmer Mac prior to any such partial release a Servicing
Officer's certificate certifying that such partial release meets the foregoing
conditions of this Section 3.14 and, subsequent to such partial release, a copy
of the executed partial release with appropriate recording information noted
thereon. At the Borrower's request, the Central Servicer will reschedule the
repayment of the remaining payments on the Qualified Loan to provide for the
amortization of the remaining principal balance of the Qualified Loan, after
taking into account the prepayment related to the partial release, over the
remaining term of the Qualified Loan. Any prepayments (and any applicable Yield
Maintenance Amounts) received by the Central Servicer pursuant to a partial
release shall be deposited in the Collection Account and the prepayments shall
be treated for all purposes of this Agreement as partial prepayments on the
Qualified Loans.
Section 3.15. Servicing Agreements between Central Servicer and Field
Servicers. The Central Servicer may enter into Servicing Agreements with Field
Servicers who satisfy the requirements set forth in the Securities Guide for a
portion of the servicing of some or all of the Qualified Loans. References in
this Agreement to actions taken or to be taken by the Central Servicer in
servicing the Qualified Loans include actions taken or to be taken by a Field
Servicer on behalf of the Central Servicer. Each Servicing Agreement will be
upon such terms and conditions as are permitted by the Securities Guide and are
not inconsistent with this Agreement and as the Central Servicer and the Field
Servicer have agreed. The Central Servicer and the Field Servicer may enter into
amendments thereto or different forms of Servicing Agreements and nothing herein
shall be deemed to limit in any respect the discretion of the Central Servicer
to modify or enter into different Servicing Agreements; provided, however, that
any such amendments or different forms shall not violate the provisions of this
Agreement or the Securities Guide.
Section 3.16. Successor Field Servicers. The Central Servicer shall be
entitled to terminate any Servicing Agreement in accordance with the terms and
conditions of such Servicing Agreement and without any limitation by virtue of
this Agreement; provided, however, that in the event of termination of any
Servicing Agreement by the Central Servicer or the Field Servicer, the Central
Servicer shall either act as Field Servicer of the related Qualified Loan or
enter into a Servicing Agreement with a successor Field Servicer which will be
bound by the terms of a Servicing Agreement entered into with such successor
Field Servicer. The Central Servicer shall notify Farmer Mac of any termination
of any Field Servicer.
Section 3.17. Liability of the Central Servicer. Notwithstanding any
Servicing Agreement, any of the provisions of this Agreement relating to
agreements or arrangements between the Central Servicer or a Field Servicer or
reference to actions taken through a Field Servicer or otherwise, the Central
Servicer shall remain obligated and liable to Farmer Mac for the servicing of
the Qualified Loans in accordance with the provisions of Section 3.01 without
diminution of such obligation or liability by virtue of such Servicing
Agreements or arrangements or by virtue of indemnification from the Field
Servicer and to the same extent and under the same terms and conditions as if
the Central Servicer alone were servicing and administering the Qualified Loans.
For purposes of the foregoing, amounts received by a Field Servicer in
connection with a Qualified Loan or REO Property shall be deemed to have been
received by the Central Servicer. The Central Servicer shall be entitled to
enter into any agreement with a Field Servicer for indemnification of the
Central Servicer and nothing contained in this Agreement shall be deemed to
limit or modify such indemnification.
Section 3.18. No Contractual Relationship Between Field Servicer and Farmer
Mac . Any Servicing Agreement that may be entered into and any other
transactions or services relating to the Qualified Loans involving a Field
Servicer in its capacity as such shall be deemed to be between the Field
Servicer and the Central Servicer alone. Farmer Mac shall not be deemed a party
thereto and shall have no claims, rights, obligations, duties or liabilities
with respect to the Central Servicer or any Field Servicer under such Servicing
Agreements except as set forth in Section 3.19.
Section 3.19. Assumption or Termination of Servicing Agreements by Farmer
Mac.
(a) In the event that the Central Servicer shall for any reason no longer
be acting as such hereunder (including by reason of an Event of Default) and
Farmer Mac or its designee shall have assumed the duties of the Central
Servicer, Farmer Mac or such designee may, at Farmer Mac's sole discretion,
thereupon assume all of the rights and obligations of the Central Servicer under
each Servicing Agreement that may have been entered into. Each Servicing
Agreement shall contain provisions allowing Farmer Mac to rescind such agreement
without penalty in the event the Central Servicer shall no longer be acting as
such. Farmer Mac, its designee or the successor servicer for Farmer Mac shall be
deemed to have assumed all of the Central Servicer's interest therein and to
have replaced the Central Servicer as a party to each Servicing Agreement to the
same extent as if such agreement had been assigned to the assuming party, except
that the Central Servicer shall not thereby be relieved of any liability or
obligations under any Servicing Agreement which arose prior to the date each
Servicing Agreement is deemed so assigned and assumed.
(b) The Central Servicer shall, upon request of Farmer Mac but at the
expense of the Central Servicer: (i) deliver to the assuming party all documents
and records held by the Central Servicer relating to each Servicing Agreement
and the Qualified Loans then being serviced and an accounting of amounts
collected and held by it; (ii) prepare, execute and deliver all documents and
instruments and take all actions reasonably requested by Farmer Mac or its
designee to effect the succession by Farmer Mac or its designee hereunder and
the transfer of each Servicing Agreement to the assuming party; and (iii) and
otherwise use its best efforts to effect the orderly and efficient succession
hereunder and transfer of each Servicing Agreement to the assuming party.
ARTICLE IV
PAYMENTS TO FARMER MAC AND REPORTS
Section 4.01. Central Servicer's Report; Remittance Reconciliation Report;
Loan Servicing Report.
(a) Not later than the third Business Day of each calendar month, the
Central Servicer shall deliver to Farmer Mac and Farmer Mac's designee, a
Central Servicer's Report. Such Central Servicer's Report shall be in a
machine-readable format in accordance with the tape specifications and other
requirements set forth in Exhibit C hereto or in such other format or conform to
such other specifications or requirements as Farmer Mac and the Central Servicer
may agree.
(b) In addition to the information required under Section 4.01(a), the
Central Servicer's Report shall contain such information as is reasonably
requested by Farmer Mac, including, but not limited to the information described
below.
(i) a listing of all previously unadvanced Installment Payments
(with the interest components thereof adjusted to interest at the
related Net Mortgage Rates) on the Qualified Loans due on or prior to
the preceding Due Date that were delinquent on the preceding
Remittance Date;
(ii) Central Servicer Advances made on the preceding Remittance
Date;
(iii) the compensation retained by the Central Servicer with
respect to the previous Collection Period, itemized by category (e.g.,
type of fees);
(iv) the amount of reimbursement for Central Servicer Advances
withdrawn from the Collection Account during the preceding Collection
Period;
(v) an itemization of unreimbursed Central Servicer Advances
(exclusive of Nonrecoverable Advances) as of the preceding Due Date;
(vi)an itemization of any Central Servicer Advances which became
Nonrecoverable Advances during the previous Collection Period;
(vii) a reconciliation of each custodial account (e.g., any
Collection Accounts and REO Accounts) for the second preceding
Collection Period;
(viii) a reconciliation of Scheduled Balances to actual balances
of the Qualified Loans; and
(xi)such other information as Farmer Mac may from time to time
request.
(c) On or before the tenth day of each calendar month (or if such tenth day
is not a Business Day, the next succeeding Business Day), the Central Servicer
will provide to Farmer Mac and its designee a Loan Servicing Report
substantially in the form of Exhibit D hereto, which Loan Servicing Report will
provide information (including proposed remedial action to be taken by the
Central Servicer) with respect to: Qualified Loans which have been identified by
Farmer Mac as "watch-listed" loans; delinquent Qualified Loans; Qualified Loans
in foreclosure; REO Qualified Loans; and bankruptcy proceedings involving
Borrowers.
(d) On a timely basis each month, the Central Servicer shall prepare, and
make available to Farmer Mac or its designee upon request, a remittance
reconciliation report.
Section 4.02. Remittance Account.
(a) On or before the Closing Date, Farmer Mac shall establish the
Remittance Account and provide the Central Servicer with information concerning
its location. The Central Servicer, on or before 10:00 A.M. Central Servicer's
local time on each Remittance Date, shall deposit in same day funds an amount
equal to the Qualified Loan Receipts for the preceding Collection Period.
Section 4.03. Reports of Foreclosures and Abandonment of Mortgaged
Property.
(a) Each year, beginning in 1997, the Central Servicer shall make the
reports of foreclosures and abandonments of any Mortgaged Property required by
Section 6050J of the Internal Revenue Code and provide copies of such reports to
Farmer Mac. In order to facilitate this reporting process, the Central Servicer,
on or before the date required by law, shall provide to the Internal Revenue
Service and Farmer Mac reports relating to each instance occurring during the
previous calendar year in which the Central Servicer (i) on behalf of Farmer Mac
acquires an interest in a Mortgaged Property through foreclosure or other
comparable conversion in full or partial satisfaction of a Qualified Loan, or
(ii) knows or has reason to believe that a Mortgaged Property has been
abandoned. The reports from the Central Servicer shall be in form and substance
sufficient to meet the reporting requirements imposed by such Section 6050J.
(b) Within 30 days after disposition of any REO Property, the Central
Servicer shall provide to Farmer Mac a statement of accounting for the related
Mortgaged Property and REO Account, including without limitation (i) each
category of deposit to, withdrawal from and investment earnings within such REO
Account, (ii) the loan number of the related Qualified Loan, (iii) the date such
Qualified Loan became a REO Qualified Loan by foreclosure, or by deed in lieu of
foreclosure or otherwise, (iv) the date of such disposition, (v) the gross sales
price and the related selling and other expenses, (vi) accrued interest,
calculated from the date of acquisition to the disposition date, and (vii) such
other information as Farmer Mac may reasonably request.
ARTICLE V
DEFAULT
Section 5.01. Events of Default. Event of Default, wherever used herein,
means one of the following events:
(i) the Central Servicer shall fail to make any deposit (A) to
the Remittance Account required by Section 4.02 or (B) to the
Collection Account required by Section 3.02(a) and such failure shall
continue unremedied for a period of one Business Day after the date
upon which written notice of such failure, requiring the same to be
remedied, shall have been given to the Central Servicer by Farmer Mac
(or Farmer Mac's designee); or
(ii) the Central Servicer shall fail to observe or perform in any
material respect any other of the covenants or agreements on the part
of the Central Servicer contained in this Agreement and such failure
shall continue unremedied for a period of 30 days after the date on
which written notice of such failure, requiring the same to be
remedied, shall have been given to the Central Servicer by Farmer Mac;
or
(iii) a decree or order of a court or agency or supervisory
authority having jurisdiction in the premises in an involuntary case
under any present or future federal or state bankruptcy, insolvency or
similar law or appointing a conservator or receiver or liquidator in
any insolvency, readjustment of debt, marshaling of assets and
liabilities or similar proceedings, or for the winding-up or
liquidation of its affairs, shall have been entered against the
Central Servicer and such decree or order shall have remained in force
undischarged or unstayed for a period of 90 days; or
(iv) the Central Servicer shall consent to the appointment of a
conservator or receiver or liquidator in any insolvency, readjustment
of debt, marshaling of assets and liabilities, or similar proceedings
of, or relating to, the Central Servicer or of, or relating to, all or
substantially all of the property of the Central Servicer; or
(v) the Central Servicer shall admit in writing its inability to
pay its debts generally as they become due, file a petition to take
advantage of, or commence a voluntary case under, any applicable
insolvency or reorganization statute, make an assignment for the
benefit of its creditors, or voluntarily suspend payment of its
obligations; or
(vi) the Central Servicer shall fail at any time to meet Farmer
Mac's standards for eligible agricultural real estate mortgage central
servicers so that, in Farmer Mac's sole discretion, the Central
Servicer's ability to comply with this Agreement, any Central
Servicing Supplement or the Securities Guide within a reasonable
period of time is adversely affected; or
(vii) a court of competent jurisdiction shall have found that the
Central Servicer or any of its principal officers has committed an act
of civil fraud or the Central Servicer or any of its principal
officers shall have been convicted of any criminal act related to the
Central Servicer's lending or mortgage selling or servicing activities
or that, in Farmer Mac's sole discretion, adversely affects the
Central Servicer's reputation or Farmer Mac's reputation or interests.
If an Event of Default shall occur, then, and in each and every case, so
long as such Event of Default shall not have been remedied, Farmer Mac may, by
notice in writing to the Central Servicer, terminate all of the rights and
obligations of the Central Servicer under this Agreement and in and to the
Qualified Loans and the proceeds thereof; provided, that any liability of the
Central Servicer under this Agreement arising prior to such termination shall
survive such termination. On or after the receipt by the Central Servicer of
such written notice, all authority and power of the Central Servicer under this
Agreement shall pass to and be vested in Farmer Mac; and, without limitation,
Farmer Mac is hereby authorized and empowered to execute and deliver, on behalf
of the Central Servicer, as attorney-in-fact or otherwise, any and all documents
and other instruments, and to do or accomplish all other acts or things
necessary or appropriate to effect the purposes of such notice of termination,
whether to complete the transfer and endorsement or assignment of the Qualified
Loans and related documents, or otherwise. If an Event of Default shall occur
and be continuing, the Central Servicer agrees to cooperate with Farmer Mac in
effecting the termination of the Central Servicer's responsibilities and rights
hereunder, including, without limitation, the transfer to Farmer Mac (or its
designee) for administration by it of all cash amounts which shall at the time
be on deposit in the Collection Account or the REO Account or thereafter be
received with respect to the Qualified Loans, the delivery to Farmer Mac (or its
designee) of all documents and records requested by it to enable it to assume
the Central Servicer's obligations hereunder and the reconciliation of all of
the Qualified Loans, the Collection Account and the REO Account, all at the cost
of the Central Servicer. Farmer Mac or its designee shall pay over to the
Central Servicer that portion of any future proceeds of the Qualified Loans,
which, if the Central Servicer were at the time acting hereunder, it would be
permitted to receive in consideration of, or in reimbursement for, previous
services performed, or advances made, by it, net of any amounts owing from the
Central Servicer to Farmer Mac.
ARTICLE VI
MISCELLANEOUS
Section 6.01 Central Servicing Supplements. A Central Servicing Supplement
identifying the Qualified Loans to be assigned to the Central Servicer for
servicing on each Closing Date and establishing the terms of such servicing
shall be substantially in the form annexed hereto as Exhibit B (with such
changes thereto as Farmer Mac and the Central Servicer shall agree to), shall
have attached thereto a Schedule of Qualified Loans dated as of the date thereof
and shall be executed by Farmer Mac and the Central Servicer as of the related
Closing Date. Each Central Servicing Supplement shall identify and relate only
to the particular Qualified Loans identified in the attached Schedule of
Qualified Loans. Such Schedule of Qualified Loans shall list all Qualified Loans
assigned to the Central Servicer for servicing on and after the related Closing
Date and shall show as to each Qualified Loan the information provided for in
Attachment 1 to Exhibit B hereto. The Central Servicing Supplement together with
this Master Central Servicing Agreement shall constitute the Central Servicing
Agreement with respect to the related Qualified Loans.
Section 6.02 No Waiver; Cumulative Remedies. No failure to exercise and no
delay in exercising, on the part of Farmer Mac, any right, remedy, power or
privilege hereunder, shall operate as a waiver thereof; nor shall any single or
partial exercise of any right, remedy, power or privilege hereunder preclude any
other or further exercise thereof or the exercise of any other right, remedy,
power or privilege. The rights, remedies, powers and privileges herein provided
are cumulative and not exclusive or any rights, remedies, powers or privileges
provided by law.
Section 6.03 Counterparts. This Agreement may be executed in any number of
separate counterparts and all of such counterparts taken together shall be
deemed to constitute one and the same instrument.
Section 6.04 Governing Law. THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS
OF THE PARTIES HEREUNDER SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN
ACCORDANCE WITH, FEDERAL LAW. TO THE EXTENT FEDERAL LAW INCORPORATES STATE LAW,
THAT STATE LAW SHALL BE THE LAWS OF THE STATE OF NEW YORK.
Section 6.05 Notices. All notices, requests, demands, waivers and other
communications required or permitted to be given under this Agreement shall be
in writing and shall be deemed to have been duly given (a) when delivered by
hand, (b) two business days after it is mailed, certified or registered, return
receipt requested, with postage prepaid, (c) when sent by telex, telegram or
telecopy (with receipt confirmed) or (d) one business day after it is sent by
Express Mail, FedEx or other express delivery service, as follows:
(a) if to the Central Servicer, to it at:
Zions First National Bank
1 South Main Street
Salt Lake City, UT 84111-1923
Attention: Patrick Floyd 281-K5
Telecopy Number: (801) 524-4726
and,
Zions Mortgage Company
4141 So. Highland Drive
Salt Lake City, UT 84124
Attention: David Fischer
Telecopy Number: (801) 273-3666
(b) if to Farmer Mac, to it at:
Federal Agricultural Mortgage Corporation
919 Eighteenth St., N.W.
Suite 200
Washington, DC 20006
Attention: Vice President - Mortgage-Backed Securities
Telecopy Number: 202-872-7713
or to such other persons, addresses and telecopier numbers as a party shall
specify as to itself by notice in writing to the other party.
Section 6.06 Survival and Termination of Agreement. All covenants,
agreements, representations and warranties made herein and in any certificate,
document or statement delivered pursuant hereto or in connection herewith shall
survive the execution and delivery of this Agreement until the later of the
receipt by Farmer Mac or its assignee of payment in full in respect of all
Qualified Loans and the satisfaction of all of the Mortgages.
Section 6.07 Entire Agreement. This Agreement (which, for this purpose,
includes the Central Servicing Supplement) sets forth the entire agreement of
the parties hereto with respect to its subject matter, and supersedes all
previous understandings, written or oral, with respect thereto.
Section 6.08 Waiver of Jury Trial. The Central Servicer and Farmer Mac
hereby irrevocably and unconditionally waive trial by jury in any legal action
or preceding relating to this Agreement or the Central Servicing Supplement.
Section 6.09 Severability. Any provision of this Agreement or the Central
Servicing Supplement which is prohibited, unenforceable or not authorized in any
jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such prohibition, unenforceability or non-authorization without invalidating the
remaining provisions hereof or thereof or affecting the validity, enforceability
or legality of any such provision in any other jurisdiction.
Section 6.10 Assignability. Except as herein contemplated, neither this
Agreement nor the Central Servicing Supplement shall be assigned by either of
the parties hereto without the prior written consent of the other party;
provided, however, that Farmer Mac may assign this Agreement to any affiliate of
Farmer Mac or the holder of the Qualified Loans without prior notice or consent
of the Central Servicer.
Section 6.11 Third Party Beneficiaries. Any assignee or designee of Farmer
Mac, including an assignee holding the Qualified Loans for the benefit of
holders of securities guaranteed by Farmer Mac, is a third party beneficiary to
this Agreement and the Central Servicing Supplement entitled to enforce any
representations and warranties, indemnities and obligations of the parties.
Except as otherwise provided, the parties to this Agreement hereby manifest
their intent that no third party other than such assignee or designee, including
an assignee for the benefit of such holders of securities, shall be deemed a
third party beneficiary of this Agreement or the Central Servicing Supplement,
and specifically that the Borrowers are not third party beneficiaries of this
Agreement or the Central Servicing Supplement.
IN WITNESS WHEREOF, Farmer Mac and the Central Servicer have caused their
names to be signed hereto by their respective officers, duly authorized and
their respective corporate seals, duly attested, to be hereunto affixed, all as
of the 17th day of December, 1996.
FEDERAL AGRICULTURAL MORTGAGE CORPORATION
By: /s/ Nancy E. Corsiglia
---------------------------
Name: Nancy E. Corsiglia
Title: Vice President - Business Development
ZIONS FIRST NATIONAL BANK,
Central Servicer
By: /s/ Patrick M. Floyd
----------------------------------
Name: Patrick M. Floyd
Title: Vice President
Exhibit 10.11.1
FEDERAL AGRICULTURAL MORTGAGE CORPORATION,
Owner/Master Servicer,
and
ZIONS FIRST NATIONAL BANK,
Central Servicer
AMENDMENT NO. 1
Dated as of February 26, 1997
to
Master Central Servicing Agreement
Dated as of December 17, 1996
THIS AMENDMENT NO. 1, by and between the Federal Agricultural Mortgage
Corporation, a federally chartered instrumentality of the United States and an
institution of the Farm Credit System ("Farmer Mac") and Zions First National
Bank, a national bank (the "Central Servicer"), to the Master Central Servicing
Agreement, dated as of December 17, 1996, between Farmer Mac and the Central
Servicer (the "Master Central Servicing Agreement") providing for the Central
Servicer to service certain Qualified Loans with respect to which Farmer Mac is
the Master Servicer or Owner is made and entered into as of the 26th day of
February 1997.
W I T N E S S E T H :
- --- - - - - - - - That, in consideration of the mutual agreements herein
contained, Farmer Mac and the Central Servicer agree as follows:
WHEREAS, Farmer Mac has identified a category of lower risk Qualified Loans
("Choice/Platinum Program Qualified Loans") with respect to which Farmer Mac
deems it appropriate to offer Borrowers a lower interest rate;
WHEREAS, in order to provide the better pricing of Choice/Platinum Program
Qualified Loans (as described in Appendix A hereto) to Borrowers in an effort to
increase the volume of Qualified Loans subject to this Master Central Servicing
Agreement the Central Servicer has agreed to reduce the Servicing Fee Rate with
respect to Choice/Platinum Program Qualified Loans and the parties hereto have
agreed to amend the Master Central Servicing Agreement to so provide; and
WHEREAS, capitalized terms used but not defined herein have the meanings
given to them in the Master Central Servicing Agreement.
NOW, THEREFORE:
Farmer Mac and the Central Servicer do hereby covenant and agree as
follows:
Section 1. The definition of "Servicing Fee Rate" in Section 1.01 of the
Master Central Servicing Agreement is amended by inserting before the period at
the end thereof: [material omitted pursuant to a request for confidential
treatment and filed separately with the SEC]
Section 2. This Amendment No. 1 may be executed in any number of
counterparts, each of which shall be an original; but such counterparts shall
together constitute one and the same instrument.
IN WITNESS WHEREOF, Farmer Mac and the Central Servicer have caused their
names to be signed hereto by their respective officers thereunto duly authorized
and their respective seals, duly attested, to be hereunto affixed, all as of the
day and year above written.
FEDERAL AGRICULTURAL MORTGAGE CORPORATION,
By: /s/ Nancy E. Corsiglia
---------------------------------------------
Name: Nancy E. Corsiglia
Title: Vice President - Business Development
ZIONS FIRST NATIONAL BANK
By: /s/ Patrick M. Floyd
-------------------------
Name: Patrick M. Floyd
Title: Vice President
SCHEDULE A
TO AMENDMENT NO.1
TO MASTER CENTRAL
SERVICING AGREEMENT
CHOICE/PLATINUM PROGRAM QUALIFIED LOAN CRITERIA
Debt-to-asset percentage < = 40
Current Ratio > = 1.25 : 1.00
Total debt service ratio > = 1.50 : 1.00
Property debt service ratio > = 1.00 : 1.00
Loan to Value percentage
(Principal Balance < = $2.3 < = 60
million)
Loan to Value percentage
(Principal Balance >$2.3 < = 55
million)
Minimum Qualifying Loan Size
Farmer Mac's "Choice" $500,000
Zions' "Platinum" 350,000
Exhibit 10.12
THIS LOAN FILE REVIEW AND UNDERWRITING AGREEMENT, effective as of December
17, 1996, between the FEDERAL AGRICULTURAL MORTGAGE CORPORATION, an
instrumentality of the United States (together with its permitted successors and
assigns, "Farmer Mac"), and ZIONS FIRST NATIONAL BANK, a national banking
association, as underwriter (together with its permitted successors and assigns,
the "Underwriter").
WITNESSETH THAT:
WHEREAS, Farmer Mac intends to purchase agricultural mortgage loans
("Qualified Loans") from time to time from approved sellers (each, a "Seller")
of such loans; and
WHEREAS, Farmer Mac desires to engage the Underwriter to review certain of
the submitted loan files for such purchases on a non-exclusive basis and the
Underwriter desires to undertake such engagement in accordance with the terms
hereof.
NOW, THEREFORE, in consideration of the mutual agreements herein contained,
the parties hereto agree as follows:
DEFINITIONS
Section 1.01. Definitions. Whenever used in this Agreement, the following
words and phrases, unless the context otherwise requires, shall have the
meanings specified in this Article.
"Additional Collateral Documents": As to any Qualified Loan, any security
documents in addition to those listed in clauses (i) through (v) of the
definition of "Mortgage File" that evidence rights or interests in the related
Mortgaged Property.
"Agreement": This Loan File Review and Underwriting Agreement and all
amendments hereof and supplements hereto.
"Assignment": An assignment of the Mortgage, notice of transfer or
equivalent instrument, in recordable form, sufficient under the laws of the
jurisdiction wherein the related Mortgaged Property is located to reflect of
record the assignment of the Mortgage to the Custodian for the benefit of Farmer
Mac.
"Custodial Agreement": The Custodial Agreement dated as of June 1, 1996
between the Custodian and Farmer Mac, as the same may be modified or
supplemented from time to time.
"Custodian": First Trust National Association, in its capacity as Custodian
under the Custodial Agreement, or its successor in interest or any successor
Custodian appointed as provided in the Custodial Agreement.
"Farmer Mac": The Federal Agricultural Mortgage Corporation, a federally
chartered instrumentality of the United States, or its successor in interest.
The term "Farmer Mac" shall also include the Farmer Mac Mortgage Securities
Corporation, a wholly-owned subsidiary of the Federal Agricultural Mortgage
Corporation.
"Farmer Mac Commitment": The written commitment of Farmer Mac to purchase a
Qualified Loan.
"Farmer Mac Commitment Date": The date upon which Farmer Mac commits to
purchase a certain Qualified Loan.
"Final Loan File": A file containing documents relating to a consummated
mortgage loan which a Seller seeks to sell to Farmer Mac containing documents
contained in Exhibit B hereto.
"Loan Set-up File": A report in the form of Exhibit D hereto prepared by
the Underwriter with respect to each Qualified Loan purchased by Farmer Mac.
"Mortgage": A mortgage, deed of trust or other instrument that constitutes
a first lien on an interest in real property securing a Mortgage Note.
"Mortgage File": The mortgage documents listed below:
(i) The Mortgage Note, endorsed in the following form: "Pay to the order of
First Trust National Association, as Custodian/Trustee without recourse",
showing an unbroken chain of endorsements from the original lender thereof to
the Person endorsing it to the Custodian and containing the provisions required
by the Selling Guide;
(ii) The Mortgage with evidence of recording indicated thereon or, if (x)
the public recording office retains the original of the Mortgage or (y) the
Underwriter receives an Officers' Certificate of the Seller certifying that the
original of the Mortgage is lost, missing or destroyed, a copy of the Mortgage
certified by the public recording office in which such Mortgage has been
recorded to be a true and complete copy of the original Mortgage;
(iii) An assignment in the form "First Trust National Association, as
Custodian/Trustee" which assignment or equivalent instrument must be in
recordable form and may be in the form of one or more blanket assignments
covering Mortgages secured by Mortgaged Properties located in the same county,
if permitted by law and accompanied by an Opinion of Counsel to that effect (a
copy of such blanket assignment to be delivered in each applicable Mortgage
File);
(iv) Evidence of title to the Mortgaged Property either in the form of an
opinion from an attorney or firm of attorneys rated at least "BV" by
Martindale-Hubbell or approved by Farmer Mac if no such rating is available or a
title insurance policy or binding title insurance commitment issued by a title
insurance company acceptable to Farmer Mac;
(v) The original of each modification agreement and each assumption
agreement, if any, relating to such Qualified Loan or, if (x) the public
recording office retains the original of the modification or assumption
agreement or (y) the Underwriter receives an Officers' Certificate of the Seller
certifying that the original of the modification or assumption agreement is
lost, missing or destroyed, a copy of the modification (with respect to the
Mortgage) or assumption agreement certified by the public recording office in
which such Mortgage was recorded to be a true and complete copy of the original
modification or assumption agreement;
(vi) Any UCC-l or UCC-3 Financing Statements, as applicable, in a form
suitable for recording, disclosing the assignment to First Trust, as custodian,
of the Seller's security interest in the personal property (if any) constituting
security for repayment of the related Qualified Loan, together with evidence of
a UCC search disclosing the lien priority; and
(vii) Any Additional Collateral Documents relating to such Qualified Loan
delivered by the Seller to the Underwriter.
"Mortgage Note": The originally executed note or other evidence of
indebtedness evidencing the indebtedness of a borrower under a Qualified Loan.
"Mortgage Rate": As to any Qualified Loan, the rate of interest borne by
the related Mortgage Note.
"Mortgaged Property": The property securing a Qualified Loan.
"Qualified Loans": As defined in the Recitals.
"Officers' Certificate": A certificate signed by the Chairman of the Board,
the President, any Executive Vice President, Vice President, Assistant Vice
President or Second Vice President, and any of the Treasurer, the Secretary, or
one of the Assistant Secretaries of the Person required to deliver such
certificates.
"Opinion of Counsel": A written opinion of counsel acceptable to Farmer
Mac, who may be salaried counsel for Farmer Mac or the Underwriter.
"Originator": Any entity that originates a Qualified Loan and meets the
requirements to be an Originator set forth in the Selling Guide.
"Person": Any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization or
government or any agency or political subdivision thereof.
"Preliminary Loan File": A file containing documents relating to a mortgage
loan which the Seller seeks to sell to Farmer Mac containing documents contained
in Exhibit A hereto.
"Seller": The entity selling a Qualified Loan to Farmer Mac.
"Selling Guide": The publication entitled "Federal Agricultural Mortgage
Corporation Selling Guide." Until such publication is issued the term "Selling
Guide" shall refer to the publication entitled "Federal Agricultural Mortgage
Corporation Securities Guide," release dated April 10, 1992, as the same may be
modified from time to time by any guide update or bulletin (the "Securities
Guide") and the "Farmer Mac Seller/Servicer Guide," release dated 7/24/96, as
the same may be modified from time to time by any guide update or bulletin (the
"Seller/Servicer Guide"). If the Securities Guide and the Seller/Servicer Guide
are inconsistent, the Seller/Servicer Guide shall control.
"Weekly Purchase Date": Thursday (or if Thursday is not a business day the
following business day), the day of each week on which Farmer Mac will purchase
Qualified Loans pursuant to a Commitment.
ARTICLE II
LOAN FILE REVIEW
Section 2.01. Underwriter To Act as Reviewer of Loan Files. (a) The
Underwriter shall deal with Sellers in connection with the requirements of the
Selling Guide as they relate to documents required to be submitted before a
Qualified Loan referred to the Underwriter by Farmer Mac is approved for
purchase and in connection with their submissions of the related Preliminary
Loan Files and Final Loan Files, shall review such files, shall report to Farmer
Mac with respect to such reviews, and shall perform the other duties specified
in this Article II in a manner consistent with this Agreement and otherwise in a
manner so as to determine whether all Qualified Loans acquired by Farmer Mac
after underwriting and review by the Underwriter satisfy the requirements of the
Selling Guide and, subject to the preceding requirement, to encourage
participation of Sellers in available Farmer Mac mortgage purchase programs.
(b) Farmer Mac shall be the principal contact with Sellers in connection
with their approval as Sellers and in connection with the terms of any
particular Qualified Loan purchase and shall determine which Qualified Loans
shall be referred to the Underwriter for review and underwriting under this
Agreement. The Underwriter shall be the principal contact with Sellers in
connection with the processing and purchasing of the Qualified Loans referred to
it by Farmer Mac.
Section 2.02. Approved Sellers. Farmer Mac shall have the sole authority to
approve entities as Sellers in any Farmer Mac program. Farmer Mac in its
discretion may provide to the Underwriter copies of any requests for approval as
Sellers and any supporting documentation Farmer Mac determines appropriate to
solicit the Underwriter's suggestions as to whether a prospective Seller should
be approved by Farmer Mac. The Underwriter shall promptly review any such
documentation and shall promptly advise Farmer Mac if it has reason to believe
there are any deficiencies or omissions with respect to such requests or
documentation. The Underwriter shall promptly forward copies of any requests for
approval as Sellers and supporting documentation received by it from Sellers to
Farmer Mac. Farmer Mac shall provide the Underwriter with a list, updated from
time to time, of approved Sellers. If the Underwriter receives a Preliminary
Loan File or Final Loan File from an entity other than an approved Seller, the
Underwriter shall promptly notify Farmer Mac
Section 2.03. Preliminary Loan File Review
(a) Promptly upon receipt from Farmer Mac of a Preliminary Loan File from
an approved Seller (or from such other entity as Farmer Mac may consent to,
e.g., an entity applying to be an approved Seller) accompanied by a
certification by such approved Seller that such Preliminary Loan File is
complete, and in any event within 3 Business Days after such receipt, the
Underwriter (x) shall review such Preliminary Loan File to determine (i) whether
the contemplated loan would be a Qualified Loan and would qualify for purchase
by Farmer Mac, and (ii) whether all required documentation, as specified in
Exhibit A, is included in such Preliminary Loan File and whether each such
document complies with the requirements as set forth in the Selling Guide, and
(y) notify the Seller of any deficiency therein pursuant to paragraph (b) of
this Section 2.03 or of its approval or rejection thereof pursuant to paragraph
(c) of this Section 2.03.
(b) In the event that the Underwriter discovers a deficiency in the
Preliminary Loan File, the Underwriter shall promptly notify the Seller of the
deficiency. At such time, the Underwriter shall inform the Seller that the
Preliminary Loan File will not be considered complete until the missing
documentation is provided to the Underwriter. Upon submission by the Seller of
documentation requested by the Underwriter to complete the Preliminary Loan
File, the Underwriter shall review the completed Preliminary Loan File for
compliance and notify the Seller with respect thereto within such period as
would be applicable to a new submission.
(c) In the event that the Underwriter reviews the Preliminary Loan File and
determines that the file is complete, (i) if the Underwriter determines that the
submitted prospective loan and documentation comply with the requirements of the
Selling Guide, the Underwriter shall promptly notify the Seller of its approval
of the Preliminary Loan File in accordance with the Selling Guide (including in
such notice a loan identification number, a maximum permitted interest rate for
such loan and a minimum appraisal value for the related property) and (ii)
otherwise, the Underwriter shall promptly notify the Seller of its rejection of
the Preliminary Loan File and the reasons therefor.
(d) The Underwriter shall provide timely reports to Farmer Mac with respect
to approved Preliminary Loan Files in accordance with Section 2.07 of this
Agreement.
(e) The Underwriter's obligations under this Section 2.03 with respect to
Preliminary Loan Files will be based solely upon the Underwriter's review of the
documents in such Preliminary Loan Files and the Underwriter's knowledge of
regions and appropriate crop types necessary for the approval of Qualified Loans
under the Selling Guide.
Section 2.04. Final File Review.
(a) Promptly upon, and in any event within 3 business days of receipt of a
Final Loan File from an approved Seller accompanied by a certification by such
approved Seller that such Final Loan File is complete (or, if such Final Loan
File relates to a prospective loan for which the Underwriter has previously
approved a Preliminary Loan File, within 1 Business Day of such receipt), the
Underwriter (x) shall review such Final Loan File to determine (i) whether the
contemplated loan would be a Qualified Loan and would qualify for purchase by
Farmer Mac, (ii) whether all required documentation, as specified in the Selling
Guide, is included in such Final Loan File and whether each such document
complies with the requirements as set forth in the Selling Guide (including
without limitation consistency with documentation in the Preliminary Loan File
and requirements for approval of such file) and (y) notify the Seller of any
deficiency therein pursuant to paragraph (b) of this Section 2.04 or of its
approval or rejection thereof pursuant to paragraph (c) of this Section 2.04.
(b) To assure the adequacy of appraisals contained in Final Loan Files, the
Underwriter will implement an appraisal review program reasonably acceptable to
Farmer Mac
(c) In the event that the Underwriter discovers a deficiency in the Final
Loan File, the Underwriter shall promptly notify the Seller of the deficiency.
At that time the Underwriter shall inform the Seller that the Final Loan File
will not be considered complete until the missing or corrected documentation is
provided to the Underwriter. Upon submission by the Seller of documentation
requested by the Underwriter to complete the Final Loan File, the Underwriter
shall review the completed Final Loan File for compliance and notify the Seller
with respect thereto within such period as would be applicable to a final
submission.
(d) In the event that the Underwriter reviews the Final Loan File and
determines that the file is complete, then (i) if the Underwriter determines
that the submitted prospective loan and documentation comply with the
requirements of the Selling Guide, the Underwriter shall promptly notify the
Seller of its approval of the Final Loan File and (ii) otherwise, the
Underwriter shall promptly notify the Seller of its rejection of the Final Loan
File and the reasons therefor.
(e) The Underwriter shall provide timely reports to Farmer Mac with respect
to approved Final Loan Files in accordance with Section 2.07 of this Agreement.
(f) The Underwriter's obligations under this Section 2.04 with respect to
Final Loan Files will be based solely upon the Underwriter's review of the
documents in such Final loan Files and the Underwriter's knowledge of regions
and appropriate crop types necessary for the approval of Qualified Loans under
the Selling Guide.
Section 2.05. Custodian. (a) The Underwriter hereby agrees to act as
custodian of any documents delivered to it hereunder from the date of delivery
thereof by the Seller to the date of disposition thereof in accordance with the
terms of this Agreement and the Selling Guide. With respect to any documents
held by the Underwriter which have been delivered by the Seller but as to which
Farmer Mac has not made payment, the Underwriter shall hold such documents as
custodian for the Seller. With respect to any documents held by the Underwriter
as to which either (i) the Seller has acknowledged receipt of the purchase price
or (ii) in the absence of such confirmation, the Underwriter has received
confirmation from Farmer Mac's bank that it has wired the funds in the amount of
the purchase price to the account specified by the Seller, the Underwriter shall
hold such documents as custodian for Farmer Mac in accordance with the terms
hereof and of the Selling Guide. Upon receipt of confirmation that a Qualified
Loan has been purchased by Farmer Mac, the Underwriter shall ship the Mortgage
File (to the extent the Underwriter has the documents composing the Mortgage
File) to the Custodian by overnight courier.
The Underwriter agrees to accept and hold all such documents as agent for
and on behalf of the Seller or Farmer Mac, as applicable, pursuant to the terms
of this Agreement and the Selling Guide, and shall at all times make such
documents available to Farmer Mac for the purpose of inspecting such documents.
The Underwriter shall neither have nor acquire any liens, rights of ownership or
other claims in or to such documents or the related loans except as provided
herein.
(b) The Underwriter shall, at all times during the term of this Agreement,
hold any documents delivered to it in safekeeping and shall be responsible for
their safety. The Underwriter shall segregate such documents and shall not
commingle such documents with property of the Underwriter or of other customers
of the Underwriter.
(c) The Underwriter shall return any or all of such documents to the Seller
as they relate to a loan which has been rejected by the Underwriter or by Farmer
Mac, or, with respect to any loan not yet purchased by Farmer Mac, upon the
Seller's request. The Underwriter shall, (i) upon acknowledgment by the Seller
that it has received the purchase price or (ii) in the absence of such
confirmation, upon receipt of confirmation from Farmer Mac's bank that it has
wired the funds in the amount of the purchase price to the account specified by
the Seller, hold such documents for Farmer Mac (and shall indicate that it so
holds such documents on its records), and (a) at the direction of Farmer Mac,
shall deliver all documents required to be included in the Mortgage File to the
Custodian or to such other party as Farmer Mac may designate and (b) shall
retain all other documents for the benefit of Farmer Mac in its capacity as
Underwriter unless Farmer Mac instructs the Underwriter to forward such other
documents to a third party.
(d) In the event any property held by the Underwriter hereunder shall be
attached, garnished or levied upon under any court order, or if the delivery of
such property shall be stayed or enjoined by any court order, or if any court,
writ, judgment or decree shall be made or entered affecting such property or
affecting any act by the Underwriter, the Underwriter shall obey and comply with
all orders, writs, judgments or decrees so entered or issued unless such order,
writ, judgment or decrees is being contested in an appropriate judicial
proceeding), notwithstanding any provisions of this Agreement to the contrary.
If the Underwriter obeys and complies with any such orders, writs, judgments or
decrees, it shall not be liable to any of the parties hereto or to any other
person or entity by reason of such compliance, notwithstanding that such orders,
writs, judgments or decrees may be subsequently reversed, modified, annulled,
set aside or vacated.
(e) The Underwriter hereby agrees to indemnify Farmer Mac from and hold it
harmless against any loss, expense, damage, claim or liability suffered by
Farmer Mac as a result of the Underwriter's failure to hold such documents on
behalf of the Sellers or Farmer Mac, as applicable, in accordance with the terms
of this Section 2.05.
Section 2.06. Fees. As compensation for the Underwriter's performing its
duties under this Agreement: (a) with respect to any agricultural real estate
loan for which a complete Preliminary Loan File is received and reviewed by the
Underwriter, such review resulting in the Underwriter either approving or
disapproving the related loan for purchase by Farmer Mac, Farmer Mac shall pay
the Underwriter [material omitted pursuant to a request for confidential
treatment and filed separately with the SEC]; and (b) with respect to any
agricultural real estate loan other than one described in clause (a) hereof for
which the Underwriter provides the final loan review described in Section 2.04
hereof, Farmer Mac shall pay the Underwriter [material omitted pursuant to a
request for confidential treatment and filed separately with the SEC]. Farmer
Mac will timely remit the fee after receipt of a monthly invoice from the
Underwriter.
Section 2.07 Reporting. (a) The Underwriter shall, on a daily basis deliver
to Farmer Mac in hard copy (with a weekly report also by electronic medium) a
report in the form of Exhibit C hereto.
(b) The Underwriter shall deliver to Farmer Mac, by 10 am Washington, DC,
time on the second Business Day before each Weekly Purchase Date a list of all
mortgage loans for which Final Loan Files have been received by the Underwriter.
Such list shall include the loan number, borrower name, Seller's name and
address, principal balance of the loan, loan interest rate, and the Farmer Mac
Commitment number and such other data as Farmer Mac may reasonably request.
(c) The Underwriter shall telecopy to Farmer Mac, by 9 am Washington, DC,
time on each Weekly Purchase Date a list of all mortgage loans for which Final
Loan Files have been received and approved by the Underwriter, and shall include
a certification that, except as noted, all documents required to be included in
such Final Loan Files have been received by and are in the possession of the
Underwriter.
(d) The Underwriter shall deliver by electronic medium, no later than two
hours after Farmer Mac notifies the Underwriter that it has purchased loans
identified on the report specified in paragraph (c) above, a Loan Set-up File
for each such loan.
ARTICLE III
REPRESENTATIONS AND WARRANTIES; COVENANTS
Section 3.01. Representations and Warranties of the Underwriter. The
Underwriter hereby represents and warrants the following to Farmer Mac:
(i) The Underwriter is a National Bank duly organized, validly existing and
in good standing under the laws governing its creation and existence and is or
will be in compliance with the laws of each state in which any Mortgaged
Property is located to the extent necessary to perform its obligations under,
and to enforce each Mortgage and Qualified Loan in accordance with, the terms of
this Agreement.
(ii) The execution and delivery by the Underwriter of this Agreement and
the Underwriter's performance and compliance with the terms this Agreement will
not violate the Underwriter's Articles of Association or Bylaws or constitute a
default (or an event which, with notice or lapse of time, or both, would
constitute a default) under, or result in the breach of, any contract, agreement
or other instrument to which the Underwriter is a party or which may be
applicable to the Underwriter or any of its assets to the extent that such
default or breach could affect the ability of the Underwriter to carry out its
obligations under this Agreement.
(iii) This Agreement, assuming due authorization, execution and delivery by
the parties thereto (other than the Underwriter), constitutes a valid, legal and
binding obligation of the Underwriter, enforceable against it in accordance with
the terms hereof and thereof, subject to applicable bankruptcy, insolvency,
reorganization, moratorium and other laws affecting the enforcement of
creditors' rights generally and by general principles of equity (regardless of
whether such enforcement is considered in a proceeding in equity or at law).
(iv) The Underwriter is not in default, and the execution and delivery of
this Agreement by the Underwriter and the Underwriter's performance and
compliance with this Agreement will not cause the Underwriter to be in default,
with respect to any order or decree of any court or any order, regulation or
demand of any Federal, state, county or municipal authority, which default might
have consequences that would materially and adversely affect its condition
(financial or other) or operations or might have consequences that would
materially and adversely affect its performance under this Agreement.
(v) No action, suit or proceeding is pending or, to the best of the
Underwriter's knowledge, threatened against the Underwriter that would prohibit
its entering into this Agreement or adversely affect the performance by the
Underwriter of its obligations under this Agreement.
(vi) The Underwriter will comply in the performance of this Agreement with
(a) all reasonable rules and requirements of each insurer under each required
property hazard insurance policy for each Qualified Loan and (b) all reasonable
rules and requirements of each insurer with respect to making claims under any
title insurance policy for each Qualified Loan.
(vii) No information, Officers' Certificate, statement furnished in writing
or report delivered to Farmer Mac by the Underwriter will, to the best of the
knowledge of the person delivering such information, Officers' Certificate,
statement or report, contain any untrue statement of a material fact or omit a
material fact necessary to make such information, Officers' Certificate,
statement or report not misleading.
Section 3.02. Covenants of Underwriter. The Underwriter agrees to review
the Preliminary Loan Files and Final Loan Files with respect to each mortgage
loan reviewed by it under this Agreement and covenants with Farmer Mac that, as
to each such mortgage loan, as of the date of review of the related Preliminary
Loan File and Final Loan, such mortgage loan:
(1)Based solely on a review of the documents in the such files,
(i) is a Qualified Loan and (ii) conforms in all material respects to
the provisions of the Selling Guide.
(2) The Qualified Loan has terms conforming to one of the
products offered by Farmer Mac. The Qualified Loan does not provide
for negative amortization of interest.
(3) The related Mortgage File contains the documents specified in
the definition of the term "Mortgage File" herein completed or
executed, if required.
(4) Based solely on a review of the documents in the Final Loan
File (including the Mortgage File), the information pertaining to the
Qualified Loan set forth in the related Loan Set-up File provided to
Farmer Mac is true and correct.
(5) On the basis of the review by the Underwriter of the
appraisal included in the Final Loan File, the Underwriter has no
reason to believe that such appraisal has not been conducted in
accordance with the Farmer Mac's appraisal standards; except that, no
such appraisal or appraisal update, as the case may be, is dated more
than one year prior to the Weekly Purchase Date on which such mortgage
loan is purchased by Farmer Mac.
Section 3.02 Representations and Warranties of Farmer Mac. Farmer Mac
hereby represents and warrants the following to the Underwriter:
(i) Farmer Mac is a federally chartered instrumentality of the United
States duly organized, validly existing and in good standing under the laws of
the United States with corporate power and authority to conduct its business as
it is currently being conducted; Farmer Mac holds all licenses, certificates and
permits necessary for the conduct of its business as it is currently being
conducted.
(ii) Farmer Mac has the requisite power and authority to execute and
deliver this Agreement, and to take all other actions and execute and deliver
all other documents which are requisite or pertinent to the transactions
described in this Agreement. The persons signing this Agreement and such other
documents and taking such actions on behalf of Farmer Mac have been duly
authorized to do so and this Agreement and such other documents and actions are
or will be, as the case may be, valid, legally binding and enforceable against
Farmer Mac in accordance with their respective terms, subject to applicable
bankruptcy, insolvency, reorganization, moratorium and other laws affecting the
enforcement of creditors' rights generally and to general principles of equity
(regardless of whether such enforcement is considered in a proceeding in equity
or at law).
(iii) No action, suit or proceeding is pending or, to the best of Farmer
Mac's knowledge, threatened against Farmer Mac that would prohibit its entering
this Agreement or adversely affect the performance of its obligations under this
Agreement.
ARTICLE IV
THE UNDERWRITER
Section 4.01. Liabilities of the Underwriter. The Underwriter shall be
liable in accordance herewith only to the extent of the obligations specifically
imposed upon and undertaken by the Underwriter herein.
Section 4.02. Merger or Consolidation of the Underwriter; Assignment of
Rights and Delegation of Duties by Underwriter. (a) Subject to paragraph (b)
below, the Underwriter will keep in full effect its existence, rights and
franchises under the laws of its jurisdiction of organization, and will obtain
and preserve its qualification to do business as a foreign corporation in each
jurisdiction in which such qualification is or shall be necessary to protect the
validity and enforceability of this Agreement and to perform its duties under
this Agreement.
(b) The Underwriter may assign its rights and delegate its duties and
obligations under this Agreement; provided that the Person accepting such
assignment or delegation shall be satisfactory to Farmer Mac, is willing to
service the Qualified Loans and executes and delivers to Farmer Mac an
agreement, in form and substance satisfactory to Farmer Mac, which contains an
assumption by such Person of the due and punctual performance and observance of
each covenant and condition to be performed or observed by the Underwriter under
this Agreement. In the case of any such assignment and delegation, the
Underwriter shall be released from its obligations under this Agreement, except
that the Underwriter shall remain liable for all liabilities and obligations
incurred by it as Underwriter hereunder prior to the satisfaction of the
conditions to such assignment and delegation set forth in the next preceding
sentence.
Section 4.03. Limitation on Liability of the Underwriter and Others.
Neither the Underwriter nor any of the directors, officers employees or agents
of Farmer Mac or the Underwriter shall be under any liability to Farmer Mac for
any action taken or for refraining from the taking of any action in good faith
pursuant to this Agreement or the Selling Guide, or for errors in judgment
provided, however, that this provision shall not protect the Underwriter or any
such Person against any breach of representation or warranties made herein that
gives rise to rights or remedies in Farmer Mac in accordance with Section 3.01
or any liability which would otherwise be imposed by reason of willful
misfeasance, bad faith or negligence in the performance of duties or by reason
of disregard of obligations and duties hereunder. The Underwriter and any
director, officer, employee or agent of the Underwriter may rely in good faith
on any document of any kind prima facie properly, executed and submitted by any
Person respecting any matters arising hereunder.
4.04. Arbitration. Any dispute, controversy or claim arising out of or
based upon the terms of this Agreement shall be settled exclusively and finally
by binding arbitration in the District of Columbia. Upon written demand for
arbitration by any party hereto, the parties hereto shall confer and attempt in
good faith to agree upon one arbitrator to be selected from panels maintained by
the American Arbitration Association (or any successor organization). If the
parties have not agreed upon an arbitrator within 30 days after receipt of such
written demand, each party hereto shall appoint one arbitrator and those two
arbitrators shall agree upon a third arbitrator. The binding arbitration shall
be conducted in accordance with the commercial arbitration rules of the American
Arbitration Association (or any successor organization) and shall be binding
upon the parties. Judgment upon an arbitration award may be entered in any court
having jurisdiction.
ARTICLE V
MISCELLANEOUS PROVISIONS
Section 6.0l. Amendment. This Agreement may be amended from time to time
only by written instrument executed by both parties hereto.
Section 6.02. Termination. Either party hereto may terminate the provisions
of this Agreement relating to Loan File review duties upon 3 months' written
notice to the other party hereto.
Section 6.03. Governing Law. This Agreement shall be governed by and
construed in accordance federal law. To the extent federal law incorporates
state law, that law shall be the laws of the State of New York.
Section 6.04 Notices. All demands and notices hereunder shall be in writing
and shall be deemed to have been duly given if personally delivered at or mailed
by registered mail, postage prepaid, to (a) in the case of the Underwriter 1
South Main Street, Suite 1340, Salt Lake City, UT, 84111, or such other address
as may be hereafter furnished to Farmer Mac by the Underwriter in writing, and
(b) in the case of Farmer Mac, Suite 200, 919 Eighteenth Street,, NW,
Washington, DC, 20006 Attention: Vice President-Mortgage-Backed Securities, or
such other address as may be hereafter furnished to the Underwriter by Farmer
Mac in writing.
Section 6.05. Severability of Provisions. If any one or more of the
covenants, agreements provisions or terms of this Agreement shall be for any
reason whatsoever held invalid, then such covenants agreements, provisions or
terms shall be seemed severable from the remaining covenants, agreements,
provisions or terms of this Agreement and shall in no way affect the validity or
enforceability of the other provisions of this Agreement or of the Certificates
or the rights of the holders thereof.
Section 6.06. Confidentiality of Information. Underwriter shall not use the
information received in connection with its duties under this Agreement with
respect to any loan the Underwriter reviews (or the related Borrower) for any
purpose other than fulfilling its obligations under this Agreement or as the
servicer of such loan after purchase by Farmer Mac.
IN WITNESS WHEREOF, Farmer Mac and the Underwriter have caused their names
to be signed hereto by their respective officers thereunto duly authorized as of
the day and year above written.
FEDERAL AGRICULTURAL MORTGAGE CORPORATION
By: /s/Nancy E. Corsiglia
------------------------------------
Name: Nancy E. Corsiglia
Title: Vice President - Business Development
ZIONS FIRST NATIONAL BANK,
as Underwriter
By: /s/ Patrick M. Floyd
----------------------------
Name: Patrick M. Floyd
Title: Vice President
PRELIMINARY LOAN FILE
A Preliminary Loan File must contain the following documents:
1. A loan application;
2. A request for the maximum interest rate for which approval is sought;
3. A schedule of proposed principal and interest payments;
4. A verification of off-farm income (if applicable);
5. A credit report (which may be in narrative form;
6. Three years of fair market value balance sheets;
7. Three years of accrual adjusted income statements (together with
worksheets);
8. Projections and supporting information (together with worksheets and any
other pertinent data);
9. A written trend analysis of historic, pro forma and projected financial
data;
10. A brief narrative description of the farming operation;
11. A Farmer Mac Qualifying Worksheet (Appendix U of the Selling Guide);
12. A current environmental survey signed by the borrower and the loan
originator;
13. Evidence of hazard insurance (not required for land-only transactions);
14. Evidence of water rights (if applicable);
15. Evidence of grazing rights (if applicable);
16. Copies of material contracts and all leases;
17. Unexecuted final forms of the mortgage, mortgage note, and assignment of
mortgage each completed as required in the Selling Guide;
18. A UCC filing on fixtures and personal property needed to operate the
mortgaged property;
19. An appraisal (optional for a Preliminary Loan File Review);
20. To the extent an appraisal is not included, a calculation of the minimum
appraised value necessary for the loan to have a loan-to-value ratio no
greater than the maximum loan-to-value ratio under the applicable purchase
program; and
21. A completed agricultural mortgage summary form (to be provided by the
Underwriter).
FINAL LOAN FILE
The Final Loan File required for the purchase of any Qualified Loan by
Farmer Mac will contain all of the documents required for the Preliminary Loan
File (except that any unexecuted forms of documents must be executed) plus the
following additional documents:
1. An original note or other evidence of indebtedness endorsed with the
following form: "Pay to the order of First Trust National Association as
Custodian/Trustee, without recourse" and containing the provisions required
by the appropriate mortgage purchase program pursuant to which Farmer Mac
will be purchasing the Qualified Loan;
2. A mortgage or deed of trust (as the case may be) and any modification
agreement related thereto, in each case with evidence of recording
indicated thereon;
3. An assignment of mortgage in the following form: "First Trust National
Association, as Custodian/Trustee", which assignment must be in recordable
form;
4. An appraisal or appraisal update with respect to the related Mortgaged
Property prepared in accordance with Farmer Mac's appraisal standards, but
in no event shall such appraisal be dated more than one year prior to the
Weekly Purchase Date on which such mortgage loan is purchased by Farmer
Mac;
5. An original of any assumption, modification or substitution agreement, if
applicable;
6. A copy of any UCC filing and UCC search showing priority, if applicable;
and
7. Evidence of title to the Mortgaged Property (either in the form of an
opinion from an attorney or firm of attorneys rated at least "BV" by
Martindale-Hubbell or approved by Farmer Mac if no such rating is available
or a title policy or a binding title insurance commitment issued by a title
insurance company acceptable to Farmer Mac).
Exhibit 10.12.1
[Farmer Mac Letterhead]
January 20, 2000
Patrick M. Floyd
Senior Vice President
Zions First National Bank
1 South Main Street
Salt Lake City, UT 84111
Re: Loan File Review and Underwriting Agreement: Amendment No. 1
Dear Rick:
This letter agreement amends the Loan File Review and Underwriting
Agreement, dated as of December 17, 1996, between Farmer Mac and Zions (the
"Agreement"). Zions and Farmer Mac agree that, effective as of June 1, 1999,
Farmer Mac will not pay any fees or costs relating to the origination,
underwriting, closing and approval of any "Zions Proprietary Qualified Loan" or
of any loan sold into the Farmer Mac I program by Zions. [material omitted
pursuant to a request for confidential treatment and filed separately with the
SEC]
All of the other terms and conditions of the Agreement remain in full force
and effect.
If this letter accurately reflects Zions' understanding and intentions,
please so indicate by signing and returning to me the copy of this letter I have
enclosed. We at Farmer Mac look forward to a continuing long and mutually
beneficial relationship with Zions First National Bank.
Very truly yours,
/s/ Nancy E. Corsiglia
-----------------------
Nancy E. Corsiglia
Vice President
ACKNOWLEDGED AND AGREED:
ZIONS FIRST NATIONAL BANK
By: /s/ Patrick M. Floyd
---------------------------------
Patrick M. Floyd
Senior Vice President
Exhibit 10.13
LONG TERM STANDBY COMMITMENT TO PURCHASE
This Long Term Standby Commitment to Purchase No. TM1001 (Full-time Farm),
No.TM1002 (Part-time Farm) and No.TM1003 (Rural Housing) ("Commitment") is made
as of the first day of August, 1998 between the Federal Agricultural Mortgage
Corporation ("Farmer Mac"), a corporation organized and existing under the laws
of the United States of America and AgFirst Farm Credit Bank, a Farm Credit Bank
organized and existing under the laws of the United States of America
("Seller").
WHEREAS, the Seller and Farmer Mac each desire to enter into this
Commitment, which permits the Seller, at its option, to sell Qualified Loans
within a defined portfolio of Qualified Loans to Farmer Mac from time to time
during the life of the defined portfolio and obligates Farmer Mac to purchase
such Qualified Loans, all under the terms and conditions set forth in this
Commitment;
WHEREAS, the Seller and Farmer Mac have identified a portfolio of Qualified
Loans that Farmer Mac will commit to purchase under this Commitment; and
WHEREAS, the Seller and Farmer Mac seek to create a procedure by which the
Seller may add additional Qualified Loans to such portfolio from time to time.
NOW, THEREFORE, in consideration of the mutual covenants and undertakings
set forth in this Commitment, and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, Farmer Mac and the
Seller agree as follows:
ARTICLE I
DEFINED TERMS
Whenever used in this Commitment, the following words and phrases have the
following meanings:
AMBS: Agricultural mortgage-backed securities issued by Farmer Mac.
Business Day: Any day other than a Saturday, Sunday or other day Farmer Mac
or the Seller is closed for business.
Charter Act: The Farmer Mac Charter Act in Title VIII of the Farm Credit
Act of 1971 (12 U.S.C.ss.ss.2279aa et. seq.), as amended and in effect from time
to time.
Commitment Term: From the Effective Date of this Commitment through and
including the date on which all Qualified Loans have been purchased or
securitized or deemed paid in full (through scheduled payments, prepayments,
liquidation or otherwise).
Delivery Date: The date on which the Seller sells a Qualified Loan in the
Portfolio to Farmer Mac, which, in the case of Tier I Qualified Loans, shall be
the date that Farmer Mac disburses the purchase proceeds in accordance with
Section 5.01, and, in the case of Tier II and Tier III Qualified Loans, shall be
the date of delivery of a Qualified Loan to Farmer Mac pursuant to a mandatory
commitment to sell such Tier II or Tier III Qualified Loans to Farmer Mac.
Effective Date: August 1, 1998, except with respect to Qualified Loans
listed on a Qualified Loan Schedule delivered to Farmer Mac by the Seller
pursuant to Section 4.02(b), in which case the Effective Date shall be the first
day of the month following receipt of such Qualified Loan Schedule by Farmer
Mac.
Event of Default: An event described in Article VIII.
Governmental Body: Any Federal, state, municipal or other governmental
department, commission, board, bureau, agency or instrumentality, domestic or
foreign.
Master Central Servicing Contract (Full-time): The Master Central Servicing
Contract (Full-time) entered into as of August 1, 1998, between the Seller and
Farmer Mac, as the same may be amended or supplemented from time to time.
Master Central Servicing Contract (Part-time Farm): The Master Central
Servicing Contract (Part-time Farm) entered into as of January 2, 1998, between
the Seller and Farmer Mac, as the same may be amended or supplemented from time
to time.
Master Central Servicing Contract (Rural Housing): The Master Central
Servicing Contract (Rural Housing) which may be entered into between the Seller
and Farmer Mac, as the same may be amended or supplemented from time to time.
Person: An individual, a corporation, a partnership, an association, a
trust or any other entity or organization, including a government or political
subdivision or an agency or instrumentality thereof.
Portfolio: The group of Qualified Loans, identified on the Qualified Loan
Schedule, delivered to Farmer Mac in connection with this Commitment and
incorporated herein by reference, which are subject to this Commitment and are
eligible to be sold to Farmer Mac under the terms and conditions set forth in
this Commitment.
Qualified Loan: Any mortgage loan secured by agricultural real estate as
defined in the Charter Act and the Seller/Servicer Guide that meets the
requirements of this Commitment and which is identified in the Portfolio.
Qualified Loan Schedule: A listing of Qualified Loans in the form of
Exhibit D (with respect to Full-time Farm), Exhibit E (with respect to Part-time
Farm) or Exhibit F (with respect to Rural Housing) hereto, as appropriate.
Seller/Servicer Agreement: The Farmer Mac Seller/Servicer Agreement dated
December 16, 1996, between the Seller and Farmer Mac, as amended from time to
time, or any other Seller/Servicer Agreement subsequently entered into between
the Seller and Farmer Mac.
Seller/Servicer Guide: The publication entitled "Farmer Mac Seller/Servicer
Guide," release dated October 1, 1997, as modified by any guide update or
bulletin or as replaced by any other publication of Farmer Mac.
Servicing Contracts: The Master Central Servicing Contract (Full-time), the
Master Central Servicing Contract (Part-time Farm) and the Master Central
Servicing Contract (Rural Housing).
Standby Purchase Fee: The periodic amount due Farmer Mac from the Seller
for this Commitment. Such amount with respect to any Qualified Loan shall equal
a fraction the numerator of which is one and the denominator of which is the
number of payments scheduled to be made in a year on such Qualified Loan of:
[material omitted pursuant to a request for confidential treatment and filed
separately with the SEC] times the unpaid principal balance of the Portfolio
(which shall be the aggregate of the outstanding unpaid principal balances of
the Qualified Loans included in the Portfolio from time to time, as reported
monthly by the Seller in accordance with Section 4.04).
The parties understand that Farmer Mac's commitment obligation with respect
to Rural Housing Qualified Loans will not be enforceable until the Federal
National Mortgage Association has purchased such loans or reimbursed the Seller
for any losses on any such loan in an amount equal to at least 90% of the unpaid
principal balance of such loan.
Termination Event: With respect to either the Seller or Farmer Mac, (i) any
change in law or regulation occurring after the Effective Date (or any ruling or
interpretation related to any existing law or regulation issued after the
Effective Date) that, in the reasonable judgment of such party and as supported
by a written opinion of such party's counsel, renders the transaction
contemplated hereby void, unenforceable or illegal (in whole or in part) as to
such party or (ii) any change in the Financial Accounting Standards adopted by
the Financial Accounting Standards Board (or other similar accounting rules)
occurring after the Effective Date that, in the reasonable judgment of such
party and as supported by a written opinion of an independent accounting firm
acceptable to both parties, renders the transaction as contemplated hereby
unsound as to such party.
Tier I Qualified Loan: Any Qualified Loan that is delinquent in payment for
four or more consecutive months or otherwise in material non-monetary default,
except as otherwise provided in Article V herein, and with respect to which any
applicable borrower rights have been exercised or waived by the borrower.
Tier II Qualified Loan: Any Qualified Loan that complies, on the date of
its sale to Farmer Mac, with the standards set forth in the Seller/Servicer
Guide, as amended from time to time.
Tier III Qualified Loan: Any Qualified Loan that is less than four months
delinquent but does not comply, on the date of its sale to Farmer Mac, with the
standards set forth in the Seller/Servicer Guide, as amended from time to time.
ARTICLE II
GENERAL COVENANTS OF THE SELLER
Section 2.01. Performance of Obligations. The Seller hereby covenants to
keep and perform faithfully all of the covenants and undertakings contained
herein.
Section 2.02. Good Standing. The Seller hereby covenants to maintain its
current condition of good standing under all applicable laws and regulations and
to commit no act that would alter the status of the Seller as represented in
Section 6.03 hereof.
Section 2.03. Further Assurances. The Seller shall, subject to applicable
confidentiality requirements, execute and deliver or cause to be executed and
delivered to Farmer Mac now, and at any reasonable time or times hereafter at
the request of Farmer Mac, all documents, instruments, letters of direction,
notices, reports, acceptances, receipts, consents, waivers, affidavits and
certificates as Farmer Mac may reasonably request, in form satisfactory to
Farmer Mac in order to consummate fully all of the transactions contemplated
hereunder.
Section 2.04. Sale, Transfer or Pledge of Portfolio or Servicing Rights.
(a) During the Commitment Term, except to the extent provided in the Farm Credit
Act of 1971, as amended, the Seller shall not pledge or hypothecate all or any
portion of the Portfolio or any of the rights associated with the Portfolio and
the Qualified Loans (including rights to service the Qualified Loans or rights
to servicing fee income). The Seller may sell or transfer the Portfolio or the
servicing rights associated with the Qualified Loans only under the terms set
forth below.
(i) Farmer Mac will approve the sale or transfer of the Portfolio
only if all of the Qualified Loans in the Portfolio are sold or
transferred to a purchaser or transferee that is acceptable to Farmer
Mac and that agrees to assume all of the Seller's obligations
hereunder pursuant to a written agreement among the Seller, Farmer Mac
and such successor party. If the Seller transfers or sells the
Portfolio but retains the right to service the Qualified Loans, the
written agreement among the Seller, Farmer Mac and the successor party
shall also provide that the payment of the Standby Purchase Fee shall
remain a corporate obligation of the Seller.
(ii) Farmer Mac will approve the sale of the servicing rights
associated with the Qualified Loans only if such servicing is sold (a)
with respect to all Qualified Loans and (b) to one successor servicer
acceptable to Farmer Mac that agrees, pursuant to a written agreement
among the Seller, Farmer Mac and such successor servicer, to the
obligations of the Seller set forth herein.
(iii) Any sale or transfer of the Portfolio or the rights
associated with the Portfolio will be subject to a transfer fee of
[material omitted pursuant to a request for confidential treatment and
filed separately with the SEC] of the aggregate outstanding unpaid
principal balance of the Qualified Loans in the Portfolio at the time
of the transfer or sale.
(iv) Upon such transfer, the Seller shall have no further right
to include additional Qualified Loans in the Portfolio.
(b) In addition to the provisions in each of the Servicing Contracts
concerning the assignment of the Seller's servicing rights and obligations, the
Seller, except to the extent heretofore provided, shall not pledge or
hypothecate all or any portion of the remainder of its Farmer Mac mortgage
servicing portfolio without providing evidence acceptable to Farmer Mac of the
acknowledgement of any third party who will have rights therein of Farmer Mac's
entitlement to all or a portion of the value of such servicing portfolio in an
Event of Default hereunder.
Section 2.05. Indemnification. The Seller shall indemnify and hold Farmer
Mac harmless from and against any and all losses, claims, damages, liabilities
and expenses (including reasonable costs of investigation) (collectively,
"Losses") to which Farmer Mac may become subject insofar as such Losses arise
out of or are based upon (i) the Seller's performance of its servicing
obligations set forth in this Commitment and the Servicing Contracts with
respect to the Qualified Loans in the Portfolio prior to sale of the Qualified
Loans to Farmer Mac or (ii) a final adjudication of, including any settlement
of, any outstanding litigation described in Exhibit C hereto. This covenant to
indemnify and hold harmless shall survive the sale of the Qualified Loans to
Farmer Mac.
Section 2.06. Original Principal Balance. Notwithstanding any other
provision of this Commitment, the Seller shall not deliver a Qualified Loan to
Farmer Mac for sale if the original principal balance of such Qualified Loan
does not meet Farmer Mac's maximum dollar purchase limitations, in effect as of
the Delivery Date, for the purchase of similar Qualified Loans, determined in
accordance with the Charter Act.
Section 2.07. Seller/Servicer Status. The Seller shall maintain its status
as a Farmer Mac approved seller and servicer in accordance with the
Seller/Servicer Agreement and the Servicing Contracts.
ARTICLE III
COVENANTS OF FARMER MAC
Section 3.01. Commitment to Purchase Qualified Loans. Farmer Mac hereby
covenants to purchase the Qualified Loans in the Portfolio in accordance with
the provisions of this Commitment.
ARTICLE IV
PRE-DELIVERY OBLIGATIONS OF THE SELLER
Section 4.01. Payment of Standby Purchase Fee. With respect to each
Qualified Loan, by the seventh calendar day of each month in which a payment is
scheduled to be made on such Qualified Loan (or, in the case of a prepayment
with respect to any Qualified Loan, by the seventh day of the month following
the month in which such prepayment is received) beginning in August 1998 (or the
preceding Business Day if the seventh calendar day is not a Business Day)
through and including the month in which the Commitment Term expires, the Seller
shall pay to Farmer Mac in immediately available funds, by 12:00 noon, Eastern
time, on such seventh day, an amount sufficient to pay the Standby Purchase Fee.
If such funds are not received by Farmer Mac by 12:00 noon, Eastern time, on
such seventh day, the Seller shall pay interest to Farmer Mac on such overdue
amount at a rate equal to the federal funds rate.
Section 4.02. Delivery of Qualified Loan Information. (a) Not later than
the tenth day of the month following the date of execution of this Commitment,
the Seller shall deliver to Farmer Mac a completed Qualified Loan Schedule for
the Qualified Loans in the Portfolio. Such Qualified Loan Schedule shall be
delivered in magnetic media or electronic format acceptable to Farmer Mac.
(b) At any time prior to December 31, 1999, the Seller may deliver to
Farmer Mac a completed Qualified Loan Schedule for any additional Qualified
Loans that the Seller wishes to add to the Portfolio. The Seller shall follow
the same requirements for completion of the initial Qualified Loan Schedule.
Such Qualified Loans shall become part of the Portfolio, effective on the first
day of the month following the month of receipt by Farmer Mac of such additional
Qualified Loan Schedule. Any Standby Purchase Fee with respect to such
additional Qualified Loan shall be due and payable beginning in the month
following the month in which the Effective Date with respect to such additional
Qualified Loan occurs. The Seller may not remove a Qualified Loan from the
Portfolio without the prior written consent of Farmer Mac (including removal by
making a new loan to the borrower of such Qualified Loan which new loan, in
whole or in part, refinances the Qualified Loan) which consent shall not be
unreasonably withheld; except, that, if the Seller refinances, restructures or
modifies any Qualified Loan without the written consent of Farmer Mac (which
consent shall not be unreasonably withheld), Farmer Mac shall not be obligated
to purchase such restructured or modified Qualified Loan.
Section 4.03. Administration and Servicing of Qualified Loans. (a) The
Seller will diligently service the Qualified Loans in the Portfolio in
accordance with the servicing standards set forth in the applicable Servicing
Contract, except as modified by this Commitment. The Seller may conduct such
servicing through facilities of agents or independent contractors but shall not
thereby be released from any of its duties or responsibilities hereunder.
(b) The Seller must maintain an individual mortgage file for each Qualified
Loan in the Portfolio. Each mortgage file must include any papers or records
that are required by the Servicing Contracts (except assignments of mortgages to
Farmer Mac). The Seller will physically segregate the mortgage notes relating to
the Qualified Loans in the Portfolio and hold such mortgage notes in a secure
environment in accordance with generally accepted industry standards for the
custody of mortgage loan documentation. The Seller will maintain each mortgage
note in a fire resistant vault, drawer or other suitable depository. The Seller
is responsible for maintaining accurate accounting and borrower payment records,
as required in the Servicing Contracts.
(c) Upon reasonable notice and at any reasonable time during the Commitment
Term and subject to applicable confidentiality requirements, Farmer Mac has the
right to examine any and all books and records that pertain to the Qualified
Loans, any and all accounting reports associated with the Qualified Loans and
borrower remittances, and any other reports and documentation that Farmer Mac
considers necessary to assure that (i) the Qualified Loans meet the terms and
conditions set forth herein and (ii) the Seller is servicing the Qualified Loans
in compliance with the Servicing Contracts and this Commitment. Seller agrees to
forward such books, records or reports (or copies thereof) to Farmer Mac upon
request by Farmer Mac.
(d) The Seller shall service delinquent Qualified Loans in accordance with
the provisions of the applicable Servicing Contract, including timely initiation
of loss mitigation efforts. However, the Seller must sell the delinquent
Qualified Loan to Farmer Mac prior to completion of the foreclosure process (or
other comparable conversion) in accordance with Section 5.01 hereof. If title to
the underlying mortgaged property has transferred to the Seller and no right of
rescission by the borrower exists, the related Qualified Loan is no longer
eligible for sale to Farmer Mac and should be reported as a "payoff" in
accordance with the requirements of Section 4.04.
Section 4.04 Reporting Requirements. Not later than the last Business Day
of the month in which a Qualified Loan is added to the Portfolio, the Seller
shall provide a loan setup file in a machine-readable format in accordance with
the tape specifications set forth in Exhibit D, E or F hereto, as appropriate.
Thereafter and until the Qualified Loan is sold to Farmer Mac or otherwise
removed from the Portfolio, the Seller shall provide not later than the seventh
calendar day of each month a monthly loan activity report (based on actual
payment activity) in a machine-readable format in accordance with the tape
specifications set forth in Exhibit G hereto.
ARTICLE V
DELIVERY OF AND PAYMENT FOR QUALIFIED LOANS
Section 5.01. Tier I Qualified Loans. (a) Subject to the requirements set
forth in this Commitment, the Seller may elect to sell to Farmer Mac, in
exchange for cash, any Tier I Qualified Loan. Notwithstanding the foregoing,
prior to transfer of ownership of a mortgaged property from the borrower to the
Seller as a result of loss mitigation efforts, a foreclosure proceeding or other
comparable conversion, the Seller shall sell to Farmer Mac the related Tier I
Qualified Loan regardless of the amount of time such Qualified Loan has been
delinquent.
(b) The purchase price for any Tier I Qualified Loan shall equal the unpaid
principal balance of the Qualified Loan less any outstanding borrower stock that
may be retired and applied to the Qualified Loan, as reported to Farmer Mac in
accordance with Section 4.04, in the month in which the Seller elects to sell
such Qualified Loan or, in the case of the Tier I Qualified Loans in which
Farmer Mac will purchase a participation interest, the purchase price shall
equal the participation percentage of the amount by which the unpaid principal
balance of the Qualified Loan exceeds such outstanding borrower stock, if any.
The purchase price for a Tier I Qualified Loan shall not include accrued or
delinquent interest or foreclosure or related costs or expenses. Accrued
interest shall be recoverable by the Seller as if it were a Central Servicer
Delinquency Advance under the applicable Servicing Contract, recoverable only
out of Liquidation Proceeds or other payments with respect to such Tier I
Qualified Loan. The purchase proceeds, as well as any reimbursement of a portion
of the Standby Purchase Fee, as described in Section 5.04, will be disbursed by
wire transfer to the Seller on the first Business Day of the month following
Farmer Mac's confirmation of receipt of a completed Purchase Request and as
described in subsection (c) below.
(c) No later than the seventh Business Day of any month in which the Seller
elects to sell Tier I Qualified Loans to Farmer Mac, the Seller will do the
following:
(i) deliver a Purchase Request and Certification electronically
and in hard copy, in the form of Exhibit C hereto, listing the Farmer
Mac loan number and unpaid principal balance of the Qualified Loans
that have become Tier I Qualified Loans that the Seller wishes to sell
to Farmer Mac either as whole loans or participation interests. The
Purchase Request and Certification shall be delivered to Farmer Mac
via facsimile transmission (number 202-872-7713).
(ii) prepare and deliver all of the mortgage delivery
documentation required pursuant to Chapter 302 of the Seller/Servicer
Guide to Farmer Mac in accordance with the Seller/Servicer Guide. Only
Farmer Mac's loan records shall determine the proceeds that the Seller
is entitled to receive for Farmer Mac's purchase of Tier I Qualified
Loans.
(iii) pay directly to the custodian designated by Farmer Mac any
custodial fees to be incurred in connection with the filing and
maintenance of the mortgage documents by such custodian.
(d) As of its Delivery Date, a Tier I Qualified Loan sold to Farmer Mac (or
as to which a participation is sold to Farmer Mac) shall no longer be subject to
the terms of this Commitment and shall be serviced by the Seller in accordance
with the standard servicing provisions of the applicable Servicing Contract.
(e) The Seller and Farmer Mac agree that, if a Tier I Qualified Loan sold
to Farmer Mac subsequently becomes current in payments without being
restructured, the Seller will repurchase from Farmer Mac and Farmer Mac will
sell to the Seller such Qualified Loan for a price equal to the unpaid principal
balance plus any accrued interest on such Qualified Loan. Such Qualified Loan
will thereafter be listed on the applicable Qualified Loan Schedule and be a
part of the Portfolio subject to this Commitment.
Section 5.02. Tier II Qualified Loans. (a) Subject to the requirements set
forth in this Commitment, the Seller may elect to sell to Farmer Mac, from time
to time, at any time during the Commitment Term, in exchange for cash or AMBS,
some or all Tier II Qualified Loans, subject to Farmer Mac's then current
requirements for its Cash Window Program for cash purchases or its AMBS Swap
Program. The purchase price for a Tier II Qualified Loan sold to Farmer Mac for
cash shall be the price agreed to by Farmer Mac and the Seller at the time of
sale for cash transactions (less any outstanding borrower stock that may be
retired and applied to the Qualified Loan). The guarantee fee to be charged to
the Seller for any Tier II Qualified Loan sold to Farmer Mac in exchange for
AMBS shall be: [material omitted pursuant to a request for confidential
treatment and filed separately with the SEC]
(b) Prior to the removal of a Tier II Qualified Loan from the Portfolio,
the Seller will contact Farmer Mac to enter into a mandatory commitment to sell
such Tier II Qualified Loan to Farmer Mac under the standard mortgage delivery
and sale requirements set forth in the Seller/Servicer Guide. In the month in
which the Seller elects to sell Tier II Qualified Loans to Farmer Mac, the
Seller will report, in accordance with the loan level reporting requirements set
forth in Section 4.04, the removal of the Qualified Loan from this Commitment by
reporting a zero unpaid principal balance.
(c) The Seller shall sell Tier II Qualified Loans pursuant to subparagraph
(a) in the case of a cash purchase, in the month in which the Qualified Loan is
removed from this Commitment and, in the case of an AMBS purchase, in the next
month after the month in which the Qualified Loan is removed from this
Commitment.
(d) No later than the last Business Day of the month of the sale to Farmer
Mac of Tier II Qualified Loans in exchange for AMBS, the Seller shall supply a
Loan Setup File (as defined in the applicable Servicing Contract) including each
such Tier II Qualified Loan.
(e) As of its Delivery Date, a Tier II Qualified Loan sold to Farmer Mac
(or as to which a participation is sold to Farmer Mac) shall no longer be
subject to the terms of this Commitment and shall be serviced by the Seller in
accordance with the standard servicing provisions of the applicable Servicing
Contract.
Section 5.03. Tier III Qualified Loans. (a) Subject to the requirements set
forth in this Commitment, the Seller may make a one-time election to sell to
Farmer Mac, in exchange for cash, all of the Tier III Qualified Loans; provided,
however, the Seller must concurrently sell all Tier I and Tier II Qualified
Loans to Farmer Mac in accordance with the terms set forth herein for such
sales.
(b) The Seller must contact Farmer Mac if at any time during the Commitment
Term it wishes to enter into a one-time mandatory delivery commitment to sell
all of the Tier III Qualified Loans to Farmer Mac. The purchase price for the
Tier III Qualified Loans shall be negotiated at the time of sale (less any
outstanding borrower stock that may be retired and applied to the Qualified
Loan).
(c) In the event the Seller elects to sell all Tier III Qualified Loans to
Farmer Mac, Farmer Mac will provide instructions to the Seller regarding the
required reporting relating to such Qualified Loans prior to their delivery to
Farmer Mac.
(d) As of its Delivery Date, a Tier III Qualified Loan sold to Farmer Mac
(or as to which a participation is sold to Farmer Mac) shall no longer be
subject to the terms of this Commitment and shall be serviced by the Seller in
accordance with the standard servicing provisions of the applicable Servicing
Contract.
Section 5.04. Participation Interests. (a) Upon election by the Seller to
deliver a Class I, Class II or Class III Qualified Loan to Farmer Mac pursuant
of this Commitment, Farmer Mac shall be entitled to perform such due diligence
as to allow it to determine the value of the related mortgaged property at the
time of purchase by Farmer Mac. In the event that (i) Farmer Mac determines that
the outstanding principal balance of such Qualified Loan exceeds the maximum
loan-to-value ratio for eligibility for the appropriate Farmer Mac program at
the time of purchase by Farmer Mac and (ii) if applicable, such Qualified Loan
is not insured or guaranteed by a qualified mortgage insurer approved by Farmer
Mac, Farmer Mac shall so notify the Seller and shall purchase only a pro rata
participation interest in such Qualified Loan. Such pro rata participation
interest shall be calculated to result in the loan-to-value ratio (based on an
appraisal performed in accordance with the Appraisal Standards set forth in the
Seller/Servicer Guide) of Farmer Mac's participation interest being equal to the
maximum loan-to-value ratio for eligibility for the appropriate Farmer Mac loan
product. Upon receipt of such notice, the Seller may represent and warrant in
writing that, notwithstanding Farmer Mac's calculation of the loan-to-value
ratio of such Qualified Loan, the actual loan-to-value ratio of such Qualified
Loan is less than or equal to the maximum loan-to-value ratio for eligibility
for the appropriate Farmer Mac product. In such event, Farmer Mac will accept
delivery of the entire Qualified Loan, subject to the Seller's liability for any
loss resulting from a breach of the representation and warranty with respect to
loan-to value.
(b)(i) In the event that Farmer Mac accepts delivery of only a
participation interest in a Qualified Loan as described in paragraph
(a) above, Farmer Mac shall reimburse the Seller for a portion of the
Standby Purchase Fee collected with respect to such Qualified Loan,
which portion shall be calculated as described in subparagraph (ii)
below.
(ii) The amount of reimbursement due to the Seller in
subparagraph (i) with respect to a Qualified Loan where Farmer Mac
purchases a participation interest shall be the sum of (A) the unpaid
principal balance of such Qualified Loan at the time that such
Qualified Loan was made subject to this Commitment, as such amount was
set forth in the related Qualified Loan Schedule delivered by the
Seller to Farmer Mac pursuant to Section 4.02(a) and (B) the unpaid
principal balance of such Qualified Loan at the time that the Seller
elects to deliver such Qualified Loan to Farmer Mac pursuant to
paragraph (a) above, which sum is divided by two and multiplied by (C)
the number of months for which the Seller paid a Standby Purchase Fee
with respect to such Qualified Loan, (D) the Standby Purchase Fee
(divided by 12) and (E) the amount by which 1 exceeds the percentage
participation interest purchased by Farmer Mac.
ARTICLE VI
Representations AND WARRANTIES OF THE SELLER
The Seller represents and warrants that:
Section 6.01. Compliance with Farmer Mac Standards. As of the Effective
Date with respect to a Qualified Loan, each representation and warranty set
forth in Section 304 of the Seller/Servicer Guide is true and correct with
respect to such Qualified Loan.
Section 6.02. Consents and Approvals. (a) No consents or approvals of any
Person are or will be required which have not or will not have been obtained for
the execution and delivery of this Commitment or the performance of any
obligations hereunder.
(b) The execution of this Commitment has either been (i) specifically
approved by the Board of Directors of the Seller and such approval is reflected
in the minutes of the meetings of such Board of Directors or (ii) approved by an
officer of the Seller who was duly authorized by the Board of Directors to enter
into such types of transactions and such authorization is reflected in the
minutes of the Board of Directors' meetings and this Commitment constitutes the
"written agreement" of the Seller and the Seller (or any successor) shall
continuously maintain all components of such "written agreement" as an official
record.
Section 6.03. Corporate Existence and Power. The Seller is a Farm Credit
Bank duly organized, validly existing and in good standing under the laws
governing its creation and existence, and has all corporate powers and all
material governmental licenses, authorizations, consents and approvals required
to carry on its business, as now conducted, as required to enter into this
Commitment and to meet its obligations under this Commitment.
Section 6.04. Authorization and Non-Contravention. The execution, delivery
and performance by the Seller of this Commitment are within the Seller's
corporate power and have been duly authorized by all necessary corporate action
on the part of the Seller (no action by its shareholders being required) and
will not: (i) violate or contravene any law, regulation, judgment, injunction,
order, decree or other instrument currently binding on the Seller; or (ii)
violate, contravene or constitute a default under any provision of the articles
of incorporation or by-laws of the Seller or of any agreement, contract,
mortgage or other instrument currently binding on the Seller.
Section 6.05. Binding Effect. This Commitment constitutes a valid and
legally binding agreement of the Seller enforceable against the Seller in
accordance with its terms, except as enforcement may be limited by receivership,
insolvency, moratorium or similar laws, or by legal or equitable principles
relating to or limiting creditors' rights generally.
Section 6.06. Governmental Consents. No consent, approval, authorization or
order of any Governmental Body is required, and no filing need be made with any
Governmental Body, in connection with the execution, delivery and performance by
the Seller of this Commitment or the consummation by the Seller of the
transactions contemplated hereby.
Section 6.07. Litigation. There are no actions, suits, or proceedings
pending or, to the best knowledge of the Seller, threatened, or any judgment or
order entered against the Seller or its assets in any court or before any
Federal, state, municipal or other governmental department or commission, board,
bureau, agency or instrumentality which is likely to be adversely determined and
which if adversely determined will materially, adversely affect its business or
financial condition or the validity and enforceability of this Commitment or its
ability to perform in accordance with this Commitment.
Section 6.08. Showings. The Seller has delivered to Farmer Mac on or prior
to the date of execution of this Commitment: (i) an executed opinion of the
Seller's legal counsel (which may be internal counsel) substantially in the form
set forth in Exhibit A attached hereto; (ii) certified resolutions evidencing
necessary or appropriate corporate action; and (iii) other documents as may
reasonably be requested by Farmer Mac.
Section 6.09. Compliance with Laws. The Seller is not in violation of any
statute, rule or regulation of any Governmental Body or any order of any court
or arbitrator, the violation of which, considered in the aggregate, is likely to
materially adversely affect the business, operations or properties of the
Seller.
Section 6.10. Fraudulent Conveyance. The performance of the Seller's
obligations under this Commitment does not constitute a fraudulent conveyance
within the meaning of any bankruptcy, insolvency, reorganization, moratorium or
other similar law affecting the rights of creditors.
Section 6.11. Portfolio Requirements. As of the Effective Date with respect
to a Qualified Loan, such Qualified Loan has not been purchased or securitized
by Farmer Mac, paid in full (through scheduled payments, prepayments or
otherwise) or otherwise removed from the Portfolio under the terms and
conditions set forth in this Commitment.
ARTICLE VII
REPRESENTATIONS AND WARRANTIES OF FARMER MAC
Farmer Mac represents and warrants that:
Section 7.01. Consents and Approvals. No consents or approvals of any
Person are or will be required which have not or will not have been obtained for
the execution and delivery of this Commitment or the performance of any
obligations hereunder.
Section 7.02. Corporate Existence and Power. Farmer Mac is an
instrumentality of the United States, created and existing under the laws of the
United States, duly organized, validly existing and in good standing under the
laws governing its creation and existence, and has all corporate powers and all
material governmental licenses, authorizations, consents and approvals required
to carry on its business as now conducted and to enter into this Commitment.
Section 7.03. Authorization and Non-contravention. The execution, delivery
and performance by Farmer Mac of this Commitment are within Farmer Mac's
corporate power and have been duly authorized by all necessary corporate action
on the part of Farmer Mac (no action by its shareholders being required) and
will not: (i) violate or contravene any law, regulation, judgment, injunction,
order, decree or other instrument currently binding on Farmer Mac; or (ii)
violate, contravene or constitute a default under any provision of the Charter
Act or of any agreement, contract, mortgage or other instrument currently
binding on Farmer Mac.
Section 7.04. Binding Effect. This Commitment constitutes a valid and
legally binding agreement of Farmer Mac enforceable against Farmer Mac in
accordance with its terms, except as enforcement may be limited by bankruptcy,
insolvency, moratorium or similar laws, or by legal or equitable principles
relating to or limiting creditors' rights generally.
Section 7.05. Governmental Consents. No consent, approval, authorization or
order of any Governmental Body is required, and no filing need be made with any
Governmental Body, in connection with the execution, delivery and performance by
Farmer Mac of this Commitment or the consummation by Farmer Mac of the
transactions contemplated hereby.
Section 7.06. Compliance with Laws. Farmer Mac is not in violation of any
statute, rule or regulation of any Governmental Body or any order of any court
or arbitrator, the violation of which, considered in the aggregate, could
materially adversely affect the business, operations or properties of Farmer
Mac.
ARTICLE VIII
EVENTS OF DEFAULT
Section 8.01. Events of Default. Any one or more of the following acts or
occurrences shall constitute an Event of Default under this Commitment:
(a) failure by the Seller to pay the Standby Purchase Fee in accordance
with the terms of this Commitment; or
(b) failure by the Seller to observe or perform any covenant or agreement
contained in Sections 2.06, 2.07 or 6.01 herein; or
(c) failure by the Seller to observe or perform any other covenants or
agreements set forth in this Commitment which continues unremedied for a period
of thirty (30) days after the Seller first acquires knowledge or receives notice
thereof; or
(d) any other event that constitutes a breach of the Seller/Servicer
Agreement or other contract, agreement or commitment between Farmer Mac and the
Seller that is effective during the Commitment Term; or
(e) any representation, warranty or statement made by the Seller herein or
in any certificate delivered in connection herewith shall prove to have been
incorrect in any material respect when made; provided that if the incorrect
matter as to which such representation or warranty relates is capable of being
cured, it shall not constitute an Event of Default hereunder unless the Seller
fails to correct such matter within thirty (30) days after the Seller shall
first acquire knowledge or receive notice thereof; or
(f) a decree or order of a court or agency or supervisory authority having
jurisdiction on the premises for the appointment of a conservator, receiver or
liquidator in any insolvency, readjustment of debt, marshaling of assets and
liabilities or similar proceedings, or for the winding-up or liquidation of its
affairs, shall have been entered against the Seller; or
(g) the Seller consents to the appointment of a conservator, receiver or
liquidator in any insolvency, readjustment of debt, marshalling of assets and
liabilities or similar proceedings relating to the Seller or all or
substantially all of its property; or
(h) the Seller admits in writing its inability to pay its debts generally
as they become due, file a petition to invoke any applicable insolvency or
reorganization statute, make an assignment for the benefit of its creditors, or
voluntarily suspend payment of its obligations.
Section 8.02. Farmer Mac Events of Default. Any one or more of the
following acts or occurrences by Farmer Mac shall constitute an Event of Default
under this Commitment:
(a) failure to purchase an eligible Qualified Loan pursuant to the terms of
this Commitment; or
(b) any representation, warranty or statement made by Farmer Mac herein
shall prove to have been incorrect in any material respect when made; or
(c) a decree or order of a court or agency or supervisory authority having
jurisdiction on the premises for the appointment of a conservator, receiver or
liquidator in any insolvency, readjustment of debt, marshaling of assets and
liabilities or similar proceedings, or for the winding-up or liquidation of its
affairs, shall have been entered against Farmer Mac; or
(d) Farmer Mac consents to the appointment of a conservator, receiver or
liquidator in any insolvency, readjustment of debt, marshalling of assets and
liabilities or similar proceedings relating to Farmer Mac or all or
substantially all of its property; or
(e) Farmer Mac admits in writing its inability to pay its debts generally
as they become due, files a petition to invoke any applicable insolvency or
reorganization statute, makes an assignment for the benefit of its creditors, or
voluntarily suspends payment of its obligations.
ARTICLE IX
REMEDIES
Section 9.01. Remedies of Farmer Mac. Upon the occurrence of any Event of
Default by the Seller hereunder, unless such Event of Default has been cured to
Farmer Mac's satisfaction, Farmer Mac may, at its option:
(a) terminate this Commitment and refuse to accept delivery of additional
Tier I Qualified Loans for purchase hereunder; and/or
(b) direct the Seller to repurchase, in accordance with the provisions of
the Seller/Servicer Guide, any Qualified Loan sold to Farmer Mac relating to a
specific Event of Default.
However, Farmer Mac's remedy under this Section for an Event of Default
under Section 8.01 (b), (c), (d) or (e) and related to a Qualified Loan(s) shall
be limited to Section 9.01(b) unless the Event of Default relates to Qualified
Loans with an aggregate unpaid principal balance exceeding 5% of the aggregate
unpaid principal balance outstanding under this Commitment as of the date of an
Event of Default, in which event Farmer Mac may exercise any remedy as provided
in this Article IX; or
If the Seller falls to comply with the provisions of (b) or (c) above
within 30 days upon demand of Farmer Mac, Farmer Mac may terminate the
Seller/Servicer Agreement and any, some or all of the Servicing Contracts,
transfer all of the Seller's Farmer Mac servicing portfolio "with cause" and
retain the proceeds from such transfer.
Section 9.02. Remedies of Seller. Upon the occurrence of any Event of
Default by Farmer Mac hereunder, the Seller may, at its option, terminate this
Commitment; provided however, that, upon an Event of Default under Section
8.02(a), (b) or (c), the Seller may terminate this Commitment only if such Event
of Default remains uncured for a period of 30 days following written notice to
Farmer Mac by the Seller.
Section 9.03. Remedies Not Exclusive. Unless otherwise expressly provided,
no remedy conferred herein or reserved to any party is intended to be exclusive
of any other available remedy or remedies, but each and every such remedy shall
be cumulative and shall be in addition to every other remedy given hereunder or
now or hereafter existing at law or in equity; provided, however, that in no
event shall either party have any liability to the other party with respect to
consequential damages.
Section 9.04. Delay or Omission Not Waiver. No delay or omission of either
party to exercise any right or remedy provided hereunder upon an Event of
Default (except a delay or omission pursuant to a written waiver) shall impair
any such right or remedy or constitute a waiver of any such Event of Default or
acquiescence therein. Every right and remedy given by this Article IX or by law
to either party may be exercised from time to time, and as often as may be
deemed expedient by either party. In order to entitle either party to exercise
any remedy reserved to such party in this Article IX, it shall not be necessary
to give any notice unless otherwise provided in Sections 9.01 or 9.02.
ARTICLE X
MISCELLANEOUS
Section 10.01. Termination Event. Farmer Mac and the Seller each must give
the other party written notice of the occurrence of a Termination Event. In the
case of a Termination Event, such notice shall be accompanied by an opinion of
counsel or an opinion of an independent accounting firm, as applicable,
supporting the conclusion that a Termination Event has occurred. Upon the
declaration of the occurrence of a Termination Event; this Commitment shall
terminate only in respect to the Qualified Loans effected by the Termination
Event and be of no further force or effect.
Section 10.02. Accounting/Capital Treatment. Neither Farmer Mac nor any of
the directors, officers, employees or agents of Farmer Mac shall be under any
liability for the accuracy, legality or soundness of the Seller's intended
accounting or capital treatment of the transaction contemplated by this
Commitment or for the Seller's interpretation of any accounting rules relating
to its intended accounting or capital treatment of this transaction.
Section 10.03. Servicing. In connection with the servicing of the Qualified
Loans in the Portfolio, although the Seller agrees to comply with the servicing
standards set forth in the Servicing Contracts, the parties agree that the
Seller is not servicing the Portfolio for Farmer Mac until the Qualified Loans
are removed from the Portfolio and sold to Farmer Mac.
Section 10.04. Confidentiality. The Seller shall maintain the
confidentiality of the terms and conditions set forth in this Commitment. The
Seller shall disclose the terms of this Commitment to others only as may be
required in connection with the Seller's business or by law, regulation, or
compulsory process and the Seller agrees to advise Farmer Mac of any such
disclosure that is made to any person who is not a director, officer, or
employee of the Seller or the Seller's accountants, lawyers or auditors.
Section 10.05. Benefit of Commitment. Any reference to any of the parties
to this Commitment shall be deemed to include the successors and assigns of such
party. All covenants and agreements herein contained are for the benefit of the
parties hereto only, and nothing expressed or implied herein is intended to be
for the benefit of any other Person.
Section 10.06. Amendments and Waivers. No term, covenants, agreement or
condition of this Commitment may be amended, nor any compliance therewith waived
(either generally or in a particular instance and either retrospectively or
prospectively) except by an instrument in writing duly executed and delivered by
the parties hereto.
Section 10.07. Notices. All notices and communications provided for
hereunder shall be in writing and shall be delivered by legible telecopy
(receipt confirmed by telephone) or by a means that guarantees over-night
delivery. All notices and communications shall be addressed as follows.
If to the Seller:
AgFirst Farm Credit Bank
Attn: Secondary Mortgage Market Unit
1401 Hampton Street
Columbia, SC 29201
Telecopy No: (803) 256-7131
If to Farmer Mac:
Farmer Mac
919 18th Street, N.W.
Suite 200
Washington, DC 20006
Telecopy No: (202) 872-7713
Section 10.08. Attorneys' Fees. If a legal action is commenced in
connection with any dispute under this Commitment, the prevailing party shall be
entitled to reasonable attorney fees, including allocated costs for in-house
counsel, costs, and necessary disbursements incurred in connection with the
related action as determined by the court.
Section 10.09. Severability. If any provision of this Commitment shall be
invalid, illegal or unenforceable, such provision shall be severable from the
remaining provisions of this Commitment, and the validity, legality and
enforceability of the remaining provisions shall not in any way be affected or
impaired thereby.
Section 10.10. Multiple Counterparts. This Commitment may be simultaneously
executed in multiple counterparts, all of which shall constitute one and the
same instrument and each of which shall be, and shall be deemed to be, an
original.
Section 10.11. Governing Law. The terms of this Commitment shall be
construed and interpreted in accordance with federal law. To the extent federal
law incorporates state law, that state law shall be the laws of the District of
Columbia, without regard to the conflicts of laws provisions thereof.
Section 10.12. Termination. This Commitment shall terminate on the earlier
of (a) the last day of the Commitment Term, (b) the date upon which the actions
required upon the occurrence of a Termination Event, as set forth in Section
10.01, have been fulfilled by the Seller or Farmer Mac, as applicable, (c) at
Farmer Mac's or the Seller's option, the date upon which an Event of Default has
occurred, or (d) a date mutually agreed upon by the parties hereto.
Section 10.13. Time is of the Essence. Time is of the essence for all of
the terms and provisions of this Commitment.
IN WITNESS WHEREOF, the parties hereto have caused this Commitment to be
duly executed by their duly authorized officers or representatives as of the
date above first written.
Federal Agricultural Mortgage Corporation
By: /s/ Henry D. Edelman
------------------------
Name: Henry D. Edelman
Title: President and Chief Operating Officer
AgFirst Farm Credit Bank
By: /s/ F. A. Lowrey
-------------------------------------------
Name: F. A. Lowrey
Title: President and Chief Operating Officer
EXHIBIT A
FORM OF OPINION OF COUNSEL FOR SELLER
1. The Seller has been duly organized and is validly existing as a Farm
Credit Bank in good standing under the laws of the United States of America, has
the full corporate power to conduct its business as now being conducted and is
qualified, or need not be qualified, to conduct its business in all of the
states in which it does, or plans to do business.
2. The Seller has full right, power and authority to execute, deliver and
perform its obligations under the Commitment; and the Commitment has been duly
authorized, executed and delivered by the Seller; and the Commitment constitutes
the legal, valid and binding obligation of the Seller, enforceable against the
Seller by Farmer Mac in accordance with its terms except to the extent (i)
enforcement thereof may be limited or affected by any applicable bankruptcy,
insolvency, receivership, reorganization, moratorium or similar laws affecting
creditors' rights generally as such laws may be applied in the event of an
insolvency or similar proceeding affecting the Seller, or (ii) principles of
equity may limit the availability of certain remedies.
3. The individual or individuals who have executed the Commitment on behalf
of the Seller have the legal power, right and actual authority to bind the
Seller to the terms and conditions of the Commitment.
4. Neither the execution and delivery by the Seller of the Commitment, nor
the fulfillment of the terms of the Commitment nor the compliance by the Seller
with any of the provisions of the Commitment violate any provisions of the
articles of incorporation/charter or bylaws of the Seller, or any law or
regulations applicable to the Seller or court decree known to us to be
applicable to the Seller; and, to the best of our knowledge (after having made
inquiry with respect thereto), none of such actions will result in a breach of,
or constitute a default under, any agreement, indenture or other instrument to
which the Seller is a party or by which it is bound.
5. There is not pending or, to the best of our knowledge, threatened any
action, suit, proceeding, inquiry or investigation at law or in equity or before
any court, public board or regulatory agency, against or affecting the Seller or
its assets wherein an unfavorable decision, ruling or finding would adversely
affect the Seller's powers of existence or the validity or enforceability of the
Commitment, or which might result in any material adverse change in the business
condition (financial or otherwise) or operation of the Seller, or which might
adversely affect the Seller's ability to perform its obligations under the
Commitment.
6. There is no litigation or investigation pending or threatened, or any
judgment or order entered, affecting the Qualified Loans (or any other mortgages
that the Seller is servicing, which mortgages have interest rate and adjustment
provisions similar to those contained in the adjustable rate Qualified Loans),
at law or in equity by or before any federal or state court or governmental
instrumentality or agency having jurisdiction over the Seller or the Qualified
Loans.
EXHIBIT B
PURCHASE REQUEST AND CERTIFICATION
TO: [ ]
Farmer Mac
919 18th Street, N.W.
Suite 200
Washington, D.C. 20006
DATE: _________ [No later than the 7th business day of the month]
SELLER PURCHASE REQUEST AND CERTIFICATION
Farmer Mac Seller ID:
The following Qualified Loans have become Tier I Qualified Loans pursuant to the
Long-Term Standby Commitment to Purchase entered into between Farmer Mac and
AgFirst Farm Credit Bank (the "Seller") as of August 1, 1998 (the "Commitment").
Accordingly, the Seller certifies that (i) all the information contained in the
Qualified Loan Schedule submitted to the Custodian is correct and (ii) the
Seller has transferred an undivided interest in such Qualified Loans to Farmer
Mac. Capitalized terms used but not defined herein shall have the meanings set
forth in the Commitment.
Farmer Mac Loan # Current whole loan UPB
___________________ ______________________
___________________ ______________________
___________________ ______________________
[Note: Request with more than 25 loans must include a 3.5" floppy diskette in an
ASCII file format with the following information:
Fields O1-9 - Servicer Number
Fields 10-18 - Farmer Mac Loan Number
Fields 19-24 - Current Whole Loan UPB]
AGFIRST FARM CREDIT BANK
By:
---------------------------
[Authorized Officer]
Contact Person:
Name:
Phone #:
Address:
Exhibit 10.13.1
LONG TERM STANDBY COMMITMENT TO PURCHASE
AMENDMENT NO. 1
This Amendment No. 1 by and between the Federal Agricultural Mortgage
Corporation ("Farmer Mac"), a corporation organized and existing under the laws
of the United States of America, and AgFirst Farm Credit Bank, a Farm Credit
Bank organized and existing under the laws of the United States of America
("Seller") to the Long Term Standby Commitment to Purchase TM1001 (Full-time
Farm), No.TM1002 (Part-time Farm) and No.TM1003 (Rural Housing) dated as of the
first day of August, 1998, between Farmer Mac and Seller (the "Commitment") is
made and entered into as of the first day of January, 2000.
WHEREAS, Farmer Mac and Seller wish to extend the time during which Seller
may place Qualified Loans under the Commitment; and
WHEREAS, capitalized terms used but not defined herein have the meanings
given to them in the Commitment
NOW, THEREFORE, in consideration of the mutual covenants and undertakings
set forth in this Commitment, and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, Farmer Mac and the
Seller agree as follows:
Section 1. The first line of the Commitment is amended by inserting
(a) "and TM10014" after "TM1001"; (b) "and TM10015" after "TM1002"; (c)
"and TM10016" after "TM1003";
Section 2. The definition of Portfolio in Article I of the Commitment is
hereby amended to read as follows:
"Portfolio: Any of the groups of Qualified Loans, identified on the
Qualified Loan Schedule, delivered to Farmer Mac in connection with this
Commitment and incorporated herein by reference, which are subject to this
Commitment and are eligible to be sold to Farmer Mac under the terms and
conditions set forth in this Commitment. Qualified Loans identified on the
Qualified Loan Schedule through December 31, 2000, shall be identified as in
Pool TM1001, Pool TM1002 or Pool TM1003, as appropriate; Qualified Loans
identified on the Qualified Loan Schedule after December 31, 2000, shall be
identified as in Pool TM1014, Pool TM1015 or Pool TM1016, as appropriate."
Section 3. A new definition of Reporting Seller is hereby added to Article
I of the Commitment as follows:
"Reporting Seller: Any approved seller of loans to Farmer Mac, including
the Seller, that provides to Farmer Mac, with Farmer Mac's written consent, all
of the required reports and schedules under Long Term Standby Commitments to
Purchase for itself and other Sellers. The Reporting Seller shall not be liable
to Farmer Mac for any errors in data provided to it by other approved sellers
for submission to Farmer Mac, unless such errors are caused by the negligence or
willful misconduct of the Reporting Seller."
Section 4. The definition of Standby Purchase Fee in Article I of the
Commitment is hereby amended to read as follows:
"Standby Purchase Fee: The periodic amount due Farmer Mac from the Seller
for this Commitment. Such amount with respect to any Qualified Loan shall equal
a fraction the numerator of which is one and the denominator of which is the
number of payments scheduled to be made in a year on such Qualified Loan of:
[material omitted pursuant to a request for confidential treatment and filed
separately with the SEC] times the unpaid principal balance of the Portfolio
(which shall be the aggregate of the outstanding unpaid principal balances of
the Qualified Loans included in the Portfolio from time to time, as reported
monthly by the Seller in accordance with Section 4.04).
The parties understand that Farmer Mac's commitment obligation with respect
to Rural Housing Qualified Loans will not be enforceable until the Federal
National Mortgage Association has purchased such loans or reimbursed the Seller
for any losses on any such loan in an amount equal to at least 90% of the unpaid
principal balance of such loan.
Section 5. Section 4.02(b) is amended by deleting December 31, 1999 and
inserting in lieu thereof "December 31, 2002."
IN WITNESS WHEREOF, the parties hereto have caused this Amendment No. 1 to
the Commitment to be duly executed by their duly authorized officers or
representatives as of the date above first written.
Federal Agricultural Mortgage Corporation
By: /s/ Nancy E. Corsiglia
--------------------------
Name: Nancy E. Corsiglia
Title: Vice President
AgFirst Farm Credit Bank
By: /s/ Thomas C. Griffin, Jr.
-------------------------------------
Name: Thomas C. Griffin, Jr.
Title: Vice President
Exhibit 10.13.2
LONG TERM STANDBY COMMITMENT TO PURCHASE
AMENDMENT NO. 2
This Amendment No. 2 by and between the Federal Agricultural Mortgage
Corporation ("Farmer Mac"), a corporation organized and existing under the laws
of the United States of America, and AgFirst Farm Credit Bank, a Farm Credit
Bank organized and existing under the laws of the United States of America
("Seller") to the Long Term Standby Commitment to Purchase TM1001 (Full-time
Farm), No.TM1002 (Part-time Farm) and No.TM1003 (Rural Housing) dated as of the
first day of August, 1998, as amended by Amendment No.1 dated as of the first
day of January, 2000 between Farmer Mac and Seller (the "Commitment") is made
and entered into as of the first day of September, 2002.
WHEREAS, Farmer Mac and Seller wish to extend the time during which Seller
may place Qualified Loans under the Commitment;
WHEREAS, Farmer Mac and Seller wish to clarify the rights of the Seller
with respect to exchanging Tier II and Tier III Qualified Loans for AMBS;
WHEREAS, Farmer Mac and Seller wish to clarify that certain Associations
within the Seller's district are authorized to commit to place, and to place,
Qualified Loans into the Portfolio; and
WHEREAS, capitalized terms used but not defined herein have the meanings
given to them in the Commitment.
NOW, THEREFORE, in consideration of the mutual covenants and undertakings
set forth in this Commitment, and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, Farmer Mac and the
Seller agree as follows:
Section 1. The first line of the Commitment is amended by
(a) Deleting the word "and" and inserting a comma after "TM1001"
and inserting "and TM1029" after "TM10014";
(b) Deleting the word "and" and inserting a comma after "TM1002"
and inserting "and TM1030" after "TM10015";
(c) Deleting the word "and" and inserting a comma after "TM1003"
and inserting "and TM1031" after "TM10015";
Section 2. The definition of Portfolio in Article I of the Commitment is
hereby amended to read as follows:
"Portfolio: Any of the groups of Qualified Loans, identified on the
Qualified Loan Schedule, delivered to Farmer Mac in connection with this
Commitment and incorporated herein by reference, which are subject to this
Commitment and are eligible to be sold to Farmer Mac under the terms and
conditions set forth in this Commitment. Qualified Loans identified on the
Qualified Loan Schedule through December 31, 2000, shall be identified as in
Pool TM1001, Pool TM1002 or Pool TM1003, as appropriate; Qualified Loans
identified on the Qualified Loan Schedule after December 31, 2000 through
December 31, 2002, shall be identified as in Pool TM1014, Pool TM1015 or Pool
TM1016, as appropriate; Qualified Loans identified on the Qualified Loan
Schedule after December 31, 2002, shall be identified as in Pool TM1029, Pool
TM1030 or Pool TM1031, as appropriate;"
Section 3. Section 4.02(b) is amended by deleting December 31, 2002 and
inserting in lieu thereof "December 31, 2005."
Section 4. Subsection 5.02(a) is amended to read in its entirety as
follows:
"(a) Subject to the requirements set forth in this Commitment, the
Seller may elect to sell to Farmer Mac, from time to time, at any time during
the Commitment Term, in exchange for cash or AMBS, some or all Tier II Qualified
Loans, subject to Farmer Mac's then-current requirements for its Cash Window
Program for cash purchases or its AMBS Swap Program, and any other terms
mutually agreed between the parties at the time of sale.
(i) Tier II Qualified Loans sold to Farmer Mac for cash pursuant
to the terms of this section shall be sold at the price agreed by
Farmer Mac and the Seller at the time of sale (less any outstanding
borrower stock that may be retired and applied to the Qualified Loan),
based on Farmer Mac's then-required net yield for cash window
purchases of the same product type as such Qualified Loans, and
without adjusting for any changes in the credit relating to such
Qualified Loans.
(ii) Tier II Qualified Loans exchanged with Farmer Mac for AMBS
shall have an initial principal amount equal to the then-current
principal balance of the swapped Tier II Qualified Loans and shall
bear interest initially at a rate equal to the weighted average of the
then-current interest rates of such Qualified Loans, less the sum of
the applicable Guarantee Fee, the Trustee Fee, and the related
servicing fee under the Servicing Contract. The guarantee fee to be
charged to the Seller for any Tier II Qualified Loan sold to Farmer
Mac in exchange for AMBS shall be equal to what had been the Standby
Purchase Commitment Fee with respect to such Qualified Loan. If the
Seller requests the AMBS be registered with the Securities and
Exchange Commission (the "SEC"), the Seller shall pay any costs
associated with such registration, including any legal, accounting and
SEC fees."
Section 5. Subsections 5.03(a) and (b) are amended to read in their
entirety as follows:
"(a) Subject to the requirements set forth in this Commitment and those
negotiated at the time of sale, the Seller may make a one-time election to sell
to Farmer Mac, in exchange for cash or AMBS, all of the Tier III Qualified
Loans; provided, however, the Seller must concurrently sell all Tier I and Tier
II Qualified Loans to Farmer Mac in accordance with the terms set forth herein
for such sales.
(b) The Seller must contact Farmer Mac if at any time during the Commitment
Term it wishes to enter into a one-time mandatory delivery commitment to sell
all of the Tier III Qualified Loans to Farmer Mac.
(i) Tier III Qualified Loans sold to Farmer Mac for cash pursuant
to the terms of this section shall be sold at the price agreed by
Farmer Mac and the Seller at the time of sale (less any outstanding
borrower stock that may be retired and applied to the Qualified Loan),
based on pricing of AMBS collateralized by such Tier III Qualified
Loans, and without adjusting for any changes in the credit relating to
such Qualified Loans.
(ii) Tier III Qualified Loans exchanged with Farmer Mac for AMBS
shall have an initial principal amount equal to the then-current
principal balance of the swapped Tier III Qualified Loans and shall
bear interest initially at a rate equal to the weighted average of the
then-current interest rates of such Qualified Loans, less the sum of
the applicable Guarantee Fee, the Trustee Fee, and the related
servicing fee under the Servicing Contract. The guarantee fee to be
charged to the Seller for any Tier III Qualified Loan sold to Farmer
Mac in exchange for AMBS shall be equal to what had been the Standby
Purchase Commitment Fee with respect to such Qualified Loan. If the
Seller requests the AMBS be registered with the Securities and
Exchange Commission (the "SEC"), the Seller shall pay any costs
associated with such registration, including any legal, accounting and
SEC fees."
Section 6. A new Section 10.14 is hereby added to read as follows:
"Section 10.14. Authorized Associations. The Seller intends to place
Qualified Loans in the Portfolio. Alternatively, Seller intends to direct any
one or more of the Associations in its district, namely those Associations the
Seller identifies as such in writing to Farmer Mac (each, an "Authorized
Association;"), to place, or commit to place, in the Portfolio on behalf of the
Seller Qualified Loans which such Authorized Association has originated or
purchased. Each of the Authorized Associations will be considered to be a seller
in the Farmer Mac program."
IN WITNESS WHEREOF, the parties hereto have caused this Amendment No. 2 to
the Commitment to be duly executed by their duly authorized officers or
representatives as of the date above first written.
Federal Agricultural Mortgage Corporation
By: /s/ Tom D. Stenson
-------------------------------------
Name: Tom D. Stenson
Title: Vice President
AgFirst Farm Credit Bank
By: /s/ F. A. Lowrey
-------------------------------
Name: F. A. Lowrey
Title: President and CEO