<PAGE>
As filed with the Securities and Exchange Commission on April 11, 1997
Registration No. 333-
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
RURAL ELECTRIC COOPERATIVE GRANTOR
TRUST (KEPCO) SERIES 1997
(Issuer of the Certificates)
NATIONAL RURAL UTILITIES COOPERATIVE FINANCE CORPORATION
(Name of Registrant as specified in its charter)
-----------------------
<TABLE>
<CAPTION>
<S> <C> <C>
DISTRICT OF COLUMBIA 6162 52-089-1669
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
2201 COOPERATIVE WAY - WOODLAND PARK
HERNDON, VIRGINIA 20171-3025
(703) 709-6700
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
JOHN JAY LIST, SENIOR VICE PRESIDENT AND GENERAL COUNSEL
NATIONAL RURAL UTILITIES COOPERATIVE FINANCE CORPORATION
2201 COOPERATIVE WAY - WOODLAND PARK
HERNDON, VIRGINIA 20171-3025
(703) 709-6700
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
Copies to:
<TABLE>
<CAPTION>
<S> <C> <C>
WILLIAM G. LEE MARK L. WEISSLER TIMOTHY B. ELLWOOD
Vinson & Elkins L.L.P. Milbank, Tweed, Hadley & McCloy Mayer, Brown & Platt
1001 Fannin, Suite 2300 1 Chase Manhattan Plaza 700 Louisiana, Suite 3600
Houston, Texas 77002-6760 New York, New York 10005 Houston, Texas 77002
(713) 758-2180 (212) 530-5000 (713) 546-0587
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities registered on this Form are being offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, please check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
=========================================================================================================
PROPOSED PROPOSED
TITLE OF EACH CLASS OF AMOUNT TO BE MAXIMUM OFFERING MAXIMUM AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED PRICE PER UNIT(1) OFFERING PRICE(1) REGISTRATION FEE
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Rural Electric Cooperative
Grantor Trust Certificates
(KEPCO) Series 1997 $57,390,000 100% $57,390,000 $17,391
=========================================================================================================
</TABLE>
(1) Estimated solely for purposes of calculating the registration fee.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
<PAGE>
*******************************************************************************
* INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A *
* REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED *
* WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT *
* BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE *
* REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT *
* CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY *
* NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH *
* SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO *
* REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.*
*******************************************************************************
SUBJECT TO COMPLETION
APRIL 11, 1997
$57,390,000
RURAL ELECTRIC COOPERATIVE GRANTOR TRUST CERTIFICATES
(KEPCO) SERIES 1997
PRINCIPAL PAYABLE FROM THE PROCEEDS OF NOTES ISSUED BY
KANSAS ELECTRIC POWER COOPERATIVE, INC.
(PAYMENTS ON THE NOTES ARE UNCONDITIONALLY GUARANTEED
BY THE UNITED STATES OF AMERICA)
VARIABLE INTEREST PAYABLE PURSUANT TO THE TERMS
OF A SWAP AGREEMENT AS PROVIDED HEREIN
------------------
Each of the Rural Electric Cooperative Grantor Trust Certificates (KEPCO)
Series 1997 (the "Certificates") offered hereby represents an undivided
fractional interest in the Rural Electric Cooperative Grantor Trust (KEPCO)
Series 1997 (the "Trust"). The assets of the Trust consist of (i) two
promissory notes (the "Notes") made by Kansas Electric Power Cooperative, Inc.,
a Kansas non-profit cooperative corporation (the "Cooperative"), (ii) the
guarantees by the United States of America, acting through the Administrator of
the Rural Utilities Service (the "RUS"), an agency of the United States
Department of Agriculture, (the "Guarantees") of the timely payment of principal
of and interest ("Guaranteed Interest") on the Notes, and (iii) a Swap Agreement
(the "Swap Agreement"), relating to interest, between the Cooperative and
MORGAN GUARANTY TRUST COMPANY OF NEW YORK
(in such capacity, "Morgan Guaranty"), the benefits and obligations of the
Cooperative under which Swap Agreement have been, with certain exceptions,
assigned to and assumed by the Trust.
The Trust has been formed by National Rural Utilities Cooperative Finance
Corporation ("CFC") as depositor pursuant to a Trust Agreement among CFC, the
Cooperative and The First National Bank of Chicago, as Trustee (the "Trustee").
CFC will act as servicer of the Notes and Guarantees. The Trustee will
administer and enforce the Swap Agreement.
------------------
THE CERTIFICATES REPRESENT BENEFICIAL INTERESTS IN THE TRUST ONLY. THEY ARE
NOT OBLIGATIONS OF OR GUARANTEED BY THE UNITED STATES OF AMERICA OR
ANY GOVERNMENTAL AGENCY OR OBLIGATIONS OF CFC, THE COOPERATIVE,
MORGAN GUARANTY TRUST COMPANY OF NEW YORK OR THE TRUSTEE.
------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS, AND ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
============================================================
Underwriting
Price to Discounts and Proceeds to
Public Commissions CFC (1)
- ------------------------------------------------------------
<S> <C> <C> <C>
Per Certificate 100% (1) 100%
- ------------------------------------------------------------
Total $57,390,000 (1) $57,390,000
============================================================
</TABLE>
(1) An underwriter's fee of $286,950 and certain expenses of the offering
(estimated to be $_______) will be paid by the Cooperative. See
"Underwriting."
The Certificates are offered subject to receipt and acceptance by Alex. Brown
& Sons Incorporated (the "Underwriter"), to prior sale and to the Underwriter's
right to reject any order in whole or in part and to withdraw, cancel or modify
the offer without notice. It is expected that delivery of the Certificates will
be made through the book-entry facilities of The Depository Trust Company, on or
about December 18, 1997.
ALEX. BROWN & SONS
INCORPORATED
Prospectus dated November ___, 1997
<PAGE>
Principal with respect to the Certificates is distributable in accordance
with a schedule set forth herein under "Description of the Certificates-Payments
of Principal." The amounts of principal payable on the Notes will be sufficient
to cover principal scheduled to be distributed with respect to the Certificates.
So long as the Swap Agreement is in effect, interest distributable with
respect to the Certificates will be distributed to Certificateholders from the
proceeds of payments made by Morgan Guaranty to the Trust, at a variable market
rate established by Alex. Brown & Sons Incorporated, as initial Remarketing
Agent, all as described herein under "Description of the Certificates--
Determination of Interest Rate." So long as the Swap Agreement is in effect,
the Guaranteed Interest on the Notes, less the Servicer Spread (as hereinafter
defined) will be paid by the Trust to Morgan Guaranty. If at any time the Swap
Agreement is not in effect, Certificateholders will be entitled to receive
distributions of Interest from payments of Guaranteed Interest on the Notes,
less the Servicer Spread, received by the Trust.
The Certificates will be issued in the Weekly Rate Mode (as hereinafter
defined). The Certificates will remain in the Weekly Rate Mode unless and until
the Swap Agreement is terminated or the Certificates are converted to the Flex
Rate Mode (as hereinafter defined). See "Description of the Certificates--
Determination of Interest Rate," "-- Distributions on Certificates" and "--
Conversion of Interest Rate Mode on Certificates."
While the Swap Agreement is in effect, Certificateholders may, while the
Certificates are in the Weekly Rate Mode, tender their Certificates for purchase
as described herein. See "Description of the Certificates--Optional Tender and
Mandatory Tender." Certificates are not subject to tender by Certificateholders
for purchase while in the Flex Rate Mode. To provide moneys to purchase
Certificates and pay interest thereon in the event of an optional tender or
mandatory tender, the Cooperative and Morgan Guaranty Trust Company of New York
(in such capacity, "Morgan") entered into a Liquidity Protection Agreement (the
"Liquidity Protection Agreement"), pursuant to which Morgan has agreed to
provide or cause to be provided a Liquidity Facility as described herein. See
"The Liquidity Facility." The initial provider of liquidity will be
____________________.
On the date of the original issuance of the Notes, the General Counsel of the
United States Department of Agriculture issued an opinion to the Administrator
of the RUS that the Guarantees are an enforceable obligation of the Rural
Electrification Administration (predecessor to the RUS) supported by the full
faith and credit of the United States of America and are incontestable except
for fraud or misrepresentation of which the holder of a Guarantee had actual
knowledge at the time it became a holder.
The Certificates will be evidenced by a Global Certificate in fully registered
form without coupons, deposited with a custodian for and registered in the name
of a nominee of The Depository Trust Company ("DTC"), and, except as described
herein, beneficial interests in the Global Certificate will be shown on, and
transfers thereof will be effected only through, records maintained by DTC and
its direct and indirect participants. See "Description of the Certificates--
Book Entry System."
AVAILABLE INFORMATION
This Prospectus constitutes a part of a Registration Statement on Form S-1
(collectively, together with all amendments and exhibits thereto, the
"Registration Statement") filed by CFC with the Securities and Exchange
Commission ("SEC") under the Securities Act of 1933, as amended, with respect to
the Certificates offered hereby. This Prospectus does not contain all of the
information set forth in such Registration Statement, certain parts of which are
omitted in accordance with the rules and regulations of the SEC. Reference is
made to such Registration Statement and to the exhibits relating thereto for
further information with respect to the Certificates offered hereby. Any
statements contained herein concerning the provisions of any document filed as
an exhibit to the Registration Statement or otherwise filed with the SEC are not
necessarily complete, and in each instance reference is made to the copy of such
document so filed for a more complete description of the matter involved. Each
such statement is qualified in its entirety by such reference. The Registration
Statement, including the exhibits thereto, can be inspected and copied at the
public reference facilities maintained by the SEC at Room 1024, 450 Fifth
Street, N.W., Washington, D.C. 20549; and at the following Regional Offices of
the SEC: Midwest Regional Office, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661; and Northeast Regional Office, 7 World Trade Center, Suite 1300,
New York, New York 10048. Copies of such material can also be obtained from the
site maintained by the SEC on the Internet World Wide Web at http://www.sec.gov.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVER-ALLOT OR
EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE
CERTIFICATES OFFERED HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL
IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY
TIME.
2
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by reference to the
detailed information appearing elsewhere in this Prospectus. Certain
capitalized terms used in the summary that are not defined herein are defined in
the "Glossary."
SECURITIES OFFERED Each Certificate represents an
undivided fractional interest in the
assets of the Trust.
TRUST The Trust was formed under a Trust
Agreement among National Rural
Utilities Cooperative Finance
Corporation ("CFC"), Kansas Electric
Power Cooperative, Inc. (the
"Cooperative") and The First National
Bank of Chicago (the "Trustee"). The
property of the Trust consists of (i)
the Notes (as hereinafter defined)
made by the Cooperative, (ii) the
Guarantees by the United States of
America, acting through the
Administrator of the Rural Utilities
Service (as successor to the Rural
Electrification Administration) of
the United States Department of
Agriculture (the "RUS"), of the
timely payment of principal of and
interest on the Notes (the
"Guarantees"), and (iii) a forward
interest rate swap agreement (the
"Swap Agreement"), relating to
interest, between the Cooperative and
Morgan Guaranty Trust Company of New
York (in such capacity, "Morgan
Guaranty"), the benefits and
obligations of the Cooperative under
which Swap Agreement have been, with
certain exceptions, assigned to and
assumed by the Trust.
NOTES The Notes represent an obligation of
the Cooperative to pay interest to
the Trust on each June 4 and December
4, and to pay principal on December 4
in the years set forth under
"Description of the
Certificates--Principal Payments."
The principal payments due on the
Notes equal the aggregate amounts of
Principal to be distributed to the
Certificateholders on the
corresponding December 15. See
"Description of the
Certificates--Principal Payments."
The interest payments due on the
Notes, at 7.654% per annum (which
rate is subject to downward
adjustment, by not more than 0.15%
per annum, in the event certain
conditions are satisfied), are
sufficient to provide for the
scheduled payments of interest due to
Morgan Guaranty under the Swap
Agreement, plus the Servicer's fees
due under the Trust Agreement. See
"The Swap Agreement." Pending
distribution to Certificateholders,
principal payments on the Notes will
be invested, at the direction of the
Servicer, in certain Eligible
Investments. Earnings on amounts
invested in Eligible Investments are
not for the benefit of
Certificateholders. See "Description
of the Certificates--Trust Accounts
and Investment of Funds."
The Notes provide that if an event of
default has occurred under the RUS's
mortgage on the Cooperative's
property referred to in "Kansas
Electric Power Cooperative, Inc."
(which includes a default on the
Notes), the RUS may declare the
outstanding principal balance on the
Notes payable to the RUS. Upon such
a declaration, the RUS will become
obligated to pay the principal of and
interest on the Notes to the Trustee,
as and when due.
GUARANTEES The RUS has endorsed on the Notes the
Guarantees of the timely payment of
the principal of and interest on such
Notes. See "The Guarantees." The
General Counsel of the Department of
Agriculture, in an opinion dated the
date of original delivery of the
Notes, and addressed to the
Administrator of the RUS, opined that
the Guarantees are an enforceable
obligation of the Rural
Electrification Administration
(predecessor to the RUS) supported
by the full faith and credit of the
United States of America and are
incontestable except for fraud or
misrepresentation of which the holder
of a Guarantee had actual knowledge
at the time it became a holder.
3
<PAGE>
SWAP AGREEMENT As discussed herein under
"Description of the
Certificates--Determination of
Interest Rate," the Swap Agreement
obligates Morgan Guaranty to pay to
the Cooperative a variable market
rate of interest to be established
from time to time by Alex. Brown &
Sons Incorporated, as initial
Remarketing Agent (the "Remarketing
Agent"). Pursuant to the assignment
by the Cooperative to the Trust of
the Cooperative's right to receive
payments and its obligation to make
payments under the Swap Agreement,
Morgan Guaranty will make payments to
the Trust that correspond to the
Certificate Interest Payment Dates.
The variable rate payments due under
the Swap Agreement equal the
aggregate amounts of variable rate
interest scheduled to be distributed
to Certificateholders on the
Certificate Interest Payment Dates.
See "The Swap Agreement" and
"Description of the
Certificates--Distributions on
Certificates."
LIQUIDITY Morgan Guaranty Trust Company of New
York (in such capacity, "Morgan") has
agreed with the Cooperative, subject
to the terms of the Liquidity
Protection Agreement (as hereinafter
defined), to provide, or cause
another qualified financial
institution to provide, a Liquidity
Facility to be available to provide
moneys to purchase Certificates and
pay interest thereon in the event of
an Optional Tender or Mandatory
Tender. The initial provider of
liquidity will be ____________. See
"The Liquidity Facility."
INITIAL MODE The Certificates will be issued in
the Weekly Rate Mode. The
Certificates will remain in the
Weekly Rate Mode unless and until the
Swap Agreement is terminated or the
Certificates are converted to the
Flex Rate Mode. While in the Weekly
Rate Mode, the variable rate payable
by Morgan Guaranty under the Swap
Agreement, and the interest rate
distributable with respect to the
Certificates for a particular Weekly
Rate Period, shall be the rate
established by the Remarketing Agent
no later than 3:00 p.m. (New York,
New York time) on the Wednesday on
which such Weekly Rate Period
commences (or the day preceding the
Conversion of the Interest Rate Mode
to the Weekly Rate Mode) or, if such
day is not a Business Day, on the
next succeeding Business Day, as the
minimum rate of interest necessary,
in the judgment of the Remarketing
Agent, to enable the Remarketing
Agent to sell the Certificates on
such Business Day at a price equal to
par, but such rate may not exceed the
Maximum Certificate Rate. See
"Description of the
Certificates--Determination of
Interest Rate" and "--Distributions
on Certificates."
While in the Weekly Rate Mode,
interest payments on the Certificates
are due on the first Wednesday of
each month, or if Wednesday is not a
Business Day, the next succeeding
Business Day. Interest will be
calculated on the basis of the actual
number of days elapsed over a year of
360 days. If at any time no Swap
Agreement is in effect, or, if on any
Certificate Interest Payment Date the
Trustee has not received any Swap
Payment, Certificateholders shall be
entitled to receive distributions of
Interest from payments of Guaranteed
Interest made by the Cooperative or
the RUS to the Trust on the Notes,
calculated (on the basis of a year of
360 days consisting of twelve 30-day
months) at the Fixed Rate, less the
Servicer Spread, on each June 15 and
December 15 (or if such day is not a
Business Day, the next succeeding
Business Day). See "Description of
the Certificates--Distributions on
Certificates."
MODE CONVERSION The Interest Rate Mode for the
Certificates may be converted from the
Weekly Rate Mode to the Flex Rate Mode
(and thereafter back to the Weekly Rate
Mode or to a Flex Rate Mode of a
different duration) from time to time in
whole, but not in part, at the written
direction of the Remarketing Agent (with
the consent of the Swap Provider). To
effectuate such a Conversion, the
Remarketing Agent must give notice
thereof at least 20 Business Days prior
to the effective date of such
Conversion. See
4
<PAGE>
"Description of the Certificates--
Conversion of Interest Rate Mode on
Certificates."
FLEX RATE MODE While the Certificates are in the Flex
Rate Mode, the variable rate payable by
Morgan Guaranty under the Swap
Agreement, and the interest rate
distributable with respect to the
Certificates for a particular Flex Rate
Period, shall be the rate established by
the Remarketing Agent not later than
3:00 p.m. (New York, New York time) on
the last Business Day next preceding the
first day of such Flex Rate Period as
the minimum rate of interest necessary,
in the judgment of the Remarketing
Agent, to enable the Remarketing Agent
to sell the Certificates on such day at
a price equal to par, but such rate may
not exceed the Maximum Certificate Rate.
See "Description of the Certificates--
Determination of Interest Rate" and "--
Distributions on Certificates."
Each Flex Rate Period shall be no less
than seven days and no more than 365
days (or 366 days in a leap year) in
duration and shall end on the day next
preceding a Certificate Interest Payment
Date. See "Description of the
Certificates--Distributions on
Certificates."
While the Certificates are in the Flex
Rate Mode, interest payments on the
Certificates are due on the day
following the last day of each Flex
Period, or if such day is not a Business
Day, the next succeeding Business Day.
Interest will be calculated on the basis
of the actual number of days elapsed
over a year of 360 days. If at any time
no Swap Agreement is in effect, or, if
on any Certificate Interest Payment
Date, the Trustee has not received any
Swap Payment, Certificateholders shall
be entitled to receive distributions of
Interest from payments of Guaranteed
Interest made by the Cooperative or the
RUS to the Trust on the Notes,
calculated (on the basis of a year of
360 days consisting of twelve 30-day
months) at the Fixed Rate, less the
Servicer Spread, on each June 15 and
December 15 (or if such day is not a
Business Day, the next succeeding
Business Day). See "Description of the
Certificates --Distributions on
Certificates."
Principal payments are due on the
Certificates in the amounts and on
December 15 in the years set forth under
"Description of the Certificates--
Payments of Principal." On any
Certificate Principal Payment Date on
which distributions of Principal are to
be made, the Trustee shall select, by
lot, Certificates to be redeemed in an
amount equal to such Principal
distribution. See "Description of the
Certificates--Payments of Principal."
OPTIONAL TENDER While the Swap Agreement is in effect,
Certificateholders may, while the
Certificates are in the Weekly Rate
Mode, tender their Certificates for
purchase, upon written notice to the
Tender Agent, on or before 5:00 p.m.
(New York, New York time) on a purchase
date that is a Business Day not less
than seven calendar days following the
date of such notice. Such tendered
Certificates must be delivered to the
Tender Agent at or prior to 10:00 a.m.
(New York, New York time) on the
Purchase Date, in exchange for which the
tendering Certificateholder will receive
the Purchase Price. Certificates are not
subject to optional tender by
Certificateholders for purchase while in
the Flex Rate Mode. See "Description of
the Certificates--Optional Tender and
Mandatory Tender."
If the Swap Agreement is terminated or if
a Swap Provider default has occurred and
is continuing, Certificateholders will
have no right to tender their
Certificates for purchase if the
Cooperative has not provided an Alternate
Swap Agreement. Prior to this offering,
there has been no market for the
Certificates, and there is no assurance
that a
5
<PAGE>
secondary market will develop or, if a
secondary market does develop, that it
will provide Certificateholders with
liquidity of investment or will continue
for the life of the Certificates.
MANDATORY TENDER While the Swap Agreement is in
effect, Certificates are subject to
mandatory tender for purchase (i) on
each Conversion Date, at the
Principal Amount of each Certificate,
(ii) upon the occurrence of a Swap
Provider Default (but only if a
Liquidity Facility is in effect in
accordance with its terms) or upon
replacement of the Swap Agreement
with an Alternate Swap Agreement, at
the Purchase Price, (iii) upon notice
from the Tender Agent that any
Certificates then subject to purchase
under the Liquidity Facility then in
effect will cease to be subject to
purchase under the Liquidity Facility
as a result of the termination or
expiration of the term of the
Liquidity Facility (other than any
termination resulting from suspension
of the obligation of the Liquidity
Provider to purchase tendered
Certificates or any termination
occurring immediately without notice
or upon receipt by the Trustee of
notice of such termination) and, if
the Liquidity Facility shall not have
been renewed or replaced by an
Alternate Liquidity Facility, at
least 10 Business Days prior to such
termination or expiration or if the
Trustee has not received a Rating
Confirmation Notice with respect to
the proposed Alternate Liquidity
Facility on the fifth Business Day
prior to the termination or
expiration of the then existing
Liquidity Facility, at the Purchase
Price, and (iv) on the last day of
each Flex Rate Period, at the
Principal Amount of each Certificate.
Certificateholders will receive
notice of the mandatory purchase of
their Certificates in accordance with
the terms of the Trust Agreement.
See "Description of the
Certificates--Optional Tender and
Mandatory Tender."
MANDATORY REDEMPTION The Certificates are subject to
redemption, in whole but not in part,
on the Business Day following the
prepayment or purchase by the
Cooperative of the Notes held by the
Trust (or the purchase of such Notes
by a third party designated by the
Cooperative). However, the
Cooperative may not deliver notice of
prepayment or purchase of the Notes
without (i) depositing with the
Trustee, 30 days before the date of
any such prepayment or purchase, any
principal and accrued interest
payable on such prepayment or
purchase date and (ii) providing for
the payment of any termination amount
due pursuant to the Swap Agreement.
See "Description of the
Certificates--Mandatory Redemptions."
The Certificates will be redeemed on
the Business Day following the
prepayment or purchase of the Notes
held by the Trust, at the Purchase
Price.
The RUS may prepay or purchase the
Notes at any time that they may be
prepaid or purchased by the
Cooperative if there is continuing an
event of default under the RUS's
mortgage referred to in "Kansas
Electric Power Cooperative, Inc."
Any such prepayment or purchase will
include accrued interest that the
Cooperative would be required to pay
if it were to prepay or purchase such
Notes on such date.
The Trustee is obligated, on the
Business Day next following any such
prepayment or purchase of the Notes,
to distribute to Certificateholders
principal and accrued interest
distributable with respect to the
Certificates being redeemed.
RECORD DATE While the Swap Agreement is in
effect, the record date for any
payments on the Certificates is the
Business Day next preceding that
Certificate Payment Date. If there
is no Swap Agreement in effect or if
the Trustee has not received a Swap
Payment when due, the Record Date is
the 15th day prior to the Certificate
Payment Date (whether or not a
Business Day).
6
<PAGE>
TAX STATUS The Trust will be treated as a
grantor trust for Federal income tax
purposes, and Certificateholders will
be treated as beneficial owners of a
fractional undivided interest in the
assets held by the Trust. For
Federal income tax purposes, the
Trust will be treated as owning a
debt instrument having a principal
amount equal to the principal amount
of the Notes and bearing interest at
a rate equal to the rate payable by
Morgan Guaranty under the Swap
Agreement. Each Certificateholder
will also be required to include in
income its allocable share of that
amount of interest on the Notes used
to pay its share of the Servicer
Spread and will generally also be
entitled to a corresponding deduction
for its share of the Scheduled
Servicing Fee. However, a
non-corporate Certificateholder may
not be allowed to deduct some of or
all of his pro rata share of the
Scheduled Servicing Fee incurred by
the Trust. See "Certain Federal
Income Tax Consequences."
PLAN OF FINANCING On February 22, 1988, CFC loaned the
Cooperative $62.5 million to prepay
an equal principal amount of loans
made by the Federal Financing Bank.
The Cooperative issued three notes
(individually, "Note One," "Note
Two," and Note Three," and
collectively, the "Original Notes")
in an aggregate amount equal to the
amount of such loan from CFC, to
three separate trusts (the "Original
Trusts). The Original Notes were all
endorsed with the guarantee of the
RUS. The Original Trusts issued to
CFC certificates representing the
entire beneficial interest in such
trusts. The certificates relating to
the Original Trust into which Note
Three was deposited were retained by
CFC. The certificates issued by the
Original Trusts into which Note One
and Note Two (collectively, the
"Notes") were deposited, Rural
Electric Cooperative Grantor Trust
Certificates 1988-K1 and Rural
Electric Cooperative Grantor Trust
Certificates 1988-K2, respectively
(collectively, the "Refunded
Certificates"), were sold by CFC
pursuant to a registered public
offering.
On December 20, 1996, the Cooperative
executed a series of agreements to
effectuate the refinancing of the
Notes, the redemption of the Refunded
Certificates, and issuance of the
Certificates. Pursuant to such
agreements, on November 18, 1997, CFC
and the Cooperative will deposit with
the trustee moneys sufficient to
purchase the Notes on December 18,
1997, whereupon the Refunded
Certificates will be redeemed and the
Original Trusts will be terminated.
CFC will then deposit the Notes, with
the Guarantees attached thereto, to
the credit of the Trust, and the
assignment by the Cooperative to the
Trust of the Swap Agreement will
become effective.
On December 18, 1997, following the
deposit of the Notes to the credit of
the Trust and the effectiveness of
the Cooperative's assignment of the
Swap Agreement to the Trust, the
Trust will issue to CFC the
Certificates. Thereupon, CFC will
sell the Certificates pursuant to the
offering described in this Prospectus.
DEPOSITOR AND SERVICER CFC is the depositor of the Trust and
will act as the Servicer (the
"Servicer") of the Notes.
TRUSTEE The First National Bank of Chicago.
TENDER AGENT The First National Bank of Chicago.
REMARKETING AGENT Alex. Brown & Sons Incorporated.
SWAP COUNTERPARTY Morgan Guaranty Trust Company of New
York (in such capacity, "Morgan
Guaranty").
7
<PAGE>
BACKGROUND
Kansas Electric Power Cooperative, Inc. (the "Cooperative") is one of a number
of rural electric cooperatives that have, in the past, borrowed from the Federal
government under the provisions of the Rural Electrification Act of 1936, as
amended (the "Act"). Pursuant to one of the programs established by the Act,
the Cooperative had outstanding, on January 1, 1988, approximately $190 million
in long-term fixed rate loans from the Federal Financing Bank of the United
States Department of the Treasury (the "FFB"), guaranteed by the United States
of America, acting through the Administrator of the Rural Utilities Service (the
"RUS") (as successor to the Rural Electrification Administration) of the United
States Department of Agriculture. In the Omnibus Budget Reconciliation Act of
1986, Congress added Section 306A to the Act, providing for prepayment of
certain loans made by the FFB, guaranteed by the RUS, and extended for rural
electrification or the provision of rural telephone service. These prepayments
under the Act were to be without prepayment penalty and were to use private
capital and the existing RUS guarantee. The Omnibus Budget Reconciliation Act
of 1987 amended Section 306A to provide that borrowers might refinance at least
$2 billion of such loans from the FFB in the fiscal year of the Federal
government ending September 30, 1988, with eight borrowers, including the
Cooperative, given first priority to prepay their loans from the FFB.
On February 22, 1988, National Rural Utilities Cooperative Finance Corporation
("CFC") loaned the Cooperative $62.5 million to prepay an equal principal amount
of FFB loans (bearing interest at a weighted average rate of 10.74%). The
Cooperative issued three notes ("Note One," "Note Two," and "Note Three,"
respectively) in an aggregate principal amount equal to the amount of such loan
from CFC, to three separate trusts (the "Original Trusts"). Note One, Note Two
and Note Three were all endorsed with the guarantee of the RUS (the
"Guarantees"). The Original Trusts issued to CFC certificates representing the
entire beneficial interest in such trusts. The certificates issued by the
Original Trust relating to Note Three (which, at such time, was a $72,000, ten-
month note) were retained by CFC. The certificates issued by the Original
Trusts relating to Note One and Note Two (collectively, the "Notes"), Rural
Electric Cooperative Grantor Trust Certificates 1988-K1 and 1988-K2,
respectively (collectively, the "Refunded Certificates"), were sold by CFC in a
registered public offering.
On December 20, 1996, the Cooperative executed a series of agreements
(collectively, the "Refinancing Agreements") to effectuate the refinancing of
the Notes, the redemption of the Refunded Certificates, and issuance of the
Certificates. Pursuant to such agreements, on November 18, 1997, CFC and the
Cooperative will deposit with The First National Bank of Chicago (the "Trustee")
moneys sufficient to purchase the Notes on December 18, 1997, whereupon the
Refunded Certificates will be redeemed and the Original Trusts will be
terminated. CFC will then deposit the Notes, with the Guarantees attached
thereto, in the Trust.
In connection with the execution of the Refinancing Agreements, the
Cooperative, on December 20, 1996, entered into a forward interest rate swap
agreement (the "Swap Agreement") with Morgan Guaranty Trust Company of New York
(in such capacity, "Morgan Guaranty"), pursuant to the terms of which the
Cooperative must pay to Morgan Guaranty, on each December 15 and June 15,
commencing June 15, 1998, fixed rate payments corresponding to the amount of
accrued interest payable on the Notes at 7.654% per annum (which rate is
subject to downward adjustment in the event certain conditions are satisfied).
Pursuant to the Swap Agreement, Morgan Guaranty is obligated to pay to the
Cooperative a variable rate equal to the variable market rate of interest to be
established from time to time by Alex. Brown & Sons Incorporated (the
"Remarketing Agent") as the minimum rate of interest necessary, in the judgment
of the Remarketing Agent, to enable the Remarketing Agent to sell the
Certificates at the par amount thereof. Pursuant to the Refinancing
Agreements, the Cooperative assigned to the Trust, effective December 18, 1997,
the right of the Cooperative to receive payments and its obligation to make
payments under the Swap Agreement.
On December 18, 1997, following the deposit of the Notes to the credit of the
Trust and the effectiveness of the Cooperative's assignment of the Swap
Agreement to the Trust, the Trust will issue to CFC the Certificates. Thereupon,
CFC will sell the Certificates pursuant to the offering described in this
Prospectus.
8
<PAGE>
KANSAS ELECTRIC POWER COOPERATIVE, INC.
The Cooperative is a Kansas non-profit electric generation and
transmission cooperative corporation which provides wholesale power to its 22
(as of January 1, 1997) rural electric distribution cooperative members. Member
cooperatives of the Cooperative provide electric service to approximately 95,000
(as of January 1, 1997) meters in the eastern two-thirds of Kansas.
Virtually all of the Cooperative's capital investment is financed with
FFB loans guaranteed by the RUS, and by $39.1 million (as of December 31, 1996)
in industrial revenue pollution control bonds guaranteed by CFC. The
Cooperative also has an unsecured $12 million (as of December 31, 1996) line of
credit from CFC.
The Cooperative and its member cooperatives are subject to significant
supervision and control by the RUS. Substantially all the Cooperative's assets
are subject to a first mortgage that secures all Federal guarantees and first
mortgage loans from the RUS and CFC (the "Mortgage")
The Cooperative, which was incorporated in 1975, maintains its
headquarters in Topeka, Kansas.
NATIONAL RURAL UTILITIES COOPERATIVE FINANCE CORPORATION
CFC was incorporated in April 1969 as a private, non-profit
cooperative association under the laws of the District of Columbia. The
principal purpose of CFC is to provide its members with a source of financing
to supplement the loan program of the RUS. CFC makes loans to its rural
electric utility system members, one of which is the Cooperative, to enable them
to acquire, construct and operate electric distribution, generation,
transmission and related facilities.
At December 31, 1995, CFC's electric utility member systems served
approximately 11.5 million consumers, representing service to an estimated 27.7
million ultimate users of electricity, and owned approximately $69.1 billion
(before depreciation of approximately $20.8 billion) in total utility plant.
At May 31, 1996, CFC had outstanding loans to is members of $7.9
billion and additional unadvanced loan commitments of $5.6 billion. At that
date CFC also had outstanding guarantees of members' obligations totaling $1.3
billion in connection with tax-exempt financings and $0.9 billion in connection
with lease and other transactions.
CFC, as Servicer, will service the Notes and will receive compensation
and fees for such services. See "Description of the Certificates--Servicing
Functions" and "--Servicing Compensation and Payment of Expenses."
CFC's executive offices are located at 2201 Cooperative Way-Woodland
Park, Herndon, Virginia 20171-3025 and its telephone number is (703) 709-6700.
MORGAN GUARANTY TRUST COMPANY OF NEW YORK
Morgan Guaranty Trust Company of New York (herein, "Morgan Guaranty")
is a wholly owned subsidiary and the principal asset of J. P. Morgan & Co.
Incorporated ("J. P. Morgan"), a Delaware corporation whose principal office is
located in New York, New York. Morgan Guaranty is a commercial bank offering a
wide range of banking services to its customers both domestically and
internationally. Its business is subject to examination and regulation by
Federal and New York State banking authorities. As of December 31, 1996, Morgan
Guaranty and its subsidiaries had total assets of $164.8 billion, total net
loans of $27.4 billion, total deposits of $53.1 billion, and stockholder's
equity of $9.9 billion. As of December 31, 1995/*/ Morgan Guaranty and its
subsidiaries had total assets of $135.7 billion, total net loans of $22.2
billion, total deposits of $47.1 billion, and stockholder's equity of $8.5
billion.
- -----------------
/*/ Prior period balances were restated to reflect the merger of J.P. Morgan
Delaware with Morgan Guaranty Trust Company of New York, effective June 1996.
9
<PAGE>
The Consolidated statement of condition of Morgan Guaranty as of
December 31, 1996, is set forth on page 10 of Exhibit 99 to Form 8-K dated
January 13, 1997, as filed by J.P. Morgan with the Securities and Exchange
Commission. Morgan Guaranty will provide without charge to each person to whom
this Prospectus is delivered, on the request of any such person, a copy of the
Form 8-K referred to above. Written requests should be directed to: Morgan
Guaranty Trust Company of New York, 60 Wall Street, New York, New York 10260-
0060, Attention: Office of the Secretary.
The information set forth above relates to and has been obtained from
Morgan Guaranty Trust Company of New York. The delivery of this Prospectus
shall not create any implication that there has been no change in the affairs of
Morgan Guaranty Trust Company of New York since the date hereof, or that the
information contained herein or referred to above is correct as of any time
subsequent to its date.
USE OF PROCEEDS
The proceeds of the sale by CFC of the Certificates offered hereby
will be used by CFC to retire indebtedness to be incurred by it to fund the
deposit to be made by it to effectuate the purchase of the Notes from the
Original Trusts and the redemption of the Refunded Certificates described under
"Background." The Trust will receive none of the proceeds of this offering.
THE NOTES
The Notes were originally issued by the Cooperative to CFC pursuant to
the Loan Agreement (the "Original Loan Agreement"), a copy of which is filed as
an exhibit to the Registration Statement of which this Prospectus is a part, and
were thereafter deposited to the credit of the Original Trusts. The Loan
Agreement was amended to provide for, among other things, the purchase of the
Notes from the Original Trusts, the reduction of the interest rate payable
thereon, and the redemption of the Refunded Certificates by a First Amendment to
Loan Agreement (the "First Amendment to Loan Agreement"), a copy of which is
filed as an exhibit to the Registration Statement of which this Prospectus is a
part (the Original Loan Agreement, as so amended, the "Loan Agreement").
Neither CFC nor the Trustee is obligated on the Notes. The Notes are identical
except with respect to principal amount, amortization schedule, and maturity.
The Notes bear interest at the Fixed Rate (plus any additional
interest described under "Description of the Certificates--Servicing
Compensation and Payment of Expenses"). Interest on the Notes is computed on
the basis of a year of 360 days consisting of twelve 30-day months. Interest on
the Notes is payable by the Cooperative directly to the Trustee on each June 4
and December 4, or the next following Business Day if such day is not a Business
Day, and on the final maturity (including by acceleration or optional redemption
or purchase) thereof.
While the Swap Agreement is in effect, Certificateholders will have no
right to receive distributions of interest paid on the Notes by the Cooperative.
Interest distributable with respect to the Certificates will be distributed from
the proceeds of Swap Payments to be made to the Trust by Morgan Guaranty
pursuant to the Swap Agreement. See "The Swap Agreement." In the event the
Swap Agreement is terminated and is not replaced with an Alternate Swap
Agreement, Certificateholders will be entitled to receive distributions of
interest as described under "Description of the Certificates--Determination of
Interest Rate."
Principal payments on the Notes will be due on the December 4 (or the
next following Business Day if such day is not a Business Day) next preceding
the December 15 on which principal payments are due on the related Certificates
and in the aggregate amount then due on such Certificates. See "Description of
the Certificates--Payment of Principal." The Notes may be prepaid or purchased,
in whole but not in part, at the outstanding principal amount thereof plus
interest accrued thereon, on any Business Day after paying any termination
payment due to Morgan Guaranty under the Swap Agreement, if any. If the Notes
are prepaid, the Certificates will be redeemed as described in "Description of
the Certificates--Mandatory Redemptions."
In the event the Cooperative fails to make any payment on a scheduled
due date under the Notes, the Notes will be subject to acceleration by the
Trustee only if the RUS shall fail to pay such deficiency within five Business
Days of receipt of notice of such default. The Trust Agreement provides that
the Trustee may not transfer the Notes,
10
<PAGE>
notwithstanding any failure of the RUS to make any payments due under the
Guarantees, without the prior written approval of the Administrator of the RUS
(other than certain limited transfers permitted under the regulations
promulgated by the RUS.)
The Notes provide that if there has been an event of default under the
RUS's mortgage on the Cooperative's property referred to in "Kansas Electric
Power Cooperative, Inc." (which includes a default on the Notes), the RUS may
declare the outstanding principal balance on the Notes due and payable to the
RUS. Upon such a declaration, the RUS will become obligated to pay the
principal and interest on the Notes to the Trustee, as and when due.
THE GUARANTEES
The United States of America acting through the Administrator of the
RUS, pursuant to the Loan Guarantee and Servicing Agreement (the "Original Loan
Guarantee Agreement"), a copy of which is filed as an exhibit to the
Registration Statement of which this Prospectus is a part, has unconditionally
guaranteed to the Trustee, as holder of the Notes in its capacity as Trustee for
the Trust, the making of payments of principal and interest when and as due on
the Notes, in accordance with the terms of the Notes, until such principal and
interest are indefeasibly paid in full. Pursuant to the Original Loan Guarantee
Agreement, as amended by a First Amendment to Loan Guarantee and Servicing
Agreement (the "First Amendment to Loan Guarantee Agreement"), a copy of which
is filed as an exhibit to the Registration Statement of which this Prospectus is
a part (the Original Loan Guarantee Agreement, as so amended, the "Loan
Guarantee Agreement"), the Trustee will, by 12 noon (New York, New York time) on
any date on which payment is due on the Notes, notify the Servicer of any
default in the payment of principal and/or interest on the Notes by the
Cooperative. The Servicer is obligated to use its best efforts to forward
notification of any deficiency to the RUS within two hours of the receipt of
same by the Servicer, and in no event later that 4:00 p.m. (District of Columbia
time) on the Business Day next following the date the Servicer receives such
notice. Promptly, and in any event within five Business Days of receipt of the
notice from the Servicer of a default in the payment of principal or interest on
the Notes, the RUS, under the Guarantees, will be obligated to pay the holder of
the Notes, as identified in the notice from the Servicer, an amount equal to the
amount of the deficiency.
The RUS is not required to take notice of the identity of the holder
of the Notes other than as set forth in the notice from the Servicer. Upon
making payment to the person specified in a notice from the Servicer, the RUS is
not obligated to make payment under the Guarantees to any other person. The
Guarantees obligate the RUS to pay interest, to the extent permitted by law, at
the rate otherwise payable under the Notes on any delinquency in payment under
the Guarantees, notwithstanding the RUS's failure to receive notice of the
Cooperative's delinquency under the Notes. The Guarantees do not cover the
principal or Swap Agreement termination payment due on any optional prepayment
or purchase of the Notes by the Cooperative, but the Cooperative may not give
notice of such prepayment or purchase unless, at the same time, it deposits with
the Trustee the full amount of principal and accrued interest that will be due
at the time of such prepayment or purchase and provides for the payment of any
termination fee due under the Swap Agreement, if any.
The Act provides that the Guarantees are supported by the full faith
and credit of the United States and are incontestable except for fraud or
misrepresentation of which the holder had actual knowledge at the time it became
a holder. At the time the Cooperative prepaid under Section 306A of the Act
certain of its FFB loans referred to in "Background," the General Counsel of the
United States Department of Agriculture opined to the Administrator of the RUS
that the Guarantees were an enforceable obligation of the RUS supported by the
full faith and credit of the United States and incontestable except for fraud or
misrepresentation of which the holder of the Guarantees had actual knowledge at
the time it became a holder. The Guarantees are endorsed on the reverse of the
Notes and the Notes are held by the Trustee.
In the event that a Mortgage Default (which includes a default in the
payment of the Notes) occurs, the RUS, among other things, may declare the
entire unpaid principal balance of, and the accrued Guaranteed Interest on, the
Notes to be due and payable to the RUS and, upon such declaration, such unpaid
principal of, and accrued Guaranteed Interest on, the Notes will become due and
payable to the RUS. Upon such declaration, the RUS will be obligated, in the
place and stead of the Cooperative, to pay under the Guarantees the principal of
and Guaranteed Interest on the Notes at such times and in such amounts as would
have been paid had there not been such a declaration of acceleration by the RUS.
11
<PAGE>
The RUS may cause the redemption of the Certificates as described in
"Description of the Certificates--Mandatory Redemptions."
In addition to the rights described above, in the event of a Mortgage
Default, the RUS may exercise all the rights, powers and privileges (i) of a
holder of the Notes, (ii) necessary to recover judgment in its own name or on
behalf of the holder(s) of the Notes and to apply the proceeds thereof towards
satisfaction of payments made by the RUS under the Guarantees, (iii) to file
such proofs of claim and other papers and documents as may be advisable to have
the claims of the RUS and the holder(s) of the Notes allowed in any bankruptcy,
insolvency or other judicial proceedings relative to the Cooperative, its
creditors or its property, (iv) to vote, in its sole discretion and without
regard to the interests of any holder(s) of the Notes but solely with regard to
the interests of the RUS, on any plan of reorganization or any other matter in
any such bankruptcy, insolvency or other judicial proceedings and (v) to make or
approve any amendment, compromise, modification or other change in the
obligations of the Cooperative in respect of the Notes. In such circumstances,
the Trustee is obligated to deliver to the RUS and the Cooperative a release and
discharge of any further obligation of the Cooperative to the Trustee under the
Notes. The Cooperative will be obligated to pay the RUS an amount equal to the
entire balance of the Notes and all interest thereon. CFC, the Servicer, and
the Trustee have assigned to the RUS their respective rights, if any, to
exercise the powers described in this paragraph as having been granted to the
RUS. Such assignment is binding on all assignees or transferees of the Notes.
Upon the taking of any such action by the RUS that would adversely affect the
Notes, the RUS will be obligated, in the place and stead of the Cooperative, to
pay under the Guarantees the Principal of and Guaranteed Interest on the Notes
as and when due without taking into account any vote, plan of reorganization,
amendment, compromise, modification or other change made or approved by the RUS.
THE SWAP AGREEMENT
The Swap Agreement, substantially in the form filed as an exhibit to
the Registration Statement of which this Prospectus is a part, was entered into
by the Cooperative and Morgan Guaranty, on December 20, 1996. The Cooperative,
pursuant to the Trust Agreement, assigned to the Trust, effective on the
Refinancing Date, its rights under the Swap Agreement, including its obligation
to make payments of interest to Morgan Guaranty on the outstanding Principal
Balance of the Notes at the Fixed Rate and its right to receive variable rate
Swap Payments from Morgan Guaranty; provided, however, that the Cooperative
reserved the rights and obligations to make and, through the Trustee and subject
to the terms of the Trust Agreement, receive payment of amounts in respect of an
"Early Termination Date" (as hereinafter defined) determined pursuant to the
Swap Agreement and the right to terminate the Swap Agreement, as provided
therein, subject to and as more fully provided in the Trust Agreement (the
"Reserved Rights and Obligations"). Thus, pursuant to the Swap Agreement,
effective on the Refinancing Date, the Trustee will be deemed to be a party to
the Swap Agreement (and the Cooperative will no longer be a party) for all
purposes other than the Reserved Rights and Obligations as to which the
Cooperative will be a party to the Swap Agreement. Pursuant to the Trust
Agreement and the Swap Agreement, Morgan Guaranty will pay to the Trust, on each
Certificate Interest Payment Date, an amount of interest, computed at a variable
market rate established by the Remarketing Agent, equal to the interest due to
Certificateholders on the Certificates. See "Description of the Certificates--
Determination of Interest Rate."
The Swap Agreement may not be terminated by Morgan Guaranty unless a
Swap Agreement Event of Default or a Swap Agreement Termination Event has
occurred with respect to the other party to the Swap Agreement. If the Swap
Agreement terminates (other than through an Elective Termination (as hereinafter
defined)) or if a Swap Provider Default has occurred and is continuing, the
Cooperative is obligated to use reasonable efforts to secure an Alternate Swap
Agreement and deliver same to the Trust. ((S) 7.5) However, the Cooperative is
not obligated to so deliver an Alternate Swap Agreement, and the Cooperative,
the Servicer, and the Trustee shall not be liable to Certificateholders in the
event of the inability to secure an Alternate Swap Agreement. ((S) 7.5)
If the Swap Agreement terminates (other than through an Elective
Termination) or if a Swap Provider Default has occurred and is continuing, and
the Cooperative has not provided an Alternate Swap Agreement, (i) the obligation
of the Trust to make Swap Provider Payments to Morgan Guaranty will terminate or
be suspended, respectively, in accordance with the Swap Agreement, and
subsequent payments of Principal and Guaranteed Interest (less the Servicer
Spread) shall thereafter (or until the obligation of the Trust to make Swap
Provider Payments to Morgan Guaranty is no longer suspended) be payable to the
Certificateholders on each June 15 and December 15 as described in "Description
of the Certificates--Determination of Interest Rate," (ii) any right of Optional
Tender will terminate or be suspended,
12
<PAGE>
respectively, and (iii) any termination amount owed to the Cooperative pursuant
to the Swap Agreement, if any, and the proceeds of any collateral posted
pursuant to the Credit Support Annex, if any, received by the Trust will be
applied in accordance with the Trust Agreement. ((S) 7.5)
The Cooperative (with the consent of the RUS and, if the Servicer
would be adversely affected thereby, the Servicer) or the RUS may terminate the
Swap Agreement (an "Elective Termination"). ((S) 7.5) However, neither the
Cooperative nor the RUS may terminate the Swap Agreement unless, among other
conditions, either (i) all outstanding Certificates are purchased or redeemed as
described in "Description of the Certificates--Mandatory Redemptions" or (ii)
the Cooperative has delivered an Alternate Swap Agreement to the Trust. ((S)
7.5) The Trustee shall notify Certificateholders of the Cooperative's intent to
replace the Swap Agreement with an Alternate Swap Agreement by first class mail
delivered to each Certificateholder's registered address at least 30 days (or as
soon as practicable) but not more than 60 days prior to the effective date of
such replacement. ((S) 7.5)
The Swap Agreement may not be amended by the Trustee unless the
Trustee receives (i) the consent of Certificateholders with aggregate
Fractional Interests representing 51% or more of the Trust, (ii) if the Servicer
would be adversely affected thereby, the consent of the Servicer, (iii) Rating
Confirmation Notices, (iv) an opinion of counsel that such amendment will not
cause the Trust not to be treated as a Pass-Through Organization for Federal
income tax purposes and (v) the prior written consent of the Cooperative, if
such action would affect, in any material respect, the Cooperative's rights and
obligations under the Swap Agreement that have not been assigned to the Trustee.
((S) 7.4) However, the Trustee retains certain rights to liquidate the Swap
Agreement and any collateral therefor if the Swap Agreement terminates, the
Trust terminates, or if certain disqualifying events occur with respect to
Morgan Guaranty. ((S) 7.4)
THE LIQUIDITY FACILITY
As discussed under "Description of the Certificates--Optional Tender
and Mandatory Tender" the Certificates may be tendered for purchase at the
option of Certificateholders while in the Weekly Rate Mode ("Optional Tender").
In addition, the Certificates, whether in the Weekly Rate Mode or the Flex Rate
Mode, are subject to mandatory tender for purchase upon the occurrence of
certain events described in "Description of the Certificates--Optional Tender
and Mandatory Tender" ("Mandatory Tender"). To provide moneys to purchase
Certificates and pay interest thereon in the event of an Optional Tender or
Mandatory Tender, the Cooperative and Morgan Guaranty Trust Company of New York
(in such capacity, "Morgan") entered into a Liquidity Protection Agreement (the
"Liquidity Protection Agreement"), a copy of which is filed as an exhibit to the
Registration Statement of which this Prospectus is a part.
The Liquidity Protection Agreement obligates Morgan, subject to the
terms therein, to provide or cause to be provided a Liquidity Facility, which
shall be an irrevocable letter of credit and related reimbursement agreement,
line of credit, standby certificate purchase agreement or similar agreement
providing for the purchase of all or a portion of the Certificates. Each
Liquidity Facility must be in a form substantially as described under "--Standby
Certificate Purchase Agreement" (the "Standby Certificate Purchase Agreement"),
with only such changes and modifications thereto as shall be approved by each of
the parties thereto (and by Morgan if Morgan is not a party thereto), including
such changes as are necessary to conform such form of Standby Certificate
Purchase Agreement to a letter of credit or other structure or, in the case of
any Alternate Liquidity Facility, to satisfy any requirements of the Trust
Agreement. The delivery of each Liquidity Facility must result in a short-term
rating on the Certificates which is not less than "A-1" in the case of Standard
& Poor's Ratings Services ("S&P") or "P-1" in the case of Moody's Investors
Service, Inc. ("Moody's"). Morgan has agreed to deliver or cause to be
delivered a Liquidity Facility (i) upon the issuance and sale of the
Certificates, (ii) at least 60 days prior to a Morgan-directed termination of
the Liquidity Facility then in effect, (iii) at least 60 days prior to the
scheduled expiration of the term of the Liquidity Facility then in effect, and
(iv) no more than 90 days following (a) a withdrawal, suspension or reduction of
the short-term rating of the Certificates below "A-1" by S&P or below "P-1" by
Moody's as a result of a withdrawal, suspension or reduction in the rating by
such Rating Agency with respect to the provider of the Liquidity Facility then
in effect or (b) a breach by the provider of the Liquidity Facility of its
obligations thereunder, as the case may be, but in no event later than the fifth
day preceding any termination of the Liquidity Facility resulting from such
rating withdrawal, suspension, or reduction or such breach. Any Liquidity
Facility or Alternate Liquidity Facility may be for a term of years which is
more or less than the Liquidity Facility which is being replaced (but in no
event less than the lesser of (x) 364 days or (y) five (5) days plus the number
of days then
13
<PAGE>
remaining until the final maturity of the Certificates). Should Morgan fail to
provide a Liquidity Facility, the Tender Agent must accept an Alternate
Liquidity Facility provided by the Cooperative, if any, which otherwise meets
the requirements of the Trust Agreement.
Morgan's obligation to provide a Liquidity Facility under the
Liquidity Protection Agreement is subject to termination upon the occurrence of
certain events, including (i) the termination, cancellation, or direct or
indirect repudiation of the Guarantees by the Administrator of the RUS or by
another governmental authority (or the taking by the Administrator of the RUS or
by another governmental authority of certain other actions adverse to the
validity of the Guarantees) and (ii) the expiration or termination of the Swap
Agreement. Otherwise, Morgan's obligations to deliver a Liquidity Facility
under the Liquidity Protection Agreement will expire on December 18, 2017.
STANDBY CERTIFICATE PURCHASE AGREEMENT
Pursuant to the Liquidity Protection Agreement, Morgan has covenanted
to deliver, or to cause another qualified financial institution to deliver, a
Liquidity Facility substantially in the form of the Standby Certificate Purchase
Agreement attached thereto. The provider of the initial Liquidity Facility will
be _________________, and the Available Principal Commitment under its Standby
Certificate Purchase Agreement will be $57,390,000. The term of such initial
Standby Certificate Purchase Agreement will end on _________________, unless
sooner terminated as described below. A copy of the Standby Certificate Purchase
Agreement is filed as an exhibit to the Registration Statement of which this
Prospectus is a part.
Pursuant to the terms of the Standby Certificate Purchase Agreement,
the provider thereof will agree to purchase Unremarketed Certificates from time
to time during the Purchase Period at the Purchase Price. Under the Standby
Certificate Purchase Agreement, the Liquidity Provider is not obligated to
purchase any Unremarketed Certificates in excess of the Available Principal
Commitment. Further, the aggregate amount of the Purchase Price comprising
interest on any Purchase Date will not exceed the lesser of (i) the Available
Interest Commitment on such date and (ii) if the Purchase Date is other than an
Interest Payment Date, the aggregate amount of interest distributable with
respect to the Certificate to be purchased from and including the next preceding
Interest Payment Date to but excluding such Purchase Date or, if the Purchase
Date is an Interest Payment Date, zero.
The Available Principal Commitment under the Standby Certificate
Purchase Agreement will be permanently decreased by the principal amount of any
Certificates that are redeemed, repaid, or otherwise paid and will terminate on
the Scheduled Termination Date.
If any of the following events occur (each being an "Event of
Default"), the Commitment and the obligation of the Liquidity Provider to
purchase Unremarketed Certificates shall terminate immediately without notice or
demand to any Person: (i) if the RUS fails, wholly or partially, to make a
payment as and when required under the Guarantees; (ii) the Administrator of the
RUS or any other Federal governmental authority or official with competent
jurisdiction shall claim or assert in writing that the Guarantees are invalid or
unenforceable against the RUS, or the Administrator of the RUS or any other
Federal governmental authority or official with competent jurisdiction shall
repudiate in writing the obligations of the RUS or deny that the RUS has any
further liability under the Guarantees; or the validity or enforceability of the
Guarantees shall be contested in any contest or proceeding (including an
appellate proceeding) directly or indirectly by the Administrator of the RUS or
any other Federal governmental authority or official with competent jurisdiction
and, in the case of a Person other than the Administrator of the RUS or any
other Federal governmental authority or official with competent jurisdiction,
the RUS shall fail to defend or assert such validity or enforceability or to
appeal such contest or proceeding pursuant to appropriate proceedings or
actions; (iii) a governmental authority with competent jurisdiction shall
announce, find or rule that the Guarantees are null and void or otherwise
invalid or unenforceable against the RUS; (iv) the Guarantees shall be canceled
or terminated or shall be amended or modified such that payment of principal or
interest on any Note shall not be guaranteed thereby, or shall cease to
constitute a full faith and credit obligation of the United States of America;
or (v) a court of competent jurisdiction shall enter a final nonappealable
judgment that the Guarantees are not valid and binding on or enforceable against
the RUS.
If any of the following events occur (each being an "Event of
Default"), the obligation of the Liquidity Provider under the Standby
Certificate Purchase Agreement will be suspended immediately (but not
terminated) without notice or demand, and will terminate if not cured within the
time limits specified in the Standby Certificate Purchase Agreement: (i) an
Illegality under the Swap Agreement shall have occurred and be continuing; (ii)
any governmental authority with
14
<PAGE>
competent jurisdiction shall announce, find or rule that the Swap Agreement is
null and void or otherwise invalid or unenforceable against either party
thereto; (iii) the Swap Agreement shall be cancelled or terminated without
payment of the termination amount (if any) owed thereunder or replacement
thereof by an Alternate Swap Agreement; or (iv) a court of competent
jurisdiction shall enter a final nonappealable judgment that the Swap Agreement
is not valid and binding on or enforceable against either party thereto. See
"The Swap Agreement." In the case of any Event of Default (including those
described above and in this paragraph), the Liquidity Provider will have the
right to take any actions permitted by applicable law and to pursue all remedies
(including, without limitation, the right to demand and receive specific
performance provided at law or in equity); provided, however, that the Standby
Certificate Purchase Agreement provides that the Liquidity Provider will not
have the right to terminate or suspend the Commitment or its obligation to
purchase Unremarketed Certificates other than as provided in the two paragraphs
immediately preceding this paragraph or the right to accelerate any amount due
hereunder at any time prior to the termination of the Commitment in accordance
with the Standby Certificate Purchase Agreement.
An "Event of Default" will also exist under the Standby Certificate
Purchase Agreement if (i) any interest on any Note or any fees or other amounts
payable under the Standby Certificate Purchase Agreement shall not be paid
within six Business Days after the date thereof; (ii) the Cooperative shall fail
to observe or perform certain covenants prohibiting the Cooperative from
dissolving, merging, selling its assets and taking similar actions and from
making certain amendments to the Related Documents without the Liquidity
Provider's consent; (iii) the Cooperative shall fail to observe or perform any
covenant or agreement applicable to it and contained in the Standby Certificate
Purchase Agreement (other than those covered by clause (i) or (ii) above) or in
any Related Document for 90 days after written notice thereof has been given to
the Cooperative by the Liquidity Provider; (iv) any representation, warranty,
certification or statement made by the Cooperative in the Standby Certificate
Purchase Agreement or in any Related Document or in any certificate, financial
statement or other document delivered pursuant thereto shall prove to have been
incorrect in any material respect when made (or deemed made); (v) the
Cooperative shall commence a voluntary case or other proceeding seeking
liquidation, reorganization or other relief with respect to itself or its debts
under any bankruptcy, insolvency or other similar law now or hereafter in effect
or seeking the appointment of a trustee, receiver, liquidator, custodian or
other similar official of it or any substantial part of its property, or shall
consent to any such relief or to the appointment of or taking possession by any
such official in an involuntary case or other proceeding commenced against it,
or shall make a general assignment for the benefit of creditors, or shall fail
generally to pay its debts as they become due, or shall take any action to
authorize any of the foregoing; (vi) an involuntary case or other proceeding
shall have been commenced against the Cooperative seeking liquidation,
reorganization or other relief with respect to it or its debts under any
bankruptcy, insolvency or other similar law now or hereafter in effect or
seeking the appointment of a trustee, receiver, liquidator, custodian or other
similar official of it or any substantial part of its property and such
involuntary case or other proceeding shall remain undismissed and unstayed for a
period of 60 days; or the Cooperative or any court or governmental authority
having jurisdiction over the Cooperative shall have declared a moratorium or
taken similar action with respect to any debts of the Cooperative; (vii) any
representation, warranty, certification or statement made or deemed made by the
RUS or the Administrator under or pursuant to any Related Document or in any
document, instrument, statement or certificate delivered in connection herewith
or therewith shall prove to have been incorrect in any material respect when
made or deemed made; (viii) any provision of the Standby Certificate Purchase
Agreement or any Related Document (other than the Guarantees and the Swap
Agreement) shall at any time cease to be legal, valid, binding and enforceable
on the Cooperative, the Servicer or the RUS, as the case may be, or shall be
declared to be null and void, or the legality, validity or enforceability of any
of the foregoing or of the transactions contemplated thereby shall be contested
by the Cooperative, the Servicer, the Administrator, the RUS or any other
governmental authority having competent jurisdiction; (ix) any event or
condition which constitutes an "event of default" under any Related Document
shall have occurred and be continuing; or (x) the holders of the Certificates
shall for any reason cease to have any unencumbered interest in the Trust, or
the Trustee, the Servicer, the Cooperative, the Administrator, the RUS or any
other governmental authority having competent jurisdiction shall so assert in
writing.
Pursuant to the Trust Agreement, the Tender Agent and the Cooperative
shall take such actions as may be necessary to obtain funds under the Liquidity
Facility to pay the purchase price of Certificates tendered for purchase or
required to be purchased pursuant to the provisions of the Trust Agreement. See
"Description of the Certificates-- Optional Tender and Mandatory Tender."
15
<PAGE>
THE REMARKETING AGREEMENT
The Cooperative and Alex. Brown & Sons Incorporated (the "Remarketing
Agent") have entered into a Remarketing Agreement (the "Remarketing Agreement"),
a copy of which is filed as an exhibit to the Registration Statement of which
this Prospectus is a part. Pursuant to the Remarketing Agreement, the
Remarketing Agent is obligated to use its best efforts to remarket certificates
purchased pursuant to Optional Tender or Mandatory Tender and Certificates held
by the provider of the Liquidity Facility. Subject to the terms of the
Remarketing Agreement, the Remarketing Agent may be removed by Morgan Guaranty
if the Remarketing Agent fails to satisfy certain performance-related standards.
The Remarketing Agent may resign at any time upon 30 days prior written notice
to the Trustee, Cooperative, Servicer, Tender Agent, and others. In the event
the Remarketing Agent is removed or resigns, the Cooperative is obligated to
appoint a successor Remarketing Agent, subject to the approval of the Swap
Provider. In the event the Cooperative fails to act, the Swap Provider may
appoint a successor Remarketing Agent.
DESCRIPTION OF THE CERTIFICATES
Each Certificate will be issued pursuant to the Trust Agreement (the
"Trust Agreement") among CFC, as depositor and Servicer of the Notes, the
Cooperative and the Trustee, a copy of which is filed as an exhibit to the
Registration Statement of which this Prospectus is a part. The following
summary of the Certificates does not purport to be complete and is subject to,
and is qualified in its entirety by reference to, all the provisions of the
Refinancing Agreements. Capitalized terms used herein and not otherwise defined
or defined under "Glossary" are used with the meanings given in the Trust
Agreement. Section references are to sections of the Trust Agreement unless
otherwise indicated.
GENERAL
Each Certificate will be issued in fully registered form only and will
represent an undivided fractional interest (a "Fractional Interest") in the
assets and obligations of the Trust, equal to the percentage obtained by
dividing the Principal Amount of the Certificate by the Principal Balance of
outstanding Certificates. ((S) 8.1) Initially, the Certificates will be
represented by one Certificate to be registered in the name of the nominee of
The Depository Trust Company ("DTC"). ((S) 8.7) See "--Book Entry System."
The Certificates will be issued in minimum denominations representing $100,000
of Original Principal Amount and in integral multiples of $5,000 in excess
thereof ("Authorized Denominations"). ((S) 8.1) The Certificates are
transferable and exchangeable at the office or agency maintained by the Trustee,
initially c/o First Chicago Trust Company of New York, 14 Wall Street, 8th
Floor-Window 2, New York, New York 10005, Attention: Corporate Trust
Administration. ((S) 8.2) No service charge will be imposed for any
registration of transfer or exchange of Certificates, but the Trustee or
Certificate Registrar, if any, may require payment of a sum sufficient to cover
any tax or other governmental charge imposed in connection therewith. ((S) 8.3)
PAYMENTS OF PRINCIPAL
Payments of Principal on the Certificates are due on December 15 in
the years and in the amounts set forth below. ((S) 7.3)
16
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL PAYMENT SCHEDULE ON THE CERTIFICATES
Principal
Payment Date Payment Due
- ------------ -----------
<S> <C>
December 15,
1998 $ 1,000,000
1999 1,100,000
2000 1,200,000
2001 1,400,000
2002 1,350,000
2003 1,700,000
2004 1,900,000
2005 2,100,000
2006 2,300,000
2007 2,500,000
2008 2,800,000
2009 3,100,000
2010 3,500,000
2011 3,900,000
2012 4,300,000
2013 4,800,000
2014 5,300,000
2015 5,900,000
2016 4,000,000
2017 3,240,000
-----------
Total $57,390,000
===========
</TABLE>
On any Certificate Principal Payment Date on which distributions of
Principal are to be made, the Trustee shall select, by lot, Certificates to be
redeemed in an amount equal to such Principal distribution. In case any
Certificate selected by lot is outstanding in a Principal Amount exceeding
$100,000, a portion of such Certificate may be redeemed provided that the amount
remaining after such redemption shall be an Authorized Denomination. The
Trustee shall give notice of such redemption by first-class mail, postage
prepaid, mailed not less than 30 days prior to the Certificate Principal Payment
Date, to each Certificateholder holding a Certificate selected for redemption,
at his last address appearing in the Certificate Register. In addition, notice
of redemption shall be sent by certified or registered mail, return receipt
requested, or by overnight delivery service contemporaneously with such mailing
to any Certificateholder owning $1,000,000 or more in principal amount of
Certificates and to any Depository registered as such pursuant to the Securities
Exchange Act of 1934, as amended, that is a Certificateholder of Certificates to
be redeemed. An additional notice of redemption shall be mailed not less than
60 nor more than 90 days after the Certificate Principal Payment Date, by the
same means as the first such notice, to any Certificateholder selected for
redemption that has not surrendered the Certificates called for redemption, at
his last address appearing in the Certificate Register.
So long as the Swap Agreement is in effect, payments of interest on the
Certificates will be determined and made as described in "--Determination of
Interest Rate" and "--Distributions on Certificates."
DETERMINATION OF INTEREST RATE
The Certificates will be initially issued in the Weekly Rate Mode. ((S)
9.1) The Certificates will remain in the Weekly Rate Mode unless and until the
Swap Agreement is terminated or the Certificates are converted to the Flex Rate
Mode as described in "--Conversion of Interest Rate Mode on Certificates." ((S)
9.1)
While the Certificates are in the Weekly Rate Mode, the variable rate
payable by Morgan Guaranty under the Swap Agreement, and the interest rate
distributable with respect to the Certificates for a particular Weekly Rate
Period, shall be the rate established by the Remarketing Agent no later than
3:00 p.m. (New York, New York time) on the Wednesday on which such Weekly Rate
Period commences (or the day preceding the Conversion of the Interest Rate Mode
to the Weekly Rate Mode) or, if such day is not a Business Day, on the next
succeeding Business Day, as the minimum rate of interest necessary, in the
judgment of the Remarketing Agent, to enable the Remarketing Agent to sell
17
<PAGE>
the Certificates on such Business Day at a price equal to par, but such rate
may not exceed the Maximum Certificate Rate. ((S) 9.1)
While the Certificates are in the Weekly Rate Mode, the Certificate
Interest Payment Date is the first Wednesday of each month or if Wednesday is
not a Business Day, the next succeeding Business Day. Interest will be
calculated on the basis of the actual number of days elapsed over a year of 360
days. ((S) 1.1) The first Certificate Interest Payment Date shall be the
Certificate Interest Payment Date occurring on the first Wednesday in January
1998 (unless such day is not a Business Day, then on the next succeeding
Business Day). ((S) 9.1)
While the Certificates are in the Flex Rate Mode, the variable rate payable
by Morgan Guaranty under the Swap Agreement, and the interest rate distributable
with respect to the Certificates for a particular Flex Rate Period, shall be the
rate established by the Remarketing Agent not later than 3:00 p.m. (New York,
New York time) on the last Business Day next preceding the first day of such
Flex Rate Period as the minimum rate of interest necessary, in the judgment of
the Remarketing Agent, to enable the Remarketing Agent to sell the Certificates
on such day at a price equal to par, but such rate may not exceed the Maximum
Certificate Rate. ((S) 9.1) Each Flex Rate Period shall be no less than seven
days and no more than 365 days (or 366 days in a leap year) in duration and
shall end on the day next preceding a Certificate Interest Payment Date. ((S)
9.1)
While the Certificates are in the Flex Rate Mode, the Certificate Interest
Payment Date is the day following the last day of each Flex Period, or if such
day is not a Business Day, the next succeeding Business Day. Interest will be
calculated on the basis of the actual number of days elapsed over a year of 360
days. ((S) 1.1)
The Remarketing Agent shall provide the Servicer, the Swap Provider, the
Cooperative, the Trustee, the Liquidity Provider and the Tender Agent with
Immediate Notice of all interest rates established by it for the Weekly Rate
Mode or Flex Rate Mode. The determination of each interest rate in accordance
with terms of the Trust Agreement shall be conclusive and binding upon the
owners of the Certificates, the Cooperative, the Swap Provider, the Trustee, the
Tender Agent, the Remarketing Agent and the Liquidity Provider.
If at any time no Swap Agreement is in effect, or, if on any Certificate
Interest Payment Date (whether the Certificates are in the Weekly Rate Mode or
the Flex Rate Mode) the Trustee has not received any Swap Payment,
Certificateholders shall be entitled to receive distributions of Interest from
payments of Guaranteed Interest made by the Cooperative or the RUS on the Notes
calculated (on the basis of a year of 360 days consisting of twelve 30-day
months) at the Fixed Rate, less the Servicer Spread, on each June 15 and
December 15 (or if such day is not a Business Day, the next succeeding Business
Day). ((S) 1.1)
If for any reason the variable rate payable by Morgan Guaranty under the
Swap Agreement, and the interest rate distributable with respect to the
Certificates are not established by the Remarketing Agent as described above,
(i) if the Certificates were in the Weekly Rate Mode during the preceding
Interest Period, the variable rate payable by Morgan Guaranty under the Swap
Agreement, and the interest rate distributable to the Certificateholders for the
next succeeding Interest Period, shall be the Interest Rate in effect for such
preceding Interest Period and (ii) if the Certificates were in a Flex Rate Mode
during the preceding interest period, a Conversion (See "--Optional Tender and
Mandatory Tender") to the Weekly Rate Mode shall be deemed to occur on the
Certificate Interest Payment Date for such Flex Rate Period, and the variable
rate payable by Morgan Guaranty under the Swap Agreement, and the interest rate
distributable to the Certificateholders for the first such Weekly Rate Period,
shall be the Alternate Rate. ((S) 9.1)
DISTRIBUTIONS ON CERTIFICATES
On each Certificate Interest Payment Date, the Trustee shall apply or cause
to be applied all Available Funds in the Trust Account to make the payments of
interest due to the Certificateholders on such date. ((S) 7.3) On each
Certificate Principal Payment Date, the Trustee shall apply or cause to be
applied all Available Funds in the Trust Account to make the payment of
principal due to the Certificateholders on such date. ((S) 7.3)
If the Available Funds are less than the amounts required above on such
date, payments will be made first to the Servicer in an amount up to the
Scheduled Servicing Fee, with the remainder to the respective
Certificateholders. ((S) 7.3) Any excess in Available Funds on such date over
the amounts required above will be distributed to the Servicer as additional
servicing fee, provided that the Trustee will distribute to the Cooperative (or,
in certain circumstances, the
18
<PAGE>
RUS) earnings on investments of amounts paid under the Notes while held under
the Trust Agreement. If payments on any Certificates are not made when due,
interest will be payable (after payment of Scheduled Servicing Fee, including
amounts of Scheduled Servicing Fee due with respect to delinquent principal and
interest on overdue Scheduled Servicing Fee to the extent interest on overdue
interest is lawful) on overdue principal, premium and (to the extent lawful)
interest at the stated rate of interest on such Certificates. If the Notes are
accelerated by the Trustee following occurrence of an event of default under the
Loan Agreement, the related Certificates will thereupon become due and payable,
with interest accrued to the date of acceleration, subject to the prior payment
of Scheduled Servicing Fee accrued to the date of payment.
Payments to Certificateholders will be made by check mailed to each
Certificateholder of record on the associated Record Date at the address
appearing on the Certificate Register, except that payments to Cede & Co. (the
nominee holder for DTC) will be made in immediately available funds. ((S)(S)
7.3, 8.2) However, if CFC, the Servicer, or the Trustee notifies the
Certificateholders at least 25 days prior thereto, the final payment on each
Certificate will be made only against presentation and surrender of the
Certificate at the office or agency of the Trustee. ((S) 7.3) The Record Dates
for the Certificates include, for any Certificate Payment Date, the Business Day
next preceding that Certificate Payment Date, or, if there is no Swap Agreement
in effect or the Trustee has not received a Swap Payment when due, the 15th day
prior to the Certificate Payment Date (whether or not a Business Day).
CONVERSION OF INTEREST RATE MODE ON CERTIFICATES
The Interest Rate Mode on the Certificates may be converted to a different
Interest Rate Mode from time to time in whole (but not in part), at the written
direction of the Remarketing Agent (with the consent of the Swap Provider). ((S)
9.1) The Trustee must notify Certificateholders of each Conversion by first
class mail, postage prepaid, at least 15 days but not less than 10 days before
the Conversion Date, which notice must provide (i) that the Interest Rate Mode
will be converted, what the new Interest Rate Mode will be and, if the
Conversion is to the Flex Rate Mode, the end of the Flex Rate Period, (ii) the
Conversion Date, (iii) the Certificate Interest Payment Date and Record Date,
(iv) the maximum rate of interest available under the Liquidity Facility, and
(v) that the Certificates will be subject to mandatory purchase on the
Conversion Date in accordance with the Trust Agreement. ((S) 9.1) See "--
Optional Tender and Mandatory Tender."
Any Conversion of the Interest Rate Mode for the Certificates pursuant to
the paragraph above must comply with the following: (i) the Conversion Date must
be a Certificate Interest Payment Date, (ii) the Conversion Date must be a
Business Day; and (iii) the Liquidity Facility must cover accrued interest
calculated at least 18% per annum (or such higher rate as is set forth in the
Liquidity Facility) for the Certificates for 40 days if the Conversion is to the
Weekly Rate Mode, or for the number of days in any Flex Rate Period then
selected plus 10 days, if the Conversion is to the Flex Rate Mode (or such other
amounts as may be required to obtain a Rating Confirmation Notice). ((S) 9.1)
OPTIONAL TENDER AND MANDATORY TENDER
While in the Weekly Rate Mode, any Certificate shall be purchased on the
demand of a Certificateholder, on any Business Day, at the Purchase Price, upon
written notice to the Tender Agent, at its principal office on or before 5:00
p.m. (New York, New York time) on a Business Day not later than the 7th calendar
day prior to the Purchase Date. ((S) 9.2) Such notice shall (i) state the
number and principal amount (or portion thereof in an Authorized Denomination)
of such Certificate to be purchased, (ii) state the Purchase Date on which such
Certificate shall be purchased and (iii) irrevocably request such purchase and
state an agreement to deliver such Certificate, duly endorsed in blank for
transfer, with all signatures guaranteed, to the Tender Agent at or prior to
10:00 a.m. (New York, New York time) on such Purchase Date. ((S) 9.2) The
owner of a Certificate may demand purchase of a portion of such Certificate only
if the portion to be purchased and the portion to be retained by the owner will
be in Authorized Denominations. ((S) 9.2) If the Swap Agreement terminates
(other than through an Elective Termination (see "The Swap Agreement")) or if a
Swap Provider Default has occurred and is continuing, and the Cooperative has
not provided an Alternate Swap Agreement, any right of the Certificateholders to
demand purchase of Certificates shall terminate or be suspended, respectively.
19
<PAGE>
The Certificates are subject to Mandatory Tender at the prices and on the
following dates:
(i) On each Conversion Date, the Certificates shall be subject to mandatory
purchase at a purchase price equal to the Principal Amount of each Certificate.
See "--Conversion of Interest Rate Mode on Certificates."
(ii) The Certificates shall be subject to mandatory purchase, at the
Purchase Price, upon Swap Provider Default (but only if the Liquidity Facility
is in effect in accordance with its terms (see "The Liquidity Facility--Standby
Certificate Purchase Agreement")) or upon replacement of the Swap Agreement with
an Alternate Swap Agreement. See "The Swap Agreement."
(iii) If at any time the Tender Agent shall give notice that any
Certificates then subject to purchase under the Liquidity Facility as then in
effect shall on the date specified in such notice cease to be subject to
purchase under the Liquidity Facility as a result of the termination or
expiration of the term of the Liquidity Facility (other than any termination
resulting from suspension of the obligation of the Liquidity Provider to
purchase tendered Certificates or any termination occurring immediately without
notice or upon receipt by the Trustee of notice of such termination) and, if the
Liquidity Facility shall not have been renewed or replaced by an Alternate
Liquidity Facility at least ten Business Days prior to such termination or
expiration, or if the Trustee has not received the Rating Confirmation Notice
required by the Trust Agreement on the fifth Business Day next preceding any
such termination or expiration of the Liquidity Facility, each Certificate shall
be purchased or deemed purchased, at the Purchase Price. See "The Liquidity
Facility."
(iv) The Certificates shall be subject to mandatory purchase at a price
equal to the Principal Amount of each Certificate on the last day of each Flex
Rate Period. See "--Determination of Interest Rate." ((S) 9.2)
The Trustee shall, not less than (a) in the event of a mandatory purchase
under (i) above, 15 days prior to the Conversion Date, (b) in the event of a
mandatory purchase under (ii) above, 15 days prior to the termination of the
Swap Agreement, or as soon as practicable, (c) in the event of a mandatory
purchase under (iii) above, five Business Days prior to the termination of the
Liquidity Facility or (d) in the event of a mandatory purchase under (iv) above,
15 days prior to the end of the Flex Rate Period (unless the Flex Rate Period is
less than 30 days, in which case no notice is required), provide each
Certificateholder with a notice, by first-class mail, postage prepaid, of the
applicable Purchase Date. ((S) 9.2)
The Tender Agent shall purchase, but only from the sources listed below,
Certificates or portions thereof which are then subject to Optional Tender or
Mandatory Tender from the registered owners thereof with immediately available
funds by 2:30 p.m. New York, New York time on the Purchase Date, at the
outstanding principal amount thereof plus interest which would be distributable
in the current Interest Rate Mode if the date of purchase were a Certificate
Interest Payment Date. ((S) 9.3) Funds for the payment of such amount shall be
derived from the following sources in the order of priority indicated: (i)
proceeds of the sale of such Certificates from the remarketing of such
Certificates pursuant to the Trust Agreement and the Remarketing Agreement, and
(ii) moneys furnished to the Tender Agent by the Liquidity Provider for the
purchase of Certificates pursuant to the terms of the Liquidity Facility. ((S)
9.3)
With respect to any Certificates or portions thereof subject to Optional
Tender or Mandatory Tender as to which sufficient funds to accomplish purchase
of such Certificates are available to the Tender Agent at the respective times
at which payment of the purchase price is to be made as provided herein, (i)
such Certificates or portions thereof shall be deemed to have been purchased,
for all purposes of the Trust Agreement, irrespective of whether such
Certificates shall have been presented to the Tender Agent, and the former
registered owner or owners of such Certificates shall have no claim thereon for
any amount other than the purchase price thereof which would have been paid on
the date set for purchase, and such Certificates or portions thereof shall no
longer be deemed to be outstanding for purposes of the Trust Agreement, and
(ii) in the event that any such Certificates or portions thereof shall not be
presented to the Tender Agent, the Tender Agent shall segregate and hold the
moneys for the purchase price of such Certificates in trust, uninvested and
without liability for interest thereon, for the benefit of the former owners of
such Certificates, who shall thereafter be restricted exclusively to such moneys
for the satisfaction of any claim for the purchase price of such Certificates.
((S) 9.3)
20
<PAGE>
BOOK-ENTRY SYSTEM
The Certificates will be issued in the form of a fully registered Global
Certificate (the "Global Certificate"). The Global Certificate will be deposited
on the date of the closing of the sale of the Certificates offered hereby (the
"Closing Date") with, or on behalf of, DTC and registered in the name of its
nominee (such nominee being referred to herein as the "Global Certificate
Holder") or will remain in the custody of the Trustee pursuant to a FAST Balance
Certificate Agreement or similar agreement between DTC and the Trustee.
Except as set forth below, the Global Certificate may be transferred, in
whole and not in part, only to another nominee of DTC or to a successor of DTC
or its nominee (the "Depositary").
The Depositary has advised that: It is a limited-purpose trust company
which was created to hold securities for its participating organizations (the
"Participants") and to facilitate the clearance and settlement of transactions
in such securities between Participants through electronic book-entry changes in
accounts of its Participants. Participants include securities brokers and
dealers (including the Underwriter), banks, trust companies, clearing
corporations and certain other organizations. Access to the Depositary's book-
entry system is also available to others, such as banks, brokers, dealers and
trust companies that clear through or maintain a custodial relationship with a
Participant, either directly or indirectly ("Indirect Participants"). Persons
who are not Participants may beneficially own securities held by the Depositary
only through Participants or Indirect Participants.
The Depositary has also advised that, pursuant to procedures established by
it (i) upon the issuance of the Certificates, the Depositary will credit the
accounts of Participants designated by the Underwriters with the principal
amount of the Certificates purchased by the Underwriters, and (ii) ownership of
beneficial interests in the Global Certificate will be shown on, and the
transfer of that ownership will be effected only through, records maintained by
the Depositary (with respect to Participants' interests), the Participants and
the Indirect Participants. Consequently, the ability to transfer beneficial
interests in the Global Certificate is limited to such extent.
The laws of some jurisdictions require that certain purchasers of
securities take physical delivery of such securities in definitive form. Such
laws may impair the ability of such persons to purchase beneficial interests in
the Certificates and may impair the ability of beneficial owners of the
Certificates to transfer or pledge beneficial interests in the Global
Certificate.
Rights of ownership must be exercised through the Depository and the book
entry system and notices that are to be given to registered owners by the
Servicer or the Trustee will be given only to the Depository. It is expected
that the Depository will forward notices to the Participants by its usual
procedures, so that Participants may forward such notices to the beneficial
owners. Neither the Servicer nor the Cooperative nor the Trustee will have any
responsibility or obligation to assure that any notices are forwarded by the
Depository to any Participant or by any Participant to the beneficial owners.
All payments on the Global Certificate registered in the name of the
Depositary's nominee will be made by the Trustee on behalf of the Trust to the
Depositary's nominee as the registered owner of the Global Certificate. Under
the terms of the Trust Agreement, the Servicer and the Trustee will treat the
persons in whose names the Certificates are registered as the owners of such
Certificates for the purpose of receiving payments of principal and interest on
such Certificates and for all other purposes whatsoever. Therefore, neither the
Servicer nor the Cooperative nor the Trustee has any direct responsibility or
liability for the payment of principal or interest on the Certificates to owners
of beneficial interests in the Global Certificate. The Depositary has advised
that its present practice is, upon receipt of any payment of principal or
interest, to credit immediately the accounts of the Participants with payment in
amounts proportionate to their respective holdings in principal amount of
beneficial interests in the Global Certificate as shown on the records of the
Depositary. Payments by Participants and Indirect Participants to owners of
beneficial interests in the Global Certificate will be governed by standing
instructions and customary practices, as is now the case with securities held
for the accounts of customers in bearer form or registered in "street name" and
will be the responsibility of such Participants or Indirect Participants.
The Cooperative may determine that: (1) any institution acting as
Depository is unable to discharge its responsibilities with respect to the
Certificates or (2) continuation of the book-entry system is not in the best
interests of the beneficial owners of the Certificates. In addition, any
institution acting as Depository hereunder may resign as
21
<PAGE>
Depository by giving notice to the Trustee, the Servicer and the Cooperative and
discharging its responsibilities with respect thereto under applicable law. In
the event of resignation or disability of an institution acting as Depository,
the Cooperative will attempt to identify another institution qualified to act as
Depository hereunder. An institution may be designated as a Depository
hereunder only if such institution: (i) is a "clearing corporation" as defined
in the New York Uniform Commercial Code; and (ii) is a qualified and registered
"clearing agency" under Section 17A of the Securities Exchange Act of 1934, as
amended. If the Cooperative is unable to identify such a successor Depository
prior to the effective date of the resignation or in the event that the
Cooperative determines that discontinuance of the book-entry system is in the
best interests of the beneficial owners or of the Cooperative, the Trustee shall
discontinue the book-entry system and issue Certificates in definitive form in
exchange for the Global Certificate. In such instance, an owner of a beneficial
interest in the Global Certificate will be entitled to have Certificates equal
in principal amount to such beneficial interest registered in its name and will
be entitled to physical delivery of such Certificates in definitive form.
Certificates so issued in definitive form will be issued in Authorized
Denominations.
So long as the Global Certificate Holder is the registered owner of the
Global Certificate, the Global Certificate Holder will be considered the sole
owner under the Trust Agreement of any Certificates evidenced by the Global
Certificates. Beneficial owners of Certificates evidenced by the Global
Certificate will not be considered the owners thereof under the Trust Agreement
for any purpose, including with respect to the giving of any directions,
instructions or approvals to the Trustee or Servicer thereunder. Neither the
Servicer nor the Trustee will have any responsibility or liability for any
aspect of the records of the Depositary or for maintaining, supervising or
reviewing any records of the Depositary relating to the Certificates.
MANDATORY REDEMPTIONS
The Certificates are subject to redemption, in whole but not in part, on
the Business Day following the prepayment or purchase by the Cooperative of the
Notes held by the Trust (or the purchase of such Notes by a third party
designated by the Cooperative). However, the Cooperative may not deliver notice
of prepayment or purchase of the Notes without (i) depositing with the Trustee,
30 days before the date of any such prepayment or purchase, any principal and
accrued interest payable on such prepayment or purchase date and (ii) providing
for the payment of any termination amount due pursuant to the Swap Agreement.
The Trustee is obligated, on the Business Day next following the date of
any prepayment or purchase of the Notes, to distribute to the Certificateholders
principal and accrued interest on the Certificates up to the date of prepayment
or purchase of the Notes, to the extent the Trustee has received such amounts.
((S) 7.3, (S) 1.1) Any prepayment or purchase of the Notes by the Cooperative
is to be accompanied by accrued interest on such Notes through the date of
prepayment or purchase. Amounts due upon prepayment or purchase of the Notes
and the amount of any termination payment due pursuant to the Swap Agreement on
any such prepayment or purchase are not covered by the Guarantees.
Should the RUS exercise its right to prepay or purchase the Notes, the RUS
must give the Trustee and the Servicer 30 days' notice of its intent to so
prepay or purchase the Notes. ((S) 9.7) Should the Cooperative exercise its
right to prepay or purchase the Notes, the Cooperative must give the Trustee and
the Servicer 45 days' notice of its intent to so prepay or purchase the Notes.
((S) 9.7) No more than five days after receipt of the RUS's notice of
prepayment or purchase of the Notes, or if the Cooperative exercises its right
to prepay or purchase the Notes, not less than 30 days prior to the proposed
Call Date, the Trustee shall, as set forth below, deliver notice of the date of
prepayment or purchase, by first class mail, postage prepaid, to all registered
Certificateholders at their addresses shown on the Certificate Register. ((S)
9.7) Any such notice shall (i) identify the Certificates to be redeemed, (ii)
specify the date of prepayment or purchase and the Purchase Price of such
Certificates, (iii) state that, on the date of prepayment or purchase, the
Purchase Price of the Certificates called for prepayment or purchase will be
payable at the principal corporate trust office of the Trustee and from that
date interest will cease to accrue and (iv) if, at the time of mailing of such
notice, moneys sufficient to prepay or purchase all the Certificates shall not
have been deposited with the Trustee, such notice may state that it is
conditional in that it is subject to the deposit, not later than the date of
prepayment or purchase, of moneys sufficient to prepay or purchase all the
Certificates, and such notice shall be of no effect unless such moneys are so
deposited. Failure to mail the notice required above or defect in the mailing
thereof in respect of any Certificate shall not affect the validity of the
redemption of any other Certificate. ((S) 9.7)
22
<PAGE>
No termination of the Swap Agreement may occur and no redemption of the
Certificates may take place until the Swap Provider certifies that it has
received any termination amount due pursuant to the Swap Agreement, if any, and
the Liquidity Provider receives all amounts payable to it under the Liquidity
Facility. ((S) 9.7)
If an event of default is continuing under the mortgage which secures all
the Cooperative's obligations to the RUS under the RUS's guarantees (see "Kansas
Electric Power Cooperative, Inc."), the RUS may prepay or purchase the Notes at
that time. Any such prepayment or purchase by the RUS requires 30 days' written
irrevocable notice from the RUS to the Servicer and will include accrued
interest on the Notes through the date of the prepayment or purchase that the
Cooperative would be required to pay if it were to prepay or purchase the Notes
on such date. (Loan Guarantee Agreement. (S) 6.1)
ENFORCEMENT OF THE NOTES, THE GUARANTEES AND THE SWAP AGREEMENT
The Trustee has appointed the Servicer as its attorney-in-fact to commence
and prosecute any claims to enforce or collect on the Notes and Guarantees.
However, the Servicer, as such attorney-in-fact, may not (in part or in full)
rescind, cancel, release, waive, modify or reschedule the right to collect the
unpaid balance on any Notes from the Cooperative or the RUS. ((S) 4.3) If,
however, in any suit or legal proceeding for enforcement, it is held that the
Servicer may not enforce or collect on the Notes or the Guarantee on the ground
that it is not a real party in interest or a holder entitled to enforce the
Notes or the Guarantees, as the case may be, the Trustee on behalf of the Trust
will take such steps as may be necessary to enforce the Notes or the Guarantees,
as the case may be, including bringing suit in its name. The Servicer will
promptly provide the Trustee notice of any material actions by the Servicer as
attorney-in-fact and notice of all material developments related to the
Servicer's performance in its capacity as attorney-in-fact of the Trustee. ((S)
4.3)
In administering, servicing and enforcing the Notes or Guarantees, the
Servicer, after a default in payment on such Notes, is obligated to exercise
such of the rights and powers vested in it by the Trust Agreement and use the
same degree of care and skill in their exercise as a prudent person would
exercise or use under the circumstances in the conduct of such person's own
affairs. ((S) 4.5) Prior to a default in payment on the Notes, the Servicer is
obligated to perform only those duties that are specifically set forth in the
Trust Agreement. ((S) 4.5) The Servicer has no liability (i) for any error of
judgment made in good faith by it unless it is proved that the Servicer was
negligent in ascertaining the pertinent facts or (ii) with respect to any action
it takes or omits to take in good faith in accordance with a direction received
by it from the Trustee or the Certificateholders. ((S) 4.5)
The Servicer in its individual or any other capacity may deal with the
Cooperative with the same rights it would have if it were not the Servicer. The
Servicer has certain relationships with Morgan Guaranty Trust Company of New
York, and the Servicer may make deposits with, borrow money from, employ Morgan
Guaranty Trust Company of New York to act as trustee under indentures of, and
generally engage in any kind of business with, Morgan Guaranty Trust Company of
New York and any Person who may do business with or own securities of Morgan
Guaranty Trust Company of New York without any duty to account therefor and with
the same rights it would have if it were not the Servicer. ((S) 4.5)
If the RUS declares all outstanding principal and accrued interest on the
Notes due and payable to the RUS as described under "The Notes" and thereby
becomes obligated to pay principal and interest on the Notes to the Trustee as
and when due, the obligation of the Cooperative on the Notes will be released
and the Trustee and the Servicer may pursue remedies only against the RUS.
The Trustee will be responsible for enforcing the Swap Agreement. ((S)
2.1) See "The Swap Agreement."
No Certificateholder shall have any right to institute any suit, action or
proceeding in equity or at law on any Certificate or the Swap Agreement or for
the execution of any trust under the Trust Agreement or for any other remedy
thereunder unless (i) such Certificateholder (a) previously shall have given to
the Trustee and Servicer written notice of the basis for such suit, action or
proceeding, and (b) shall have made a written request of the Trustee and
Servicer, (ii) unless Certificateholders with aggregate Fractional Interests
representing 51% or more of the Trust shall (a) have made a written request of
the Trustee and Servicer, after the right to exercise such powers or right of
action as the case may be, shall have accrued, to exercise the powers granted
under the Trust Agreement or to institute such suit, action or proceeding, (b)
have afforded the Trustee and Servicer a reasonable opportunity either to
proceed to exercise the
23
<PAGE>
powers therein granted or to institute such action, suit or proceeding in its or
their name, (c) have offered to the Trustee and Servicer reasonable security and
indemnity against the costs, expenses and liabilities to be incurred therein or
thereby, and (iii) the Trustee and Servicer shall have refused or neglected to
comply with such request within a reasonable time. Such notification, request
and offer of indemnity are, in every such case, at the option of the Trustee and
Servicer, conditions precedent to the Trustee's and Servicer's execution of the
powers and trusts of the Trust Agreement or to any other remedy thereunder.
((S) 12.9) Notwithstanding the foregoing, and whether or not such provisions
shall have been complied with, (i) Certificateholders with aggregate Fractional
Interests representing 51% or more of the Trust may, except as provided in (ii)
below, institute any such suit, action or proceeding in their own names for the
benefit of all Certificateholders hereunder and (ii) no Certificateholder or
Certificateholders shall under any circumstances have any right to institute any
suit, action or proceeding in equity or law under the Cooperative's mortgage to
the RUS, but have only a right to collect amounts due and owing under the Trust
Agreement or the Notes pursuant to the Guarantee. ((S) 12.9) No one or more
Certificateholders shall have any right in any manner whatsoever to affect,
disturb or prejudice the security of the Trust Agreement, or to enforce any
right thereunder except in the manner provided, that all proceedings at law or
in equity shall be instituted, had and maintained in the manner therein
provided, and that any individual rights of action or other right given to one
or more of such Certificateholders by law are restricted by the Trust Agreement
to the rights and remedies therein provided. ((S) 12.9)
TRUST ACCOUNTS AND INVESTMENT OF FUNDS
The Trustee has established a Trust Account (which shall contain a
Cooperative Account, an RUS Account and a Swap Provider Account which shall be
maintained for the purpose of holding funds received from the Cooperative, the
RUS, and the Swap Provider, respectively) as segregated, non-interest-bearing
trust accounts for the benefit of the Certificateholders. ((S) 4.8) The
Trustee shall immediately deposit in the appropriate subaccount within the Trust
Account all payments it receives with respect to the Notes or the Guarantees
(except for certain amounts required to be paid by the Trustee to the RUS or
the Cooperative and amounts from which the Trustee is to be paid, reimbursed or
indemnified for any fees, expenses or liability) or the Swap Agreement and any
investment earnings on, returns of principal of and any other amounts received
in respect of investments of such funds and (ii) moneys transferred from the
Collateral Account as discussed below. ((S) 4.8) The Trustee, at the direction
of the Servicer, shall invest amounts in the Trust Account prior to the
associated Certificate Payment Date in Eligible Investments that mature not
later than the Business Day next preceding the associated Certificate Payment
Date. ((S) 4.8) The Trustee shall maintain, for the benefit of the
Certificateholders, possession of the Eligible Investments evidenced by an
instrument from the time of purchase until maturity. ((S) 4.8) The Trustee
shall not sell, assign or otherwise transfer any Eligible Investment prior to
its maturity except, at the direction of the Servicer, to preserve the value of
the corpus of the Trust. ((S) 4.8)
Neither the Trustee nor the Servicer shall have any liability to the Trust
or the Certificateholders with respect to losses on investments of amounts on
deposit in the Trust Account in Eligible Investments that have been made in
compliance with the Trust Agreement. In no event shall the Cooperative or the
RUS have any liability to the Trust or the Certificateholders with respect to
losses on investments of amounts on deposit in the Trust Account. ((S) 4.8)
The Trustee has established, as an account separate from the Trust
Account, a Collateral Account into which shall be deposited any Posted
Collateral received by it pursuant to the Credit Support Annex. The Collateral
Account shall secure the Swap Provider's obligation to make Swap Payments and
the other rights of the Trustee and Cooperative under the Swap Agreement.
Proceeds of the Posted Collateral received by the Trustee from the exercise of
its remedies pursuant to the Credit Support Annex shall be applied, to the
extent permitted by such Credit Support Annex, in accordance with the Trust
Agreement. ((S) 4.8)
"Eligible Investments" are (i) bonds, notes, bills or other similar
obligations issued by the United States of America that are backed by the full
faith and credit of the United States and (ii) repurchase agreements (a) secured
by securities of the type listed under (i) above not subject to a perfected lien
of any third party and valued at no less than 102% of the repurchase obligation
(including accrued interest) if such securities have a remaining maturity of
less than one year, or otherwise over-collateralized to an extent acceptable to
each Rating Agency without causing a reduction in their ratings of the
Certificates, (b) with entities such that the automatic stay provision of 11
U.S.C. (S) 362 would not be applicable to the repurchase agreement in the event
of bankruptcy of such entity (or, if there are no such entities as a result of
an amendment to 11 U.S.C. (S) 362, such entities acceptable to each Rating
Agency without causing a reduction in the ratings on the Certificates) and (c)
pursuant to documentation that provides for the securities to be valued ("marked
to market") daily and kept in the possession of the Trustee or in its control
through book entry (or, in both cases, that
24
<PAGE>
have such other provisions acceptable to each Rating Agency without causing a
reduction in its rating on the Certificates provided the Servicer has determined
that the SEC or its staff will not object to such other provisions). ((S) 4.9)
Assuming payment in full is made on the Notes, interest earned on Eligible
Investments held by the Trust will be distributed to the Cooperative (or, in
certain cases, to the RUS). See "--Distributions on Certificates." In
addition, the return of moneys invested in Eligible Investments is not
guaranteed by the Guarantees. ((S) 4.8)
UNCLAIMED MONEYS
The Trustee is obligated to pay to the Servicer upon request any money held
by the Trustee for the payment of principal or interest that remains unclaimed
by any Certificateholder for two years. ((S) 7.3) Before making any such
payment the Trustee is obligated to cause to be published once in a newspaper of
general circulation in The City of New York, or mail to each such holder, notice
that such money remains unclaimed and that after a date not less than 10 days
from the date of such publication or mailing any unclaimed balance of such money
then remaining will be paid to the Servicer. ((S) 7.3) After payment to the
Servicer, Certificateholders entitled to the money must look to the Servicer for
payment as general creditors unless an applicable abandoned property law
designates another person. ((S) 7.3)
SERVICING FUNCTIONS
In addition to enforcing the Trustee's rights under the Notes and the
Guarantees held by the Trust, the Servicer is obligated to fulfill a number of
administrative and notice functions. For example, the Servicer is obligated to
deliver a notice to each of the Cooperative and the Trustee specifying the date
any payment is due on the Notes and the amount of such payment. ((S) 7.1) In
addition, no more than five Business Days and no less than two Business Days
before each Certificate Payment Date, the Servicer must deliver a notice to the
Cooperative, the Swap Provider and the Trustee which specifies the method of
calculation of the interest payable to the Certificateholders, if any, and the
amount of principal, if any, payable to the Certificateholders on the associated
Certificate Payment Date. ((S) 7.1) The Servicer is responsible for
notification of the RUS of any default in the payment of interest and principal
on the Notes, and the Servicer is obligated to submit to the RUS reports
assessing the causes behind and the seriousness of the default. ((S) 4.2, Loan
Guarantee Agreement (S) 5.2) The Servicer is also obligated to notify the RUS
of any known violations or defaults or conditions which might lead to a default
or violation by the Cooperative under the Loan Agreement, the Loan Guarantee
Agreement or the Notes. (Loan Guarantee Agreement (S) 5.2) The Servicer is
obligated to notify the RUS of any prepayment or purchase of the Notes and is
obligated to calculate the amount payable on the Notes and the related
Certificates pursuant to any redemption or purchase of such Note. ((S)(S) 4.2,
7.1)
SERVICING COMPENSATION AND PAYMENT OF EXPENSES
As compensation for ordinary administrative expenses (including legal and
accounting fees and expenses) of the Trust and the fees of the Trustee, the
Servicer will receive the Scheduled Servicing Fee under the Trust Agreement and
will be entitled to distribution of amounts remaining in the Trust Account under
the Trust Agreement on any date on which payments are made on the Certificates
after distribution of amounts due on such date to the holders of that series of
Certificates and distribution to the Cooperative (or, in certain circumstances,
the RUS) of income from Eligible Investments. See "--Distributions on
Certificates."
The Cooperative has also agreed to pay as an unsecured, direct obligation
to the Servicer the amounts of any reasonable out-of-pocket costs or reasonable
expenses (including reasonable counsel fees) incurred or paid by the Servicer
as a result of any of the following: (i) any event of default under the Loan
Agreement, (ii) any challenges to, assertions of the invalidity of or other
questioning of the Guarantees or their status as a full faith and credit
obligation of the United States of America, (iii) any negotiations relating to
the recapitalization, restructuring of the debt obligations or reorganization of
the Cooperative or (iv) any bankruptcy, insolvency, composition or other similar
proceeding with respect to the Cooperative, except that such amounts may not
include certain indemnity payments by CFC. (Loan Agreement (S) 5.2)
INDEMNIFICATION
The Servicer is obligated to defend and indemnify the Trust, the Trustee
and the Certificateholders against any and all costs, expenses, losses, damages,
claims and liabilities, including reasonable fees and expenses of counsel and
25
<PAGE>
expenses of litigation, arising in respect of any gross negligence or willful
misconduct by the Servicer with respect to the Notes or the Guarantees, except
to the extent that any such costs, expenses, losses, damages, claims and
liabilities (as and when incurred) may be attributable to the Trustee's
negligence or bad faith. ((S) 4.7) These indemnities will survive any removal
of a Servicer but will not cover actions or omissions of any successor Servicer.
((S) 4.7) The Servicer is also obligated to indemnify the Trustee for any
loss, liability or expense arising out of or in connection with the acceptance
or administration of the Trust and its duties as Trustee, including the costs
and expenses of defending itself against any claim or liability in connection
with the exercise or performance of any of its powers or said duties except to
the extent attributable to negligence or willful misconduct on its part. ((S)
10.6)
REPORTS TO CERTIFICATEHOLDERS
On or before ten Business Days after each June 15 and December 15 (or the
next Business Day if such day is not a Business Day), the Servicer shall supply
to the Trustee, the Swap Provider and the Liquidity Provider a Semiannual Report
which shall include the following information (stated on the basis of $100,000
of principal amount) as of the last Certificate Payment Date occurring since the
last Semiannual Report: (i) the amount of any distribution allocable to
principal, (ii) the amount of any distributions allocable to interest, and (iii)
the amount of fees distributed to the Servicer.
The Semiannual Report shall also state the Principal Balance with respect
to the Certificates outstanding after the last distribution of principal and
that, to the best of the Servicer's knowledge, as of the related June 15 and
December 15 (or the next Business Day if such day is not a Business Day), no
delinquency in payment under any of the Notes, the Guarantees or the Swap
Agreement has occurred and no Event of Servicing Termination (as hereinafter
defined), or event that with notice or lapse of time or both would become an
Event of Servicing Termination, has occurred and is continuing or, if such event
has occurred and is continuing, shall specify the event and, in any event, shall
specify its status and the amount, if any, paid under the Guarantees. Each
Semiannual Report shall also include a certification from the Servicer to the
effect that the Semiannual Report is complete and accurate. ((S) 5.1) The
Trustee is obligated to promptly mail a copy of the Semiannual Report to each
Certificateholder. ((S) 5.1)
The fiscal year of each Trust is the calendar year. ((S) 5.1) Within the
prescribed period of time for tax reporting purposes, after the end of each
calendar year during the term of the Trust Agreement, the Trustee is to prepare
and mail to each Certificateholder of record at any time during such year a
report setting forth the aggregate of the amounts reported pursuant to (i)
through (iii) above and other information as is reasonably necessary for the
preparation of such Certificateholder's Federal income tax returns, each for
such calendar year or, in the event such person was a Certificateholder for only
a portion of such calendar year, for the applicable portion of the year. ((S)
5.1)
The Trustee will deliver, without charge, to any Certificateholder copies
of all statements and reports furnished to the Trustee upon written request
delivered to the Trustee at One First National Plaza, Suite 0126, Chicago,
Illinois 60670-0126, Attention: Corporate Trust Administration. ((S) 5.1)
EVENTS OF SERVICING TERMINATION
An event of servicing termination under the Trust Agreement ("Event of
Servicing Termination") will occur if there is (i) any failure by the Servicer
to make any payment or any deposit required to be made by the Servicer under the
Trust Agreement and the continuance of such failure for a period of two Business
Days, (ii) any failure by the Servicer to provide certain specified reports,
notices or filings in accordance with the Trust Agreement that continues
unremedied for three Business Days after notice from the Trustee or
Certificateholders with aggregate Fractional Interests representing 25% or more
of the Trust, which notice shall specify such failure, require it to be remedied
and state that such notice is a "Notice of Servicing Termination," (iii) any
failure on the part of the Servicer to enforce the Notes or the Guarantees in
accordance with the requirements of the Trust Agreement that continues
unremedied for 30 days after notice from the Trustee, the Swap Provider or
Certificateholders with aggregate Fractional Interests representing 25% or more
of the Trust, which notice shall specify such failure, require it to be remedied
and state that such notice is a "Notice of Servicing Termination," (iv) any
failure on the part of the Servicer to observe or perform in any material
respect any other material covenant or agreement to be observed or performed by
the Servicer under the Trust Agreement that continues unremedied for 30 days
after notice from the Trustee, the Swap Provider or Certificateholders with
aggregate Fractional Interests representing 25% or more of the Trust, which
notice shall specify such failure, require it to be remedied and state that such
notice is a "Notice of Servicing Termination," (v) any assignment or delegation
by the Servicer of its duties or rights under the Trust Agreement except as
specifically permitted by the Trust Agreement,
26
<PAGE>
(vi) the entry of a decree or order by a court having jurisdiction in the
premises adjudging the Servicer a bankrupt or insolvent, or approving as
properly filed a petition seeking reorganization, arrangement, adjustment or
composition of or in respect of the Servicer under Title 11 of the United States
Code or any other applicable Federal or state law or law of the District of
Columbia, or appointing a receiver (or other similar official) of the Servicer
or of any substantial part of its property, or ordering the winding up or
liquidation of its affairs, and the continuance of any such decree or order
unstayed and in effect for a period of 60 consecutive days, (vii) the
institution by the Servicer of proceedings to be adjudicated a bankrupt or
insolvent, or the consent by it to the institution of bankruptcy or insolvency
proceedings against it, or the filing by it of a request for relief under the
Title 11 of the United States Code or any other applicable Federal or state law
or law of the District of Columbia, or the consent by it to the filing of any
such petition or to the appointment of a receiver, liquidator, assignee,
trustee, sequestrator (or other similar official) of the Servicer or of any
substantial part of its property, or the making by it of an assignment for the
benefit of creditors, or the admission by it in writing of its inability to pay
its debts generally as they become due, or the taking of corporate action by the
Servicer in furtherance of any such action, or (viii) the failure of the
Servicer to be an Eligible Servicer. ((S) 6.1)
Certificateholders with aggregate Fractional Interests representing 51% or
more of a Trust may (with the consent of the Swap Provider) waive any past Event
of Servicing Termination. ((S) 10.5)
RIGHTS UPON EVENTS OF SERVICING TERMINATION; SERVICER TRANSFER
If an Event of Servicing Termination under the Trust Agreement has occurred
and is continuing, either the Trustee or Certificateholders holding aggregate
Fractional Interests representing 51% or more of the Trust, by notice in writing
to the Servicer, may (with the consent of the Swap Provider) terminate all (but
not less than all) such Servicer's rights, powers, duties and obligations in
such capacity. ((S) 6.2) The successor Servicer is to be appointed by the
Trustee, with the consent of the Swap Provider, pursuant to the Trust Agreement.
((S) 6.3) In the event that a successor Servicer has not been appointed at a
time when the outgoing Servicer ceases to act as a Servicer, the Trustee will
automatically become the successor Servicer. ((S) 6.3)
Notwithstanding such termination, the outgoing Servicer will be entitled to
payment of certain amounts payable to it prior to such termination for services
rendered prior to such termination under the Trust Agreement. ((S) 6.5) See "-
- -Distributions on Certificates". The successor Servicer will be entitled to
reasonable servicing compensation to be determined by the Trustee in accordance
with the Trust Agreement. ((S) 6.3) The outgoing Servicer shall pay or cause
to be paid any portion of such reasonable fee to the successor Servicer which is
in excess of the sum of the Servicing Fee and other amounts payable to the
Servicer out of the Trust Account. ((S) 6.3)
Upon any continuing Event of Servicing Termination, any termination of a
Servicer or any appointment of a successor Servicer, the Trustee is to give
prompt written notice to the Certificateholders. The Trustee may withhold
notice of an Event of Servicing Termination if it determines in good faith that
doing so is in the best interest of the Certificateholders. ((S) 6.4)
RESIGNATION OR REPLACEMENT OF THE SERVICER
The Servicer may not resign from its obligations and duties imposed on it
by the Trust Agreement, except (i) upon determination that the performance of
its duties is no longer permissible under applicable law, or (ii) if the
Servicer is not paid any amount due to it as compensation under the Trust
Agreement within five Business Days of when such payment becomes due and
payable. ((S) 12.1) No such resignation may specify a date for resignation
earlier than 90 days after notice thereof is delivered to the Trustee and no
such resignation will become effective until the earlier of such 90 days or the
date upon which the Trustee or a successor Servicer shall have assumed the
responsibilities and obligations of the Servicer in accordance with the Trust
Agreement. ((S) 12.1) Any successor Servicer must be an Eligible Servicer.
The Servicer may not assign or delegate any of its power, rights or
obligations under the Trust Agreement absent the prior written consent of
Certificateholders with aggregate Fractional Interests representing 51% or more
of the Trust and the prior written consent of the RUS and the Swap Provider.
Notwithstanding the foregoing, with prior written approval of the RUS, the
Servicer may delegate its responsibilities to an affiliate. ((S) 12.5)
27
<PAGE>
Any corporation into which the Servicer may be merged or consolidated, or
any corporation resulting from any merger, conversion or consolidation to which
the Servicer is a party, or any corporation succeeding to the business of the
Servicer, shall be the successor of the Servicer under the Trust Agreement
(without relieving the Servicer of its responsibilities under this Agreement if
it survives such merger, conversion or consolidation), without any further act.
((S) 4.10)
AMENDMENTS
The Trust Agreement may be amended from time to time by the Servicer, the
Cooperative and the Trustee, without the consent of any of the
Certificateholders, (i) to cure any ambiguity, to correct or supplement any
provisions of the Trust Agreement which may be inconsistent with any other
provisions thereof or to add any other provisions with respect to matters or
questions arising under the Trust Agreement which shall not be inconsistent with
the provisions thereof, (ii) to make mechanical changes necessary in the opinion
of the Swap Provider (so long as no Swap Provider Default has occurred and is
continuing) to substitute an Alternate Liquidity Facility, or (iii) to achieve
or preserve the status of the Trust as a Pass-Through Organization; provided,
however, that before such amendments become effective, the Trustee must receive
(a) an opinion of counsel, that such amendments will not cause the Trust not to
be treated as a Pass-Through Organization for Federal income tax purposes and
(b) confirmations from rating agencies assigning ratings to the Certificates at
the request of the Cooperative or the Swap Provider that the rating assigned to
the Certificates will not be withdrawn or lowered. ((S)(S) 12.6, 1.1)
The Trust Agreement may also be amended from time to time by the Servicer,
the Cooperative and the Trustee, with the consent of Certificateholders with
aggregate Fractional Interests representing 51% or more of the Trust, for the
purpose of adding any provisions to or changing in any manner or eliminating any
of the provisions of the Trust Agreement or of modifying in any manner the
rights of the Certificateholders; provided, however, that without the unanimous
consent of the Certificateholders affected thereby and the Liquidity Provider,
no such amendment shall (i) reduce in any manner the amount of, or delay the
timing of, collection of payments on the Notes, the Swap Agreement or the
Guarantees or distributions which are required to be made on any Certificate or
(ii) reduce the aforesaid percentage required to consent to any such amendment;
provided, further, that before such amendments become effective, the Trustee
must receive an opinion of counsel that such amendments will not cause the Trust
not to be treated as a Pass-Through Organization for Federal income tax
purposes. Neither the Trustee, the Cooperative nor the Servicer are permitted,
without the unanimous consent of all the Certificateholders affected, to take or
consent to any action that would reduce the principal amount or interest rate
(or change the manner of computing interest or determining the interest rate) on
the Notes or the Swap Agreement or delay the dates on which any payments are due
under the Notes or the Swap Agreement. ((S) 12.6)
No amendment, modification or supplement to or of the Trust Agreement that
materially adversely affects the Cooperative or the RUS shall be effective
unless approved in writing by the Cooperative or the RUS, respectively, nor
shall any waiver of rights under the Trust Agreement by any party preclude the
RUS from asserting its rights unless such a waiver has been approved in writing
by the RUS. ((S) 12.6) No amendment, modification or supplement of the Trust
Agreement that adversely affects the Swap Provider may be effected unless (i)
approved in writing by the Swap Provider or (ii) the Swap Agreement is
terminated and any and all amounts owing to the Swap Provider are fully paid,
except that, if a Swap Provider Default has occurred and is continuing, the
right of the Swap Provider to consent to any amendment, modification or
supplement of the Trust Agreement shall be suspended. ((S) 12.6)
Promptly after the execution of any amendment or consent pursuant to any
Trust Agreement, the Trustee is obligated to furnish or cause to be furnished
written notification of the substance of such amendment or consent to each
Certificateholder. ((S) 12.6)
TERMINATION
The Trust Agreement will terminate after payment in full has been made of
Certificates, except that CFC's representations and warranties and indemnities
and obligations to pay any fees and expenses then owed by CFC to the Trustee or
any successor Servicer will survive termination as provided in the Trust
Agreement. ((S) 12.3) In no event will any of the Trusts continue beyond the
expiration of 21 years from the death of the last survivor of certain
individuals specified in the Trust Agreement. ((S) 12.3)
28
<PAGE>
THE TRUSTEE
The First National Bank of Chicago, the Trustee under the Trust Agreement,
currently has its principal corporate trust office at One First National Plaza,
Suite 0126, Chicago, Illinois 60670-0126 (Telecopy: 312-407-1708) Attention:
Corporate Trust Administration.
The Trustee may resign at any time by giving written notice to the RUS, the
Servicer, the Swap Provider, and the Certificate Registrar, if any, in which
event the Servicer will be obligated to appoint a successor Trustee. ((S) 10.8)
The Trustee is also required under the Trust Indenture Act of 1939 to resign if
it becomes subject to certain specified conflicts of interest. In such cases,
the Cooperative must promptly appoint a successor Trustee. ((S)(S) 10.7, 10.15)
If at any time, the Trustee shall cease to be eligible in accordance with
the above provisions of the Trust Agreement and shall fail to resign after
written request therefor by the Servicer (or, with the consent of the Servicer
and the Swap Provider, Certificateholders with aggregate Fractional Interests
representing 25% or more of the Trust) or, if at any time, the Trustee shall be
legally unable to act, or shall be adjudged a bankrupt or insolvent, or a
receiver of the Trustee or of its property shall be appointed, or any public
officer shall take charge or control of the Trustee or of its property or
affairs for the purpose of rehabilitation, conservation or liquidation, then the
Servicer (or, with the consent of the Servicer and the Swap Provider,
Certificateholders with aggregate Fractional Interests representing 25% or more
of the Trust) may remove the Trustee. The Trustee may be removed without cause
by the Servicer or, with the consent of the Servicer and the Swap Provider,
Certificateholders with aggregate Fractional Interests of 51% or more of the
Trust. ((S) 10.8) In such circumstances, the Servicer will be obligated to
appoint a successor Trustee that has been approved in writing by the RUS. ((S)
10.8)
Any resignation or removal of a Trustee and appointment of a successor
Trustee does not become effective until acceptance of the appointment by the
successor Trustee. ((S)(S) 10.8, 10.9) Any Trustee under the Trust Agreement
must (i) at all times be a corporation which is a bank (as such term is defined
in the Investment Company Act of 1940), having a corporate trust office in the
United States and organized and doing business under the laws of any state or
the United States, authorized under applicable law to exercise corporate trust
powers, and having a combined capital and surplus of at least $50,000,000 and
subject to supervision or examination by Federal or state authorities, (ii) at
all times not be an affiliate of CFC, the Cooperative or the Swap Provider or
any Person involved in the organization or operation of CFC, the Cooperative or
the Swap Provider, and (iii) at all times be an Eligible Servicer (or affiliated
with an Eligible Servicer who agrees to act as Servicer in the event that the
Trustee is appointed Servicer upon a Service Transfer).
DUTIES AND IMMUNITIES OF THE TRUSTEE
The Trustee assumes no responsibility or liability for the correctness of
the recitals contained in the Trust Agreement or in any Certificate (other than
the Trustee's execution and authentication thereof). ((S) 10.3) The Trustee
makes no representations as to the validity or sufficiency of the Trust
Agreement, Certificates (other than its execution and authentication thereof),
Notes, Guarantees, Swap Agreement or any related document. ((S) 10.3)
The Trustee, prior to the occurrence of an Event of Servicing Termination
thereunder and after the curing of all such Events of Servicing Termination
which may have occurred, undertakes to perform such duties and only such duties
as are specifically set forth in the Trust Agreement. ((S) 10.1) Subject to
the foregoing sentence, the Trustee will be liable for its own negligence or
misconduct except for (i) good faith errors in judgment (provided the Trustee
was not negligent in ascertaining the pertinent facts) and (ii) actions taken or
omitted to be taken in good faith pursuant to the direction of
Certificateholders as described below. ((S) 10.1) If an Event of Servicing
Termination has occurred (which has not been cured), the Trustee is obligated to
exercise such of the rights and powers vested in it by the Trust Agreement, and
use the same degree of care and skill in their exercise, as a prudent person
would exercise or use under the circumstances in the conduct of such person's
own affairs. ((S) 10.1) The Trustee may not be charged with knowledge of
Events of Servicing Termination referred to in clauses (i)-(iii) of the first
paragraph under "-- Events of Servicing Termination" unless it has actual
knowledge thereof or has received notice thereof from the Servicer, the
Cooperative, CFC, the Swap Provider or the Certificateholders representing 25%
or more of the Trust. ((S) 10.2) The Trustee may require an adequate indemnity
before it incurs financial liability in the performance of its duties. ((S)
10.1)
Subject to the foregoing paragraph, if no Event of Servicing Termination
and no Swap Provider Default has occurred under the Trust Agreement, the Trustee
will have no responsibility or liability for or with respect to the
29
<PAGE>
performance or enforcement of the Notes or Guarantees (unless the Trustee is
acting as Servicer or unless it is held that the Servicer may not enforce such
Notes or Guarantees), the compliance by CFC or the Servicer with any covenant or
the breach by CFC or the Servicer of any warranty or representation made under
the Trust Agreement or in any related document or the accuracy of any such
warranty or representation, the validity of such Guarantees, the acts or
omissions of CFC or the Cooperative, any action of CFC taken in the name of the
Trustee, any action of the Trustee taken at the instruction of CFC or the
preparation of tax returns for the Trust. ((S) 10.3) Except for such liability
as is finally determined to have resulted from Trustee's gross negligence or
willful misconduct, (i) no recourse shall be had for any claim based on any
provision of the Trust Agreement, the Certificates or the Notes against the
Trustee in its individual capacity, and (ii) the Trustee shall not have any
personal obligation, liability or duty whatsoever to any Certificateholder or
any other person with respect to any such claim, and (iii) any such claim shall
be asserted solely against the Trustee or any indemnitor who shall furnish
indemnity as provided in the Trust Agreement. ((S) 10.3)
In the event of an Event of Servicing Termination by the Servicer or a Swap
Provider Default shall have occurred and is continuing, the Trustee in its
discretion may proceed to protect and enforce the rights of the
Certificateholders under the Trust Agreement by a suit, action or other
proceeding. ((S) 10.13) The Trustee has the legal power to exercise all the
rights, powers and privileges of a holder of the Notes as provided in the Loan
Agreement and the Loan Guarantee Agreement. ((S) 10.16) If any default under
the Notes, the Certificates, or the Swap Agreement known to the Trustee occurs
and is continuing, the Trustee must mail notice thereof to Certificateholders
within 90 days, but the Trustee may withhold such notice (except in the case of
a payment default) if it determines in good faith that doing so is in the
interests of Certificateholders. ((S) 10.18)
Under the Trust Agreement, the Servicer has agreed (i) to pay the Trustee
from time to time reasonable compensation for all services rendered by it
thereunder (which compensation may not be limited by any provision of law in
regard to the compensation of a trustee of an express trust), (ii) to reimburse
the Trustee and any predecessor Trustee upon its request for all reasonable
expenses, disbursements and advances incurred or made by the Trustee and any
predecessor Trustee in its capacity as Trustee in accordance with any provision
of that Trust Agreement (including the reasonable expenses and disbursements of
its agents (excluding the Servicer) and counsel), except to the extent such
expenses, disbursement or advance may be attributable to the Trustee's own
negligence or willful misconduct, and (iii) to indemnify each of the Trustee and
any predecessor Trustee for, and to hold it harmless against, any loss,
liability or expense arising out of or in connection with the acceptance or
administration of the Trust and its duties as Trustee, including the costs and
expenses of defending itself against any claim or liability in connection with
the exercise or performance of any of its powers or duties except to the extent
attributable to negligence or willful misconduct on its part. ((S) 10.6) The
Cooperative has agreed to pay the Trustee or reimburse the Servicer for any
Trustee's fees and expenses arising out of a Swap Provider Default. ((S) 10.6)
The Trust Agreement also provides that Certificateholders having aggregate
Fractional Interests of 51% or more of the Trust may, with the consent of the
Swap Provider and subject to certain exceptions, direct the time, method and
place of conducting any proceeding for any remedy available to the Trustee (or
the Servicer as the Trustee's attorney-in-fact), or exercising any trust power
conferred on the Trustee (or the Servicer as the Trustee's attorney-in-fact),
with respect to the corresponding Certificates; except that the Trustee (or the
Servicer as the Trustee's attorney-in-fact) need not comply with such directions
if it determines that the action would be illegal or unduly prejudicial to the
rights of Certificateholders not parties to such direction or if the Trustee
(but not the Servicer) determines that the action would involve it in personal
liability. ((S) 10.5) The Trustee will be under no obligation to exercise any
such remedy or power unless the Certificateholders shall have offered it
reasonable indemnity against costs incurred in connection therewith. ((S) 10.2)
THE TENDER AGENT
Pursuant to the Trust Agreement, The First National Bank of Chicago is
appointed as Tender Agent for the Certificates. ((S) 9.8) The Delivery Office
for The First National Bank of Chicago, as initial Tender Agent hereunder, shall
be c/o First Chicago Trust Company of New York, 14 Wall Street, 8th Floor -
Window 2, New York, New York 10005 (Telecopy: 212/240-8938), Attention:
Corporate Trust Administration. ((S) 12.7)
Any Tender Agent may at any time resign by giving at least 60 days written
notice to the Servicer, the Cooperative and others. ((S) 9.8) Any Tender Agent
may be removed at any time by the Trustee. ((S) 9.8) Any such resignation or
removal shall take effect only upon the appointment of, and acceptance of such
appointment by, a
30
<PAGE>
successor Tender Agent. ((S) 9.8) Any successor Tender Agent shall be
appointed by the Servicer or some party other than the Cooperative, with the
consent of the Liquidity Provider and the Swap Provider, and shall be a
commercial bank with trust powers or a trust company organized under the laws of
any state of the United States, having capital stock and surplus aggregating at
least $50,000,000, and willing and able to accept the office on reasonable and
customary terms and authorized by law to perform all the duties imposed upon it
by the Trust Agreement. ((S) 9.8)
Pursuant to the Trust Agreement, the Tender Agent waives any rights to, or
liens for, its fees, charges and expenses for its services from funds or
Certificates delivered to the Tender Agent pursuant to the Trust Agreement. ((S)
9.8) The Tender Agent will be reimbursed and compensated for its fees, charges
and expenses for acting under and pursuant to this Agreement only from moneys
provided by the Servicer. ((S) 9.8)
Pursuant to the Trust Agreement, the Cooperative has agreed to indemnify
the Tender Agent and its officers and employees against and save them harmless
from any and all losses, including reasonable fees and expenses of counsel,
incurred, arising out of or based upon their acting in good faith to carry out
the transactions contemplated by the Trust Agreement, except only to the extent
that they are caused by the negligent action, negligent failure to act or
willful misconduct of the Tender Agent. ((S) 9.8) However, the Tender Agent is
not protected from liability for its own negligence or willful misconduct. ((S)
9.8) The duties and obligations of the Tender Agent shall be determined solely
by the provisions of the Trust Agreement, and the Tender Agent is not liable
except for the performance of such duties and obligations as are specifically
set forth in the Trust Agreement, and, in the absence of bad faith on the part
of the Tender Agent, the Tender Agent may conclusively rely, as to the truth of
the statements expressed therein, upon any document furnished to the Tender
Agent and conforming to the requirements of the Trust Agreement. ((S) 9.8) The
Tender Agent may rely and shall be protected in acting upon any document
believed by it to be genuine and to have been signed or presented by the proper
party or parties, provided that, in the case of any such document which by any
provision of the Trust Agreement is specifically required to be furnished to the
Tender Agent, the Tender Agent shall be under a duty to examine the same to
determine whether or not it conforms to the requirements of the Trust Agreement.
((S) 9.8) The Tender Agent shall not be liable for good faith error of judgment
of its officers unless the Tender Agent was negligent in ascertaining the
pertinent facts. The Tender Agent shall not be liable at any time for interest
on any money received by it pursuant to the terms of the Trust Agreement. The
Tender Agent is entitled to the benefits of all protective provisions and
limitations accorded the Trustee in the Trust Agreement. ((S) 9.8)
THE REMARKETING AGENT
Pursuant to the Trust Agreement, if at any time the Remarketing Agent is
unable or unwilling to act as the Remarketing Agent, such Remarketing Agent,
upon 30 days' prior written notice to the Cooperative, the Servicer, the Trustee
and the Tender Agent, may resign. ((S) 9.9) The Remarketing Agent may be
removed at any time by the Swap Provider (unless a Swap Provider Default has
occurred and is continuing), subject to the terms and conditions of the
Remarketing Agreement. ((S) 9.9) Upon resignation or removal of the
Remarketing Agent or upon termination of the Remarketing Agreement (other than
termination of the Remarketing Agreement due to termination of the Swap
Agreement), the Cooperative, with the advice and consent of the Swap Provider,
shall appoint a successor Remarketing Agent. ((S) 9.9) In the event that the
Cooperative shall fail to appoint a successor Remarketing Agent, upon the
resignation or removal of the Remarketing Agent, the Swap Provider may appoint a
Remarketing Agent until the appointment of a successor Remarketing Agent in
accordance with the immediately preceding sentence. ((S) 9.9)
Pursuant to the Trust Agreement, Morgan and the Cooperative have agreed
upon and are responsible for the fees and expenses of the Remarketing Agent, and
neither the Trustee nor any Certificateholder shall have any liability or
responsibility therefor. ((S) 9.9)
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
Set forth below is a general discussion of certain Federal income tax
consequences arising from the ownership of Certificates purchased pursuant to
this offering. The discussion and the opinions expressed herein are based upon
the Internal Revenue Code of 1986, as amended, (the "Code") and United States
Treasury Regulations, as interpreted by court decisions and rulings and other
administrative pronouncements of the Internal Revenue Service. All such
authorities are subject to change, and such change could apply retroactively.
The opinions expressed herein are not binding on the Internal Revenue Service.
The discussion does not purport to deal with all aspects of Federal taxation
31
<PAGE>
that may be relevant to particular investors, some of whom may be subject to
special rules. Prospective investors are advised to consult their own tax
advisors regarding the Federal tax consequences arising out of the ownership of
Certificates.
TAX STATUS OF THE TRUST AND THE ASSETS HELD BY THE TRUST
Vinson & Elkins L.L.P. has delivered its opinion to the Trustee and the
Servicer that, under existing law as of the date hereof, for Federal income tax
purposes, (i) the Trust will not be classified as an association taxable as a
corporation, but will be classified as a grantor trust; (ii) each
Certificateholder will be treated as the owner of an undivided fractional
interest in each of the assets held by the Trust; and (iii) pursuant to Treasury
Regulation (S) 1.1275-6, the Trust will be treated as owning a debt instrument
having a principal amount equal to the principal amount of the Notes and bearing
interest at a rate equal to the rate payable by Morgan Guaranty under the Swap
Agreement (the "Synthetic Note").
The Trust Agreement contemplates several circumstances in which, in order
for certain actions to be taken in respect of the Trust or the property held by
the Trust, it will be necessary for the Trustee to obtain an opinion of counsel
that the taking of such action will not cause the Trust not to be treated as a
Pass-Through Organization. For purposes of any such opinion, a Pass-Through
Organization is an organization that for Federal income tax purposes, is not
treated as a corporation or an association taxable as a corporation but is, for
Federal income tax purposes, either (i) not a separate entity, (ii) a grantor
trust or (iii) a partnership. Therefore, in certain circumstances it is
possible that actions might be taken that could result in the Trust being
treated as a partnership rather than a grantor trust for Federal income tax
purposes. In the event the Trust should be treated as a partnership that owns
the Synthetic Note for Federal income tax purposes, under existing law, except
for the possible difference in treatment noted in the discussion under "--
Discount and Premium," the Federal income tax consequences to a
Certificateholder in such Certificateholder's capacity as a "partner" in such a
partnership should not be materially different than the Federal income tax
consequences to the Certificateholder, described below, in such
Certificateholder's capacity as an owner of an undivided fractional interest in
the Synthetic Note.
GENERAL TAX CONSEQUENCES TO ACQUIRING CERTIFICATEHOLDERS
Subject to the discussion under "--Recharacterization of Servicing Fees"
below, each Certificateholder, in accordance with its method of accounting, will
be required to include in income its allocable share of the interest on the
Synthetic Note. Each Certificateholder will also be required to include in
income its allocable share of that amount of interest on the Notes used to pay
its share of the Scheduled Servicing Fee and will also generally be entitled to
a corresponding deduction. However, a non-corporate Certificateholder's
allocable share of Scheduled Servicing Fee may be a "miscellaneous itemized
deduction". Under Section 67 of the Code, "miscellaneous itemized deductions"
are deductible only to the extent such deductions in the aggregate exceed 2% of
adjusted gross income.
DISCOUNT AND PREMIUM
Due to the manner in which the varying rates of interest distributable in
respect of the Certificates will be determined and the market for the
Certificates will operate, it is not expected that the price at which a
Certificate may be purchased will vary to any significant extent from the
Principal Amount of the Certificate. However, if a Certificateholder's
original basis in a Certificate is more or less than the Principal Amount
thereof, any positive difference may be amortizable bond premium within the
meaning of Section 171 of the Code, and any negative difference may be "market
discount" within the meaning of Section 1278(a)(2) of the Code (or, under
certain circumstances described below, "original issue discount" within the
meaning of Section 1273(a)(1) of the Code). The Code sets forth detailed rules
pursuant to which owners of debt instruments (i) are entitled to deduct
"amortizable bond premium," and (ii) are required to report as ordinary income
amounts representative of "original issue discount" or "market discount" (and
are also required to defer a portion of any deduction for interest on debt
incurred or continued to purchase a Certificate with market discount). In
general, the amount of amortizable bond premium deductible (if so elected) in
any taxable year, and the amount of original issue discount includable in
taxable ordinary income in any taxable year, are determined on a yield-to-
maturity basis, while market discount is includable in taxable ordinary income
only on disposition of the related debt instrument, and then only to the extent
of the gain on that disposition.
32
<PAGE>
The Synthetic Note, when originally acquired by the Trust, will bear
interest in the Weekly Rate Mode. In the event the Interest Rate Mode is
converted from one Interest Rate Mode to a different Interest Rate Mode, the
Internal Revenue Service may take the position that the conversion constitutes a
reissuance of the Synthetic Note. In that case, amounts that would be
characterized as market discount under the previous paragraph would, in
general, be characterized instead as original issue discount.
As discussed under the heading "--Tax Status of the Trust and the Assets
Held by the Trust," it is possible that actions might be taken that could result
in the Trust being treated as a partnership rather than a trust for federal
income tax purposes. If any such action were taken and a Certificateholder's
ownership of a Certificate was treated as the ownership of an interest in a
partnership that owns the Synthetic Note rather than ownership of an undivided
interest in the Synthetic Note itself, a Certificateholder would not be entitled
to deductions under the amortizable premium rules mentioned above and may not be
subject to the market discount rules upon the sale of a Certificate.
Due to the complexity and possible varying interpretations of the rules
that define and prescribe the reporting of amortizable bond premium, original
issue discount and market discount (as those rules apply to instruments such as
the Certificates) any Certificateholder whose original basis in a Certificate
differs from the Principal Amount thereof is advised to consult its own tax
advisor regarding whether amortizable bond premium, original issue discount or
market discount exists for federal income tax purposes, and, if so, how such
items should be reported.
RECEIPT OF PRINCIPAL OR SALE OR PREPAYMENT OF CERTIFICATES
A Certificateholder that receives a principal payment with respect to a
Certificate will recognize gain or loss equal to the difference between the
Certificateholder's tax basis in the principal payment and the amount of such
principal payment. A Certificateholder who sells a Certificate or whose
Certificate is prepaid will recognize gain or loss equal to the difference
between the Certificateholder's adjusted tax basis in the Certificate and the
amount realized from the sale or prepayment (exclusive of any portion thereof
which is allocable to interest on the related Synthetic Note that has accrued
but has not yet been distributed on the Certificate). Any such gain or loss
would be capital gain or loss if the Certificate were held as a capital asset,
except that, as noted above under "--Discount and Premium," in the case of a
Certificateholder who is considered to have acquired a Certificate with market
discount, gain from the receipt of a principal payment or from the sale or
prepayment of a Certificate would be treated as ordinary income to the extent of
any accrued market discount not previously reported as income.
In general, a Certificateholder's tax basis in a principal payment likely
will be determined by multiplying the Certificateholder's adjusted tax basis in
the Certificate at the time of the principal payment by a fraction whose
numerator is the amount of the principal payment and whose denominator is the
amount of unpaid principal on the Certificate immediately prior to the principal
payment. A Certificateholder's adjusted tax basis in a Certificate will equal
the Certificateholder's original basis in the Certificate (exclusive of any
portion thereof which is allocable to interest on the related Synthetic Note
that had accrued but had not yet been distributed on the Certificate on the date
of purchase), decreased by any principal payments previously received by the
Certificateholder on the Certificate and increased by the amount of any market
discount or original issue discount previously included in income by the
Certificateholder and by any gain recognized by the Certificateholder on
previous principal payments (but only to the extent that such gain exceeded the
amount of market discount, if any, recognized by the Certificateholder on the
previous principal payments).
RECHARACTERIZATION OF SERVICING FEES
There are no authoritative guidelines for Federal income tax purposes as to
the maximum amount of servicing fees that may be considered reasonable in the
context of this or similar transactions, nor are there authoritative guidelines
as to the proper recharacterization, if any, of servicing fees to the extent
they may be determined to exceed a reasonable amount. For example, should the
Internal Revenue Service contend that a portion of the Scheduled Servicing Fee
receivable by the Servicer under the Trust Agreement is excessive and thus is
not deductible for tax purposes, such excessive portion might be recharacterized
as an ownership interest retained by the Servicer in a portion of each interest
payment on the Synthetic Note.
The recharacterization of all or a portion of the Scheduled Servicing Fee
receivable by the Servicer as an ownership interest retained by the Servicer in
a grantor trust would not, in the opinion of Vinson & Elkins L.L.P., negatively
affect the classification of a Trust as a grantor trust. Moreover, except as
described below, any such
33
<PAGE>
recharacterization should not have a material effect on the amount or timing of
income recognized by a Certificateholder with respect to the Certificates:
First, a Certificateholder would not have any income or deductions in respect of
amounts allocable to any ownership interest deemed retained by the Servicer.
Second, the Certificates probably would be subject to the "stripped bond" rules
of Section 1286 of the Code. In general, this would have the effect of treating
the Certificateholder's allocable share of the interest payable on the Synthetic
Note (excluding the excessive portion of the Scheduled Servicing Fee) as
original issue discount, thereby accelerating the recognition of interest income
to a cash basis Certificateholder. Application of the "stripped bond" rules
would also have the effect of treating as original issue discount (which
generally must be included in income currently as it accrues) any amount that,
in the circumstances discussed under "--Discount and Premium" above, would
otherwise be considered market discount (which, absent an election by the
Certificateholder, need not be included in income until the Certificate is sold
or principal payments are received).
Alternatively, the excessive portion of the Scheduled Servicing Fee might
be recharacterized as deferred payments of additional purchase price by a
Certificateholder, which would increase such Certificateholder's basis in the
Certificate for purposes of determining whether the Certificate was acquired at
a discount, at par, or at a premium. Under this alternative, a
Certificateholder may also be entitled to a deduction for unstated interest with
respect to each deferred payment.
Prospective investors are advised to consult their tax advisors as to the
possible application of either of the foregoing alternatives.
BACKUP WITHHOLDING
In order to avoid the impositions of 31% backup withholding on payments of
principal and interest on the Certificates, each Certificateholder will be
required to provide to the Trust a completed and signed Form W-9, or other
acceptable evidence, showing that the holder is not subject to backup
withholding.
FOREIGN CERTIFICATEHOLDERS
Payments of interest made to "Foreign Certificateholders" (as hereinafter
defined) will generally be exempt from 30% (or lower treaty rate)United States
withholding tax if such Certificateholders provide required certification as to
their identity and non-United States status under penalties of perjury.
"Foreign Certificateholders" are Certificateholders who are not (i) citizens or
residents of the United States, (ii) corporations or other entities organized in
or under the laws of the United States or (iii) of any state thereof, or United
States estates or trusts. Notwithstanding the foregoing, if such payments are
effectively connected with a United States trade or business conducted by the
Certificateholder, they will be subject to regular United States income tax, but
will ordinarily be exempt from United States withholding tax.
CERTAIN STATE AND LOCAL INCOME TAX CONSEQUENCES
Vinson & Elkins L.L.P. has delivered its opinion to the Trustee that for
District of Columbia income and franchise tax purposes the Trust will, with
respect to Certificateholders, be classified as a grantor trust and not as an
association taxable as a corporation, under existing law as of the date hereof,
that each Certificateholder will therefore be treated as the owner of an
undivided interest in the Synthetic Note held by the Trust in the same manner as
for Federal income tax purposes, and that Certificateholders who are not
residents of or otherwise subject to tax in the District of Columbia will not be
subject to District of Columbia income or franchise tax with respect to interest
and other income from the Synthetic Note or a Certificate solely as a result of
the purchase, ownership or sale of Certificates. MOREOVER, IN THE EVENT THE
TRUST TAKES SOME ACTION RESULTING IN A DETERMINATION THAT IT IS PROPERLY
CLASSIFIED AS A PARTNERSHIP FOR FEDERAL INCOME TAX PURPOSES, AMOUNTS OF INTEREST
ON THE SYNTHETIC NOTE THAT MAY BE CONSIDERED TO BE INCLUDED IN THE GROSS INCOME
OF THE TRUST (AND ALLOCABLE TO THE CERTIFICATEHOLDERS) WILL NOT BE SUBJECT TO
THE DISTRICT OF COLUMBIA FRANCHISE TAX IN RESPECT OF INCOME DERIVED BY AN
UNINCORPORATED BUSINESS FROM A TRADE OR BUSINESS CARRIED ON IN THE DISTRICT OF
COLUMBIA.
Vinson & Elkins L.L.P. also has delivered its opinion to the Trustee that
for Commonwealth of Virginia income and franchise tax purposes the Trust will,
with respect to Certificateholders, be classified as a grantor trust and not as
an association taxable as a corporation, under existing law as of the date
hereof, that each Certificateholder will therefore
34
<PAGE>
be treated as the owner of an undivided interest in the Synthetic Note held by
the Trust in the same manner as for Federal income tax purposes, and that
Certificateholders who are not residents of or otherwise subject to tax in the
Commonwealth of Virginia will not be subject to Commonwealth of Virginia income
or franchise tax with respect to interest and other income from the Synthetic
Note or a Certificate solely as a result of the purchase, ownership or sale of
Certificates.
Mayer, Brown & Platt has delivered its opinion to the Trustee that, under
existing law as of the date hereof and assuming that the Trust qualifies as a
grantor trust for Federal income tax purposes, for Illinois income and franchise
tax purposes the Trust will, with respect to Certificateholders, be classified
as a grantor trust and not as an association taxable as a corporation, that each
Certificateholder will therefore be treated as the owner of an undivided
interest in the Synthetic Note held by the Trust in the same manner as for
Federal income tax purposes and that Certificateholders who are not residents of
or otherwise subject to tax in Illinois will not be subject to Illinois income
or franchise tax with respect to interest and other income from the Synthetic
Note or a Certificate solely as a result of the purchase, ownership or sale of
Certificates. Illinois does not levy an ad valorem tax on intangible property
such as the Notes, the Swap Agreement or the Certificates. Further, there is no
Illinois transfer tax applicable to the purchase or sale of the Certificates.
In the event that actions are taken which result in the Trust being treated as a
partnership rather than as a grantor trust, however, Illinois could view the
partnership as doing business in Illinois, and the Trust could be subject to
Illinois personal property replacement income tax. Such tax could result in
reduced distributions to Certificateholders. Also, a Certificateholder not
otherwise subject to taxation in Illinois could become subject to Illinois
income taxes as a result of its mere ownership of Certificates.
Prospective investors, whether or not they are residents of, or otherwise
subject to, taxation in the District of Columbia, Virginia or Illinois, are
advised to consult their own tax advisors with respect to any state or local tax
consequences arising out of the ownership of Certificates.
ERISA CONSIDERATIONS
The United States Department of Labor ("DOL") has published a regulation to
the effect that an employee benefit plan (a "Plan") subject to the Employee
Retirement Income Security Act of 1974, as amended ("ERISA") and/or to Section
4975 of the Code, that acquires an equity interest in an entity, such as
certificates of beneficial ownership in a grantor trust, will not be required to
treat any of the underlying assets of the entity as assets of the Plan for
purposes of ERISA and Section 4975 of the Code if the class of equity interests
in question are (i) held by 100 or more investors independent of the issuer and
of each other, (ii) freely transferable and (iii) sold as a part of an offering
pursuant to an effective registration statement under the Securities Act of
1933, and then timely registered under section 12(b) or 12(g) of the Securities
Exchange Act of 1934. Although there are no restrictions imposed on the
transfer of the Certificates and CFC intends to cause the registration
requirements to be satisfied, the Underwriter believes it is possible that the
Certificates will be held by fewer than 100 independent investors at the
conclusion of the offering made by this Prospectus.
Consequently, a Plan's assets may be deemed to include assets of the Trust
if it holds Certificates of the Trust (assuming that 25% or more of the
Certificates are held by Plans and other "benefit plan investors," as defined in
the DOL regulations). If the assets of the Trust are deemed to be assets of a
Plan, the Plan may be restricted in its ability to maintain future financial
transactions with CFC (e.g., to acquire or hold debt obligations of or
guaranteed by CFC). In addition, acquisition or holding of such Certificates by
a Plan could result in violations of the fiduciary responsibility provisions of
ERISA or the prohibited transaction rules under ERISA and the Code (which
prohibit a Plan from engaging in certain transactions involving "plan assets"
with parties which are "parties in interest" under ERISA or "disqualified
persons" under the Code with respect to the Plan). CFC has filed with the DOL
an application for an exemption covering such transactions (as well as the
purchase by CFC of the Notes, the contribution of the Notes, as amended, to the
Trust, the acquisition, holding and disposition of Certificates by Plans, and
certain Trust and Trustee activities). Based on preliminary conversations with
the DOL, CFC believes that it will obtain such an exemption. Such exemption,
however, would not extend to any potential prohibited transactions arising from
the Swap Agreement.
With regard to potential prohibited transactions, certain exemptions from
the prohibited transaction rules could also be applicable, depending in part
upon the status of the Plan fiduciary making the decision to acquire, hold or
dispose of a Certificate and the circumstances of such acquisition, holding or
disposition. Included among these exemptions are
35
<PAGE>
DOL Prohibited Transaction Exemptions 96-23 (Class Exemption for Plan Asset
Transactions Determined by an In-House Asset Manager), 95-60 (Class Exemption
for Certain Transactions Involving Insurance Company General Accounts), 84-14
(Class Exemption for Plan Asset Transactions Determined by Independent Qualified
Professional Asset Managers), 91-38 (Class Exemption for Certain Transactions
Involving Bank Collective Investment Funds) and 90-1 (Class Exemption for
Certain Transactions Involving Insurance Company Pooled Separate Accounts). In
this regard, Plan fiduciaries should consider whether Morgan Guaranty Trust
Company of New York, which is the counterparty to the Swap Agreement, and which
is also obligated to provide, or cause another qualified financial institution
to provide, the Liquidity Facility, is a party in interest or a disqualified
person with respect to the Plan and, if so, whether the acquisition, holding or
disposition of a Certificate is eligible for exemption from the prohibited
transaction rules.
Employee benefit plans that are governmental plans (as defined in section
3(32) of ERISA) and certain church plans (as defined in section 3(33) of ERISA)
are not subject to ERISA requirements.
Any Plan fiduciary considering the purchase of Certificates should consult
its tax and/or legal advisors regarding these and other issues and their
potential consequences.
UNDERWRITING
Pursuant to the Forward Certificate Purchase Agreement dated December 20,
1996 (the "Underwriting Agreement"), a copy of which is filed as an Exhibit to
the Registration Statement of which this Prospectus is a part, Alex. Brown &
Sons Incorporated has agreed to purchase, and CFC has agreed to sell to it, the
Certificates. The Underwriting Agreement provides that the obligations of the
Underwriter are subject to certain conditions as therein set forth. The
Underwriter will be obligated to purchase all the Certificates if any
Certificates are purchased. The Cooperative has agreed to pay to the
Underwriter an Underwriter's fee of $286,950.
The Underwriter proposes to offer the Certificates to the public initially
at 100% of their principal amount.
After the initial public offering, such public offering price may be
changed.
The Cooperative has agreed to indemnify the Underwriters and CFC against
certain civil liabilities, including liabilities under the Securities Act of
1933.
Alex. Brown & Sons Incorporated acted as an agent for the Cooperative in
connection with the selection of the Morgan Guaranty as provider of the Swap
Agreement; Morgan Guaranty (the provider of the Swap Agreement) paid a fee to
Alex. Brown & Sons Incorporated in the amount of $221,486 in respect of those
services after Morgan Guaranty was selected as the provider of the Swap
Agreement and entered into the Swap Agreement.
LEGAL MATTERS
The legality of the issuance of the Certificates and certain Federal tax
matters will be passed upon for the Cooperative by Vinson & Elkins L.L.P.,
Houston, Texas. The legality of the issuance of the Certificates will be
passed upon for CFC by Milbank, Tweed, Hadley & McCloy, New York, New York, and
for the Underwriters by Mayer, Brown & Platt, Houston, Texas.
GLOSSARY
"Affiliate" shall mean, with respect to any Person, any other Person
directly or indirectly controlling, controlled by, or under direct or indirect
common control with such specified Person. For the purposes of this definition,
"control" when used with respect to any specified Person means the power to
direct the management and policies of such Person, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise;
and the terms "controlling" and "controlled" have meanings correlative to the
foregoing.
36
<PAGE>
"Alternate Liquidity Facility" shall mean a standby certificate purchase
agreement, an irrevocable letter of credit, line of credit or similar agreement,
as amended, supplemented or extended from time to time, provided by Morgan
Guaranty Trust Company of New York or by another bank or financial institution
selected by Morgan Guaranty Trust Company of New York to the Cooperative (or by
the Cooperative if Morgan Guaranty Trust Company of New York does not so
provide), and which satisfies the requirements for an Alternate Liquidity
Facility set forth in the Trust Agreement.
"Alternate Rate" shall mean on any date, the interest equivalent of the 30-
day rate on commercial paper placed on behalf of issuers whose corporate bonds
are rated "AA" by S&P or its successor, or the equivalent of such rating by
another rating agency, as made available on a discount basis or otherwise by the
Federal Reserve Bank of New York for the nearest Business Day prior to such
date; provided, however, that the Alternate Rate shall not exceed the Maximum
Certificate Rate.
"Alternate Swap Agreement" shall mean an interest rate swap agreement
containing the same material terms, amounts and duration as the Swap Agreement
entered into by the Cooperative and any qualified swap dealer in replacement of
the Swap Agreement.
"Available Commitment" as of any date shall mean the sum of the Available
Principal Commitment and the Available Interest Commitment, in each case as of
such date.
"Available Interest Commitment" initially shall mean the amount set forth
in the Standby Certificate Purchase Agreement, which amount is equal to _____
days (in the initial Standby Certificate Purchase Agreement) of interest
distributable with respect to the aggregate principal amount of the
Certificates, calculated at the rate of 18% (in the initial Standby Certificate
Purchase Agreement) per annum and on the basis of the actual number of days
elapsed in a year of 360 days, and thereafter shall mean such initial amount
adjusted from time to time as follows: (a) downward by an amount that bears the
same proportion to such initial amount as the amount of any reduction in the
Available Principal Commitment pursuant to the definition of "Available
Principal Commitment" bears to the Available Principal Commitment and (b) upward
by an amount that bears the same proportion to such initial amount as the amount
of any increase in the Available Principal Commitment pursuant to clause (c) of
the definition of "Available Principal Commitment" bears to the Available
Principal Commitment.
"Available Principal Commitment" initially shall mean the amount set forth
in the Standby Certificate Purchase Agreement as the "Principal Commitment" and
thereafter shall mean such initial amount adjusted from time to time as follows:
(a) downward by the amount of any reduction in the Available Principal
Commitment upon any redemption, repayment or other payment of all or any portion
of the principal amount of the Certificates as provided in the Standby
Certificate Purchase Agreement; (b) downward by the principal amount of any
Certificates purchased by the Liquidity Provider in accordance with the terms of
the Standby Certificate Purchase Agreement and the Trust Agreement; and (c)
subject to certain restrictions, upward by the principal amount of any
Certificates, theretofore purchased by the Liquidity Provider, which are sold by
the Liquidity Provider.
"Available Funds" shall mean, (i) for any Certificate Interest Payment
Date, the Swap Payment on deposit in the Trust Account, or, in the event there
has occurred and is continuing a Swap Provider Default, Guaranteed Interest on
deposit in the Trust Account, less the Scheduled Servicing Fee, and the interest
and any other amounts earned on such funds and deposited in the Trust Account,
(ii) for any Certificate Principal Payment Date, the Note Payments, including
any payments received from the RUS pursuant to the Guarantee (less any
Guaranteed Interest) on deposit in the Trust Account, and the interest and any
other amounts earned on such funds and deposited in the Trust Account, and (iii)
for any Swap Provider Payment Date, the Guaranteed Interest on deposit in the
Trust Account and the interest and any other amounts earned on such funds and
deposited in the Trust Account, less the Scheduled Servicing Fee.
"Business Day" shall mean any day of the year other than (i) a Saturday or
Sunday, (ii) a legal public holiday under 5 U.S.C. (S) 6103 for the purpose of
statutes relating to pay and leave of employees or any other day declared to be
a legal public holiday for the purpose of statutes relating to pay and leave of
employees by Federal statute or Federal Executive Order, (iii) any day on which
banks in the city in which the principal corporate trust office of the Trustee
is located are required or authorized by law to remain closed, (iv) any day on
which banks in the city or cities in which the principal office of the
Remarketing Agent, Liquidity Provider and Servicer is located are required or
authorized by law to remain closed, (v) any day which is not a Local Business
Day as defined in the Swap Agreement, and (vi) any day on which commercial banks
in New York City or the New York Stock Exchange is closed.
37
<PAGE>
"Call Date," with respect to the Notes, shall mean the date on which the
Notes are being prepaid or purchased pursuant to the terms of the Loan Agreement
and the Loan Guarantee Agreement.
"Certificate" shall mean a Rural Electric Cooperative Grantor Trust
Certificate (KEPCO) Series 1997, evidencing a Fractional Interest.
"Certificate Interest Payment Date" shall mean, subject to the next
following sentence, (i) while Interest is distributable at the Weekly Rate, the
first Wednesday of each month or if Wednesday is not a Business Day, the next
succeeding Business Day; (ii) while Interest is distributable at the Flex Rate,
the day following the last day of each Flex Period or if such day is not a
Business Day, the next succeeding Business Day; and (iii) with respect to any
Certificate which is being redeemed any day on which such Certificate is
redeemed or the final maturity. If at any time no Swap Agreement is in effect,
or if on any Certificate Interest Payment Date the Trustee has not received any
Swap Payment, Certificateholders shall be entitled to receive distributions of
Interest from payments of Guaranteed Interest on the Notes calculated at the
Fixed Rate on the Notes less the Servicer Spread, on each June 15 and December
15 (or if such day is not a Business Day, the next succeeding Business Day).
"Certificate Payment Date" shall mean any Certificate Interest Payment Date
or Certificate Principal Payment Date and the final maturity date of the
Certificates.
"Certificate Principal Payment Date" shall mean each December 15 after the
Refinancing Date, any Call Date and the final maturity date of the Certificates.
"Certificate Register" shall mean the certificate register maintained
pursuant to the Trust Agreement.
"Certificateholder" shall mean the Person in whose name a Certificate is
registered on the Certificate Register.
"CFC" shall mean National Rural Utilities Cooperative Finance Corporation
or any Person succeeding to the business thereof which, in its capacity as
Servicer, is an Eligible Servicer pursuant to the Regulations.
"Collateral Account" shall mean the account of the same name created under
the Trust Agreement.
"Commitment" shall mean the Available Commitment determined without regard
to any adjustment to the Available Principal Commitment made pursuant to clause
(b) or (c) of the definition thereof.
"Conversion" shall mean any change from time to time, in accordance with
the terms of the Trust Agreement, of the Swap Provider's obligations under the
Swap Agreement to pay a variable interest rate on the Certificates from one
Interest Rate Mode to another Interest Rate Mode or from one Flex Rate Period to
another Flex Rate Period of a different duration.
"Conversion Date" shall mean the date on which there is a Conversion.
"Cooperative" shall mean Kansas Electric Power Cooperative, Inc., a Kansas
nonprofit cooperative corporation.
"Credit Support Annex" means that certain Credit Support Annex to the Swap
Agreement.
"Credit Support Document" shall mean, with respect to the Cooperative, the
Notes, the Guarantees and the Trust Agreement, and, with respect to Morgan
Guaranty, the Credit Support Annex.
"Credit Support Provider" shall mean, with respect to the Swap Agreement,
the United States of America acting through the Administrator of the Rural
Utilities Service.
"DTC" shall mean The Depository Trust Company, New York, New York.
"Early Termination Date" shall mean the date of termination of the Swap
Agreement prior to the scheduled termination thereof due to the occurrence of a
Swap Agreement Event of Default or a Swap Agreement Termination Event.
38
<PAGE>
"Eligible Servicer" shall mean either (a) any Person that is (i) not an
Affiliate of the Cooperative, (ii) a Financially Viable Lender (as defined in
the Regulations), (iii) legally qualified to service the Notes and (iv) approved
in writing by RUS to act as Servicer or (b) CFC.
"First Amendment to Loan Agreement" shall mean that certain First Amendment
to Loan Agreement entered into as of December 20, 1996 between the Cooperative
and CFC.
"First Amendment to Loan Guarantee Agreement" shall mean that certain First
Amendment to Loan Guarantee Agreement, entered into as of December 20, 1996 and
effective as provided therein, among CFC, as Servicer and depositor of the
Notes, the Trustee, the Cooperative and the RUS
"Fixed Rate," with respect to the Notes, shall mean the sum of (i) 7.654%
per annum, and (ii) the Servicer Spread; provided, however, that (y) if at any
time on or after the Refinancing Date, the Certificates have been registered
with the United States Securities and Exchange Commission and are issued in a
registered public offering, the Fixed Rate shall, pursuant to the mechanism
provided in the Swap Agreement, thereafter be reduced by 10 basis points (.10%)
per annum and (x) if at any time on or after the Refinancing Date, all
requirements of ERISA are satisfied so that the Certificates can be sold without
any limitations to "employee benefit plans" (as such term is defined in Section
3(3) of the Employee Retirement Income Security Act of 1974, as amended), the
Fixed Rate shall, pursuant to the mechanism provided in the Swap Agreement,
thereafter be reduced by 5 basis points (.05%) per annum.
"Flex Rate" shall mean the interest rate payable under the Swap Agreement
and distributable with respect to the Certificates for a particular Flex Rate
Period as established by the Remarketing Agent not later than 3:00 p.m. (New
York, New York time) on the last Business Day next preceding the first day of
such Flex Rate Period as the minimum rate of interest necessary, in the judgment
of the Remarketing Agent, to enable the Remarketing Agent to sell the
Certificates on such day at a price equal to par provided that such rate shall
not exceed the Maximum Certificate Rate.
"Flex Rate Mode" shall mean the Interest Rate Mode in which the variable
interest rate payable to the Trust under the Swap Agreement by the Swap
Provider and distributable as Interest with respect to the Certificates is
determined at the Flex Rate.
"Flex Rate Period" shall mean any period beginning on and including the
relevant Conversion Date to the Flex Rate Mode or beginning on and including the
first day of a new Flex Rate Period and ending on, and including, the day
preceding the day selected by the Remarketing Agent with the consent of the Swap
Provider to be the end of such Flex Rate Period for the Certificates, and each
period of the same duration (or as close as possible) ending on a Business Day
thereafter until the earliest of the day preceding the change to (i) the Weekly
Rate Mode, (ii) a Flex Rate Period of a different duration or (iii) the maturity
of the Certificates.
"Fractional Interest" shall mean an undivided fractional interest in the
Trust and, as to a particular Certificate, shall mean the undivided fractional
interest in the Trust represented by that Certificate and equal to the
percentage obtained by dividing the denomination representing the Principal
Amount of such Certificate by the Principal Balance of the Certificates.
"Guaranteed Interest" for any Note on any date shall mean (i) all unpaid
and accrued interest on the outstanding principal balance of such Note through
such date, calculated at the applicable Guaranteed Interest Rate for such Note,
plus (ii) (to the extent permitted by applicable law) all unpaid and accrued
interest through such date on overdue Guaranteed Interest described in clause
(i) of this paragraph, calculated at the applicable Guaranteed Interest Rate for
such Note.
"Guaranteed Interest Rate" for any Note at any time shall mean the then
applicable Fixed Rate for such Note.
"Guarantees" shall mean the Guarantees endorsed on the Notes by the
Administrator of the RUS.
"Illegality" shall mean the adoption of, or any change in, any applicable
law after December 23, 1996, or 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, causing it to be unlawful
(other than as a result of a breach of any consent necessary to be obtained by a
party with respect to the Swap Agreement) for such party (an "Affected Party")
39
<PAGE>
to (i) to perform any absolute or contingent obligation to make a payment or
delivery or to receive a payment or delivery in respect of the Swap Agreement or
to comply with any other material provision of the Swap Agreement; or (ii) to
perform, or for the Credit Support Provider to perform, any contingent or other
obligation which the party (or the Credit Support Provider) has under any Credit
Support Document.
"Immediate Notice" shall mean notice transmitted by facsimile to the
telecopy number specified in the Trust Agreement of the intended recipient which
is immediately confirmed by telephone with the intended recipient.
"Initial Principal Amount" shall mean $57,390,000.
"Interest" shall mean, with respect to any Certificate for any Certificate
Interest Payment Date (or any other date that is treated as if it were a
Certificate Interest Payment Date) when the variable rate of interest payable by
the Swap Provider under the Swap Agreement is in the Weekly Rate Mode or Flex
Rate Mode, interest calculated on the basis of the actual number of days elapsed
over a year of 360 days at the Weekly Rate or Flex Rate, respectively, on the
aggregate Principal Balance of the Certificates and computed over a period of
time ending on, but not including, the associated Certificate Interest Payment
Date (or such other date) and beginning on the next preceding Certificate
Interest Payment Date (or the Refinancing Date if there is no next preceding
Certificate Interest Payment Date). If at any time there is no Swap Agreement
in effect or the Trustee has not received a Swap Payment which is due, Interest
is distributable at an amount equal to interest calculated on the basis of a
year of 360 days consisting of twelve 30-day months at the Fixed Rate (less the
Servicer Spread) on the Principal Balance of the Notes and computed over a
period of time ending on, but not including, the most recent Note Payment Date
and beginning on the next preceding Note Payment Date or for the period of such
delinquency.
"Interest Period" with respect to the Certificates, shall mean the period
from and including each Certificate Interest Payment Date to and including the
day next preceding the next Certificate Interest Payment Date. The first
Interest Period shall begin on (and include) the Refinancing Date. The final
Interest Period shall end on the maturity date for each Certificate.
"Interest Rate Mode" shall mean the Weekly Rate Mode or the Flex Rate Mode.
"Interest Rate Period" shall mean, with respect to the Certificates, while
the Certificates are in the Weekly Rate Mode, the period from and beginning on a
Rate Setting Date to, but not including, the next succeeding Rate Setting Date,
and, while the Certificates are in the Flex Rate Mode, the period from and
beginning on the first day of such Flex Rate Period to, and including, the last
day of such Flex Rate Period.
"Liquidity Protection Agreement" shall mean that certain Liquidity
Protection Agreement, dated as of December 20, 1996, by, and between the
Cooperative and Morgan Guaranty Trust Company of New York.
"Liquidity Provider" shall mean the provider from time to time of the
Liquidity Facility or any Alternate Liquidity Facility.
"Liquidity Facility" shall mean initially an agreement substantially in the
form of the Standby Certificate Purchase Agreement attached as Exhibit A to the
Liquidity Protection Agreement between the Cooperative and a Liquidity Provider
selected pursuant to the Liquidity Protection Agreement and subsequently, any
Alternate Liquidity Facility.
"Loan Agreement" shall mean the Loan Agreement, dated as of February 15,
1988, between the Cooperative and CFC as amended by the First Amendment to Loan
Agreement.
"Loan Guarantee Agreement" shall mean that certain Loan Guarantee and
Servicing Agreement, dated as of February 18, 1988, among CFC, as Servicer and
depositor of the Notes, the Trustee, the Cooperative and the RUS, as amended by
the First Amendment to Loan Guarantee Agreement.
"Maximum Certificate Rate" shall mean, with respect to the Certificates,
18% per annum or such higher rate as the Swap Agreement may be amended (pursuant
to the Trust Agreement) to permit or provide.
40
<PAGE>
"Morgan" shall mean Morgan Guaranty Trust Company of New York, in its
capacity as party to the Liquidity Protection Agreement.
"Morgan Guaranty" shall mean Morgan Guaranty Trust Company of New York, in
its capacity as a party to the initial Swap Agreement.
"Mortgage" shall mean the first mortgage on the Cooperative's assets that
secures all Federal guarantees and first mortgage loans from the RUS and CFC.
"Mortgage Default" shall mean the happening of any one or more of the
following events: (i) default shall be made in the payment of any installment of
or on account of interest on, premium, if any, or principal of, any note or
notes secured by or under the Mortgage when and as the same shall be required to
be made whether by acceleration or otherwise; (ii) the Cooperative shall file a
petition in bankruptcy or be adjudicated a bankrupt or insolvent, or shall make
an assignment for the benefit of its creditors, or shall consent to the
appointment of a receiver of itself or of its property, or shall institute
proceedings for its reorganization or proceedings instituted by others for its
reorganization shall not be dismissed within 30 days after the institution
thereof; (iii) a receiver, trustee or liquidator of the Cooperative or of any
substantial portion of its property shall be appointed and the order appointing
such receiver or liquidator shall not be vacated within 30 days after the entry
thereof; (iv) any representation or warranty made by the Cooperative in the
Mortgage, in any loan or other credit agreement secured by or under the Mortgage
or in any certificate delivered under the Mortgage or any such loan or credit
agreement shall prove to have been incorrect or untrue in any material respect
when made; (v) default shall be made in the due performance of any of the
covenants, conditions or agreements on the part of the Cooperative contained in
certain sections of the Mortgage, namely: (a) the section of the Mortgage
pertaining to encumbrances on mortgaged property; (b) the section of the
Mortgage pertaining to payments and prepayments of notes secured by or under the
Mortgage; (c) the section of the Mortgage pertaining to the preservation of
corporate existence, compliance with laws, mergers and consolidations and
dispositions of capital assets; (d) the section of the Mortgage pertaining to
property purchases and property leases; (e) the section of the Mortgage
pertaining to system extensions and additions and certain contracts; (f) the
section of the Mortgage pertaining to dividends, patronage refunds and other
cash distributions; (g) the section of the Mortgage pertaining to loans,
investments and other obligations; and (h) if included in the Mortgage, the
section thereof pertaining to certain representations and covenants made in
certain pollution control financing arrangements; (vi) default shall be made in
the due observance or performance of any other of the covenants, conditions or
agreements on the part of the Cooperative contained in the Mortgage or in any of
the notes secured thereby or thereunder, and such default shall continue for a
period of 30 days after written notice specifying such default and requiring the
same to be remedied shall have been given to the Cooperative by any holder of a
note secured by or under the Mortgage; (vii) the Cooperative shall forfeit or
otherwise be deprived of its corporate charter or franchises, permits, easements
or licenses required to carry on any material portion of its business; (viii) a
final judgment shall be entered against the Cooperative and shall remain
unsatisfied or without a stay in respect thereof for a period of 30 days; or
(ix) a violation shall have occurred with respect to the terms of any
subordination agreement entered into in connection with any indebtedness of the
Cooperative the payment of which had been subordinated to the prior payment of
indebtedness secured by and under the Mortgage.
"Note Payment Date" shall mean the dates on which Principal, if any, or
Guaranteed Interest is payable on the Notes as set forth in the Loan Agreement,
and, in the event the Notes are prepaid or purchased pursuant to the Loan
Agreement, the Call Date.
"Note Payments" shall mean (i) the payments of Principal, if any, and
Guaranteed Interest due on the Notes on the Note Payment Dates (whether paid or
not), and, (ii) in the event the Notes are prepaid or purchased pursuant to
Section 3.9(a) of the Loan Agreement or Section 6.1 of the Loan Guarantee
Agreement, the amount deposited with the Trustee with respect to such prepayment
or purchase specified in Section 3.9(a)(iii) of the Loan Agreement.
"Notes" shall mean, collectively, Note One and Note Two from the
Cooperative, issued pursuant to the Loan Agreement, in the original principal
amounts of $11,075,000 and $51,340,000, respectively, and to be outstanding, as
of the date of issuance of the Certificates, in the principal amounts of
$6,050,000 and $51,340,000, respectively, and to be delivered to the Trust.
41
<PAGE>
"Pass-Through Organization" shall mean an organization that, for Federal
income tax purposes, is not treated as a corporation or an association taxable
as a corporation but is, for Federal income tax purposes, either (i) not a
separate entity, (ii) a grantor trust, or (iii) a partnership.
"Person" shall mean any legal person, including any individual,
corporation, partnership, joint venture, association, joint stock company,
trust, unincorporated organization or government or any agency or political
subdivision thereof.
"Posted Collateral" shall mean amounts deposited in the Collateral Account
pursuant to the Swap Agreement.
"Principal" shall mean, with respect to the Notes or the Certificates as
the context may require, for any Certificate Payment Date and the corresponding
Note Payment Date, as applicable, the sum of (i) the regularly scheduled payment
of principal due on the Notes on that Note Payment Date; (ii) in respect of any
date on which the Notes are accelerated, the amount of principal so accelerated
and (iii) in respect of any Call Date, the amount of the Notes prepaid or
purchased, in each case whether paid by the Cooperative or the RUS.
"Principal Amount" shall mean, with respect to any Certificate, the
Original Principal Amount minus all payments of Principal (including payments
made by reason of prepayment or purchase) made with respect to such Certificate.
"Principal Balance" shall mean for any date, (i) with respect to the Notes,
the Initial Principal Amount minus all payments of Principal made in respect of
the Notes on or prior to that date and (ii) with respect to the Certificates,
the Initial Principal Amount minus all payments of Principal made in respect of
the Certificates on or prior to that date.
"Purchase Date" shall mean any Business Day during the Purchase Period with
respect to which the Liquidity Provider has received a notice of purchase
pursuant to the Standby Certificate Purchase Agreement.
"Purchase Period" shall mean the period from the effective date of the
Standby Certificate Purchase Agreement to and including the earlier of (i) the
Scheduled Termination Date, (ii) the date on which no Certificates are
outstanding, and (iii) the date on which the Commitment has been terminated in
its entirety pursuant to the Standby Certificate Purchase Agreement.
"Purchase Price" shall mean, with respect to purchases other than those
under the Standby Certificate Purchase Agreement, the Principal Amount of such
Certificate plus the amount of Interest, if any, which would be distributable
with respect to such Certificate in the current Interest Rate Mode if the date
of purchase of the Certificate were a Certificate Interest Payment Date, and,
with respect to purchases of Certificates under the Standby Certificate Purchase
Agreement, shall mean the aggregate principal amount of such Certificates plus
Stated Interest distributable with respect to such certificates as of the
Purchase Date.
"Rate Setting Date" shall mean (i) while the Certificates are in the Weekly
Mode, Wednesday of each week, or if Wednesday is not a Business Day, the next
succeeding Business Day and (ii) while the Certificates are in the Flex Rate
Mode, not later than the Business Day preceding the first day of the next
succeeding Flex Rate Period.
"Rating Agency" shall mean Moody's or S&P, or any other national service
assigning ratings to the Certificates at the request of the Cooperative or the
Swap Provider.
"Rating Confirmation Notice" shall mean notices from all Rating Agencies
confirming that the rating on the Certificates will not be withdrawn or lowered
as a result of the contemplated action.
"Record Date" shall mean for any Certificate Payment Date, the Business Day
next preceding that Certificate Payment Date, or, if there is no Swap Agreement
in effect or the Trustee has not received a Swap Payment when due, the 15th day
prior to the Certificate Payment Date (whether or not a Business Day).
"Refinancing Agreements" shall mean the Trust Agreement, the Loan
Agreement, the Loan Guarantee Agreement, the Notes, the Swap Agreement, the
Underwriting Agreement, the Remarketing Agreement, the Liquidity
42
<PAGE>
Protection Agreement, the Liquidity Facility, the First Amendment to Loan
Agreement, First Amendment to Loan Guarantee Agreement and the RUS mortgage.
"Refinancing Date" shall mean December 18, 1997.
"Regulations" shall mean the regulations promulgated by the RUS amending 7
C.F.R. Chapter XVII by adding Part 1786 and implementing the provisions of
Section 1401 of the Omnibus Budget Reconciliation Act of 1987 (P.L. 100-203)
relating to Section 306A of the Rural Electrification Act of 1936 (7 U.S.C.
(S)(S) 901, et seq.), as amended.
"Related Documents" shall mean the Standby Certificate Purchase Agreement,
the Trust Agreement, the Certificates, the Original Loan Agreement, the First
Amendment to Loan Agreement, the Loan Agreement, the Original Notes, the Notes,
the Original Loan Guarantee Agreement, the First Amendment to Loan Guarantee
Agreement, the Loan Guarantee Agreement, the Guarantees, the Remarketing
Agreement, the Underwriting Agreement, and the Swap Agreement and any other
agreement or instrument relating to the transactions contemplated by the
Liquidity Protection Agreement or any of the foregoing agreements.
"Remarketing Agent" shall mean Alex. Brown & Sons Incorporated or any other
Person succeeding to the duties of the Remarketing Agent as set forth in the
Trust Agreement.
"RUS" shall mean the Rural Utilities Service (as successor to the Rural
Electrification Administration), an agency of the United States Department of
Agriculture or any successor to its authority under the Rural Electrification
Act of 1936, as amended (7 U.S.C. (S)(S) 901 et seq.).
-- ----
"Scheduled Servicing Fee" shall mean (i) for any Swap Provider Payment Date
and the corresponding Note Payment Date, an amount equal to the Servicer Spread
applied to the principal amount of the Notes outstanding for the period to, but
not including, such Note Payment Date from and including the next preceding Note
Payment Date or, if none, from and including the Refinancing Date and (ii) for
any other date when distributions are being made pursuant to Section 7.3(c)(F)
of the Trust Agreement, if any payment of principal or premium on the Notes is
delinquent, an amount equal to the Servicer Spread on the date such payment
became delinquent applied to such delinquent principal or premium over the
period of such delinquency. The Scheduled Servicing Fee shall be calculated on
the basis of a year of 360 days consisting of twelve 30-day months for any date
on which the Interest on the Certificates is so calculated and, for any other
date, shall be calculated on the basis of the actual number of days elapsed over
a year of 365 or 366 days, as the case may be.
"Scheduled Termination Date" shall mean __________________ or such later
date to which the Scheduled Termination Date shall have been extended pursuant
to the Standby Certificate Purchase Agreement.
"Service Transfer" shall mean any transfer of servicing authority and
responsibility to a successor Servicer pursuant to the Trust Agreement.
"Servicer" shall mean CFC until any Service Transfer under the Trust
Agreement and thereafter shall mean the Servicer appointed pursuant to the Trust
Agreement.
"Servicer Spread" shall mean 9.30 basis points (.093%) per annum.
"Stated Interest" shall mean, with respect to any Certificates and for any
period, the amount of interest which is distributable with respect thereto
during such period.
"Swap Agreement" shall mean the International Swap Dealers Association
Master Agreement, including the schedules thereto and confirmation thereof,
dated as of December 20, 1996 and effective as set forth therein, between the
Cooperative and Morgan Guaranty, or any Alternate Swap Agreement.
"Swap Agreement Event of Default" shall mean the occurrence at any time
with respect to a party to the Swap Agreement or, if applicable, the Credit
Support Provider, of any of the following events: (i) the failure to make, when
due, any payment under the Swap Agreement if such failure is not remedied on or
before the third Local Business Day (as defined in the Swap Agreement) after
notice of such failure is given to the defaulting party; (ii) the failure to
comply
43
<PAGE>
with or perform any agreement or obligation to be complied with or performed in
accordance with the Swap Agreement if such failure is not remedied on or before
the thirtieth day after notice of such failure is given to the defaulting party;
(iii) (1) the failure to comply with or perform any agreement or obligation to
be complied with or performed 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 any Credit Support Document or the failing or
ceasing of any Credit Support Document to be in full force and effect for the
purpose of the Swap Agreement (in either case other than in accordance with its
terms) prior to the satisfaction of all obligations of a party under such Credit
Support Document without the written consent of the other party; or (3) the
disaffirmation, disclaimer, repudiation, or rejection, in whole or in part, or
challenge of the validity of, any Credit Support Document; (iv) certain events
of insolvency, dissolution, or the assertion of creditor's rights with respect
to a party to the Swap Agreement or the Credit Support Provider; or (v) certain
events of merger without an assumption of obligations under the Swap Agreement
with respect to a party to the Swap Agreement (other than the Cooperative or the
Trustee) or the Credit Support Provider.
"Swap Agreement Termination Event" shall mean the occurrence at any time
with respect to a party to the Swap Agreement or, if applicable, the Credit
Support Provider, of an Illegality.
"Swap Payments" shall mean the variable rate payments of Interest required
to be made by the Swap Provider under the Swap Agreement pursuant to the terms
thereof.
"Swap Provider" shall mean Morgan Guaranty, as a party to the initial Swap
Agreement, or the qualified swap dealer party to any Alternate Swap Agreement.
"Swap Provider Default" shall mean any failure of the Swap Provider to make
Swap Payments or any other payments (including delivery of collateral) when due
under the Swap Agreement.
"Swap Provider Payment Dates" shall mean each Call Date and each June 4 and
December 4, commencing June 4, 1998, or such later date on which payment of
Guaranteed Interest is received and if such day is not a Business Day, the next
succeeding Business Day.
"Swap Provider Payments" shall mean, at any time, the amount due and
payable by the Trust as the counterparty under the Swap Agreement (determined
without regard to the amount of Available Funds on deposit in the Trust
Account).
"Trust" shall mean the Rural Electric Cooperative Grantor Trust (KEPCO)
Series 1997.
"Trust Account" shall mean the segregated trust account maintained by the
Trustee in its trust capacity in the name of the Trust for the benefit of the
Certificateholders in accordance with the Trust Agreement.
"Trust Agreement" shall mean that certain Trust Agreement among the
Cooperative, CFC, and the Trustee.
"Trustee" shall mean The First National Bank of Chicago, a national
banking association, organized under the laws of the United States of America
and authorized to do a banking business and qualified to exercise trust powers,
in its capacity as trustee under the Trust Agreement until the appointment of
any successor trustee pursuant to the Trust Agreement or any succession
described in the Trust Agreement and thereafter shall mean the Trustee appointed
pursuant to the Trust Agreement or the successor to the former Trustee pursuant
to the Trust Agreement, respectively.
"Underwriter" shall mean Alex. Brown & Sons Incorporated or, if the
original Underwriting Agreement shall terminate on or prior to the Refinancing
Date, such other investment banker selected pursuant to the terms of the Loan
Agreement to purchase the Certificates from CFC (or place such Certificates with
qualified investors), on the Refinancing Date.
"Underwriting Agreement" shall mean that certain Forward Certificate
Purchase Agreement dated as of December 20, 1996, between Alex. Brown & Sons
Incorporated, the Cooperative and CFC pursuant to which the Cooperative and CFC
agree to sell the Certificates and Alex. Brown & Sons Incorporated agrees to
purchase or place the Certificates on the Refinancing Date, or any agreement
serving the same purpose with a successor Underwriter.
44
<PAGE>
"Unremarketed Certificate" shall mean any Certificate which is tendered
and/or deemed tendered (or otherwise available) for purchase pursuant to the
provisions of the Trust Agreement, unless the same has been remarketed by the
Remarketing Agent and the proceeds from the remarketing thereof have been
received by the Remarketing Agent or the Tender Agent.
"Weekly Rate" shall mean the interest rate payable under the Swap Agreement
and distributable with respect to the Certificates for a particular Weekly Rate
Period as established by the Remarketing Agent no later than 3:00 p.m. (New
York, New York time) on the Wednesday on which such Weekly Rate Period commences
(or the day preceding the Refinancing Date or the Conversion of the Interest
Rate Mode to the Weekly Rate Mode, as the case may be), or, if such day is not a
Business Day, on the next succeeding Business Day, as the minimum rate of
interest necessary, in the judgment of the Remarketing Agent, to enable the
Remarketing Agent to sell the Certificates on such Business Day at a price equal
to par provided that such rate shall not exceed the Maximum Certificate Rate.
"Weekly Rate Mode" shall mean the Interest Rate Mode in which the variable
interest rate payable to the Trust under the Swap Agreement by Morgan Guaranty
and distributable as Interest with respect to the Certificates is determined at
the Weekly Rate.
"Weekly Rate Period" shall mean the period beginning on, and including, the
Refinancing Date, and ending on, and including, the next Tuesday, or if the
immediately succeeding Wednesday is not a Business Day, then the day preceding
the next succeeding Business Day, and thereafter the period beginning on, and
including, any Wednesday or if Wednesday is not a Business Day, then the next
succeeding Business Day and ending on, and including, the next Tuesday, or if
the immediately succeeding Wednesday is not a Business Day, then the day
preceding the next succeeding Business Day.
45
<PAGE>
NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS AND,
IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY CFC, KANSAS ELECTRIC POWER COOPERATIVE, INC., THE
TRUST, MORGAN GUARANTY TRUST COMPANY OF NEW YORK, THE REMARKETING AGENT, OR THE
UNDERWRITER. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE AN IMPLICATION THAT THERE HAS
BEEN NO CHANGE IN THE AFFAIRS OF CFC, THE TRUST, MORGAN GUARANTY TRUST COMPANY
OF NEW YORK, THE REMARKETING AGENT, OR KANSAS ELECTRIC POWER COOPERATIVE, INC.,
SINCE THE DATE HEREOF. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OR A
SOLICITATION BY ANYONE IN ANY STATE IN WHICH SUCH OFFER OR SOLICITATION IS NOT
AUTHORIZED IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT
QUALIFIED TO DO SO OR TO ANYONE TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR
SOLICITATION.
----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
AVAILABLE INFORMATION 2
PROSPECTUS SUMMARY 3
BACKGROUND 8
KANSAS ELECTRIC POWER COOPERATIVE, INC. 9
NATIONAL RURAL UTILITIES COOPERATIVE FINANCE CORPORATION 9
MORGAN GUARANTY TRUST COMPANY OF NEW YORK 9
USE OF PROCEEDS 10
THE NOTES 10
THE GUARANTEES 11
THE SWAP AGREEMENT 12
THE LIQUIDITY FACILITY 13
THE REMARKETING AGREEMENT 16
DESCRIPTION OF THE CERTIFICATES 16
CERTAIN FEDERAL INCOME TAX CONSEQUENCES 31
CERTAIN STATE AND LOCAL INCOME TAX CONSEQUENCES 34
ERISA CONSIDERATIONS 35
UNDERWRITING 36
LEGAL MATTERS 36
GLOSSARY 36
</TABLE>
----------------
UNTIL ___________, 1997, ALL DEALERS EFFECTING TRANSACTIONS IN THE
CERTIFICATES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED
TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO
DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR
UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
$57,390,000
Rural Electric Cooperative
Grantor Trust Certificates
(KEPCO) Series 1997
----------------
PROSPECTUS
__________, 1997
ALEX. BROWN & SONS
INCORPORATED
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The expenses, other than underwriting discounts, in connection with the
issuance and distribution of the securities being registered hereunder, which
will be paid by the Cooperative, are estimated as follows:
Registration fee, Securities and Exchange Commission $17,391
Trustee's fees and expenses 7,000
Printing costs
Accounting fees and expenses
Legal fees and expenses (other than Blue Sky fees and expenses)
Rating agency fees
Blue Sky fees and expenses
Miscellaneous
-------
Total $
=======
Items which are not included will be supplied by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 29-1104(9) of the District of Columbia Cooperative Association Act
provides that an association such as the registrant shall have the capacity "to
exercise ... any power granted to ordinary business corporations, save those
powers inconsistent with this chapter". Section 29-304(16) of the District of
Columbia Business Corporation Act permits any corporation:
"To indemnify any and all of its directors or officers or former directors
or officers or any person who may have served at its request as a director or
officer of another corporation in which it owns shares of capital stock or of
which it is a creditor against expenses actually and necessarily incurred by
them in connection with the defense of any action, suit, or proceeding in
which they, or any of them, are made parties, or a party, by reason of being
or having been directors or officers or a director or officer of the
corporation, or of such other corporation, except in relation to matters as
to which any such director or officer or former director or officer or person
shall be adjudged in such action, suit, or proceeding to be liable for
negligence or misconduct in the performance of duty. Such indemnification
shall not be deemed exclusive of any rights to which those indemnified may be
entitled, under any bylaw, agreement, vote of stockholders, or otherwise."
The Board of Directors of CFC has resolved to indemnify all CFC directors,
officers and employees in accordance with the terms of the first sentence of the
above Section.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
None.
II-1
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits:
1.1 -- Forward Certificate Purchase Agreement, dated December 20, 1996
1.2 -- Amendment to Forward Certificate Purchase Agreement
3.1 -- Articles of Incorporation of CFC. Incorporated by reference to
Exhibit 3.1 to Registration Statement No. 2-46018, filed October
12, 1972.
3.2 -- By-laws of CFC, as amended. Incorporated by reference to Exhibit
3.2 from CFC's Annual Report on Form 10-K for year ended May 31,
1988, filed July 27, 1988
4.1 -- Trust Agreement, dated December 20, 1996, including the form of
Rural Electric Cooperative Grantor Trust Certificate as an exhibit
thereto
*5.1 -- Opinion of Vinson & Elkins L.L.P.
*8.1 -- Opinion of Vinson & Elkins L.L.P. as to certain tax matters
*8.2 -- Opinion of Mayer, Brown & Platt as to certain tax matters
10.1 -- Loan Agreement dated as of February 15, 1988 between CFC and the
Cooperative (including form of Note and Guarantee) (incorporated by
reference to Exhibit 10.1 to Registration Statement on Form S-1 No.
33-16789 filed on August 27, 1987)
10.2 -- First Amendment to Loan Agreement, dated as of December 20, 1996
between CFC and the Cooperative
10.3 -- Loan Guarantee and Servicing Agreement, dated as of February 15,
1988, among the Administrator of the RUS, the Cooperative, the
Servicer, the Lender and the Trustee (incorporated by reference to
Exhibit 10.2 to Registration Statement on Form S-1 No. 33-16789
filed on August 27, 1987)
10.4 -- First Amendment to Loan Guarantee and Servicing Agreement, dated as
of December 20, 1996, among the Administrator of the RUS, the
Cooperative, the Servicer, the Lender and the Trustee
10.5 -- Remarketing Agreement, dated as of December 20, 1996, between the
Cooperative and Alex. Brown & Sons Incorporated
10.6 -- Swap Agreement, dated as of December 20, 1996, between Morgan
Guaranty Trust Company of New York and the Cooperative
10.7 -- Liquidity Protection Agreement, dated as of December 20, 1996,
between the Cooperative and Morgan Guaranty Trust Company of New
York
10.8 -- Form of Standby Certificate Purchase Agreement
10.9 -- Form of Note of the Cooperative (with form of Guarantee attached)
(included in Exhibit 10.1)
*23.1 -- Consent of Vinson & Elkins L.L.P. (to be included as part of
Exhibits 5.1 and 8.1)
*23.2 -- Consent of Mayer, Brown & Platt (to be included as part of
Exhibit 8.2)
24.1 -- Powers of Attorney (included on signature page hereof)
25.1 -- Statement of Eligibility under the Trust Indenture Act of 1939
(Form T-1) of The First National Bank of Chicago
(b) Financial statement filed as part of the Registration Statement: none.
_______________
* To be filed by amendment
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes to provide to the Underwriters at
the closing specified in the underwriting agreement Certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the provisions described in Item 14 or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is
II-2
<PAGE>
against public policy as expressed in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities (other
than the payment by the registrant of expenses incurred or paid by a director,
officer or controlling person of the registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the registrant will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes that:
(i) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in the form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of the registration
statement as of the time it was declared effective; and
(ii) For the purpose of determining any liability under the Securities Act of
1933, each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
II-3
<PAGE>
The Registrant and each person whose original signature appears below hereby
authorizes each of Sheldon C. Petersen, Steven L. Lilly and John Jay List (the
"Agents") to file one or more amendments (including post-effective amendments)
to the Registration Statement which amendments may make such changes in the
Registration Statement as such Agent deems appropriate and the Registrant and
each such person hereby appoints each such Agent as attorney-in-fact to execute
in the name and on behalf of the Registrant and each such person, individually
and in each capacity stated below, such amendments to the Registration
Statement.
SIGNATURE
Pursuant to the requirements of the Securities Act of 1933, the Registrant has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the County of Fairfax, Commonwealth
of Virginia, on the 11th day of April, 1997.
NATIONAL RURAL UTILITIES
COOPERATIVE FINANCE CORPORATION
By: /s/ SHELDON C. PETERSEN
--------------------------------
Sheldon C. Petersen
Governor and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed below by the following persons in the capacities
indicated on the 11th day of April, 1997.
Signature Title
--------- -----
/s/ SHELDON C. PETERSEN
- ------------------------------------ Governor and Chief Executive Officer
Sheldon C. Petersen
/s/ STEVEN L. LILLY
- ------------------------------------- Senior Vice President and
Steven L. Lilly Chief Financial Officer
/s/ ANGELO M. SALERA
- ------------------------------------- Controller (Principal Accounting Officer)
Angelo M. Salera
/s/ PAUL J. LIESS
- ------------------------------------- President and Director
Paul J. Liess
/s/ ELDWIN A. WIXSON
- ------------------------------------- Vice President and Director
Eldwin A. Wixson
- ------------------------------------- Secretary-Treasurer and Director
Benson Ham
/s/ JAMES BAKER
- ------------------------------------- Director
James Baker
II-4
<PAGE>
- ------------------------------------- Director
Robert J. Bauman
- ------------------------------------- Director
Glenn English
/s/ ALDEN J. FLAKOLL
- ------------------------------------- Director
Alden J. Flakoll
- ------------------------------------- Director
Nadine Griffin
/s/ WADE R. HENSEL
- ------------------------------------- Director
Wade R. Hensel
- ------------------------------------- Director
George W. Kline
/s/ KENNETH KRUEGER
- ------------------------------------- Director
Kenneth Krueger
/s/ EUGENE MEIER
- ------------------------------------- Director
Eugene Meier
/s/ R. LAYNE MORRILL
- ------------------------------------- Director
R. Layne Morrill
/s/ ROBERT J. OCCHI
- ------------------------------------- Director
Robert J. Occhi
- ------------------------------------- Director
Mike Pigott
/s/ J. C. ROBERTS
- ------------------------------------- Director
J.C. Roberts
/s/ R. B. SLOAN, JR.
- ------------------------------------- Director
R. B. Sloan, Jr.
/s/ THOMAS W. STEVENSON
- ------------------------------------- Director
Thomas W. Stevenson
II-5
<PAGE>
- ------------------------------------- Director
Clifford Stewart
/s/ ROBERT STROUP
- ------------------------------------- Director
Robert Stroup
/s/ ROBERT C. WADE
- ------------------------------------- Director
Robert C. Wade
/s/ ROBERT O. WILLIAMS
- ------------------------------------- Director
Robert O. Williams
II-6
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Sequentially
Exhibit Numbered
Number Description Pages
-------- ------------- -----------
<S> <C>
1.1 -- Forward Certificate Purchase Agreement, dated December 20, 1996
1.2 -- Amendment to Forward Certificate Purchase Agreement
3.1 -- Articles of Incorporation of CFC. Incorporated by reference to
Exhibit 3.1 to Registration Statement No. 2-46018, filed October
12, 1972.
3.2 -- By-laws of CFC, as amended. Incorporated by reference to Exhibit
3.2 from CFC's Annual Report on Form 10-K for year ended May 31,
1988, filed July 27, 1988
4.1 -- Trust Agreement, dated December 20, 1996, including the form of
Rural Electric Cooperative Grantor Trust Certificate as an exhibit
thereto
*5.1 -- Opinion of Vinson & Elkins L.L.P.
*8.1 -- Opinion of Vinson & Elkins L.L.P. as to certain tax matters
*8.2 -- Opinion of Mayer, Brown & Platt as to certain tax matters
10.1 -- Loan Agreement dated as of February 15, 1988 between CFC and the
Cooperative (including form of Note and Guarantee) (incorporated by
reference to Exhibit 10.1 to Registration Statement on Form S-1 No.
33-16789 filed on August 27, 1987)
10.2 -- First Amendment to Loan Agreement, dated as of December 20, 1996
between CFC and the Cooperative
10.3 -- Loan Guarantee and Servicing Agreement, dated as of February 15,
1988, among the Administrator of the RUS, the Cooperative, the
Servicer, the Lender and the Trustee (incorporated by reference to
Exhibit 10.2 to Registration Statement on Form S-1 No. 33-16789
filed on August 27, 1987)
10.4 -- First Amendment to Loan Guarantee and Servicing Agreement, dated as
of December 20, 1996, among the Administrator of the RUS, the
Cooperative, the Servicer, the Lender and the Trustee
10.5 -- Remarketing Agreement, dated as of December 20, 1996, between the
Cooperative and Alex. Brown & Sons Incorporated
10.6 -- Swap Agreement, dated as of December 20, 1996, between Morgan
Guaranty Trust Company of New York and the Cooperative
10.7 -- Liquidity Protection Agreement, dated as of December 20, 1996,
between the Cooperative and Morgan Guaranty Trust Company of New
York
10.8 -- Form of Standby Certificate Purchase Agreement
10.9 -- Form of Note of the Cooperative (with form of Guarantee attached)
(included in Exhibit 10.1)
*23.1 -- Consent of Vinson & Elkins L.L.P. (to be included as part of
Exhibits 5.1 and 8.1)
*23.2 -- Consent of Mayer, Brown & Platt (to be included as part of
Exhibit 8.2)
24.1 -- Powers of Attorney (included on signature page hereof)
25.1 -- Statement of Eligibility under the Trust Indenture Act of 1939
(Form T-1) of The First National Bank of Chicago
</TABLE>
<PAGE>
EXHIBIT 1.1
$57,390,000
Rural Electric Cooperative Grantor Trust (KEPCO) Series 1997
Rural Electric Cooperative Grantor Trust Certificates (KEPCO)
Series 1997
FORWARD CERTIFICATE PURCHASE AGREEMENT
December 20, 1996
National Rural Utilities
Cooperative Finance Corporation
1115 30th Street, N.W.
Washington, D.C. 20007
Kansas Electric Power Cooperative, Inc.
P.O. Box 4877
Topeka, Kansas 66604
Ladies and Gentlemen:
The undersigned (hereafter referred to as the "Underwriter") hereby offers
to enter into this Forward Certificate Purchase Agreement (the "Agreement") with
National Rural Utilities Cooperative Finance Corporation ("CFC") and Kansas
Electric Power Cooperative, Inc. (the "Cooperative") for the purchase by the
Underwriter and sale by CFC of $57,390,000 aggregate principal amount of Rural
Electric Cooperative Grantor Trust Certificates Series 1997 (collectively
referred to herein as the "Certificates"). This offer is made subject to
acceptance by CFC and the Cooperative on the date hereof, and upon such
acceptance this Agreement shall become effective in accordance with its terms
and conditions and shall be binding upon CFC, the Cooperative and the
Underwriter. This Agreement will be subject to withdrawal by the Underwriter
upon notice delivered to CFC and the Cooperative at any time prior to the
acceptance hereof by CFC and the Cooperative.
The Certificates will evidence all of the undivided fractional beneficial
interest in the Rural Electric Cooperative Grantor Trust (KEPCO) Series 1997
(the "Trust") created pursuant to the Trust Agreement, as amended and
supplemented from time to time (the "Trust Agreement") dated as of the date
hereof among CFC, the Cooperative and The First National Bank of Chicago, as
Trustee (together with its successors and assigns, if any, the "Trustee").
<PAGE>
The Cooperative and Morgan Guaranty Trust Company of New York (in its
capacity under the Swap Agreement, the "Swap Provider") are entering into a Swap
Agreement (as defined in the Trust Agreement) as of the date hereof relating to
the Certificates, providing that the Cooperative will pay a fixed interest rate
per annum and the Swap Provider will pay interest at a variable rate described
therein. Pursuant to Section 2.1(c) of the Trust Agreement, and effective on
December 18, 1997 (the "Refinancing Date"), the Cooperative has assigned its
interest in the Swap Agreement to the Trustee except as provided in the Trust
Agreement. In addition, the Cooperative and Morgan Guaranty Trust Company of
New York ("Morgan") are entering into the Liquidity Protection Agreement (as
such term is defined in the Trust Agreement) as of the date hereof, and on or
prior to the Refinancing Date the Cooperative and the Liquidity Provider will
enter into the Liquidity Facility (as such terms are defined in the Trust
Agreement), in each case to provide liquidity for the tender of the Certificates
as provided in the Trust Agreement.
The Cooperative and Alex. Brown & Sons Incorporated are entering into
simultaneously herewith a Remarketing Agreement (the "Remarketing Agreement"),
providing for, among other things, the remarketing of Certificates tendered by
the owners thereof as provided in the Trust Agreement.
On November 18, 1997 (the "Deposit Date"), subject to satisfaction of
certain conditions, the Cooperative shall give irrevocable notice to the
Original Trusts (as defined below) that CFC will purchase the Notes, and CFC and
the Cooperative will each deposit with the Original Trusts part of the purchase
price therefor. On the Refinancing Date, and immediately prior to, and
concurrently with, the purchase and sale of the Certificates, CFC will purchase
the Notes held by the Rural Electric Cooperative Grantor Trust (KEPCO) 1988-K1
and by the Rural Electric Cooperative Grantor Trust (KEPCO) 1988-K2
(collectively, the "Original Trusts"; the certificates of the Original Trusts
are collectively referred to herein as the "1988 Certificates"). In addition,
effective as of the Refinancing Date, the Notes, Loan Agreement and Loan
Guarantee Agreement will be amended in certain respects as contemplated by the
Trust Agreement, and CFC will deposit the Notes with the Guarantee endorsed
thereon (as such terms are defined in the Trust Agreement) into the Trust.
The foregoing actions are being taken at the request of the Cooperative
insofar as the Cooperative will realize substantial benefits from such
activities.
As used herein, the "Related Documents" means the Trust Agreement, the
Certificates, the Notes, the Guarantee, the Loan Agreement, the Loan Guarantee
Agreement, the Swap Agreement, the Liquidity Protection Agreement, the Liquidity
Facility or Alternate
2
<PAGE>
Liquidity Facility, as the case may be, and all guarantees and other agreements
(if any) executed pursuant to the Liquidity Facility or Alternate Liquidity
Facility, as the case may be (collectively the "Liquidity Agreements") and the
Remarketing Agreement. The form of each of the Related Documents is attached
hereto as Schedule I.
Capitalized terms not otherwise defined herein shall have the meanings
ascribed to such terms in the Trust Agreement.
1. Purchase and Sale. Upon the terms and conditions and upon the basis
of the representations, warranties and agreements herein set forth, the
Underwriter hereby agrees to purchase on the Closing Date (hereinafter defined
in Section 3) from CFC and CFC hereby agrees to sell on the Closing Date to the
Underwriter all (but not less than all) of $57,390,000 aggregate principal
amount of Certificates for an aggregate purchase price of $57,390,000. Upon the
payment by the Underwriter of the purchase price of the Certificates, the
Cooperative shall, in consideration of the Underwriter's providing the service
of underwriting the Certificates and marketing the Certificates to the public
pursuant to this Agreement and providing the services set forth in this
Agreement, pay the Underwriter an underwriter's fee of $286,950 (the
"Underwriter's Fee"). The Certificates shall be dated the date of their
delivery, shall mature on the dates specified in the Trust Agreement (subject to
the terms of the Trust Agreement), shall be subject to redemption as provided in
the Trust Agreement and shall bear interest at the rate or rates determined and
adjusted from time to time in accordance with the Swap Agreement and the Trust
Agreement, payable as provided in the Trust Agreement.
The proceeds of the Certificates will be used to reimburse CFC for the
purchase of all the Notes from the Original Trusts pursuant to the Trust
Agreement.
2. Covenants of CFC and the Cooperative prior to the Closing Date.
(a) The Cooperative covenants and agrees with the Underwriter that:
(i) On or before April 1, 1997 (the "Targeted Filing Date"), the
Cooperative will prepare and (after obtaining the RUS' approval of the portions
thereof that describe the RUS and the Guarantee) will cause CFC as registrant
and on behalf of the Trust as issuer to file with the Securities and Exchange
Commission (the "Commission") a registration statement on Form S-1 (including
all exhibits, financial statements and schedules required to be filed in
connection therewith) with respect to the Certificates in conformity with the
rules and regulations of the Securities Act of
3
<PAGE>
1933, as amended (the "Act") and the rules and regulations (the "Rules and
Regulations") thereunder. In connection therewith, the Cooperative shall obtain
and file as exhibits to the registration statement tax opinions relating to the
federal income tax and Illinois and Virginia state tax aspects of the
transaction. The Cooperative shall comply with the conditions for the use of
such Form for such filing. The Cooperative shall provide to the Underwriter
copies of such registration statement, including any amendments thereto, the
preliminary prospectus contained therein and the exhibits, financial statements
and schedules filed therewith;
(ii) On or before the Targeted Filing Date, the Cooperative shall
file the Trust Agreement and such other statements and documents as are
necessary (including without limitation, statement(s) of eligibility of the
Trustee and any co-trustees on Form T-1 or other applicable form under the Trust
Indenture Act of 1939, as amended (the "Trust Indenture Act")) to qualify the
Trust Agreement under the Trust Indenture Act if no exemption from such
qualification is available;
(iii) The Cooperative shall use its best efforts to cause such
registration statement to become effective under the Act, and the Trust
Agreement to be qualified under the Trust Indenture Act if no exemption from
such qualification is available on November 18, 1997;
(iv) The Cooperative shall prepare and cause to be filed with the
Commission such amendments and supplements to such registration statement and
the prospectus used in connection therewith as may be necessary to keep such
registration statement effective and to comply with the provisions of the Act
with respect to the sale or other disposition of the Certificates for so long as
the Underwriter shall deem necessary or appropriate (including prospectus
supplements or amendments with respect to the sale of Certificates from time to
time);
(v) The Cooperative shall furnish to the Underwriter such numbers
of copies of a prospectus, including a preliminary prospectus or any amendment
or supplement to any prospectus, in conformity with the requirements of the Act,
and such other documents, as the Underwriter may reasonably request in order to
facilitate the public sale or other disposition of the Certificates;
(vi) The Cooperative shall use its best efforts to comply with the
Act, the Trust Indenture Act (if applicable) and all applicable Rules and
Regulations;
(vii) The Cooperative shall notify the Underwriter of the happening
of any event of which it has knowledge
4
<PAGE>
as a result of which the prospectus included in such registration statement, as
then in effect, includes an untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances then
existing;
(viii) The Cooperative shall prepare and cause CFC to timely file on
behalf of the Trust and otherwise timely file all reports and other documents
and instruments required by the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and the rules and regulations thereunder, and each such report,
document and instrument when so filed shall be true and correct in all material
respects and will not contain any untrue statement of material fact or omit to
state a material fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, and the Cooperative
shall provide to the Underwriter a copy of each such report, document, or
instrument no later than simultaneously with the filing the same with the
Commission; and
(ix) The Cooperative shall take such other actions as shall be
reasonably requested by the Underwriter in connection with the foregoing.
(a) CFC covenants and agrees with the Cooperative and the Underwriter
to use its best efforts to assist the Cooperative in the Cooperative's
performance of the obligations under Section 2(a) of this Agreement. CFC shall
take all actions necessary or that the Cooperative or the Underwriter reasonably
deems advisable to cause the registration statement to become effective under
the Act. As far in advance as practical before filing the registration statement
or prospectus referred to in Section 2(a) of this Agreement or any amendment or
supplement thereto, the Cooperative will furnish to CFC copies of reasonably
complete drafts of all such documents proposed to be filed (including exhibits),
and CFC shall have the opportunity to object to any disclosure contained therein
and the Cooperative will make the corrections requested by CFC with respect to
such information prior to filing any such registration statement, prospectus, or
amendment or supplement so that it is in form and substance satisfactory to CFC.
The Cooperative shall make available for inspection by CFC and any attorney or
other agent retained by it all records and pertinent documents (collectively,
the "Records") as shall be reasonably necessary to enable them to discharge
their securities law responsibilities, and cause the Cooperative's officers,
directors and employees to supply all information reasonably requested by any
such person in connection with such registration statement, and permit them to
participate in the preparation of such registration statement and any prospectus
contained therein and any amendment or supplement thereto.
5
<PAGE>
(c) As far in advance as practical before filing thereof, CFC and the
Cooperative shall provide to the Underwriter and its counsel copies of the
registration statement (including all exhibits, schedules and financial
statements), preliminary prospectus and the prospectus and any amendment or
supplement thereto and filings under the Trust Indenture Act (if applicable),
including all amendments and supplements to the foregoing, and afford to the
Underwriter and its counsel a meaningful opportunity to review each of the
foregoing prior to the filing thereof, and all of the foregoing must be in form
and substance satisfactory to the Underwriter and its counsel.
(d) The terms that follow, when used in this Agreement, have the
meanings indicated. The term "Effective Date" means each date that the
Registration Statement and any post-effective amendment or amendments thereto
became or become effective. "Preliminary Prospectus" means any preliminary
prospectus referred to above and any preliminary prospectus included in the
Registration Statement which, at the Effective Date, omits Rule 430A
Information. "Base Prospectus" means the prospectus referred to above contained
in the Registration Statement at the Effective Date. "Prospectus" means the
prospectus, amendment or supplement relating to the Certificates that is first
filed with the Commission pursuant to Rule 424(b) after the date hereof,
together with the Base Prospectus (as such Base Prospectus may have been amended
and together with any supplements thereto) or, if no filing pursuant to Rule
424(b) is required, means the prospectus supplement or amendment, if any,
relating to the Certificates, including the Base Prospectus included in the
Registration Statement at the Effective Date. "Registration Statement" means the
registration statement referred to above and any registration statement required
to be filed under the Act or Rules and Regulations in the form in which it has
or shall become effective and, in the event any post-effective amendment thereto
becomes effective prior to the Closing Date, shall also mean such registration
statement as so amended. Such term shall include Rule 430A Information deemed to
be included therein at the Effective Date as provided by Rule 430A. "Rule 424",
"Rule 430A", and "Regulation S-K" refer to such rules or regulations under the
Act. "Rule 430A Information" means information with respect to the Certificates
and the offering thereof permitted to be omitted from the Registration Statement
when it becomes effective pursuant to Rule 430A.
(e) Each of CFC and the Cooperative shall take all actions reasonably
necessary (including those actions reasonably requested by the Underwriter) and
within such party's reasonable control to ensure that the conditions to closing
specified in Section 9 (in the case of CFC, only those that refer explicitly to
CFC or its counsel) are satisfied on or before the dates described therein.
6
<PAGE>
3. Closing. At 10:00 A.M., Baltimore time, on the Refinancing Date, or at
such other time or on such earlier or later business day as shall have been
mutually agreed upon by the Cooperative, CFC and the Underwriter (the "Closing
Date"), and at the offices of Vinson & Elkins L.L.P., The Willard Office
Building, 1455 Pennsylvania Avenue, N.W., Washington D.C. 20004-1008, or at such
other place as shall be mutually agreed upon, CFC will deliver to the
Underwriter the Certificates, in definitive form, duly executed and
authenticated, and the Cooperative shall pay to the Underwriter the
Underwriter's Fee by wire or check payable in immediately available federal
funds to the order of the Underwriter and shall deliver to the Underwriter the
documents mentioned in Section 9 hereof. The Underwriter will accept such
delivery and pay the purchase price of the Certificates as set forth in Section
1 hereof by wire or check payable in immediately available federal funds to the
order of CFC. The payment and delivery of the Certificates on the Closing Date,
together with the delivery of the aforementioned documents, is herein called the
"Closing." The Certificates will be delivered as book-entry only Certificates
through the facilities of The Depository Trust Company, New York, New York, or
such other securities depository as CFC and the Underwriter may agree upon. The
Certificates will be made available by the Cooperative and CFC to the
Underwriter for checking by 12:00 P.M., Baltimore time, at least two business
days prior to the Closing Date.
4. Representations, Warranties and Covenants.
(a) The Cooperative represents and warrants to, and agrees with, the
Underwriter as follows:
(i) Accuracy of Registration Statement. On the Effective Date,
the Registration Statement did or will comply in all material respects with the
applicable requirements of the Act and the Rules and Regulations; on the
Effective Date and when the Prospectus is first filed (if required) in
accordance with Rule 424(b) and on the Closing Date, the Prospectus (as amended
and together with any supplements thereto) did or will comply in all material
respects with the applicable requirements of the Act and the Rules and
Regulations; on the Effective Date, the Registration Statement did not or will
not contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements therein not misleading; and, on the Effective Date, the Prospectus,
if not filed pursuant to Rule 424(b), did not or will not, and on the date of
any filing pursuant to Rule 424(b) and on the Closing Date, the Prospectus (as
amended and together with any supplements thereto), will not, include any untrue
statement of a material fact or omit to state a material fact necessary in order
to make the statements therein, in light of the circumstances under which they
were made, not misleading; provided, however, that the Cooperative makes no
7
<PAGE>
representations or warranties as to the information contained in or omitted from
the Registration Statement or the Prospectus (or any supplements thereto) (x) in
reliance upon and in conformity with information furnished in writing to the
Cooperative by the Underwriter specifically for use in connection with the
preparation of the Registration Statement or the Prospectus (or any supplements
thereto), (y) under the caption "National Rural Utilities Cooperative Finance
Corporation" or (z) that constitutes the Statement of Eligibility and
Qualification of the Trustee (and any co-trustee) under the Trust Indenture Act.
(ii) Due Incorporation. The Cooperative has been duly incorporated
and is now, and on the Closing Date will be, a validly existing cooperative
association in good standing under the laws of the State of Kansas and the
Cooperative has the corporate power and authority and holds all valid permits
and other required authorizations from governmental authorities necessary to
enter into and perform its obligations under the Related Documents and to carry
on its business as now conducted and as to be conducted on the Closing Date and
as contemplated by the Prospectus.
(iii) Authority. The Cooperative has all requisite corporate power
and authority to enter into and perform its obligations under the Related
Documents. The Related Documents have been duly authorized, executed and
delivered by the Cooperative and constitute its legal, valid and binding
obligations enforceable against the Cooperative in accordance with their
respective terms assuming such documents have been duly authorized, executed and
delivered by the other parties thereto; provided, however, that the
enforceability of the Related Documents may be limited by bankruptcy,
reorganization, insolvency or other laws affecting creditors' rights generally
and general principles of equity.
(iv) Approval. No order, license, consent, authorization or
approval of, or exemption by, or the giving of notice to, or the registration
with or the taking of any other action in respect of, any Federal, state,
municipal or other governmental department, commission, board, bureau, agency or
instrumentality, and no filing, recording, publication or registration in any
public office or any other place, is now, or under existing law in the future
will be, necessary on the Cooperative's behalf to authorize its execution,
delivery and performance of this Agreement or any of the Related Documents other
than (i) registration of the Certificates under the Act, qualification of the
Trust Agreement under the Trust Indenture Act (if required under such Act) and
compliance with state securities and blue sky laws, (ii) rating of the
Certificates, at the time of initial sale, in one of the four highest categories
assigned long-term debt or in an equivalent short-term category by at least one
nationally recognized statistical rating organization that is not
8
<PAGE>
an affiliated person of the issuer of the Certificates or of any person involved
in the organization or operation of the issuer, and (iii) such as have been
obtained.
(v) No Breach. None of the execution and delivery by the
Cooperative of this Agreement or the Related Documents, the performance of the
Cooperative's obligations hereunder or thereunder and its consummation of the
transactions contemplated hereby or thereby will conflict with or result in any
breach of, or constitute a default under, any applicable laws or any indenture,
mortgage, deed of trust or other instrument or agreement to which the
Cooperative is a party or by which it may be bound or to which any of its
property or assets may be subject, or its certificate of incorporation or by-
laws.
(vi) Execution. This Agreement has been duly authorized, executed
and delivered by the Cooperative.
(vii) Litigation. No litigation is pending, or to Cooperative's
knowledge, threatened in any court in any way contesting the corporate existence
of the Cooperative, or seeking to restrain or to enjoin the issuance, sale or
delivery of the Certificates, or the purchase of the Notes by CFC and the
redemption of the 1988 Certificates, or in any way contesting the validity or
enforceability of the Certificates, this Agreement or any Related Document or
the transactions contemplated hereby and thereby, or contesting in any way the
power of the Cooperative with respect to the Certificates, this Agreement or any
Related Document or the transactions contemplated hereby and thereby or which
could reasonably be expected to have a material adverse effect on the Trust or
the transactions contemplated hereby or in the Related Documents.
(viii) Legality. On the Closing Date, the Certificates will have
been duly and validly authorized and issued, and, when sold to the Underwriter
as provided herein, will conform in all material respects to the description
thereof contained in the Prospectus and will be validly issued and outstanding
and entitled to the benefits of the Trust Agreement.
(ix) Binding Obligation. The Notes are the legal, valid and
binding obligations of the Cooperative and are enforceable in accordance with
their terms, except as such enforceability may be limited by bankruptcy,
reorganization, insolvency or other laws affecting creditors' rights generally
and general principles of equity.
(x) No Defenses. The Notes are not subject to any right of
rescission, setoff, counterclaim or defense, including the defense of usury, and
the operation of any of the terms of the Notes or the exercise of any right
thereunder will not render the
9
<PAGE>
Notes unenforceable in whole or in part or subject to a right of rescission,
setoff, counterclaim or defense, including the defense of usury, and no such
right of rescission, setoff, counterclaim or defense has been asserted with
respect thereto.
(xi) No Stop Order. The Commission has not issued and, to the
knowledge of the Cooperative, is not threatening to issue any order preventing
or suspending the use of the Prospectus (as amended or supplemented, if CFC
shall have filed with the Commission any amendment thereof or supplement
thereto).
(xii) Investment Company Act. Upon consummation of the
transactions contemplated by this Agreement and the Related Documents the Trust
will be, exempt from, and not obligated to register as an "investment company"
under, the Investment Company Act of 1940, as amended (the "Investment Company
Act"), provided that the Certificates, at the time of initial sale, are rated in
one of the four highest categories assigned long-term debt or in an equivalent
short-term category by at least one nationally recognized statistical rating
organization that is not an affiliated person of the issuer of the Certificates
or of any person involved in the organization or operation of the issuer. The
Cooperative is not, and upon consummation of the transactions contemplated by
this Agreement and the Related Documents the Cooperative will not be, an
"investment company" as defined in the Investment Company Act.
(xiii) Absence of Fraud or Misrepresentation. The Cooperative has
neither taken any action nor omitted to take any action nor made any statement
nor omitted to make any statement that constitutes either a fraud or a
misrepresentation (as such terms are used in 7 U.S.C. (S) 938) in respect of the
authorization, execution or delivery of any Guarantee. In addition to the
foregoing, to the best of the Cooperative's knowledge, there has been no fraud
or misrepresentation (as such terms are used in 7 U.S.C. (S) 938) by any Person
in connection with the authorization, execution or delivery of any Guarantee or
the execution and delivery of the First Amendment to Loan Guarantee Agreement
(b) CFC represents and warrants to, and agrees with, the Underwriter
as follows:
(i) Incorporated Representations. CFC hereby represents and
warrants to, and agrees with, the Underwriter as set forth in Sections 4(a)(i)
[Accuracy of Registration Statement], but only as to the description of CFC,
(a)(iii) [Authority], as to the documents to which it is a party, (a)(iv)
[Approval] (except that an exemption may be needed by CFC under the Employment
Retirement Income Security Act of 1974), (a)(v) [No Breach] (except that an
exemption may be needed by CFC under the Employment Retirement Income Security
Act of 1974), (a)(vi) [Execution], (a)(xi) [No Stop
10
<PAGE>
Order], the last sentence of (a)(xii) [Investment Company Act] and (a)(xiii)
[Absence of Fraud or Misrepresentation] as if such provisions were set forth
here in full (and such provisions are incorporated herein by reference);
provided that for purposes of this Section 4(b)(i), all references to "the
Cooperative" in said incorporated provisions shall be changed to "CFC"
(ii) Due Incorporation. CFC has been duly incorporated and is
now, and on the Closing Date will be, a validly existing cooperative association
in good standing under the laws of the District of Columbia and CFC has the
corporate power and authority and holds all valid permits and other required
authorizations from governmental authorities necessary to enter into and perform
its obligations under the Related Documents and to carry on its business as now
conducted and as to be conducted on the Closing Date and as contemplated by the
Prospectus.
(iii) Litigation. On the date hereof, neither the Trust nor CFC
has any litigation pending of a character which in the opinion of counsel for
CFC referred to in Section 9(a)(i) hereof could reasonably be expected to result
in a judgment or decree having a material adverse effect on the Trust or the
transactions contemplated hereby or in the Related Documents.
(iv) Binding Obligation. To the best knowledge of CFC, the Notes
are the legal, valid and binding obligations of the Cooperative and are
enforceable in accordance with their terms, except as such enforceability may be
limited by bankruptcy, reorganization, insolvency or other laws affecting
creditors' rights generally and general principles of equity.
(v) No Defenses. To the best knowledge of CFC, the Notes are not
subject to any right of rescission, setoff, counterclaim or defense, including
the defense of usury, and the operation of any of the terms of the Notes or the
exercise of any right thereunder will not render the Notes unenforceable in
whole or in part or subject to a right of rescission, setoff, counterclaim or
defense, including the defense of usury, and no such right of rescission,
setoff, counterclaim or defense has been asserted with respect thereto.
(vi) Certificates. Assuming the Certificates are issued in
accordance with the Trust Agreement, on the Refinancing Date CFC will be the
lawful owner of the Certificates. Upon sale and delivery of, and payment for,
the Certificates as provided herein, CFC will convey good and marketable title
to the Certificates to the Underwriter, free and clear of all liens,
encumbrances, equities and claims whatsoever.
(vii) Use of Proceeds. Assuming the Certificates are issued in
accordance with the Trust Agreement, on the
11
<PAGE>
Refinancing Date, CFC will use the proceeds from the sale of the Certificates
hereunder for general corporate purposes and will deposit into the Trust the
Notes with the Guarantee endorsed thereon.
5. Prospectuses. The Cooperative has caused or will cause to be
delivered to the Underwriter copies of each Preliminary Prospectus and has
consented to the use of such copies for the purposes permitted by the Act. The
Cooperative agrees to deliver to the Underwriter, without charge, from time to
time during such period as the Prospectus is required by law to be delivered in
connection with sales by an Underwriter or dealer, as many copies of the
Prospectus (and, in the event of any amendment of or supplement to the
Prospectus, of each amended or supplemented Prospectus) as the Underwriter may
reasonably request. If, at any time during the period in which the Cooperative
is required to deliver copies of the Prospectus, as provided in this Section,
any event known to CFC or the Cooperative relating to or affecting the Trust,
the Rural Utilities Service, the Cooperative, the Certificates or any Related
Document shall occur which should be set forth in an amendment of or supplement
to the Prospectus in order to make the statements in the Prospectus not
misleading in the light of the circumstances at the time it is delivered to a
purchaser, or it shall be necessary to amend or supplement the Prospectus to
comply with law or with the rules and regulations of the Commission, the
Cooperative, at its expense, will forthwith prepare (in compliance with its
obligations under Section 2(b) above) and furnish to the Underwriter for
distribution to the Underwriter and dealers a reasonable number of copies of an
amendment or amendments of or a supplement or supplements to the Prospectus
which will so amend or supplement the Prospectus that, as amended or
supplemented, it will not contain an untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary in order to
make the statements in the Prospectus not misleading in the light of the
circumstances under which they were made when it is delivered to a purchaser
when required by law to be delivered in connection with sales by an Underwriter
or dealer and will comply with law and with such rules and regulations. Each of
CFC and the Cooperative authorizes the Underwriter and all dealers effecting
sales of the Certificates to use the Prospectus, as from time to time so amended
or supplemented, in connection with the sale of Certificates in accordance with
applicable provisions of the Act and the Rules and Regulations thereunder for
the period during which the Cooperative is required to deliver copies of the
Prospectus as provided in this Section.
6. Commission Proceedings as to Registration Statement. The Cooperative
agrees to advise the Underwriter promptly, and to confirm such advice in
writing, when the Registration Statement shall have become effective. The
Cooperative further agrees to so
12
<PAGE>
advise the Underwriter (and so confirm such advice) when any post-effective
amendment of the Registration Statement shall have become effective after the
date hereof and when any further amendment of or supplement to the Prospectus
shall be filed with the Commission, of any request made by the Commission for
any amendment of the Registration Statement or the Prospectus or for additional
information and of the issuance by the Commission of any stop order suspending
the effectiveness of the Registration Statement or of the initiation of any
proceedings for that purpose. CFC and the Cooperative will use every reasonable
effort to prevent the issuance of such a stop order and, if any such order shall
at any time be issued, to obtain the withdrawal thereof at the earliest possible
moment.
7. Blue Sky. Each of CFC and the Cooperative will diligently endeavor
(at the Cooperative's cost and expense), when and as requested by the
Underwriter, to qualify, or to cause to be qualified, the Certificates, or such
portion thereof as the Underwriter may reasonably request, for offering and sale
under the securities or blue sky laws of any jurisdictions which the Underwriter
shall reasonably designate, and to maintain such qualifications in effect for as
long as may be reasonably required for the distribution of the Certificates; and
to file such statements and reports as may be required by the laws of each
jurisdiction in which the Certificates have been qualified as above provided;
provided that CFC and the Cooperative shall not be required to register or
qualify as a foreign corporation nor, except as to matters relating to the offer
and sale of the Certificates, take any action which would subject it to service
of process generally in any jurisdiction.
8. Earnings Statement. CFC agrees to make generally available to the
holders of the Certificates, in accordance with Section 11(a) of the Act and any
applicable rules promulgated by the Commission thereunder, if applicable,
earnings statements (which need not be audited) for the Trust in reasonable
detail and covering a period of at least twelve months beginning after the
Effective Date of the Registration Statement and to advise the Underwriter when
such statement has been so made available. Such earnings statements shall be so
made available as soon as practicable after the expiration of such period, and
in any event not later than fifteen months after the Effective Date of the
Registration Statement.
9. Conditions Precedent.
(a) Conditions to Underwriter's Obligations. The Underwriter has
entered into this Agreement in reliance upon, and the Underwriter's obligations
under this Agreement to accept delivery of and to pay for the Certificates are
subject to, the accuracy of the information set forth herein, the
representations
13
<PAGE>
and warranties of CFC and the Cooperative contained herein and to be contained
in the documents and instruments to be delivered pursuant hereto or to the
Related Documents and the performance by CFC and the Cooperative of their
respective obligations hereunder and under such aforementioned documents and
instruments at or prior to the Closing. The Underwriter's obligations under this
Agreement are and shall be subject to the following conditions, each of which
shall have been accomplished at or prior to the date specified below. The
obligations of CFC and of the Cooperative under this Agreement are and shall be
subject to the condition that they receive the opinion described in Section
9(a)(i)(F) below.
(i) Activities Occurring On or Before the Date Hereof. On or
before the date hereof, the Underwriter shall have received the following each
in form and substance satisfactory to the Underwriter, and CFC and the
Cooperative shall have received the opinion described in Section 9(a)(i)(F):
(A) Documents. Each of the First Amendment to Loan
Agreement, the First Amendment to Loan Guarantee Agreement, the Swap Agreement,
the Liquidity Protection Agreement (including a certificate from Morgan stating
that the Liquidity Protection Agreement has become effective), the Remarketing
Agreement, the Trust Agreement, the letter agreement among the Cooperative,
Morgan and Alex. Brown & Sons Incorporated regarding the fees of the Remarketing
Agent and Morgan's consent to the appointment of Alex. Brown & Sons Incorporated
as Remarketing Agent and this Agreement, each being dated as of the date hereof,
shall have been fully executed and delivered by the parties thereto, and the
Cooperative shall have delivered to the Underwriter a certificate of the
Executive Vice President of the Cooperative dated the date hereof, certifying
that attached thereto are true and complete copies of each of such documents,
and all certificates and opinions executed and delivered by the parties in
connection therewith (including all amendments or supplements thereto), in each
case as in force and effect as of the date hereof.
(B) Opinions of Counsel. The Underwriter shall have
received legal opinions from the following counsel, addressed to the Underwriter
and dated the date hereof, in each case in form and substance satisfactory to
the Underwriter and its counsel:
(1) CFC. John J. List, Senior Vice President and
General Counsel for CFC.
(2) Milbank, Tweed, Hadley & McCloy. Milbank, Tweed,
Hadley & McCloy, counsel for CFC.
(3) Cooperative. Harold Haun, Esq., General Counsel of
the Cooperative.
14
<PAGE>
(4) Vinson & Elkins L.L.P.. Vinson & Elkins L.L.P.,
special finance counsel for the Cooperative.
(5) Trustee and Tender Agent. The Underwriter shall
have received an opinion from in-house counsel to the Trustee and Tender Agent.
(6) Swap Provider. Peter A. Ndenga, Esq., counsel to
the Swap Provider.
(7) Davis Polk & Wardwell. Davis Polk & Wardwell,
counsel to Morgan.
(C) Administrative Record for Rural Utilities Service. The
Underwriter shall have received a true and complete copy of the administrative
record setting forth the recommendation of the RUS for approval of the First
Amendment to Loan Agreement and the First Amendment to Loan Guarantee Agreement
and the transactions contemplated thereby.
(D) Enabling Resolutions. The Underwriter shall have
received copies of resolutions of the Board of Directors of the Cooperative
authorizing the execution, delivery and performance by the Cooperative of this
Agreement and each of the other Related Documents to which it is a party,
certified by the Secretary or an Assistant Secretary or other authorized officer
of the Cooperative (which certificate shall state that such resolutions are in
full force and effect on the date hereof and have not been amended or
supplemented in any manner).
(E) Incumbency. The Underwriter shall have received a
certificate of the Secretary or an Assistant Secretary or other authorized
officer of each of CFC and the Cooperative, respectively, dated the date hereof,
certifying as to the names and true signatures of the officers of CFC and the
Cooperative, respectively, authorized to execute this Agreement and any other
document to be delivered by CFC and the Cooperative, respectively, hereunder.
(F) Opinion of Underwriter's Counsel. CFC and the
Cooperative shall have received an opinion of counsel to the Underwriter dated
as of the date hereof and addressed to CFC and the Cooperative.
(ii) Activities Occurring On or Before the Deposit Date. On or
before the Deposit Date, the following shall have occurred:
(A) Liquidity Facility. The Liquidity Provider shall have
executed and delivered either a commitment to enter into the Liquidity Facility
on the Refinancing Date (such
15
<PAGE>
commitment being dated the Deposit Date) or a Liquidity Facility fully executed
and delivered by the Cooperative and acknowledged by the Swap Provider to become
effective as of the Refinancing Date, and the Cooperative shall have delivered
to the Underwriter a certificate of the Secretary or Assistant Secretary or
other authorized officer of the Cooperative dated the Deposit Date certifying
that attached thereto is a true and complete copy thereof as in full force and
effect as of the Deposit Date.
(B) Effectiveness of Registration Statement and
Qualification under Trust Indenture Act. The Registration Statement shall have
become effective (in form and substance satisfactory to the Underwriter) on the
Deposit Date or at such other time or date as the Underwriter may approve in its
sole discretion.
(C) Refinancing. The following shall have occurred:
(i) (a) The Cooperative shall have taken all actions
contemplated by Section 1.4 of the First Amendment to Loan Agreement, including
the delivery of the notice described therein in accordance with the terms of the
Original Loan Agreement and in compliance with all applicable laws, rules and
regulations, (2) all other activities to be taken on or before the Deposit Date
by the various signatories to the Related Documents under, pursuant to or
contemplated by the Related Documents have been taken and (3) none of the
Related Documents shall have been amended, modified or terminated, and (b) the
Underwriter shall have received a certificate of the Cooperative, signed on its
behalf by a duly authorized officer of the Cooperative and dated the Deposit
Date, to the effect of (a) of this sentence and certifying that attached thereto
are true, correct and complete copies of all documents, certificates and
opinions delivered by any party on or as of the Deposit Date pursuant to the
Trust Agreement, the Liquidity Protection Agreement or any other Related
Document;
(ii) CFC shall have taken all actions contemplated by
Section 1.3(b) of the First Amendment to Loan Agreement, including the delivery
of the notices and the deposit of the Purchase Price described therein in
accordance with the terms of the Original Loan Agreement and in compliance with
all applicable laws, rules and regulations, and the Underwriter shall have
received a certificate of CFC, signed on its behalf by a duly authorized officer
of CFC and dated the Deposit Date, to the effect that the foregoing shall have
occurred and attaching thereto a true, correct and complete copy of the notices
described in said Section 1.3(b) as fully executed by the signatories thereto;
and
(iii) The Trustee shall have delivered the Call Notice
contemplated by Section 7.1 of the Original Trust
16
<PAGE>
Agreements (as a result of the delivery of the notices described in Section
1.3(b) of the First Amendment to Loan Agreement) in accordance with the terms of
the Original Trust Agreements , and the Underwriter shall have received on the
Deposit Date a certificate of the Trustee dated the Deposit Date, signed on its
behalf by a duly authorized officer of the Trustee to the effect that the
foregoing shall have occurred, and attaching thereto a true, correct and
complete copies of the notice described above.
(D) Bringdowns. A bringdown certificate or legal opinion,
dated the Deposit Date, of each certificate or legal opinion described in
Section 9(a)(i)(A) and (B) confirming that each statement contained in each such
certificate or each opinion expressed in each such legal opinion, as the case
may be, remains true and correct as of the Deposit Date as if originally
delivered or rendered on or as of the Deposit Date.
(E) Opinion of Counsel to Liquidity Provider. If the
Liquidity Provider has executed and delivered the Liquidity Facility on or prior
to the Deposit Date, the Underwriter shall have received a legal opinion,
addressed to the Underwriter and dated the Deposit Date hereof, from counsel to
the Liquidity Provider substantially in form attached hereto as Exhibit A.
(F) Consents. The Underwriter shall have received certified
copies of all approvals, authorizations or consents of, or notices to or filings
or registrations with, any governmental body, agency or official required for
CFC and the Cooperative to execute, deliver or perform this Agreement and the
Related Documents.
(G) NASD Clearance. The Underwriter shall have received all
necessary approvals, if any, from the National Association of Securities
Dealers, Inc. (the "NASD") regarding this Agreement.
(H) Reliance on Opinions to Ratings Agencies. The
Underwriter shall have received reliance letters relating to each opinion of
counsel (including Vinson & Elkins L.L.P. and counsel to the Swap Provider and
to the Liquidity Provider) rendered to the Trustee, S&P, Moody's or any other
Rating Agency by counsel in connection with the rating of the Certificates.
(I) Blue Sky Survey. The Underwriter shall have received at
or prior to the Deposit Date from Mayer, Brown & Platt a memorandum or summary,
in form and substance satisfactory to the Underwriter, with respect to the
qualification for offering and sale by the Underwriter of the Certificates under
the state securities or blue sky laws of such jurisdictions and the Underwriter
may reasonably have designated to CFC.
17
<PAGE>
(J) RUS Certificate. The Underwriter shall have received a
certificate, dated the Deposit Date, from the Administrator of the RUS in the
form attached to the Trust Agreement as Exhibit L.
(iii) Activities Occurring On or Before the Closing Date. On or
before the Closing Date, the following shall have occurred:
(A) Liquidity. If not delivered at Deposit Date, the
Liquidity Provider shall have executed and delivered the Liquidity Facility
dated to be effective as of the Refinancing Date and being fully executed and
delivered by the other parties thereto, and the Cooperative shall have delivered
to the Underwriter a certificate of the Secretary or Assistant Secretary or
other authorized officer of the Cooperative dated the Refinancing Date,
certifying that attached thereto is a true and complete copy of such facility
(including all amendments or supplements thereto) as in force and effect on the
Closing Date.
(B) All Other Conditions Satisfied. Underwriter shall have
received a certificate of an authorized officer of the Cooperative dated the
Refinancing Date, stating that all conditions precedent (other than purchase and
sale of the Certificates pursuant to this Agreement) to (i) the issuance of the
Certificates under the Related Documents and under applicable law, (ii) the
creation of the Trust, the refinancing of the Notes, and the deposit of the
Notes (with the Guarantee endorsed thereon) and the Swap Agreement in the Trust
and (iii) the effectiveness of the Remarketing Agreement and all other Related
Documents shall have been satisfied without waiver (other than waivers consented
to in writing by the Underwriter), and each such issuance, creation,
continuation and effectiveness shall have occurred, and the Underwriter shall
have received a certificate of an authorized officer of the Cooperative dated
the Closing Date, certifying to the foregoing.
(C) Other Documents. CFC and the Cooperative shall have
furnished to the Underwriter and to Mayer, Brown & Platt, counsel for the
Underwriter, such further opinions, certificates and documents as the
Underwriter or they may have reasonably requested prior to the Closing Date
resulting from the passage of time or a change in circumstances since the date
of this Agreement.
(D) Effectiveness of Registration Statement. Either a post-
effective amendment to the Registration Statement containing the Prospectus
shall have so become effective or the Prospectus shall have been timely filed or
transmitted by a means reasonably calculated to result in filing with the
Commission in accordance with Rule 424(b); and in either case no stop order
18
<PAGE>
suspending the effectiveness of the Registration Statement or the qualification
of the Trust Agreement shall be in effect on the Closing Date, and no
proceedings for the issuance of such an order shall be pending or, to the
knowledge of CFC, the Cooperative or the Underwriter, threatened by the
Commission on the Closing Date.
(E) Trust Indenture Act. The Trust Agreement shall have
been duly qualified under the Trust Indenture Act or counsel for the Cooperative
shall have delivered a written opinion that such is not required.
(F) Representations and Warranties. The representations,
warranties and covenants of CFC and of the Cooperative contained in this
Agreement will be true, complete and correct in all material respects on the
Closing Date with the same effect as if made on the Closing Date.
(G) Related Documents. At the time of the Refinancing, the
Related Documents shall be in full force and effect, shall have become effective
and shall have not been amended, modified or supplemented, except as may have
been agreed to in writing by the Underwriter. The Cooperative shall also deliver
a certificate of an authorized officer of the Cooperative, dated the Closing
Date, certifying that attached thereto are true and complete copies of each of
the Related Documents (including all amendments or supplements thereto) as in
force and effect as of the Closing Date.
(H) Ratings. The Certificates shall have been rated A-1 and
AAA or higher by Standard & Poor's Ratings Group, a division of McGraw-Hill,
Inc. ("S&P") and P-1 and Aa1 or higher by Moody's Investors Service, Inc.
("Moody's"), and such ratings shall be in effect, and shall not have been
withdrawn or downgraded, as of the Closing Date.
(I) Bringdowns. A bringdown certificate or legal opinion,
dated the Closing Date, of each certificate or legal opinion described in
Section 9(a)(i)(A) and (B) and Section 9(a)(ii)(E) [Opinion of Counsel to
Liquidity Provider if delivered at Deposit Date] confirming that each statement
contained in each such certificate or each opinion expressed in each such legal
opinion, as the case may be, remains true and correct as of the Closing Date as
if originally delivered or rendered on or as of the Closing Date.
(J) Additional Closing Date Opinions. The Underwriter shall
have received opinions, addressed to the Underwriter and dated the Closing Date,
from:
(1) Milbank, Tweed, Hadley & McCloy; John List, Esq.
Each of Milbank, Tweed, Hadley & McCloy, and John
19
<PAGE>
List, Esq., counsel for CFC, in the form attached hereto as Exhibit B.
(2) Vinson & Elkins L.L.P. & Cooperative. Each of
Vinson & Elkins L.L.P., special finance counsel for the Cooperative, and Harold
Haun, Esq., counsel for the Cooperative, in the form attached hereto as
Exhibit C.
(3) Counsel for the Liquidity Provider. Counsel to the
Liquidity Provider, substantially in the form of Exhibit A hereto. [if not
delivered at Deposit Date]
(4) Counsel for the Underwriter. Mayer, Brown & Platt,
counsel to the Underwriter, in the form attached hereto as Exhibit D.
(5) Counsel for the Trustee. Counsel to the Trustee to
the effect that the Certificates have been duly authorized, executed, delivered
and authenticated by the Trustee.
(6) Counsel for the Swap Provider. Counsel to the Swap
Provider, in the form of Exhibit E hereto.
(K) Blue Sky Survey. The Underwriter shall have received at
or prior to the Closing Date from Mayer, Brown & Platt a memorandum or summary,
in form and substance satisfactory to the Underwriter, with respect to the
qualification for offering and sale by the Underwriter of the Certificates under
the state securities or blue sky laws of such jurisdictions and the Underwriter
may reasonably have designated to CFC and the Cooperative.
(L) The Cooperative Officer's Certificate. The Underwriter
shall have received, on the Closing Date, a certificate of the Cooperative dated
the Closing Date, signed on its behalf by the Executive Vice President and Chief
Executive Officer of the Cooperative, to the effect that:
(i) the signer of such certificate has examined the Registration
Statement and any post-effective amendment thereof, and the
Prospectus and any supplement or amendment thereto and that (a) in
his opinion, as of the Effective Date, the Registration Statement,
as amended, (other than the information set forth under the
caption "National Rural Utilities Cooperative Finance
Corporation," which such certificate need not cover) did not
contain an untrue statement of a material fact and did not omit to
state a material fact required to be stated therein or necessary
to make the statements therein not misleading, and the Prospectus,
including any amendment or supplement thereto, (other than the
information set forth under the caption
20
<PAGE>
"National Rural Utilities Cooperative Finance Corporation," which
such certificate need not cover) at earlier of (x) the time it was
filed in accordance with Rule 424(b), if required, and (y) the
time the Registration Statement or a post-effective amendment
thereof including the Prospectus (including any amendment or
supplement thereto) was declared effective, did not contain an
untrue statement of a material fact and did not omit to state a
material fact required to be stated therein or necessary in order
to make the statements therein, in the light of the circumstances
under which they were made, not misleading, and since such time no
event has occurred which should have been set forth in an
amendment or supplement to the Prospectus but which has not been
so set forth, (b) no stop order suspending the effectiveness of
the Registration Statement is in effect on the Closing Date and no
proceedings for the issuance of such an order have been taken or
to the knowledge of the Cooperative are contemplated by the
Commission on or prior to the Closing Date, (c) there are no
material legal proceedings with respect to the Cooperative, the
Trust, the Notes, the Guarantee or the Trust Agreement or of which
property of CFC or the Trust is the subject which are required to
be disclosed and which are not disclosed in the Registration
Statement and the Prospectus, (d) there are no material contracts
as to which CFC is a party which are required to be disclosed and
which are not disclosed in the Registration Statement or the
Prospectus;
(ii) the representations and warranties of the Cooperative
contained herein and in any other Related Document are true and
correct in all material respects on and as of the Closing Date
with the same effect as if made on the date of the Closing Date;
(iii) no litigation is pending, or to his knowledge, threatened in
any court in any way seeking to restrain or to enjoin the
issuance, sale or delivery of the Certificates, or the purchase of
the 1988 Certificates to be purchased with the proceeds of the
Certificates, or in any way contesting or affecting the validity
or enforceability of the Certificates, this Agreement, or any
Related Document or the transactions contemplated hereby and
thereby or contesting in any way the power of CFC or its authority
with respect to the Certificates, this Agreement, or any Related
Document or the transactions contemplated hereby and thereby;
(iv) the Cooperative has complied with all the agreements and
satisfied all the conditions on its part to be performed or
satisfied at or prior to the Closing Date; and
(v) to the best of such officer's knowledge after due inquiry no
event has occurred and is continuing, or would result from
21
<PAGE>
the closing of the purchase and sale of the Certificates pursuant
to this Agreement, which constitutes a default or breach of or
creates in favor of any person or entity a right of termination
under any of the Related Documents.
(M) CFC's Certificate. The Underwriter shall have received
a certificate of CFC, dated the Closing Date, signed on its behalf by the
President, the Governor or a Vice President of CFC, to the effect that
(i) the signer of such certificate has examined the Registration
Statement and any post-effective amendment thereof, and the
Prospectus and any supplement or amendment thereto and that (a) in
his opinion, as of the Effective Date, the information in the
Registration Statement, as amended, set forth under the caption
"National Rural Utilities Cooperative Finance Corporation" did not
contain an untrue statement of a material fact and did not omit to
state a material fact required to be stated therein or necessary
to make the statements therein not misleading, and the information
set forth in the Prospectus under the caption "National Rural
Utilities Cooperative Finance Corporation" at earlier of (x) the
time it was filed in accordance with Rule 424(b), if required, and
(y) the time the Registration Statement or a post-effective
amendment thereof including the Prospectus (including any
amendment or supplement thereto) was declared effective, did not
contain an untrue statement of a material fact and did not omit to
state a material fact required to be stated therein or necessary
in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading, and
since such time no event has occurred which should have been set
forth in an amendment or supplement to the Prospectus but which
has not been so set forth, (b) no stop order suspending the
effectiveness of the Registration Statement is in effect on the
Closing Date and no proceedings for the issuance of such an order
have been taken or to the knowledge of CFC are contemplated by the
Commission on or prior to the Closing Date, (c) there are no
material legal proceedings with respect to CFC, the Trust, the
Notes, the Guarantee or the Trust Agreement or of which property
of CFC or the Trust is the subject which are required to be
disclosed and which are not disclosed in the Registration
Statement and the Prospectus, (d) there are no material contracts
as to which CFC is a party which are required to be disclosed and
which are not disclosed in the Registration Statement or the
Prospectus;
(ii) the representations and warranties of CFC contained herein
and in any other Related Document are true and correct in all
material respects on and as of the Closing Date with the same
effect as if made on the date of the Closing Date;
22
<PAGE>
(iii) to his knowledge no litigation is pending or threatened in
any court in any way seeking to restrain or to enjoin the
issuance, sale or delivery of the Certificates, or the purchase of
the 1988 Certificates to be redeemed or purchased with the
proceeds of the Certificates, or in any way contesting the
validity or enforceability of the Certificates, this Agreement or
any Related Document or the transactions contemplated hereby and
thereby, or contesting in any way the power of the Cooperative
with respect to the Certificates, this Agreement or any Related
Document or the transactions contemplated hereby and thereby;
(iv) CFC has complied with all the agreements and satisfied all
the conditions on its part to be performed or satisfied at or
prior to the Closing Date; and
(iv) CFC has obtained all needed exemptions under the Employee
Retirement Income Security Act of 1974 referred to in Section
4(b)(i) of this Agreement.
(N) Enabling Resolutions. The Underwriter shall have
received copies of resolutions of the Board of Directors of the Cooperative
authorizing the execution, delivery and performance by the Cooperative of this
Agreement, certified by the Secretary or an Assistant Secretary or other
authorized officer of the Cooperative (which certificate, dated the Closing
Date, shall state that such resolutions are in full force and effect on the
Closing Date and have not been amended or supplemented in any manner). This
certificate may simply confirm as of the Closing Date the certificate described
in Section 9(a)(i)(D) [Enabling Resolutions] if appropriate.
(O) Incumbency. The Underwriter shall have received a
certificate of the Secretary or an Assistant Secretary or other authorized
officer of each of CFC and the Cooperative, respectively, dated the Closing
Date, certifying as to the names and true signatures of the officers of CFC and
the Cooperative, respectively, authorized to execute any document to be
delivered by CFC and the Cooperative, respectively, hereunder at the Closing.
These certificates may simply confirm as of the Closing Date the certificates
described in Section 9(a)(i)(E) [Incumbency] if there are no changes to those
certificates.
(P) Morgan Certificate. The Underwriter shall have received
a certificate of an officer of Morgan, dated the Closing Date, to the effect
that the statements and information contained in the Registration Statement and
Prospectus (including amendments and supplements thereto as of the Closing Date)
insofar as they describe Morgan are fair and accurate.
23
<PAGE>
(Q) Liquidity Provider Certificate. The Underwriter shall
have received a certificate of an officer of the Liquidity Provider, dated the
Closing Date, to the effect that the statements and information contained in the
Registration Statement and Prospectus (including amendments and supplements
thereto as of the Closing Date) insofar as they describe the Liquidity Provider
are fair and accurate.
(R) Swap Provider Certificate. The Underwriter shall have
received a certificate of an officer to the Swap Provider, dated as of the
Closing Date, to the effect that the statements and information contained in the
Registration Statement and Prospectus (including amendments and supplements
thereto as of the Closing Date) insofar as they describe the Swap Provider, are
fair and accurate.
(S) Registration Statement. At or prior to the Closing, the
Underwriter shall have received two (2) manually executed copies of the
Registration Statement, (with all exhibits and schedules thereto) including all
amendments thereto.
(T) RUS Certificate. The Underwriter shall have received a
certificate, dated the Closing Date, from the Administrator of the RUS in the
form attached to the Trust Agreement as Exhibit L.
(b) If any of the conditions to the obligations of the Underwriter
contained in this Section or elsewhere in this Agreement shall not have been
satisfied when and as required herein, all obligations of the Underwriter
hereunder may be terminated by the Underwriter on, or at any time prior to, the
Closing Date, by written notice to the Cooperative and CFC (with a copy of such
notice delivered to the Swap Provider). Notice of such cancellation shall be
given in writing, or by telegraph, telecopy, telephone or telex confirmed in
writing.
10. Expenses.
(a) To be Paid by Cooperative. The Cooperative agrees to pay, or
arrange for the payment of, all fees and expenses in connection with (i) the
preparation, printing and filing of the Registration Statement (including all
exhibits to the Registration Statement), any Preliminary Prospectus and the
Prospectus and any amendments thereof and supplements thereto, and the
furnishing of copies of each thereof to the Underwriter (including costs of
mailing and shipment), (ii) the issuance of the Certificates, (iii) the rating
of the Certificates by the Rating Agencies, (iv) the delivery of the
Certificates pursuant to this Agreement, (v) the qualifying of the Certificates
as provided in Section 7 hereof and the determination of the eligibility of the
Certificates for investment under the laws of such jurisdictions as the
24
<PAGE>
Underwriter may designate, (vi) the filing fees of the Commission, the filing
fees and expenses incident to securing any required review by the NASD of the
terms of the sale of the Certificates and the expenses, including the fees and
disbursements of counsel for the Underwriter, incurred in connection with the
qualification of the Certificates under state securities or blue sky laws. The
Cooperative shall not, however, be required to pay for any of the Underwriter's
expenses (other than those related to qualification under state securities or
blue sky laws) except that, if this Agreement shall not be consummated because
the conditions in Section 9 hereof are not satisfied, or the Cooperative
exercises its right to terminate the Swap Agreement as set forth therein, or
because this Agreement is terminated by the Underwriter pursuant to Section 9 or
12 hereof, or by reason of any failure, refusal or inability on the part of CFC
or the Cooperative to perform any undertaking or satisfy any condition of this
Agreement or to comply with any of the terms hereof on its part to be performed,
unless such failure to satisfy said condition or to comply with said terms be
due to the default or omission of the Underwriter, then the Cooperative shall
reimburse the Underwriter for reasonable out-of-pocket expenses, including fees
and disbursements of counsel, reasonably incurred in connection with
investigating, marketing and proposing to market the Certificates or in
contemplation of performing their obligations hereunder; but the Cooperative
shall not in any event be liable to the Underwriter for damages on account of
loss or anticipated profits from the sale by the Underwriter of the
Certificates.
(b) To be Paid by CFC. Without limiting CFC's right to recover
expenses under the Loan Agreement, CFC agrees to pay, or arrange for the payment
of, (i) the fees and expenses of the Trustee and the Certificate Registrar, (ii)
the fees and expenses of CFC's counsel, and (iii) the fees and expenses of any
auditors, consultants or others retained by CFC in connection with the
transactions contemplated herein.
(c) Other Fees. The Underwriter shall have no responsibility to pay
the premiums and fees for and expenses in connection with the Swap Agreement,
the Liquidity Facility, the Remarketing Agreement, the Trust Agreement or any
other fee or expense except as specified in Section 10(d) below.
(d) To be Paid by the Underwriter. The Underwriter will pay, or cause
to be paid, fees and disbursements of Underwriter's counsel (except as otherwise
provided in the preceding paragraphs), Underwriter's computer charges and the
charge of the CUSIP Service Bureau for the assignment of CUSIP numbers for the
Certificates.
(e) The provisions of this Section 10 shall not constitute a
stipulation for the benefit of any third parties and
25
<PAGE>
no party other than the parties hereto shall be entitled to the payment of fees
and expenses on the basis of this document.
11. Indemnification.
(a) The Cooperative agrees to indemnify and hold harmless the
Underwriter and CFC and each person, if any, who controls the Underwriter or CFC
within the meaning of the Act against any losses, claims, damages or liabilities
to which the Underwriter or such controlling person may become subject under the
Act or otherwise, insofar as such losses, claims, damages or liabilities (or
actions or proceedings in respect thereof) arise out of or are based upon (i)
any untrue statement or alleged untrue statement of any material fact contained
in the Registration Statement, any Preliminary Prospectus, the Prospectus or any
amendment or supplement thereto, or (ii) the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, and will reimburse the Underwriter and
CFC and each such controlling person for any legal or other expenses reasonably
incurred by the Underwriter, CFC or such controlling person in connection with
investigating or defending any such loss, claim, damage, liability, action or
proceeding; provided, however that the Cooperative will not be liable to the
Underwriter or any control person of the Underwriter in any such case to the
extent that (i) any such loss, claim, damage or liability arises out of or is
based upon an untrue statement or alleged untrue statement, or omission or
alleged omission made in the Registration Statement, any Preliminary Prospectus,
the Prospectus, or such amendment or supplement, in reliance upon and in
conformity with written information furnished to the Cooperative or CFC by or
through the Underwriter specifically for use in the preparation thereof; or (ii)
such statement or omission was contained or made in any Preliminary Prospectus
and corrected in the Prospectus and (a) any such loss, claim, damage or
liability suffered or incurred by the Underwriter (or any person who controls
the Underwriter) resulted from an action, claim or suit by any person who
purchased Certificates which are the subject thereof from the Underwriter in the
offering and (b) the Underwriter failed to deliver or provide a copy of the
Prospectus to such person at or prior to the confirmation of the sale of such
Certificates in any case where such delivery is required by the Act; and
provided further that the Cooperative will not be liable to CFC or any control
person of CFC in any such case to the extent that any such loss, claim, damage
or liability arises out of or is based upon an untrue statement or alleged
untrue statement, or omission or alleged omission made in the Registration
Statement, any Preliminary Prospectus, the Prospectus, or such amendment or
supplement, in reliance upon and in conformity with written information
furnished to the Cooperative by or through CFC specifically for use in the
preparation thereof.
26
<PAGE>
This indemnity agreement will be in addition to any liability which the
Cooperative may otherwise have.
(b) The Underwriter will indemnify and hold harmless the Cooperative
and CFC, each of their respective directors, each of its officers who have
signed the Registration Statement, and each person, if any, who controls the
Cooperative or CFC within the meaning of the Act, against any losses, claims,
damages or liabilities to which the Cooperative or CFC or any such director,
officer, or controlling person may become subject under the Act or otherwise,
insofar as such losses, claims, damages or liabilities (or actions or
proceedings in respect thereof) arise out of or are based upon any untrue
statement or alleged untrue statement of any material fact contained in the
Registration Statement, any Preliminary Prospectus, the Prospectus or any
amendment or supplement thereto, or arise out of or are based upon the omission
or the alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading in the light
of the circumstances under which they were made, and will reimburse any legal or
other expenses reasonably incurred by the Cooperative or CFC or any such
director, officer, or controlling person in connection with investigating or
defending any such loss, claim, damage, liability, action or proceeding;
provided, however, that the Underwriter will be liable in each case to the
extent, but only to the extent, that such untrue statement or alleged untrue
statement or omission or alleged omission has been made in the Registration
Statement, any Preliminary Prospectus, the Prospectus or such amendment or
supplement, in reliance upon and in conformity with written information
furnished to the Cooperative or CFC by or through the Underwriter specifically
for use in the preparation thereof. CFC and the Cooperative acknowledge that the
statements to be made under the caption "Underwriting" in the Registration
Statement, any Preliminary Prospectus or the Prospectus or any amendment or
supplement thereto, constitute the only information to be furnished in writing
by or on behalf of or through the Underwriter for use therein. This indemnity
agreement will be in addition to any liability which the Underwriter may
otherwise have.
(c) CFC will indemnify and hold harmless the Underwriter and the
Cooperative, each of their respective directors, each of its officers who have
signed the Registration Statement, and each person, if any, who controls the
Underwriter or the Cooperative within the meaning of the Act, against any
losses, claims, damages or liabilities to which the Underwriter or the
Cooperative or any such director, officer, or controlling person may become
subject under the Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions or proceedings in respect thereof) arise out of or are
based upon any untrue statement or alleged untrue statement of any material fact
contained in the Registration Statement, any Preliminary Prospectus, the
Prospectus or any
27
<PAGE>
amendment or supplement thereto, or arise out of or are based upon the omission
or the alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading in the light
of the circumstances under which they were made, and will reimburse any legal or
other expenses reasonably incurred by the Cooperative or any such director,
officer, or controlling person in connection with investigating or defending any
such loss, claim, damage, liability, action or proceeding; provided, however,
that CFC will be liable in each case to the extent, but only to the extent, that
such untrue statement or alleged untrue statement or omission or alleged
omission has been made in the Registration Statement, any Preliminary
Prospectus, the Prospectus or such amendment or supplement, in reliance upon and
in conformity with written information furnished to the Cooperative or the
Underwriter by or through CFC specifically for use in the preparation thereof.
The Underwriter and the Cooperative acknowledge that the statements to be made
under the caption "National Rural Utilities Cooperative Finance Corporation" in
the Registration Statement, any Preliminary Prospectus or the Prospectus or any
amendment or supplement thereto, constitute the only information to be furnished
in writing by or on behalf of or through the CFC for use therein. This
indemnity agreement will be in addition to any liability which CFC may otherwise
have.
(d) In case any proceeding (including any governmental investigation)
shall be instituted involving any person in respect of which indemnity may be
sought pursuant to this Section 11, such person (the "indemnified party") shall
promptly notify the person against whom such indemnity may be sought (the
"indemnifying party") in writing. No indemnification provided for in Section
11(a) or (b) or (c) shall be available to any party who shall fail to give
notice as provided in this Section 11(d) if the party to whom notice was not
given was unaware of the proceeding to which such notice would have related and
was materially prejudiced by the failure to give such notice, but the failure to
give such notice shall not relieve the indemnifying party or parties from any
liability which it or they may have to the indemnified party for contribution or
otherwise than on account of the provisions of Section 11(a) or (b) or (c). In
case any such proceeding shall be brought against any indemnified party and it
shall notify the indemnifying party of the commencement thereof, the
indemnifying party shall be entitled to participate therein and, to the extent
that it shall wish, jointly with any other indemnifying party similarly
notified, to assume the defense thereof, with counsel satisfactory to such
indemnified party and shall pay as incurred the fees and disbursements of such
counsel related to such proceeding. In any such proceeding, any indemnified
party shall have the right to retain its own counsel at its own expense.
Notwithstanding the foregoing, the indemnifying party shall pay as incurred the
fees and expenses of the counsel retained by the
28
<PAGE>
indemnified party in the event (i) the indemnifying party and the indemnified
party shall have mutually agreed to the retention of such counsel or (ii) the
named parties to any such proceeding (including any impleaded parties) include
both the indemnifying party and the indemnified party and representation of both
parties by the same counsel would be inappropriate due to actual or potential
differing interests between them. It is understood that the indemnifying party
shall not, in connection with any proceeding or related proceedings in the same
jurisdiction, be liable for the reasonable fees and expenses of more than one
separate firm for all such indemnified parties. Such firm shall be designated in
writing by the Underwriter in the case of parties indemnified pursuant to
Section 11(a) or (c) and by the Cooperative in the case of parties indemnified
pursuant to Section 11(b). The indemnifying party shall not be liable for any
settlement of any proceeding effected without its written consent but if settled
with such consent or if there be a final judgment for the plaintiff, the
indemnifying party agrees to indemnify the indemnified party from and against
any loss or liability by reason of such settlement or judgment.
(e) If the indemnification provided for in this Section 11 is
unavailable to or insufficient to hold harmless an indemnified party under
Section 11(a) or (b) or (c) above in respect of any losses, claims, damages or
liabilities (or actions or proceedings in respect thereof) referred to therein,
then each indemnifying party shall contribute to the amount paid or payable by
such indemnified party as a result of such losses, claims, damages or
liabilities (or actions or proceedings in respect thereof) in such proportion as
is appropriate to reflect the relative benefits received by the Cooperative, CFC
and the Underwriter, respectively, as among themselves from the offering of the
Certificates. If, however, the allocation provided by the immediately preceding
sentence is not permitted by applicable law or if the indemnified party failed
to give the notice required under Section 11(d) above, then each indemnifying
party shall contribute to such amount paid or payable by such indemnified party
in such proportion as is appropriate to reflect not only such relative benefits
but also the relative fault of the Cooperative and the Underwriter in connection
with the statements or omissions which resulted in such losses, claims, damages
or liabilities (or actions or proceedings in respect thereof), as well as any
other relevant equitable considerations. The relative benefits received by the
Cooperative, CFC and the Underwriter shall be deemed to be (x) for the
Cooperative, the total net proceeds from the offering (before deducting
expenses) received by CFC as set forth in Section 1 hereof, (y) for CFC, $55,000
(being the approximate amount of one year's Servicer Spread payable to CFC under
the Trust Agreement and (y) for the Underwriter, the Underwriting Fee received
by the Underwriter as set forth in Section 1 hereof. The relative fault shall be
determined by reference to, among other things, whether the untrue and alleged
untrue statement of a
29
<PAGE>
material fact or the omission or alleged omission to state a material fact
relates to information supplied by the Cooperative, CFC or the Underwriter and
the parties' relative intent, knowledge, access to information and opportunity
to correct or prevent such statement or omission.
The Cooperative, CFC and the Underwriter agree that it would not be just
and equitable if contributions pursuant to this Section 11(e) were determined by
pro rata allocation or by any other method of allocation which does not take
account of the equitable considerations referred to above in this Section 11(e).
The amount paid or payable by an indemnified party as a result of the losses,
claims, damages or liabilities (or actions or proceedings in respect thereof)
referred to above in this Section 11(e) shall be deemed to include any legal or
other expenses reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim. Notwithstanding the
provisions of this subsection (e), (i) the Underwriter shall not be required to
contribute any amount in excess of the Underwriting Fee and (ii) no person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Act) shall be entitled to contribution from any person who was not guilty of
such fraudulent misrepresentation.
(f) In any proceeding relating to the Registration Statement, any
Preliminary Prospectus, the Prospectus or any supplement or amendment thereto,
each party against whom contribution may be sought under this Section 11 hereby
consents to the jurisdiction of any court having jurisdiction over any other
contributing party, agrees that process issuing from such court may be served
upon him or it by any other contributing party and consents to the service of
such process and agrees that any other contributing party may join him or it as
an additional defendant in any such proceeding in which such other contributing
party is a party. The Cooperative agrees to indemnify and hold harmless the
Underwriter, CFC and each person, if any, who controls the Underwriter or CFC
against any and all losses, claims, damages and liabilities (i) arising out of
any untrue statement or alleged untrue statement, of a material fact contained
in the Registration Statement, any Preliminary Prospectus, the Prospectus or any
amendment or supplement thereto as the same has been supplemented or amended, or
the omission, or alleged omission, therefrom of a material fact necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading, except any such statements as were based on information
furnished to the Cooperative by the Underwriter, and (ii) to the extent of the
aggregate amount paid in settlement of any litigation arising from a claim based
upon the foregoing and such settlement is effected with the written consent of
the Cooperative.
30
<PAGE>
(g) The indemnity agreements contained in this Section 11 shall
remain operative and in full force and effect, regardless of any investigation
made by or on behalf of the Underwriter, CFC or the Cooperative, or the delivery
of and any payment for any Certificates hereunder, and shall survive the
termination or cancellation of this Agreement.
12. Termination. The Underwriter may terminate this Agreement at any time
on or before the Closing Date in accordance with Section 9(b) [Conditions
Precedent]. The Underwriter may also terminate this Agreement by notification
in writing to the Cooperative and to CFC if at any time subsequent to the date
hereof and at or prior to the Closing Date (i) a stop order, ruling, regulation,
proposed regulation or statement by or on behalf of the Commission shall be
issued or made with respect to the Registration Statement or otherwise to the
effect that the issuance, offering, sale or distribution of obligations of the
general character of the Certificates is in violation of any provisions of the
Act or of the Trust Indenture Act; or (ii) the United States shall have become
engaged in hostilities which have resulted in a declaration of war or a national
emergency; or (iii) any legislation, resolution, order, rule or regulation shall
be enacted or adopted by the legislature of the United States or of any state,
or a decision by any court of competent jurisdiction shall be rendered which has
the effect of making illegal or otherwise restricting, preventing or prohibiting
consummation of, or which increases the cost to the Underwriter (which cost is
not reimbursed to the Underwriter by the Cooperative) of, the transactions
contemplated hereby; or (iv) any litigation shall be instituted, pending or
threatened in writing to restrain or enjoin the issuance or sale of the
Certificates or the purchase or defeasance of the Notes, or challenging any
authority for or the validity of the Certificates or any provision made or
authorized for their payment or the existence or powers of CFC or the
Cooperative or seeking to enjoin the execution or delivery of or challenging the
valid and binding nature of any of the Related Documents; or (v) in the
reasonable judgment of the Underwriter, the market price of the Certificates is
adversely affected because: (A) additional material restrictions not in force as
of the date hereof shall have been imposed upon trading in securities generally
by any governmental authority or by any national securities exchange; or (B) the
New York Stock Exchange or other national securities exchange, or any
governmental authority, shall impose, as to the Certificates or similar
obligations, any material restrictions not now in force, or increase materially
those now in force, with respect to the extension of credit by, or the charge to
the net capital requirements of, underwriters; or (C) the Cooperative shall fail
to make any payment in respect of any indebtedness of the Cooperative that is
guaranteed by the United States of America (or any agency or instrumentality
thereof) when due or within any applicable grace period or the institution of
proceedings under the federal bankruptcy laws by or against the
31
<PAGE>
Cooperative; or (D) there shall have occurred a general suspension of trading on
the New York Stock Exchange; or (E) a general banking moratorium shall have been
declared by the United States, State of New York or State of Kansas; or (F) any
change, or any development involving a prospective change in or affecting
particularly the business or properties of the Swap Provider or the Liquidity
Provider shall have occurred which in the reasonable judgment of the Underwriter
would materially adversely affect the market for the Certificates (unless CFC or
the Cooperative shall have procured a replacement party reasonably acceptable to
the Underwriter on substantially the same terms and conditions); or (G) any
ratings of the Certificates by S&P or Moody's shall be withdrawn or revised to a
rate lower than A-1 and AAA (in the case of S&P) or P-1 and Aa1 (in the case of
Moody's) or (H) an event shall occur which (a) makes untrue or incorrect in any
material respect, as of the time of such event, any statement or information
contained in the Registration Statement or Prospectus or which is not reflected
in the Registration Statement or Prospectus but should be reflected therein in
order to make the statements and information contained therein not misleading in
any material respect and (b) in the reasonable judgment of the Underwriter,
materially adversely affects the market for the Certificates or the sale, at the
contemplated offering prices, by the Underwriter of the Certificates; or (I) the
RUS shall rescind or otherwise terminate the Guarantee, or any other event shall
occur causing the Guarantee to not be supported by the full faith and credit of
the United States of America; or (J) any of the following shall not have
occurred on or prior to or shall not be true on and as of the Closing Date: (i)
the Notes shall have been delivered by the respective Original Trusts to CFC,
and shall have been amended and the Guarantee shall have been endorsed thereon,
all as is more fully provided in the Related Documents; (ii) CFC shall have
deposited the Notes (as so amended and with the Guarantee endorsed thereon) into
the Trust in accordance with the Trust Agreement; (iii) the Cooperative shall
have assigned the Swap Agreement into the Trust in accordance with the Trust
Agreement; and (iv) the assets of the Trust shall consist solely of the Notes
with the Guarantee endorsed thereon, the Swap Agreement and other rights
described in the Trust Agreement. CFC may terminate this Agreement prior to the
Closing by notification in writing to the Underwriter and the Cooperative if at
any time subsequent to the date hereof and at or prior to the Deposit Date any
of the events listed in clauses (i), (iii) or (v)(I) shall not have occurred, or
if the conditions to CFC's depositing the purchase price with the Original
Trusts specified in the First Amendment to Loan Agreement have not been
satisfied, or if either Original Trust fails to deliver its Note.
13. Notices. Any notice or other communication to be given to CFC, the
Cooperative or the Underwriter under this Agreement may be given by delivering
the same in writing to the parties at their respective addresses set forth
below:
32
<PAGE>
If to CFC:
National Rural Utilities Cooperative Finance Cooperation
2201 Cooperative Way
Herndon, Virginia 20171
Attention: Chief Finance Officer
If to the Cooperative:
Kansas Electric Power Cooperative, Inc.
P. O. Box 4877
Topeka, Kansas 66604
Attention: Executive Vice President
With a Copy to:
Michael P. Finch, Esq.
Patricia Hunt Holmes, Esq.
Vinson & Elkins L.L.P.
1001 Fannin St., Suite 2300
Houston, Texas 77002
If to the Underwriter:
Alex. Brown & Sons Incorporated
1100 Louisiana, Suite 3350
Houston, Texas 77002
Attention: Dale Lehman
With a Copy to:
Michael E. Niebruegge, Esq.
Mayer, Brown & Platt
700 Louisiana, Suite 3600
Houston, Texas 77002
14. Benefit. This Agreement is made solely for the benefit of CFC, the
Cooperative and the Underwriter (including their successors or assigns) and no
other person, partnership, association or corporation shall acquire or have any
right hereunder or by virtue hereof. All representations and agreements of CFC,
the Cooperative and the Underwriter contained in this Agreement shall remain
operative and in full force and effect, regardless of (a) delivery of and
payment for the Certificates hereunder, and (b) any investigations made by or on
behalf of the Underwriter.
15. Approval; Best Efforts. Notwithstanding any provision herein to the
contrary, the performance of any and all obligations of one party hereunder or
the performance of any and all conditions contained herein for the benefit of
one party may be waived by the
33
<PAGE>
other party in its sole discretion; provided, however, the Underwriter may not
waive any of the conditions precedent contained within Section 9(a)(ii)(B) or
Section 9(a)(iii)(D) ([Conditions Precedent--Effectiveness of Registration
Statement] on a unilateral basis without the written consent of the Cooperative.
The parties hereto agree to use their reasonable commercial efforts to
effectuate any changes to this Agreement and the Related Documents which may be
necessitated by the passage of time between the date hereof and the Closing Date
in order that the transactions contemplated hereby may be consummated; however,
the foregoing shall not require any party hereto to take any action or to agree
to any changes hereto or thereto if any such action or any such change would, in
the sole opinion of such party, impose any material burden or liability on such
party.
16. Governing Authority, Non-assignability. This Agreement shall be
governed by the laws of the State of New York. This Agreement may not be
assigned by CFC, the Cooperative or the Underwriter.
17. Execution. This Agreement may be executed in multiple counterparts,
each being regarded as an original, and will be valid and enforceable as of the
date first written above.
Yours truly,
ALEX. BROWN & SONS INCORPORATED
By: /s/ DOUGLAS E. CARTER
_________________________________
Its: Managing Director
Accepted:
This 20th day of December, 1996
National Rural Utilities Cooperative Finance Corporation
By: /s/ MARTIN R. CROWSON
______________________________
Its: Assistant Secretary-Treasurer
_____________________________
Kansas Electric Power Cooperative, Inc.
By: /s/ STEPHEN E. PARR
_____________________________
Its: Executive Vice President &
Chief Executive Officer
_____________________________
34
<PAGE>
The Undersigned hereby consents to this Agreement.
Rural Electric Cooperative Grantor Trust
(KEPCO) Series 1997
By: The First National Bank of Chicago, as Trustee
By: ______________________________
Its: _____________________________
35
<PAGE>
List of Schedules and Exhibits
Schedule I Forms of Related Documents
Exhibit A Form of Opinion of Counsel for
Liquidity Provider
Exhibit B Form of Closing Date Opinion of
Milbank, Tweed, Hadley & McCloy
Exhibit C Form of Closing Date Opinion of
Vinson & Elkins L.L.P.
Exhibit D Form of Closing Date Opinion of
Mayer, Brown & Platt
Exhibit E Form of Closing Date Opinion of
Counsel to Swap Provider
36
<PAGE>
SCHEDULE I
Forms of Related Documents
Form of Notes as of the date hereof are attached hereto. For the forms of other
Related Documents, reference is hereby made to the Certificate of Authenticity
delivered by the Cooperative pursuant to Section 9(a)(i)(A) hereof.
37
<PAGE>
Exhibit A
to
Forward Certificate Purchase Agreement
Form of Closing Date Opinion from Counsel to Liquidity Provider
n.b.: If the Liquidity Provider provides an opinion at the Deposit Date, the
Closing Date Opinion of the Liquidity Provider's counsel will simply bringdown
the Deposit Date opinion to the Closing Date as contemplated by the bracketed
wording in Section 9(a)(iii)(I) of the Forward Certificate Purchase Agreement.
(1) The Liquidity Provider has the power and authority to execute and
deliver or issue the Liquidity Facility; and
(2) The Liquidity Facility has been duly authorized, executed and
delivered or issued by the Liquidity Provider and constitutes a legal, valid and
binding obligation of the Liquidity Provider enforceable in accordance with its
terms, subject to (a) applicable bankruptcy, reorganization, insolvency,
moratorium and other laws of general applicability relating to or affecting
creditors' rights generally and (b) the application of general principles of
equity regardless of whether such enforceability is considered in a proceeding
in equity or at law.
[If the Liquidity Provider is a foreign bank, this opinion should also
state that the Liquidity Provider is a "bank" for purposes of Section 3(a)(2) of
the Securities Act of 1933, as amended.]
38
<PAGE>
Exhibit B
to
Forward Certificate Purchase Agreement
Form of Closing Date Opinion from Milbank, Tweed, Hadley & McCloy
(in addition to bringdown opinion contemplated by Section 9(a)(iii)(I) of the
Forward Certificate Purchase Agreement)
[Letterhead of Milbank, Tweed, Hadley & McCloy]
[date]
Alex. Brown & Sons Incorporated
1100 Louisiana, Suite 3350
Houston, TX 77002
Ladies and Gentlemen:
We have acted as special counsel to National Rural Utilities Cooperative
Finance Corporation ("CFC") in connection with its execution and delivery of a
Forward Certificate Purchase Agreement among it, Kansas Electric Power
Cooperative, Inc. and you (the "Underwriting Agreement"). All capitalized terms
used but not defined herein have the respective meanings given to such terms in
the Underwriting Agreement.
In rendering the opinions expressed below, we have examined such records of
CFC and such other documents as we have deemed necessary as a basis for the
opinions expressed below. In our examination, we have assumed the genuineness
of all signatures, the authenticity of all documents submitted to us as
originals and the conformity with authentic original documents of all documents
submitted to us as copies. When relevant facts were not independently
established, we have relied upon certificates of governmental officials and
appropriate representatives of CFC and upon representations made in or pursuant
to the Related Documents.
In rendering the opinions expressed below, we have assumed, with respect to
all of the documents referred to in this opinion letter, that:
(i) such documents have been duly authorized by, have been duly
executed and delivered by, and constitute legal, valid, binding
and enforceable obligations of, all of the parties to such
documents;
(ii) all signatories to such documents have been duly authorized; and
(iii) all of the parties to such documents are duly organized and
validly existing and have the power and
<PAGE>
authority (corporate, partnership or other) to execute, deliver
and perform such documents.
Based upon and subject to the foregoing and subject also to the comments
and qualifications set forth below, and having considered such questions of law
as we have deemed necessary as a basis for the opinions expressed below, we are
of the opinion that:
1. No approval, authorization, consent, order, registration, filing,
qualification, license or permit of or with the State of New York or Federal
court or governmental agency or body including, without limitation, the Rural
Utilities Service, having jurisdiction over CFC is required for the consummation
by CFC of the transactions contemplated in the Related Documents, except such as
have been obtained under the Act and the Trust Indenture Act and such as may be
required under the blue sky laws of any jurisdiction and [specific other filings
or approvals], which have been made or obtained.
2. CFC is not subject to regulation under the Public Utility Holding
Company Act of 1935;
3. CFC is not a public utility as defined in the Federal Power Act
and is not a natural gas company as defined in the Natural Gas Act;
4. CFC is not an "investment company" under the Investment Company
Act of 1940; and
5. The delivery by CFC to the Underwriter of the Certificates being
sold under the Underwriting Agreement against payment therefor as provided
therein will pass to the Underwriter all right, title and interest of CFC in the
Certificates; and, upon such delivery, the Underwriter, assuming it has no
knowledge of any adverse claim to such Certificates, will receive title to such
Certificates free and clear of all adverse claims.
The foregoing opinions are limited to matters involving the Federal laws of
the United States of America and the law of the State of New York. We do not
express any opinion as to the existence of, or the right, title or interest of
CFC in, to or under, the Certificates.
This opinion letter is provided to you by us in our capacity as counsel to
CFC, and this opinion letter may not be relied upon by any person or for any
purpose other than in connection with the transactions contemplated by the
Underwriting Agreement without, in each instance, our prior written consent.
Very truly yours,
2
<PAGE>
Form of Closing Date Opinion from John List, Esq., Counsel
There is no pending or, to the best knowledge of such counsel, threatened
action, suit or proceeding before any court or governmental agency, authority or
body or any arbitrator with respect to CFC which, if adversely determined, would
have a material adverse effect on the Certificateholders or Trust.
3
<PAGE>
Exhibit C
to
Forward Certificate Purchase Agreement
Form of Closing Date Opinion from Vinson & Elkins L.L.P.
(in addition to bringdown opinion contemplated by Section 9(a)(iii)(I) of the
Forward Certificate Purchase Agreement)
(1) The Certificates are validly issued and outstanding, and are a binding
obligation of the Trust, enforceable against the Trust in accordance with its
terms and are entitled to the benefits of the Trust Agreement subject to (a)
applicable bankruptcy, reorganization, moratorium (including, without
limitation, preference and fraudulent conveyance) or similar laws affecting
creditors' rights generally and (b) the application of general principles of
equity (regardless of whether such enforceability is considered in a proceeding
in equity or at law), including, without limitation, concepts of materiality,
reasonableness, good faith and fair dealing, and the possible unavailability of
specific performance or injunctive relief;
(2) To the knowledge of such counsel, there is no pending or threatened
action, suit or proceeding before any court or governmental agency, authority or
body or any arbitrator with respect to the Cooperative, the Trust, the
Certificates or the Trust Agreement which, if adversely determined, would have a
material adverse effect on the Certificateholders or Trust, and, to the
knowledge of such counsel, there is no material contract relating to the Trust
or any property conveyed to the Trust which is required to be disclosed in the
Registration Statement or the Prospectus which is not so disclosed;
(3) The Registration Statement has become effective under the Act and the
Certificates have been registered under the Act; any required filing (or
transmission by a means reasonably calculated to result in filing) of the
Prospectus or any supplement thereto pursuant to Rule 424(b) has been made in
the manner and within the time period required by Rule 424(b); to the knowledge
of such counsel, no stop order suspending the effectiveness of the Registration
Statement has been issued and no proceedings for that purpose have been
instituted or threatened; and the Registration Statement, the Prospectus and
each amendment thereof or supplement thereto (except for the financial and
statistical data included therein as to which such counsel need express no
opinion) comply as to form in all material respects with the applicable
requirements of the Act and the Rules and Regulations thereunder;
(4) No approval, authorization, consent, order, registration, filing,
qualification, license or permit of or with any state or Federal court or
governmental agency or body including, without
<PAGE>
limitation, the Rural Utilities Service, having jurisdiction over the
Cooperative or the Trust is required for the consummation by the Cooperative or
the Trust of the transactions contemplated herein, except such as have been
obtained under the Act and the Trust Indenture Act and such as may be required
under the blue sky laws of any jurisdiction and such filings or other approvals
(specified in such opinion) as have been made or obtained;
(5) The Certificates, this Agreement, the Notes, the Guarantees and the
other Related Documents conform in all material respects to the descriptions
thereof contained in the Registration Statement and the Prospectus as amended or
supplemented;
(6) The Trust Agreement has been duly qualified under the Trust Indenture
Act of 1939, as amended;
(7) The 1988 Certificates have been redeemed, and the Original Trusts
have been terminated, in accordance with the terms of the Original Trust
Agreements and in compliance with all applicable laws, rules and regulations;
(8) The Trust is exempt from, and is not obligated to register as, an
"investment company" under the Investment Company Act of 1940;
(9) The statements in the Registration Statement under the heading
"Certain Federal Income Tax Consequences" are correct as to statements of law,
accurately reflect the opinions ascribed to such counsel therein and address all
material Federal income tax matters with respect to the Certificates.
In addition, such counsel shall state that nothing has come to the attention of
such counsel causing it to believe that at the Effective Date the Registration
Statement, as amended, contained any untrue statement of a material fact or
omitted to state any material fact required to be stated therein or necessary to
make the statements therein not misleading, or that the Prospectus, as amended
or supplemented as of the Closing Date, contains any untrue statement of a
material fact or omits to state a material fact necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading.
2
<PAGE>
Exhibit C-1
to
Forward Certificate Purchase Agreement
Form of Closing Date Opinion from
Harold Haun, Esq., Counsel to the Cooperative
1. The Cooperative's execution and delivery of the Confirmation
included within the Swap Agreement have been duly authorized by all requisite
corporate action and the Confirmation has been duly executed and delivered by
the Cooperative.
3
<PAGE>
Exhibit D
to
Forward Certificate Purchase Agreement
Form of Closing Date Opinion from Counsel to Underwriter
(1) The Registration Statement has become effective under the Act and the
Certificates have been registered under the Act; to the best knowledge of such
counsel, no stop order suspending the effectiveness of the Registration
Statement has been issued and no proceedings for that purpose have been
instituted or threatened; and the Registration Statement, the Prospectus and
each amendment thereof or supplement thereto (except for the financial and
statistical data included therein as to which such counsel need express no
opinion) appear on their face to comply as to form in all material respects with
the applicable requirements of the Act and the Rules and Regulations thereunder
as administered by the staff of the Commission.
In addition, such counsel shall state that nothing has come to the attention of
such counsel causing it to believe that at the Effective Date the Registration
Statement, as amended, contained any untrue statement of a material fact or
omitted to state any material fact required to be stated therein or necessary to
make the statements therein not misleading, or that the Prospectus, as amended
or supplemented as of the Closing Date, contains any untrue statement of a
material fact or omits to state a material fact necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading.
<PAGE>
Exhibit E
to
Forward Certificate Purchase Agreement
Form of Closing Date Opinion from Counsel to Swap Provider
1. The Confirmation included within the Swap Agreement has been duly
executed and delivered by the Swap Provider and is the legal valid and binding
obligation of the Swap Provider, enforceable against the Swap Provider in
accordance with its terms, Certificates (except as enforcement thereof may be
limited by bankruptcy, reorganization, insolvency, moratorium or other laws
affecting the enforcement of creditor's rights generally and by general
principles).
<PAGE>
EXHIBIT 1.2
Amendment to
Forward Certificate Purchase Agreement
This Amendment to Forward Certificate Purchase Agreement ("Amendment") is
executed as of March 24, 1997 by and among National Rural Utilities Cooperative
Finance Corporation ("CFC"), Kansas Electric Power Cooperative, Inc. (the
"Cooperative"), and Alex. Brown & Sons Incorporated (the "Underwriter").
Reference is hereby made to the Forward Certificate Purchase Agreement (the
"Purchase Agreement") among CFC, the Cooperative and the Underwriter dated
December 20, 1996 relating to the purchase by the Underwriter and the sale by
CFC of $57,390,000 aggregate principal amount of Rural Electric Cooperative
Grantor Trust Certificates Series 1997.
It is hereby agreed that the date on the first line of subparagraph (i) of
paragraph (a) of Section 2 of the Purchase Agreement is changed from April 1,
1997 to April 11, 1997. The effect of this amendment will be to change the
definition of the term, "Targeted Filing Date," to April 11, 1997. Except as
amended hereby, the Purchase Agreement is hereby ratified and confirmed.
This Amendment may be executed in multiple counterparts, each being
regarded as an original, and will be valid and enforceable as of the date first
written above.
CFC: National Rural Utilities Cooperative Finance Corporation
By: /s/ Martin R. Crowson
-------------------------------------
Its: Assistant Secretary-Treasurer
COOPERATIVE: Kansas Electric Power Cooperative, Inc.
By: /s/ Stephen E. Parr
-----------------------------------
Its: Executive Vice President & Chief Executive Officer
UNDERWRITER: Alex. Brown & Sons Incorporated
By: /s/ J. Dale Lehman
-----------------------------------
Its: Vice President
<PAGE>
The undersigned hereby consents to the foregoing Amendment.
Rural Electric Cooperative Grantor Trust (KEPCO) Series 1997
By: The First National Bank of Chicago, as Trustee
By: /s/ Richard D. Manella
------------------------------
Its: Vice President
<PAGE>
EXHIBIT 4.1
TRUST AGREEMENT
among
NATIONAL RURAL UTILITIES COOPERATIVE FINANCE CORPORATION
as Depositor of the Trust
and Servicer of the Notes,
KANSAS ELECTRIC POWER COOPERATIVE, INC.
and
THE FIRST NATIONAL BANK OF CHICAGO
as Trustee of
RURAL ELECTRIC COOPERATIVE GRANTOR
TRUST (KEPCO) SERIES 1997
Entered into as of December 20, 1996
Effective as provided herein
<PAGE>
CROSS REFERENCE TABLE
TIA Section Agreement Section
----------- -----------------
310(a)(1) 10.7
(a)(2) 10.7
(a)(3) N.A.
(a)(4) 10.16
(b) 10.15, 12.6(b)
(c) N.A.
311(a) 10.17
(b) 10.17
(c) N.A.
312(a) 11.1
(b) 8.6
(c) 8.6
313(a) 5.1(d)
(b)(1) N.A.
(b)(2) 5.1(d)
(c) 12.6(b)
(d) 5.1(d)
314(a) 11.2, 12.6
(b) N.A.
(c)(1) 11.3
(c)(2) 11.3
(c)(3) N.A.
(d) N.A.
(e) 12.17
315(a) 10.1
(b) 10.18, 12.6(b)
(c) 10.1 (a)
(d) 10.1(c)
(e) N.A.
316(a)(last sentence) definition of
"Certificateholder" in 1.1
(a)(1) 10.5
(a)(2) N.A.
(b) 7.3(c)(G)
317(a) 10.16
(b) N.A.
318(a) 12.16
N.A. means not applicable.
<PAGE>
Table of Contents
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
Parties........................................................................................ 1
Recitals....................................................................................... 1
ARTICLE I
Definitions
Section 1.1 Definitions............................................................. 2
Section 1.2 Terms Defined in the Loan Agreement..................................... 14
Section 1.3 References.............................................................. 14
Section 1.4 Interpretations......................................................... 15
ARTICLE II
Delivery of the Notes and the Swap Agreement
Section 2.1 Delivery of the Notes and Swap Agreement................................ 15
Section 2.2 Declaration of Trust.................................................... 16
Section 2.3 Conditions to Issuance of Certificates.................................. 17
Section 2.4 Issuance of the Certificates............................................ 18
Section 2.5 Transfer of the Notes, etc. by the Trustee.............................. 18
ARTICLE III
Representations and Warranties
Section 3.1 Representations and Warranties as to CFC................................ 18
Section 3.2 Representations and Warranties as to the Notes and the Guarantee........ 20
ARTICLE IV
Servicing of Notes and Swap Agreement and Maintenance of Accounts
Section 4.1 Notifications to the Cooperative, the Swap Provider and the Trustee..... 20
Section 4.2 Notifications to RUS.................................................... 21
Section 4.3 Appointment as Attorney................................................. 21
Section 4.4 Duties and Appointment of Servicer...................................... 21
Section 4.5 Standard of Care........................................................ 22
Section 4.6 Delivery of Amounts Received in Enforcing the Notes, the Guarantee
</TABLE>
-i-
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
and the Swap Agreement.................................................. 22
Section 4.7 Servicer's Indemnities.................................................. 22
Section 4.8 Maintenance of the Trust Account........................................ 23
Section 4.9 Eligible Investments.................................................... 24
Section 4.10 Merger or Consolidation of, or Assumption of the Obligations of,
the Servicer............................................................ 24
Section 4.11 Costs and Expenses...................................................... 24
Section 4.12 Provision of Forms of Certificates...................................... 25
ARTICLE V
Reports
Section 5.1 Reports to Certificateholders and Others................................ 25
Section 5.2 Tax Statements, Governmental Filings and Availability of Information.... 26
Section 5.3 Report of Accountants................................................... 26
ARTICLE VI
Service Transfers
Section 6.1 Events of Servicing Termination......................................... 26
Section 6.2 Service Transfer........................................................ 27
Section 6.3 Appointment of Successor Servicer....................................... 28
Section 6.4 Notification of Servicing Termination................................... 29
Section 6.5 Effect of Service Transfer.............................................. 29
ARTICLE VII
Payments; Swap Agreement
Section 7.1 Notice to the Cooperative, the Swap Provider and the Trustee;
Notice of Prepayment.................................................... 29
Section 7.2 Default Notice.......................................................... 30
Section 7.3 Payments with respect to the Certificates and Distributions to the
Servicer and Swap Provider; Remittance of Certain Earnings on Eligible
Investments; Notice of Principal Payments............................... 30
Section 7.5 Termination and Substitution of Swap Agreement.......................... 35
ARTICLE VIII
The Certificates of Beneficial Interest
Section 8.1 The Certificates........................................................ 39
</TABLE>
-ii-
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Section 8.2 Registration of Transfer and Exchange of Certificates................... 39
Section 8.3 No Charge; Disposition of Void Certificates............................. 40
Section 8.4 Mutilated, Destroyed, Lost or Stolen Certificates....................... 40
Section 8.5 Persons Deemed Owners................................................... 40
Section 8.6 Access to List of Certificateholders' Names and Addresses............... 41
Section 8.7 Provisions for Book-Entry System........................................ 41
ARTICLE IX
Further Provisions Relating to the Certificates of Beneficial Interest
Section 9.1 Interest Distributable with Respect to the Certificates................. 43
Section 9.2 Purchase of Certificates on Demand; Mandatory Purchase.................. 45
Section 9.3 Purchase and Remarketing of the Certificates............................ 47
Section 9.4 Liquidity Facility...................................................... 50
Section 9.5 Remarketing of Certificates............................................. 51
Section 9.6 Purchase and Remarketing Fund........................................... 52
Section 9.7 Redemption or Purchase of Certificate Upon Redemption or Purchase
of Notes by RUS or the Cooperative...................................... 53
Section 9.8 Tender Agent............................................................ 54
Section 9.9 Remarketing Agent....................................................... 55
ARTICLE X
The Trustee
Section 10.1 Duties of Trustee....................................................... 56
Section 10.2 Certain Matters Affecting the Trustee................................... 57
Section 10.3 Trustee Not Liable for Certificates, Notes or the Swap Agreement........ 59
Section 10.4 Trustee May Own Certificates............................................ 60
Section 10.5 Rights of Certificateholders To Direct Trustee and To Waive
Events of Termination................................................... 60
Section 10.6 Responsibility for the Trustee's Fee and Expenses....................... 60
Section 10.7 Eligibility Requirements for Trustee.................................... 61
Section 10.8 Resignation or Removal of Trustee....................................... 61
Section 10.9 Successor Trustee....................................................... 62
Section 10.10 Merger or Consolidation of Trustee...................................... 63
Section 10.11 Authenticating Agent.................................................... 63
Section 10.12 Trustee May Enforce Claims Without Possession of Certificates........... 64
Section 10.13 Suits for Enforcement................................................... 64
Section 10.14 Powers of Trustee When CFC Holds All Certificates....................... 64
Section 10.15 Disqualification of Trustee............................................. 65
Section 10.16 Powers of Trustee....................................................... 65
Section 10.17 Preferential Collection of Claims Against Cooperative................... 65
</TABLE>
-iii-
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Section 10.18 Notice of Defaults...................................................... 65
ARTICLE XI
Certain Obligations of the Cooperative
Section 11.1 Certificateholder Information...................................... 66
Section 11.2 Reports by the Cooperative 66
Section 11.3 Certificate and Opinion as to Conditions Precedent................. 67
ARTICLE XII
Miscellaneous
Section 12.1 Effective Dates.................................................... 67
Section 12.2 Resignation of Servicer............................................ 67
Section 12.3 Termination........................................................ 67
Section 12.4 Action by Certificateholders....................................... 68
Section 12.5 Assignment or Delegation by the Servicer........................... 69
Section 12.6 Amendment.......................................................... 69
Section 12.7 Notices............................................................ 71
Section 12.8 Notices to Rating Agencies and Remarketing Agent................... 73
Section 12.9 Limitation on Rights of Certificateholders......................... 74
Section 12.10 Merger and Integration............................................. 74
Section 12.11 Severability of Provisions......................................... 75
Section 12.12 Intention of Parties............................................... 75
Section 12.13 Headings........................................................... 75
Section 12.14 Governing Law...................................................... 75
Section 12.15 Death or Incapacity of Certificateholders.......................... 75
Section 12.16 Counterparts....................................................... 75
Section 12.17 Survival........................................................... 75
Section 12.18 Binding Effect..................................................... 76
Section 12.19 Trust Indenture Act Controls....................................... 76
Section 12.20 Statements Required in Certificate or Opinion...................... 76
Section 12.21 Third-Party Beneficiaries.......................................... 76
</TABLE>
-iv-
<PAGE>
Exhibit A Form of Certificate of Beneficial Interest
Exhibit B Form of Opinion of John J. List, General Counsel to CFC Required by
Section 2.3(1)
Exhibit C Form of Opinion of Milbank, Tweed, Hadley & McCloy, Counsel to CFC
Required by Section 2.3(2)
Exhibit D Form of Officer's Certificate of the Cooperative Required by
Section 2.3(4)
Exhibit E Form of Opinion of Harold Haun, Esq., General Counsel to the
Cooperative Required by Section 2.3(5)
Exhibit F Form of Opinion of Vinson & Elkins L.L.P., Special Finance Counsel
to the Cooperative Required by Section 2.3(6)
Exhibit G Form of Opinion of Davis Polk & Wardwell, Special Counsel to Morgan
Required by Section 2.3(7)
Exhibit H Form of Opinion of In-House Counsel to Morgan Required by Section
2.3(7)
Exhibit I Form of Opinion of Mayer, Brown & Platt, Counsel to the Underwriter
and Remarketing Agent Required by 2.3(8)
Exhibit J Form of Opinion of In-House Counsel to the Underwriter and
Remarketing Agent Required by Section 2.3(8)
Exhibit K Rule 144A Legend
Exhibit L Form of Certificate of RUS Required by Section 2.3(17)
-v-
<PAGE>
THIS TRUST AGREEMENT (as amended and supplemented from time to time, this
"Agreement"), is entered into as of December 20, 1996 and is effective as
provided herein, among the NATIONAL RURAL UTILITIES COOPERATIVE FINANCE
CORPORATION ("CFC"), a District of Columbia cooperative association, KANSAS
ELECTRIC POWER COOPERATIVE, INC. (the "Cooperative"), a Kansas nonprofit
cooperative corporation, and THE FIRST NATIONAL BANK OF CHICAGO, a national
banking association, as trustee (the "Trustee").
W I T N E S S E T H:
WHEREAS, the Cooperative prepaid certain of its loans from the Federal
Financing Bank (the "FFB Loans"), which were guaranteed by the Administrator
(the "Administrator") of the Rural Electrification Administration of the
Department of Agriculture ("REA") which has been succeeded with respect to the
administration of certain electric and telephone loan programs by the Rural
Utilities Service (the "RUS"), an agency of the United States Department of
Agriculture established pursuant to Section 232 of the Federal Cooperative
Insurance Reform and Department of Agriculture Reorganization Act of 1994 (Pub.
L. 103-354, 108 Stat. 3178); and
WHEREAS, CFC loaned the Cooperative the amounts necessary to prepay the FFB
Loans on the terms and subject to the conditions set forth in a Loan Agreement
dated as of February 15, 1988, between CFC and the Cooperative (the "Loan
Agreement") (CFC in such capacity, the "Lender"); and
WHEREAS, CFC established the Rural Electric Cooperative Grantor Trusts
(KEPCO) Series 1988 K1-1988 K3 (the "Original Trusts") for the purpose of
holding the notes (the "Original Notes") evidencing the Cooperative's repayment
obligations under the loan (the "Loan") made by CFC to the Cooperative pursuant
to the Loan Agreement and guaranteed by the United States of America acting
through the Administrator of the RUS; and
WHEREAS, pursuant to Section 3.9 of the Loan Agreement, and with the
consent of CFC as Servicer of the Original Trusts (CFC in such capacity, the
"Servicer"), the Original Notes may be purchased prior to stated maturity; and
WHEREAS, Section 1786.28(c)(5) of the Regulations provides that guaranteed
notes evidencing a private loan shall not be transferable or assignable except
with the written approval of the Administrator; and
WHEREAS, Note One and Note Two, of the Original Notes, evidencing a portion
of the Loan in the original principal amount of $11,075,000 and $51,340,000,
respectively (herein defined as the "Notes"), will be eligible for redemption or
purchase on any Business Day (as defined in the Loan Agreement) on or after the
Business Day immediately prior to December 15, 1997; and
WHEREAS, the Cooperative has notified the trustee of the Original Trusts
that, with the approval of the Administrator, it desires that CFC purchase the
Notes and that the trustee of the Original Trusts redeem the related
certificates of beneficial interest therein (the "Series 1988
<PAGE>
Certificates") and terminate the related trusts on the Refinancing Date (as
herein defined), for the purpose of amending certain terms of the Loan and the
Notes, creating a new trust and issuing new certificates of beneficial interest
(the "Certificates") therein; and
WHEREAS, CFC, as Lender, depositor of the Original Trusts and Servicer of
the Notes, has agreed to purchase the Notes (amended as provided above) and to
cause the Notes, with the Guarantee endorsed thereon, to be delivered to the
Trustee on the Refinancing Date to be deposited in the trust (the "Trust")
created pursuant to this Agreement; and
WHEREAS, the Cooperative has entered into a Swap Agreement (as hereinafter
defined) with the Swap Provider (as hereinafter defined) which will be assigned
to the Trust automatically on the Refinancing Date and pursuant to which the
Swap Provider will pay to the Trust a variable rate of interest and the Trust
will pay to the Swap Provider a fixed rate of interest; and
WHEREAS, the purchase of the Notes, the amendment of the Loan Agreement,
the redemption of the Series 1988 Certificates, the issuance of the
Certificates and the assignment of the Swap Agreement to the Trust will result
in the reduction of the interest rate payable by the Cooperative relating to
such obligations, thereby improving the financial strength of the Cooperative as
contemplated by Section 306A of the Act; and
WHEREAS, the RUS will benefit from such reduction in interest rate as the
guarantor of the Notes; and
WHEREAS, CFC, the Cooperative and the Trustee desire to set forth in this
Trust Agreement the interests that will be conveyed to the Trust for the benefit
of the Certificateholders (as herein defined), the rights of the
Certificateholders, the rights and obligations of CFC as depositor of the Trust
and Servicer of the Notes and the Swap Agreement, and the obligations of the
Trustee and the Cooperative.
WHEREAS, CFC, the Cooperative and the Trustee desire to have this Agreement
qualified under the Trust Indenture Act of 1939, if necessary, and desire to
have the Cooperative undertake certain obligations to permit this Agreement to
be so qualified; and
NOW, THEREFORE, in consideration of the mutual agreements herein contained,
CFC, the Cooperative and the Trustee agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.1 DEFINITIONS. As used in this Agreement, the following terms
shall have the following meanings (such definitions to be equally applicable to
both the singular and the plural forms of the terms used):
"Act" shall mean the Rural Electrification Act of 1931, as amended (7
U.S.C. (S)(S) 901 et seq.).
-2-
<PAGE>
"Administrator" shall have the meaning assigned to it in the Recitals.
"Affiliate" shall mean, with respect to any Person, any other Person
directly or indirectly controlling, controlled by, or under direct or indirect
common control with such specified Person. For the purposes of this definition,
"control" when used with respect to any specified Person means the power to
direct the management and policies of such Person, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise;
and the terms "controlling" and "controlled" have meanings correlative to the
foregoing.
"Agreement" shall mean this Trust Agreement.
"Alternate Liquidity Facility" shall mean a standby certificate purchase
agreement, an irrevocable letter of credit, line of credit or similar agreement,
as amended, supplemented or extended from time to time, provided by Morgan or by
another bank or financial institution selected by Morgan to the Cooperative (or
by the Cooperative if Morgan does not so provide), and which satisfies the
requirements for an Alternate Liquidity Facility set forth herein.
"Alternate Rate" shall mean on any date, the interest equivalent of the 30-
day rate on commercial paper placed on behalf of issuers whose corporate bonds
are rated "AA" by S&P or its successor, or the equivalent of such rating by
another rating agency, as made available on a discount basis or otherwise by the
Federal Reserve Bank of New York for the nearest Business Day prior to such
date; provided, however, that the Alternate Rate shall not exceed the Maximum
Certificate Rate.
"Alternate Swap Agreement" shall mean an interest rate swap agreement
containing the same material terms, amounts and duration as the Swap Agreement
entered into (following an amendment to this Agreement) by the Cooperative and
any qualified swap dealer in replacement of the Swap Agreement.
"Applicable Law" shall mean all applicable laws, including, without
limitation those pertaining to health, safety and the environment, federal and
state securities laws and the Act, ordinances, judgments, decrees, injunctions,
writs, decisions and orders of any governmental authority, rules and
regulations, including, without limitation, the Regulations and interpretations,
licenses and permits of any Governmental Authority.
"Authorized Denominations" with respect to the Certificate, shall have the
meaning assigned to it in Section 8.1.
"Available Funds" shall mean, (i) for any Certificate Interest Payment
Date, the Swap Payment on deposit in the Trust Account, or, in the event there
has occurred and is continuing a Swap Provider Default, Guaranteed Interest on
deposit in the Trust Account, less the Scheduled Servicing Fee, and the interest
and any other amounts earned on such funds and deposited in the Trust Account,
(ii) for any Certificate Principal Payment Date, the Note Payments, including
any payments received from the RUS pursuant to the Guarantee (less any
Guaranteed Interest) on deposit in the Trust Account, and the interest and any
other amounts earned on such funds and deposited in
-3-
<PAGE>
the Trust Account; provided, however, that Note Payments deposited with the
Trustee with respect to a prepayment or purchase of the Notes pursuant to
Section 3.9(a) of the Loan Agreement shall not be Available Funds until the day
of prepayment or purchase specified pursuant to Section 3.9(a)(i) of the Loan
Agreement, and (iii) for any Swap Provider Payment Date, the Guaranteed Interest
on deposit in the Trust Account and the interest and any other amounts earned on
such funds and deposited in the Trust Account, less the Scheduled Servicing Fee.
"Basic Documents" shall mean this Agreement, the Loan Agreement, the Loan
Guarantee Agreement, the Notes, the Swap Agreement, the Certificate Purchase
Agreement, the Remarketing Agreement, the Liquidity Protection Agreement, the
Liquidity Facility, the First Amendment to Loan Agreement, First Amendment to
Loan Guarantee Agreement and the Mortgage.
"Beneficial Owners" shall mean purchasers of the Certificates whose
ownership interest is evidenced only in the Book-Entry System maintained by the
Depository hereunder.
"Book-Entry System" shall mean a system for clearing and settlement of
securities transactions among participants of a Depository (and other parties
having custodial relationships with such participants) through book-entry
changes and accounts of such participants maintained by the Depository
hereunder, for recording ownership of the Certificates by Beneficial Owners and
transfers of ownership interests in the Certificates.
"Business Day" shall mean any day of the year other than (i) a Saturday or
Sunday, (ii) a legal public holiday under 5 U.S.C. (S) 6103 for the purpose of
statutes relating to pay and leave of employees or any other day declared to be
a legal public holiday for the purpose of statutes relating to pay and leave of
employees by federal statute or federal Executive Order, (iii) any day on which
banks in the city in which the principal corporate trust office of the Trustee
is located are required or authorized by law to remain closed, (iv) any day on
which banks in the city or cities in which the principal office of the
Remarketing Agent, Liquidity Provider and Servicer is located are required or
authorized by law to remain closed, (v) any day which is not a Local Business
Day as defined in the Swap Agreement, and (vi) any day on which commercial banks
in New York City or the New York Stock Exchange is closed.
"Call Date," with respect to the Notes, shall mean the date on which the
Notes are being prepaid or purchased pursuant to the terms of Section 3.9(a) of
the Loan Agreement and Sections 5.5 and 6.1 of the Loan Guarantee Agreement.
"Certificate of Beneficial Interest" or "Certificate" shall mean a Rural
Electric Cooperative Grantor Trust Certificate (KEPCO) Series 1997 evidencing a
Fractional Interest executed by the Trustee and authenticated and delivered by
the Trustee or an authenticating agent and substantially in the form of Exhibit
A.
"Certificate of Beneficial Interest Rate" or "Certificate Rate" shall mean
(i) while the Swap Provider's obligations with respect to variable rate interest
payments under the Swap Agreement are in the Weekly Rate Mode, the "Weekly
Rate;" and (ii) while the Swap Provider's obligations with respect to variable
rate interest payments under the Swap Agreement are in the Flex Rate Mode, the
-4-
<PAGE>
"Flex Rate." Notwithstanding anything else in this Agreement to the contrary, if
at any time no Swap Agreement is in effect, or if on any Certificate Interest
Payment Date the Trustee has not received any Swap Payment, Certificateholders
shall be entitled to receive distributions of Interest from payments of
Guaranteed Interest on the Notes calculated at the Fixed Rate on the Notes less
the Servicer Spread, on each June 15 and December 15 (or if such day is not a
Business Day, the next succeeding Business Day).
"Certificate Interest Payment Date" shall mean, subject to the next
following sentence, (i) while Interest is distributable at the Weekly Rate, the
first Wednesday of each month or if Wednesday is not a Business Day, the next
succeeding Business Day; (ii) while Interest is distributable at the Flex Rate,
the day following the last day of each Flex Period or if such day is not a
Business Day, the next succeeding Business Day; and (iii) with respect to any
Certificate which is being redeemed any day on which such Certificate is
redeemed or the final maturity. If at any time no Swap Agreement is in effect,
or if on any Certificate Interest Payment Date the Trustee has not received any
Swap Payment, Certificateholders shall be entitled to receive distributions of
Interest from payments of Guaranteed Interest on the Notes calculated at the
Fixed Rate on the Notes less the Servicer Spread, on each June 15 and December
15 (or if such day is not a Business Day, the next succeeding Business Day).
"Certificate Payment Date" shall mean any Certificate Interest Payment Date
or Certificate Principal Payment Date and the final maturity date of the
Certificates.
"Certificate Principal Payment Date" shall mean each December 15 after the
Refinancing Date, any Call Date and the final maturity date of the Certificates.
"Certificate Register" shall mean the certificate register maintained
pursuant to Section 8.2.
"Certificate Registrar" shall mean the certificate registrar, if any,
appointed pursuant to Section 8.2.
"Certificateholder" shall mean the Person in whose name a Certificate is
registered on the Certificate Register, except that, solely for the purposes of
giving any approval, authorization, direction, notice, consent, waiver, request
or demand pursuant to this Agreement, unless the Cooperative or RUS shall hold
all the Certificates, any Certificate owned by the Cooperative or any of its
Affiliates or RUS shall be deemed not to be outstanding and the Fractional
Interest evidenced thereby shall not be taken into account in determining
whether the requisite Fractional Interest necessary to effect any such approval,
authorization, direction, notice, consent, waiver, request or demand has been
obtained. In determining whether the Trustee shall be protected in relying upon
any approval, authorization, direction, notice, consent, waiver, request or
demand of Certificateholders, only Certificates which are registered in the name
of the Cooperative or any of its Affiliates or which the Trustee knows are so
owned shall be deemed not outstanding.
"CFC" shall mean National Rural Utilities Cooperative Finance Corporation
or any Person succeeding to the business thereof which, in its capacity as
Servicer, is an Eligible Servicer pursuant to the Regulations.
-5-
<PAGE>
"Closing" shall have the meaning assigned to it in Section 2.4.
"Closing Date" shall have the meaning assigned to it in Section 2.4.
"Collateral Account" shall mean the account created in Section 4.8(c)
hereof.
"Conversion" shall mean any change from time to time, in accordance with
the terms of this Agreement, of the Swap Provider's obligations under the Swap
Agreement to pay a variable interest rate on the Certificates from one Interest
Rate Mode to another Interest Rate Mode or from one Flex Rate Period to another
Flex Rate Period of a different duration.
"Conversion Date" shall mean the date on which there is a Conversion.
"Cooperative Account" shall mean the account created in Section 4.8(d)
hereof.
"Default Notice" shall have the meaning assigned in Section 1.1 of the Loan
Guarantee Agreement.
"Deficiency" shall have the meaning assigned in Section 7.2(b).
"Delivery Office" shall mean the address at which the Tender Agent receives
deliveries of Certificates tendered for purchase as described in Article IX.
"Deposit Date" shall mean November 18, 1997.
"Depository" shall mean DTC, or any successor securities Depository
appointed under Section 8.7 hereof.
"DTC" shall mean the Depository Trust Company, New York, New York, and its
successors and assigns.
"DTC Participant" shall mean the securities brokers and dealers, banks,
trust companies, clearing corporations, and certain other organizations on whose
behalf DTC was created to hold securities to facilitate the clearance and
settlement of securities transactions among DTC participants.
"Eligible Investments" shall have the meaning assigned in Section 4.9.
"Eligible Servicer" shall mean either (a) any Person that is (i) not an
Affiliate of the Cooperative, (ii) a Financially Viable Lender (as defined in
the Regulations), (iii) legally qualified to service the Notes and (iv) approved
in writing by RUS to act as Servicer or (b) CFC.
"Event of Servicing Termination" shall have the meaning assigned in Section
6.1 hereof.
-6-
<PAGE>
"Fixed Rate," with respect to the Notes, shall have the meaning assigned in
Section 1.1 of the Loan Agreement.
"Flex Rate" shall have the meaning assigned in Section 9.1 hereof.
"Flex Rate Mode" shall mean the Interest Rate Mode in which the variable
interest rate payable to the Trust under the Swap Agreement by the Swap
Provider and distributable as Interest with respect to the Certificates is
determined in accordance with Section 9.1(b)(ii) and (e).
"Flex Rate Period" shall mean any period beginning on and including the
relevant Conversion Date to the Flex Rate Mode or beginning on and including the
first day of a new Flex Rate Period and ending on, and including, the day
preceding the day selected by the Remarketing Agent with the consent of the Swap
Provider to be the end of such Flex Rate Period for the Certificates, and each
period of the same duration (or as close as possible) ending on a Business Day
thereafter until the earliest of the day preceding the change to (i) the Weekly
Rate Mode, (ii) a Flex Rate Period of a different duration or (iii) the maturity
of the Certificates.
"Fractional Interest" shall mean an undivided fractional interest in the
Trust and, as to a particular Certificate, shall mean the undivided fractional
interest in the Trust represented by that Certificate and equal to the
percentage obtained by dividing the denomination representing the Principal
Amount of such Certificate by the Principal Balance of the Certificates.
"Governmental Action" shall mean all authorizations, consents, approvals,
waivers, exceptions, variances, orders, licenses, exemptions, publications,
filings and declarations of or with, any Governmental Authority (other than
routine reporting requirements the failure to comply with which will not affect
the validity or enforceability of any of the Basic Documents or have a material
adverse effect on the transactions contemplated by this Agreement ), the giving
of notice to any Governmental Authority or any other action in respect of any
Governmental Authority.
"Governmental Authority" shall mean any federal, state, county, municipal,
regional or other governmental authority, agency, board, body, instrumentality
or court, including, without limitation, RUS.
"Guarantee" shall mean the Guarantee endorsed on the Notes by the
Administrator.
"Guaranteed Interest" shall have the meaning assigned in Section 1.1 of
the Loan Agreement.
"Guaranteed Interest Rate" shall have the meaning assigned in Section 1.1
of the Loan Agreement.
"Immediate Notice" shall mean notice transmitted by facsimile to the
telecopy number specified in Section 12.7 of the intended recipient which is
immediately confirmed by telephone with the intended recipient.
"Initial Principal Amount" shall mean $57,390,000.
-7-
<PAGE>
"Interest" shall mean, with respect to any Certificate for any Certificate
Interest Payment Date (or any other date that is treated as if it were a
Certificate Interest Payment Date) when the variable rate of interest payable by
the Swap Provider under the Swap Agreement is in the Weekly Rate Mode or Flex
Rate Mode, interest calculated on the basis of the actual number of days elapsed
over a year of 360 days at the Weekly Rate or Flex Rate, respectively, on the
aggregate Principal Balance of the Certificates and computed over a period of
time ending on, but not including, the associated Certificate Interest Payment
Date (or such other date) and beginning on the next preceding Certificate
Interest Payment Date (or the Refinancing Date if there is no next preceding
Certificate Interest Payment Date). If at any time there is no Swap Agreement in
effect or the Trustee has not received a Swap Payment which is due, Interest is
distributable at an amount equal to interest calculated on the basis of a year
of 360 days consisting of twelve 30-day months at the Fixed Rate (less the
Servicer Spread) on the Principal Balance of the Notes and computed over a
period of time ending on, but not including, the most recent Note Payment Date
and beginning on the next preceding Note Payment Date or for the period of such
delinquency.
"Interest Period" with respect to the Certificates, shall mean the period
from and including each Certificate Interest Payment Date to and including the
day next preceding the next Certificate Interest Payment Date. The first
Interest Period shall begin on (and include) the Refinancing Date. The final
Interest Period shall end on the maturity date for each Certificate.
"Interest Rate" shall mean the Weekly Rate or the Flex Rate.
"Interest Rate Mode" shall mean the Weekly Rate Mode or the Flex Rate Mode.
"Interest Rate Period" shall mean, with respect to the Certificates, while
the Certificates are in the Weekly Rate Mode, the period from and beginning on a
Rate Setting Date to, but not including, the next succeeding Rate Setting Date,
and, while the Certificates are in the Flex Rate Mode, the period from and
beginning on the first day of such Flex Rate Period to, and including, the last
day of such Flex Rate Period.
"Liquidity Facility" shall mean initially an agreement substantially in the
form of the Standby Certificate Purchase Agreement attached as Exhibit A to the
Liquidity Protection Agreement between the Cooperative and a Liquidity Provider
selected pursuant to the Liquidity Protection Agreement and subsequently, any
Alternate Liquidity Facility.
"Liquidity Protection Agreement" shall mean that certain Liquidity
Protection Agreement, dated as of December 20, 1996, by, and between the
Cooperative and Morgan, or any similar, successor agreement between the
Cooperative and the Swap Provider.
"Liquidity Provider" shall mean the provider from time to time of the
Liquidity Facility or any Alternate Liquidity Facility.
"Loan" shall have the meaning assigned to it in the Recitals.
-8-
<PAGE>
"Loan Agreement" shall mean the Loan Agreement, dated as of February 15,
1988, between CFC, the Cooperative and the Trustee as amended by a First
Amendment to Loan Agreement entered into as of December 20, 1996 and effective
as provided therein ("First Amendment to Loan Agreement").
"Loan Guarantee Agreement" shall mean the Loan Guarantee and Servicing
Agreement, dated as of February 18, 1988, among CFC, the Trustee, the
Cooperative and REA, as amended by the First Amendment to Loan Guarantee and
Servicing Agreement entered into as of December 20, 1996 and effective as
provided therein ("First Amendment to Loan Guarantee Agreement").
"Maximum Certificate Rate" shall mean, with respect to the Certificates,
18% per annum or such higher rate as the Swap Agreement may be amended (pursuant
to Section 7.4 hereof) to permit or provide.
"Moody's" shall mean Moody's Investors Service, Inc.
"Morgan" shall mean Morgan Guaranty Trust Company of New York.
"Mortgage" shall mean that certain Supplemental Mortgage and Security
Agreement, dated as of November 15, 1985, made by and among the Cooperative, the
United States of America, and CFC, as amended by that certain Amendment dated as
of February 15, 1988 to Supplemental Mortgage and Security Agreement made by and
among the Cooperative, the United States of America and CFC.
"Note Payments" shall mean (i) the payments of Principal, if any, and
Guaranteed Interest due on the Notes on the Note Payment Dates (whether paid or
not), and, (ii) in the event the Notes are prepaid or purchased pursuant to
Section 3.9(a) of the Loan Agreement or Section 6.1 of the Loan Guarantee
Agreement, the amount deposited with the Trustee with respect to such prepayment
or purchase specified in Section 3.9(a)(iii) of the Loan Agreement.
"Note Payment Date" shall mean the dates on which Principal, if any, or
Guaranteed Interest is payable on the Notes as set forth in the Loan Agreement,
and, in the event the Notes are prepaid or purchased pursuant to Section 3.9 of
the Loan Agreement, the Call Date.
"Noteholder" shall have the meaning assigned in Section 1.1 of the Loan
Agreement.
"Notes" shall mean, collectively, Note One and Note Two from the
Cooperative in the original principal amounts of $11,075,000 and $51,340,000,
respectively, issued in connection with the Loan and to be purchased by CFC and
delivered to the Trust, outstanding as of the date hereof, in the principal
amounts of $6,950,000 and $51,340,000, respectively, and to be outstanding as of
the Refinancing Date, in the principal amounts of $6,050,000 and $51,340,000,
respectively.
"Officer's Certificate" shall mean a certificate signed by a Responsible
Officer.
-9-
<PAGE>
"Opinion of Counsel" shall mean a written opinion of counsel for the
Servicer or counsel for the Cooperative or other counsel reasonably acceptable
to the Trustee.
"Original Principal Amount" shall mean, with respect to any Certificate,
the denomination thereof at the time of original issuance on the Refinancing
Date.
"Original Trusts" shall mean the Rural Electric Cooperative Grantor Trust
(KEPCO) 1988 K1-1988 K3.
"Original Trust Agreements" shall mean those certain Trust Agreements among
CFC, the Cooperative, and the Trustee, dated as of February 15, 1988.
"Pass-Through Organization" shall mean an organization that, for federal
income tax purposes, is not treated as a corporation or an association taxable
as a corporation but is, for federal income tax purposes, either (i) not a
separate entity, (ii) a grantor trust, or (iii) a partnership.
"Payment Location" shall mean, with respect to the Swap Provider, Morgan
Guaranty Trust Company of New York, 23 Wall Street, New York, New York,
Attention: Morgan Guaranty Trust Company of New York - London Office, Account
No. 67007054.
"Person" shall mean any legal person, including any individual,
corporation, partnership, joint venture, association, joint stock company,
trust, unincorporated organization or government or any agency or political
subdivision thereof.
"Posted Collateral" shall mean amounts deposited in the Collateral Account
pursuant to the Swap Agreement.
"Principal" shall mean, with respect to the Notes or the Certificates as
the context may require, for any Certificate Payment Date and the next preceding
Note Payment Date, as applicable, the sum of (i) the regularly scheduled payment
of principal due on the Notes on that Note Payment Date; (ii) in respect of any
date on which the Notes are accelerated, the amount of principal so accelerated
and (iii) in respect of any Call Date, the amount of the Notes prepaid or
purchased; and in each case whether paid by the Cooperative or the RUS.
"Principal Amount" shall mean, with respect to any Certificate, the
Original Principal Amount minus all payments of Principal (including payments
made by reason of prepayment or purchase) made with respect to such Certificate.
"Principal Balance" shall mean for any date, (i) with respect to the Notes,
the Initial Principal Amount minus all payments of Principal made in respect of
the Notes on or prior to that date and (ii) with respect to the Certificates,
the Initial Principal Amount minus all payments of Principal made in respect of
the Certificates on or prior to that date.
-10-
<PAGE>
"Principal Corporate Trust Office" shall mean the office of the Trustee at
which its corporate trust business is principally administered at any particular
time, which office, at the date of the execution of this Agreement, is located
at the address set forth in Section 12.7.
"Purchase Date" shall mean any Business Day on which the Certificates are
subject to optional or mandatory purchase pursuant to Section 9.2.
"Purchase Fund" shall mean the fund (comprising a portion of the Purchase
and Remarketing Fund) designated as such and established with the Tender Agent
pursuant to Section 9.6.
"Purchase and Remarketing Fund" shall mean the fund established pursuant to
Section 9.6.
"Purchase Price" of a Certificate shall mean the Principal Amount of such
Certificate plus the amount of Interest, if any, which would be distributable
with respect to such Certificate in the current Interest Rate Mode if the date
of purchase of the Certificate were a Certificate Interest Payment Date.
"Purchased Certificate" shall mean any Certificate which has been purchased
by the Liquidity Provider pursuant to the terms of the Liquidity Facility.
"Rate Setting Date" shall mean (i) while the Certificates are in the Weekly
Mode, Wednesday of each week, or if Wednesday is not a Business Day, the next
succeeding Business Day; and (ii) while the Certificates are in the Flex Rate
Mode, not later than the Business Day preceding the first day of the next
succeeding Flex Rate Period.
"Rating Agency" shall mean Moody's or S&P, or any other national service
assigning ratings to the Certificates at the request of the Cooperative or the
Swap Provider.
"Rating Confirmation Notice" shall mean notices from all Rating Agencies
confirming that the rating on the Certificates will not be withdrawn or lowered
as a result of the contemplated action.
"Record Date" shall mean for any Certificate Payment Date, the Business Day
next preceding that Certificate Payment Date, or, if there is no Swap Agreement
in effect or the Trustee has not received a Swap Payment when due, the 15th day
prior to the Certificate Payment Date (whether or not a Business Day).
"Refinancing Date" shall mean December 18, 1997.
"Regulations" shall mean the regulations promulgated by RUS amending 7
C.F.R. Chapter XVII by adding Part 1786 and implementing the provisions of
Section 1401 of the Omnibus Budget Reconciliation Act of 1987 (P.L. 100-203)
relating to Section 306A of the Rural Electrification Act of 1936 (7 U.S.C.
(S)(S) 901, et seq.), as amended.
"Remarketing Agent" shall mean Alex. Brown & Sons Incorporated or any other
Person succeeding to the duties of the Remarketing Agent as set forth herein.
-11-
<PAGE>
"Remarketing Agreement" shall mean that certain Remarketing Agreement dated
as of December 20, 1996, between the Remarketing Agent and the Cooperative and
any similar agreement with a successor Remarketing Agent.
"Remarketing Proceeds Fund" shall mean the fund (comprising a portion of
the Purchase and Remarketing Fund) designated as such and established pursuant
to Section 9.6 with the Tender Agent.
"Responsible Officer" shall mean the Chairman of the Board, the President,
the Governor, any Vice Chairman, the Finance Officer or any Vice President of
CFC or the equivalent officers of any Affiliate or any Servicer or the
Cooperative, as appropriate, or, with respect to the Trustee, any officer of the
Trustee assigned by the Trustee to administer its corporate trust matters.
"RUS" shall mean the Rural Utilities Service, an agency of the United
States of America or any successor to its authority under the Rural
Electrification Act of 1936, as amended (7 U.S.C. (S)(S) 901 et seq.).
"RUS Account" shall mean the account established in Section 4.8(d) hereof.
"S&P" shall mean Standard & Poor's, a division of The McGraw Hill
Companies, Inc.
"Scheduled Servicing Fee" shall mean (i) for any Swap Provider Payment Date
and the corresponding Note Payment Date, an amount equal to the Servicer Spread
applied to the principal amount of the Notes outstanding for the period to, but
not including, such Note Payment Date from and including the next preceding Note
Payment Date or, if none, from and including the Refinancing Date and (ii) for
any other date when distributions are being made pursuant to Section 7.3(F), if
any payment of principal or premium on the Notes is delinquent, an amount equal
to the Servicer Spread on the date such payment became delinquent applied to
such delinquent principal or premium over the period of such delinquency. The
Scheduled Servicing Fee shall be calculated on the basis of a year of 360 days
consisting of twelve 30-day months for any date on which the Interest on the
Certificates is so calculated and, for any other date, shall be calculated on
the basis of the actual number of days elapsed over a year of 365 or 366 days,
as the case may be.
"SEC" shall mean the United States Securities and Exchange Commission.
"Securities Act" shall mean the Securities Act of 1933, as amended (15
U.S.C. (S)(S) 77a et seq.).
"Semiannual Report" shall have the meaning assigned in Section 5.1.
"Series 1988 Certificates" shall mean the Certificates (as such term is
defined in the Original Trust Agreements) issued pursuant to the Original Trust
Agreements.
"Service Transfer" shall mean any transfer of servicing authority and
responsibility to a successor Servicer pursuant to Article VI.
-12-
<PAGE>
"Servicer" shall mean CFC until any Service Transfer under this Agreement
and thereafter shall mean the Servicer appointed pursuant to Article VI.
"Servicer Spread" shall mean 9.30 basis points (.093%) per annum.
"Servicing Functions" shall have the meaning assigned in Section 6.2.
"Servicing Officer" shall mean any officer of the Servicer involved in, or
responsible for, the administration and servicing of the Notes and the
Guarantee.
"Swap Agreement" shall mean the International Swap Dealers Association
Master Agreement, including the schedules thereto and confirmation thereof,
dated as of December 20, 1996 and effective as set forth therein, between the
Cooperative and the Swap Provider, or any Alternate Swap Agreement.
"Swap Payments" shall mean the variable rate payments of Interest required
to be made by the Swap Provider under the Swap Agreement pursuant to the terms
thereof.
"Swap Provider" shall mean Morgan, as a party to the Swap Agreement, or the
qualified swap dealer party to any Alternate Swap Agreement.
"Swap Provider Account" shall mean the account established in Section
4.8(d) hereof.
"Swap Provider Default" shall mean any failure of the Swap Provider to make
Swap Payments or any other payments (including delivery of collateral) when due
under the Swap Agreement.
"Swap Provider Payment Dates" shall mean each Call Date and each June 4 and
December 4, commencing June 4, 1998, or such later date on which payment of
Guaranteed Interest is received and if such day is not a Business Day, the next
succeeding Business Day.
"Swap Provider Payments" shall mean, at any time, the amount due and
payable by the Trust as the counterparty under the Swap Agreement (determined
without regard to the amount of Available Funds on deposit in the Trust
Account).
"Tender Agent" shall mean the Trustee or any other Person appointed
pursuant to Section 9.8 of this Agreement.
"Termination Amount" shall have the meaning assigned to it in the Swap
Agreement.
"TIA" or "Trust Indenture Act" shall mean the Trust Indenture Act of 1939
(15 U.S.C. (S)(S) 77aaa-77bbbb) as in effect on the date hereof.
-13-
<PAGE>
"Trust" shall mean the Rural Electric Cooperative Grantor Trust (KEPCO)
Series 1997 established pursuant to this Agreement.
"Trust Account" shall mean a segregated trust account or accounts
maintained by the Trustee in its trust capacity in the name of the Trust for the
benefit of the Certificateholders in accordance with Section 4.8.
"Trustee" shall mean The First National Bank of Chicago, a national
banking association, organized under the laws of the United States of America
and authorized to do a banking business and qualified to exercise trust powers,
in its capacity as trustee hereunder until the appointment of any successor
trustee pursuant to Section 10.8 or any succession described in Section 10.10
and thereafter shall mean the Trustee appointed pursuant to such Section 10.8 or
the successor to the former Trustee pursuant to Section 10.10, respectively.
"Underwriter" shall mean Alex. Brown & Sons Incorporated or, if the
original Underwriting Agreement shall terminate on or prior to the Refinancing
Date, such other investment banker selected pursuant to the terms of the Loan
Agreement to purchase the Certificates from CFC (or place such Certificates with
qualified investors), on the Refinancing Date.
"Underwriting Agreement" shall mean the Forward Certificate Purchase
Agreement dated as of December 20, 1996, between Alex. Brown & Sons
Incorporated, the Cooperative and CFC pursuant to which the Cooperative and CFC
agree to sell the Certificates and Alex. Brown & Sons Incorporated agrees to
purchase or place the Certificates on the Refinancing Date or any agreement
serving the same purpose with a successor Underwriter.
"Weekly Rate" shall have the meaning assigned to it is Section 9.1.
"Weekly Rate Mode" shall mean the Interest Rate Mode in which the variable
interest rate payable to the Trust under the Swap Agreement by the Swap Provider
and distributable as Interest with respect to the Certificates is determined in
accordance with Section 9.1(b)(i) and Section 9.1(d).
"Weekly Rate Period" shall mean the period beginning on, and including, the
Refinancing Date, and ending on, and including, the next Tuesday, or if the
immediately succeeding Wednesday is not a Business Day, then the day preceding
the next succeeding Business Day, and thereafter the period beginning on, and
including, any Wednesday or if Wednesday is not a Business Day, then the next
succeeding Business Day and ending on, and including, the next Tuesday, or if
the immediately succeeding Wednesday is not a Business Day, then the day
preceding the next succeeding Business Day.
SECTION 1.2 TERMS DEFINED IN THE LOAN AGREEMENT. All capitalized terms not
defined herein shall have the respective meanings specified in Section 1.1 of
the Loan Agreement.
SECTION 1.3 REFERENCES. All the agreements or instruments defined in
Section 1.1 of this Agreement shall mean such agreements or instruments as the
same may have been or may from time to time be amended, supplemented or
restated, or terms thereof waived or modified to the extent
-14-
<PAGE>
permitted by, and in accordance with the terms hereof and thereof. Anything in
the preceding sentence to the contrary notwithstanding, RUS shall not be deemed
to have agreed to or approved any such amendment, supplement, restatement,
waiver or modification unless RUS shall have consented thereto or approved it in
writing. References in this Agreement to Articles, Sections, Subsections and
Exhibits are to Articles, Sections, Subsections and Exhibits in this Agreement,
unless otherwise indicated. References to Sections, Articles or Exhibits
"hereof" or "hereto" shall refer to Sections or Articles in, or Exhibits
incorporated in, this Agreement.
SECTION 1.4 INTERPRETATIONS. References herein to any document or agreement
shall mean that document or agreement as it has been or may be amended from time
to time. References herein to any Person shall mean that Person, its successors
and permitted assigns.
ARTICLE II
DELIVERY OF THE NOTES AND THE SWAP AGREEMENT
SECTION 2.1 DELIVERY OF THE NOTES AND SWAP AGREEMENT. On the Refinancing
Date, assuming the conditions in Section 1.3(c) of the First Amendment to Loan
Agreement have been satisfied, CFC, as depositor of the Trust and Servicer of
the Notes, shall cause the Notes with the Guarantee endorsed thereon to be
delivered to the Trustee for deposit in the Trust. Except as expressly set forth
in this Agreement or the Loan Guarantee Agreement, the acceptance by the Trustee
of delivery of the Notes, the Swap Agreement and the Guarantee, and the
declaration by the Trustee of the Trust under this Agreement, shall not
constitute and is not intended to result in an assumption by the Trustee or any
Certificateholder of any obligation of (i) CFC to the Cooperative, (ii) RUS or
(iii) any other Person in connection with the Loan Agreement, the Notes, the
Swap Agreement or the Guarantee or under any agreements or instruments relating
to any of them.
(b) On December 20, 1996, the Cooperative entered into the Swap Agreement.
On the Refinancing Date, the Cooperative, by the provisions of Section 2.1(c),
shall deliver and irrevocably assign the Swap Agreement, including the
Cooperative's rights to receive the Swap Payments and obligations to pay the
Swap Provider Payments under the Swap Agreement, to the Trustee, as more fully
provided in Section 2.1(c), and such Swap Agreement shall on the Refinancing
Date become an asset of the Trust; provided, however, that the Cooperative
retains certain rights and obligations in connection with a termination under
the Swap Agreement, as more fully provided in Section 2.1(c).
(c) Effective automatically on the Refinancing Date, the Cooperative hereby
assigns and transfers its rights, titles and interests under the Swap Agreement
to the Trustee, including but not limited to (except as provided in clause (3)
below), the following:
(1) the right to receive and enforce payment of the Swap Payments; and
(2) the right to receive and enforce the attachment, perfection and priority of
security interests in the "Posted Collateral" under the Credit Support
Annex to the Swap Agreement, and to administer and control the Collateral
Account in respect thereof (such collateral to
-15-
<PAGE>
secure the Swap Payments and other obligations of the Swap Provider, as
provided in the Swap Agreement, but not to secure the Notes, the Guarantee
or other obligations);
(3) provided, however, that the Cooperative reserves the rights and obligations
to make and, through the Trustee and subject to Section 7.5 hereof,
receive payment of amounts in respect of an "Early Termination Date"
determined pursuant to Section 6(e) of the Swap Agreement and the right to
terminate the swap "Transaction" dated of even date herewith, pursuant to
Part 5, Section (9) of the Schedule to the Swap Agreement, subject to and
as more fully provided in Section 7.5 hereof.
Effective automatically on the Refinancing Date and the above assignment
and transfer to the Trust, the Trustee hereby assumes (without personal
liability and subject to the provisions of Article X), all obligations of the
Cooperative under the Swap Agreement that accrue or are incurred after the
Refinancing Date, including but not limited to (except as provided in clause
(iii) below), the following:
(i) the obligation, subject to Section 7.6 hereof, to make payments to the
Swap Provider under the Swap Agreement, only from Available Funds, in the
amount of Guaranteed Interest, less the Scheduled Servicing Fee, pursuant
to Section 7.3(c) hereof; and
(ii) the obligation to release, transfer and return Posted Collateral to the
Swap Provider as provided in the Credit Support Annex to the Swap
Agreement;
(iii) provided, however, that the Trustee does not assume any obligations to
make payments due to early termination of the Swap Agreement or to pay
liabilities in respect of "Taxes" or to pay interest at the "Default
Rate" or expenses or indemnities thereunder.
Effective automatically on the Refinancing Date and the above assignment
and transfer to the Trust, the Trustee hereby makes with respect to itself or
the Trust, as applicable (without personal liability and subject to the
provisions of Article X), the representations, agreements, submissions to
jurisdiction, and waivers of the "Counterparty" under the Swap Agreement;
provided, however, that the Trustee does not assume any obligations to make
payments due to early termination of the Swap Agreement or to pay liabilities in
respect of "Taxes" or to pay interest at the "Default Rate" or to pay expenses
or indemnities thereunder.
For federal income tax purposes it is intended that, while held by the
Trust and the Certificateholders, the Notes and the Swap Agreement be an
"integrated transaction" giving rise to a "synthetic debt instrument" within the
meaning of those terms as used in Treasury Regulation (S) 1.1275-6, (26 C.F.R.
(S) 1275-6); accordingly the Trustee will enter, and retain, as part of the
books and records of the Trust the information required by the identification
requirements of paragraph (e) of Treasury Regulation (S) 1.1275-6 concerning
integrated transactions.
SECTION 2.2 DECLARATION OF TRUST. The Trustee, for itself and its
successors and assigns, declares that it shall hold all the estate, right, title
and interest in any property received by it under this Agreement (except
property received pursuant to Section 10.6 and any other provision of this
-16-
<PAGE>
Agreement pursuant to which the Trustee is to be paid, reimbursed or indemnified
for any fees, expenses or liability) in trust for the benefit of all present and
future Certificateholders, subject to the terms and provisions set forth in this
Agreement.
SECTION 2.3 CONDITIONS TO ISSUANCE OF CERTIFICATES. As a condition to the
issuance of the Certificates to CFC, the Trustee or its designee shall have
received all of the following on or before the Deposit Date:
(1) an Opinion of John J. List, General Counsel for CFC, substantially in the
form of Exhibit B, certifying that the Basic Documents to which CFC is a party
and the transactions contemplated under all of such documents, are authorized
and enforceable against CFC in accordance with their terms;
(2) an Opinion of Milbank, Tweed, Hadley & McCloy, Counsel to CFC
substantially in the form of Exhibit C;
(3) resolutions of the Board of Directors of the Cooperative authorizing the
execution, delivery and performance by the Cooperative of the Basic Documents to
which the Cooperative is a party and the transactions contemplated under all
such documents, certified by the secretary or an assistant secretary of the
Cooperative as in full force and effect on and as of the Deposit Date;
(4) an Officer's Certificate of the Cooperative substantially in the form of
Exhibit D;
(5) an opinion of Harold Haun, Esq., General Counsel to the Cooperative
substantially in the form of Exhibit E;
(6) an opinion of Vinson & Elkins L.L.P., Special Finance Counsel to the
Cooperative substantially in the form of Exhibit F;
(7) Opinions of Davis Polk & Wardwell, Special Counsel to Morgan and In-House
Counsel to Morgan substantially in the forms of Exhibits G and H;
(8) Opinions of Mayer, Brown & Platt, Counsel to the Underwriter and
Remarketing Agent and In-House Counsel to the Underwriter and Remarketing Agent
substantially in the forms of Exhibits I and J;
(9) a fully executed Trust Agreement;
(10) a fully executed First Amendment to Loan Agreement;
(11) a fully executed First Amendment to Loan Guarantee and Servicing
Agreement;
-17-
<PAGE>
(12) a fully executed Swap Agreement;
(13) a fully executed Remarketing Agreement;
(14) a fully executed Liquidity Protection Agreement;
(15) a fully executed Underwriting Agreement;
(16) provisional or final letters from each of the Rating Agencies showing
that the Certificates will be rated A-1 or higher by S&P and P-1 or higher by
Moody's; and
(17) a certificate of the RUS in the form of Exhibit L.
If such opinions or certificates are dated as of the date of this
Agreement, the Trustee shall be entitled to receive bring-down opinions or
certifications as of the Deposit Date.
Subject to the foregoing conditions, on the Refinancing Date, the Trustee
shall cause to be authenticated and delivered to CFC (or upon the written order
of CFC signed by a Responsible Officer of CFC, to CFC's designee), Certificates
of Beneficial Interest in Authorized Denominations equal in the aggregate to the
Initial Principal Amount.
SECTION 2.4 ISSUANCE OF THE CERTIFICATES. The closing ("Closing") of the
deposit of the Notes (with the Guarantee attached thereto) and the Swap
Agreement and the issuance of the Certificates of Beneficial Interest under this
Agreement to CFC shall occur at 9:00 a.m. on the Refinancing Date (the "Closing
Date") at the offices of Vinson & Elkins L.L.P., The Willard Office Building,
1455 Pennsylvania Avenue, N.W., Washington, D.C. 20004-1008, or at such other
time and place as the parties may agree. All of the actions or events scheduled
in this Agreement, and in the other agreements or documents delivered
concurrently with the execution of this Agreement, to take place on the
Refinancing Date, and taken or occurring on such date, shall be deemed to occur
simultaneously. Should the conditions to issuance of the Certificates specified
in Section 2.3 hereof not be satisfied on the Refinancing Date, this Agreement
and the Trust created hereby shall not terminate until the parties hereto
mutually agree to terminate the Trust. Neither CFC nor the Cooperative nor the
Trustee shall be liable to any other party for failure to issue the Certificates
because of the failure of the trustee of the Original Trusts to deliver the
Notes to CFC or the Trustee on the Refinancing Date.
SECTION 2.5 TRANSFER OF THE NOTES, ETC. BY THE TRUSTEE. Without the prior
written approval of the Administrator and satisfaction of the other conditions
precedent to the Trustee's power to do so set forth in this Agreement, the
Trustee will not sell, assign, pledge or otherwise transfer the Notes, the
Trustee's interest in the Swap Agreement or the Guarantee to any Person or
Persons, notwithstanding any default under the Notes, the Swap Agreement or the
Guarantee. This Section shall not be construed to prohibit transfers of the
Certificates.
-18-
<PAGE>
ARTICLE III
REPRESENTATIONS AND WARRANTIES
SECTION 3.1 REPRESENTATIONS AND WARRANTIES AS TO CFC. CFC represents and
warrants to the Trustee that, as of the date hereof and the Refinancing Date:
(a) Organization and Good Standing. CFC has been duly organized, and is
validly existing and in good standing as a cooperative association under the
laws of the District of Columbia, and has the corporate power and authority to
own its assets and to conduct its business as presently conducted.
(b) Binding Obligations. CFC has the corporate power and authority to
make, execute, deliver and perform this Agreement and all the transactions
contemplated by this Agreement. CFC has taken all necessary corporate action to
authorize the execution, delivery and performance by it of this Agreement, the
Loan Agreement and the Loan Guarantee Agreement and all the documents required
pursuant to such agreements and documents. This Agreement, the Loan Agreement
and the Loan Guarantee Agreement constitute the legal, valid and binding
obligations of CFC enforceable against it in accordance with their respective
terms (subject to applicable bankruptcy and insolvency laws and other similar
laws affecting the enforcement of the rights of creditors generally and the
availability of equitable remedies).
(c) No Consent Required. CFC is not required to obtain any consent,
license or approval of, or to register with any other party or any Governmental
Authority in connection with, the execution, delivery or performance of this
Agreement, the Loan Agreement or the Loan Guarantee Agreement other than, prior
to the public offering of the Certificates of Beneficial Interests by CFC, if
any, (i) the registration of the Certificates of Beneficial Interests under the
Securities Act of 1933, if necessary, (ii) the qualification of an indenture
under the TIA, if necessary, (iii) the issuance of an order of exception under
Section 6(c) of the Investment Company Act of 1940 or the availability of
another exemption thereunder, if necessary, (iv) the registration,
qualification, issuance of an order of exemption or any other governmental
action under any applicable state securities laws, and (v) any necessary
exemption of the Department of Labor under the Employee Retirement Income
Security Act of 1974, as amended.
(d) No Violations. Its execution, delivery and performance of this
Agreement, the Loan Agreement and the Loan Guarantee Agreement do not violate
the Articles of Incorporation or the By-laws of CFC or any provision of any
exiting law or regulation applicable to CFC or any order or decree of any court
or any mortgage, indenture, contract or other agreement to which CFC is a party
or by which it, the Notes, the Guarantee or any portion of CFC's properties is
bound.
(e) Litigation. There is no litigation or administrative proceeding before
any Governmental Authority presently pending or, to the knowledge of CFC,
threatened, with respect to CFC, the Original Trusts, the Trust, the Notes, the
Guarantee, the Certificates, the Series 1988 Certificates, this Agreement, or,
to CFC's knowledge, the Swap Agreement, challenging the validity or
enforceability of this Agreement, the Loan Agreement, the Loan Guarantee
Agreement, the
-19-
<PAGE>
Certificates, the Series 1988 Certificates, or the Swap Agreement, nor has any
order, judgment or decree been issued or proposed to be issued by any
Governmental Authority which would set aside, restrain, enjoin or prevent the
execution and the delivery of this Agreement, the Notes, the Guarantee, the Loan
Guarantee Agreement, the Trust, the Certificates, or, to CFC's knowledge, the
Swap Agreement, or which, if adversely determined to the interests of CFC, could
have a material adverse effect on CFC's ability to perform its obligations under
this Agreement, the Loan Agreement, Series 1988 Certificates, the Certificates
the Swap Agreement, or the Loan Guarantee Agreement.
SECTION 3.2 REPRESENTATIONS AND WARRANTIES AS TO THE NOTES AND THE
GUARANTEE. CFC further represents and warrants to the Trustee that, as of the
date hereof and the Refinancing Date:
(a) Binding Obligation. To the best knowledge of CFC, each of the Notes
is the legal, valid and binding obligation of the Cooperative and is enforceable
in accordance with its terms, except as such enforceability may be limited by
laws affecting creditors' rights generally.
(b) No Defenses. To the best knowledge of CFC, the Notes are not subject
to any right of rescission, set off, counterclaim or defense, including the
defense of usury, and the operation of any of the terms of the Notes or the
exercise of any right thereunder will not render the Notes unenforceable in
whole or in part or subject to a right of rescission, setoff, counterclaim or
defense, including the defense of usury, and no such right of rescission,
setoff, counterclaim or defense has been asserted with respect thereto.
(c) Special Warranty. CFC has placed no liens on the Notes while they
were held in the Original Trusts.
(d) Obligations; No Impairment. CFC has duly fulfilled all material
obligations on its part to be fulfilled under or in connection with the Loan
Guarantee Agreement, the Loan Agreement, the Notes or the Guarantee and has not
assigned, amended, waived or encumbered the rights of the Trust and the
Certificateholders in the Notes and the Guarantee or proceeds thereof with
respect thereto other than as contemplated hereby.
(e) Absence of Fraud or Misrepresentation. CFC has neither taken any
action nor omitted to take any action nor made any statement nor omitted to
make any statement that constitutes either a fraud or a misrepresentation (as
such terms are used in 7 U.S.C. (S) 938) in respect of the authorization,
execution or delivery of the Guarantee. In addition to the foregoing, to the
best of CFC's knowledge, there has been no fraud or misrepresentation (as such
terms are used in 7 U.S.C. 938) by any Person in connection with the
authorization, execution or delivery of the Guarantee.
-20-
<PAGE>
ARTICLE IV
SERVICING OF NOTES AND SWAP AGREEMENT AND MAINTENANCE OF ACCOUNTS
SECTION 4.1 NOTIFICATIONS TO THE COOPERATIVE, THE SWAP PROVIDER AND THE
TRUSTEE. The Servicer will deliver the notices and schedules to the Cooperative,
the Swap Provider and the Trustee provided for in Section 7.1.
SECTION 4.2 NOTIFICATIONS TO RUS.
(a) The Servicer will provide RUS and the Administrator the notices and
schedules in accordance with Article V of the Loan Guarantee Agreement and
paragraph 16 of Schedule I thereto. The Servicer will provide a copy of any
such notice or schedule to the Cooperative, the Swap Provider and the Trustee.
(b) The Trustee will notify the Servicer, the Remarketing Agent, the
Liquidity Provider, and the Swap Provider by 12:00 p.m. (New York, New York
time) on any Note Payment Date of any default in the payment on such date of
Principal and/or Guaranteed Interest on the Notes, and will notify the
Cooperative, the Remarketing Agent, and the Servicer of any default under the
Swap Agreement known by a Responsible Officer of the Trustee and will cooperate
with the Servicer in the performance of the Servicer's duties under Section
4.2(a).
SECTION 4.3 APPOINTMENT AS ATTORNEY. The Trustee hereby constitutes and
appoints the Servicer as its true and lawful attorney-in-fact, in the Trustee's
name, place and stead, to commence and prosecute any claims to enforce or
collect on the Notes or the Guarantee; provided, however, the Servicer shall not
(in part or in full) rescind, cancel, release, waive, modify or reschedule the
right to collect the unpaid balance on the Notes or the Guarantee from the
Cooperative or RUS. If, however, in any suit or legal proceeding for
enforcement, it is held that the Servicer may not enforce or collect on the
Notes or the Guarantee on the ground that it is not a real party in interest or
a holder entitled to enforce the Notes or the Guarantee, as the case may be, the
Trustee on behalf of the Trust shall take such steps as may be necessary to
enforce the Notes or the Guarantee, as the case may be, including bringing suit
in its name. The Servicer will promptly provide the Trustee notice of any
material actions by the Servicer under this Section and notice of all material
developments related to the Servicer's performance in its capacity as attorney-
in-fact of the Trustee.
SECTION 4.4 DUTIES AND APPOINTMENT OF SERVICER.
(a) The Servicer shall administer and service the Notes and the Guarantee
and enforce the Trustee's rights under the Notes and the Guarantee; provided,
however, (i) payments on the Notes shall be made by the Cooperative or by RUS as
guarantor directly to the Noteholder, (ii) if Swap Payments are due to the
Trustee on any Certificate Interest Payment Date, distributions of such amounts
actually received shall be made directly by the Trustee to each
Certificateholder in an amount equal to such Certificateholder's Fractional
Interest in such Swap Payments on such Certificate Interest Payment Date, and
(iii) payments of Guaranteed Interest on the Notes less the
-21-
<PAGE>
Servicer Spread received by the Trustee shall be made directly by the Trustee to
the Swap Provider on each Swap Provider Payment Date.
(b) The Servicer shall make the calculations as to (i) the aggregate
amount of each distribution to Certificateholders; and (ii) the Swap Payment due
and payable on any Certificate Payment Date, and shall provide the Trustee, the
Swap Provider and the Cooperative notice of such amounts in writing on the
second Business Day prior to any Certificate Payment Date.
(c) Except as expressly provided herein, none of the provisions contained
in this Agreement shall in any event require the Servicer to perform any of the
obligations of the Trustee under this Agreement.
SECTION 4.5 STANDARD OF CARE.
(a) In administering, servicing and enforcing the Notes or the Guarantee,
the Servicer, after a default in payment on the Notes, shall exercise such of
the rights and powers vested in it by this Agreement, and use the same degree of
care and skill in their exercise, as a prudent person would exercise or use
under the circumstances in the conduct of such person's own affairs. Prior to a
default in payment on the Notes, the Servicer need perform only those duties
that are specifically set forth in this Agreement, and no others. The Servicer
shall not be liable (i) for any error of judgment made in good faith by it,
unless it is proved that the Servicer was negligent in ascertaining the
pertinent facts, or (ii) with respect to any action it takes or omits to take in
good faith in accordance with a direction received by it from the Trustee or the
Certificateholders.
(b) Subject to the provisions of this Section, (i) the Servicer may rely
on any document believed by it to be genuine and to have been signed or
presented by the proper person, and the Servicer need not investigate any fact
or matter stated in the document; and (ii) the Servicer shall not be liable for
any action it takes or omits to take in good faith in reliance on an Opinion of
Counsel.
(c) The Servicer in its individual or any other capacity may become the
owner or pledgee of securities issued by the Cooperative and may otherwise deal
with the Cooperative or an Affiliate with the same rights it would have if it
were not the Servicer.
(d) The Servicer has certain relationships with Morgan and the Servicer
may make deposits with, borrow money from, employ Morgan to act as trustee under
indentures of, and generally engage in any kind of business with, Morgan and any
Person who may do business with or own securities of Morgan without any duty to
account therefor and with the same rights it would have if it were not the
Servicer.
SECTION 4.6 DELIVERY OF AMOUNTS RECEIVED IN ENFORCING THE NOTES, THE
GUARANTEE AND THE SWAP AGREEMENT. The Servicer shall use its best efforts to
cause any amounts to be received pursuant to its enforcement of the Notes or the
Guarantee to be delivered directly to the Trustee. Any monies which are
nevertheless delivered to the Servicer in respect of its enforcement of the
Notes or the Guarantee shall be delivered to the Trustee on the same day they
are received by the Servicer.
-22-
<PAGE>
SECTION 4.7 SERVICER'S INDEMNITIES.
(a) The Servicer will defend and indemnify the Trust, the Trustee and the
Certificateholders against any and all costs, expenses, losses, damages, claims
and liabilities, including reasonable fees and expenses of counsel and expenses
of litigation, arising in respect of any gross negligence or willful misconduct
by the Servicer with respect to the Notes or the Guarantee, except to the extent
that any such costs, expenses, losses, damages, claims and liabilities (as and
when incurred) may be attributable to the Trustee's negligence or bad faith.
(b) If the Servicer has made any indemnity payments to the
Certificateholders, the Trust or the Trustee on behalf of Certificateholders
pursuant to this Section, and the Trustee thereafter collects any of the amounts
which gave rise to such indemnity payment from the Cooperative or other Persons
or any such amounts are received by the Trust, the Trustee shall repay such
amounts collected to the Servicer.
(c) These indemnities will survive any Service Transfer but will not cover
actions or omissions of any successor Servicer after a Service Transfer.
SECTION 4.8 MAINTENANCE OF THE TRUST ACCOUNT.
(a) The Trustee shall establish and maintain the Trust Account as a
segregated, non-interest-bearing trust account in its trust capacity for the
benefit of the Certificateholders. The Trustee shall immediately deposit in the
appropriate subaccount within the Trust Account, as provided in Section
4.8(d)(i) all payments it receives with respect to the Notes or the Guarantee
(except for any amounts required by Section 7.3(c)(B) to be paid by the Trustee
to RUS or the Cooperative and except for property received pursuant to Section
10.6 and any other provision of this Agreement pursuant to which the Trustee is
to be paid, reimbursed or indemnified for any fees, expenses or liability) or
the Swap Agreement and any investment earnings on, returns of principal of and
any other amounts received in respect of investments of such funds and (ii)
moneys transferred from the Collateral Account pursuant to Section 4.8(c)
hereof. The Trustee, at the direction of the Servicer, shall invest amounts in
the Trust Account prior to the associated Certificate Payment Date in Eligible
Investments that mature not later than the Business Day next preceding the
associated Certificate Payment Date. The Trustee shall maintain, for the
benefit of the Certificateholders, possession of the Eligible Investments
evidenced by an instrument from the time of purchase until maturity. The
Trustee shall not sell, assign or otherwise transfer any Eligible Investment
prior to its maturity except, at the direction of the Servicer, to preserve the
value of the corpus of the Trust. The Trustee, promptly upon receipt of
earnings on Eligible Investments, shall deliver to the Servicer a schedule
setting forth such amounts and the source of such amounts, including the
securities on which any such amounts were earned.
(b) Neither the Trustee nor the Servicer shall have any liability to the
Trust or the Certificateholders with respect to losses on investments of amounts
from the Trust Account in Eligible Investments that have been made in compliance
with this Section. In no event shall the Cooperative or RUS have any liability
to the Trust or the Certificateholders with respect to losses on investments of
amounts from the Trust Account.
-23-
<PAGE>
(c) The Trustee shall establish, as an account separate from the Trust
Account, a Collateral Account into which shall be deposited any Posted
Collateral received by it pursuant to the Credit Support Annex attached to the
Swap Agreement. The Collateral Account shall (i) secure the Swap Provider's
obligation to make Swap Payments and the other rights of the Trustee and
Cooperative under the Swap Agreement, (ii) shall be applied only in accordance
herewith and with the Swap Agreement, and (iii) shall not be available for any
other purpose, including, but not limited to, the obligations of the Cooperative
or RUS under the Notes or Guarantee. Proceeds of the Posted Collateral received
by the Trustee from the exercise of its remedies pursuant to Paragraph 8 of the
Credit Support Annex to the Swap Agreement shall be applied, to the extent
permitted by such Credit Support Annex, in accordance with Section 7.5 hereof.
(d) The Trustee shall establish, as subaccounts within the Trust Account,
a "Cooperative Account," a "RUS Account" and a "Swap Provider Account" which
shall be maintained for the purpose of holding funds received from the
Cooperative, the RUS and the Swap Provider, respectively.
SECTION 4.9 ELIGIBLE INVESTMENTS. "Eligible Investments" are any of the
following:
(a) bonds, notes, bills or other similar obligations issued by the United
States of America that are backed by the full faith and credit of the United
States; and
(b) repurchase agreements (i) secured by securities of the type listed
under Section 4.9(a) not subject to a perfected lien of any third party and
valued at no less than 102% of the repurchase obligation (including accrued
interest) if such securities have a remaining maturity of less than one year, or
otherwise over-collateralized to an extent acceptable to each Rating Agency
without causing a reduction in their ratings of the Certificates, (ii) with
entities such that the automatic stay provision of 11 U.S.C. (S) 362 would not
be applicable to the repurchase agreement in the event of bankruptcy of such
entity (or, if there are no such entities as a result of an amendment to 11
U.S.C. (S) 362, such entities acceptable to each Rating Agency without causing a
reduction in the ratings on the Certificates) and (iii) pursuant to
documentation that provides for the securities to be valued ("marked to market")
daily and kept in the possession of the Trustee or in its control through book
entry (or, in both cases, that have such other provisions acceptable to each
Rating Agency without causing a reduction in its rating on the Certificates
provided the Servicer has determined that the SEC or its staff will not object
to such other provisions).
SECTION 4.10 MERGER OR CONSOLIDATION OF, OR ASSUMPTION OF THE OBLIGATIONS
OF, THE SERVICER. Any corporation into which the Servicer may be merged or
consolidated, or any corporation resulting from any merger, conversion or
consolidation to which the Servicer shall be a party, or any corporation
succeeding to the business of the Servicer shall be the successor of the
Servicer under this Agreement (without relieving the Servicer of its
responsibilities under this Agreement if it survives such merger, conversion or
consolidation), without the execution or filing of any paper or any further act
on the part of any of the parties hereto.
SECTION 4.11 COSTS AND EXPENSES. All costs and expenses incurred by the
Servicer in carrying out its duties under this Agreement (including fees and
expenses of accountants and all
-24-
<PAGE>
other fees, the exercise of remedies following a default under the Notes or the
Guarantee and expenses not expressly stated in this Agreement to be for the
account of the Trust) shall be paid by the Servicer and the Servicer shall not
be entitled to any reimbursement of such costs and expenses under this
Agreement. Nothing in this Section shall be construed to limit the compensation
to be paid to the Servicer pursuant to Section 7.3.
SECTION 4.12 PROVISION OF FORMS OF CERTIFICATES. The Servicer agrees
promptly to provide the Trustee with blank forms of Certificates in amounts
reasonably requested by the Trustee.
ARTICLE V
REPORTS
SECTION 5.1 REPORTS TO CERTIFICATEHOLDERS AND OTHERS.
(a) On or before ten Business Days after each June 15 and December 15 (or
the next Business Day if such day is not a Business Day), the Servicer shall
supply to the Trustee, the Swap Provider and the Liquidity Provider a
"Semiannual Report" which shall include the following information (stated on the
basis of $100,000 of principal amount) as of the last Certificate Payment Date
occurring since the last Semiannual Report:
(1) the amount of any distribution allocable to Principal;
(2) the amount of any distributions allocable to Interest; and
(3) the amount of fees distributed to the Servicer.
The Semiannual Report shall also state the Principal Balance with
respect to the Certificates outstanding after the last distribution of Principal
and that, to the best of the Servicer's knowledge, as of the related June 15 and
December 15 (or the next Business Day if such day is not a Business Day), no
delinquency in payment under any of the Notes, the Guarantee or the Swap
Agreement has occurred and no Event of Servicing Termination, or event that with
notice or lapse of time or both would become an Event of Servicing Termination,
has occurred and is continuing or, if such event has occurred and is continuing,
shall specify the event and, in any event, shall specify its status and the
amount, if any, paid under the Guarantee. Each Semiannual Report shall include
a certification from a Responsible Officer of the Servicer to the effect that,
to the best of such officer's knowledge and belief, the Semiannual Report is
complete and accurate. The Trustee shall promptly mail a copy of the Semiannual
Report to each Certificateholder.
(b) The fiscal year of the Trust shall be a calendar year. Within the
prescribed period of time for tax reporting purposes after the end of each
calendar year during the term of this Agreement, the Trustee shall prepare and
mail to each Certificateholder of record at any time during such year a report
setting forth the aggregate of amounts reported pursuant to Section 5.1(a), any
original issue discount and such other information as is reasonably necessary
for the preparation of such
-25-
<PAGE>
Certificateholder's federal income tax returns, each for such calendar year or,
in the event such person was a Certificateholder for only a portion of such
calendar year, for the applicable portion of the year.
(c) The Trustee will deliver, without charge, to any Certificateholder,
the Swap Provider and the Liquidity Provider copies of all statements and
reports furnished to the Trustee upon written request delivered to the Trustee
at One First National Plaza, Suite 0126, Chicago, Illinois 60670-0126,
Attention: Corporate Trust Administration.
(d) Within 60 days of May 15 in every year beginning with May 15, 1998,
the Trustee shall mail to the Certificateholders a brief report that complies
with TIA (S) 313(a). The Trustee shall also comply with TIA (S) 313(b)(2). A
copy of each report at the time of its mailing to Certificateholders shall be
filed with the SEC and each stock exchange on which Certificates are listed. The
Servicer shall notify the Trustee when the Certificates are listed on any stock
exchange.
SECTION 5.2 TAX STATEMENTS, GOVERNMENTAL FILINGS AND AVAILABILITY OF
INFORMATION. The Servicer shall promptly prepare and deliver to the Trustee
copies of any tax filings for the Trust and prepare, deliver and file all
necessary reports and filings under the Securities Act of 1933, the Securities
Exchange Act of 1934, the TIA or the Investment Company Act of 1940 for the
Trust. If the Certificates are issued and sold pursuant to Section 4(2) of the
Securities Act and resold pursuant to Rule 144A or another exemption under the
Securities Act, the Servicer will (and the Trustee shall cooperate with the
Servicer to) make available to any prospective purchaser of the Certificates or
beneficial owner of the Certificates in connection with any sale thereof
pursuant to Rule 144A under the Securities Act the information required by Rule
144A(d)(4) under the Securities Act.
SECTION 5.3 REPORT OF ACCOUNTANTS. At its own expense, the Servicer shall
cause an independent certified public accountant to audit the books and records
of the Trust no less often than annually, and, upon completion of such report,
shall provide a copy of the auditor's report to the Trustee and the Cooperative.
ARTICLE VI
SERVICE TRANSFERS
SECTION 6.1 EVENTS OF SERVICING TERMINATION. "Event of Servicing
Termination" means the occurrence of any of the following:
(a) any failure by the Servicer to make any payment or any deposit
required to be made by the Servicer under this Agreement and the continuance of
such failure for a period of two Business Days;
(b) failure by the Servicer to provide any report or filing in accordance
with Section 5.1 or Section 5.2, any notice with respect to a Note Payment Date
in accordance with Section 7.1 or any notice with respect to any deficiencies in
accordance with Section 7.2 that continues unremedied for
-26-
<PAGE>
three Business Days after notice from the Trustee or Certificateholders with
aggregate Fractional Interests representing 25% or more of the Trust, which
notice shall specify such failure, require it to be remedied and state that such
notice is a "Notice of Servicing Termination";
(c) any failure on the part of the Servicer to enforce the Notes or the
Guarantee in accordance with Section 4.5 that continues unremedied for 30 days
after notice from the Trustee, the Swap Provider or Certificateholders with
aggregate Fractional Interests representing 25% or more of the Trust, which
notice shall specify such failure, require it to be remedied and state that such
notice is a "Notice of Servicing Termination";
(d) any failure on the part of the Servicer to observe or perform in any
material respect any material covenant or agreement to be observed or performed
by the Servicer under this Agreement that continues unremedied for 30 days after
notice from the Trustee, the Swap Provider or Certificateholders with aggregate
Fractional Interests representing 25% or more of the Trust, which notice shall
specify such failure, require it to be remedied and state that such notice is a
"Notice of Servicing Termination";
(e) any assignment or delegation by the Servicer of its duties or rights
under this Agreement except as specifically permitted by this Agreement;
(f) the entry of a decree or order by a court having jurisdiction in the
premises adjudging the Servicer a bankrupt or insolvent, or approving as
properly filed a petition seeking reorganization, arrangement, adjustment or
composition of or in respect of the Servicer under Title 11 of the United States
Code or any other applicable Federal or state law or law of the District of
Columbia, or appointing a receiver (or other similar official) of the Servicer
or of any substantial part of its property, or ordering the winding up or
liquidation of its affairs, and the continuance of any such decree or order
unstayed and in effect for a period of 60 consecutive days;
(g) the institution by the Servicer of proceedings to be adjudicated a
bankrupt or insolvent, or the consent by it to the institution of bankruptcy or
insolvency proceedings against it, or the filing by it of a request for relief
under the Title 11 of the United States Code or any other applicable Federal or
state law or law of the District of Columbia, or the consent by it to the
filing of any such petition or to the appointment of a receiver, liquidator,
assignee, trustee, sequestrator (or other similar official) of the Servicer or
of any substantial part of its property, or the making by it of an assignment
for the benefit of creditors, or the admission by it in writing of its inability
to pay its debts generally as they become due, or the taking of corporate action
by the Servicer in furtherance of any such action; or
(h) the failure of the Servicer to be an Eligible Servicer.
SECTION 6.2 SERVICE TRANSFER.
(a) If an Event of Servicing Termination has occurred and is continuing,
either the Trustee or Certificateholders holding aggregate Fractional Interests
representing 51% or more of the Trust, by notice in writing to the Servicer,
and, if no Swap Provider Default has occurred and is
-27-
<PAGE>
continuing, with the consent of the Swap Provider, may terminate all (but not
less than all) the Servicer's rights, powers, duties and obligations in such
capacity as Servicer the Basic Documents(such functions being hereafter referred
to as "Servicing Functions"). On receipt by the outgoing Servicer of such notice
(or on such later date as may be designated therein), all authority and power of
such outgoing Servicer to conduct Servicing Functions shall pass to and be
vested in, without further action and pursuant to and under this Section, the
successor Servicer as determined in Section 6.3.
(b) The outgoing Servicer agrees to cooperate with the Trustee and the
successor Servicer in effecting the termination of the responsibilities and
rights of the outgoing Servicer to conduct Servicing Functions under this
Agreement and to assist the successor Servicer in enforcing all rights
under the Notes or the Guarantee. All reasonable costs and expenses incurred by
the successor Servicer in connection with the Service Transfer shall be paid by
the outgoing Servicer upon presentation of reasonable documentation of such
costs and expenses (but the outgoing Servicer shall not be responsible for any
costs or expenses of any subsequent Service Transfers).
SECTION 6.3 APPOINTMENT OF SUCCESSOR SERVICER.
(a) On and after the receipt by the outgoing Servicer of a notice of
termination pursuant to Section 6.2 or the receipt by the Trustee of a notice of
the resignation of a Servicer as permitted under this Agreement, the outgoing
Servicer shall continue to perform Servicing Functions only until the date
specified in such notice or, if no such date is specified in a notice of
termination, until receipt of such notice. The Trustee, with the consent of the
Swap Provider (unless a Swap Provider Default has occurred and is continuing),
shall appoint an Eligible Servicer as successor Servicer and such successor
Servicer shall accept its appointment by a written assumption in a form
acceptable to the Trustee and shall agree in writing to be the Servicer under
the Notes and the Guarantee and to enforce the Trustee's rights thereunder. In
the event that a successor Servicer has not been appointed at the time the
outgoing Servicer ceases to act as Servicer, the Trustee without further action
shall automatically be appointed the successor Servicer.
(b) Upon appointment, the successor Servicer shall be the successor in all
respects to the outgoing Servicer and shall be subject to all the
responsibilities, duties and liabilities (and shall benefit from all rights and
shall have all powers) arising thereafter relating to the Servicing Functions.
(c) The outgoing Servicer and any successor Servicer shall take such
action, consistent with this Agreement, as shall be necessary to effectuate any
succession. The successor Servicer shall be entitled to servicing compensation
with respect to the Notes and the Guarantee sufficient to pay the successor
Servicer a reasonable fee (including the estimated costs of such servicing and a
reasonable profit). Such servicing compensation shall be a fee determined in
the following manner: (i) if it is commercially reasonable to obtain estimates
or bids of five or more Eligible Servicers prepared to service the Notes and the
Guarantee, a reasonable fee shall not exceed 115% of the average of such bids
or estimates; (ii) if it is commercially reasonable to obtain estimates or bids
of only three or four Eligible Servicers prepared to service the Notes and the
Guarantee, a reasonable fee shall not exceed 110% of the average of such bids or
estimates; and (iii) if estimates or bids are
-28-
<PAGE>
obtained from only two or fewer Eligible Servicers prepared to service the Notes
and the Guarantee, a reasonable fee shall not exceed the Scheduled Servicing
Fee. The outgoing Servicer shall pay or cause to be paid any portion of such
reasonable fee to the successor Servicer which is in excess of the sum of the
Servicing Fee and other amounts payable to the Servicer out of the Trust Account
pursuant to this Agreement. The Trustee shall promptly deliver to CFC a copy of
any agreement appointing a successor Servicer.
SECTION 6.4 NOTIFICATION OF SERVICING TERMINATION. The Trustee shall give
prompt written notice of any Event of Servicing Termination that has occurred
and is continuing or the appointment of a successor Servicer to RUS, the
Cooperative, CFC, the outgoing Servicer, the Swap Provider, the Liquidity
Provider and the Certificateholders at their respective addresses appearing on
the Certificate Register. The Trustee may withhold notice of an Event of
Servicing Termination from the Certificateholders so long as it in good faith
determines that withholding such a notice from the Certificateholders is in the
best interests of the Certificateholders.
SECTION 6.5 EFFECT OF SERVICE TRANSFER.
(a) After a Service Transfer, the outgoing Servicer shall have no further
rights or obligations with respect to the Servicing Functions and the successor
Servicer shall have all such rights and obligations, except as provided in
subsection (b) of this Section.
(b) A Service Transfer shall not affect the rights and duties of the
parties under this Agreement, the Loan Agreement, the Swap Agreement, and the
Loan Guarantee Agreement other than the Servicing Functions and the unaffected
rights and duties under this Agreement, including, without limitation, the
outgoing Servicer's right to receive payment of amounts payable to it for
services rendered prior to such Service Transfer. The successor Servicer shall
promptly pay CFC or any other outgoing Servicer all amounts either of them is
entitled to receive under this Agreement on each Certificate Payment Date
subsequent to the Service Transfer and upon termination of this Agreement. The
successor Servicer shall also provide CFC and any other outgoing Servicer with a
copy of the Semiannual Report sent to the Certificateholders with respect to
each Certificate Payment Date subsequent to the date of the Service Transfer and
with such other information as CFC may reasonably request to enable CFC or any
other outgoing Servicer to verify the amount, if any, required to be paid by CFC
or any other outgoing Servicer to the successor Servicer as compensation as
provided in Section 6.3 or to the outgoing Servicer pursuant to the first
sentence of this subsection.
ARTICLE VII
PAYMENTS; SWAP AGREEMENT
SECTION 7.1 NOTICE TO THE COOPERATIVE, THE SWAP PROVIDER AND THE TRUSTEE;
NOTICE OF PREPAYMENT.
(a) No more than 45 days and no less than 35 days before each Note Payment
Date (other than a Call Date, as provided in Section 9.7), the Servicer will
deliver a notice to the Cooperative
-29-
<PAGE>
and the Trustee specifying the date such payment is due and the amount of such
payment. No more than five Business Days and no less than two Business Days
before each Certificate Payment Date, the Servicer will deliver a notice to the
Cooperative, the Swap Provider and the Trustee. Such notice shall specify in
reasonable detail the method of calculation of the Interest payable to the
Certificateholders, if any, and the amount of Principal, if any, payable to the
Certificateholders, the Scheduled Servicing Fee payable to the Servicer, in each
case on the associated Certificate Payment Date.
(b) On written request of the Cooperative or RUS, the Servicer shall
promptly deliver to the Cooperative or RUS a schedule setting forth the amount
which would be payable on the Notes if the Notes were to be prepaid or purchased
on a date set forth in such written request. The Servicer will deliver a copy of
any such schedule to the Trustee and the Swap Provider simultaneously with its
delivery to the Cooperative or RUS.
SECTION 7.2 DEFAULT NOTICE.
(a) By 12:00 p.m. (New York, New York time) on each Note Payment Date, the
Trustee will notify the Servicer whether there is a Deficiency (as defined
below) with respect to that Note Payment Date and the amount of the Deficiency,
if any, and, if there is a Deficiency, the Servicer shall deliver to RUS a
Default Notice pursuant to Section 5.2(a) of the Loan Guarantee Agreement.
(b) "Deficiency" means, in respect of any Note Payment Date, the amount,
if any, by which the amount received by the Trustee from the Cooperative (and
from RUS) in respect of that Note Payment Date is less than the amount of
Principal, if any, and Guaranteed Interest due under any Note on that Note
Payment Date.
(c) By 3:30 p.m. (New York, New York time) on each Certificate Interest
Payment Date, the Trustee will notify the Servicer, the Cooperative, the
Remarketing Agent, the Swap Provider and the Liquidity Provider as to whether
there has been a default in the payment of any Swap Payment.
SECTION 7.3 PAYMENTS WITH RESPECT TO THE CERTIFICATES AND DISTRIBUTIONS TO
THE SERVICER AND SWAP PROVIDER; REMITTANCE OF CERTAIN EARNINGS ON ELIGIBLE
INVESTMENTS; NOTICE OF PRINCIPAL PAYMENTS.
(a) Except as provided below, on each Certificate Interest Payment Date,
the Trustee shall apply or cause to be applied all Available Funds in the Trust
Account to make the payments of Interest due to the Certificateholders on such
date.
(b) Except as provided below, on each Certificate Principal Payment Date,
the Trustee shall apply or cause to be applied all Available Funds in the Trust
Account to make the payment of Principal due to the Certificateholders on such
date.
(c) On each Swap Provider Payment Date, the Trustee shall apply or cause
to be applied Available Funds in the Trust Account to pay the amount of
Guaranteed Interest received by the Trustee on or in respect of the
corresponding Swap Provider Payment Date by 1:00 p.m. (New York,
-30-
<PAGE>
New York time), in immediately available funds, first to the Servicer in an
amount equal to the Scheduled Servicing Fee due on such date and then (unless a
Swap Provider Default has occurred and is continuing) to the Swap Provider at
its Payment Location. On each June 15 and December 15 (or if such day is not a
Business Day, the next succeeding Business Day), the Trustee shall apply or
cause to be applied all Available Funds in the Trust Account to make the
following payments in the following order of priority:
(i) Interest, if any, due to the Certificateholders on such date; and
(ii) Principal, if any, due to the Certificateholders on such date.
If the Available Funds associated with any June 15 or December 15 or
Call Date (or if such day is not a Business Day, the next succeeding Business
Day) are greater than the amounts required to be distributed above under this
Section 7.3(c), the excess shall be distributed as follows:
(A) If there has been no acceleration of the Notes (1) to RUS, to the
extent that RUS has paid any amount under the Guarantee and the Cooperative has
not paid to RUS all amounts due on the Notes as a result of such payment by RUS,
and (2) otherwise, to the Cooperative; provided, however, that no amounts shall
be distributed to RUS or the Cooperative until the Trustee has paid (x) to the
Servicer all delinquent Scheduled Servicing Fees and (to the extent permitted by
Applicable Law) all interest thereon, (y) unless a Swap Provider Default has
occurred and is continuing, to the Swap Provider the amount of any delinquent
Swap Provider Payments, and (z) to the Certificateholders all amounts of
Interest then accrued for their benefit under Section 7.3(c)(E), all delinquent
Principal, and all delinquent Interest (to the extent permitted by Applicable
Law) with respect to the Certificates of Beneficial Interests.
If there has been an acceleration of the Notes, (1) the amount of the
accrued and unpaid Scheduled Servicing Fee shall become distributable to the
Servicer, (2) unless a Swap Provider Default has occurred and is continuing, the
amount of the accrued and unpaid Swap Provider Payments, if any, shall become
distributable to the Swap Provider, and (3) the entire outstanding Principal
Balance with respect to the Certificates of Beneficial Interests, together with
all accrued Interest thereon, shall become distributable to the
Certificateholders, it being understood that Interest and the Scheduled
Servicing Fee, shall accrue for this purpose as if the date of such acceleration
were a Note Payment Date. Upon an Event of Default described in paragraph (a)
of Article VI of the Loan Agreement, the Trustee may, and upon the written
request of Certificateholders holding aggregate Fractional Interests
representing 51% or more of the Trust, shall, by written notice to the Servicer,
the RUS and the Cooperative (if such notice may lawfully be given) and, unless a
Swap Provider Default has occurred and is continuing, with the consent of the
Swap Provider, direct the Servicer to declare the Notes to be due and payable.
Upon any acceleration of the Notes pursuant to the Loan Agreement, all accrued
Scheduled Servicing Fees shall become payable to the Servicer; the amount of
unpaid Swap
-31-
<PAGE>
Provider Payments shall, unless a Swap Provider Default has occurred and is
continuing, become payable to the Swap Provider, and the entire outstanding
Principal Balance with respect to the Certificates of Beneficial Interests,
together with all accrued Interest thereon, shall become distributable to the
Certificateholders; it being understood that Interest and the Scheduled
Servicing Fee shall accrue for this purpose as if the date of such acceleration
were a Note Payment Date.
(B) Anything contained in this Agreement to the contrary notwithstanding,
(i) if RUS is not in default under the Guarantee and has made a payment under
the Guarantee and the Trustee thereafter receives from the Cooperative any
payment on the Notes, then, to the extent that the sum of such payments by RUS
and such payments by the Cooperative exceed the amounts then due on the Notes,
the Trustee shall promptly pay the amount of such excess directly to RUS and
shall in no event deposit the amount of such excess in the Trust Account and
(ii) if RUS is not in default under the Guarantee and makes a payment under the
Guarantee that, together with any payments made by the Cooperative, is in excess
of the amounts then due on the Notes, then the Trustee shall promptly pay the
amount of such excess to RUS and shall in no event deposit the amount of such
excess in the Trust Account. All such payments to RUS must be made by electronic
funds transfer to RUS through the Department of Treasury account at the Federal
Reserve Bank of New York. The following wire information shall be included in
the funds transfer message in the precise language as stated: 021030004 10 TREAS
NYC/(12310100) USDA RUS. Following this information, the wire should state that
the payment is for the credit of the Cooperative and provide the name of the
institution forwarding the wire. Subject to the first sentence of this Section
7.3(c)(B), to the extent the Trustee receives payments on any Note Payment Date
from the Cooperative on or with respect to the Notes in excess of the amounts
due on that Note Payment Date on or with respect to the Notes, the Trustee shall
promptly repay the amount of such excess directly to the Cooperative and shall
in no event deposit the amount of such excess in the Trust Account.
(C) All payments to Certificateholders shall be made by check mailed to
each Certificateholder of record on the associated Record Date at the address
appearing on the Certificate Register, except that with respect to Certificates
registered in the name of the Liquidity Provider or CFC or in the name of Cede &
Co., the nominee registrant for the DTC, payments will be made in the form of
immediately available funds. Notwithstanding the foregoing, if CFC, the
Servicer or the Trustee so notifies Certificateholders at least 25 days prior
thereto, the final payment on each Certificate (other than Certificates held by
the Liquidity Provider) shall be made only upon presentation and surrender of
the Certificate of Beneficial Interests at the office or agency then maintained
by the Trustee in accordance with Section 8.2.
(D) The Trustee shall pay to the Servicer upon request any money held by
the Trustee for the payment of Principal or Interest that remains unclaimed by
any
-32-
<PAGE>
Certificateholder for two years; provided, however, that the Trustee before
making any such repayment shall, at the expense of the Servicer, cause to be
published once in a newspaper of general circulation in the City of New York, or
mail to each such holder, notice that such money remains unclaimed and that
after a date specified therein, which shall not be less than 10 days from the
date of such publication or mailing, any unclaimed balance of such money then
remaining will be paid to the Servicer. After payment to the Servicer,
Certificateholders entitled to the money must look to the Servicer for payment
as general creditors unless an applicable abandoned property law designates
another person.
(E) In the event the Trustee distributes to the Certificateholders on any
date an amount less than the sum of the Principal and the Interest distributable
to the Certificateholders on such date pursuant to this Section, then, in such
event, (i) if delinquent payments of Interest on the Notes may lawfully bear
interest, the amount of any undistributed Scheduled Servicing Fee for such date
shall bear interest at the Certificate of Beneficial Interest Rate for such date
from such date until the date such amount of the undistributed Scheduled
Servicing Fee (together with interest accrued thereon) is paid to the Servicer,
and (ii) the amount of any undistributed Principal and, if delinquent payments
of Interest on the Notes may lawfully bear interest, Interest with respect to
the Certificates of Beneficial Interest shall bear interest at the Certificate
of Beneficial Interest Rate from such date until the date such amount of
undistributed Principal and Interest (together with interest accrued thereon) is
paid to the Certificateholders.
(F) The Trustee will distribute (i) to the Servicer any delinquent
Scheduled Servicing Fee, (ii) unless a Swap Provider Default has occurred and is
continuing, to the Swap Provider, any delinquent Swap Provider Payments or,
(iii) if applicable, to the Certificateholders any delinquent Principal and any
delinquent Interest and any amounts of interest referred to in Section
7.3(c)(E), on any Certificate Payment Date and promptly after it receives either
delinquent payments on the Notes, the Guarantee or the Swap Agreement. The
Trustee will distribute such payments and amounts first to the Servicer up to
the amount of the Scheduled Servicing Fee then due and payable and the interest,
if any, then accrued for the benefit of the Servicer pursuant to Section
7.3(c)(E), second, unless a Swap Provider Default has occurred and is
continuing, to the Swap Provider, in an amount up to the Swap Provider Payments
then due and payable, and third to the Certificateholders up to the amount of
Principal and Interest then due and payable to the Certificateholders and the
interest then accrued for the benefit of the Certificateholders pursuant to
Section 7.3(c)(E). Such payments to the Servicer will be applied first to
interest on the delinquent Scheduled Servicing Fee, then to pay any delinquent
Scheduled Servicing Fee and then to any Scheduled Servicing Fee due on such
date. Such payments to the Certificateholders will be applied first to
delinquent Interest, then to Interest due on such date, then to interest payable
pursuant to clause (ii) of Section 7.3(c)(E), then to delinquent Principal, then
to Principal due on such date.
-33-
<PAGE>
(G) Notwithstanding any other provision of this Agreement, the right of
any Certificateholder to receive distributions of payments on a Certificate of
Beneficial Interests pursuant to this Agreement when due or to bring suit for
the enforcement of any such payment on or after the date when due shall not be
impaired or affected without the consent of such Certificateholder.
(H) Except as provided in Section 7.3(d), all distributions to
Certificateholders under this Agreement shall be distributed pro rata to each
Certificateholder based on such Certificateholder's Fractional Interest.
(d) On any Certificate Principal Payment Date on which distributions of
Principal are to be made, the Trustee shall select, by lot, Certificates to be
redeemed in an amount equal to such Principal distribution. In case any
Certificate selected by lot is outstanding in a Principal Amount exceeding
$100,000, a portion of such Certificate may be redeemed provided that the amount
remaining after such redemption shall be an Authorized Denomination. The
Trustee shall give notice of such redemption in accordance with Section 7.3(e)
hereof.
(e) Notice of redemption shall be given by first-class mail, postage
prepaid, mailed not less than 30 days prior to the Certificate Principal Payment
Date, to each Certificateholder holding a Certificate selected for redemption,
at his last address appearing in the Certificate Register. In addition, notice
of redemption shall be sent by certified or registered mail, return receipt
requested, or by overnight delivery service contemporaneously with such mailing
to any Holder of $1,000,000 or more in principal amount of Certificates and to
any Depository registered as such pursuant to the Securities Exchange Act of
1934, as amended, that is a holder of Certificates to be redeemed. An additional
notice of redemption shall be mailed not less than 60 nor more than 90 days
after the Certificate Principal Payment Date, by the same means as the first
such notice, to any Certificateholder selected for redemption that has not
surrendered the Certificates called for redemption, at his last address
appearing in the Certificate Register.
All notices of redemption shall state:
(1) the Certificate Principal Payment Date,
(2) the total amount of such Principal distribution and the Principal
Amount with respect to such Certificateholder that is being redeemed,
(3) the identification, including complete official name, series
designation and issue date of the Certificates and the CUSIP number, interest
rates and maturity dates of the Certificates to be redeemed,
(4) that on the Certificate Principal Payment Date, the Principal
Amount of such Certificateholder's Certificate being redeemed will become due
and payable, and that interest distributable with respect thereto shall cease to
accrue from and after said date, and
-34-
<PAGE>
(5) the name and address of the Trustee for such Certificates,
including the name and telephone number of a contact person and the place where
such Certificates are to be surrendered for payment of the Principal Amount
being redeemed.
Notice of redemption of Certificates to be redeemed shall be given by the
Trustee. Any failure to give a notice of redemption (or any defect therein)
shall not affect the proceedings for redemption of Certificates.
SECTION 7.4 SWAP AGREEMENT. The Trustee shall have no power to vary the
terms of the Swap Agreement; provided, however, that this Agreement shall be
considered to have been amended to grant such power to the Trustee if it
receives (a) the consent of Certificateholders with aggregate Fractional
Interests representing 51% or more of the Trust, (b) the consent of the Servicer
if the Servicer would be adversely affected thereby, (c) Rating Confirmation
Notices, (d) an Opinion of Counsel that such amendment shall not cause the Trust
not to be treated as a Pass-Through Organization for federal income tax purposes
and (e) the prior written consent of the Cooperative, if such action would
affect, in any material respect, the Cooperative's rights and obligations under
the Swap Agreement that have not been assigned to the Trustee; provided,
further, the Trustee shall have the power to liquidate the Swap Agreement and to
liquidate any collateral therefor in accordance with Section 7.5(e) hereof if
the Swap Agreement terminates or the Trust terminates or if an "event of
default" or "illegality" with respect to the Swap Provider has occurred and is
continuing under the Swap Agreement and the Credit Support Annex permits the
Trustee as secured party to liquidate collateral thereunder. The Swap Agreement
provides that (i) the Trust will, on each Certificate Interest Payment Date, be
entitled to a Swap Payment, and (ii) the Trust will on the Swap Provider Payment
Date coinciding with each Note Payment Date, be required to pay the Swap
Provider Payment to the Swap Provider. The Trustee agrees to distribute to the
Swap Provider by wire transfer of immediately available funds such payment as
set forth in the Swap Agreement. In connection with carrying out of the
transactions contemplated by the Swap Agreement, the Trustee will be entitled to
the same rights, immunities, exculpations and other protections as provided in
this Agreement.
SECTION 7.5 TERMINATION AND SUBSTITUTION OF SWAP AGREEMENT.
(a) The Swap Agreement may not be terminated by the Swap Provider
except as provided in the Swap Agreement. If the Swap Agreement terminates
(other than through an Elective Termination as provided in Section 7.5(b)) or if
a Swap Provider Default has occurred and is continuing, the Cooperative shall
use all reasonable efforts to (i) secure an Alternate Swap Agreement and (ii)
amend this Agreement, in accordance with Section 7.5(c), to permit the delivery
and assignment to the Trust of an Alternate Swap Agreement; provided, however,
that the Servicer, the Trustee, and the Cooperative shall not be liable to the
Certificateholders if the Cooperative is unable to secure an Alternate Swap
Agreement or to effect any amendment to this Agreement necessary to permit
delivery and assignment thereof to the Trustee. If the Swap Agreement
terminates (other than through an Elective Termination as provided in Section
7.5(b)) or if a Swap Provider Default has occurred and is continuing, and the
Cooperative has not provided an Alternate Swap Agreement as provided herein,
-35-
<PAGE>
(i) the obligation of the Trust to make Swap Provider Payments to the Swap
Provider shall terminate or be suspended, respectively, in accordance with
the Swap Agreement, and subsequent payments of Principal and Guaranteed
Interest (less the Servicer Spread) shall thereafter (or until the
obligation of the Trust to make Swap Provider Payments to the Swap Provider
is no longer suspended) be payable to the Certificateholders, as and to the
extent provided in this Agreement, on each June 15 and December 15 (or if
such day is not a Business Day, the next succeeding Business Day)
corresponding with such subsequent payments, and all other rights hereunder
granted to the Swap Provider shall terminate or be suspended, respectively;
(ii) any right of the Certificateholders to tender Certificates pursuant to
Section 9.2(a) shall terminate or be suspended, respectively;
(iii) the Trustee shall give notice, in accordance with Section 10.18, of
the termination or suspension, respectively, of the Swap Agreement, the
suspension of any right to tender Certificates pursuant to Section 9.2(a)
(or of the reinstatement of such right upon receipt of an Alternate Swap
Agreement), and of the next Swap Provider Payment Date; and
(iv) any Termination Amount and any proceeds of Posted Collateral shall be
applied as provided in Section 7.5(e).
(b) The Cooperative (with the consent of the RUS and, if the Servicer
would be adversely affected thereby, the Servicer) or RUS may terminate the Swap
Agreement as provided in Part 5, Sections (9) and (10) of the Schedule to the
Swap Agreement (an "Elective Termination"). If the Cooperative or the RUS
terminates the Swap Agreement, the Trust created hereby shall terminate as
provided in Section 12.3 unless there is an Alternate Swap Agreement placed in
effect pursuant to an amendment to this Agreement in accordance with Section
7.5(c); provided, however, that neither the Cooperative nor the RUS shall
terminate the Swap Agreement unless (i) the Swap Provider certifies that it has
received the amount due as the Termination Amount, if any, (ii) the Liquidity
Provider certifies that it has received all amounts payable to it under the
Liquidity Facility, (iii) either (x) all outstanding Certificates are purchased
or redeemed in accordance with Section 9.7 or (y) the Cooperative has, in
accordance with Section 7.5(c), amended this Agreement to permit the delivery
and assignment to the Trust, concurrently with the termination of the then
effective Swap Agreement, of an Alternate Swap Agreement and (iv) if the
Cooperative terminates the Swap Agreement, the RUS has given its prior written
consent thereto. Upon compliance with this Section 7.5(b), the Cooperative (or
the RUS to the extent that the RUS has been making payments under the Guarantee)
shall be entitled to retain any Termination Amount owing to the Cooperative
from the Swap Provider in respect of such Elective Termination.
(c) This Agreement may be amended by the Servicer, the Cooperative and
the Trustee, without the consent of any of the Certificateholders, in accordance
with Section 12.6(b), to permit the Cooperative to acquire and deposit with the
Trust (and to permit the Trust to accept on behalf of the Certificateholders) an
Alternate Swap Agreement; provided, however, that amendment of this Agreement
and the Cooperative's delivery and assignment of an Alternate Swap Agreement (or
any power of the Trust to receive an assignment thereof) shall not be effective
(or exist) unless
-36-
<PAGE>
accompanied by (i) Rating Confirmation Notices, (ii) an Opinion of Counsel that
the continuation of the Trust by reason of the amendment of this Agreement
permitting the Alternate Swap Agreement will not cause the Trust to not be
treated as a Pass-Through Organization for federal income tax purposes, and
(iii) written confirmation from the Liquidity Provider that the Liquidity
Facility or Alternate Liquidity Facility remains in effect.
(d) The Trustee shall notify the Liquidity Provider and the
Certificateholders of the Cooperative's intent to replace the Swap Agreement
with an Alternate Swap Agreement by first class mail delivered to each
Certificateholder's registered address at least 30 days (or as soon as
practicable if less than 30 days in the case of action pursuant to Section
7.5(a)) but not more than 60 days prior to the effective date of such
replacement.
(e) If either the Swap Agreement terminates (other than through an
Elective Termination as provided in Section 7.5(b)) or a Swap Provider Default
has occurred and is continuing, the Trustee shall, in the event of a
termination, apply any Termination Amount received by the Trustee from the Swap
Provider and, in the event of a termination or a Swap Provider Default, apply
any proceeds of the Posted Collateral received by the Trustee from the exercise
of its remedies pursuant to Paragraph 8 of the Credit Support Annex to the Swap
Agreement, both to the extent permitted by such Credit Support Annex and in the
following order of priority:
(i) to expenses of the Trustee, including attorneys' fees, related to
its exercise of remedies in respect of the Posted Collateral;
(ii) in the case of proceeds of Posted Collateral, ratably (as
determined by the Trustee by any reasonable method selected by it in its
discretion), to all obligations secured by the Posted Collateral, including
payment of the Termination Amount;
(iii) as to proceeds of Posted Collateral allocated to the
Termination Amount in accordance with clause (ii) above, and in the case of the
Swap Provider's payment of the Termination Amount, in the following order of
priority:
(1) at the written request of the Cooperative, to the Cooperative or
to the swap counterparty under an Alternate Swap Agreement, to provide for the
delivery and assignment to the Trust of an Alternate Swap Agreement in
accordance with Section 7.5(c);
(2) to the RUS, to the extent that the RUS has paid any amount under
the Guarantee and the Cooperative has not paid to the RUS all amounts due on the
Notes as a result of such payment by the RUS; provided, however, that no amounts
shall be distributed to the RUS until the Trustee has paid (from the proceeds
being distributed under this Section 7.5(e) if other funds for such purpose are
not available) (x) to the Servicer all delinquent Scheduled Servicing Fees and
(to the extent permitted by Applicable Law) all interest thereon and (y) to the
Certificateholders all amounts of Interest then accrued for their benefit under
Section 7.3(c)(E), all delinquent
-37-
<PAGE>
Principal, and all delinquent Interest (to the extent permitted by Applicable
Law) with respect to the Certificates of Beneficial Interest;
(3) if (x) the Liquidity Facility has been terminated and there is no
Alternate Liquidity Facility, and (y) interest is distributable under Sections
7.5(a)(i) and 9.1(h), to the Certificateholders pro rata, based upon the
Principal Amount of Certificates held by each Certificateholder, in an amount
calculated by the Trustee (by any reasonable method selected by it in its
discretion) to compensate Certificateholders for any loss in market value of
their Certificates attributable to the termination of the Swap Agreement, based
upon the difference between (A) the interest rate distributable to
Certificateholders under Sections 7.5(a)(i) and 9.1(h) immediately after the
Swap Agreement termination, and (B) the minimum rate of interest necessary, in
the judgment of the Remarketing Agent (unless the Swap Provider is then serving
as the Remarketing Agent, then a Remarketing Agent selected by the Trustee with
the consent of the Cooperative), to have enabled the Remarketing Agent to have
sold the Certificates immediately after the Swap Agreement termination at a
price equal to par (provided that such rate in clause (B) hereof may not exceed
the Maximum Certificate Rate);
(iv) to the Cooperative;
provided, however, that the Trustee shall pay or deliver to the Swap Provider
any Posted Collateral or proceeds in excess of the obligations secured thereby,
to the extent that such excess amount is to be returned to the Swap Provider
under the Credit Support Annex to the Swap Agreement or under applicable law.
SECTION 7.6 PAYMENTS FOLLOWING FAILED UNDERWRITING. Anything in this
Agreement to the contrary notwithstanding, if CFC or its Affiliate retains the
Certificates following a failure by the Underwriter to purchase them on the
Refinancing Date (or otherwise place them with qualified holders), the holders
of the Certificates shall be entitled to receive on each December 15 (or if such
day is not a Business Day, the next succeeding Business Day) an amount of
principal equal to the scheduled payment of principal on the Note on the next
preceding Note Payment Date. The holders of the Certificates shall also be
entitled to receive on the Business Day next following any other payment of
principal (including amounts due as a result of acceleration) of or the purchase
of a Note the amount of principal so paid or the principal balance thereof.
Interest distributable with respect to the Certificates (including any overdue
interest thereon) shall be distributable at the weighted average interest rate
on the Notes less the Servicer Spread. Such interest shall be payable on June
15 and December 15 ( or if such day is not a Business Day, the next succeeding
Business Day) and on each date when principal is paid on the Certificates as
aforesaid. Such payments will be made out of funds in the Trust Account. If
the funds on deposit in the Trust Account are not sufficient to pay the
foregoing amounts and the Scheduled Servicing Fee as of such date, such funds
shall be distributed first to the Scheduled Servicing Fee (including any
delinquent Scheduled Servicing Fee), next to the holders of Certificates and
thereafter to RUS or the Cooperative as provided elsewhere in this Agreement.
No payment from the Trust Account shall be made to the Swap Provider, and
-38-
<PAGE>
any rights of the Swap Provider hereunder shall be suspended, while CFC or its
Affiliate retains the Certificates in the circumstance described above.
ARTICLE VIII
THE CERTIFICATES OF BENEFICIAL INTEREST
SECTION 8.1 THE CERTIFICATES. The Certificates shall be issued in fully
registered form, substantially in the form of Exhibit A with such additions,
deletions and modifications as are necessary or convenient, in the opinion of
the Servicer, to effectuate the efficient and timely issuance of the
Certificates. The Certificates shall be issued in minimum denominations
representing $100,000 of Original Principal Amount and in integral multiples of
$5,000 in excess thereof ("Authorized Denominations") and each Certificate will
evidence an undivided fractional interest in the Trust equal to the percentage
obtained by dividing the Principal Amount of such Certificate by the Principal
Balance; provided that one Certificate may be issued in an odd denomination from
time to time to the extent mathematically necessary. The Certificates shall
contain CUSIP numbers. The Certificates shall be executed on behalf of the
Trustee by manual or facsimile signature of a duly authorized officer and
attested by a trust officer (by manual or facsimile signature). Each Certificate
shall be authenticated by the Trustee on behalf of the Trust by the manual
signature of a duly authorized officer. The Trustee shall deliver the
Certificates that are issued on the original issuance to CFC or upon the order
of CFC to the Underwriter pursuant to the Underwriting Agreement. Certificates
bearing the signatures of individuals who were the proper officers or authorized
signatories of the Trustee at the time of execution of those Certificates shall
bind the Trustee, notwithstanding that such individuals or any of them have
ceased to hold such offices or positions prior to the delivery of such
Certificates. If the Certificates are issued and sold pursuant to Section 4(2)
of the Securities Act of 1933 and resold pursuant to Rule 144A or another
exemption under the Securities Act, they shall contain a legend regarding
transfer of the Certificates substantially in the form of Exhibit K hereto.
SECTION 8.2 REGISTRATION OF TRANSFER AND EXCHANGE OF CERTIFICATES.
(a) The Trustee shall maintain, or cause a designee to maintain, in the
Borough of Manhattan, City of New York, and, at its discretion, at any other
location, an office or agency for the registration of Certificates and of
transfers and exchanges of Certificates in a Certificate Register as herein
provided. Any such designee is referred to in this Agreement as the Certificate
Registrar; provided, however, the Trustee shall not be relieved of any of its
duties under this Agreement by reason of such designation. Initially, the
Trustee, The First National Bank of Chicago, c/o First Chicago Trust Company of
New York, 14 Wall Street, 8th Floor-Window 2, New York, New York 10005,
Attention: Corporate Trust Administration, shall maintain the Certificate
Register and register Certificates and transfers and exchanges of Certificates
as provided in this Agreement. The Trustee shall give prompt written notice to
CFC, the Cooperative, the Certificateholders and the Servicer of any change in
the location of the Certificate Register or the appointment of any Certificate
Registrar. No transfer of any Certificate of Beneficial Interests shall be
valid unless and until registered on the Certificate Register.
-39-
<PAGE>
(b) Subject to Section 8.3, upon surrender of any Certificate for
registration of transfer at such office, the Certificate Registrar, if any,
shall promptly notify the Trustee to execute, authenticate and deliver, in the
name of the designated transferee or transferees, one or more new Certificates
of a like aggregate Fractional Interest in an Authorized Denomination and dated
the date of authentication by the Trustee.
(c) At the option of a Certificateholder, Certificates may be exchanged
for other Certificates of Authorized Denominations of a like aggregate
Fractional Interest, upon surrender of the Certificates to be exchanged at the
offices or agency maintained therefor. Whenever any Certificates are so
surrendered for exchange, the Certificate Registrar, if any, shall promptly
notify the Trustee, which shall execute, authenticate and deliver the
Certificates which the Certificateholder making the exchange is entitled to
receive.
(d) Every Certificate presented or surrendered for transfer or exchange
shall be duly endorsed by, or be accompanied by a written instrument of transfer
in form satisfactory to the Trustee or any Certificate Registrar duly executed
by the holder thereof or his or her attorney duly authorized in writing.
SECTION 8.3 NO CHARGE; DISPOSITION OF VOID CERTIFICATES. No service charge
shall be made for any registration of transfer or exchange of Certificates, but
the Trustee or the Certificate Registrar, if any, may require payment of a sum
sufficient to cover any tax or other governmental charge that may be imposed in
connection with any transfer or exchange of Certificates. All Certificates of
Beneficial Interest surrendered to the Trustee or the Certificate Registrar for
payment in full or transfer or exchange shall be canceled and destroyed by the
Trustee.
SECTION 8.4 MUTILATED, DESTROYED, LOST OR STOLEN CERTIFICATES. If (a) any
mutilated Certificate is surrendered to the Trustee, any authenticating agent
or the Certificate Registrar, if any, or if any of them receives evidence to its
satisfaction of the destruction, loss or theft of any Certificate, and (b) there
is delivered to each such party such security or indemnity as may be reasonably
required by each such party and the Servicer to save each of them harmless
(provided, however, that if CFC is giving the aforesaid indemnity, the unsecured
written undertaking of CFC delivered to the Trustee shall be sufficient
indemnity for purposes of this Section), then, in the absence of notice to any
of them that such Certificate has been acquired by a bona fide purchaser, the
Trustee shall authenticate and deliver in exchange for or in lieu of any such
mutilated, destroyed, lost or stolen Certificate, a new Certificate of like
tenor and Fractional Interest in an Authorized Denomination. Upon the issuance
of any new Certificate under this Section, the Certificate Registrar, if any,
the Trustee and any authenticating agent may require payment of a sum sufficient
to cover any tax or other governmental charge that may be imposed in relation
thereto and any other expenses connected therewith. Any duplicate Certificate
issued pursuant to this Section shall constitute complete and indefeasible
evidence of ownership of the Fractional Interest, as if originally issued,
whether or not the mutilated, destroyed, lost or stolen Certificate shall be
found at any time.
SECTION 8.5 PERSONS DEEMED OWNERS. The Servicer, the Certificate Registrar,
if any, the Trustee and any authenticating agent may conclusively treat the
person in whose name any Certificate of Beneficial Interest is registered as the
owner of such Certificate of Beneficial Interest
-40-
<PAGE>
for the purpose of receiving remittances pursuant to Section 7.3 and for all
other purposes whatsoever, and, to the extent permitted by Applicable Law, none
of the Servicer, the Certificate Registrar, if any, the Trustee, any
authenticating agent or any agent of any of them shall be affected by any notice
to the contrary. The Certificateholder of record shall be entitled to the
Principal and Interest distributable with respect to the Certificates of
Beneficial Interest registered in its name, free from all equities, rights of
set-off or counterclaims of the Trustee, the Certificate Registrar or prior
Certificateholders, and all Persons may act accordingly.
SECTION 8.6 ACCESS TO LIST OF CERTIFICATEHOLDERS' NAMES AND ADDRESSES. The
Trustee will furnish or cause to be furnished to CFC, the Servicer, the
Remarketing Agent, the Cooperative or RUS, within five Business Days after
receipt of a written request therefor from any of them, a list of the names and
addresses of the Certificateholders as of the most recent Record Date.
Certificateholders may communicate pursuant to TIA (S) 312(b) with other
Certificateholders with respect to their rights under this Agreement or the
Certificates. Each Certificateholder, by receiving and holding a Certificate,
agrees with the Servicer, the Certificate Registrar, if any, the Trustee and any
authenticating agent that none of them shall be held accountable by reason of
the disclosure of any information as to the names and addresses of the
Certificateholders.
SECTION 8.7 PROVISIONS FOR BOOK-ENTRY SYSTEM. The Certificates will be
subject to a book-entry system of ownership and transfer, except as provided in
paragraph (c) of this Section. The provisions for effecting such book-entry
system are as follows:
(a) The Depository Trust Company, New York, New York is hereby designated
as the initial Depository hereunder.
(b) Notwithstanding the other provisions regarding exchange and transfer
of Certificates in this Article VIII, the Certificates shall initially be
evidenced by one Certificate, in a denomination equal to the Initial Principal
Amount. Such certificate shall be initially delivered to and shall be
registered in the name of "Cede & Co." as partnership nominee for DTC. Such
Certificate may not thereafter be transferred or exchanged on the registration
books held by the Trustee except:
(1) to any successor Depository designated pursuant to paragraph (c) of
this Section;
(2) to any successor Depository or its nominee designated by a Depository;
or
(3) if the Cooperative elects or is required to discontinue the Book-Entry
System pursuant to paragraph (c) of this Section, the Cooperative will cause the
Trustee to authenticate and deliver replacement Certificates (upon receipt of
the outstanding Certificates and written instructions for transfer satisfactory
to the Trustee) in fully registered form in Authorized Denominations in the
names of the Beneficial Owners or their nominees; thereafter the provisions of
Section 8.2 hereof regarding registration, transfer and exchange of Certificates
shall apply to each Certificate.
-41-
<PAGE>
(c) Any institution acting as Depository hereunder may resign as
Depository by giving notice to the Trustee, the Servicer and the Cooperative and
discharging its responsibilities with respect thereto under applicable law. In
addition, the Cooperative may determine that: (1) any institution acting as
Depository is unable to discharge its responsibilities with respect to the
Certificates or (2) continuation of the Book-Entry System is not in the best
interests of the Beneficial Owners of the Certificates. In the event of
resignation or disability of an institution acting as Depository, the
Cooperative will attempt to identify another institution qualified to act as
Depository hereunder. An institution may be designated as a Depository
hereunder only if such institution: (i) is a "clearing corporation" as defined
in the New York Uniform Commercial Code; and (ii) is a qualified and registered
"clearing agency" under Section 17A of the Securities Exchange Act of 1934, as
amended. If the Cooperative is unable to identify such a successor Depository
prior to the effective date of the resignation or in the event that the
Cooperative determines that discontinuance of the Book-Entry System is in the
best interests of the Beneficial Owners or of the Cooperative, the Trustee shall
discontinue the Book-Entry system as provided in paragraph (b)(3) of this
Section. If at any time following the Refinancing Date CFC (or an Affiliate of
CFC) holds 100% of the Certificates, it may elect to discontinue the Book-Entry
System.
(d) The Cooperative, the Servicer, and the Trustee shall treat the
Depository (or its nominee) as the sole and exclusive owner of the Certificates
registered in its name for the purpose of payment of Principal of and Interest,
if any, distributable with respect to such Certificates, selecting Certificates
and portions thereof to be redeemed, giving any notice permitted or required to
be given to the Certificateholders, including any notice of redemption,
registering the transfer of the Certificate, obtaining any consent or other
action to be taken by the Certificateholders and for all other purposes
whatsoever, and shall not be affected by any notice to the contrary. As long as
the Book-Entry System is used for the Certificates, the Cooperative, the
Servicer and the Trustee will give any notice of redemption or any other notices
required to be given to Certificateholders only to the Depository or its nominee
registered as the owner thereof. Any failure of the Depository to advise any of
its participants or of any participant to notify any Beneficial Owner, of any
such notice and its content or effect will not affect the validity of the
redemption of the Certificates called for redemption or of any other action
premised on such notice. Neither the Cooperative, the Servicer nor the Trustee
is responsible or liable for the failure of the Depository or any participant
thereof to make any payment or give any notice to a Beneficial Owner of a
Certificate in respect to the Certificates or any error or delay relating
thereto.
(e) Upon receipt of payments of principal in respect of any Certificate,
the Depository in its discretion may request the Trustee to deliver a new
Certificate in a principal amount equal to the amount of the Principal Balance
or shall make an appropriate notation on the Certificate indicating the date and
amount of such Principal payment, except in the case of payment of the entire
outstanding Principal Amount of such Certificate, in which case the Certificate
must be presented to the Trustee prior to payment.
(f) The Cooperative, the Servicer and the Trustee shall endeavor to
cooperate with DTC or any successor or new Depository in effectuating
distributions of principal and interest with respect to the Certificate by
arranging for payment in such a manner that funds representing such payments are
available to the Depository on the date they are due. The Cooperative, the
Servicer and the
-42-
<PAGE>
Trustee shall have no responsibility for transmitting payments to the Beneficial
Owners of the Certificates, notwithstanding any notice to the contrary received
by any of them.
ARTICLE IX
FURTHER PROVISIONS RELATING TO THE
CERTIFICATES OF BENEFICIAL INTEREST
SECTION 9.1 INTEREST DISTRIBUTABLE WITH RESPECT TO THE CERTIFICATES.
Subject to Section 7.6 hereof:
(a) General. The Swap Provider shall pay Interest under the terms of the
Swap Agreement in the Weekly Rate Mode for the period from the Refinancing Date
until the Interest Rate Mode is converted to a different Interest Rate Mode. The
first Certificate Interest Payment Date shall be the Certificate Interest
Payment Date occurring on the first Wednesday in January, 1998 (unless such day
is not a Business Day, then on the next succeeding Business Day). During each
Interest Period for each Interest Rate Mode, the Interest distributable with
respect to the Certificates shall be determined in accordance with Section
9.1(b) and shall be payable on the Certificate Interest Payment Date for such
Interest Period.
(b) Interest Rate Modes. Interest Rates with respect to the Swap Payments
and distributions of Interest to Certificateholders shall be determined as
follows:
(i) If the Interest Rate Mode is the Weekly Rate Mode, the interest rate
payable under the Swap Agreement and distributable with respect to the
Certificates for a particular Weekly Rate Period shall be the rate established
by the Remarketing Agent no later than 3:00 p.m. (New York, New York time) on
the Wednesday on which such Weekly Rate Period commences (or the day preceding
the Refinancing Date or the Conversion of the Interest Rate Mode to the Weekly
Rate Mode, as the case may be), or, if such day is not a Business Day, on the
next succeeding Business Day, as the minimum rate of interest necessary, in the
judgment of the Remarketing Agent, to enable the Remarketing Agent to sell the
Certificates on such Business Day at a price equal to par provided that such
rate shall not exceed the Maximum Certificate Rate (the "Weekly Rate").
(ii) If the Interest Rate Mode is the Flex Rate Mode, the interest rate
payable under the Swap Agreement and distributable with respect to the
Certificates for a particular Flex Rate Period shall be the rate established by
the Remarketing Agent not later than 3:00 p.m. (New York, New York time) on the
last Business Day next preceding the first day of such Flex Rate Period as the
minimum rate of interest necessary, in the judgment of the Remarketing Agent, to
enable the Remarketing Agent to sell the Certificates on such day at a price
equal to par provided that such rate shall not exceed the Maximum Certificate
Rate (the "Flex Rate").
-43-
<PAGE>
(c) Notice of Interest Rates; Effectiveness. The Remarketing Agent shall
provide the Servicer, the Swap Provider, the Cooperative, the Trustee, the
Liquidity Provider and the Tender Agent with Immediate Notice of all Interest
Rates set pursuant to Section 9.1(b). The determination of each Interest Rate
in accordance with the terms of this Agreement shall be conclusive and binding
upon the owners of the Certificates, the Cooperative, the Swap Provider, the
Trustee, the Tender Agent, the Remarketing Agent and the Liquidity Provider.
(d) Failure of Remarketing Agent to Set interest Rates. If for any reason
the interest rate payable under the Swap Agreement and distributable with
respect to the Certificates is not determined pursuant to Section 9.1(b) (i) or
(ii) above, (i) if the Certificates were in the Weekly Rate Mode during the
preceding Interest Period, the interest rate payable under the Swap Agreement
and distributable to the Certificateholders for the next succeeding Interest
Period shall be the Interest Rate in effect for such preceding Interest Period
and (ii) if the Certificates were in a Flex Rate Mode during the preceding
interest period, a Conversion to the Weekly Rate Mode shall be deemed to occur
on the Certificate Interest Payment Date for such Flex Rate Period, and the
interest rate payable under the Swap Agreement and distributable to the
Certificateholders for the first such Weekly Rate Period shall be the Alternate
Rate.
(e) Conversion of Interest Rate Mode; Conversion Directed by the Swap
Provider. The Interest Rate Mode is subject to Conversion to a different
Interest Rate Mode from time to time in whole (but not in part), at the written
direction of the Remarketing Agent (with the consent of the Swap Provider unless
a Swap Provider Default has occurred and is continuing), such right to be
exercised by notifying the Trustee, the Liquidity Provider, the Tender Agent,
the Servicer, and the Cooperative in writing at least 20 Business Days prior to
the effective date of such proposed Conversion. Such notice shall specify (A)
the effective date, (B) the proposed Interest Rate Mode, and (C) if the
Conversion is to the Flex Rate Mode, the end of the first Flex Rate Period.
Each Flex Rate Period shall be no less than seven days and no more than 365 days
(or 366 days in a leap year) in duration and shall end on the day next preceding
a Certificate Interest Payment Date. The notice must be accompanied by an
Opinion of Counsel stating that the Conversion is authorized by this Agreement
and that such conversion will not adversely affect the treatment of the Trust as
a Pass-Through Organization for federal income tax purposes.
(f) Limitations. Any Conversion of the Interest Rate Mode for the
Certificates pursuant to the paragraph above must comply with the following:
(A) the Conversion Date must be a Certificate Interest Payment Date;
(B) the Conversion Date must be a Business Day; and
(C) the Liquidity Facility must cover accrued interest calculated at least
18% per annum (or such higher rate as is set forth in the Liquidity Facility)
for the Certificates for 40 days if the Conversion is to the Weekly Rate, or for
the number of days in any Flex Rate Period then selected plus 10 days if the
Conversion is to the Flex Rate Mode (or such other amounts as may be necessary
to obtain a Rating Confirmation Notice).
-44-
<PAGE>
(g) Notice to Certificateholders of Conversion of Interest Rate. The
Trustee shall notify the Certificateholders of each Conversion by first class
mail, postage prepaid, at least 15 days but not less than 10 days before the
Conversion Date. The notice will state:
(A) that the Interest Rate Mode will be converted, what the new Interest
Rate Mode will be and, if the Conversion is to the Flex Rate Mode, the end of
the Flex Rate Period;
(B) the Conversion Date;
(C) the Certificate Interest Payment Date and Record Date;
(D) the maximum rate of interest available under the Liquidity Facility;
and
(E) that the Certificates will be subject to mandatory purchase on the
Conversion Date in accordance with Section 9.2(b).
(h) During the continuance of a Swap Provider Default or if the Swap
Agreement is not in effect, the Certificateholders shall be entitled to
distributions of Interest from payments of Guaranteed Interest less the
Servicing Fee in accordance with their Fractional Interest computed upon the
basis of a 360-day year, consisting of twelve 30-day months on each December 15
and June 15 (or if such day is not a Business Day, the next succeeding Business
Day) or until the maturity date.
SECTION 9.2 PURCHASE OF CERTIFICATES ON DEMAND; MANDATORY PURCHASE.
(a) Purchase of Certificates on Demand of Certificateholder.
While in the Weekly Rate Mode, any Certificate shall be purchased on
the demand of the Certificateholder, on any Business Day at the Purchase Price,
upon written notice to the Tender Agent, at its Principal Office on or before
5:00 p.m. (New York, New York time) on a Business Day not later than the 7th
calendar day prior to the Purchase Date. Such notice shall (A) state the number
and principal amount (or portion thereof in an Authorized Denomination) of such
Certificate to be purchased, (B) state the Purchase Date on which such
Certificate shall be purchased and (C) irrevocably request such purchase and
state an agreement to deliver such Certificate, duly endorsed in blank for
transfer, with all signatures guaranteed, to the Tender Agent at or prior to
10:00 a.m. (New York, New York time) on such Purchase Date.
The Tender Agent shall promptly, but in no event later than 11:00 a.m.
(New York, New York time) on the next succeeding Business Day, provide the
Remarketing Agent and the Trustee with Immediate Notice of the receipt of the
notice referred to in the preceding paragraph. Upon its receipt of such
Immediate Notice from the Tender Agent, the Remarketing Agent shall promptly
provide the Liquidity Provider with Immediate Notice of the receipt of the
notice referred to in the preceding paragraph.
-45-
<PAGE>
Notwithstanding any other provision of this Section, the owner of a
Certificate may demand purchase of a portion of such Certificate only if the
portion to be purchased and the portion to be retained by the owner will be in
Authorized Denominations.
(b) Mandatory Purchases of Certificates.
(i) Mandatory Purchase on Conversion Date. On each Conversion Date, the
Certificates shall be subject to mandatory purchase at a purchase price equal to
the Principal Amount of each Certificate.
(ii) Mandatory Purchase in connection with Swap Provider Default or
Expiration or Termination of Swap Agreement. The Certificates shall be subject
to mandatory purchase at the Purchase Price, upon Swap Provider Default (but
only if the Liquidity Facility is in effect in accordance with its terms) or
upon replacement of the Swap Agreement with an Alternate Swap Agreement.
(iii) Mandatory Purchase on termination of Liquidity Facility without
replacement with Alternate Liquidity Facility. If at any time the Tender Agent
shall give notice that any Certificates then subject to purchase under the
Liquidity Facility as then in effect shall on the date specified in such notice
cease to be subject to purchase under the Liquidity Facility as a result of the
termination or expiration of the term of the Liquidity Facility (other than any
termination resulting from suspension of the obligation of the Liquidity
Provider to purchase tendered Certificates or any termination occurring
immediately without notice or upon receipt by the Trustee of notice of such
termination) and, if the Liquidity Facility shall not have been renewed or
replaced by an Alternate Liquidity Facility at least ten Business Days prior to
such termination or expiration, or if the Trustee has not received the Rating
Confirmation Notice required by Section 9.4(b) hereof on the fifth Business Day
next preceding any such termination or expiration of the Liquidity Facility,
each Certificate shall be purchased or deemed purchased at the purchase price
equal to the Principal Amount thereof plus Interest, if any, which would have
been distributable thereon to the Purchase Date if such date were a Certificate
Interest Payment Date.
(iv) Mandatory Purchase at End of each Flex Rate Period. The Certificates
shall be subject to mandatory purchase at a price equal to the Principal Amount
of each Certificate on the last day of each Flex Rate Period.
(c) Notice of Mandatory Purchase to Certificateholders. The Trustee
shall, not less than (i) in the event of a mandatory purchase under Section
9.2(b)(i), 15 days prior to the Conversion Date, (ii) in the event of a
mandatory purchase under Section 9.2(b)(ii), 15 days prior to the termination of
the Swap Agreement, or as soon as practicable, (iii) in the event of a mandatory
purchase under Section 9.2(b)(iii), five Business Days prior to the termination
of the Liquidity Facility or (iv) in the event of a mandatory purchase under
Section 9.2(b)(iv), 15 days prior to the end of the Flex Rate Period (unless the
Flex Rate Period is less than 30 days, in which case no notice is required),
provide each Certificateholder with a notice, by first-class mail, postage
prepaid, of the
-46-
<PAGE>
applicable Purchase Date and provide the Remarketing Agent with Immediate Notice
of the applicable Purchase Date.
SECTION 9.3 PURCHASE AND REMARKETING OF THE CERTIFICATES.
(a) The Tender Agent shall purchase, but only from the sources listed
below, Certificates or portions thereof which are then required to be purchased
in accordance with Section 9.2(a) or 9.2(b) hereof from the registered owners
thereof with immediately available funds by 2:30 p.m. New York, New York time on
the date such Certificates are required to be purchased at the Purchase Price.
Funds for the payment of such Purchase Price shall be derived from the following
sources in the order of priority indicated:
(i) proceeds of the sale of such Certificates (but only such remarketing
proceeds received from purchasers of the Certificates furnished to the Tender
Agent by the Remarketing Agent for deposit into the Remarketing Proceeds Fund);
(ii) moneys furnished to the Tender Agent by the Liquidity Provider for the
purchase of Certificates pursuant to the terms of the Liquidity Facility.
The Tender Agent shall segregate amounts derived from the sources
described above by (x) depositing monies derived from the source described in
(i) above into the Remarketing Proceeds Fund; and (y) by depositing proceeds
derived from the sources described in (ii) above into the Purchase Fund.
(b) With respect to any Certificates or portions thereof required to be
purchased pursuant to Section 9.2(a) hereof and any Certificates or portions
thereof required to be tendered for purchase in accordance with Section 9.2(b)
as to which sufficient funds to accomplish such purchase are available to the
Tender Agent at the respective times at which payment of the purchase price is
to be made as provided herein:
(i) Such Certificates or portions thereof shall be deemed to have been
purchased, for all purposes of this Agreement, irrespective of whether such
Certificates shall have been presented to the Tender Agent, and the former
registered owner or owners of such Certificates shall have no claim thereon,
under this Agreement or otherwise, for any amount other than the Purchase Price
thereof which would have been paid on the date set for purchase, and such
Certificates or portions thereof shall no longer be deemed to be outstanding for
purposes of this Agreement.
(ii) In the event that any such Certificates or portions thereof shall not
be presented to the Tender Agent, the Tender Agent shall segregate and hold the
moneys for the Purchase Price of such Certificates in trust, uninvested and
without liability for interest thereon, for the benefit of the former owners of
such Certificates, who shall thereafter be restricted exclusively to such moneys
for the satisfaction of any claim for the Purchase Price of such Certificates.
-47-
<PAGE>
(iii) In the event that any such Certificates shall not be presented to the
Tender Agent at the time specified herein, then the Tender Agent shall request,
and thereupon the Trustee shall execute and deliver, or cause to be executed and
delivered, and the Certificate Registrar shall immediately authenticate a new
Certificate or Certificates in an aggregate principal amount equal to the
principal amount of the Certificates or portions thereof so purchased but not
presented bearing a number or numbers not contemporaneously outstanding in
Authorized Denominations. Every Certificate authenticated and delivered as
provided in the preceding sentence shall be entitled to all the benefits of this
Agreement equally and proportionately with any and all other Certificates duly
issued under this Agreement. The Tender Agent shall maintain a record of the
Certificates or portions thereof not tendered for purchase pursuant to Section
9.2 (a) or (b) hereof together with the names and addresses of the former owners
thereof.
(iv) In case any Certificates or portions thereof that have been deemed
purchased as provided in Section 9.3(b) hereof are delivered to the Tender Agent
subsequent to the date and time specified for such delivery for payment of the
Purchase Price thereof at its Delivery Office, accompanied by an instrument of
transfer thereof, in form satisfactory to the Tender Agent, executed in blank by
the owner thereof with the signature of such owner guaranteed by a bank, trust
company or member firm of the New York Stock Exchange, on any Business Day, the
Tender Agent shall, subject to the provisions of paragraph (ii) of this Section
9.3(b), pay the Purchase Price of such Certificate or portion thereof to the
owner (A) no later than 2:30 p.m. New York, New York time on such Business Day,
if such Certificate is presented by 10:00 a.m. New York, New York time on such
Business Day, and (B) no later than 12:00 noon New York, New York time on the
next succeeding Business Day, if such Certificate is presented after 10:00 a.m.
New York, New York time on such Business Day and, if appropriate, shall also
deliver to such owner a new Certificate in an aggregate principal amount equal
to the portion of any Certificate not so purchased; provided, however, while the
Certificates are in the Book-Entry System, the Certificates shall be presented
to the Tender Agent according to the normal and customary practices between DTC
and the Tender Agent. Any such Certificates so delivered to the Tender Agent
shall be canceled by it.
(c) The Certificates shall be remarketed in accordance with Section 9.5(a)
hereof.
(d) By 10:30 a.m. New York, New York time on the Business Day on which any
Certificates are to be purchased pursuant to Section 9.2 (a) or (b) hereof and
which are to be remarketed in accordance with Section 9.5, the Remarketing Agent
shall give written notice or telephonic notice to the Liquidity Provider and the
Tender Agent, specifying the principal amount of such Certificates, if any, sold
by it and remaining unsold, respectively; such notice to the Tender Agent shall
also specify the name, address and taxpayer identification number of each such
purchaser (or, in the case of the Book-Entry System, the DTC Participant) and
the principal amount of such Certificates being purchased by each such
purchaser.
(e) The Remarketing Agent shall not invest any proceeds received from
purchasers of Certificates prior to the delivery thereof by the Remarketing
Agent to the Tender Agent for deposit in the Remarketing Proceeds Fund.
-48-
<PAGE>
(f) Any Certificates purchased with moneys described in Section 9.3 (a)(i)
hereof shall be registered by the Tender Agent in accordance with the
instructions provided by the Remarketing Agent and made available to the
Remarketing Agent against payment therefor in immediately available funds by
11:30 a.m. New York, New York time. Certificates which have been remarketed and
for which the Remarketing Agent has made funds available to the Tender Agent for
deposit to the credit of the Remarketing Proceeds Fund by 11:30 a.m. New York,
New York time shall be made available to the Remarketing Agent by 3:00 p.m. New
York, New York time, registered in accordance with instructions provided by the
Remarketing Agent. Simultaneously with the receipt of the funds supplied by the
Remarketing Agent to the Tender Agent, as described in the preceding sentence,
the Tender Agent shall while the Book-Entry System is not in effect, cancel the
Purchased Certificates (or portions thereof for which remarketing proceeds have
been made available) then outstanding by reason of the prior purchase and
delivery.
(g) Any Certificates purchased with moneys described in Section 9.3(a)(ii)
hereof shall constitute Purchased Certificates and (1) while the Book-Entry
System is not in effect, shall be registered upon receipt of funds from the
Liquidity Provider for the purchase of such Purchased Certificates in the name
of the Liquidity Provider, or any nominee of the Liquidity Provider, and such
Purchased Certificates shall be held by the Tender Agent, as agent of the
Liquidity Provider, on the date of such purchase, and (2) while such Book-Entry
System is in effect, the ownership interest in such Purchased Certificates shall
be transferred only as provided in the Liquidity Facility. The Tender Agent
shall not release such Purchased Certificates, or such ownership interest
therein, and the Tender Agent shall not authenticate any other Certificates in
lieu thereof, until the Tender Agent receives written notification from the
Liquidity Provider that it has received payment of the Purchase Price of such
Purchased Certificates.
(h) In the event that the Remarketing Agent is able to remarket any
Certificates required to be purchased pursuant to Section 9.2 (a) or (b) hereof
after the time in which the Remarketing Agent is required to provide notice to
the Tender Agent, the Remarketing Agent shall give notice in the manner and
containing the details set forth in Section 9.3(d) hereof, as appropriate, as
soon as practicable after such remarketing, but in no event later than 11:30
a.m. New York, New York time on the date such Certificates are required to be
purchased and the Certificates shall be registered in the name of the purchasers
thereof and made available to the Remarketing Agent as soon as practicable
thereafter on such date.
(i) If the Tender Agent receives a demand for the purchase of Certificates
or portions thereof (other than Purchased Certificate) in accordance with
Section 9.2 (a) hereof or Certificates are required to be tendered for purchase
in accordance with Section 9.2 (b) hereof and the Remarketing Agent shall not
then have provided the Tender Agent with sufficient funds to make such purchase
by depositing in the Remarketing Proceeds Fund immediately available funds by no
later than one hour before the time provided in the Liquidity Facility for
presentation of notices in order to receive payment in immediately available
funds by 2:30 p.m. New York, New York time on the date such Certificates are
required to be purchased, then the Tender Agent shall notify the Liquidity
Provider that it should purchase such unremarketed Certificates by no later than
the time provided in the Liquidity Facility for presentation of notices in order
to receive payment in immediately available funds by 2:30 p.m. New York, New
York time on such day, the amount
-49-
<PAGE>
sufficient to pay the portion of the Purchase Price of such Certificates which
exceeds the amount provided by the Remarketing Agent for deposit in the
Remarketing Proceeds Fund. The Tender Agent shall deposit the proceeds of such
drawing in respect of such Certificates in accordance with the provisions of
Section 9.3(a). The Tender Agent shall notify the Swap Provider by telephone,
promptly confirmed in writing, of the amounts to be drawn, as soon as
practicable and, when possible, at least one day prior to such draw on the
Liquidity Facility.
(j) The proceeds of the sale by the Remarketing Agent of any Certificates
or portions thereof shall be turned over to the Tender Agent and, except for
Certificates not tendered, immediately applied by the Tender Agent to the
payment of the Purchase Price of Certificates or portions thereof or, in the
case of the sale of Purchased Certificate, to the payment of the Purchase Price
of such Purchased Certificates. In making such payments to the Liquidity
Provider, the Tender Agent may conclusively assume that the Liquidity Provider
has not been paid from any other sources. To the extent that the Liquidity
Provider is so paid with proceeds of the sale of Certificates by the Remarketing
Agent, any Purchased Certificates or ownership interest in such Purchased
Certificates shall be immediately returned to or released by the Tender Agent
and new Certificates representing such sale proceeds shall be registered and
delivered.
(k) The Tender Agent shall, at the end of the tenth Business Day after the
date on which Certificates are to be purchased, set aside on its books all funds
then held in the Remarketing Proceeds Fund and the Purchase Fund by virtue of
the fact that Certificates deemed purchased on such date were not presented for
purchase to the Tender Agent and shall hold the same in trust for the payment to
the owners of such Certificates of the Purchase Price thereof. The Tender Agent
shall pay such Purchase Price from such amounts by check or draft of the Tender
Agent made payable to the party entitled to such payment as soon as practicable
after such party surrenders the Certificates so deemed purchased to the Tender
Agent.
SECTION 9.4 LIQUIDITY FACILITY.
(a) Pursuant to the Liquidity Protection Agreement, Morgan has agreed with
the Cooperative to provide, or cause another qualified financial institution to
provide, a Liquidity Facility to be available for the purchase of Certificates
tendered pursuant to Section 9.2(a) or (b). The Tender Agent and the
Cooperative shall take such actions as may be necessary to obtain funds under
the Liquidity Facility to pay the Purchase Price of Certificates then subject to
purchase under the Liquidity Facility tendered for purchase or required to be
purchased pursuant to the provisions of this Agreement at the times, on the
dates, to the extent, and in the manner, provided by Section 9.2 and 9.3 and
deposit the proceeds of such drawing in the Purchase Fund pending application of
such moneys to the payment of the Purchase Price of such Certificates.
(b) Alternate Liquidity Facility.
(1) At least 60 days prior to the expiration or termination of any
Liquidity Facility, Morgan may provide for the delivery to the Tender Agent of
an Alternate Liquidity Facility. Any such Alternate Liquidity Facility may be
for a term of years which is more or less than the Liquidity Facility which is
being replaced (but in no event less than the lesser
-50-
<PAGE>
of (a) 364 days or (b) five (5) days plus the number of days then remaining
until the final maturity of the Certificates). On or prior to the date of the
delivery of such Alternate Liquidity Facility to the Tender Agent, the
Cooperative or Morgan on behalf of the Cooperative shall furnish to the Tender
Agent Rating Confirmation Notices. Upon receipt of the documents described in
clause (2) below, the Tender Agent shall accept such Alternate Liquidity
Facility and promptly surrender the Liquidity Facility then in effect to the
Liquidity Provider which issued such Liquidity Facility in accordance with its
terms for cancellation or deliver any document necessary to reduce the coverage
of such Liquidity Facility.
(2) Notwithstanding anything contained herein to the contrary, no
Alternate Liquidity Facility shall be accepted by the Tender Agent hereunder
unless such Alternate Liquidity Facility is accompanied by (i) Opinions of
Counsel reasonably satisfactory to the Trustee to the effect that (x) the
Liquidity Provider is duly organized and existing, under the laws of the
jurisdiction of its organization, and, if applicable, is duly qualified to do
business in the United States of America; and (y) the Alternate Liquidity
Facility is a legal, valid and binding obligation of the Liquidity Provider,
enforceable in accordance with its terms, except as limited by bankruptcy,
insolvency, reorganization, moratorium and other laws relating to, or affecting
generally the enforcement of, creditors' rights and remedies, and by the
availability of equitable remedies, including specific performance and
injunctive relief; (ii) a Rating Confirmation Notice; (iii) an Opinion of
Counsel that the acceptance by the Tender Agent of such Alternate Liquidity
Facility will not adversely affect the treatment of the Trust as a Pass-Through
Organization for federal income tax purposes and (iv) if the Alternate Liquidity
Facility differs from the initial Liquidity Facility, a certificate of the
Cooperative that any differences in the Alternate Liquidity Facility which
affect the rights and obligations of the Cooperative are acceptable to the
Cooperative.
(c) Should Morgan fail to provide a Liquidity Facility, the Tender Agent
shall accept an Alternate Liquidity Facility provided by the Cooperative, if
any, which otherwise meets the requirements of this Agreement.
(d) Morgan and the Cooperative have agreed upon and are responsible for
fees and expenses of the Liquidity Provider, and neither the Trustee or any
Certificateholder shall have any liability or responsibility therefor.
SECTION 9.5 REMARKETING OF CERTIFICATES.
(a) Upon the receipt by the Remarketing Agent of any notice pursuant to
Section 9.2(a) or 9.2(c), the Remarketing Agent, subject to the terms of the
Remarketing Agreement, shall offer for sale, and shall use its best efforts to
sell (other than to the Cooperative, the Servicer, or their respective
affiliates), the Certificates in respect of which such notice has been given.
Unless otherwise instructed by the Cooperative or the Servicer, the Remarketing
Agent will offer for sale and use its best efforts to sell any Certificates to
be purchased pursuant to Section 9.2(a) or 9.2(b)(i) or 9.2(b)(iv). The
Remarketing Agent shall have no obligation to remarket Certificates to be
purchased pursuant to Section 9.2(b)(ii) or Section 9.2(b)(iii). Any such
Certificates shall be offered: (i) at 100% of the Principal Amount thereof,
plus Interest distributable, if any, to the Purchase Date
-51-
<PAGE>
as if such Purchase Date were a Certificate Payment Date, and (ii) pursuant to
terms calling for payment of the Purchase Price on such Purchase Date, and
delivery of such Certificates; provided that the Remarketing Agent shall not
sell any Certificate if the amount to be received from the sale of such
Certificate or portion thereof (including accrued interest, if any) plus the
amount available under the Liquidity Facility to pay the portion (if any) of
such Certificate not remarketed is less than such Purchase Price to be paid for
such Certificate. The Remarketing Agent shall direct any person to whom such
Certificates (or authorized portions thereof) are remarketed pursuant to this
Section to deliver the Purchase Price thereof in immediately available funds to
the Remarketing Agent on or before 10:00 a.m. (New York, New York time) on the
Purchase Date. The Remarketing Agent shall promptly deliver such proceeds to the
Tender Agent. Upon receipt and pending disbursement thereof, the Tender Agent
shall deposit such moneys in the Remarketing Proceeds Fund. The Trustee, the
Tender Agent or the Liquidity Provider may purchase any Certificates offered
pursuant to this Section 9.5(a) for its own account. Each of the Cooperative and
the Servicer acknowledges that it shall have no interest in any proceeds of the
remarketing of Certificates, all of which shall be held in trust by the Trustee
or the Tender Agent for the sole benefit of the holders of the Certificates and,
to the extent that the Certificates have been purchased with funds provided by
the Liquidity Provider, for the benefit of the Liquidity Provider. The
Remarketing Agent shall comply with the provisions of Section 9.3 which are
applicable to the Remarketing Agent.
(b) The Remarketing Agent shall, subject to the terms of the Remarketing
Agreement, offer for sale, and use its best efforts to sell, on behalf of the
Liquidity Provider, Purchased Certificates held pursuant to Section 9.3;
provided that the Remarketing Agent shall have no obligation to remarket
Certificates purchased pursuant to Section 9.2(b)(ii) or Section 9.2(b)(iii).
Any such Certificates shall be offered at 100% of the Principal Amount thereof,
plus distributions of Interest due on the date of sale thereof calculated as if
such date were a Certificate Interest Payment Date.
SECTION 9.6 PURCHASE AND REMARKETING FUND.
(a) There is hereby created a fund to be held by the Tender Agent and
designated as the "Purchase and Remarketing Fund." The following separate funds
shall be established within the Purchase and Remarketing Fund: (i) the Purchase
Fund; and (ii) the Remarketing Proceeds Fund. The Purchase and Remarketing Fund
shall not be part of the Trust Account and shall not be commingled with the
amounts held in the Trust Account.
(b) All amounts advanced pursuant to the Liquidity Facility to pay the
Purchase Price of the Certificates shall be deposited in the Purchase Fund, and
used only for the payment of the Purchase Price of outstanding Certificates in
the manner and at the times specified in Sections 9.2 and 9.3 hereof.
(c) All amounts received by the Tender Agent from the Remarketing Agent
representing the Purchase Price of Certificates remarketed by the Remarketing
Agent shall be deposited in the Remarketing Proceeds Fund and shall be used only
for payments of the Purchase Price of the Certificates so remarketed as provided
in Sections 9.2 and 9.3 hereof or to the payment of the
-52-
<PAGE>
Liquidity Provider for the Purchase Price of Purchased Certificates so
remarketed as provided in Section 9.3(j) hereof.
SECTION 9.7 REDEMPTION OR PURCHASE OF CERTIFICATE UPON REDEMPTION OR
PURCHASE OF NOTES BY RUS OR THE COOPERATIVE.
(a) Should the RUS exercise its right to prepay or purchase the Notes
pursuant to the Loan Agreement and the Loan Guarantee Agreement, the RUS shall
give the Trustee and the Servicer 30 days' notice of its intent to so prepay or
purchase the Notes. The Servicer will deliver to the Swap Provider notice of
the Servicer's receipt of such notice from the RUS on the second Business Day
following the Servicer's receipt of the RUS's notice of prepayment or purchase
of the Notes. No more than five days after receipt of notice of the exercise by
the RUS of the prepayment or purchase right with respect to the Notes, the
Trustee shall, in accordance with Subsection (c) of this Section, deliver notice
of the Call Date by first class mail, postage prepaid, to all registered owners
of Certificates to be redeemed at their addresses shown on the Certificate
Register.
(b) Should the Cooperative exercise its right to prepay or purchase the
Notes pursuant to the Loan Agreement and the Loan Guarantee Agreement, the
Cooperative shall give the Trustee and the Servicer 45 days' notice of its
intent to so prepay or purchase the Notes. The Servicer will deliver to the
Swap Provider notice of the Servicer's receipt of such notice from the
Cooperative on the second Business Day following the Servicer's receipt of the
Cooperative's notice of prepayment or purchase of the Notes. No less than 30
days prior to the proposed Call Date, the Trustee shall, in accordance with
Subsection (c) of this Section, deliver notice of the Call Date by first class
mail, postage prepaid, to all registered owners of Certificates to be redeemed
at their addresses shown on the Certificate Register.
(c) Failure to mail the notice required by Subsection (a) or (b) or defect
in the mailing thereof in respect of any Certificate shall not affect the
validity of the redemption of any other Certificate. Notices of such prepayment
or purchase shall also be mailed to the Servicer, the Remarketing Agent, the
Tender Agent, the Swap Provider, the Liquidity Provider and the Trustee. Any
such notice shall (i) identify the Certificates to be redeemed, (ii) specify the
Call Date and the Purchase Price of such Certificates, (iii) state that, on the
Call Date, the Purchase Price of the Certificates called for prepayment or
purchase will be payable at the principal corporate trust office of the Trustee
and from that date interest will cease to accrue and (iv) if, at the time of
mailing of such notice, moneys sufficient to prepay or purchase all the
Certificates shall not have been deposited with the Trustee, such notice may
state that it is conditional in that it is subject to the deposit, not later
than the Call Date, of moneys sufficient to prepay or purchase all the
Certificates, and such notice shall be of no effect unless such moneys are so
deposited.
(d) No termination of the Swap Agreement shall occur and no redemption of
the Certificates shall take place until the Swap Provider certifies that it has
received any amount due as the Termination Amount, if any, and the Liquidity
Provider receives all amounts payable to it under the Liquidity Facility.
-53-
<PAGE>
SECTION 9.8 TENDER AGENT.
(a) Tender Agent; Appointment of; Acceptance of Duties.
(1) The First National Bank of Chicago is appointed as Tender Agent
hereunder, and The First National Bank of Chicago hereby accepts the duties and
obligations imposed upon it by this Agreement.
(2) Unless otherwise provided in a separate agreement, the principal
corporate trust office of the Tender Agent is designated as the Delivery Office
for such Tender Agent. The Delivery Office for The First National Bank of
Chicago, as initial Tender Agent hereunder, shall be the office specified in
Section 12.7 hereof.
(3) The Tender Agent shall perform the duties and obligations set forth in
this Agreement, and, in the event of a successor Tender Agent, in any tender
agent agreement entered into by and among the Cooperative, the Trustee and such
successor Tender Agent.
(4) The Tender Agent shall keep such books and records relating to the
performance of its duties hereunder as shall be consistent with prudent industry
practice and will make such records available for inspection by the Cooperative,
the Trustee, the Liquidity Provider and the Remarketing Agent.
(5) The Cooperative shall indemnify the Tender Agent and its officers and
employees against and save them harmless from any and all losses, including
reasonable fees and expenses of counsel, incurred, arising out of or based upon
their acting in good faith to carry out the transactions contemplated by this
Agreement, except only to the extent that they are caused by the negligent
action, negligent failure to act or willful misconduct of the Tender Agent.
(6) No provision of this Agreement shall be construed to relieve the
Tender Agent from liability for its own negligent action, its own negligent
failure to act or its own willful misconduct or that of its officers or
employees, except that the duties and obligations of the Tender Agent shall be
determined solely by the provisions of this Agreement, and the Tender Agent
shall not be liable except for the performance of such duties and obligations as
are specifically set forth in this Agreement, and, in the absence of bad faith
on the part of the Tender Agent, the Tender Agent may conclusively rely, as to
the truth of the statements expressed therein, upon any document furnished to
the Tender Agent and conforming to the requirements of this Agreement, and the
Tender Agent may rely and shall be protected in acting upon any document
believed by it to be genuine and to have been signed or presented by the proper
party or parties, provided that, in the case of any such document which by any
provision of this Agreement is specifically required to be furnished to the
Tender Agent, the Tender Agent shall be under a duty to examine the same to
determine whether or not it conforms to the requirements of this Agreement. The
Tender Agent shall not be liable for good faith error or judgment of its
officers unless the Tender Agent was negligent in ascertaining the pertinent
facts. The Tender Agent shall not be liable at any time for interest
-54-
<PAGE>
on any money received by it pursuant to the terms of this Agreement. The Tender
Agent shall be entitled to the benefits of all protective provisions and
limitations accorded the Trustee in this Agreement.
(7) Any provisions of this Agreement or any statute to the contrary
notwithstanding, the Tender Agent hereby waives any rights to, or liens for, its
fees, charges and expenses for services hereunder from funds or Certificates
delivered to the Tender Agent pursuant to this Agreement. The Tender Agent will
be reimbursed and compensated for its fees, charges and expenses for acting
under and pursuant to this Agreement only from moneys provided by the Servicer.
(b) Resignation or Removal of Tender Agent and Appointment of Successor.
(1) Any Tender Agent may at any time resign and be discharged of the
duties and obligations created by this Agreement by giving at least 60 days
written notice to the Servicer, the Cooperative, the Liquidity Provider, the
Remarketing Agent and, unless a Swap Provider Default has occurred and is
continuing, the Swap Provider. Any Tender Agent may be removed at any time by
an instrument filed with such Tender Agent and signed by an authorized officer
of the Trustee. Any such resignation or removal shall take effect only upon the
appointment of, and acceptance of such appointment by, a successor Tender Agent.
Any successor Tender Agent shall be appointed by the Servicer or some party
other than the Cooperative, with the consent of the Liquidity Provider and,
unless a Swap Provider Default has occurred and is continuing, the Swap
Provider, and shall be a commercial bank with trust powers or a trust company
organized under the laws of any state of the United States, having capital stock
and surplus aggregating at least $50,000,000, and willing and able to accept the
office on reasonable and customary terms and authorized by law to perform all
the duties imposed upon it by this Agreement. Any successor Tender Agent shall
signify its acceptance of the duties and obligations imposed upon it by this
Agreement by executing and delivering to the Cooperative, the Swap Provider, the
Liquidity Provider and the Remarketing Agent a written acceptance thereof. In
the event of the resignation or removal of the Tender Agent, the Tender Agent
shall deliver any Certificates and moneys held by it in such capacity to its
successors.
(2) In the event of the resignation or removal of any Tender Agent, such
Tender Agent shall pay over, assign and deliver any moneys and Certificates,
including authenticated Certificates and Purchased Certificates, held by it to
its successor.
SECTION 9.9 REMARKETING AGENT.
(a) The initial Remarketing Agent shall be Alex. Brown & Sons
Incorporated.
(b) In addition to the other obligations imposed on the Remarketing Agent
hereunder and under the Remarketing Agreement, the Remarketing Agent shall agree
to keep such books and records as shall be consistent with prudent industry
practice and make such books and records
-55-
<PAGE>
available for inspection by the Cooperative, the Servicer, the Swap Provider,
the Liquidity Provider and the Trustee at all reasonable times.
(c) If at any time the Remarketing Agent is unable or unwilling to act as
the Remarketing Agent, such Remarketing Agent, upon 30 days' prior written
notice to the Cooperative, the Servicer, the Swap Provider, the Liquidity
Provider, the Trustee and the Tender Agent, may resign. The Remarketing Agent
may be removed at any time by the Swap Provider (unless a Swap Provider Default
has occurred and is continuing), subject to the terms and conditions of the
Remarketing Agreement. Upon resignation or removal of the Remarketing Agent or
upon termination of the Remarketing Agreement (other than termination of the
Remarketing Agreement due to termination of the Swap Agreement), the
Cooperative, with the advice and consent of the Swap Provider (unless a Swap
Provider Default has occurred and is continuing), shall appoint a successor
Remarketing Agent. The successor Remarketing Agent, by written instrument
delivered to the Trustee, the Cooperative, the Swap Provider, the Liquidity
Provider and the Servicer shall accept the duties and obligations imposed on it
under this Agreement and shall become a party to the Remarketing Agreement.
(d) In the event that the Cooperative shall fail to appoint a successor
Remarketing Agent, upon the resignation or removal of the Remarketing Agent, the
Swap Provider may appoint a Remarketing Agent until the appointment of a
successor Remarketing Agent in accordance with this Section.
(e) The Remarketing Agent shall give the Servicer Immediate Notice of the
listing of the Certificates on any stock exchange or of the discontinuance of
such listing upon the Remarketing Agent's receipt of written notice of same.
(f) Morgan and the Cooperative have agreed upon and are responsible for
fees and expenses of the Remarketing Agent, and neither the Trustee or any
Certificateholder shall have any liability or responsibility therefor.
ARTICLE X
THE TRUSTEE
SECTION 10.1 DUTIES OF TRUSTEE.
(a) The Trustee, prior to the occurrence of an Event of Servicing
Termination or Swap Provider Default, and after the curing of all Events of
Servicing Termination or Swap Provider Default, which may have occurred,
undertakes to perform such duties and only such duties as are specifically set
forth in this Agreement. If an Event of Servicing Termination or Swap Provider
Default, has occurred (which has not been cured), the Trustee shall exercise
such of the rights and powers vested in it by this Agreement, and use the same
degree of care and skill in their exercise, as a prudent person would exercise
or use under the circumstances in the conduct of such persons's own affairs.
-56-
<PAGE>
(b) The Trustee, upon receipt of all resolutions, certificates,
statements, opinions, reports, documents, orders or other instruments furnished
to the Trustee which are specifically required to be furnished pursuant to any
provision of this Agreement, shall examine them to determine whether they
conform as to form to the requirements of this Agreement.
(c) No provision of this Agreement shall be construed to relieve the
Trustee from liability for its own negligent action, its own negligent failure
to act or its own misconduct; provided, however, that:
(i) prior to the occurrence of an Event of Servicing Termination or Swap
Provider Default, and after the curing of all such Events of Servicing
Termination or Swap Provider Default, which may have occurred, the duties and
obligations of the Trustee shall be determined solely by the express provisions
of this Agreement, the Trustee shall not be liable except for the performance of
such duties and obligations as are specifically set forth in this Agreement, no
implied covenants or obligations shall be read into this Agreement against the
Trustee and, in the absence of bad faith, negligence, or willful misconduct on
the part of the Trustee, the Trustee (subject to Section 10.1(b)) may
conclusively rely, as to the truth of the statements and the correctness of the
opinions expressed therein, upon any certificates or opinions furnished to the
Trustee and conforming to the requirements of this Agreement;
(ii) the Trustee shall not be personally liable for an error of judgment
made in good faith by a Responsible Officer of the Trustee, unless it shall be
proved that the Trustee was negligent in ascertaining the pertinent facts; and
(iii) the Trustee shall not be personally liable with respect to any action
taken, suffered or omitted to be taken by it in good faith in accordance with
the direction of the Certificateholders with aggregate Fractional Interests
representing 51% or more of the Trust relating to the time, method and place of
conducting any proceeding for any remedy available to the Trustee, or exercising
any trust or power conferred upon the Trustee, under this Agreement.
(d) The Trustee shall not be required to expend or risk its own funds or
otherwise incur financial liability in the performance of any of its rights or
powers, if there is reasonable ground for believing that the repayment of such
funds or adequate indemnity against such risk or liability is not reasonably
assured to it; provided, however, that except in the case of action required
upon a Swap Provider Default, if CFC is giving the aforesaid indemnity, the
unsecured written undertaking of CFC delivered to the Trustee shall be
sufficient indemnity for purposes of this Section.
(e) Whether or not herein expressly so provided, every provision of this
Agreement relating to the conduct or affecting the liability of or affording
protection to the Trustee shall be subject to the provisions of this Section.
SECTION 10.2 CERTAIN MATTERS AFFECTING THE TRUSTEE. Subject to Section
10.1, in its capacity as Trustee:
-57-
<PAGE>
(a) the Trustee may rely and shall be protected in acting or refraining
from acting upon any resolution, Officer's Certificate, certificate of a
Servicing Officer, certificate of auditors or any other certificate, statement,
instrument, opinion, report, notice, request, consent, order, appraisal, bond or
other paper or document believed by it to be genuine and to have been signed or
presented by the proper party or parties;
(b) the Trustee may consult with counsel and any opinion of any counsel
for the Servicer or the Trustee (which counsel may be an employee of the
Servicer or the Trustee) shall be full and complete authorization and protection
in respect of any action taken or suffered or omitted by it hereunder in good
faith and in accordance with such opinion of counsel;
(c) the Trustee shall be under no obligation to exercise any of the rights
or powers vested in it by this Agreement, or to institute, conduct or defend any
litigation hereunder or in relation hereto, at the request, order or direction
of any of the Certificateholders, pursuant to the provisions of this Agreement,
unless such Certificateholders shall have offered to the Trustee reasonable
security or indemnity against the costs, expenses and liabilities which may be
incurred therein or thereby; provided, however, that nothing contained in this
Agreement shall relieve the Trustee of the obligations, upon the occurrence of
an Event of Servicing Termination or Swap Provider Default, (which has not been
cured), to exercise such of the rights and powers vested in it by this
Agreement, and to use the same degree of care and skill in their exercise as a
prudent man would exercise or use under the circumstances in the conduct of his
own affairs;
(d) subject to Section 10.3, the Trustee shall not be personally liable
for any action taken, suffered or omitted by it in good faith and believed by it
to be authorized or within the discretion or rights or powers conferred upon it
by this Agreement;
(e) prior to the occurrence of an Event of Servicing Termination or Swap
Provider Default, and after the curing of all Events of Servicing Termination or
Swap Provider Default, which may have occurred, the Trustee shall not be bound
to make any investigation into the facts or matters stated in any resolution,
certificate, statement, instrument, opinion, report, notice, request, consent,
order, approval, bond or other paper or document, unless requested in writing so
to do by Certificateholders with aggregate Fractional Interests representing
25% or more of the Trust (with the consent of the Swap Provider unless a Swap
Provider Default has occurred and is continuing); provided, however, that if the
payment within a reasonable time to the Trustee of the costs, expenses or
liabilities likely to be incurred by it in the making of such investigation is,
in the reasonable opinion of the Trustee, not reasonably assured to the Trustee
by the security afforded to it by the terms of this Agreement, the Trustee may
require reasonable indemnity against such cost, expense or liability as a
condition to so proceeding;
(f) the Trustee may exercise any of the trusts or powers under this
Agreement or perform any duties under this Agreement either directly or by or
through agents or attorneys or a custodian;
(g) the Trustee shall not be charged with knowledge of any event referred
to in clauses (a), (b) and (c) of Section 6.1 unless a Responsible Officer of
the Trustee at the Principal Corporate Trust Office obtains actual knowledge of
such failure or the Trustee receives written
-58-
<PAGE>
notice of such failure from CFC, the Cooperative, the Servicer, the Swap
Provider or Certificateholders with aggregate Fractional Interests representing
25% or more of the Trust; and
(h) none of the provisions contained in this Agreement shall in any event
require the Trustee to perform any of the obligations of the Servicer under this
Agreement, except during such time, if any, as the Trustee shall be the
successor to, and be vested with the rights, duties, powers and privileges of,
the Servicer in accordance with the terms of this Agreement.
SECTION 10.3 TRUSTEE NOT LIABLE FOR CERTIFICATES, NOTES OR THE SWAP
AGREEMENT.
(a) The Trustee assumes no responsibility or liability for the correctness
of the recitals contained in this Agreement or in the Certificates of Beneficial
Interests (other than the Trustee's execution and authentication thereof). The
Trustee makes no representations as to the validity or sufficiency of this
Agreement, the Certificates of Beneficial Interests (other than its execution
and authentication thereof), the Notes, the Guarantee, the Swap Agreement or the
related documents; except that the Trustee hereby represents, warrants and
covenants to the Servicer and the Cooperative that this Agreement has been and
(assuming the due authorization, execution and delivery of the Trust Agreement
by the Servicer) each of such other agreements or documents which contemplates
execution thereof by the Trustee has been or will be executed and delivered by a
Responsible Officer of the Trustee who is or will be duly authorized to execute
and deliver such agreement or document on the Trustee's behalf and that, when so
duly authorized, executed and delivered by the Trustee (assuming the due
authorization, execution and delivery of this Agreement and such other documents
by the other parties thereto), this Agreement will constitute a valid and
binding agreement of the Trustee and enforceable against the Trustee in
accordance with its terms, and the Trustee has no reason to believe that the
other agreements or documents to which it is a party will not constitute valid
and binding agreements of the Trustee enforceable against it in accordance with
their respective terms.
(b) If no Event of Servicing Termination or Swap Provider Default has
occurred, the Trustee shall have no responsibility or liability for or with
respect to the performance or enforcement of the Notes or the Guarantee (unless
the Trustee is acting as Servicer or unless it is held that the Servicer may not
enforce the Notes, or the Guarantee as contemplated in Section 4.4), the
compliance by CFC or the Servicer with any covenant or the breach by CFC or the
Servicer of any warranty or representation made under this Agreement or in any
related document or the accuracy of any such warranty or representation, the
validity of the Guarantee, the acts or omissions of CFC or the Cooperative, any
action of CFC taken in the name of the Trustee, any action of the Trustee taken
at the instruction of CFC or the preparation of tax returns for the Trust. As
assignee of the Cooperative's rights under the Swap Agreement, the Trustee shall
enforce the Swap Provider's obligations under the Swap Agreement pursuant to
Section 10.16 of this Agreement for the benefit of the Certificateholders.
Except for such liability as is finally determined to have resulted from
Trustee's gross negligence or willful misconduct, (i) no recourse shall be had
for any claim based on any provision of this Agreement, the Certificates or the
Notes against the Trustee in its individual capacity, and (ii) the Trustee shall
not have any personal obligation, liability or duty whatsoever to any holder of
a Certificate or any other person with respect to any such claim, and (iii) any
such
-59-
<PAGE>
claim shall be asserted solely against the Trustee or any indemnitor who shall
furnish indemnity as provided herein.
SECTION 10.4 TRUSTEE MAY OWN CERTIFICATES. The Trustee in its individual or
any other capacity (other than as Trustee) may become the owner or pledgee of
Certificates with the same rights as it would have if it were not the Trustee.
SECTION 10.5 RIGHTS OF CERTIFICATEHOLDERS TO DIRECT TRUSTEE AND TO WAIVE
EVENTS OF TERMINATION. Certificateholders with aggregate Fractional Interests
representing 51% or more of the Trust (with the consent of the Swap Provider
unless a Swap Provider Default has occurred and is continuing) shall have the
right to direct the time, method and place of conducting any proceeding for any
remedy available to the Trustee (or the Servicer as the Trustee's attorney-in-
fact pursuant to Section 4.3), or exercising any trust or power conferred on the
Trustee (or the Servicer as such attorney-in-fact); provided, however, that,
subject to Section 10.1, the Trustee (or the Servicer as such attorney-in-fact)
shall have the right to decline to follow any such direction if the Trustee (or
the Servicer as such attorney-in-fact), being advised by counsel, determines
that the action so directed may not lawfully be taken, or if the Trustee (or the
Servicer as such attorney-in-fact) in good faith determines that the action so
directed would be illegal or would be unduly prejudicial to the rights of
Certificateholders not parties to such direction, or if the Trustee (but not the
Servicer) in good faith determines that the action would involve it in personal
liability and provided further that nothing in this Agreement shall impair the
right of the Trustee (or the Servicer as such attorney-in-fact) to take any
action deemed proper by the Trustee and which is not inconsistent with such
direction by the Certificateholders. Certificateholders with aggregate
Fractional Interests representing 51% or more of the Trust (with the consent of
the Swap Provider unless a Swap Provider Default has occurred and is continuing
) may on behalf of Certificateholders waive any past Event of Servicing
Termination or Swap Provider Default hereunder and its consequences; but no such
waiver shall extend to any subsequent or other Event of Servicing Termination or
Swap Provider Default or impair any right consequent thereof.
SECTION 10.6 RESPONSIBILITY FOR THE TRUSTEE'S FEE AND EXPENSES. The
Servicer here by agrees:
(a) to pay to the Trustee from time to time such compensation for all
services rendered by it under this Agreement in its capacity as Trustee as shall
be agreed to by the Servicer and the Trustee, or in the absence of such
agreement, reasonable compensation for such services (which compensation shall
not be limited by any provision of law in regard to the compensation of a
trustee of an express trust);
(b) except as otherwise expressly provided in this Agreement, to reimburse
the Trustee and any predecessor Trustee upon its written request for all
reasonable expenses, disbursements and advances incurred or made by each of the
Trustee and any predecessor Trustee in its capacity as Trustee in accordance
with any provision of this Agreement (including the reasonable expenses and
disbursements of its agents (excluding the Servicer) and counsel), except to the
extent such expenses, disbursement or advance may be attributable to its own
negligence or willful misconduct;
-60-
<PAGE>
(c) to indemnify each of the Trustee and any predecessor Trustee for, and
to hold it harmless against, any loss, liability or expense arising out of or in
connection with the acceptance or administration of this trust and its duties as
Trustee, including the costs and expenses of defending itself against any claim
or liability in connection with the exercise or performance of any of its powers
or said duties except to the extent attributable to negligence or willful
misconduct on its part; and
(d) the Cooperative shall pay the Trustee or reimburse the Servicer for
any Trustee's fees and expenses (including reasonable attorney's fees) arising
out of a Swap Provider Default.
The parties hereto agree, and each Certificateholder by its acceptance
of its Certificate agrees, that in the event that the Trustee becomes the
successor Servicer in accordance with this Agreement, it shall be entitled to
all compensation provided for under Section 7.3 for its own account (not for the
benefit of Certificateholders) and in such event the Trustee shall look to such
servicing compensation for payment of its fees and expenses as the successor
Servicer.
SECTION 10.7 ELIGIBILITY REQUIREMENTS FOR TRUSTEE. The Trustee hereunder
shall (a) at all times be a corporation which is a bank (as such term is defined
in the Investment Company Act of 1940), having a corporate trust office in the
United States and organized and doing business under the laws of any state or
the United States, authorized under Applicable Law to exercise corporate trust
powers, and having a combined capital and surplus of at least $50,000,000 and
subject to supervision or examination by federal or state authorities, (b) at
all times not be an Affiliate of CFC, the Cooperative or the Swap Provider or
any Person involved in the organization or operation of CFC, the Cooperative or
the Swap Provider, and (c) at all times be an Eligible Servicer (or affiliated
with an Eligible Servicer who agrees to act as Servicer in the event that the
Trustee is appointed Servicer upon a Service Transfer). If such corporation
publishes reports of condition at least annually, pursuant to law or to the
requirements of the aforesaid supervising or examining authority, then for the
purposes of this Section, the combined capital and surplus of such corporation
shall be deemed to be its combined capital and surplus as set forth in its most
recent report of condition so published. In case at any time the Trustee shall
cease to be eligible in accordance with the provisions of this Section, the
Trustee shall resign immediately in the manner and with the effect specified in
Section 10.8.
SECTION 10.8 RESIGNATION OR REMOVAL OF TRUSTEE.
(a) The Trustee may at any time resign and be discharged from the trusts
hereby created by giving written notice thereof to the Servicer, RUS, the Swap
Provider and the Certificate Registrar, if any. Upon receiving such notice of
resignation, the Servicer shall promptly appoint a successor Trustee by written
instrument, one copy of which instrument shall be delivered to each of the
Servicer, the Certificate Registrar, if any, RUS, the Swap Provider and the
successor Trustee. If no successor Trustee shall have been so appointed and
have accepted appointment within 30 days after the giving of such notice of
resignation, the resigning Trustee may petition any court of competent
jurisdiction for the appointment of a successor Trustee. The successor Trustee
appointed by such court shall immediately and without further act be superseded
by any successor Trustee appointed by the Servicer within one year from the date
of the appointment by such court; provided,
-61-
<PAGE>
however, that such successor Trustee must meet the eligibility requirements
under Section 10.7 of this Agreement.
(b) Subject to Section 10.15, if at any time the Trustee shall cease to be
eligible in accordance with the provisions of Section 10.7 and shall fail to
resign after written request therefor by the Servicer (or, with the consent of
the Servicer and, unless a Swap Provider Default has occurred and is continuing,
the Swap Provider, Certificateholders with aggregate Fractional Interests
representing 25% or more of the Trust) or if at any time the Trustee shall be
legally unable to act, or shall be adjudged a bankrupt or insolvent, or a
receiver of the Trustee or of its property shall be appointed, or any public
officer shall take charge or control of the Trustee or of its property or
affairs for the purpose of rehabilitation, conservation or liquidation, then the
Servicer (or, with the consent of the Servicer and, unless a Swap Provider
Default has occurred and is continuing, the Swap Provider, Certificateholders
with aggregate Fractional Interests representing 25% or more of the Trust) may
remove the Trustee. The Trustee may be removed without cause by the Servicer or,
with the consent of the Servicer and, unless a Swap Provider Default has
occurred and is continuing, the Swap Provider, Certificateholders with aggregate
Fractional Interests of 51% or more of the Trust. If the Trustee is removed
under the authority of the immediately preceding two sentences, the Servicer
shall promptly appoint a successor Trustee (other than the outgoing Trustee)
that has been approved in writing by RUS by written instrument, one copy of
which instrument shall be delivered to the Trustee so removed, one copy to the
successor Trustee, one copy to the Certificate Registrar, if any, one copy to
the Swap Provider and one copy to RUS.
(c) No resignation or removal of any Trustee pursuant to any of the
provisions of this Agreement shall become effective until either (i) the assets
of the trust hereby created have been completely liquidated and the proceeds of
the liquidation distributed to the Certificateholders, or (ii) acceptance of
appointment by the successor Trustee as provided in Section 10.9.
SECTION 10.9 SUCCESSOR TRUSTEE.
(a) Any successor Trustee appointed as provided in Section 10.8 or Section
10.15 shall execute, acknowledge and deliver to CFC, the Servicer, RUS, the Swap
Provider and its predecessor Trustee an instrument accepting such appointment
under this Agreement in form and substance acceptable to the Servicer, and
thereupon the resignation or removal of the predecessor Trustee shall become
effective and such successor Trustee, without any further act, deed or
conveyance, shall become fully vested with all the rights, powers, duties and
obligations of its predecessor under this Agreement and shall appoint the
Servicer as its attorney-in-fact pursuant to Section 4.3, without any further
act or instrument and with like effect as if originally named as Trustee. The
predecessor Trustee shall deliver or cause to be delivered to the successor
Trustee or its designee the Notes, the Guarantee, the Swap Agreement and any
related documents and statements, and all moneys and other properties held by it
under this Agreement; and CFC, the Servicer and the predecessor Trustee shall
execute and deliver such instruments and do such other things as may reasonably
be required for fully and certainly vesting and confirming in the successor
Trustee all such rights, power, duties and obligations.
-62-
<PAGE>
(b) No successor Trustee shall accept appointment as provided in this
Section unless at the time of such acceptance such successor Trustee is eligible
under the provisions of Section 10.7.
(c) Upon acceptance of appointment by a successor Trustee as provided in
this Section 10.9, the Servicer shall cause notice of the succession of such
Trustee to be mailed to each Certificateholder at its address as shown in the
Certificate Register. If the Servicer fails to mail such notice within ten days
after acceptance of appointment by the successor Trustee, the successor Trustee
shall cause such notice to be mailed at the expense of the Servicer but the
failure of the Servicer or the Trustee to give such notice shall not impair or
affect the appointment of such successor Trustee.
SECTION 10.10 MERGER OR CONSOLIDATION OF TRUSTEE. Without the execution or
filing of any paper or any further act on the part of any of the parties hereto,
any corporation into which the Trustee may be merged or converted or with which
it may be consolidated, or any corporation resulting from any merger, conversion
or consolidation to which the Trustee shall be a party, or any corporation
succeeding to the corporate trust business of the Trustee, shall be the
successor of the Trustee hereunder, if and only if such corporation shall be
eligible under the provisions of Section 10.7.
SECTION 10.11 AUTHENTICATING AGENT.
(a) From time to time, the Trustee, with the consent of the Servicer, may
appoint one or more authenticating agents with respect to the Certificates which
shall be authorized to act on behalf of the Trustee in authenticating
Certificates in connection with the issuance, delivery, registration or transfer
or exchange, or repayment of the Certificates. Wherever reference is made in
this Agreement to the authentication of Certificates by the Trustee or the
Trustee's certificate of authentication, such reference shall be deemed to
include authentication on behalf of the Trustee by an authenticating agent and a
certificate of authentication executed on behalf of the Trustee by an
authenticating agent. Each authenticating agent must be acceptable to the
Servicer and must be an institution meeting the requirements of Section 10.7(a).
(b) Any institution meeting the requirements of Section 10.7(a) succeeding
to the corporate agency business of an authenticating agent shall continue to be
an authenticating agent without the execution or filing of any paper or any
further act on the part of the Trustee or such authenticating agent.
(c) An authenticating agent may at any time resign by giving written
notice of resignation to the Trustee and to the Servicer. The Trustee may at
any time terminate the agency of an authenticating agent by giving notice of
termination to such authenticating agent and to the Servicer.
(d) The Trustee agrees to pay to each authenticating agent from time to
time reasonable compensation for its services under this Section, and the
Trustee shall be entitled to be reimbursed for such payments, subject to the
provisions of Section 10.6.
-63-
<PAGE>
(e) The provisions of Section 10.1, 10.2, 10.3 and 10.4 shall be
applicable to any authenticating agent (other than for its authentication of the
Certificates).
(f) Pursuant to an appointment made under this Section, the Certificates
may have endorsed thereon, in lieu of the Trustee's certificate of
authentication, an alternate certificate of authentication in substantially the
following form:
This is one of the Certificates described in the within-
mentioned Trust Agreement.
_____________________________
as Authenticating Agent
for the Trustee,
by___________________________
Authorized Officer
SECTION 10.12 TRUSTEE MAY ENFORCE CLAIMS WITHOUT POSSESSION OF
CERTIFICATES. All rights of action and claims under this Agreement or the
Certificates or the Swap Agreement may be prosecuted and enforced by the Trustee
(or the Servicer as the Trustee's attorney-in-fact pursuant to Section 4.3)
without the possession of any of the Certificates or the production thereof in
any proceeding relating thereto, and any such proceeding instituted by the
Trustee (or the Servicer as such attorney-in-fact) shall be brought in the name
of the Trustee or in its capacity as Trustee (or on behalf of the Trustee in
that capacity). Any recovery of judgment shall, after provision for the payment
of the reasonable compensation, expenses, disbursements and advances of the
Trustee, its agents and counsel in connection with such recovery, be for the
ratable benefit of the Certificateholders in respect of which such judgment has
been recovered, with any amount available after distribution in full has been
made to the Certificateholders to be distributed in accordance with the
priorities set forth in Section 7.3.
SECTION 10.13 SUITS FOR ENFORCEMENT. In case an Event of Servicing
Termination by the Servicer or Swap Provider Default under this Agreement shall
occur and be continuing, the Trustee, in its discretion may, subject to the
provisions of Section 10.5, proceed to protect and enforce its rights and the
rights of the Certificateholders under this Agreement by a suit, action or
proceeding in equity or at law or otherwise, whether for the specific
performance of any covenant or agreement contained in this Agreement or in aid
of the execution of any power granted in this Agreement or for the enforcement
of any other legal, equitable or other remedy, as the Trustee, being advised by
counsel, shall deem most effectual to protect and enforce any of the rights of
the Trustee or the Certificateholders.
SECTION 10.14 POWERS OF TRUSTEE WHEN CFC HOLDS ALL CERTIFICATES. At any
time that CFC holds all of the Certificates, the Trustee shall not exercise the
rights and powers granted to it
-64-
<PAGE>
in this Agreement except upon the express written directions of CFC. The
Certificateholders and the Trustee agree that at any time that CFC holds all the
Certificates, the Trustee shall have no fiduciary duties towards the
Certificateholders and shall act as a mere custodian of the Notes on behalf of
the Certificateholders. CFC agrees to reimburse the Trustee for any loss, cost,
claim or expense incurred by the Trustee arising out of or in connection with
its compliance with this Section.
SECTION 10.15 DISQUALIFICATION OF TRUSTEE. The Trustee is subject to TIA
(S) 310(b), including the optional provision permitted by the second sentence of
TIA (S) 310(b) (9). In determining whether the Trustee has a conflicting
interest as defined in TIA (S) 310(b) (1), there shall be excluded any Trust
Agreement (other than this Agreement) dated as of the date hereof among CFC, the
Cooperative and the Trustee pursuant to which Rural Electric Cooperative Grantor
Trusts are formed. If the Trustee resigns pursuant to this Section, the
Cooperative shall promptly appoint a successor Trustee. If the Trustee fails to
comply with the provisions of this Section, any Certificateholder may petition
any court of competent jurisdiction for a removal of the Trustee and the
appointment of a successor Trustee.
SECTION 10.16 POWERS OF TRUSTEE. Anything in this Agreement to the contrary
notwithstanding, (i) the Trustee shall have the legal power to exercise all the
rights, powers and privileges (A) of a holder of the Notes as provided in the
Loan Agreement and the Loan Guarantee Agreement, and (B) to the extent of the
Trustee's interest therein, under the Swap Agreement, (ii) in the case of a
default in payment of the Principal or Guaranteed Interest on the Notes when due
and payable or of a default under the Swap Agreement, the Trustee may recover
judgment in its own name and as trustee of an express trust against the
Cooperative or the Swap Provider, as the case may be, for the whole amount of
such principal and interest remaining unpaid or other amount for which the Swap
Provider may be liable to the Trustee under or in respect of the Swap Agreement,
as the case may be, (iii) the Trustee may file such proofs of claim and other
papers or documents as may be necessary or advisable in order to have the claims
of the Trustee and the Certificateholders allowed in any judicial proceedings
relative to the Cooperative or the Swap Provider, as the case may be, its
creditors or its property, and (iv) prior to publication of final Treasury
Regulations (or such other legal authority on which an Opinion of Counsel may be
based) that permit an Opinion of Counsel to reach the conclusion that the Trust
will be treated as a partnership for federal income tax purposes if it is not
treated as a trust for federal income tax purposes under Treasury Regulation (S)
301.7701-4, nothing in this Agreement shall be interpreted, nor shall any
amendment to this Agreement be adopted, to grant to the Trustee, the
Cooperative, the Swap Provider, the Servicer, or any other relevant party, any
powers that would be considered a power to vary the investment of the
Certificateholders in the Trust within the meaning of the proscription against
the grant of such a power in Treasury Regulation (S) 301-7701-4(c).
SECTION 10.17 PREFERENTIAL COLLECTION OF CLAIMS AGAINST COOPERATIVE. The
Trustee is subject to TIA (S) 311(a), excluding any creditor relationship in TIA
(S) 311(b). A Trustee who has resigned or been removed is subject to TIA (S)
311(a) to the extent indicated.
SECTION 10.18 NOTICE OF DEFAULTS. If any default under the Notes, the
Certificates or the Swap Agreement known to the Trustee occurs and is
continuing, the Trustee shall mail to Certificateholders, the Liquidity Provider
and (in the case of any default under the Notes or the
-65-
<PAGE>
Certificates) the Swap Provider a notice thereof within 90 days after it occurs.
If an event requiring notice under Section 7.5(a)(ii) hereof occurs, the Trustee
shall provide Immediate Notice, in accordance with Section 7.5(a)(ii), to the
Remarketing Agent, the Tender Agent, and all Certificateholders of the
occurrence of such event; provided, however, that if the Book-Entry System is
not then in effect, the notice to Certificateholders shall be mailed, pursuant
to the terms hereof, to Certificateholders within five (5) days of receipt
thereof by the Trustee. Except in the case of a default in payment on the Notes,
the Certificates or the Swap Agreement, the Trustee may withhold the notice if
and so long as a committee of its Responsible Officers in good faith determines
that withholding the notice is in the interests of Certificateholders.
ARTICLE XI
CERTAIN OBLIGATIONS OF THE COOPERATIVE
SECTION 11.1 CERTIFICATEHOLDER INFORMATION. If the Trustee is not the
Certificate Registrar, the Cooperative shall furnish to the Trustee on or before
each Certificate Payment Date and at such other times as the Trustee may request
in writing all information in the possession or control of the Cooperative as to
the names and addresses of the Certificateholders.
SECTION 11.2 REPORTS BY THE COOPERATIVE. The Cooperative shall:
(a) file with the Trustee, within 30 days after the Cooperative is required
to file the same with the SEC if the Certificates are sold by CFC in a
registered public offering, copies of the annual reports and of the information,
documents and other reports (or copies of such portions of any of the foregoing
as the SEC may from time to time by rules and regulations prescribe) which the
Cooperative may be required to file with the SEC pursuant to Section 13 or
Section 15(d) of the Securities Exchange Act of 1934, if any; or, if the
Cooperative is not required to file information, documents or reports pursuant
to either of said Sections, then it will file with the Trustee and the SEC, in
accordance with rules and regulations prescribed from time to time by the SEC,
such of the supplementary and periodic information, documents and reports which
may be required pursuant to Section 13 of the Securities Exchange Act of 1934 in
respect of a security listed and registered on a national securities exchange as
may be prescribed from time to time in such rules and regulations;
(b) file with the Trustee and the SEC if the Certificates are so registered
with the SEC, in accordance with rules and regulations prescribed from time to
time by the SEC, such additional information, documents and reports with respect
to compliance by the Cooperative with the conditions and covenants of this
Agreement as may be required from time to time by such rules and regulations;
and
(c) transmit by mail to all Certificateholders, as their names and
addresses appear in the Certificate Register, within 30 days after the filing
thereof with the Trustee, such summaries of any information, documents and
reports required to be filed by the Cooperative pursuant to paragraphs (a) and
(b) of this Section as may be required by rules and regulations prescribed from
time to time by the SEC if the Certificates are so registered with the SEC.
-66-
<PAGE>
SECTION 11.3 CERTIFICATE AND OPINION AS TO CONDITIONS PRECEDENT. Upon any
request or application by the Cooperative to the Trustee to take any action
under this Agreement, the Cooperative shall furnish to the Trustee:
(a) an Officer's Certificate stating that, in the opinion of the signers,
all conditions precedent, if any, provided for in this Agreement relating to the
proposed action have been complied with; and
(b) an Opinion of Counsel stating that, in the opinion of such counsel, all
such conditions precedent have been complied with.
ARTICLE XII
MISCELLANEOUS
SECTION 12.1 EFFECTIVE DATES. This Agreement shall be the valid and binding
obligation of the parties hereto as of the date of its execution.
SECTION 12.2 RESIGNATION OF SERVICER. The Servicer may not resign from the
obligations and duties hereby imposed on it except (i) upon determination that
the performance of its duties hereunder is no longer permissible under
Applicable Law, or (ii) if the Servicer is not paid any amount due to it as
compensation under this Agreement within five Business Days of when such payment
becomes due and payable. Any determination permitting the resignation of the
Servicer under clause (i) above shall be evidenced by an Opinion of Counsel for
the Servicer to such effect delivered to the Trustee. Unless otherwise required
by Applicable Law, (i) no such resignation shall specify a date for resignation
earlier than 90 days after notice thereof is delivered to the Trustee and (ii)
no such resignation shall become effective until the earlier of such 90 days or
the Trustee or a successor Servicer shall have assumed the responsibilities and
obligations of the Servicer in accordance with Article VI.
SECTION 12.3 TERMINATION.
(a) This Agreement and the Trust created hereby shall terminate (after
distribution of all Principal and Interest due to Certificateholders pursuant to
Section 7.3) on the Certificate Payment Date on which the Principal Balance on
the Certificates of Beneficial Interest is reduced to zero; provided, however,
CFC's representations and warranties and indemnities and obligations to pay any
fees and expenses then owed by CFC to the Trustee or any successor Servicer
shall survive termination.
(b) In the event that the Cooperative or the RUS shall surrender to the
Trustee all outstanding Certificates, together with an Officer's Certificate
from CFC that all past due and accrued Servicer Spread have been duly provided
for, then this Agreement shall terminate, provided, however, CFC's
representations and warranties and indemnities and obligations to pay any fees
and expenses then owed by CFC to the Trustee or any successor Servicer shall
survive termination.
-67-
<PAGE>
(c) In no event shall the Trust created hereby continue beyond the
expiration of 21 years less one day from the death of the last survivor of all
of the descendants of Joseph P. Kennedy, the late ambassador of the United
States to the Court of St. James, living on the date of this Agreement; provided
further, however, that if any such rights, privileges or options shall be or
become valid under Applicable Law for a period subsequent to the twenty-first
anniversary less one day of the death of such last survivor (or, without
limiting the generality of the foregoing, if legislation shall become effective
providing for the validity or permitting the effective grant of such rights,
privileges and options for a period in gross exceeding the period for which such
rights, privileges and options are hereinabove stated to extend and be valid),
then such rights, privileges or options shall not terminate as aforesaid but
shall extend to and continue in effect, but only if such nontermination and
extension shall then be valid under Applicable Law, until such time as the same
shall, under Applicable Law, cease to be valid.
(d) In the event that any of the payments made to the Certificateholders
are rescinded, invalidated, or otherwise required to be restored or returned
upon the insolvency, bankruptcy or reorganization of the Cooperative, the
Servicer shall promptly so notify the RUS and the Trust (and the obligations of
the Trustee and the Servicer in connection therewith including, but not limited
to, the obligation of (i) the Servicer to deliver notices of default under
Article V of the Loan Guarantee Agreement and (ii) the Trustee to deliver notice
of a Deficiency pursuant hereto) shall continue to be effective or be reinstated
in full force and effect, as applicable, as though such payments had not been
made, and shall not be diminished or impaired in any respect.
(e) Any remaining assets after the Trust has met all obligations hereunder
will be distributed to the Cooperative in accordance with Section 7.5 hereof.
SECTION 12.4 ACTION BY CERTIFICATEHOLDERS.
(a) Except as otherwise specifically provided in this Agreement, whenever
Certificateholder approval, authorization, direction, notice, consent, waiver,
or other action is required under this Agreement, such approval, authorization,
direction, notice, consent, waiver or other action shall be deemed to have been
given or taken on behalf of, and shall be binding upon, all Certificateholders
if agreed to by Certificateholders with aggregate Fractional Interests
representing 51% or more of the Trust.
(b) Any request, demand, authorization, direction, notice, consent, waiver
or other action provided by this Agreement to be given or taken by
Certificateholders may be embodied in and evidenced by an instrument in writing
executed in one or more counterparts signed by such Certificateholders in person
or by an agent or attorney-in-fact duly appointed and authorized in writing, and
except as herein otherwise expressly provided, such action shall become
effective when such instrument or instruments are delivered to the Trustee and,
where required, to the Servicer. Proof of execution of any such instrument or of
a writing appointing any such agent shall be sufficient for any purpose of this
Agreement and (subject to Section 10.1) conclusive in favor of the Trustee, the
Servicer, the Swap Provider and CFC, if made in the manner provided in this
Section.
-68-
<PAGE>
(c) The fact and date of the execution by any Certificateholder of any such
instrument or writing may be proved in any reasonable manner which the Trustee
deems sufficient.
(d) Any request, demand, authorization, direction, notice, consent, waiver
or other act by a Certificateholder shall bind every holder of Certificates
issued upon the registration of transfer thereof or an exchange therefor or in
lieu thereof, whether or not notation of such act is made upon such Certificate.
SECTION 12.5 ASSIGNMENT OR DELEGATION BY THE SERVICER. Except as
specifically authorized hereunder, the Servicer may not assign or delegate any
of its power, rights or obligations under this Agreement absent the prior
written consent of Certificateholders with aggregate Fractional Interests
representing 51% or more of the Trust and the prior written consent of RUS and,
unless a Swap Provider Default has occurred and is continuing, the Swap Provider
and any attempt to do so without such consent shall be void. With prior written
approval of RUS, CFC as Servicer may delegate Servicing Functions to an
Affiliate of CFC provided that no such delegation shall relieve CFC of its duty
to perform such Servicing Functions under this Agreement.
SECTION 12.6 AMENDMENT.
(a) Prior to the sale of Certificates by CFC to a party other than an
Affiliate of CFC, this Agreement may be amended with the consent of the parties
hereto, the Swap Provider and, should the amendment materially affect their
obligations hereunder, the Tender Agent and the Liquidity Provider; provided,
however, that before such amendments become effective, the Trustee must receive
an Opinion of Counsel that such amendments will not cause the Trust not to be
treated as a Pass-Through Organization for federal income tax purposes.
(b) After the sale of Certificates by CFC to a party other than an
Affiliate of CFC, this Agreement may be amended from time to time (subject to
Section 12.4(b) hereof) by the Servicer, the Cooperative and the Trustee,
without the consent of any of the Certificateholders, (i) to cure any ambiguity,
to correct or supplement any provisions herein which may be inconsistent with
any other provisions herein or to add any other provisions with respect to
matters or questions arising under this Agreement which shall not be
inconsistent with the provisions of this Agreement; (ii) to make mechanical
changes necessary in the opinion of the Swap Provider (so long as no Swap
Provider Default has occurred and is continuing) to substitute an Alternate
Liquidity Facility meeting the requirements set forth herein or (iii) to achieve
or preserve the status of the Trust as a Pass-Through Organization; provided,
however, that before such amendments become effective, the Trustee must receive
(i) an Opinion of Counsel, that such amendments will not cause the Trust not to
be treated as a Pass-Through Organization for federal income tax purposes and
(ii) Rating Confirmations.
(c) After the sale of Certificates by CFC to a party other than an
Affiliate of CFC, this Agreement may also be amended from time to time (subject
to this Section) by the Servicer, the Cooperative and the Trustee, with the
consent of Certificateholders with aggregate Fractional Interests representing
51% or more of the Trust, for the purpose of adding any provisions to or
changing in any manner or eliminating any of the provisions of this Agreement or
of modifying in any manner the rights of the Certificateholders; provided,
however, that without the unanimous
-69-
<PAGE>
consent of the Certificateholders affected hereby and the Liquidity Provider, no
such amendment shall (i) reduce in any manner the amount of, or delay the timing
of, collections of payments on the Notes, the Swap Agreement or the Guarantee or
distributions which are required to be made on any Certificate of Beneficial
Interests or (ii) reduce the aforesaid percentage required to consent to any
such amendment; provided, further, that before such amendments become effective,
the Trustee must receive an Opinion of Counsel that such amendments will not
cause the Trust not to be treated as a Pass-Through Organization for federal
income tax purposes. Neither the Trustee, the Cooperative nor the Servicer will,
without the unanimous consent of all the Certificateholders affected, take or
consent to any action that would reduce the principal amount or interest rate
(or change the manner of computing interest or determining the interest rate) on
the Notes or the Swap Agreement or delay the dates on which any payments are due
under the Notes or the Swap Agreement.
(d) After the Refinancing Date, in addition to Sections 12.6(b) and (c), at
any time that CFC holds all the Certificates of Beneficial Interests, the
Certificateholders, acting unanimously, may by instrument signed, acknowledged
and delivered to the Trustee modify, amend or revoke in whole or in part this
Agreement or the Trust. To the extent thus revoked, the Trustee shall deliver
the corpus of the trust estate to the Certificateholders, upon receiving a
proper receipt, and shall execute and deliver any instruments required to
release all interest of the Trustee in such property.
(e) Promptly after the execution of an amendment or consent pursuant to
Sections 12.6(b) and (c), the Trustee shall furnish or cause to be furnished
written notification of the substance of such amendment to each
Certificateholder and the Swap Provider.
(f) It shall not be necessary for the consent of Certificateholders under
this Section to approve the particular form of any proposed amendment, but it
shall be sufficient if such consent shall approve the substance thereof. The
manner of obtaining such consents and of evidencing the authorization of the
execution thereof by Certificateholders shall be subject to such reasonable
requirements as the Trustee may prescribe.
(g) The Trustee and the Servicer may, but shall not be obligated to, enter
into any amendment under this Section which affects its own respective rights,
duties or immunities under this Agreement or otherwise.
(h) In connection with any amendment pursuant to this Section, the Trustee
shall be entitled to receive an Opinion of Counsel to the effect that such
amendment is authorized or permitted by the Agreement.
(i) No amendment, modification or supplement to or of this Agreement that
materially adversely affects the Cooperative or RUS shall be effective unless
approved in writing by the Cooperative or RUS, respectively, nor shall any
waiver of rights under this Agreement by any party preclude RUS from asserting
its rights unless such a waiver has been approved in writing by RUS.
(j) Anything in this Section to the contrary notwithstanding, without the
unanimous consent of the Certificateholders, no such amendment, modification,
supplement, rescission, waiver
-70-
<PAGE>
or other action shall permit the creation of any lien on the property of the
Trust or any portion thereof.
(k) Every amendment pursuant to this Agreement shall conform to the
requirements of the Trust Indenture Act as then in effect as applicable hereto.
(l) No amendment, modification or supplement of this Agreement that
adversely affects the Swap Provider shall be effective unless (i) approved in
writing by it or (ii) the Swap Agreement is terminated and any and all amounts
owing to it are fully paid; provided, however, that if a Swap Provider Default
has occurred and is continuing, the right of the Swap Provider to consent to any
amendment, modification or supplement of this Agreement shall be suspended.
SECTION 12.7 NOTICES.
(a) All communication and notices required or provided for by this
Agreement to CFC, the Servicer, RUS, the Swap Provider, the Trustee, the
Remarketing Agent, the Liquidity Provider, the Cooperative, the Tender Agent or
the Rating Agencies (other than Immediate Notice and telecopy notice to the RUS
as provided below) shall be in writing and shall be deemed to have been duly
given if delivered by hand or mailed, postage prepaid, by registered or
certified mail, return receipt requested, or by overnight delivery, return
receipt requested, or received by telex, telecopy, facsimile or other wire
transmission (with request for assurance of receipt in a manner customary for
communications of such respective type) to the appropriate following addresses:
If to CFC:
National Rural Utilities Cooperative
Finance Corporation
2201 Cooperative Way - Woodland Park
Herndon, Virginia 22071-3025
Telecopy: 703-709-6779
Attention of Finance Officer
If to the Cooperative:
Kansas Electric Power Cooperative, Inc.
P. O. Box 4877
Topeka, Kansas 66604
Telecopy: 913-271-4888
Attention of Executive Vice President
-71-
<PAGE>
If to the Trustee:
The First National Bank of Chicago
One First National Plaza
Suite 0126
Chicago, Illinois 60670-0126
Telecopy: 312-407-1708
Attention: Corporate Trust Administration
If to RUS:
Rural Utilities Service
United States Department of Agriculture
Washington, D.C. 20250-1535
Telecopy: 202-690-0397
Attention: Director, Financial Operations
Division
Subject: KEPCO - Kansas 54
with a copy addressed to:
Rural Utilities Service
United States Department of Agriculture
Washington, D.C. 20250-1510
Telecopy: 202-382-1915
Attention: Administrator
Subject: KEPCO - Kansas 54
If to the Swap Provider:
Morgan Guaranty Trust Company of New York
60 Wall Street
New York, New York 10260
Telecopy: 212-648-5922
Attention: Global Swaps Unit
If to each Rating Agency:
Standard & Poor's Rating Services
25 Broadway
New York, New York 10004
Telecopy: 212-412-0462
Attention: Finance Ratings
-72-
<PAGE>
Moody's Investors Service
99 Church Street
New York, New York 10007
Telecopy: 212-553-4090
Attention: Structured Finance
If to the Remarketing Agent:
Alex. Brown & Sons Incorporated
1290 Avenue of the Americas, 10th Floor
New York, New York 10104
Telecopy: 212-237-2042
Attention: Variable Rates Department
If to the Tender Agent:
The First National Bank of Chicago
c/o First Chicago Trust Company of New York
14 Wall Street
8th Floor - Window 2
New York, New York 10005
Telecopy: 212/240-8938
Attention: Corporate Trust Administration
or at such other address as the party may designate by notice to the other
parties hereto in accordance with this Section. Notices given under Section 7.2
are deemed given when received. All notices by telecopy to the RUS, including
any Immediate Notices, shall be followed by other written notice permitted
hereby and shall not be deemed received unless the Sender receives confirmation
of receipt at the telecopy number listed above.
(b) All communications and notices pursuant to this Agreement to a
Certificateholder shall be in writing and delivered at or mailed to the address
shown in the Certificate Register.
(c) Any notice address provided herein may be amended, and this Agreement
shall be amended to include such amended notice address, upon the provision, in
accordance herewith, of notice of such amended notice address to all parties
entitled to receive notices pursuant to this Section.
SECTION 12.8 NOTICES TO RATING AGENCIES AND REMARKETING AGENT. The Servicer
shall provide each Rating Agency and the Remarketing Agent with Immediate Notice
of any of the following events known to it:
(1) The appointment of a successor Trustee as provided in Section 10.8,
10.9 or 10.15;
(2) The appointment of a successor Servicer pursuant to Section 6.3;
-73-
<PAGE>
(3) The amendment, in any respect, of this Agreement (pursuant to Section
12.6(a) or otherwise), the Loan Agreement, the Loan Guarantee Agreement, the
Standby Certificate Purchase Agreement, the Swap Agreement or the Guarantee;
(4) The expiration, termination or extension of the Swap Agreement or the
Liquidity Facility;
(5) The prepayment or purchase of the Notes by the RUS or the Cooperative
pursuant to the Loan Agreement and the payment in full of all outstanding
Certificates; and
(6) Any time that Interest on the Certificates is computed at the
Guaranteed Interest Rate.
SECTION 12.9 LIMITATION ON RIGHTS OF CERTIFICATEHOLDERS. No
Certificateholder shall have any right to institute any suit, action or
proceeding in equity or at law on any Certificate or the Swap Agreement or for
the execution of any trust hereunder or for any other remedy hereunder unless
such Certificateholder previously shall have given to the Trustee and Servicer
written notice of the basis for such suit, action or proceeding and shall have
made a written request of the Trustee and Servicer, and unless also
Certificateholders with aggregate Fractional Interests representing 51% or more
of the Trust shall have made a written request of the Trustee and Servicer,
after the right to exercise such powers or right of action as the case may be,
shall have accrued, to exercise the powers herein granted or to institute such
suit, action or proceeding, and shall have afforded the Trustee and Servicer a
reasonable opportunity either to proceed to exercise the powers herein granted
or to institute such action, suit or proceeding in its or their name, and
unless, also, there shall have been offered to the Trustee and Servicer
reasonable security and indemnity against the costs, expenses and liabilities to
be incurred therein or thereby, and the Trustee and Servicer shall have refused
or neglected to comply with such request within a reasonable time. Such
notification, request and offer of indemnity are hereby declared in every such
case, at the option of the Trustee and Servicer, to be conditions precedent to
the Trustee's and Servicer's execution of the powers and trusts of this
Agreement or to any other remedy hereunder. Notwithstanding the foregoing
provisions of this Section and whether or not such provisions shall have been
complied with, (i) Certificateholders with aggregate Fractional Interests
representing 51% or more of the Trust may institute any (except as provided in
clause (ii) below) such suit, action or proceeding in their own names for the
benefit of all Certificateholders hereunder and (ii) no Certificateholder or
Certificateholders shall under any circumstances have any right to institute any
suit, action or proceeding in equity or law under the Mortgage, but have only a
right to collect amounts due and owing under this Agreement or the Notes
pursuant to the Guarantee. It is understood and intended that, except as
otherwise above provided, no one or more Certificateholders shall have any right
in any manner whatsoever by his or their action to affect, disturb or prejudice
the security of this Agreement, or to enforce any right hereunder except in the
manner provided, that all proceedings at law or in equity shall be instituted,
had and maintained in the manner herein provided and that any individual rights
of action or other right given to one or more of such Certificateholders by law
are restricted by this Agreement to the rights and remedies herein provided.
SECTION 12.10 MERGER AND INTEGRATION. Except as specifically stated
otherwise in this Agreement, this Agreement sets forth the entire understanding
of the parties relating to the subject
-74-
<PAGE>
matter hereof, and all prior understandings, written or oral, are superseded by
this Agreement. This Agreement may not be modified, amended, waived, or
supplemented except as provided herein.
SECTION 12.11 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 deemed 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. To the extent permitted by Applicable Law,
the parties hereto waive any provision of law that renders any term or provision
of any Basic Document invalid or unenforceable in any respect.
SECTION 12.12 INTENTION OF PARTIES. The execution and delivery of this
Agreement shall constitute an acknowledgment by the Cooperative, CFC and the
Trustee on behalf of the Certificateholders that they intend hereby to establish
(for federal income tax purposes), a Pass-Through Organization and not an
association taxable as a corporation. The powers granted and obligations
undertaken in this Agreement shall be construed so as to further such intents.
SECTION 12.13 HEADINGS. The headings of the Sections and paragraphs in this
Agreement have inserted for convenience of reference only and shall in no way
restrict or otherwise modify any of the terms or the meaning or interpretation
of any provisions hereof.
SECTTION 12.14 GOVERNING LAW. This Agreement and the Certificates issued
pursuant to this Agreement shall be governed by, and construed and enforced in
accordance with, the laws of the State of New York.
SECTION 12.15 DEATH OR INCAPACITY OF CERTIFICATEHOLDERS. The death or
incapacity of any Certificateholder shall not operate to terminate this
Agreement nor entitle such Certificateholder's legal representatives or heirs to
claim an accounting or to take any action or proceeding in any court for a
partition or winding-up of the Trust, nor otherwise affect the rights,
obligations and liabilities of the parties hereto or any of them.
SECTION 12.16 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, and by the different parties hereto in separate counterparts, each
of which, when so executed and delivered, shall be an original, but all of which
together shall constitute one and the same instrument.
SECTION 12.17 SURVIVAL. The representations and warranties of the parties
provided for in each of the Basic Documents to which it is a party and the
parties' obligations under any and all thereof shall survive, and shall continue
in effect following, the execution and delivery of this Agreement, any
disposition of the Notes and Certificates of Beneficial Interest or other
termination of any of the other Basic Documents and shall be and continue in
effect notwithstanding any investigation made by any party or the fact that any
party may waive compliance with any of the other terms, provisions or conditions
of such Basic Document.
-75-
<PAGE>
SECTION 12.18 BINDING EFFECT. All agreements, representations, warranties
and indemnities in this Agreement and the Basic Documents and in any agreement,
document or certificate delivered concurrently with the execution of this
Agreement or the other Basic Documents or from time to time hereafter shall bind
the Person making the same and its successors and assigns and shall inure to the
benefit of each Person for whom made and its permitted successors and assigns.
SECTION 12.19 TRUST INDENTURE ACT CONTROLS. If any provision of this
Agreement limits, qualifies or conflicts with another provision which is
required to be included in this Agreement by the Trust Indenture Act, the
required provisions shall control. For purposes of construction of this
Agreement, the term "obligor" as used in the Trust Indenture Act shall be
construed to mean only the Cooperative.
SECTION 12.20 STATEMENTS REQUIRED IN CERTIFICATE OR OPINION. Each
certificate or opinion with respect to compliance with a condition or covenant
provided for in this Agreement shall include:
(a) a statement that the person making such certificate or opinion has
read such covenant or condition;
(b) a brief statement as to the nature and scope of the examination or
investigation upon which the statements or opinions contained in such
certificate or opinion are based;
(c) a statement that, in the opinion of such person, he has made such
examination or investigation as is necessary to enable him to express an
informed opinion as to whether or not such covenant or condition has been
complied with; and
(d) a statement as to whether or not, in the opinion of such person, such
condition or covenant has been complied with.
SECTION 12.21 THIRD-PARTY BENEFICIARIES. This Agreement will inure to the
benefit of and be binding upon the parties hereto and the Certificateholders and
their respective successors and permitted assigns. The Swap Provider shall be a
third party beneficiary of this Agreement to the extent that the Swap Provider's
rights or interests under the Swap Agreement are affected hereby. RUS shall be a
third party beneficiary to the extent that its rights or interests under the
Guarantee or the Loan Guarantee Agreement are affected hereby. No other Person
shall be a third party beneficiary hereof.
-76-
<PAGE>
IN WITNESS WHEREOF, each party hereto has caused this Agreement to be
executed by an authorized officer as of the day and year first above written.
NATIONAL RURAL UTILITIES
COOPERATIVE FINANCE CORPORATION,
as Depositor of the Trust and Servicer
of the Notes,
By: /s/ Martin R. Crowson
-----------------------------
Martin R. Crowson
Assistant Secretary/Treasurer
KANSAS ELECTRIC POWER
COOPERATIVE, INC.,
By: /s/ Stephen E. Parr
-----------------------------
Stephen E. Parr
Executive Vice President
and Chief Executive Officer
THE FIRST NATIONAL BANK OF CHICAGO,
as Trustee,
By: /s/ Richard D. Manella
-----------------------------
Richard D. Manella
Vice President
AGREED TO AND ACCEPTED
(pursuant to Section 9.8(a)(1) hereof)
THE FIRST NATIONAL BANK
OF CHICAGO, as Tender Agent
By: /s/ Richard D. Manella
----------------------------
Richard D. Manella
Vice President
-77-
<PAGE>
EXHIBIT A
FORM OF CERTIFICATE OF
BENEFICIAL INTERESTS
*[Unless this certificate is presented by an authorized representative of
The Depository Trust Company, a New York corporation ("DTC"), to Issuer or its
agent for registration of transfer, exchange or payment, and any certificate
issued is registered in the name of Cede & Co. or in such other name as is
requested by an authorized representative of DTC (and any payment is made to
Cede & Co. or to such other entity as is requested by an authorized
representative of DTC). ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL inasmuch as the registered owner
hereof, Cede & Co., has an interest herein.]
To be printed on the Certificate(s) unless CFC is the holder of all the
Certificates.
No. __________ _____________________________
ORIGINAL PRINCIPAL AMOUNT
RURAL ELECTRIC COOPERATIVE GRANTOR
TRUST CERTIFICATE OF BENEFICIAL INTERESTS
SERIES 1997
RURAL ELECTRIC COOPERATIVE GRANTOR
TRUST (KEPCO) SERIES 1997
Evidencing an undivided fractional interest
in a trust, the property of which is two notes
issued by Kansas Electric Power Cooperative, Inc.
payment on which is guaranteed
by the United States of America acting through
the Administrator of the Rural Utilities Service
(as successor to the Rural Electrification Administration)
and a Forward Interest Rate Swap Agreement
as to which Morgan Guaranty Trust Company
of New York is the counterparty
which trust was created by
NATIONAL RURAL UTILITIES
COOPERATIVE FINANCE CORPORATION
(This Certificate does not represent an
- -----------------
*To be printed on the Certificate(s) unless CFC is the holder of all the
Certificates.
Page 1 of 15
<PAGE>
interest in or an obligation of
Kansas Electric Power Cooperative, Inc. or
National Rural Utilities Cooperative Finance Corporation
or any affiliate thereof, or
The First National Bank of Chicago or an obligation
of the United States of America or any governmental agency.)
THIS CERTIFICATE IS SUBJECT TO MANDATORY TENDER
FOR PURCHASE UPON THE OCCURRENCE
OF THE EVENTS AND IN THE MANNER
HEREINAFTER DESCRIBED, AND MUST BE
SO TENDERED OR WILL BE DEEMED
TO HAVE BEEN SO TENDERED AS DESCRIBED HEREIN.
page 2 of 15
<PAGE>
This certifies that [___________________] is the registered owner of a
Fractional Interest equal to $_______________ DOLLARS out of $__________________
aggregate Original Principal Amount of the Rural Electric Cooperative Grantor
Trust (KEPCO) Series 1997 (the "Trust"). The Trust has been created pursuant to
a Trust Agreement (as amended from time to time, the "Trust Agreement"), entered
into on December 20, 1996 and effective as provided therein, among National
Rural Utilities Cooperative Finance Corporation ("CFC"), Kansas Electric Power
Cooperative, Inc. (the "Cooperative") and The First National Bank of Chicago, as
trustee of the Trust (the "Trustee"). The assets of the Trust include two notes
of the Cooperative (the "Notes"), the Guarantee of the United States of America
acting through the Administrator of the Rural Utilities Service (as successor to
the Rural Electrification Administration) ("RUS") (the "Guarantee") contained or
endorsed on the reverse of such Notes, and a Forward Interest Rate Swap
Agreement to which Morgan Guaranty Trust Company of New York is the
counterparty.
Definitions. To the extent not defined herein, all capitalized terms shall
have the meanings assigned to such terms in the Trust Agreement. This
Certificate is one of the Certificates described in the Trust Agreement and is
issued under and subject to the terms, provisions and conditions of the Trust
Agreement. By acceptance of this Certificate, the holder assents to and becomes
bound by the Trust Agreement.
Certificate Rate. Subject to the terms of the Trust Agreement (including
the availability of funds after payment of the Scheduled Servicing Fee), and
until the Notes have been paid in full, interest shall be paid with respect to
this Certificate at a variable per annum rate equal to the Certificate Rate for
such day. The Certificate Rate shall be (i) while the Swap Provider's
obligations with respect to variable rate interest payments under the Swap
Agreement are in the Weekly Rate Mode, the "Weekly Rate"; and (ii) while the
Swap Provider's obligations with respect to variable rate
Page 3 of 15
<PAGE>
interest payments under the Swap Agreement are in the Flex Rate Mode, the "Flex
Rate." If at any time there shall be no Swap Agreement in effect, or if on any
Certificate Interest Payment Date the Trustee has not received any Swap Payment,
Certificateholders shall, pursuant to the terms of the Trust Agreement, become
entitled to receive distributions of Guaranteed Interest on the Notes calculated
at the Fixed Rate on the Notes less the Servicer Spread.
Interest Rate Modes. Interest Rates with respect to distributions of
Interest to Certificateholders shall be determined as follows: (a) If the
Interest Rate Mode is the Weekly Rate Mode, the interest rate payable under the
Swap Agreement and distributable with respect to the Certificates for a
particular Weekly Rate Period shall be the rate established by the Remarketing
Agent no later than 3:00 p.m. (New York, New York time) on the Wednesday on
which such Weekly Rate Period commences (or the day preceding the Refinancing
Date or the Conversion of the Interest Rate Mode to the Weekly Rate Mode, as the
case may be), or, if such day is not a Business Day, on the next succeeding
Business Day, as the minimum rate of interest necessary, in the judgment of the
Remarketing Agent, to enable the Remarketing Agent to sell the Certificates on
such Business Day at a price equal to par, provided that such rate shall not
exceed the Maximum Rate (the "Weekly Rate"); (b) If the Interest Rate Mode is
the Flex Rate Mode, the interest rate payable under the Swap Agreement and
distributable with respect to the Certificate for a particular Flex Rate Period
shall be the rate established by the Remarketing Agent not later than 3:00 p.m.
(New York, New York time) on the last Business Day next preceding the first day
of such Flex Rate Period as the minimum rate of interest necessary, in the
judgment of the Remarketing Agent, to enable the Remarketing Agent to sell the
Certificate on such day at a price equal to par provided that such rate shall
not exceed the Maximum Rate (the "Flex Rate").
Page 4 of 15
<PAGE>
Calculation of Interest Payments. Interest on this Certificate, for any
Certificate Interest Payment Date (or any other date that is treated as if it
were a Certificate Interest Payment Date) when the variable rate of interest
payable by the Swap Provider under the Swap Agreement is in the Weekly Rate Mode
or Flex Rate Mode, shall be calculated on the basis of the actual number of days
elapsed over a year of 360 days at the Weekly Rate or Flex Rate, respectively,
on the aggregate Principal Balance of the Certificates and computed over a
period of time ending on, but not including, the associated Certificate Interest
Payment Date (or such other date) and beginning on the next preceding
Certificate Interest Payment Date (or the Refinancing Date if there is no next
preceding Certificate Interest Payment Date). If at any time there is no Swap
Agreement in effect or the Trustee has not received a Swap Payment which is due,
Interest shall, pursuant to the terms of the Trust Agreement, become
distributable at an amount equal to interest calculated on the basis of a year
of 360 days consisting of twelve 30-day months at the Fixed Rate (less the
Servicer Spread) on the Principal Balance of the Notes and computed over a
period of time ending on, but not including, the most recent Note Payment Date
and beginning on the next preceding Note Payment Date.
Principal Payments on Notes. Principal amortization payments on the Notes
will be due in the following installments and dates (or the next following
Business Day if such day is not a Business Day):
Page 5 of 15
<PAGE>
Date Amount
---- ------
December 4, 1998 $1,000,000
December 4, 1999 $1,100,000
December 4, 2000 $1,200,000
December 4, 2001 $1,400,000
December 4, 2002 $1,350,000
December 4, 2003 $1,700,000
December 4, 2004 $1,900,000
December 4, 2005 $2,100,000
December 4, 2006 $2,300,000
December 4, 2007 $2,500,000
December 4, 2008 $2,800,000
December 4, 2009 $3,100,000
December 4, 2010 $3,500,000
December 4, 2011 $3,900,000
December 4, 2012 $4,300,000
December 4, 2013 $4,800,000
December 4, 2014 $5,300,000
December 4, 2015 $5,900,000
December 4, 2016 $4,000,000
December 4, 2017 $3,240,000
Principal Payments on Certificates. Commencing December 15, 1998, on each
December 15 (or the next succeeding Business Day if such December 15 is not a
Business Day) corresponding with each principal amortization payment, the
Trustee shall select, by lot, Certificates to be redeemed in an amount equal to
such principal distribution. The last payment of principal and interest shall
be distributable to the Certificateholders on December 4, 2017. In case any
Certificate selected by lot is outstanding in a Principal Amount exceeding
$100,000, a portion of such Certificate may be redeemed provided that the amount
remaining after such redemption shall be an Authorized Denomination.
Accordingly, the unpaid Principal Amount of this Certificate may be less than
the Original Principal Amount set forth above.
Distributions of Principal and Interest. All payments to
Certificateholders will be made by check mailed to Certificateholders of record
on the associated Record Date at the address for such
Page 6 of 15
<PAGE>
Certificateholder appearing on the Certificate Register without the presentation
or surrender of the Certificate or the making of any notation hereon, except
that with respect to Certificates registered in the name of the Liquidity
Provider or CFC or in the name of Cede & Co., the nominee registrant for DTC,
payments will be made in the form of immediately available funds. Except as
otherwise provided in the Trust Agreement and notwithstanding the above, if CFC,
the Servicer or the Trustee so notifies the Certificateholder at least 25 days
prior thereto, the final distribution on this Certificate will be made only upon
presentation and surrender of this Certificate at the office or agency
maintained for that purpose by the Trustee in the Borough of Manhattan, the City
of New York.
*[Notwithstanding anything else in this Certificate to the contrary, if
CFC or any Affiliate of CFC retains the Certificates following a failure by the
Underwriter to purchase them on the Refinancing Date (or otherwise place them
with qualified holders) payments to Certificateholders shall be made in
accordance with Section 7.6 of the Trust Agreement.]
Prepayment of Certificate. This Certificate is subject to prepayment, as
provided in the Trust Agreement, upon exercise by either the Cooperative or the
RUS of its rights to prepay or purchase the Notes. This Certificate is also
subject to prepayment upon an acceleration of the Notes by the Trustee.
Additional Provisions. Reference is hereby made to the further provisions
of this Certificate set forth on the reverse hereof, which further provisions
shall for all purposes have the same effect as if set forth at this place.
This Certificate does not purport to summarize all provisions of the Trust
Agreement and reference is made to the Trust Agreement for information with
respect to the interest, rights, benefits,
- ---------------------
* To be printed on the Certificate(s) only if CFC is the holder of all the
Certificates.
Page 7 of 15
<PAGE>
obligations, proceeds and duties evidenced hereby and the rights, duties and
immunities of the Trustee and the Servicer. Copies of the Trust Agreement and
all amendments thereto will be provided to any Certificateholder free of charge
upon a written request to the Trustee at One First National Plaza, Suite 0126,
Chicago, Illinois 60670, Attention of Corporate Trust Administration.
Unless this Certificate has been executed by the Trustee, by manual or
facsimile signature of a duly authorized signatory under the facsimile of its
corporate seal, attested to by the manual or facsimile signature of a Trust
Officer of the Trustee, and the certificate of authentication hereon has been
manually executed by or on behalf of the Trustee, this Certificate shall not be
entitled to any benefit under the Trust Agreement or be valid for any purpose.
Page 8 of 15
<PAGE>
IN WITNESS WHEREOF, the Trustee has caused this instrument to be duly
executed under its corporate seal.
Dated __________________.
THE FIRST NATIONAL BANK OF
CHICAGO, as Trustee,
by
____________________________________
[Title]
[Seal]
Attest:
____________________________________
[Title]
Trustee's Certificate of
Authentication
This is one of the Certificates
described in the within-
mentioned Trust Agreement
THE FIRST NATIONAL BANK OF CHICAGO, as Trustee,
by
__________________________________
Authorized Officer
Page 9 of 15
<PAGE>
[Form of Reverse of Certificate]
Limited Obligation. This Certificate does not represent an obligation of
or an interest in the Cooperative, CFC or the Trustee, nor is this Certificate
an obligation of or guaranteed by the United States of America or any
governmental agency. This Certificate is limited in right of payment to
collections on the Notes, the Guarantee and the Swap Agreement, all as more
specifically set forth herein and in the Trust Agreement.
Pursuant to the terms of the Guarantee, the RUS is required, within five
Business Days of receipt of notice from the Servicer, to make payment for
deposit into the Trust Account of the deficiency of any annual payments of
principal or semiannual payments of Guaranteed Interest by the Cooperative under
either of the Notes.
Amendments to Trust Agreement. The Trust Agreement permits, with certain
exceptions therein provided, the amendment thereof and the modification of the
rights and obligations of the Certificateholders under the Trust Agreement at
any time by the Servicer, the Cooperative and the Trustee, with the consent of
Certificateholders with Fractional Interests representing 51% or more of the
Trust, the Liquidity Provider. Any such amendment and any such consent by the
holder of this Certificate shall be conclusive and binding on such holder and
upon all future holders of this Certificate and of any Certificate issued in
exchange hereof or in lieu hereof whether or not notation thereof is made upon
this Certificate. The Trust Agreement also permits, under certain
circumstances, the amendment thereof by the Servicer, the Cooperative, the
Trustee and the Swap Provider without the consent of any of the
Certificateholders.
Waiver of Events of Servicing Termination. Certificateholders with
Fractional Interests representing 51% or more of the Trust and the Swap Provider
may waive any past Event of Servicing Termination.
Page 10 of 15
<PAGE>
Denominations of Certificates. The Certificates are issuable only as
registered Certificates without coupons in minimum denominations of $100,000 in
Principal Amount and integral multiples of $5,000 in excess thereof; provided
that one Certificate may be issued in an odd denomination from time to time to
the extent mathematically necessary. As provided in the Trust Agreement and
subject to certain limitations therein set forth, Certificates are exchangeable
for new Certificates evidencing the same aggregate Fractional Interest in the
Trust as requested by the Certificateholder surrendering the same.
Transfer Registrable. As provided in the Trust Agreement and subject to
certain limitations therein set forth, the transfer of this Certificate is
registrable in the Certificate Register of the Trustee upon surrender of this
Certificate for registration of transfer at the office or agency maintained by
the Trustee, accompanied by a written instrument of transfer in form
satisfactory to the Trustee or any Certificate Registrar duly executed by the
Certificateholder or such Certificateholder's attorney duly authorized in
writing. Thereupon one or more new Certificates of Authorized Denominations and
for the same aggregate Fractional Interest in the Trust will be issued to the
designated transferee or transferees. No transfer of any Certificate shall be
valid unless and until registered on the Certificate Register.
No service charge may be imposed for any such registration of transfer or
exchange but the Trustee or any Certificate Registrar may require payment of a
sum sufficient to cover any tax or other governmental charge that may be imposed
in connection therewith.
Mandatory Purchase. This Certificate (i) shall be subject to mandatory
purchase on each Conversion Date, at a purchase price equal to the Principal
Amount of the Certificate on the Purchase Date; (ii) shall be subject to
mandatory purchase upon Swap Provider Default (but only if the Liquidity
Facility is in effect in accordance with its terms), upon replacement of the
Swap
Page 11 of 15
<PAGE>
Agreement with an Alternate Swap Agreement, at a purchase price equal to the
Purchase Price (as defined in the Trust Agreement); (iii) shall be purchased or
deemed purchased upon termination or expiration of the term of the Liquidity
Facility, as provided in the Trust Agreement, if the Liquidity Facility shall
not have been renewed or replaced by an Alternate Liquidity Facility at least
ten Business Days prior to such termination or expiration, or if the Trustee has
not received the Rating Confirmation Notice (as defined in the Trust Agreement)
required by Section 9.4(b) of the Trust Agreement on the fifth Business Day next
preceding any such termination or expiration of the Liquidity Facility, at a
purchase price equal to the Principal Amount hereof plus Interest, if any, which
would have been distributable hereon to the Purchase Date if such date were a
Certificate Interest Payment Date; and (iv) shall be subject to mandatory
purchase at a price equal to the Principal Amount of this Certificate on the
last day of each Flex Rate Period.
Notice of Conversion Dates. A Notice of Conversion of Interest Rate Mode
will be sent by the Trustee to the Certificateholder by first-class mail,
postage prepaid, at least 15 days but not less than 10 days prior to the
Conversion Date, stating that the Interest Rate Mode will be converted and what
the new Interest Rate Mode will be and, if the Conversion is to the Flex Rate
Mode, the end of the Flex Rate period; the Conversion Date; the Certificate
Interest Payment Date and Record Date; the maximum rate of interest available
under the Liquidity Facility; and that the Certificate will be subject to
mandatory purchase on the Conversion Date in accordance with the Trust
Agreement.
Notice of Mandatory Purchase. Notice of mandatory purchase as set forth
above will be given to the Certificateholder by first-class mail, postage
prepaid, by the Trustee not less than (i) in the event of a mandatory purchase
due to a Conversion of Interest Rate Mode, 15 days prior to the Conversion Date;
(ii) in the event of a mandatory purchase due to Swap Provider Default or
termination or expiration of the Swap Agreement, 15 days prior to the
termination of the Swap
Page 12 of 15
<PAGE>
Agreement, or as soon as practicable; (iii) in the event of a mandatory purchase
due to termination or expiration of the Liquidity Facility, five Business Days
prior to the termination or expiration of the Liquidity Facility; and (iv) in
the event of a mandatory purchase at the end of a Flex Rate Period, 15 days
prior to the end of the Flex Rate Period (or if the Flex Rate Period is less
than 30 days, no notice is required).
Purchase of Certificate Upon Demand of Certificateholder. Except as
otherwise provided in the Trust Agreement, while in the Weekly Rate Mode, this
Certificate (or a portion hereof, provided that the portion to be purchased and
the portion to be retained by the Certificateholder will be in Authorized
Denominations) shall be purchased on the demand of the Certificateholder, on any
Business Day at a purchase price equal to the Principal Amount, plus, if such
date is not a Certificate Interest Payment Date, the amount of Interest, if any,
which would have been distributable with respect to this Certificate in the
current Interest Rate Mode if the date of purchase of the Certificate had been a
Certificate Interest Payment Date, upon written notice to the Tender Agent, at
its Principal Office on or before 5:00 p.m. (New York, New York time) on a
Business Day not later than the 7th calendar day prior to the Purchase Date.
Such notice shall (A) state the number and principal amount (or portion thereof
in an Authorized Denomination) of the Certificate to be purchased, (B) state the
Purchase Date on which the Certificate shall be purchased and (C) irrevocably
request such purchase and state an agreement to deliver the Certificate, duly
endorsed in blank for transfer, with all signatures guaranteed, to the Tender
Agent at or prior to 10:00 a.m. (New York, New York time) on such Purchase Date.
Owner of Certificate. The Servicer, the Trustee, the Certificate
Registrar, if any, and any authenticating agent and any agent of any of them may
treat the person in whose name this Certificate is registered as the owner
hereof for all purposes, and none of the Servicer, the Trustee,
Page 13 of 15
<PAGE>
the Certificate Registrar, if any, any authenticating agent, or any such agent
of any of them shall be affected by notice to the contrary.
Termination of Obligations. The obligations created by the Trust
Agreement shall terminate after distribution of all principal and interest and
premium due to Certificateholders pursuant to the Trust Agreement, with certain
exceptions set forth in Section 12.3 of the Trust Agreement.
Page 14 of 15
<PAGE>
ASSIGNMENT
For value received the undersigned, subject to the provisions of
Section 8.2 of the Trust Agreement, sells, assigns and transfers unto (name,
address including zip code and taxpayer I.D. or Social Security number of
assignee) _____________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
the within Certificate and does hereby irrevocably constitute and
appoint _______________________________________________ attorney to transfer the
said Certificate on the books kept for registration thereof with full power of
substitution on the premises.
Dated: _____________________.
_____________________________________
Signature by or on behalf of assignor
_____________________________________
Signature guaranteed
Page 15 of 15
<PAGE>
EXHIBIT K
RULE 144A LEGEND
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD
WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS
EXCEPT AS SET FORTH BELOW. BY ITS ACQUISITION HEREOF, THE HOLDER (1) REPRESENTS
THAT (A) IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER
THE SECURITIES ACT) OR (B) IT IS AN INSTITUTIONAL "ACCREDITED INVESTOR" (AS
DEFINED IN RULE 501(A)(1), (2), (3) OR (7) PROMULGATED UNDER THE SECURITIES ACT)
(AN "ACCREDITED INVESTOR") OR (C) IT IS NOT A U.S. PERSON AND IS ACQUIRING THIS
SECURITY IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH RULE 904 UNDER THE
SECURITIES ACT, (2) AGREES THAT IT WILL NOT RESELL OR OTHERWISE TRANSFER THIS
SECURITY EXCEPT (A) TO THE TRUSTEE, (B) INSIDE THE UNITED STATES TO A QUALIFIED
INSTITUTIONAL BUYER IN COMPLIANCE WITH RULE 144A PROMULGATED UNDER THE
SECURITIES ACT, (C) INSIDE THE UNITED STATES TO AN INSTITUTIONAL ACCREDITED
INVESTOR THAT, PRIOR TO SUCH TRANSFER, FURNISHED (OR HAS FURNISHED ON ITS BEHALF
BY A U.S. BROKER-DEALER) TO THE TRUSTEE A SIGNED LETTER CONTAINING CERTAIN
REPRESENTATIONS AND AGREEMENTS RELATING TO THE RESTRICTIONS ON TRANSFER OF THIS
SECURITY, (D) OUTSIDE THE UNITED STATES IN AN OFFSHORE TRANSACTION IN COMPLIANCE
WITH RULE 904 PROMULGATED UNDER THE SECURITIES ACT, (E) PURSUANT TO THE
EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 PROMULGATED UNDER THE
SECURITIES ACT (IF AVAILABLE), OR (F) PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT AND (3) AGREES THAT IT WILL GIVE TO EACH
PERSON TO WHOM THIS SECURITY IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT
OF THIS LEGEND. IN CONNECTION WITH ANY TRANSFER OF THIS SECURITY WITHIN THREE
YEARS AFTER THE ORIGINAL ISSUANCE OF THIS SECURITY, IF THE PROPOSED TRANSFEREE
IS AN INSTITUTIONAL ACCREDITED INVESTOR, THE HOLDER MUST, PRIOR TO SUCH
TRANSFER, FURNISH TO THE TRUSTEE SUCH CERTIFICATIONS, WRITTEN LEGAL OPINION OR
OTHER INFORMATION AS EITHER OF THEM MAY REASONABLY REQUIRE TO CONFIRM THAT SUCH
TRANSFER IS BEING MADE PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION NOT
SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. AS USED
HEREIN, THE TERMS "OFFSHORE TRANSACTION," "UNITED STATES" AND "U.S. PERSON" HAVE
THE MEANING GIVEN TO THEM BY REGULATION S UNDER THE SECURITIES ACT.
K-1
<PAGE>
EXHIBIT L
CERTIFICATE OF RURAL UTILITIES SERVICE
[November 18, 1997] [December 18, 1997]
National Rural Utilities Cooperative Finance Corporation
2201 Cooperative Way - Woodland Park
Herndon, Virginia 22071-3025
Kansas Electric Power Cooperative, Inc.
P. O. Box 4877
Topeka, Kansas 66604
The First National Bank of Chicago
One First National Plaza, Suite 0126
Chicago, Illinois 60670-0126
Re: Loan Guarantee and Servicing Agreement, dated as of February 18,
1988, as amended by that certain First Amendment to Loan
Guarantee and Servicing Agreement, dated as of November ___,
1996, among Kansas Electric Power Cooperative, Inc., National
Rural Utilities Cooperative Finance Corporation, The First
National Bank of Chicago, and the United States of America,
acting by and through the Administrator of the Rural Utilities
Service (formerly the Rural Electrification Administration)
The RUS represents that the Guarantee (as defined in the Trust
Agreement) endorsed on the original of each Note (as defined in the Trust
Agreement) constitutes a legal, valid and binding obligation supported by the
full faith and credit of the United States of America, incontestable except for
fraud or misrepresentation of which the holder had actual knowledge at the time
it became a holder.
RURAL UTILITIES SERVICE
_____________________________________
Administrator
L-1
<PAGE>
EXHIBIT 10.2
================================================================================
FIRST AMENDMENT TO LOAN AGREEMENT
Entered into as of December 20, 1996
Effective as set forth herein
between
NATIONAL RURAL UTILITIES COOPERATIVE FINANCE CORPORATION
as the Lender
and
KANSAS ELECTRIC POWER COOPERATIVE, INC.
as the Cooperative
Rural Electric Cooperative Grantor Trusts (KEPCO)
================================================================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Parties............................................................................... 1
Recitals.............................................................................. 1
ARTICLE 1
Purchase of Notes
SECTION 1.1. Designation of CFC; Notice of Deposit Date and Refinancing Date to CFC. 3
SECTION 1.2. Purchase Price......................................................... 3
SECTION 1.3. Deposit Date-CFC's Obligations......................................... 3
SECTION 1.4. Deposit Date-Cooperative's Obligations................................. 5
SECTION 1.5. Closing................................................................ 5
ARTICLE 2
Deposit of Notes with Series 1997 Trust & Issuance of the Certificates
SECTION 2.1. Agreements of CFC...................................................... 6
SECTION 2.2. Agreement of the Cooperative........................................... 6
ARTICLE 3
Amendments to Original Loan Agreement
SECTION 3.1. Amendments to Article I................................................ 6
SECTION 3.2. Amendments to Article III.............................................. 9
SECTION 3.3. Amendment to Article VII............................................... 10
SECTION 3.4. Amendment to Annex C (Note One) to Loan Agreement...................... 12
SECTION 3.5. Amendment to Annex C (Note Two) to Loan Agreement...................... 12
ARTICLE 4
Further Amendments to Original Loan Agreement
SECTION 4.1. Amendments to Article III.............................................. 13
</TABLE>
-i-
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE 5
Representations and Warranties
SECTION 5.1. Representations in Loan Agreement...................................... 14
ARTICLE 6
Miscellaneous
SECTION 6.1. Effective Dates........................................................ 15
SECTION 6.2. Definitions............................................................ 15
SECTION 6.3. Successor Entities..................................................... 16
SECTION 6.4. Expenses............................................................... 16
SECTION 6.5. Governing Law.......................................................... 16
</TABLE>
-ii-
<PAGE>
THIS FIRST AMENDMENT TO LOAN AGREEMENT (this "Agreement") is entered into
as of December 20, 1996 and effective as provided herein, by and between
NATIONAL RURAL UTILITIES COOPERATIVE FINANCE CORPORATION ("CFC"), a District of
Columbia cooperative association, and KANSAS ELECTRIC POWER COOPERATIVE, INC.
(the "Cooperative"), a Kansas nonprofit cooperative corporation, for the
purposes of, among others, amending that certain Loan Agreement, dated as of
February 15, 1988, among the Cooperative and CFC (the "Original Loan Agreement"
and, as amended hereby, the "Loan Agreement") and setting forth the terms
pursuant to which CFC will purchase certain of the Original Notes (as
hereinafter defined).
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the Cooperative prepaid certain of its loans from the Federal
Financing Bank (the "FFB Loans"), which were guaranteed by the Administrator
(the "Administrator") of the Rural Electrification Administration of the
Department of Agriculture, which has been succeeded with respect to the
administration of certain electric and telephone loan programs by the Rural
Utilities Service (the "RUS"), an agency of the United States Department of
Agriculture established pursuant to Section 232 of the Federal Cooperative
Insurance Reform and Department of Agriculture Reorganization Act of 1994 (Pub.
L. 103-354, 108 Stat. 3178); and
WHEREAS, CFC (CFC in such capacity, the "Lender") loaned the Cooperative
the amounts necessary to prepay the FFB Loans on the terms and subject to the
conditions set forth in the Original Loan Agreement; and
WHEREAS, CFC, pursuant to that certain Trust Agreement, dated as of
February 15, 1988, among CFC, the Cooperative and The First National Bank of
Chicago (the "Trustee") (the "1988 Trust Agreement"), established Rural Electric
Cooperative Grantor Trusts (KEPCO) Series 1988 K1-1988 K3 (the "Original
Trusts") for the purpose of holding the notes (the "Original Notes") evidencing
the Cooperative's repayment obligations under the loan (the "Loan") made by CFC
to the Cooperative pursuant to the Original Loan Agreement, which repayment
obligations are guaranteed by the United States of America acting through the
Administrator of the RUS; and
WHEREAS, CFC, as depositor of the Trust and Servicer (in such capacity, the
"Servicer") of the Original Notes caused the Original Notes to be delivered to
the Original Trusts; and
WHEREAS, pursuant to the 1988 Trust Agreement, certificates of beneficial
interests (the "Original Certificates") in 100% of the Original Trusts were
issued to CFC in consideration of CFC's deposit of the Original Notes into the
Original Trusts; and
WHEREAS, CFC has transferred and sold such Original Certificates to
certificateholders (the "Certificateholders"); and
WHEREAS, pursuant to Section 3.9(a) of the Original Loan Agreement, the
Original Notes may be prepaid or purchased prior to their stated maturities,
provided that, among other things, the
<PAGE>
Servicer gives its consent to a purchase if it is to continue serving in such
capacity, and full payment is delivered to the Trustee at least 30 days prior to
the proposed prepayment or purchase date; and
WHEREAS, Note One and Note Two of the Original Notes, evidencing a portion
of the Loan in the original principal amounts of $11,075,000 and $51,340,000,
respectively (the "Notes"), will be eligible for prepayment or purchase on any
Business Day on or after the Business Day immediately prior to December 15,
1997; and
WHEREAS, the Cooperative has notified the Trustee that, with the approval
of the Administrator, it desires that CFC purchase the Notes and the Trustee
redeem the Original Certificates relating thereto and terminate the Original
Trusts relating thereto on the Refinancing Date (as hereinafter defined), for
the purpose of amending certain terms of the Loan and the Notes and issuing new
certificates of beneficial interest ("Certificates") therein; and
WHEREAS, the Cooperative has agreed to compensate CFC as provided herein
for yield on the Purchase Price (as hereinafter defined) of the Notes which must
be delivered by CFC to the Trustee at least 30 days prior to the date on which
the Notes are to be purchased; and
WHEREAS, CFC desires to continue to service the Notes and receive the
benefits therefrom; and
WHEREAS, the Cooperative has entered into the Swap Agreement (as defined in
that certain Trust Agreement, entered into as of December 20, 1996 among the
Cooperative, CFC and the Trustee (the "1997 Trust Agreement")) with the Swap
Provider (as defined in the 1997 Trust Agreement), which Swap Agreement will be
assigned to and deposited in the Series 1997 Trust (as defined in the 1997 Trust
Agreement) and pursuant to which the Swap Provider will pay to the 1997 Trust a
variable rate of interest and the 1997 Trust will pay to the Swap Provider a
fixed rate of interest; and
WHEREAS, CFC and the Cooperative desire to amend the Original Loan
Agreement primarily for the purpose of reflecting the aforesaid transactions;
and
WHEREAS, such acts will result in the reduction of the interest rate
payable by the Cooperative relating to such obligations, thereby improving the
financial strength of the Cooperative as contemplated by Section 306A of the
Act; and
WHEREAS, the RUS will benefit from such reduction in interest rate as the
guarantor of the Notes; and
WHEREAS, the RUS, CFC and the Cooperative have consented, pursuant to
Section 8.1 of the Loan Guarantee and Servicing Agreement, dated as of February
15, 1988, among the RUS, the Cooperative, CFC and the Trustee, (the "Original
Loan Guarantee Agreement") as amended by that certain First Amendment to Loan
Guarantee and Servicing Agreement, entered into as of even date herewith, among
the RUS, the Cooperative, CFC and the Trustee (as amended, the "Loan Guarantee
2
<PAGE>
Agreement") and Section 7.2(b) of the Original Loan Agreement, to the amendment
of certain provisions of the Original Loan Agreement for the purpose of
reflecting the aforesaid transactions; and
WHEREAS, the Servicer has consented, pursuant to Section 3.9 of the
Original Loan Agreement, to the Purchase (as defined herein);
NOW, THEREFORE, in consideration of the mutual agreements herein contained,
CFC and the Cooperative agree to provide for CFC's purchase of the Notes (the
"Purchase"), and, effective upon such Purchase, to amend the Original Loan
Agreement as follows:
ARTICLE 1
PURCHASE OF NOTES
-----------------
SECTION 1.1. DESIGNATION OF CFC; NOTICE OF DEPOSIT DATE AND REFINANCING
DATE TO CFC. (A) In accordance with Section 3.9(a) of the Original Loan
Agreement, the Cooperative hereby designates CFC as the Cooperative's designee
to purchase the Notes in advance of their scheduled maturities on the
Refinancing Date (as hereinafter defined).
(B) At least fifteen Business Days prior to the Deposit Date (as
hereinafter defined), the Cooperative shall, by delivering a letter in the form
attached hereto as Exhibit A, (i) give written notice to CFC of the date of the
Deposit Date and the date of the Refinancing Date, and (ii) direct CFC to make
the Deposit (as hereinafter defined) on the Deposit Date (as hereinafter
defined).
(C) The Refinancing Date shall be December 18, 1997. The Deposit Date
shall be November 18, 1997.
SECTION 1.2. PURCHASE PRICE. The purchase price for the Notes (the
"Purchase Price") shall be $60,105,903.83, which is equal to the sum of (i) the
principal amount of the Notes outstanding on the date of the Purchase
($57,390,000) (the "Principal Amount"), and (ii) the Guaranteed Interest accrued
on the Notes from December 4, 1997 through, and including, the Refinancing Date,
($218,212.83) and (iii) premium, if any, and any other amounts due under the
Original Loan Agreement that are required to be paid by Section 3.9(a) thereof
($2,497,691.00), all as shall be set forth in the Servicer's notice required by
the Original Loan Agreement (the "Servicer's Notice"). The Purchase Price shall
not include the Advance Note Payment (as hereinafter defined), which Advance
Note Payment shall be paid by the Cooperative to the Trustee in accordance with
Section 1.4 hereof and the Original Loan Agreement.
SECTION 1.3. DEPOSIT DATE-CFC'S OBLIGATIONS. Subject to the terms and
conditions of this Agreement and relying on the representations and warranties
herein set forth, CFC agrees to make the Purchase by delivering, in accordance
with this article, notice and payment to the Trustee.
3
<PAGE>
(B) On the Deposit Date, CFC shall deliver to the Trustee, in accordance
with Section 3.9(a) of the Original Loan Agreement, in immediately available
funds, the Purchase Price, accompanied by (i) a notice, in the form attached
hereto as Exhibit B, that sets forth the Refinancing Date (the "Notice"), and
(ii) the Servicer's Notice (the act of delivering the Purchase Price, the Notice
and the Servicer's Notice shall be referred to collectively herein as the
"Deposit"). The Cooperative acknowledges and agrees that the funds representing
the Purchase Price shall at all times prior to the Purchase constitute the sole
property of CFC, and the Cooperative disclaims any legal or beneficial interest
in such funds.
(C) As a condition to CFC making the Deposit, the following conditions
shall be satisfied:
(i) CFC shall have received copies or executed originals of all of the
agreements, opinions and documents described in Section 2.3 of the 1997
Trust Agreement, and the Loan Agreement, the 1997 Trust Agreement, the
Loan Guarantee Agreement and the Underwriting Agreement (as defined in the
1997 Trust Agreement) shall be in full force and effect;
(ii) All necessary regulatory approvals (including without limitation that of
the United States Department of Labor under the Employee Retirement Income
Security Act) shall have been obtained in form and substance satisfactory
to CFC, shall not be subject to any unsatisfied condition and shall be in
full force and effect and CFC shall not have received notice that any law,
rule, or order in effect prohibiting consummation of the transactions
contemplated hereby;
(iii) CFC and the Trustee shall have received the amounts described in Section
1.4 hereof as well as any other amounts to which CFC is entitled pursuant
to the terms hereof;
(iv) The representations and warranties in Section 4.1 hereof and in the Letter
Agreement, dated as of even date herewith, between the Cooperative and CFC
(the "Letter Agreement") shall be true and correct at the time and the
Cooperative shall have complied with all its obligations hereunder,
thereunder and under the Loan Agreement and there shall be no default
under the Loan Agreement;
(v) the Registration Statement (as defined in the Underwriting Agreement, as
defined in the 1997 Trust Agreement) shall have become effective or
provision shall have been made for the Certificates to be issued pursuant
to Section 4(2) of the Securities Act of 1933 and resold pursuant to Rule
144A of the United States Securities and Exchange Commission;
4
<PAGE>
(vi) the Certificates to be issued by the Series 1997 Trust (as defined above)
shall have been prospectively or finally rated A-1 or higher by Standard &
Poor's, a division of The McGraw Hill Companies, Inc. and prospectively or
finally rated P-1 or higher by Moody's Investors Service, Inc., and such
ratings (or prospective ratings) shall be in effect and shall not have
been withdrawn or downgraded; and
(vii) The Swap Agreement (as defined above) shall not have been modified or
terminated except as consented to by CFC.
SECTION 1.4. DEPOSIT DATE-COOPERATIVE'S OBLIGATIONS. (A) As consideration
to induce CFC to make the Purchase, on the Deposit Date, immediately prior to
CFC's payment of the Purchase Price to the Trustee, the Cooperative shall pay
and deliver to CFC, in immediately available funds, an amount equal to the
prepayment premium and accrued interest which would be due on the Notes on the
Refinancing Date.
(B) On the Deposit Date, immediately prior to CFC's payment of the Purchase
Price to the Trustee, the Cooperative shall pay and deliver to CFC, in
immediately available funds, yield on the Principal Amount of the Purchase
Price, computed for the period of time between the Deposit Date and the
Refinancing Date at CFC's then applicable 30 day loan rate (or CFC's most
comparable loan rate). CFC shall notify the Cooperative in writing of such
amount at least five days prior to the Deposit Date.
(C) On the Deposit Date, immediately prior to CFC's payment of the Purchase
Price to the Trustee, the Cooperative shall pay and deliver to the Trustee, in
accordance with the Original Loan Agreement, the payment due on December 4, 1997
under the Original Loan Agreement, consisting of (i) principal due on Note One
on December 4, 1997, in the amount of $900,000, and (ii) Guaranteed Interest due
on Note One and Note Two through December 4, 1997, in the amount of
$2,905,290.42 (collectively, the "Advance Note Payment"). The Advance Note
Payment shall constitute Available Funds (as defined in the 1988 Trust
Agreement) and shall be used by the Trustee to make the payment of Interest and
Principal due to the holders of the Original Certificates on December 15, 1997,
as provided in the 1988 Trust Agreement.
SECTION 1.5. CLOSING. The closing of the transactions to occur on the
Deposit Date (the "Closing") shall be held at 9:00 a.m. (Washington, D.C. time)
on the Deposit Date at the offices of Vinson & Elkins L.L.P., The Willard Office
Building, 1400 Pennsylvania Avenue, Washington, D.C., 20004-1008 or at such
other time or place agreed to by CFC and the Cooperative. A pre-closing may take
place at the same location beginning at 1:30 p.m. on the preceding Business Day.
5
<PAGE>
ARTICLE 2
DEPOSIT OF NOTES WITH SERIES 1997 TRUST & ISSUANCE OF THE CERTIFICATES
----------------------------------------------------------------------
SECTION 2.1. AGREEMENTS OF CFC. CFC, as purchaser of the Notes and
depositor of the Series 1997 Trust shall direct the Trustee for the Original
Trusts to deliver Note One and Note Two with the Guarantees endorsed thereon to
the Trustee of the Series 1997 Trust on the Refinancing Date to be deposited in
the Series 1997 Trust and shall direct the Trustee to issue the Certificates to
CFC.
(B) Upon receipt of the Certificates in the Series 1997 Trust from the
Trustee of the Series 1997 Trust, CFC agrees to sell the Certificates to the
Underwriter on the Refinancing Date pursuant to the Underwriting Agreement (as
defined in the 1997 Trust Agreement). CFC agrees to cooperate in all reasonable
ways in the registration and public offering of the Certificates and in
obtaining ERISA exemptions for the refinancing for the benefit of CFC, the
Trustee and the Swap Provider if requested by the Swap Provider. Should Alex.
Brown & Sons Incorporated be unable to perform (or provide notice of its
inability to perform to the Cooperative, CFC or the Swap Provider) under the
Underwriting Agreement on the Refinancing Date, CFC may, with the consent of the
Cooperative and the Swap Provider appoint a substitute Underwriter to purchase
the Certificates on the Refinancing Date, the costs of such substitute
Underwriter to be paid by the Cooperative.
SECTION 2.2. AGREEMENT OF THE COOPERATIVE. The Cooperative will deposit the
Swap Agreement in the Series 1997 Trust on the Refinancing Date and has assigned
the Swap Agreement to the Trustee as provided in the 1997 Trust Agreement.
ARTICLE 3
AMENDMENTS TO ORIGINAL LOAN AGREEMENT
-------------------------------------
Effective on the Refinancing Date, and subject to deposit of the Notes in
the Series 1997 Trust, the Original Loan Agreement shall be amended as follows:
SECTION 3.1. AMENDMENTS TO ARTICLE I. Article I shall be amended as
follows:
(A) The introductory phrase of Article I shall be deleted in its entirety
and the following shall be substituted in lieu thereof:
"SECTION 1.1. Definitions. As used in this Agreement, the following terms
shall have the following meanings:"
(B) The definition of "Business Day" shall be deleted in its entirety and
the following shall be substituted in lieu thereof:
6
<PAGE>
"Business Day" shall have the meaning assigned to it in the 1997 Trust
Agreement.
(C) The definition of "Certificate" shall be deleted in its entirety and
the following shall be substituted in lieu thereof:
"Certificate of Beneficial Interest" or "Certificate" shall mean a Rural
Electric Cooperative Grantor Trust Certificate (KEPCO) Series 1997, each
executed, authenticated and delivered by the Trustee substantially in the form
of Exhibit A to the 1997 Trust Agreement.
(D) The definition of "Fixed Rate" shall be deleted in its entirety and
the following shall be substituted in lieu thereof:
"Fixed Rate" shall mean (i) through and including December 4, 1997, 9.5274%
per annum with respect to Note One and 10.0281% per annum with respect to Note
Two, (ii) from and including December 5, 1997 until Article 4 of the First
Amendment to Loan Agreement becomes effective, 9.33% per annum with respect to
Note One and 9.83% per annum with respect to Note Two, and (iii) after Article 4
of the First Amendment to Loan Agreement becomes effective, the Fixed Rate on
Note One and the Fixed Rate on Note Two specified in Section 3.4(d) of the Loan
Agreement.
(E) The definition of "Loan Guarantee Agreement" shall be deleted in its
entirety and the following shall be substituted in lieu thereof:
"Loan Guarantee Agreement" shall mean the Loan Guarantee and Servicing
Agreement dated as of February 15, 1988 among RUS, CFC, the Trustee and the
Cooperative, as amended by the First Amendment to Loan Guarantee Agreement.
(F) The definition of "Trust Agreements" shall be deleted in its entirety
and the following shall be substituted in lieu thereof:
"Trust Agreements" shall mean the 1997 Trust Agreement.
(G) The definition of "Trusts" shall be deleted in its entirety and the
following shall be substituted in lieu thereof:
"Trusts" shall mean the Series 1997 Trust.
(H) The following definition shall be inserted in Section 1.1 in
alphabetical order:
"Agreement" or "Loan Agreement" shall mean this Loan Agreement, as amended
by the First Amendment to Loan Agreement.
7
<PAGE>
(I) The following definition shall be inserted in Section 1.1 in
alphabetical order:
"First Amendment to Loan Agreement" shall mean the First Amendment to Loan
Agreement, entered into as of December 20, 1996, between the Cooperative and
CFC.
(J) The following definition shall be inserted in Section 1.1 in
alphabetical order:
"First Amendment to Loan Guarantee Agreement" shall mean the First
Amendment to Loan Guarantee and Servicing Agreement, entered into as of December
20, 1996, among the Cooperative, CFC, the Trustee and the Rural Utilities
Service on behalf of the United States of America (as successor to the Rural
Electrification Administration).
(K) The following definition shall be inserted in Section 1.1 in
alphabetical order:
"1997 Trust Agreement" shall mean the Trust Agreement, entered into as of
December 20, 1996, among CFC, the Cooperative and the Trustee.
(L) The following definition shall be inserted in Section 1.1 in
alphabetical order:
"Note One" shall mean Note One of the Cooperative issued pursuant to
Section 3.3 of the Loan Agreement.
(M) The following definition shall be inserted in Section 1.1 in
alphabetical order:
"Note Two" shall mean Note Two of the Cooperative issued pursuant to
Section 3.3 of the Loan Agreement.
(N) The following definition shall be inserted in Section 1.1 in
alphabetical order:
"Notes" shall mean Note One and Note Two.
(O) The following definition shall be inserted in Section 1.1 in
alphabetical order:
"Refinancing Date" shall mean December 18, 1997.
(P) The following definition shall be inserted in Section 1.1 in
alphabetical order:
"Series 1997 Certificates" shall mean the Rural Electric Cooperative
Grantor Trust Certificates of Beneficial Interests (KEPCO) Series 1997,
executed, authenticated and delivered by the Trustee substantially in the form
of Exhibit A to the 1997 Trust Agreement.
8
<PAGE>
(Q) The following definition shall be inserted in Section 1.1 in
alphabetical order:
"Series 1997 Trust" shall mean the Rural Electric Cooperative Grantor Trust
(KEPCO) Series 1997 created by the 1997 Trust Agreement, and into which Note One
and Note Two shall be deposited on the Refinancing Date.
(R) The following definition shall be inserted in Section 1.1 in
alphabetical order:
"Swap Agreement" shall have the meaning assigned to it in the 1997 Trust
Agreement.
(S) The following definition shall be inserted in Section 1.1 in
alphabetical order:
"Swap Provider" shall have the meaning assigned to it in the 1997 Trust
Agreement.
(T) The following definition shall be inserted in Section 1.1 in
alphabetical order:
"Underwriter" shall have the meaning assigned to it in the 1997 Trust
Agreement.
(U) The following shall be added at the end of Article I:
Section 1.2. Interpretation. References herein to any document or agreement
(including this Agreement) shall mean that document or agreement as it may have
been or may be amended, restated or supplemented from time to time. References
herein to any Person shall mean that Person, its successors and permitted
assigns.
SECTION 3.2. AMENDMENTS TO ARTICLE III. Article III shall be amended as
follows:
(A) Section 3.7 shall be amended and restated to read in its entirety as
follows:
SECTION 3.7 Payment of Interest and Principal. The Cooperative agrees to
pay Guaranteed Interest on each Note by 11:00 a.m. (New York, New York time) on
each applicable Interest Payment Date in immediately available funds to the
Noteholder. Overdue principal, premium and (to the extent lawful) interest on
each Note shall bear interest at the Guaranteed Interest Rate applicable to such
Note when payment thereof was due and shall be payable on demand. Principal on
each Note shall be payable by 11:00 a.m. (New York, New York time) on the dates
designated on such Note in immediately available funds to the Noteholder.
(B) Section 3.9(a) shall be amended and restated to read in its entirety as
follows:
9
<PAGE>
(a) Each Note may be prepaid or purchased (by the Cooperative or, with
CFC's consent if CFC is to remain the Servicer of either Note, such consent not
to be unreasonably withheld, by any third party designated by the Cooperative)
in whole, but not in part, at the option of the Cooperative on the dates, and
upon the payment of all principal outstanding on the date of prepayment or
purchase plus Guaranteed Interest accrued on such Note through the date of
prepayment or purchase and any other amounts due from the Cooperative under this
Agreement to any Person. The Cooperative, or a third party designated by the
Cooperative, may elect to make such prepayment or purchase only by delivering to
the Trustee, at least 30 (or if the Note at the time bears interest at a
Variable Rate, not less than five nor more than 10) days prior to the proposed
prepayment or purchase date, (i) irrevocable notice of such prepayment or
purchase and of the prepayment or purchase date (which shall be a Business Day),
(ii) a copy of a notice from the Servicer as to the amount of principal,
Guaranteed Interest and premium, if any, and any other amounts due hereunder
required to be paid on such prepayment or purchase date to prepay such Note,
(iii) payment in full of the amount set forth in such notice from the Servicer
and (iv) in the case of any such prepayment or purchase, evidence satisfactory
to the Trustee that such prepayment or transfer of the Note and the related
Guarantee has been approved by the RUS; provided, however, if such Note is to be
prepaid or purchased when it bears interest at a Variable Rate, the Cooperative
need not deliver the interest to be accrued on such Note through the date of
prepayment or purchase until the Business Day after it receives notice of the
Variable Rate through the day next preceding the date of prepayment or purchase;
provided further, that anything contained in Annex C hereto or this Section 3.9
to the contrary notwithstanding, the Cooperative shall have no right to purchase
or prepay any Note bearing interest at a Variable Rate during the 45-day period
following the Closing Date (except on the fourth Business Day of any month) or
for 12 days following notice from CFC that it has entered into an underwriting
agreement in connection with the conversion of such Note to bear interest at a
Fixed Rate.
(C) Article III of the Original Loan Agreement shall be further amended,
pursuant to the terms of Article IV hereof.
SECTION 3.3. AMENDMENT TO ARTICLE VII. Article VII shall be amended as
follows:
(A) Paragraph 1 of Section 7.3 shall be amended and restated in its
entirety as follows:
SECTION 7.3. Notices. All communications and notices under this
Agreement shall be in writing and shall be deemed to have been duly given if
delivered by hand or mailed, postage prepaid, by certified mail, return receipt
requested, by telecopy, when such telecopy is transmitted to the specified
telecopier number and its receipt is acknowledged or by overnight mail, return
receipt requested, to the appropriate following addresses; provided, however,
that notices by telecopy to the RUS shall be followed by another form of written
notice permitted
10
<PAGE>
hereby and shall not be deemed received unless the sender receives oral
confirmation of receipt from the RUS:
(B) The first notice address, "If to REA:" shall be deleted and the
following shall be substituted in its place:
If to RUS:
Rural Utilities Service
United States Department of Agriculture
Washington, D.C. 20250-1535
Telecopy No: 202-690-0397
Attention: Director, Financial Operations Division
Subject: KEPCO-Kansas 54
with a copy addressed to:
Rural Utilities Services
United States Department of Agriculture
Washington, D.C. 20250-1510
Telecopy No: 202-382-1915
Attention: Administrator
Subject: KEPCO-Kansas 54
(C) The second notice address, "If to CFC:" shall be deleted and the
following shall be substituted in its place:
If to CFC:
National Rural Utilities Cooperative Finance Corporation
2201 Cooperative Way - Woodland Park
Herndon, Virginia 22071-3025
Telecopy No.: 703-709-6779
Attention: Finance Officer
(D) The third notice address, "If to the Cooperative:" shall be deleted
and the following shall be substituted in its place:
11
<PAGE>
If to the Cooperative:
Kansas Electric Power Cooperative, Inc.
P. O. Box 4877
Topeka, Kansas 66604
Telecopy No.: 913-271-4888
Attention: Executive Vice President
(E) A fourth notice address "If to the Trustee:" shall be added as follows:
If to the Trustee:
The First National Bank of Chicago
One First National Plaza
Suite 0126
Chicago, Illinois 60670-0126
Telecopy: 312-407-1708
Attention: Corporate Trust Administration
(F) The following paragraph shall be added at the end of Section 7:
Any notice address provided herein may be amended, and this Agreement shall
be amended to include such amended notice address, upon the provision, in
accordance herewith, of notice of the amended notice address to all parties
entitled to receive notices pursuant to this Section.
SECTION 3.4. AMENDMENT TO ANNEX C (NOTE ONE) TO LOAN AGREEMENT. Annex C
(Note One) shall be amended as follows:
(A) The last sentence in the paragraph entitled "Prepayment or Purchase
Dates" shall be amended and restated to read as follows:
Note 1 One may be prepaid or purchased on any Business Day; provided that if
the Swap Agreement is in effect, provision must be made for termination of the
Swap Agreement as provided therein (including payment of all amounts payable by
the Cooperative or the RUS in connection with such termination, if any). The
Cooperative hereby agrees to pay such amounts, but such payments shall not be
guaranteed by the RUS.
(B) The paragraph entitled "Prepayment or Purchase Premium" shall be
deleted.
SECTION 3.5. AMENDMENT TO ANNEX C (NOTE TWO) TO LOAN AGREEMENT. Annex C
(Note Two) shall be amended as follows:
12
<PAGE>
(A) The last sentence in the paragraph entitled "Prepayment or Purchase
Dates" shall be amended and restated to read as follows:
Note 2 Two may be prepaid or purchased on any Business Day; provided that if the
Swap Agreement is in effect, provision must be made for termination of the Swap
Agreement as provided therein (including payment of all amounts payable by the
Cooperative or the RUS in connection with such termination, if any). The
Cooperative hereby agrees to pay such amounts, but such payments shall not be
guaranteed by the RUS.
(B) The paragraph entitled "Prepayment or Purchase Premium" shall be
deleted.
ARTICLE 4
FURTHER AMENDMENTS TO ORIGINAL LOAN AGREEMENT
---------------------------------------------
On the Refinancing Date, effective on the sale of the Certificates by CFC
to a person other than an affiliate of CFC pursuant to a registered public
offering of the Certificates or an offering of the Certificates that is exempt
from registration pursuant to Section 4(2) of the Securities Act of 1933, the
Original Loan Agreement shall be further amended as follows:
SECTION 4.1. AMENDMENTS TO ARTICLE III. Article III shall be amended as
follows:
Subsection (d) of Section 3.4 shall be amended and restated to read in its
entirety as follows:
(d) The Fixed Rate on Note One shall be the sum of (i) 7.654% per annum,
and (ii) the Servicer Spread; provided, however, that (y) if at any time on or
after the Refinancing Date, the Certificates have been registered with the
United States Securities and Exchange Commission and are issued in a registered
public offering, the Fixed Rate shall, pursuant to the mechanism provided in the
Swap Agreement (as defined in the 1997 Trust Agreement), thereafter be reduced
by 10 basis points (.10%) per annum and (x) if at any time on or after the
Refinancing Date, all requirements of ERISA are satisfied so that the Series
1997 Certificates can be sold without any limitations to "employee benefit
plans" (as such term is defined in Section 3(3) of the Employee Retirement
Income Security Act of 1974, as amended), the Fixed Rate shall, pursuant to the
mechanism provided in the Swap Agreement (as defined in the 1997 Trust
Agreement), thereafter be reduced by 5 basis points (.05%) per annum.
The Fixed Rate on Note Two shall be the sum of (i) 7.654% per annum and
(ii) the Servicer Spread; provided, however, that (y) if at any time on or after
the Refinancing Date, the Certificates have been registered with the United
States Securities and Exchange Commission and are issued in a registered public
offering, the Fixed Rate shall, pursuant to the mechanism provided in the Swap
Agreement (as
13
<PAGE>
defined in the 1997 Trust Agreement), thereafter be reduced by 10 basis points
(.10%) per annum and (x) if at any time on or after the Refinancing Date, all
requirements of ERISA are satisfied so that the Series 1997 Certificates can be
sold without any limitations to "employee benefit plans" (as such term is
defined in Section 3(3) of the Employee Retirement Income Security Act of 1974,
as amended), the Fixed Rate shall, pursuant to the mechanism provided in the
Swap Agreement (as defined in the 1997 Trust Agreement), thereafter be reduced
by 5 basis points (.05%) per annum.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES
------------------------------
SECTION 5.1. REPRESENTATIONS IN LOAN AGREEMENT. (A) The representations and
warranties originally made by the Cooperative in Article II of the Loan
Agreement (other than in Section 2.6) are incorporated herein by reference as if
set forth in their entirety herein. The Cooperative hereby represents that such
representations and warranties (except for Section 2.1(b). Section 2.4 and
Section 2.5 which are modified by Subsection (b) of this Section and, as
modified, are true and correct as provided herein) are true and correct on and
as of the date hereof. As incorporated by reference herein, the term "Agreement"
shall be deemed to mean the Loan Agreement and this Agreement.
(B) The representation contained in Section 2.1(b), Section 2.4 and
Section 2.5 of the Original Loan Agreement are hereby modified to read as
follows and, as modified, are true and correct on the date hereof:
(B) This Agreement, the Notes, the Substitute Notes, the Current Mortgage
Instrument, the Trust Agreements and the Loan Guarantee Agreement have been duly
authorized, executed and delivered by the Cooperative and such documents and the
Mortgage constitute the legal, valid and binding agreements of the Cooperative,
enforceable against the Cooperative in accordance with their respective terms
subject to (i) applicable bankruptcy, reorganization, insolvency, moratorium and
other laws of general applicability relating to or affecting creditors' rights,
generally, (ii) the application of general principles of equity regardless of
whether such enforceability is considered in a proceeding in equity or at law
and (iii) as to the Current Mortgage Instrument, such other exceptions, if any,
as are set forth in the opinion of Harold Haun, Esq., Counsel to the
Cooperative; provided that such exceptions do not make the rights and remedies
provided in the current Mortgage Instrument, taken as a whole, inadequate for
enforcing payment of the Notes and the Substitute Notes and security interests
provided by the Current Mortgage Instrument or the realization of the benefits
intended to be provided by the Current Mortgage Instrument.
14
<PAGE>
SECTION 2.4 Approvals. No approval, authorization, consent, order,
registration, filing, qualification, license or permit of or with any state or
Federal court or governmental agency or body including, without limitation, RUS,
having jurisdiction over the Cooperative is required for the consummation by the
Cooperative of the transactions contemplated by this Agreement, the Notes, the
Substitute Notes, the Current Mortgage Instrument, the Trust Agreements and the
Loan Guarantee Agreement except such as have been obtained from the RUS.
SECTION 2.5. Litigation. Except as set forth in the officer's certificate
of the Cooperative delivered in connection with the execution and delivery of
the Basic Documents (as defined in the 1997 Trust Agreement), there is no
pending or threatened action, suit or proceeding before any court or any
governmental agency, authority or body or any arbitrator with respect to the
Cooperative, this Agreement, the Notes, the Substitute Notes, the Current
Mortgage Instrument, the Trust Agreements or the Loan Guaranty Agreement
challenging the validity or enforceability of this Agreement, the Notes, the
Substitute Notes, the Current Mortgage Instrument, the Trust Agreements or the
Loan Guaranty Agreement for which, if adversely determined, would have a
material adverse effect on the Cooperative's ability to perform its obligations
under this Agreement, the Notes, the Substitute Notes, the Current Mortgage
Instrument, the Trust Agreements or the Loan Guaranty Agreement.
(C) The Cooperative represents and warrants that after the Notes, Swap
Agreement and Guarantee are deposited in the Series 1997 Trust and the
Certificates are issued to CFC, the Series 1997 Trust will be exempt from
registration as an Investment Company under the Investment Company Act of 1940
pursuant to Rule 3a-7 under such Act, provided that the Certificates are rated,
at the time of initial sale, in one of the four highest categories assigned
long-term debt or in an equivalent short-term category by at least one
nationally recognized statistical rating organization that is not an affiliated
person of the issuer or any person involved in the organization or operation of
the issuer (such terms having the meanings given to them by Rule 3a-7).
ARTICLE
MISCELLANEOUS
-------------
SECTION 6.1. EFFECTIVE DATES. This Agreement shall be the valid and binding
obligation of the parties as of the date of its execution, but the amendments to
the Original Loan Agreement set forth in Articles 3 and 4 shall become effective
in accordance with the terms of such Articles.
SECTION 6.2. DEFINITIONS. As used in this Agreement, all terms which are
not otherwise defined herein but which are defined in the Loan Agreement shall
have the same meanings herein, to the extent that the context so permits.
15
<PAGE>
SECTION 6.3. SUCCESSOR ENTITIES. The Loan Agreement, Loan Guarantee
Agreement, Notes, Guarantee, and all other documents executed to carry out the
transactions contemplated herein and therein shall be amended, in all necessary
places, to reflect that the Rural Utilities Service has succeeded the Rural
Electrification Administration of the United States Department of Agriculture
with respect to the administration of certain electric and telephone loan
programs by replacing the term "REA" with the term "RUS" everywhere such term
appears and by making such other changes as are necessary to effectuate such
succession. In addition, the reference in the Notes to the 1988 Trust Agreement
shall be amended to mean the 1997 Trust Agreement.
SECTION 6.4. EXPENSES. The Cooperative's obligation to pay expenses
originally set forth in Section 5.2 of the Original Loan Agreement is
incorporated herein by reference as if set forth in its entirety herein. The
Cooperative hereby reaffirms such obligation. In addition, the Cooperative
agrees to pay all reasonable costs of CFC (including reasonable fees and
expenses of counsel) in connection with the negotiation, preparation, execution
and delivery of this Agreement, the First Amendment to Loan Guarantee Agreement,
the Underwriting Agreement and the other Related Documents (as defined therein)
and the transactions contemplated hereby and thereby.
SECTION 6.5. GOVERNING LAW. This Agreement shall be governed by, and
construed and enforced in accordance with the laws of the State of New York,
except that the obligations of the Cooperative to RUS hereunder and under the
Notes shall be governed by, and construed and enforced in accordance with, the
laws of the United States of America, to the extent applicable and otherwise by
the laws of the State of New York.
Except as specifically amended hereby, the Original Loan Agreement shall
remain in full force and effect and is ratified in all respects by the parties
thereto.
16
<PAGE>
IN WITNESS WHEREOF, each party hereto has caused this Agreement to be
executed on its behalf by an authorized officer as of the day and year first
above written.
KANSAS ELECTRIC POWER COOPERATIVE, INC.
as the Cooperative
By /s/ Stephen E. Parr
------------------------------------
Stephen E. Parr,
Executive Vice President &
Chief Executive Officer
17
<PAGE>
NATIONAL RURAL UTILITIES
COOPERATIVE FINANCE CORPORATION
as the Lender
By /s/ Martin R. Crowson
-----------------------------------
Martin R. Crowson,
Assistant Secretary-Treasurer
18
<PAGE>
EXHIBIT A
[LETTERHEAD OF THE COOPERATIVE]
November __, 1997
Governor
National Rural Utilities Cooperative
Finance Corporation
2201 Cooperative Way - Woodland Park
Herndon, Virginia 22071-3025
Re: Purchase of Note One and Note Two (the "Notes") evidencing a loan made
pursuant to that certain Loan Agreement, dated as of February 1, 1988,
between the National Rural Utilities Cooperative Finance Corporation
("CFC") and the Kansas Electric Power Cooperative, Inc. (the
"Cooperative"), pursuant to that certain First Amendment to Loan
Agreement, entered into as of December 20, 1996, between CFC and the
Cooperative (the "First Amendment to Loan Agreement")
Dear Governor:
Pursuant to Section 1.1 (b) of the First Amendment to Loan Agreement, the
undersigned is writing to notify you that the Deposit Date (as defined in the
First Amendment to Loan Agreement) shall be November 18, 1997, and the
Refinancing Date (as defined in the First Amendment to Loan Agreement) shall be
December 18, 1997.
Pursuant to the First Amendment to Loan Agreement, the Closing (as defined
in the First Amendment to Loan Agreement) will be held on the Deposit Date.
KANSAS ELECTRIC POWER
COOPERATIVE, INC.
By:
------------------------------
A-1
<PAGE>
EXHIBIT B
November __, 1997
The First National Bank of Chicago, as Trustee
of the 1997 Trust
One First National Plaza
Suite 0126
Chicago, Illinois 60670-0126
Attention: Corporate Trust Administration
Re: Purchase of Note One and Note Two (the "Notes") evidencing a loan made
pursuant to that certain Loan Agreement, dated as of February 1, 1988
(the "Loan Agreement"), between the National Rural Utilities
Cooperative Finance Corporation ("CFC") and Kansas Electric Power
Cooperative, Inc. (the "Cooperative")
Ladies and Gentlemen:
Pursuant to Section 3.9 of the captioned Loan Agreement, CFC hereby gives
irrevocable notice of its intent to purchase the captioned Notes in whole on
December 18, 1997 (the "Refinancing Date"), which is a date at least 30 days
from the date hereof. The Cooperative joins in executing this letter to confirm
and agree to the matters stated herein and to confirm that CFC is the
Cooperative's designee under Section 3.9 of the Loan Agreement to make such
purchase. CFC, in its capacity as Servicer of the Notes (the "Servicer"), has
consented to CFC's purchase of the Notes.
Pursuant to the terms of Section 3.9 of the Loan Agreement, (a) we are
enclosing (i) a copy of a notice from the Servicer, indicating the amount of
principal, Guaranteed Interest (as defined in the Loan Agreement) and premium,
if any, and any other amounts due under the Loan Agreement required to be paid
on the Refinancing Date (the "Purchase Amount"), and (ii) a copy of the First
Amendment to Loan Guarantee Agreement (as defined in the Loan Agreement)
evidencing that the Rural Utilities Service has consented to the purchase of the
Notes by CFC and (b) we are delivering immediately available funds for the
Purchase Amount (the "Purchase Price").
In addition, immediately prior to the delivery of this notice to you, the
Cooperative paid, in advance in accordance with the Loan Agreement, the payment
of Interest and Principal required to be distributed to holders of the
Certificates (as defined below) on December 15, 1997. You are to hold these
funds in accordance with the Trust Agreement until this disbursement on December
15, 1997.
B-1
<PAGE>
You are the owner and holder of the Notes, which are subject to two trusts,
Rural Electric Cooperative Grantor Trust (KEPCO) 1988-K1 and Rural Electric
Cooperative Grantor Trust (KEPCO) 1988-K2 maintained by you (the "Trusts") with
respect to which certificates of beneficial interests ("Certificates") were
previously issued. We request that, (i) pursuant to Section 7.1 of the Trust
Agreements establishing each Trust (collectively, the "Trust Agreement"), you
deliver notice of the Call Date (as defined in the Trust Agreement) to the
Certificateholders and (ii) pursuant to Article XI of the Trust Agreement, you
distribute all Principal, Interest and Premium due to the Certificateholders on
the Call Date so the Trusts will be terminated in accordance with Section 11.2
of the Trust Agreement on the Call Date.
You agree, as owner and holder of the Notes and as Trustee of the Trusts,
in consideration of CFC's delivery to you of the Purchase Price, and in
accordance with the Trust Agreement, to endorse the Notes to the order of the
Series 1997 Trust (as defined in the Loan Agreement), without recourse, and to
deliver the Notes to the Trustee of the Series 1997 Trust (or if the Series 1997
Trust is not in existence or refuses such delivery, to CFC).
The Servicer confirms its obligations under Section 9.6 of the Trust
Agreement, including its indemnification of the Trustee, which shall include the
Trustee's transfer of the Notes pursuant to this letter.
Please acknowledge your receipt of this notice by executing the enclosed
originals of this letter and returning one original to CFC and one original to
the Cooperative at the addresses indicated below.
NATIONAL RURAL UTILITIES
COOPERATIVE FINANCE CORPORATION
By:
-----------------------------
Address:
--------------------------
--------------------------
KANSAS ELECTRIC POWER
COOPERATIVE, INC.
By:
-----------------------------
Address:
--------------------------
--------------------------
B-2
<PAGE>
Acknowledged and Agreed to:
November __, 1997
THE FIRST NATIONAL BANK
OF CHICAGO, as Trustee
By:
-------------------------------
<PAGE>
EXHIBIT 10.4
- --------------------------------------------------------------------------------
FIRST AMENDMENT TO
LOAN GUARANTEE AND SERVICING AGREEMENT
Executed as of December 20, 1996
Effective as set forth herein
among
UNITED STATES OF AMERICA
acting through the Administrator of the
Rural Utilities Service
as Guarantor,
KANSAS ELECTRIC POWER COOPERATIVE, INC.
as the Cooperative,
NATIONAL RURAL UTILITIES COOPERATIVE FINANCE COOPERATION
as the Lender,
NATIONAL RURAL UTILITIES COOPERATIVE FINANCE COOPERATION
as the Servicer,
and
THE FIRST NATIONAL BANK OF CHICAGO
as the Trustee
Rural Electric Cooperative Grantor Trusts (KEPCO)
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Parties........................................................................... 1
Recitals.......................................................................... 1
ARTICLE 1
Amendments to Original Loan Guarantee Agreement
Section 1.1 Amendments to Article I.......................................... 3
Section 1.2 Amendments to Article II......................................... 6
Section 1.3 Amendments to Article V.......................................... 6
Section 1.4 Amendment to Article VI.......................................... 7
Section 1.4A Amendment to Article VII......................................... 7
Section 1.5 Amendments to Article XII........................................ 8
Section 1.6 Amendments to Schedule I......................................... 9
Section 1.7 Amendment to Schedule II (Note One) to Loan
Guarantee Agreement.............................................. 10
Section 1.8 Amendment to Schedule II (Note Two) to Loan
Guarantee Agreement.............................................. 11
ARTICLE 2
Further Amendments to Original Loan Guarantee Agreement
Section 2.1 Amendments to Schedule I......................................... 11
ARTICLE 3
Consents; Representations and Warranties
Section 3.1 Consent and Approval of the RUS; Representation of the RUS....... 12
Section 3.2 Consent and Approval of the Cooperative; Representations of the
Cooperative...................................................... 12
Section 3.3 Consent and Approval of the Lender; Representations of the Lender 13
Section 3.4 Consent and Approval of the Servicer; Representations
of the Servicer.................................................. 14
Section 3.5 Consent and Approval of the Trustee.............................. 15
ARTICLE 4
Miscellaneous
Section 4.1 Effective Date................................................... 16
Section 4.2 Definitions...................................................... 16
Section 4.3 Assignment By Cooperative of Rights Under Swap Agreement......... 16
Section 4.4 Successor Entities............................................... 16
Section 4.5 Governing Law.................................................... 16
</TABLE>
-i-
<PAGE>
THIS FIRST AMENDMENT TO LOAN GUARANTEE AND SERVICING AGREEMENT (this
"Agreement"), entered into as of December 20, 1996 and effective as provided
herein, is entered into among the UNITED STATES OF AMERICA, acting through the
Administrator (the "Administrator") of the Rural Utilities Service ("RUS"), an
agency of the United States Department of Agriculture established pursuant to
Section 232 of the Federal Cooperative Insurance Reform and Department of
Agriculture Reorganization Act of 1994 (Pub. L. 103-354, 108 Stat. 3178)
(successor to the Rural Electrification Administration with respect to the
administration of certain electric and telephone loan programs); KANSAS ELECTRIC
POWER COOPERATIVE, INC. (the "Cooperative"), a Kansas nonprofit cooperative
corporation; NATIONAL RURAL UTILITIES COOPERATIVE FINANCE COOPERATION, as the
Servicer, a District of Columbia cooperative association ("CFC" or the
"Servicer"); NATIONAL RURAL UTILITIES COOPERATIVE FINANCE COOPERATION, as the
Lender, a District of Columbia cooperative association ("CFC" or the "Lender")
and THE FIRST NATIONAL BANK OF CHICAGO, a national banking association,
organized under the laws of the United States of America (hereinafter called the
"Trustee"), solely in its capacity as trustee under each of the trust agreements
referred to below, for the purpose of amending that certain Loan Guarantee and
Servicing Agreement, dated as of February 15, 1988, among the Administrator of
the RUS (as successor to the Rural Electrification Administration), the
Cooperative, the Servicer, the Lender, and the Trustee (the "Original Loan
Guarantee Agreement").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the Cooperative has heretofore entered into loans with the Federal
Financing Bank (hereinafter called the "FFB," and such loans hereinafter
collectively called the "FFB Loans"), which loans were guaranteed by the
Administrator of RUS pursuant to section 306 of the Rural Electrification Act of
1936, as amended (7 U.S.C. (S) 901 et seq.) (hereinafter called the "Act"); and
WHEREAS, the Administrator of RUS determined, pursuant to Section 306A of
the Act and the regulations published by RUS implementing Section 306A of the
Act (7 C.F.R. Part 1786) (hereinafter called the "Regulations"), that certain of
the FFB Loans, or certain of the advances made by the FFB to the Cooperative on
account of the FFB Loans, were eligible for prepayment under Section 306A of the
Act; and
WHEREAS, pursuant to that certain Loan Agreement, dated as of February 15,
1988 (the "Lender Loan Agreement") between the Lender and the Cooperative, the
Lender made a loan to the Cooperative in the principal amount of $62,487,163.21
(the "Lender Loan") for the sole purpose of financing the Cooperative's
prepayment of the FFB Loans, and the Administrator of RUS transferred the
guarantee of the FFB Loans to the Lender Loan, as contemplated by Section 306A
of the Act, upon the terms and subject to the conditions provided in the Lender
Loan Agreement; and
WHEREAS, the Cooperative executed Lender Loan Note One and Lender Loan Note
Two, more particularly described in Annex C to the Lender Loan Agreement
(respectively, "Lender Loan Note One" and "Lender Loan Note Two"), evidencing a
portion of the Lender Loan in the original principal amounts of $11,075,000 and
$51,340,000, respectively; and
<PAGE>
WHEREAS, the Trustee, pursuant to that certain Trust Agreement, dated as of
February 15, 1988, among the Servicer, the Cooperative and the Trustee (the "K1
Trust Agreement"), established Cooperative Utility Trust (KEPCO) 1988-K1 (the
"K1 Trust") for the purpose of holding Lender Loan Note One; and
WHEREAS, the Trustee, pursuant to that certain Trust Agreement, dated as of
February 15, 1988, among the Servicer, the Cooperative and the Trustee (the "K2
Trust Agreement," together with the K1 Trust Agreement, the "Trust Agreements"),
established Cooperative Utility Trust (KEPCO) 1988-K2 (the "K2 Trust," together
with the K1 Trust the "Original Trusts") for the purpose of holding Lender Loan
Note Two; and
WHEREAS, the Lender as depositor of the Original Trusts and Servicer of
Lender Loan Note One and Lender Loan Note Two caused Lender Loan Note One and
Lender Loan Note Two to be delivered to the K1 Trust and the K2 Trust,
respectively; and
WHEREAS, pursuant to the Trust Agreements, certificates of beneficial
interests (the "Original Certificates") in 100% of the Original Trusts were
issued to the Lender in consideration of the Lender's deposit of Lender Loan
Note One and Lender Loan Note Two into the Original Trusts; and
WHEREAS, the Lender has transferred and sold such Original Certificates to
certificateholders; and
WHEREAS, the Servicer serviced Lender Loan Note One and Lender Loan Note
Two upon the terms and subject to the conditions of the Original Loan Guarantee
Agreement; and
WHEREAS, pursuant to Section 3.9 of the Lender Loan Agreement, Lender Loan
Note One and Lender Loan Note Two may be prepaid or purchased prior to their
stated maturities, provided that, among other things, the Servicer gives its
consent to a purchase if it is to continue serving in such capacity, and full
payment is delivered to the Trustee at least 30 days prior to the proposed
prepayment or purchase date; and
WHEREAS, Lender Loan Note One and Lender Loan Note Two will be eligible for
prepayment or purchase on any Business Day (as defined in the Lender Loan
Agreement) on or after the Business Day immediately prior to December 15, 1997;
and
WHEREAS, pursuant to the terms and subject to the conditions of that
certain First Amendment to Loan Agreement, entered into as of even date
herewith, between the Cooperative and the Lender (the "First Amendment to Loan
Agreement"), and Section 3.9 of the Lender Loan Agreement, the Lender will, on
the Deposit Date (as defined in the First Amendment to Loan Agreement), notify
the Trustee of the Lender's intent to purchase Lender Loan Note One and Lender
Loan Note Two on a date specified by the Cooperative pursuant to the First
Amendment to Loan Agreement (the "Refinancing Date"), on which date the Trustee
will redeem the related Original Certificates and terminate the related Original
Trusts and the Lender will deposit Lender Loan Note One and Lender Loan Note Two
into the Series 1997 Trust (as defined in that certain Trust
-2-
<PAGE>
Agreement, entered into as of even date herewith, among the Cooperative, CFC and
the Trustee (the "1997 Trust Agreement")), the Trustee will issue new
certificates of beneficial interests therein (the "Certificates"); and
WHEREAS, the Cooperative has entered into the Swap Agreement (as defined
in the 1997 Trust Agreement) with the Swap Provider (as defined in the 1997
Trust Agreement), which Swap Agreement will be assigned to and deposited in the
Series 1997 Trust on the Refinancing Date, pursuant to which the Swap Provider
will pay to the 1997 Trust a variable rate of interest and the 1997 Trust will
pay to the Swap Provider a fixed rate of interest; and
WHEREAS, CFC desires to continue to service Lender Loan Note One and Lender
Loan Note Two and receive the benefits therefrom; and
WHEREAS, CFC and the Cooperative desire to amend the Original Loan
Guarantee Agreement for the purpose of making certain additions thereto and
deletions therefrom to reflect the above transactions; and
WHEREAS, such acts will result in the reduction of the interest rate
payable by the Cooperative relating to such obligations, thereby improving the
financial strength of the Cooperative as contemplated by Section 306A of the
Act; and
WHEREAS, the RUS, as the guarantor of Lender Loan Note One and Lender Loan
Note Two, will benefit from such reduction in interest rate; and
WHEREAS, the RUS, the Servicer, the Lender, the Trustee and the Cooperative
have consented, pursuant to Sections 8.1 and 12.1(b) of the Original Loan
Guarantee Agreement to the amendment of certain provisions of the Original Loan
Guarantee Agreement for the purpose of reflecting the aforesaid transactions;
and
NOW, THEREFORE, in consideration of the mutual agreements herein contained,
the RUS, the Servicer, the Lender, the Trustee and the Cooperative agree to
amend the Original Loan Guarantee Agreement as follows:
ARTICLE 1
AMENDMENTS TO ORIGINAL LOAN GUARANTEE AGREEMENT
-----------------------------------------------
Effective on the Refinancing Date, and subject to deposit of the Notes in
the Series 1997 Trust, the Original Loan Guarantee Agreement shall be amended as
follows:
SECTION 1.1 AMENDMENTS TO ARTICLE I. Article I shall be amended as
follows:
(A) The definition of "Business Day" shall be deleted in its entirety and
the following shall be substituted in lieu thereof:
-3-
<PAGE>
"Business Day" shall have the meaning assigned to it in the 1997 Trust
Agreement.
(B) The definition of "Lender Loan Agreement" shall be deleted in its
entirety and the following shall be substituted in lieu thereof:
"Lender Loan Agreement" shall mean that certain Loan Agreement, dated as of
February 15, 1988, between the Cooperative and the Lender, as amended by that
certain First Amendment to Lender Loan Agreement.
(C) The definition of "Trust Agreements" shall be amended and restated in
its entirety as follows:
"Trust Agreements" shall mean the 1997 Trust Agreement.
(D) The definition of "Trusts" shall be deleted in its entirety and the
following shall be substituted in lieu thereof:
"Trusts" shall mean the Series 1997 Trust.
(E) The following definition shall be inserted in alphabetical order:
"First Amendment to Lender Loan Agreement" shall mean that certain First
Amendment to Loan Agreement, entered into as of December 20, 1996, between the
Cooperative and the Lender.
(F) The following definition shall be inserted in alphabetical order:
"First Amendment to Loan Guarantee Agreement" shall mean that certain
First Amendment to Loan Guarantee and Servicing Agreement, entered into as of
December 20, 1996, among the Cooperative, CFC, the Trustee and the Rural
Utilities Service on behalf of the United States of America (as successor to the
Rural Electrification Administration).
(G) The following definition shall be inserted in alphabetical order:
"Lender Loan Note One" shall mean Lender Loan Note One described in the
recitals to the First Amendment to Loan Guarantee Agreement and in Schedule II
(Note One) to this Agreement.
-4-
<PAGE>
(H) The following definition shall be inserted in alphabetical order:
"Lender Loan Note Two" shall mean Lender Loan Note Two described in the
recitals to the First Amendment to Loan Guarantee Agreement and in Schedule II
(Note Two) to this Agreement.
(I) The following definition shall be inserted in alphabetical order:
"1997 Trust Agreement" shall mean the Trust Agreement, entered into as of
December 20, 1996, among CFC, the Cooperative and the Trustee.
(J) The following definition shall be inserted in alphabetical order:
"Refinancing Date" shall mean December 18, 1997.
(K) The following definition shall be inserted in alphabetical order:
"Series 1997 Trust" shall mean the Rural Electric Cooperative Grantor Trust
(KEPCO) Series 1997, created by the 1997 Trust Agreement, and into which Lender
Loan Note One and Lender Loan Note Two shall be deposited on the Refinancing
Date.
(L) The following definition shall be inserted in alphabetical order:
"Swap Agreement" shall have the meaning assigned to it in the 1997 Trust
Agreement.
(M) The following definition shall be inserted in alphabetical order:
"Swap Provider" shall have the meaning assigned to it in the 1997 Trust
Agreement.
(N) Section 1.2 shall be amended and restated in its entirety as follows:
"SECTION 1.2. Rules of Construction. Unless the context shall otherwise
indicate, the terms defined in Section 1.1 hereof include the plural as well as
the singular and the singular as well as the plural. The words "herein",
"hereof", "hereto" and "hereunder", and words of similar import, refer to this
Agreement as a whole. The word "person" includes corporations, associations and
public bodies, as well as natural persons. Persons and entities named herein
shall include such persons and entities, their successors and assigns.
References herein to any document or agreement (including this Agreement) shall
mean that document or agreement as it may have
-5-
<PAGE>
been or may be amended, restated or supplemented from time to time."
SECTION 1.2 AMENDMENTS TO ARTICLE II. Article II shall be amended as
follows:
(A) Section 2.3 shall be amended and restated in its entirety as follows:
Principal payments on the Lender Loan Notes will be due by 11:00 a.m. (New
York, New York time) on the dates and in the amounts set forth on Schedule II
hereto, unless such payments are accelerated because the RUS shall have failed
to pay under the Guarantee of any Lender Loan Note any amount required to be
paid under Section 3.2 hereof or any Guarantee of a Lender Loan Note shall not
be the valid, binding and enforceable obligation of the RUS. The Cooperative
will have the option of prepaying any Lender Loan Note, in whole but not in
part, or requiring the holder of any Lender Loan Note to sell such Lender Loan
Note to a third party designated by the Cooperative, on the dates specified in
Schedule II hereto.
(B) Section 2.4 shall be amended and restated in its entirety as follows:
Payments of Guaranteed Interest on each of the Lender Loan Notes will be
due by 11:00 a.m. (New York, New York time) on the Interest Payment Dates for
such Lender Loan Note or upon acceleration of such Lender Loan Note.
SECTION 1.3 AMENDMENTS TO ARTICLE V. Article V shall be amended as
follows:
(A) Section 5.2(a) shall be amended and restated in its entirety as
follows:
(a) if the Cooperative shall fail to pay on the scheduled due date the
amount of any installment of principal of the respective Lender Loan Note then
due or the Guaranteed Interest on the respective Lender Loan Note accrued
through such date and the Servicer of such Lender Loan Note receives notice of
such failure pursuant to the respective Trust Agreement, such Servicer shall use
its best efforts to deliver such notice to RUS within two hours of receipt by
Servicer of same and in no event later than 4:00 p.m. District of Columbia time
on the Business Day next following the date such Servicer receives such notice,
a written notice thereof in the form of Annex E hereto (a "Default Notice")
specifying the amount thereof, including how much is principal and how much is
Guaranteed Interest, setting forth in reasonable detail the basis for and method
of calculation of the amount of principal and Guaranteed Interest, certifying
that the amount of such Guaranteed Interest does
-6-
<PAGE>
not exceed the Maximum Interest Rate for such Lender Loan Note, specifically
identifying the particular Lender Loan Note and the person to whom and the
account to which any payment under the Guarantee of such Lender Loan Note with
respect to such default is to be wired as the payee of such Lender Loan Note,
and certifying that the person so identified is the Payee of such Lender Loan
Note, and shall submit to RUS, as soon as possible thereafter, a report setting
forth its views as to the reasons for the default, how long it expects the
Cooperative to be in default and what corrective actions the Cooperative states
it is taking to cure such default or achieve a current debt service position (as
the case may be); and
SECTION 1.4 AMENDMENT TO ARTICLE VI. Article VI shall be amended as
follows:
(A) Section 6.1 shall be amended by deleting subsection (c) and, in place
thereof, substituting a new subsection (c) as follows:
(c) the amount of Termination Payment, if any, that the Cooperative would
be required to pay, under Section 6 of the Swap Agreement, if it were to
terminate such Swap Agreement on such date. It is the intent of the Cooperative
and RUS that if RUS pays such amounts, it shall have the right of subrogation
thereto under the Mortgage.
(B) Section 6.3(b) shall be amended and restated to read in its entirety as
follows:
if the Lender Loan Note is bearing interest at a Fixed Rate at the time of
such prepayment or purchase, on any date on which the Cooperative would be
permitted under the terms of the Lender Loan Agreement to prepay such Lender
Loan Note.
SECTION 1.4A AMENDMENT TO ARTICLE VII. Article VII shall be amended as
follows:
(A) Section 7.2 shall be amended by adding a new subsection (c) as follows:
(c) In the event that a Mortgage Default has occurred, and subject to any
limitations thereon contained in the Mortgage, in addition to its rights under
Section 7.2(b) hereof, RUS shall have the legal power to exercise all the
rights, powers and privileges (i) of a holder of each Lender Loan Note, (ii) to
recover judgment in its own name or on behalf of the holders of the Lender Loan
Notes and to apply the proceeds thereof towards satisfaction of payments made by
RUS under the Guarantee of each Lender Loan Note, (iii) to file such proofs of
claim and other papers and documents as may be advisable to have the claims of
RUS and the holders of the Lender Loan Notes
-7-
<PAGE>
allowed in any bankruptcy, insolvency or other judicial proceedings relative to
the Cooperative, its creditors or its property, (iv) to vote, in its sole
discretion and without regard to the interests of any holder of a Lender Loan
Note but solely with regard to the interests of RUS, on any plan of
reorganization or any other matter in any such bankruptcy, insolvency or other
judicial proceedings and (v) to make or approve any amendment, compromise,
modification or other change in the obligations of the Cooperative in respect of
the Lender Loan Notes. Upon any such action by RUS referred to in this
subsection (c) that would in any way adversely affect any Lender Loan Note or
Notes, RUS shall be obligated, in the place and stead of the Cooperative, to pay
under the Guarantee of each Lender Loan Note so affected the principal of and
Guaranteed Interest on such Lender Loan Note or Notes as and when due without
taking into account any vote, plan of reorganization, amendment, compromise,
modification or other change made or approved by RUS pursuant to this subsection
(c), and the Payee shall thereupon deliver to RUS and the Cooperative a release
and discharge of any further obligation of the Cooperative to the Payee under
the Lender Loan Note. In consideration of the obligation of RUS to make such
payments as scheduled, (x) the Cooperative shall be obligated to pay to RUS
(without duplication of any amounts paid under the last sentence of subsection
(b) above) an amount equal to the entire balance of the Lender Loan Note and all
interest thereon in accordance with Section 11.1 hereof, and (y) the Lender, the
Servicer and the Trustee hereby assign all their respective rights, if any, to
exercise any powers granted to RUS under this subsection (c), which assignment
shall also be binding on all assignees or transferees of any Lender Loan Note.
SECTION 1.5 AMENDMENTS TO ARTICLE XII. Article XII shall be amended as
follows:
(A) Section 12.2 shall be amended and restated in its entirety as follows:
All communications and notices under this Agreement shall be in writing and
shall be deemed to have been duly given if delivered by hand or by telecopy,
when such telecopy is transmitted to the specified telecopier number and its
receipt is acknowledged or, except as to notices delivered under Section 5.2(a),
mailed, postage prepaid, by certified mail, return receipt requested, or by
overnight mail, return receipt requested, to the appropriate addresses specified
in Schedule I hereto, or at such other address as any party may designate by
notice to the other parties hereto in accordance with this Section 12.2.
Notices by telecopy to the RUS shall be followed by another form of written
notice permitted hereby and shall not be deemed received unless the sender
receives oral confirmation of
-8-
<PAGE>
receipt from the RUS. Any notice address provided in Schedule I hereto may be
amended, and this Agreement shall be amended to include such amended notice
address, upon the provision, in accordance herewith, of notice of such amended
notice address to all parties entitled to receive notices listed on Schedule I
hereto.
SECTION 1.6 AMENDMENTS TO SCHEDULE I. Schedule I shall be amended as
follows:
(A) Paragraph 20 shall be deleted in its entirety and the following shall
be inserted in lieu thereof:
The regulatory bodies, administrative agencies and governmental
authorities whose approvals are required, as referred to in Section 10.2(e)
hereof, is/are as follows: NONE.
(B) The first notice address in Paragraph 28, "If to REA:," shall be
amended and restated to read as follows:
If to RUS:
Rural Utilities Service
United States Department of Agriculture
Washington, D.C. 20250-1535
Telecopy No: 202-690-0397
Attention: Director, Financial Operations Division
Subject: KEPCO - Kansas 54
with a copy addressed to:
Rural Utilities Services
United States Department of Agriculture
Washington, D.C. 20250-1510
Telecopy No: 202-382-1915
Attention: Administrator
Subject: KEPCO - Kansas 54
(C) The third notice address in Paragraph 28, "If to the Lender:," shall
be amended and restated to read as follows:
If to the Lender:
National Rural Utilities Cooperative Finance Corporation
2201 Cooperative Way - Woodland Park
Herndon, Virginia 22071-3025
Telecopy: 708/709-6779
-9-
<PAGE>
Attention of Finance Officer
(D) The fourth notice address in Paragraph 28, "If to the Servicer:,"
shall be amended and restated to read as follows:
If to the Servicer:
National Rural Utilities Cooperative Finance Corporation
2201 Cooperative Way - Woodland Park
Herndon, Virginia 22071-3025
Telecopy: 708/709-6779
Attention of Finance Officer
(E) The fifth notice address in Paragraph 28, "If to the Trustee:," shall
be amended and restated to read as follows:
If to the Trustee:
The First National Bank of Chicago
One First National Plaza
Suite 0126
Chicago, Illinois 60670-0126
Telecopy: 312-407-1708
Attention of Corporate Trust Administration
(F) The definition of "Certificate" in paragraph 29 shall be deleted in
its entirety and the following shall be substituted in lieu thereof:
"Certificate" or "1997 Certificate" shall mean a Rural Electric Cooperative
Grantor Trust Certificate (KEPCO) 1997 evidencing a Fractional Interest,
executed, authenticated and delivered by the Trustee substantially in the form
of Exhibit A to the 1997 Trust Agreement. "Certificate Rate", with respect to
such certificate shall have the meaning specified in the 1997 Trust Agreement.
SECTION 1.7 AMENDMENT TO SCHEDULE II (NOTE ONE) TO LOAN GUARANTEE
AGREEMENT. Schedule II (Note One) shall be amended as follows:
(A) The last sentence of the paragraph entitled "Prepayment or Purchase
Dates" shall be amended and restated to read as follows:
Lender Loan Note One may be prepaid or purchased on any Business Day; provided
that if the Swap Agreement is in effect, provision must be made for termination
of the Swap Agreement as provided therein (including payment of all amounts
payable by the Cooperative or the
-10-
<PAGE>
RUS in connection with such termination if any). The Cooperative hereby agrees
to pay such amounts, but such payments are not guaranteed by the RUS.
(B) The paragraph entitled "Prepayment Premium" shall be deleted in its
entirety.
SECTION 1.8 AMENDMENT TO SCHEDULE II (NOTE TWO) TO LOAN GUARANTEE
AGREEMENT. Schedule II (Note Two) shall be amended as follows:
(A) The last sentence of the paragraph entitled "Prepayment or Purchase
Dates" shall be amended and restated to read as follows:
Lender Loan Note Two may be prepaid or purchased on any Business Day; provided
that (y) if the Swap Agreement is in effect, provision must be made for
termination of the Swap Agreement as provided therein (including payment of all
amounts payable by the Cooperative or the RUS in connection with such
termination if any). The Cooperative hereby agrees to pay such amounts, but such
payments are not guaranteed by the RUS.
(B) The paragraph entitled "Prepayment Premium" shall be deleted in its
entirety.
ARTICLE 2
FURTHER AMENDMENTS TO ORIGINAL LOAN GUARANTEE AGREEMENT
-------------------------------------------------------
On the Refinancing Date, effective on the sale of the Certificates by CFC
to a person other than an affiliate of CFC pursuant to a registered public
offering of the Certificates or an offering of the Certificates that is exempt
from registration pursuant to Section 4(2) of the Securities Act of 1933, the
Original Loan Agreement shall be further amended as follows:
SECTION 2.1 AMENDMENTS TO SCHEDULE I. Schedule I shall be amended as
follows:
(A) Paragraph 8(a) shall be deleted in its entirety and the following
shall be substituted in lieu thereof:
The "Fixed Rate" of interest referred to in Section 1.1 hereof shall mean
the sum of (i) 7.654% per annum and (ii) the Servicer Spread; provided, however,
that (y) if at any time on or after the Refinancing Date, the Certificates have
been registered with the United States Securities and Exchange Commission and
are issued in a registered public offering, the Fixed Rate shall, pursuant to
the mechanism provided in the Swap Agreement (as defined in the 1997 Trust
Agreement), thereafter be reduced by 10 basis points (.10%) per annum and (z) if
at any time on or after the Refinancing Date, all
-11-
<PAGE>
requirements of ERISA are satisfied so that the Series 1997 Certificates can be
sold without any limitations to "employee benefit plans" (as such term is
defined in Section 3(3) of the Employee Retirement Income Security Act of 1974,
as amended), the Fixed Rate shall, pursuant to the mechanism provided in the
Swap Agreement (as defined in the 1997 Trust Agreement), thereafter be reduced
by 5 basis points (.05%) per annum.
ARTICLE 3
CONSENTS; REPRESENTATIONS AND WARRANTIES
----------------------------------------
SECTION 3.1 CONSENT AND APPROVAL OF THE RUS; REPRESENTATION OF THE RUS.
(A) The RUS hereby consents to and approves of (i) the amendments and
modifications made to the Lender Loan Agreement and the Original Loan Guarantee
Agreement, (ii) the execution and delivery of the First Amendment to Loan
Agreement, 1997 Trust Agreement and this Agreement, and (iii) the carrying out
of all the transactions contemplated by such documents, including but not
limited to, the Purchase (as defined in the First Amendment to Loan Agreement)
of the Lender Loan Note One and Lender Loan Note Two and, upon the effectiveness
of such amendments and modifications, confirms its guarantee of the Lender Loan
Note One and Lender Loan Note Two, as amended thereby.
(B) The representations and warranties originally made by the RUS in
Section 10.1 of the Original Loan Guarantee Agreement are incorporated herein by
reference as if set forth in their entirety herein. The RUS hereby represents
that such representations and warranties are true and correct on the date
hereof. As incorporated by reference herein, the term "Agreement" shall be
deemed to mean the Original Loan Guarantee Agreement and this Agreement.
SECTION 3.2 CONSENT AND APPROVAL OF THE COOPERATIVE; REPRESENTATIONS OF
THE COOPERATIVE.
(A) The Cooperative hereby consents to and approves of the amendments and
modifications made to the Lender Loan Agreement and the Original Loan Guarantee
Agreement and to the execution and delivery of the First Amendment to Loan
Agreement, 1997 Trust Agreement and this Agreement.
(B) The representations and warranties originally made by the Cooperative
in Section 10.2 of the Original Loan Guarantee Agreement (other than in Sections
10.2 (i) and (k)-(n)) are incorporated herein by reference as if set forth in
their entirety herein. The Cooperative hereby represents that such
representations and warranties (except for Section 10.2(d), (g) and (h) which
are modified by Subsection (c) of this Section and, as modified, are true and
correct as provided herein) are true and correct on the date hereof. As
incorporated by reference herein, the term "Agreement" shall be deemed to mean
the Original Loan Guarantee Agreement and this Agreement.
-12-
<PAGE>
(C) The representations contained in Subsections (d), (g) and (h) of
Section 10.2 of the Original Loan Guarantee Agreement are hereby modified to
read as follows and, as modified, are true and correct on the date hereof:
(d) This Agreement and each of the other Operative Agreements to which
the Cooperative is a party have been duly authorized, executed and delivered by
the Cooperative and constitute the legal, valid and binding agreements of the
Cooperative, enforceable against the Cooperative in accordance with their
respective terms, subject to (i) applicable bankruptcy, reorganization, and
insolvency, moratorium and other laws of general applicability relating to or
affecting creditors' rights, generally, (ii) the application of general
principles of equity regardless of whether such enforceability is considered in
a proceeding in equity or at law, and (iii) as to the RUS Mortgage, such other
exemptions as are set forth in the Opinion of Harold Haun, Esq., Counsel to the
Cooperative;
(g) Except as set forth in the officer's certificate of the
Cooperative delivered in connection with the execution and delivery of the
Operative Agreements, there is no action, suit, proceeding or investigation
before or by any court or any regulatory body, administrative agency or
governmental authority presently pending or threatened with respect to the
Cooperative, this Agreement or any of the Operative Agreements to which the
Cooperative is a party challenging the validity or enforceability of this
Agreement or any of the other Operative Agreements to which the Cooperative is a
party or seeking to restrain, and join or otherwise prevent the consummation by
the Cooperative of the transactions contemplated by this Agreement or any of the
other Operative Agreements to which the Cooperative is a party or which, if
adversely determined, would have a material adverse effect on the Cooperative's
ability to perform its obligations under this Agreement or any of the other
Operative Agreements to which the Cooperative is a party;
(h) The most recent audited balance sheet and statement of operations
of the Cooperative fairly present the financial condition and results of
operation of the Cooperative as of the date and for the year indicated, and
there has been no material adverse change in such financial condition except
changes disclosed in writing in the officer's certificate of the Cooperative
delivered in connection with the execution and delivery of the Operative
Agreements;
SECTION 3.3 CONSENT AND APPROVAL OF THE LENDER; REPRESENTATIONS OF THE
LENDER.
(A) The Lender hereby consents to and approves of the amendments and
modifications made to the Lender Loan Agreement and the Original Loan Guarantee
Agreement and to the execution and delivery of the First Amendment to Loan
Agreement, 1997 Trust Agreement and this Agreement.
(B) The representations and warranties originally made by the Lender in
Section 10.3 of the Original Loan Guarantee Agreement are incorporated herein by
reference as if set forth in their
-13-
<PAGE>
entirety herein. The Lender hereby represents that such representations and
warranties (except for Sections 10.3(e), 10.3(h) and 10.3(i) which are modified
by subsection (c) of this Section and, as modified, are true and correct as
provided herein) are true and correct on the date hereof. As incorporated by
reference herein, the term "Agreement" shall be deemed to mean the Original Loan
Guarantee Agreement and this Agreement.
(C) The representations contained in subsections (e), (h) and (i) of
Section 10.3 of the Original Loan Guarantee Agreement are hereby modified to
read as follows and, as modified, are true and correct on the date hereof:
(e) No approval, consent, authorization, order, waiver, exemption,
variance, registration, filing, notification, qualification, license, permit or
other action is now, or under existing law in the future will be, required to be
obtained, given or taken, as the case may be, from any regulatory body,
administrative agency or governmental authority having jurisdiction over the
Lender to authorize the execution and delivery by the Lender of this Agreement
or any of the other Operative Agreements to which the Lender is a party as such,
or the consummation by the Lender of the transactions contemplated hereby or
thereby or the performance by the Lender of its obligations hereunder or
thereunder, other than, prior to the public offering, if any, by the Lender of
certificates under the Trust Agreements (i) the registration of such
certificates under the Securities Act of 1933, if necessary, (ii) the
qualification of an indenture under the Trust Indenture Act of 1939, if
necessary, (iii) the issuance of an exemptive order under the Investment Company
Act of 1940 or the availability of another exemption thereunder, (iv) the
registration, qualification, issuance of an exemptive order or any other
governmental action under any applicable state securities laws, if necessary,
(v) such as have been obtained prior to the date of this Agreement, and (vi) an
exemption from the Department of Labor with respect to the Employee Retirement
Income Security Act of 1974;
(h) The Lender meets the criteria of a "Financially Viable Lender," as
such term is defined in Section 1786.27(a) of the 306A Regulations; and
(i) The Lender meets the qualifications to be a "Lender," as such
qualifications are set forth in Section 1786.28(b) of the 306A Regulations.
SECTION 3.4 CONSENT AND APPROVAL OF THE SERVICER; REPRESENTATIONS OF THE
SERVICER.
(A) The Servicer hereby consents to and approves of the amendments and
modifications made to the Lender Loan Agreement and the Original Loan Guarantee
Agreement and to the execution and delivery of the First Amendment to Loan
Agreement, 1997 Trust Agreement and this Agreement.
(B) The representations and warranties originally made by the Servicer in
Section 10.4 of the Original Loan Guarantee Agreement are incorporated herein by
reference as if set forth in their entirety herein. The Servicer hereby
represents that such representations and warranties (except for
-14-
<PAGE>
Sections 10.4(e) and 10.4(h) which are modified by subsection (c) of this
Section and, as modified, are true and correct as provided herein) are true and
correct on the date hereof. As incorporated by reference herein, the term
"Agreement" shall be deemed to mean the Original Loan Guarantee Agreement and
this Agreement.
(C) The representation contained in subsections (e) and (h) of Section
10.4 of the Original Loan Guarantee Agreement are hereby modified to read as
follows and, as modified, are true and correct on the date hereof:
(e) No approval, consent, authorization, order, waiver, exemption,
variance, registration, filing, notification, qualification, license, permit or
other action is now, or under existing law in the future will be, required to be
obtained, given or taken, as the case may be, from any regulatory body,
administrative agency or governmental authority having jurisdiction over the
Servicer to authorize the execution and delivery by the Servicer of this
Agreement or any of the other Operative Agreements to which the Servicer is a
party as such, the consummation by the Servicer of the transactions contemplated
hereby or thereby or the performance by the Servicer of its obligations
hereunder or thereunder, other than, prior to the public offering, if any, by
the Lender of certificates under the Trust Agreements (i) the registration of
such certificates under the Securities Act of 1933, if necessary, (ii) the
qualification of an indenture under the Trust Indenture Act of 1939, if
necessary, (iii) the issuance of an exemptive order under the Investment Company
Act of 1940 or the availability of another exemption thereunder, (iv) the
registration, qualification, issuance of an exemptive order or any other
governmental action under any applicable state securities laws, if necessary,
(v) such as have been obtained prior to the date of this Agreement, and (vi) an
exemption from of Department of Labor with respect to the Employee Retirement
Income Security Act of 1974;
(h) The Servicer has the capability to adequately service the Lender
Loan in accordance with Section 1786.28(b)(3) of the 306A Regulations.
(D) Pursuant to Section 3.9 of the Lender Loan Agreement, the Servicer
hereby consents to the Purchase (as defined in the First Amendment to Loan
Agreement) of Lender Loan Note One and Lender Loan Note Two by the Lender on the
Refinancing Date.
SECTION 3.5 CONSENT AND APPROVAL OF THE TRUSTEE. The Trustee hereby
consents to the amendments and modifications made to the Lender Loan Agreement
and the Loan Guarantee Agreement and to the execution and deliver of the First
Amendment to Loan Agreement, 1997 Trust Agreement and this Agreement.
-15-
<PAGE>
ARTICLE 4
MISCELLANEOUS
-------------
SECTION 4.1 EFFECTIVE DATE. This Agreement shall be the valid and
binding obligation of the parties as of the date of its execution, but the
amendments to the Original Loan Guarantee Agreement set forth in Articles 1 and
2 shall become effective in accordance with the terms of such Articles.
SECTION 4.2 DEFINITIONS. As used in this Agreement, all terms which
are not otherwise defined herein but which are defined in the Original Loan
Guarantee Agreement as amended by this Agreement shall have the same meanings
herein, to the extent the context so permits.
SECTION 4.3 ASSIGNMENT BY COOPERATIVE OF RIGHTS UNDER SWAP AGREEMENT.
Effective as of the date this Agreement is executed, the Cooperative hereby
assigns to the RUS, on a non-exclusive basis, with the Cooperative (provided
that the Cooperative shall not be entitled to exercise such assigned rights if
the Cooperative is in default under either Lender Loan Note One or Lender
Loan Note Two) also having the rights assigned in this Section, the
right, in the event the RUS elects to prepay or purchase Lender Loan Note
One and Lender Loan Note Two in accordance with Section 6.1 of the Loan
Guarantee Agreement, to terminate the swap "Transaction" (as defined in the Swap
Agreement), dated of even date herewith, pursuant to Part 5, Section (9) of the
Schedule to the Swap Agreement.
SECTION 4.4 SUCCESSOR ENTITIES. Lender Loan Note One, Lender Loan Note
Two, the Lender Loan Agreement, Loan Guarantee Agreement, Trust Agreements,
Certificates and Guarantee and all other documents executed to carry out the
transactions contemplated herein and therein shall be amended, in all necessary
places to reflect that the Rural Utilities Service has succeeded the Rural
Electrification Administration of the United States Department of Agriculture
with respect to the administration of certain electric and telephone loan
programs by replacing the term "REA" with the term "RUS" everywhere such term
appears and by making such other changes as are necessary to effectuate such
succession. In addition, the reference in Lender Loan Note 1 and Lender Loan
Note 2 to the Trust Agreements shall be amended to mean the 1997 Trust
Agreement.
SECTION 4.5 GOVERNING LAW. This First Amendment to Loan Guarantee and
Servicing Agreement shall be governed, and construed and enforced in accordance
with, the laws of the State of New York, except that the obligations of the
Cooperative to RUS hereunder and under the Lender Loan Notes shall be governed
by, and construed and enforced in accordance with, the laws of the United States
of America, to the extent applicable and otherwise by the laws of the State of
New York.
Except as specifically amended hereby, the Original Loan Guarantee
Agreement shall remain in full force and effect and is ratified in all respects
by the parties thereto.
-16-
<PAGE>
IN WITNESS WHEREOF, each party hereto has caused this Agreement to be
executed by an authorized officer as of the day and year first above written.
UNITED STATES OF AMERICA, acting through the
Administrator of the Rural Utilities Service
By: /s/ Wally Beyer
-------------------------------------------------
Title: Administrator of the Rural Utilities Service
-17-
<PAGE>
KANSAS ELECTRIC POWER COOPERATIVE, INC., as the
Cooperative
By: /s/ Stephen E. Parr
---------------------------------------------
Stephen E. Parr,
Executive Vice President & Chief Executive
Officer
-18-
<PAGE>
NATIONAL RURAL UTILITIES COOPERATIVE FINANCE
COOPERATION, as the Lender
By: /s/ Martin R. Crowson
----------------------------------------
Martin R. Crowson,
Assistant Secretary-Treasurer
-19-
<PAGE>
NATIONAL RURAL UTILITIES COOPERATIVE FINANCE
COOPERATION, as the Servicer
By: /s/ Martin R. Crowson
---------------------------------------
Martin R. Crowson,
Assistant Secretary-Treasurer
-20-
<PAGE>
THE FIRST NATIONAL BANK OF CHICAGO,
as the Trustee
By: /s/ Richard D. Manella
------------------------------------
Richard D. Manella,
Vice President
-21-
<PAGE>
EXHIBIT 10.5
REMARKETING AGREEMENT
Between
KANSAS ELECTRIC POWER COOPERATIVE, INC.
and
ALEX. BROWN & SONS INCORPORATED
Dated as of December 20, 1996
RURAL ELECTRIC COOPERATIVE GRANTOR TRUST (KEPCO) SERIES 1997
RURAL ELECTRIC COOPERATIVE GRANTOR TRUST CERTIFICATES
SERIES 1997
<PAGE>
REMARKETING AGREEMENT
This REMARKETING AGREEMENT dated as of December 20, 1996
(the "Agreement" or the "Remarketing Agreement"), is entered into by and between
KANSAS ELECTRIC POWER COOPERATIVE, INC., a Kansas non-profit electric generation
and transmission cooperative corporation (the "Cooperative"), and ALEX. BROWN &
SONS INCORPORATED, as remarketing agent (the "Remarketing Agent").
W I T N E S S E T H:
WHEREAS, in 1988 the Cooperative prepaid certain of its loans from the
Federal Financing Bank, which were guaranteed by the United States of America,
acting through the Administrator (the "Administrator") of the Rural
Electrification Administration of the Department of Agriculture (which has been
succeeded with respect to the administration of certain electric and telephone
loan programs by the Rural Utilities Service, an agency of the United States
Department of Agriculture established pursuant to Section 232 of the Federal
Cooperative Insurance Reform and Department of Agriculture Reorganization Act of
1994 (Pub.L. 103-354, 108 Stat. 3178) (together with its successors, the
"RUS")), with amounts borrowed from the National Rural Utilities Cooperative
Finance Corporation, a District of Columbia cooperative association (together
with its successors, "CFC"), pursuant to a Loan Agreement dated as
February 15, 1988 between CFC and the Cooperative (the "Original Loan Agreement"
and, as amended by the First Amendment to Loan Agreement dated as of the date
hereof and effective as of the Refinancing Date referred to below and as further
amended and supplemented from time to time in accordance with the terms thereof
and hereof, the "Loan Agreement");
WHEREAS, CFC established the Rural Electric Cooperative Grantor Trusts
(KEPCO) Series 1988 K1-1988 K3 (collectively, the "Original Trusts") for the
purpose of holding the notes (the "Original Notes") evidencing the Cooperative's
repayment obligations under the loan (the "1988 Loan") made by CFC to the
Cooperative pursuant to the Original Loan Agreement, which obligations were
guaranteed by the United States of America acting through the Administrator of
the RUS (as amended and supplemented from time to time in accordance with the
terms thereof and hereof, the "Guarantee");
WHEREAS, pursuant to Section 3.9 of the Loan Agreement, and with the
consent of CFC as Servicer of the Original Trusts (CFC in such capacity, the
"Servicer"), the Original Notes may be purchased prior to stated maturity; and
<PAGE>
WHEREAS, the Cooperative has notified the trustee under the Original Trusts
that, with the approval of the Administrator, it desires that CFC purchase the
Notes (as defined in the Trust Agreement described below) and the Trustee redeem
the related certificates of beneficial interest therein and terminate the
related Original Trusts on the Refinancing Date (as defined in the Trust
Agreement described below), for the purpose of amending certain terms of the
1988 Loan and the Notes, depositing the Notes in a new trust created pursuant to
the Trust Agreement referred to below and issuing certificates of beneficial
interest therein (as amended and supplemented in accordance with the terms
thereof and hereof, the "Certificates"); and
WHEREAS, CFC, as lender under the Loan Agreement, depositor of the Original
Trusts and servicer of the Notes, has agreed to purchase the Notes (as amended
as provided above) and to cause the Notes, with the Guarantee endorsed thereon,
to be delivered to the Trustee (as defined below) on the Refinancing Date for
deposit in the Rural Electric Cooperative Grantor Trust (KEPCO) Series 1997
created pursuant to the Trust Agreement dated as of the date hereof and
effective as of the Refinancing Date (as amended and supplemented from time to
time in accordance with the terms thereof and hereof, the "Trust Agreement")
among CFC, the Cooperative and The First National Bank of Chicago, as trustee
(together with its successors, the "Trustee"); and
WHEREAS, the Board of Directors of the Cooperative has determined that it
is desirable for the Cooperative to enter into the Swap Agreement (as defined in
the Trust Agreement) with the Swap Provider (as defined in the Trust Agreement),
which will be assigned to the Trust automatically on the Refinancing Date,
pursuant to which the Swap Provider will pay to the Trustee a variable rate of
interest and the Trustee will pay a fixed rate of interest; and
WHEREAS, the Cooperative will enter into the Liquidity Facility in respect
of the Certificates; and
WHEREAS, pursuant to, but subject to the terms and conditions of, the
Underwriting Agreement (as defined in the Trust Agreement), on the Refinancing
Date the Certificates will be sold by CFC; and
WHEREAS, the Cooperative desires to appoint (with the consent of the Swap
Provider) Alex. Brown & Sons Incorporated to serve as the Remarketing Agent with
respect to Certificates tendered under the Trust Agreement, all upon the terms
and conditions set forth in this Agreement; and
NOW, THEREFORE, in consideration of the premises and the mutual covenants
herein contained and the purchase of the Certificates by all who shall at any
time and from time to time
2
<PAGE>
become registered owners thereof, the parties hereto covenant and agree as
follows:
Section 1. Terms Defined. In addition to words or terms elsewhere
defined in this Remarketing Agreement, terms used herein which are capitalized
but not defined herein shall have the meanings prescribed for them in the Trust
Agreement unless the context shall clearly otherwise indicate.
Section 2. Appointment of Remarketing Agent; Responsibilities of
Remarketing Agent.
(a) Subject to the terms and conditions contained herein and in the Trust
Agreement, the Cooperative hereby appoints Alex. Brown & Sons Incorporated, and
Alex. Brown & Sons Incorporated hereby accepts such appointment, as exclusive
remarketing agent (i) in connection with offering and sale (a "remarketing") of
the Certificates from time to time in the secondary market subsequent to the
initial offering, issuance and sale of the Certificates, and (ii) in connection
with the establishment of the Weekly Rate and the Flex Rate (collectively
referred to herein as the "Variable Rate") to be borne by the Certificates, all
as provided in the Trust Agreement.
(b) Alex. Brown & Sons Incorporated hereby accepts and agrees to the
obligations and duties of the Remarketing Agent set forth in the Trust
Agreement, including but not limited to the obligation to determine the Variable
Rate to be borne by the Certificates in accordance with the Trust Agreement.
The Remarketing Agent agrees to keep such books and records as shall be
consistent with prudent industry practice and to make such books and records
available for inspection by the Cooperative, the Trustee, the Swap Provider, the
Liquidity Provider and the Servicer at all reasonable times. The Remarketing
Agent agrees to perform its duties hereunder using due diligence and in good
faith to the best of its abilities.
Section 3. Exclusive Agent for Remarketing.
(a) The Cooperative agrees that so long as this Remarketing Agreement
shall remain in effect, the Remarketing Agent shall have the sole and exclusive
right to remarket the Certificates as agent for, and on behalf of, the
Certificateholders in the manner and on the terms and conditions hereinafter
provided for.
(b) It is understood and agreed by all parties hereto that the Remarketing
Agent is only obligated hereunder to use its best efforts to remarket any
Certificates tendered or deemed tendered for purchase ("Tendered Certificates")
or any Certificates held by or on behalf of the Liquidity Provider and shall in
no way be obligated to advance its own funds to purchase any Tendered
Certificates or any such Certificates held by or on behalf of the
3
<PAGE>
Liquidity Provider. The Remarketing Agent shall be construed to be acting as
agent only for and on behalf of the Certificateholders, including the Liquidity
Provider if, as and when it is a Certificateholder.
Section 4. The Certificates and the Trust Agreement. The Certificates
will be issuable having the terms described in, and will be subject to the
conditions of, the Trust Agreement. The Cooperative shall promptly notify the
Remarketing Agent in the event the Trust Agreement is repealed, amended,
modified or supplemented subsequent to the date hereof; provided that the Trust
Agreement shall not be repealed, amended, modified or supplemented, and the
Cooperative shall not agree to repeal, amend, modify or supplement the Trust
Agreement, without the Remarketing Agent's consent if such repeal, amendment,
modification or supplement would alter the Remarketing Agent's obligations or
duties or would adversely affect the Remarketing Agent. The Cooperative, CFC
and the Trustee will execute and deliver the Trust Agreement in the form
presented to the Remarketing Agent on the date of execution of this Remarketing
Agreement.
Section 5. Furnishing of Offering Materials.
(a) The Cooperative agrees to furnish the Remarketing Agent with as many
copies as the Remarketing Agent may reasonably request of the Prospectus
relating to the Certificates (the "Offering Statement"), and such other
information with respect to the Cooperative, the Trust, CFC, the Liquidity
Provider, the Swap Provider, Morgan, the Notes, the Guarantee and the
Certificates as the Remarketing Agent shall reasonably request from time to time
and as shall be available to the Cooperative.
(b) If, at any time during the term of this Remarketing Agreement, any
event known to the Cooperative relating to or affecting the Cooperative, the
Trust Agreement, the Trust, CFC, Morgan, the Swap Provider, the Liquidity
Provider, the Notes, the Guarantee, the Liquidity Protection Agreement, the
Liquidity Facility, the Swap Agreement or the Certificates shall occur which
might affect the correctness or completeness of any statement of a material fact
contained in the Offering Statement or which might result in the Offering
Statement containing an untrue, incorrect or misleading statement of a material
fact or omitting to state a material fact necessary in order to make the
statements made therein, in the light of the circumstances under which they were
made, not misleading, the Cooperative will promptly notify the Remarketing Agent
in writing of the circumstances and details of such event.
(c) If at any time, in the opinion of the Remarketing Agent, any event
occurs as a result of which the Offering Statement would include an untrue
statement of a material fact, or omit to state
4
<PAGE>
any material fact necessary in order to make statements therein, in light of the
circumstances under which they were made, not misleading, the Cooperative will,
upon the request of the Remarketing Agent and at the expense of the Cooperative,
prepare an amendment or supplement which will correct such statement or
omission.
(d) The Cooperative will cooperate with the Remarketing Agent in the
preparation of any additional remarketing materials reasonably required in
connection with the remarketing of any Certificates. The Cooperative
acknowledges that the Remarketing Agent may limit the manner in which
Certificates are remarketed and may limit its remarketing efforts to certain
potential purchasers, in each case as and to the extent the Remarketing Agent
deems necessary or appropriate under the Securities Act of 1933, as amended, the
Securities Exchange Act of 1934, as amended, and, if applicable, the Trust
Indenture Act of 1939, as amended, the Investment Company Act of 1940, as
amended, and the rules and regulations thereunder.
Section 6. Representations, Warranties, Covenants and Agreements of the
Cooperative. The Cooperative represents, warrants, covenants and agrees with
the Remarketing Agent as follows:
(a) The Cooperative hereby makes for the benefit of the Remarketing Agent
the representations, warranties, covenants and agreements contained in Section
4(a) of the Underwriting Agreement as if such representations, warranties,
covenants and agreements were herein set forth in the entirety. Without
limiting the foregoing, this Remarketing Agreement has been duly authorized,
executed and delivered by the Cooperative and constitutes the legal, valid and
binding obligation of the Cooperative enforceable in accordance with its terms,
except as enforcement may be limited by bankruptcy, insolvency or other laws
affecting generally the enforcement of creditors' rights and by equitable
principles.
(b) The Cooperative will cooperate with the Remarketing Agent in the
qualification of the Certificates for remarketing and the determination of the
eligibility of the Certificates for investment under the laws of such
jurisdictions as the Remarketing Agent shall designate and will use its best
efforts to continue any such qualification in effect so long as required for the
remarketing of the Certificates by the Remarketing Agent, provided that the
Cooperative shall not be required to register as a broker-dealer in any
jurisdiction or consent to service of process in any jurisdiction other than the
State of Kansas.
(c) Any certificate authorized by the Cooperative, signed by any officer
of the Cooperative and delivered to the Remarketing
5
<PAGE>
Agent shall be deemed a representation by the Cooperative to the Remarketing
Agent as to the statements made therein.
Section 7. Representations, Warranties, Covenants and Agreements of the
Remarketing Agent. The Remarketing Agent, by its acceptance hereof, represents,
warrants and covenants to and with the Cooperative that:
(a) It is authorized by law to perform all the duties imposed upon it by
the Trust Agreement and this Remarketing Agreement and that it is a member of
the National Association of Securities Dealers, Inc. having a capitalization of
at least $15,000,000.
(b) This Remarketing Agreement has been duly authorized, executed and
delivered by the Remarketing Agent and constitutes the legal, valid and binding
obligation of the Remarketing Agent enforceable in accordance with its terms,
except as enforcement may be limited by bankruptcy, insolvency or other laws
affecting generally the enforcement of creditors' rights and by equitable
principles.
Section 8. Conditions to Effectiveness. Provided that the Remarketing
Agent shall have received an executed letter, substantially in the form attached
hereto as Exhibit A, from the Trustee and Tender Agent, this Agreement shall
become effective on the date (the "Effective Date") on which Alex. Brown & Sons
Incorporated purchases the Certificates pursuant to the Underwriting Agreement.
This Agreement shall not become effective if Alex. Brown & Sons Incorporated
does not purchase the Certificates pursuant to the Underwriting Agreement.
Section 9. Conditions to Remarketing Agent's Obligations.
(a) The obligations of the Remarketing Agent under this Remarketing
Agreement have been undertaken in reliance on, and shall be subject to, the due
performance by the Cooperative of its obligations and agreements to be performed
hereunder and under the Related Documents (as defined in the Underwriting
Agreement) and to the accuracy of and compliance with the representations,
warranties, covenants and agreements contained herein and therein, on and as of
the date of delivery of this Remarketing Agreement and on and as of each date on
which Certificates are to be remarketed pursuant to this Remarketing Agreement.
(b) The obligations of the Remarketing Agent hereunder with respect to
each date on which Certificates are to be remarketed pursuant to this
Remarketing Agreement and the Trust Agreement are also subject, at the
discretion of the Remarketing Agent, to the following further conditions:
6
<PAGE>
(i) At or prior to the Closing Date (as defined in the Underwriting
Agreement), the Remarketing Agent shall have received all documents required by
and delivered pursuant to the Underwriting Agreement;
(ii) Each of the Related Documents (as defined in the Underwriting
Agreement) shall be in full force and effect and shall not have been amended,
modified or supplemented in any way which would cause the Guarantee to become
unenforceable in whole or in part;
(iii) There shall be in full force and effect all such registration
statements, offering materials, opinions and other filings or documents as may
be necessary in the reasonable opinion of the Remarketing Agent to effect a
remarketing of the Certificates in the manner contemplated by this Remarketing
Agreement and in compliance with all requirements imposed upon the Cooperative,
the Trust or the Remarketing Agent by the Securities Act of 1933, as amended,
the Securities Exchange Act of 1934, as amended, and, if applicable, the Trust
Indenture Act of 1939, as amended;
(iv) None of the events described in Section 12(i), (ii), (iii), (iv) or
(v)(A), (D), (E) or (I) of the Underwriting Agreement shall have occurred after
the Refinancing Date and shall be continuing;
(v) The obligations of the Liquidity Provider under the Liquidity Facility
(or Alternative Liquidity Facility if an Alternative Liquidity Facility replaced
the Liquidity Facility) shall not have been suspended (including as a result of
the nonsatisfaction of a condition precedent to, or the existence of any fact or
circumstance which effectively tolls, the performance of such obligations) or
terminated;
(vi) The obligations of Morgan Guaranty Trust Company of New York under the
Liquidity Protection Agreement shall not have been suspended (including as a
result of the nonsatisfaction of a condition precedent to, or the existence of
any fact or circumstance which effectively tolls, the performance of such
obligations) or terminated;
(vii) The obligations of the Swap Provider under the Swap Agreement shall
not have been suspended (including as a result of the nonsatisfaction of a
condition precedent to, or the existence of any fact or circumstance which
effectively tolls, the performance of such obligations) or terminated; and
(viii) The Guarantee shall be in full force and effect, and shall not have
been cancelled or terminated, or amended or modified in any material respect,
and neither the
7
<PAGE>
Administrator nor any other Federal governmental authority or official with
competent jurisdiction shall have claimed or asserted in writing, or shall have
failed to contest any claim or assertion made in any action or proceeding, or
any governmental authority with competent jurisdiction shall have announced,
found or ruled, that the Guarantee is null and void or otherwise invalid or
unenforceable against the United States of America, either in whole or part.
Section 10. Dealing in Certificates by Remarketing Agent. The Remarketing
Agent, either as principal or agent, may, in good faith, buy, sell, own, hold
and deal in any of the Certificates and may engage in any action which any
Certificateholder may be entitled to take with like effect as if it did not act
in any capacity hereunder. The Remarketing Agent, in its individual capacity,
either as principal or agent, may also engage in or be interested in any
financial or other transaction with the Cooperative and may act as depositary,
trustee or agent for any committee or body of Certificateholders or other
obligations of the Cooperative as freely as if it did not act in any capacity
hereunder.
Section 11. Intention of Parties. It is the express intention of the
parties hereto that no purchase, sale or transfer of any Certificates, as herein
provided, shall constitute or be construed to be the extinguishment, merger or
discharge of any Certificates or the indebtedness evidenced thereby or the
reissuance of any Certificates or the refunding of any indebtedness represented
thereby.
Section 12. Term and Termination of the Remarketing Agreement.
(a) This Remarketing Agreement shall become effective on the Effective
Date and shall continue in full force and effect until the earlier to occur of
(i) the first day on which no Certificates are outstanding, (ii) December 15,
2017, (iii) the date on which the Remarketing Agent dissolves or admits in
writing that it is insolvent or unable to pay its obligations as they become
due, (iv) the date on which the Remarketing Agent files a voluntary petition
seeking relief under applicable bankruptcy or similar laws, (v) the earlier of
(x) the 45th day after the date on which an involuntary petition seeking relief
under applicable bankruptcy or similar law is filed against the Remarketing
Agent if such involuntary petition is not dismissed on or before such 45th day
and (y) the date of entry of an order for relief with respect to such
involuntary petition, or (vi) the termination of this Agreement pursuant to
subparagraph (b) of this Section.
(b) At any time, the Remarketing Agent may resign and be discharged of its
duties hereunder by giving at least 30 days'
8
<PAGE>
prior written notice to the Cooperative, the Servicer, the Swap Provider, the
Liquidity Provider, the Trustee and the Tender Agent. If at any time there is no
Swap Agreement or Alternative Swap Agreement in force and effect, the
Cooperative shall have the right to terminate this Agreement by delivering
written notice thereof (a "Termination Notice") to the Remarketing Agent;
provided that the Cooperative shall have no right to so terminate this Agreement
unless, no later than the date of termination, the Remarketing Agent shall have
received all fees and expenses owed to it under this Agreement (including a pro
rata amount of the fee described in Section 13(a) accrued through the
termination date if the termination date does not fall on the last Business Day
of June or December). The Termination Notice shall refer to this Agreement and
this Section 12(b), state that the Cooperative is terminating this Agreement
pursuant to Section 12(b), and certify that there is no Swap Agreement or
Alternative Swap Agreement in force and effect; subject to the Remarketing
Agent's having received all fees and expenses referred to in the immediately
preceding sentence, such termination shall be effective on the date on which the
Remarketing Agent receives the Termination Notice. Unless a Swap Provider
Default shall have occurred and be continuing, from and after six (6) months
after the Refinancing Date, the Remarketing Agent may be removed or replaced,
for lack of performance, by not less than 30 days' prior written notice signed
by the Swap Provider delivered to the Remarketing Agent.
For all purposes of the foregoing, if the Certificates are in a Weekly Rate
Mode there shall not be lack of performance by the Remarketing Agent unless the
average Variable Rate on the Certificates during a consecutive 4 month period
pursuant to this Agreement shall be in excess of the corresponding average of
the Base Rate (as defined below) plus the Applicable Margin (as defined below)
during such 4 month period. The "Base Rate" means the bond equivalent of the 30
day rate on commercial paper placed on behalf of issuers whose corporate bonds
are rated AA by Standard & Poor's or its successor, or the equivalent of such
rating by another rating agency as made available on a discount basis or
otherwise by the Federal Reserve Bank of New York (H.15) for the nearest
business day prior to such Variable Rate setting date. The "Applicable Margin"
for such Base Rate shall be determined based on the rating (using S&P or its
successor, or the equivalent of such rating by another rating agency) of the
Liquidity Provider under the Liquidity Facility in effect as of the date on
which the Variable Rate is determined:
Applicable Margin Liquidity Provider Rating
11 basis points At least long term Aa3 and AA-, short term P-1 and A-1+
9
<PAGE>
15 basis points At least long term Aa3 and AA-, short term P-1 and A-1
17 basis points At least long term A2 and A, short term P-1 and A-1
The foregoing is based on the Certificates being rated at least Aa/AA by Moody's
and Standard & Poor's, respectively. If the rating of the Certificates falls
below those levels, the Cooperative and Remarketing Agent will negotiate in good
faith to determine, with the Swap Provider's consent, the appropriate Applicable
Margin based upon such lower rating.
If there are limitations on the ability or advisability of the purchase of
Certificates by any "employee benefit plan" as defined in Section 3(3) of the
Employee Retirement Income Security Act, then each Applicable Margin described
above shall be increased by 5 basis points.
If (i) the Certificates are in the Flex Rate Mode, (ii) the Certificates
are sold to the Underwriter in a private placement rather than in a registered
public offering, (iii) the short-term ratings on the Certificates shall have
been withdrawn or downgraded below A-1 or P-1 by Standard & Poor's Ratings
Group, a division of McGraw-Hill, Inc. or Moody's Investors Service,
respectively, or (iv) the Liquidity Provider purchases unremarketed Certificates
pursuant to Section 9.3(i) of the Trust Agreement, then in each such case the
Cooperative and Remarketing Agent will negotiate in good faith, with the Swap
Provider's consent, to determine an appropriate Applicable Margin or other
reasonable measure of lack of performance for purposes of this Section.
(c) In the event of the removal or resignation of the Remarketing Agent,
the Remarketing Agent shall pay over, assign and deliver any moneys or Tendered
Certificates held by it in such capacity to its successor or, if there is no
successor, to the Trustee.
Section 13. Payment of Fees and Expenses of Remarketing.
(a) The Cooperative agrees to pay (or to cause the Swap Provider to pay
to) the Remarketing Agent, as a fee for acting as Remarketing Agent under and
pursuant to this Remarketing Agreement, a sum equal to one-eighth of one percent
(0.125%) on an annualized basis of the average outstanding principal amount of
the Certificates payable in arrears on the last Business Day of June and
December of each year, commencing in June 1998, for each year or part year that
the Remarketing Agent performs such services hereunder, such sum to be paid
regardless of the principal amount of Certificates remarketed pursuant hereto.
The parties contemplate that such fee will be paid to the Remarketing Agent by
10
<PAGE>
the Swap Provider as described in the letter agreement, dated as of the date
hereof, among the Remarketing Agent, the Cooperative and the Swap Provider;
provided that the Cooperative shall remain obligated to make such payment in the
event the Swap Provider fails for any reason to pay the Remarketing Agent.
(b) Commencing on the effective date of this Agreement, the Cooperative
shall pay or reimburse the Remarketing Agent for reasonable expenses incurred in
the preparation of any revisions, supplements or additions to the Offering
Statement necessary to effect the remarketing of Certificates, including fees
and expenses (if any) of nationally recognized bond counsel, securities counsel,
special tax counsel, counsel to the Remarketing Agent or other counsel, blue sky
fees and expenses (including attorneys' fees and expenses with respect thereto),
costs of printing, rating, accounting, feasibility studies and other similar
costs.
Section 14. Indemnification.
(a) To the extent permitted by law, the Cooperative agrees to indemnify
and hold harmless the Remarketing Agent and its officers, directors, agents and
employees (collectively, the "Indemnified Person") from and against any losses,
claims, damages or liabilities to which any Indemnified Person may become
subject insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of, or are based upon, any untrue statement or
alleged untrue statement of a material fact contained in the Offering Statement
or other information provided by the Cooperative pursuant to Section 5 hereof,
or arise out of, or are based upon, the omission or alleged omission to state
therein, in the light of the circumstances under which they were made, not
misleading, and will reimburse each Indemnified Person for any legal or other
expenses reasonably incurred by such Indemnified Person in investigating,
defending or preparing to defend any such action or claim; provided, however,
that the Cooperative shall not be liable in any such case to the extent that any
such loss, claim, damage or liability arises out of, or is based upon, any
untrue statement or alleged untrue statement or omission or alleged omission
made in the Offering Statement in reliance upon and in conformity with written
information furnished to the Cooperative by or on behalf of any Indemnified
Person specifically for use in preparation of the Offering Statement. The
Cooperative acknowledges that the statements to be under the caption
"Underwriting" in the Offering Statement constitute the only information to be
furnished in writing by or on behalf of the Indemnified Persons for use in
preparation of the Offering Statement. The indemnity agreement in this
paragraph shall be in addition to any liability which the Cooperative may
otherwise have to any Indemnified Person and shall extend upon the same terms
and conditions to each person, if any, who controls any Indemnified
11
<PAGE>
Person within the meaning of the Securities Exchange Act of 1934, as amended.
(b) To the extent permitted by law, the Remarketing Agent agrees to
indemnify and hold harmless the Cooperative and its commissioners, officers,
directors, agents and employees to the same extent as the indemnity from the
Cooperative to the Indemnified Persons described in paragraph (a) of this
Section but only with respect to information relating to the Remarketing Agent
to be furnished in writing by it, or on its behalf, specifically for use in
preparation of the Offering Statement. The Cooperative acknowledges that the
statements to be under the caption "Underwriting" in the Offering Statement
constitute the only information to be furnished in writing by or on behalf of
the Remarketing Agent for use in preparation of the Offering Statement. The
indemnity agreement in this paragraph shall be in addition to any liability
which the Remarketing Agent may otherwise have to the Cooperative and shall
extend upon the same terms and conditions to each person, if any, who controls
the Cooperative, within the meaning of the Securities Exchange Act of 1934, as
amended.
(c) In case any proceeding (including any governmental investigation)
shall be instituted involving any person in respect of which indemnity may be
sought pursuant to this Section 14, such person (the "indemnified party") shall
promptly notify the person against whom such indemnity may be sought (the
"indemnifying party") in writing. No indemnification provided for in Section
14(a) or (b) shall be available to any party who shall fail to give notice as
provided in this Section 14(c) if the party to whom notice was not given was
unaware of the proceeding to which such notice would have related and was
materially prejudiced by the failure to give such notice, but the failure to
give such notice shall not relieve the indemnifying party or parties from any
liability which it or they may have to the indemnified party for contribution or
otherwise than on account of the provisions of Section 14(a) or (b). In case
any such proceeding shall be brought against any indemnified party and it shall
notify the indemnifying party of the commencement thereof, the indemnifying
party shall be entitled to participate therein and, to the extent that it shall
wish, jointly with any other indemnifying party similarly notified, to assume
the defense thereof, with counsel satisfactory to such indemnified party and
shall pay as incurred the fees and disbursements of such counsel related to such
proceeding. In any such proceeding, any indemnified party shall have the right
to retain its own counsel at its own expense. Notwithstanding the foregoing,
the indemnifying party shall pay as incurred the fees and expenses of the
counsel retained by the indemnified party in the event (i) the indemnifying
party and the indemnified party shall have mutually agreed to the retention of
such counsel or (ii) the named parties to any such proceeding (including any
impleaded parties) include both the indemnifying party and the indemnified
12
<PAGE>
party and representation of both parties by the same counsel would be
inappropriate due to actual or potential differing interests between them. It is
understood that the indemnifying party shall not, in connection with any
proceeding or related proceedings in the same jurisdiction, be liable for the
reasonable fees and expenses of more than one separate firm for all such
indemnified parties. Such firm shall be designated in writing by the Remarketing
Agent in the case of parties indemnified pursuant to Section 14(a) and by the
Cooperative and in the case of parties indemnified pursuant to Section 14(b).
The indemnifying party shall not be liable for any settlement of any proceeding
effected without its written consent but if settled with such consent or if
there be a final judgment for the plaintiff, the indemnifying party agrees to
indemnify the indemnified party from and against any loss or liability by reason
of such settlement or judgment.
(d) If the indemnification provided for in this Section 14 is unavailable
to or insufficient to hold harmless an indemnified party under Section 14(a) or
(b) above in respect of any losses, claims, damages or liabilities (or actions
or proceedings in respect thereof) referred to therein, then each indemnifying
party shall contribute to the amount paid or payable by such indemnified party
as a result of such losses, claims, damages or liabilities (or actions or
proceedings in respect thereof) in such proportion as is appropriate to reflect
the relative benefits received by the Cooperative on the one hand and the
Remarketing Agent (in its capacity as Underwriter) on the other from the
offering of the Certificates. If, however, the allocation provided by the
immediately preceding sentence is not permitted by applicable law or if the
indemnified party failed to give the notice required under Section 14(c) above,
then each indemnifying party shall contribute to such amount paid or payable by
such indemnified party in such proportion as is appropriate to reflect not only
such relative benefits but also the relative fault of the Cooperative and the
Remarketing Agent in connection with the statements or omissions which resulted
in such losses, claims, damages or liabilities (or actions or proceedings in
respect thereof), as well as any other relevant equitable considerations. The
relative benefits received by the Cooperative and the Remarketing Agent shall be
deemed to be in the same proportion as the total net proceeds from the offering
(before deducting expenses) received by CFC bear to the Underwriting Fee
received by the Underwriter, in each case as set forth in the table on the cover
page of the Prospectus. The relative fault shall be determined by reference to,
among other things, whether the untrue and alleged untrue statement of a
material fact or the omission or alleged omission to state a material fact
relates to information supplied by the Cooperative or the Remarketing Agent and
the parties' relative intent, knowledge, access to information and opportunity
to correct or prevent such statement or omission.
13
<PAGE>
The Cooperative and the Remarketing Agent agree that it would not be just
and equitable if contributions pursuant to this Section 14(d) were determined by
pro rata allocation or by any other method of allocation which does not take
account of the equitable considerations referred to above in this Section 14(d).
The amount paid or payable by an indemnified party as a result of the losses,
claims, damages or liabilities (or actions or proceedings in respect thereof)
referred to above in this Section 14(d) shall be deemed to include any legal or
other expenses reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim. Notwithstanding the
provisions of this subsection (d), (i) the Remarketing Agent (including in its
capacity as Underwriter) shall not be required to contribute any amount in
excess of the Underwriting Fee and (ii) no person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act of
1933, as amended) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation.
(e) In any proceeding relating to the Offering Statement or any supplement
or amendment thereto, each party against whom contribution may be sought under
this Section 14 hereby consents to the jurisdiction of any court having
jurisdiction over any other contributing party, agrees that process issuing from
such court may be served upon him or it by any other contributing party and
consents to the service of such process and agrees that any other contributing
party may join him or it as an additional defendant in any such proceeding in
which such other contributing party is a party. The Cooperative agrees to
indemnify and hold harmless the Remarketing Agent and each person, if any, who
controls the Remarketing Agent against any and all losses, claims, damages and
liabilities (i) arising out of any untrue statement or alleged untrue statement,
of a material fact contained in the Offering Statement or any amendment or
supplement thereto as the same has been supplemented or amended, or the
omission, or alleged omission, therefrom of a material fact necessary to make
the statements therein, in light of the circumstances under which they were
made, not misleading, except any such statements as were based on information
furnished to the Cooperative by the Remarketing Agent (the Cooperative making
those acknowledgments set forth in Section 14(a) above, and (ii) to the extent
of the aggregate amount paid in settlement of any litigation arising from a
claim based upon the foregoing and such settlement is effected with the written
consent of the Cooperative.
(f) The indemnity agreements contained in this Section shall remain
operative and in full force and effect, regardless of any investigation made by
or on behalf of the Remarketing Agent or the Cooperative, or the delivery of and
any payment for any Certificates hereunder, and shall survive the termination or
cancellation of this Remarketing Agreement.
14
<PAGE>
Section 15. Remarketing Agent's Liabilities. The Remarketing Agent shall
incur no liability to the Cooperative or any other party for its actions as
Remarketing Agent pursuant to the terms hereof and of the Trust Agreement except
for its negligence or willful misconduct and except as otherwise specifically
provided herein. The Remarketing Agent will not be liable to the Cooperative on
account of the failure of any person to whom the Remarketing Agent has sold a
Certificate to pay for it or to deliver any document in respect of such sale.
The undertaking of the Remarketing Agent to remarket any Certificates pursuant
hereto or to the Trust Agreement shall be on a "best efforts" basis as described
in this Agreement.
Section 16. Events of Default. The failure by the Cooperative to make any
payment required by this Remarketing Agreement when due shall constitute an
"event of default" hereunder and shall entitle the Remarketing Agent to take
whatever action at law or in equity, including specific performance, that is
necessary or desirable to collect the amounts then due and thereafter to become
due to them or to enforce observance or performance of any covenant, condition
or agreement of the Cooperative hereunder.
Section 17. Miscellaneous.
(a) Except as otherwise provided, any notice or other communication herein
required or permitted to be given shall be in writing, by telex or facsimile
transmission, and may be personally served or sent by United States mail and
shall be deemed to have been given upon receipt by the party notified. For the
purposes hereof, the address and principal office of the parties hereto and of
the Trustee, the Tender Agent, the Liquidity Provider, the Servicer and the Swap
Provider (until notice of a change thereof is delivered as provided in this
Section 16) shall be as follows:
Remarketing Agent: Alex. Brown & Sons Incorporated
1290 Avenue of the Americas, 10th Floor
New York, New York 10104
Attention: Variable Rates Department
Fax: 212-237-2042
Cooperative: Kansas Electric Power Cooperative, Inc.
P.O. Box 4877
Topeka, Kansas 66604
Attention: Executive Vice President
Fax: 913/271-4888
15
<PAGE>
Liquidity Provider: To the Liquidity Provider at the address set forth in the
Liquidity Facility; provided that if such address has not
been provided to the Remarketing Agent, such notice may
be sent to the Morgan Guaranty Trust Company of New York
at the address set forth next to the Swap Provider.
Swap Provider: Morgan Guaranty Trust Company of New York
60 Wall Street
New York, New York 10260
Attention: Global Swaps Unit
Fax: (212) 648-5422
Servicer: National Rural Utilities Cooperative Finance Association
2201 Cooperative Way-Woodland Park
Herndon, Virginia 22071-3025
Fax: (703) 709-6779
Trustee: The First National Bank of Chicago
One First National Plaza, Suite 0126
Chicago, Illinois 60670-0126
Attention: Corporate Trust Administration
Tel: (702) 243-0180
Fax: (312) 407-1708
Tender Agent: The First National Bank of Chicago
c/o First Chicago Trust Company of New York
14 Wall Street
8th Floor - Window 2
New York, New York 10005
Attention: Corporate Trust Administration
Fax: (212) 240-8938
The Remarketing Agent, the Trustee, the Tender Agent, the Liquidity Provider,
the Swap Provider and the Cooperative may, by notice given under this
Remarketing Agreement, designate other addresses to which notices or other
communications shall be directed.
(b) The obligations of the respective parties hereto may not be assigned
or delegated to any other person without the consent of the other party hereto
and the Swap Provider. This Agreement will inure to the benefit of and be
binding upon the parties hereto and their respective successors and permitted
assigns, and will not confer any rights upon any other person other than the
Swap Provider as and to the extent provided herein and other persons, if
16
<PAGE>
any, controlling the Cooperative and the Remarketing Agent within the meaning of
the Securities Exchange Act of 1934, as amended. The terms "successors" and
"assigns" shall not include any purchaser of any of the Certificates merely
because of such purchase.
(c) All of the representations, warranties and covenants made in this
Remarketing Agreement shall remain operative and in full force and effect,
regardless of any investigation made by or on behalf of any party hereto,
delivery of any payment of any Certificates hereunder or termination or
cancellation of this Remarketing Agreement.
(d) Section headings have been inserted in this Remarketing Agreement as a
matter of convenience of reference only, and it is agreed that such headings are
not a part of this Remarketing Agreement and will not be used in the
interpretation of any provisions of this Remarketing Agreement.
(e) If any provision of this Remarketing Agreement shall be held or deemed
to be or shall, in fact, be invalid, inoperative or unenforceable as applied in
any particular case in any jurisdiction or jurisdictions, or in all
jurisdictions because it conflicts with any provisions of any constitution,
statute, published regulation, ruling or court decision, or for any other
reason, such circumstances shall not have the effect of rendering the provision
in question invalid, inoperative or unenforceable in any other case or
circumstance, or of rendering any other provisions of this Remarketing Agreement
invalid, inoperative or unenforceable to any extent whatever.
(f) This Remarketing Agreement may be executed in several counterparts,
each of which shall be regarded as an original and all of which shall constitute
one and the same document.
(g) The terms of this Remarketing Agreement shall not be waived, altered,
modified, amended or supplemented in any manner whatsoever except by written
instrument signed by the parties hereto.
(h) This Remarketing Agreement shall be governed by and construed in
accordance with the laws of the State of New York.
(i) The Cooperative agrees that the Remarketing Agent may use the name of
the Cooperative in any advertising the Remarketing Agent may wish to publish
concerning the role of the Remarketing Agent as Underwriter or Remarketing Agent
for the Certificates.
17
<PAGE>
IN WITNESS WHEREOF, the Cooperative and the Remarketing Agent have caused
this Remarketing Agreement to be signed in their names by the undersigned
officers, thereto duly authorized, all as of the date and year first above
written.
KANSAS ELECTRIC POWER COOPERATIVE, INC.
By: /s/ Stephen E. Parr
---------------------------------------
Title: Executive Vice President & Chief
Executive Officer
ALEX. BROWN & SONS INCORPORATED
By: /s/ Douglas E. Carter
---------------------------------------
Title: Managing Director
18
<PAGE>
EXHIBIT A
FORM OF TRUSTEE'S AND
TENDER AGENT'S LETTER
[Dated the Effective Date]
Alex. Brown & Sons Incorporated
1290 Avenue of the Americas, 10th Floor
New York, New York 10104
Attention: Variable Notes Department
Re: Remarketing Agreement dated as of [date] between Kansas Electric
Cooperative, Inc. and Alex. Brown & Sons Incorporated (as amended from time
to time, the "Agreement")
Gentlemen:
We refer to the above-referenced Agreement. Terms used herein and not
otherwise defined herein are used herein as defined in (or incorporated by
reference in) the Agreement.
We hereby agree to enforce the provisions of the Trust Agreement for your
benefit to the extent applicable. The undersigned, in its capacity as Trustee
and Tender Agent, further agrees to perform its obligations under the Trust
Agreement.
Very truly yours,
THE FIRST NATIONAL BANK OF CHICAGO,
as Trustee and as Tender Agent
By:
----------------------------------------
Title:
A-1
<PAGE>
(MULTICURRENCY--CROSS BORDER)
ISDA/(R)/
International Swap Dealers Association, Inc.
MASTER AGREEMENT
dated as of
- -------------------------------------- and ---------------------------------
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 of 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 (I) 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.
Copyright /(C)/ 1992 by International Swap Dealers Association, Inc.
<PAGE>
(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 earlier 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 Indemnifiable 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 lo 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.
2
<PAGE>
(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)).
3
<PAGE>
(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 has 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 lt or in respect of its execution or performance of
this Agreement by a jurisdiction in which it is incorporated,
4
<PAGE>
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 OF 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
<PAGE>
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 has 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) has 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, has 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
6
<PAGE>
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 any 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 treated as an Illegality and will
not constitute an Event of Default.
7
<PAGE>
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 an 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 an
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
8
<PAGE>
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
9
<PAGE>
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 (I) 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 (II)
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.
10
<PAGE>
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.
lf 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 judgment
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
hy 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 of 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.
11
<PAGE>
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 the parties 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 Multi
branch 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
12
<PAGE>
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
13
<PAGE>
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" has 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 all 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" has the meaning specified in Section 5(b).
"CHANGE IN TAX 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.
14
<PAGE>
"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).
"LNDEMNIFIABLE 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 this 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 made (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)(l) 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 Date, 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
15
<PAGE>
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(e), 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 Markel 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 of 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.
16
<PAGE>
"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 of 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 Date 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 has not been so settled as at such Early Termination Date, an amount equal
to the fair market
17
<PAGE>
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 specified on the first page of
this document.
- --------------------------------------- ------------------------------------
(Name of Party) (Name of Party)
By: ----------------------------------- By: --------------------------------
Name: Name:
Title: Title:
Date: Date:
18
<PAGE>
EXECUTION
COPY
SCHEDULE
TO THE
MASTER AGREEMENT
dated as of December 20, 1996
between
MORGAN GUARANTY TRUST and KANSAS ELECTRIC
COMPANY OF NEW YORK POWER COOPERATIVE, INC.
("Morgan") (the "Counterparty")
PART 1
TERMINATION PROVISIONS
In this Agreement:-
(1) "Specified Entity" shall not apply.
(2) "Specified Transaction" will have the meaning specified in Section 14.
(3) Cross Default to Specified Indebtedness. From the date of execution of
this Agreement to and immediately preceding the assignment set forth in
Part (5) Section (10) of this Schedule on December 18, 1997 (the "Closing
Date") the provisions of Section 5(a)(vi) shall apply to Morgan and the
Counterparty and, for such purpose:
(a) "Specified Indebtedness" will have the meaning specified in Section 14,
except that in the case of the Counterparty, Specified Indebtedness shall
consist solely of such indebtedness of the Kansas Electric Power Cooperative,
Inc. (the "Cooperative") that is guaranteed by the United States of America (or
an instrumentality thereof); and
(b) "Threshold Amount" means, with respect to Morgan, an amount equal to 3% of
shareholders' equity as shown in the most recent audited annual financial
statements of J.P. Morgan & Co. Incorporated, and, with respect to the
Counterparty, $5,000,000, or its equivalent in any other currency or currencies.
After the Closing Date, the "Cross Default" provisions of Section 5(a)(vi) will
not apply to Morgan or the Counterparty.
<PAGE>
-2-
(4) "Termination Currency" means United States Dollars.
(5) The "Credit Event Upon Merger" provisions of Section 5(b)(iv) will not
apply to Morgan or the Counterparty.
(6) The "Automatic Early Termination" provisions of Section 6(a) will not apply
to Morgan or the Counterparty.
(7) For purposes of computing amounts payable on early termination:
(a) Market Quotation will apply to this Agreement; and
(b) The Second Method will apply to this Agreement.
(8) Section 5(a)(iv), Section 5(a)(v), Section 5(b)(ii) and Section 5(b)(iii)
of the Agreement are hereby deleted.
(9) (i) Section 5(a)(viii) shall not apply with respect to the Counterparty.
(ii) From the date of execution of this Agreement to the Closing Date,
Sections 5(a)(ii) and (vi) shall not apply with respect to the
Counterparty.
(10) ADDITIONAL TERMINATION EVENTS. Section 5(b) of the Agreement is amended by
adding the following Additional Termination Events:
(a) FAILURE TO ISSUE CERTIFICATES. It shall constitute a Termination
Event if the Rural Electric Cooperative Grantor Trust (KEPCO) Series
1997 fails to issue its Series 1997 Certificates (the "Certificates")
as contemplated in the Trust Agreement (as defined below) by means of
a registered public offering or private placement (in accordance with
an exemption from the registration requirements of the Securities Act
of 1933, as amended) of such Certificates and in such case the
Counterparty shall be the Affected Party;
(b) FAILURE TO DEPOSIT NOTES. It shall constitute a Termination Event with
respect to the Counterparty if on the Effective Date of the
Transaction, the National Rural Utilities Cooperative Finance
Corporation fails to deposit, or cause to be deposited, into the Trust
the Notes (as defined in the Trust Agreement) bearing the guarantee
endorsement of the United States of America acting through the
Administrator of the Rural Utility Service, in which instance the
Counterparty (or the Cooperative on behalf of the Counterparty) shall
be the Affected Party.
<PAGE>
-3-
PART 2
TAX REPRESENTATIONS
REPRESENTATIONS OF MORGAN
(1) Payer Tax Representation. For the purpose of Section 3(e) of this
Agreement, Morgan hereby makes the following representation:
(i) It is not required by any applicable law, as modified by the practice
of any relevant governmental revenue authority, of any Relevant Jurisdiction to
make any deduction or withholding for or on account of any Tax from any payment
(other than interest under Section 2(e), 6(d)(ii) or 6(e)) to be made by it to
the Counterparty under this Agreement. In making this representation, it may
rely on:
(a) the accuracy of any representations made by the Counterparty
pursuant to Section 3(f);
(b) the satisfaction of the agreement of the Counterparty contained
in Section 4(a)(i) or 4(a)(iii) and the accuracy and effectiveness of any
document provided by the Counterparty pursuant to Section 4(a)(i) or 4(a)(iii);
and
(c) the satisfaction of the agreement of the Counterparty contained
in Section 4(d);
provided that it shall not be a breach of this representation where reliance is
placed on clause (b) and the Counterparty does not deliver a form or document
under Section 4(a)(iii) by reason of material prejudice to its legal or
commercial position.
(2) PAYEE TAX REPRESENTATIONS. For the purpose of Section 3(f) of this
Agreement, Morgan represents that it is a banking corporation organized
under the laws of the State of New York and is not a foreign corporation
within the meaning of Section 7701(a)(5) of the United States Internal
Revenue Code.
REPRESENTATIONS OF THE COUNTERPARTY
(1) Payer Tax Representation. For the purpose of Section 3(e) of this
Agreement, the Counterparty hereby makes the following representation:
It is not required by any applicable law, as modified by the practice of
any relevant governmental revenue authority, of any Relevant Jurisdiction
to make any deduction or withholding for or on account of any Tax from any
payment (other than interest under
<PAGE>
-4-
Section 2(e), 6(d)(ii) or 6(e)) to be made by it to Morgan under this
Agreement. In making this representation, it may rely on:
(a) the accuracy of any representation made by Morgan pursuant to Section 3(f);
(b) the satisfaction of the agreement of Morgan contained in Section 4(a)(i) or
4(a)(iii) and the accuracy and effectiveness of any document provided by
Morgan pursuant to Section 4(a)(i) or 4(a)(iii); and
(c) the satisfaction of the agreement of Morgan contained in Section 4(d);
provided that it shall not be a breach of this representation where
reliance is placed on clause (b) and Morgan does not deliver a form or
document under Section 4(a)(iii) by reason of material prejudice to its
legal or commercial position.
(2) Payee Tax Representations. For the purpose of Section 3(f) of this
Agreement, the Counterparty represents that it is a corporation organized
under the laws of Kansas.
PART 3
AGREEMENT TO DELIVER DOCUMENTS
For the purpose of Sections 4(a)(i) and (ii), each party agrees to deliver the
following documents, as applicable:
(1) Morgan will, on demand, deliver a certificate (or, if available, the
current authorized signature book of Morgan) specifying the names, title
and specimen signatures of the persons authorized to execute this Agreement
and each Confirmation on its behalf.
(2) Morgan will, upon execution of this Agreement, deliver an opinion of
counsel of Morgan substantially in the form attached hereto as Exhibit A
and covering such other matters as the Counterparty may reasonably request.
(3) The Counterparty will, on demand, deliver a certificate (or, if available,
the current authorized signature book of the Counterparty) specifying the
names, title and specimen signatures of the persons authorized to execute
this Agreement and each Confirmation on its behalf.
(4) The Counterparty will upon execution of this Agreement deliver (i) a fully
executed Trust Agreement dated as of December 20, 1996 among the National
Rural Utilities
<PAGE>
-5-
Cooperative Finance Corporation ("CFC"), the Kansas Electric Power
Cooperative, Inc. and The First National Bank of Chicago, as Trustee (the
"Trustee") of Rural Electric Cooperative Grantor Trust (KEPCO) Series 1997
(the "Trust Agreement"), (ii) the First Amendment to Loan Guarantee and
Servicing Agreement dated as of December 20, 1996 among the United States
of America, acting through the Administrator of the Rural Utilities
Service, the Cooperative, CFC and the Trustee and (iii) the First Amendment
to Loan Agreement dated as of December 20, 1996 between CFC and the
Cooperative.
(5) The Counterparty will, upon execution of this Agreement, deliver on an
opinion of counsel of the Counterparty dated on or before such Trade Date
substantially in the form of Exhibit B hereto and covering such other
matters as Morgan may reasonably request;
(6) The Counterparty will, upon execution of this Agreement, deliver certified
copies of all action taken by the Counterparty to authorize the execution,
delivery and performance of this Agreement and the Confirmation(s) and such
other documents and other papers as Morgan may reasonably request.
(7) The Counterparty shall no later than the Effective Date of the Transaction,
deliver confirmation of deposit into the Trust (as defined in the Trust
Agreement) of the Notes.
(8) The Counterparty shall deliver to Morgan as soon as available and in any
event within 90 days after the end of each fiscal year of the Counterparty,
a statement of assets and liabilities of the Counterparty together with an
audit report thereon issued by independent public accountants of nationally
recognized standing; and
(9) The Counterparty shall deliver to Morgan as soon as available and in any
event within 60 days after the end of each fiscal quarter of each fiscal
year of the Counterparty, an unaudited statement of assets and liabilities
of the Counterparty, including a disclosure of Total Assets, as of the end
of such period, all consistently prepared (subject to normal year-end
adjustments) in accordance with generally accepted accounting principles.
Each of the foregoing documents, other than the opinions to be delivered
pursuant to paragraphs (2) and (5) and the financial statements delivered
pursuant to paragraphs (8) and (9) above, is covered by the representation
contained in Section 3(d) of this Agreement. The Counterparty represents that
the financial statements delivered pursuant to paragraph (8) or (9) above fairly
present, in accordance with generally accepted accounting principles, except as
otherwise expressly noted therein, its financial position and results of
operations as of the dates and for the period covered thereby.
<PAGE>
-6-
PART 4
MISCELLANEOUS
(1) GOVERNING LAW. This Agreement will be governed by and construed in
accordance with the laws of the State of New York without reference to
choice of law doctrine.
(2) NOTICES.
(a) In connection with Section 12(a), all notices to Morgan shall, with respect
to any particular Transaction, be sent to the address, telex number or
facsimile number specified in the relevant Confirmation and any notice for
purposes of Sections 5 or 6 of the Agreement shall be sent to the address
or telex number specified below:
Morgan Guaranty Trust Company of New York
60 Wall Street
New York, New York 10260
Attention: Global Swaps Units
Facsimile No.: (212) 648-5922
(b) In connection with Section 12(a), all notices to the Counterparty
shall, with respect to any particular Transaction, be sent to the address,
telex number or facsimile number specified in the relevant Confirmation and
any notice for purposes of Sections 5 or 6 of the Agreement shall be sent
to the address or telex number specified below:
In the case of notices to the Cooperative:
KANSAS ELECTRIC POWER COOPERATIVE, INC.
P.O. Box 4877
Topeka, Kansas 66604
Attention: Executive Vice President
Facsimile No.: (913) 271-4888
In the case of notices to the Trustee:
RURAL ELECTRIC COOPERATIVE GRANTOR TRUST
(KEPCO) SERIES 1997
c/o The First National Bank of Chicago
as Trustee
One First National Plaza
Suite 0126
Chicago, Illinois 60670-0126
<PAGE>
-7-
Attention: Corporate Trust Administration
Facsimile No.: (312) 407-1708
(3) NETTING OF PAYMENTS. Section 2(c) of this Agreement is hereby deleted.
(4) OFFICES; MULTIBRANCH PARTY. For purposes of Section 10:
(a) Section 10(a) will apply; and
(b) For the purpose of Section 10(c):
(i) Morgan is a Multibranch Party and may act through its London and
New York Offices.
(ii) The Counterparty is not a Multibranch Party.
(5) CREDIT SUPPORT DOCUMENTS.
With respect to the Counterparty the following documents shall constitute
Credit Support Documents:
(i) Note 1 and Note 2 from the Cooperative in the original principal
amounts of $11,075,000 and $51,340,000, respectively, issued in
connection with the Loan (as defined in the Trust Agreement) and
bearing the guarantee endorsement of the United States of America
acting through the Administrator of the Rural Utilities Service;
and
(ii) The Trust Agreement.
With respect to Morgan the Credit Support Annex attached hereto as Annex I
shall be a Credit Support Document.
(6) CREDIT SUPPORT PROVIDER.
The United States of America acting through the Administrator of the Rural
Utilities Service shall be the Credit Support Provider with respect to the
Counterparty.
<PAGE>
-8-
PART 5
OTHER PROVISIONS
(1) ISDA DEFINITIONS. Reference is hereby made to the 1991 ISDA Definitions
(the "ISDA Definitions") each as published by the International Swaps and
Derivatives Association, Inc., which are hereby incorporated by reference
herein. Any terms used and not otherwise defined herein which are
contained in the ISDA Definitions shall have the meaning set forth therein.
(2) SCOPE OF AGREEMENT. Notwithstanding anything contained in this Agreement
to the contrary, any transaction which may otherwise constitute a
"Specified Transaction" for purposes of this Agreement which has been or
will be entered into between the parties shall constitute a "Transaction"
which is subject to, governed by, and construed in accordance with the
terms of this Agreement, unless the Confirmation expressly provides
otherwise.
(3) INCONSISTENCY. In the event of any inconsistency between any of the
following documents, the relevant document first listed below shall govern:
(i) a Confirmation; (ii) the Schedule and "Paragraph 13 - Elections &
Variables" to the ISDA Credit Support Annex (as applicable); (iii) the ISDA
Definitions; and (iv) the printed form of ISDA Master Agreement and ISDA
Credit Support Annex (as applicable).
(4) CREDIT ENHANCEMENT. In the event that the long term, unsecured and
unsubordinated indebtedness of Morgan shall cease to be rated at least Aa3
by Moody's and AA- by S&P, or such indebtedness ceases to be rated by
Moody's and S&P (such event being referred to herein as a "Morgan Credit
Event"), Morgan's obligations under each Transaction subject to the terms
of the Agreement shall be collateralized on the terms and subject to the
conditions set forth in this Agreement and the Credit Support Annex
attached hereto as Annex I.
(5) SET-OFF. "Set-off" shall, for purposes of this Agreement and any Credit
Support Document, have the meaning set forth in Section 14 and shall
include without limitation the rights in Section 6(f). Section 6 of this
Agreement is modified to include the following additional sub-clause (f):
"(F) SET-OFF. Any amount (the "Early Termination Amount") payable to one
party (the "Payee") by the other party (the "Payer") under Section 6(e), in
circumstances where there is a Defaulting Party or one Affected Party will,
at the option of the party ("X") other than the Defaulting Party or
Affected Party (and without prior notice to same) 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
<PAGE>
-9-
occurrence of a contingency) by the Payee to the Payer (irrespective of the
currency, place of payment or booking office of such obligation) under any
other agreement(s) between the Payee and the Payer 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(s) will be discharged promptly
and in all respects to the extent it is so set-off). X will give notice to
the other 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 X into the currency in which the other is denominated at the rate of
exchange at which such party would be able, acting in a reasonable manner
and in good faith, to purchase the relevant amount of such currency.
If an obligation is unascertained, X may in good faith estimate that
obligation and set-off in respect of the estimate, subject to the relevant
party accounting to the other when the obligation is ascertained.
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 otherwise available to a party (whether by
operation of law, contract, or otherwise)."
(6) CALCULATION AGENT. The Calculation Agent will be Morgan.
(7) SEVERABILITY. In the event any one or more of the provisions contained in
this Agreement should be held invalid, illegal, or unenforceable in any
respect, the validity, legality and enforceability of the remaining
provisions contained herein shall not in any way be affected or impaired
thereby. The parties shall endeavor, in good faith negotiations, 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 provisions.
(8) WAIVER OF JURY TRIAL. Each party waives, to the fullest extent permitted
by applicable law, any right it may have to a trial by jury in respect of
any suit, action or proceeding relating to this Agreement or any Credit
Support Document. Each party (i) certifies that no representative, agent
or attorney of the other party or any Credit Support Provider has
represented, expressly or otherwise, that such other party would not, in
the event of such a suit, action or proceeding, seek to enforce the
foregoing waiver and (ii) acknowledges that it and the other party have
been induced to enter into this Agreement and provide for any Credit
Support Document, as applicable, by, among other things, the mutual waivers
and certifications in this Section.
<PAGE>
-10-
(9) RIGHT OF ELECTIVE TERMINATION. The Counterparty shall have the right to
terminate the outstanding Transaction hereunder (without regard for the
occurrence of an Event of Default or Termination Event), with the consent
of the Rural Utilities Service and, if the Servicer (as defined in the
Trust Agreement) would be adversely affected thereby, the Servicer, by
delivering to Morgan (i) 30 day's prior written notice of the
Counterparty's intention to terminate the Transaction on a date designated
by the Counterparty (the "Elective Termination Date") and (ii) on the
Elective Termination Date, payment of the Elective Termination Payment (as
defined below). Any such termination shall be referred to herein as an
"Elective Termination".
Upon an Elective Termination, a payment (the "Elective Termination
Payment") shall be made on the Elective Termination Date. An Elective
Termination Payment shall be calculated as if a Termination Event had
occurred, the Counterparty was an Affected Party and the Elective
Termination Date was an Early Termination Date.
(10) ASSIGNMENT. The parties hereby acknowledge and agree that the
Counterparty's rights and obligations under this Agreement and each
transaction hereunder shall be assigned on or before the Effective Date of
the Transaction to the Rural Electric Cooperative Grantor Trust (KEPCO)
Series 1997 as provided in Section 2.01(c) of the Trust Agreement.
Accordingly, the Kansas Electric Power Cooperative, Inc. shall retain its
right to terminate each transaction hereunder pursuant to Part 5, Section
(9) of this Schedule. Following such assignment:
The Trustee will be the Counterparty under this Agreement, except for the
purposes of the rights and obligations to make and receive payment of
amounts in respect of an "Early Termination Date" determined pursuant to
Section 6(e) of this Agreement and the right to terminate the outstanding
Transaction pursuant to Part 5, Section (9) of this Schedule. As to such
provisions only, the Kansas Electric Power Cooperative, Inc. shall be
deemed the Counterparty; provided, that any payment by Morgan of an amount
in respect of an Early Termination Date shall be made to the Trustee,
which shall distribute such payment as provided in Section 7.5 of the
Trust Agreement, and Morgan shall have no responsibility with respect to
such distribution.
Morgan's payments under this Agreement will be made without regard to any
condition precedent (including but not limited to an Event of Default or
Potential Event of Default), and Morgan will not have the right to
terminate any outstanding Transaction with respect to the occurrence of
such events as they relate to the Cooperative.
Kansas Electric Power Cooperative, Inc., to the extent permitted by
applicable law, hereby indemnifies Morgan, and holds Morgan harmless, from
liabilities in respect of Indemnifiable Taxes, and agrees to pay expenses,
interest at the Default
<PAGE>
-11-
Rate and other amounts payable to Morgan under this Agreement to the
extent that the Trustee has not assumed such obligations and such amounts
are at any time payable under this Agreement.
In addition to such assignment to the Trustee, the parties hereby acknowledge
and agree that the Counterparty's right to terminate the outstanding Transaction
hereunder, pursuant to Part 5, Section (9) of this Schedule, is being assigned
(on a non-exclusive basis with the Cooperative also having the right to
terminate) to the Rural Utilities Service, an agency of the United States
Department of Agriculture, pursuant to Section 4.3 of the "Loan Guarantee
Agreement" (as defined in the Trust Agreement).
(11) BUSINESS PURPOSE REPRESENTATION. Morgan represents that it has entered
into this Agreement (including each Transaction now or hereafter entered
into in connection herewith) in conjunction with its line of business,
including financial intermediation, or the financing of its business and
not for speculative purposes. The Counterparty represents and warrants
that it has entered into this Agreement (including each Transaction on or
hereafter entered into in connection herewith) to hedge its actual or
expected exposure to changes in interest rates or for other normal business
purposes independent of this Agreement, and not for speculative purposes.
Each party represents that it is an "eligible swap participant" for
purposes of the exemption of swap agreements (17 C.F.R. Section 35.2)
adopted by the Commodity Futures Trading Commission from the exchange
trading and certain other requirements of the Commodity Exchange Act, as in
the case of Morgan, a bank acting on its own behalf, and, in the case of
the Cooperative, a Kansas nonprofit cooperative corporation that meets the
further requirements set forth in 17 C.F.R. Section 35.1.
(12) RELATIONSHIP OF THE PARTIES. Each party represents that in entering into
this Agreement and each Transaction: (i) it is acting as a principal and
not as an agent, (ii) it understands and acknowledges that the other party
has been and will be acting only on an arm's length basis and not as its
agent, broker, advisor or fiduciary in any respect, (iii) it is relying
solely upon its own evaluation of this Agreement and any Transaction
(including the present and future results, consequences, risks and benefits
thereof, whether financial, accounting, tax, legal or otherwise) and upon
active from its own professional advisors, (iv) it understands this
Agreement and the Transactions contemplated hereby and the risks associated
therewith, has determined that those risks are appropriate for it, and is
willing to assume those risks, and (v) it has not relied and will not be
relying upon any evaluation or advice (including any recommendation,
opinion or representation) from the other party or its affiliates or the
representatives or advisors of the other party or its affiliates.
(13) NO RECOURSE TO TRUSTEE. Except for liability for its own negligence or
willful misconduct or as otherwise expressly provided in the Trust
Agreement, Morgan and the Counterparty hereby agree that (a) this Agreement
and each Transaction to which the Trust is a party will be assigned to and
assumed by the Trustee (as provided in Section 2.01(c) of the
<PAGE>
-13-
Trust Agreement) not in its individual capacity but solely as Trustee of
the Rural Electric Cooperative Grantor Trust (KEPCO) Series 1997 under the
Trust Agreement, (b) each of the undertakings and agreements herein made on
the part of the Trust are intended for the purpose of binding the trust
estate created by the Trust Agreement and not as personal undertakings of
the Trustee, and (c) nothing contained herein, in any Confirmation or in
any other document shall be construed to create any liability on the part
of the Trustee, individually, to perform any obligation of the Trust
contained herein, in any Confirmation or in any other document. Morgan and
the Counterparty hereby expressly waive all liability on the part of the
Trustee except as provided in the preceding sentence and agree that the
Trustee shall under no circumstances be personally liable for the payment
of any amounts due under any Transaction or for any other obligations of
the Trust or be liable for the breach or failure of any obligation,
representation, warranty or covenant made or undertaken by the Trustee
under this Agreement, any Confirmation or any other documents except as
provided above.
Please confirm your agreement to the terms of the foregoing Schedule by signing
below.
MORGAN GUARANTY TRUST COMPANY
OF NEW YORK
By: /s/ John B. V. Anderson
---------------------------
Name: John B. V. Anderson
Title: Vice President
KANSAS ELECTRIC POWER
COOPERATIVE, INC.
By: /s/ Stephen E. Parr
--------------------------------
Name: Stephen E. Parr
Title: Executive Vice President
<PAGE>
EXHIBIT A
[FORM OF MORGAN LEGAL OPINION ISDA MASTER AGREEMENT]
December 20, 1996
Kansas Electric Power Cooperative, Inc.
5990 S.W. 28th Street
Topeka, Kansas 66614
Alex. Brown & Sons Incorporated
1100 Louisiana, Suite 3350
Houston, Texas 77002
Rural Utilities Service
United States Department of Agriculture
Washington D.C. 20250-1510
The First National Bank of Chicago,
as Trustee
One First National Plaza, Suite 0126
Chicago, Illinois 60670-0126
National Rural Utilities Cooperative
Finance Corporation
2201 Cooperative Way - Woodland Way
Herndon, Virginia 22071-3025
Moody's Investors Service, Inc.
99 Church Street
New York, New York 10007
Standard & Poor's Rating Service
25 Broadway
New York, New York 10004
Ladies and Gentlemen:
This opinion is furnished to you in connection with the ISDA Master Agreement
(the "Agreement") between Morgan Guaranty Trust Company of New York ("Morgan")
and Kansas Electric Power Cooperative, Inc.(the "Counterparty") dated as of
<PAGE>
-2-
December 20, 1996. Terms defined in the Agreement and used but not defined
herein have the meanings given to them in the Agreement.
I am Vice President and Assistant General Counsel of Morgan and have represented
Morgan in connection with the Agreement and the transactions contemplated
thereby. In connection with the delivery of this opinion, I have examined (a)
executed copies of the Agreement and (b) copies, certified or otherwise
identified to my satisfaction, of such documents, corporate records,
certificates of public officials and other instruments, and have conducted such
investigation of fact and law, as I have deemed necessary or appropriate for the
opinions expressed herein. In rendering the opinions expressed below, I have
assumed the due authorization, execution and delivery of the Agreement by each
of the parties thereto other than Morgan and I have assumed and have not
verified that the signatures (other than signatures of officers of Morgan) on
all documents that I have examined are genuine.
Based on the foregoing, I am of the opinion that:
(1) Morgan is a banking corporation, duly organized, validly existing and
in good standing under the laws of the State of New York.
(2) Morgan has full corporate power and authority to execute and deliver
the Agreement and to perform its obligations thereunder and the Agreement has
been duly authorized, executed and delivered by Morgan.
(3) No consents, authorizations or approvals are required for the
execution and delivery by Morgan of the Agreement and the performance of its
obligations thereunder, and no other action by, and no notice to or filing with,
any governmental authority or regulatory body is required for such execution,
delivery or performance.
(4) The execution, delivery and performance by Morgan of the Agreement do
not and will not contravene any law or governmental regulation or order
presently binding on Morgan or its articles of incorporation or bylaws or
contravene any provision of or constitute a default under any indenture,
contract or other instrument to which Morgan is a party or by which Morgan is
bound.
(5) The Agreement constitutes the legal, valid and binding obligation of
Morgan enforceable in accordance with its terms (except as enforcement thereof
may be limited by bankruptcy, reorganization, insolvency, moratorium or other
laws affecting the enforcement of creditors' rights generally and by general
equitable principles).
<PAGE>
-3-
With respect to clause (5) above, I express no opinion regarding the legality,
validity, binding effect or enforceability of Section 6(e) of the Agreement
insofar as it purports to obligate a party, on termination of the Agreement, to
pay an amount in excess of that measured by the lowest quotation from a
Reference Market-maker. In addition, in connection with any such Early
Termination on the grounds of default, a court might limit the non-defaulting
party's recovery to its actual damages in the circumstances, imposing its own
settlement procedures in lieu of the provisions of Section 6(e) of the
Agreement.
I am a member of the bar of the State of New York and the opinions expressed
herein are limited to the laws of the State of New York and the Federal laws of
the United States of America.
I am furnishing this letter to you in my capacity as Counsel for Morgan and this
opinion may not be relied upon by or furnished to any other person without my
prior written consent.
Very truly yours,
<PAGE>
EXHIBIT B
[FORM OF LEGAL OPINION]
[LETTERHEAD OF COUNTERPARTY COUNSEL]
December 20, 1996
Morgan Guaranty Trust Company
of New York
60 Wall Street
New York, New York 10260
Ladies and Gentlemen:
We have represented Kansas Electric Power Cooperative Inc. (the
"Counterparty") and are delivering this opinion in connection with the Master
Agreement dated as of December 20, 1996 (the "Master Agreement") between Morgan
Guaranty Trust Company of New York ("Morgan") and the Counterparty.
We have examined originals or copies, certified or otherwise identified to
our satisfaction, of such documents, corporate records, certificates of public
officials and other instruments and have conducted such other investigations of
fact and law as we have deemed necessary or appropriate for purposes of this
opinion.
Upon the basis of the foregoing, we are of the opinion that:
(1) The Counterparty is a duly organized, validly existing and in
good standing under the laws of State of Kansas.
(2) The Counterparty has the requisite corporate power and authority
to enter into the Agreement and to perform its obligations thereunder, and
the Agreement has been duly authorized, executed and delivered by the
Counterparty and, assuming due authorization, execution and delivery by
Morgan, the Agreement constitutes the valid and binding obligation of the
Counterparty enforceable in accordance with its terms, subject, as to
enforcement, to bankruptcy, insolvency, reorganization and other laws of
general applicability relating to or affecting creditor's rights and to
general equity principles.
(3) The Counterparty is not required to obtain any authorization,
consent, approval, registration, exemption or license from or to file any
registration with any governmental authority as a condition to the validity
of, or for the execution and delivery of, the Agreement or to the
performance by the Counterparty of its obligations thereunder.
<PAGE>
-2-
(4) There is no action, suit or proceeding pending against, or to our
knowledge, having made due investigation, threatened against or affecting
the Counterparty before any court or arbitrator or any governmental body,
agency or official in which there is a reasonable possibility of an adverse
decision which could materially adversely affect the ability of the
Counterparty to perform the Agreement or which in any manner questions the
validity of the Agreement.
(5) The execution, delivery and performance of the Agreement by the
Counterparty will not contravene or constitute a default under any
applicable law, regulation, rule, order or judgment of any governmental
authority or under any mortgage, indenture, contract or other undertaking
to which the Counterparty is a party or by which the Counterparty or any of
the Counterparty's property or assets is bound.
Very truly yours,
<PAGE>
(BILATERAL FORM) (ISDA AGREEMENTS SUBJECT TO NEW YORK LAW ONLY)
ISDA(R)
International Swaps and Derivatives Association, Inc.
CREDIT SUPPORT ANNEX
to the Schedule to the
.....................................................
dated as of __________________
between
..................................... and .....................................
("Party A") ("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.
Copyright /(C)/ 1994 by International Swaps and Derivatives Association, Inc.
<PAGE>
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).
2
<PAGE>
(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 (I) the Valuation Agent's calculation
of a Delivery Amount or a Return Amount or (II) 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 of business on the Local Business
Day following (X) the date that the demand is made under Paragraph 3 in the case
of (I) 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
(I) above or (Y) the date of Transfer in the case of (II) 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.
3
<PAGE>
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 OF POSTED 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).
4
<PAGE>
(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.
5
<PAGE>
(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 available 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 full
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.
6
<PAGE>
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 lien 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.
7
<PAGE>
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.
8
<PAGE>
"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.
9
<PAGE>
"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.
10
<PAGE>
EXECUTION COPY
CREDIT SUPPORT ANNEX
TO THE SCHEDULE TO THE
MASTER AGREEMENT
dated as of December 20, 1996
between
and
MORGAN GUARANTY TRUST
COMPANY OF NEW YORK KANSAS ELECTRIC POWER COOPERATIVE, INC.
("Morgan") (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 Morgan 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":
<PAGE>
-2-
MORGAN "VALUATION
PERCENTAGE"
(A) Cash [ X ] [100]%
(B) negotiable debt obligations issued by the [ X ] [98]%
U.S. Treasury Department having an
original maturity at issuance of not more
than one year ("Treasury Bills")
(C) negotiable debt obligations issued by the [ X ] [98]%
U.S. 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 [ X ] [95]%
U.S. Treasury Department having an
original maturity at issuance of more
than ten years ("Treasury Bonds")
(E) Other: Agency Securities having an [ X ] [98]%
original maturity at issuance of not more
than ten years.
Agency Securities having an original
maturity at issuance of more than ten [ X ] [95]%
years.
As used herein, "Agency Securities" means negotiable debt obligations
which are fully guaranteed as to both principal and interest by the
Federal National Mortgage Association, the Government National Mortgage
Corporation or the Federal Home Loan Mortgage Corporation, but
excluding (i) interest only and principal only securities and (ii)
Collateralized Mortgage Obligations, Real Estate Mortgage Investment
Conduits and similar derivative securities.
(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 for purposes of this
Annex.
(B) "Threshold" means, if the ratings on senior long term unsecured
unsubordinated debt obligations of Morgan are less than AA- by
S&P and Aa3 by Moody's, $0, otherwise the terms of this Credit
Support Annex shall not apply.
<PAGE>
-3-
"S&P" means Standard & Poor's Ratings Group.
"Moody's" means Moody's Investors Service, Inc.
(C) "Minimum Transfer Amount" means $100,000, provided,
however, that if an Event of Default has occurred and is
continuing with respect to the Counterparty, the Minimum
Transfer Amount shall be $0.
(D) Rounding. The Delivery Amount and the Return Amount will be
rounded up and down respectively to the nearest integral
multiple of $10,000.
(c) VALUATION AND TIMING.
(i) "Valuation Agent" means Morgan.
(ii) "Valuation Date" means any Local Business Day.
(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. With respect to Morgan, an Illegality (if Morgan is
the Affected Party with respect to such Termination Event) will be a
"Specified Condition". With respect to the Counterparty, an Illegality and
any Additional Termination Event (if the Counterparty is the Affected Party
with respect to such Termination Events) will be a "Specified Condition".
(e) SUBSTITUTION.
(i) "Substitution Date" has the meaning specified in Paragraph 4(d)(ii).
(ii) Consent. The Pledgor must obtain the Secured Party's consent, such
consent not to be unreasonably withheld, for any substitution pursuant to
paragraph 4(d).
<PAGE>
-4-
(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 will be calculated as follows:
(A) with respect to any Treasury Bills, Treasury Notes, Treasury
Bonds or Agency Securities (referred to herein as "Government
Obligations"), the sum of (I) (x) the mean of the high bid and low
asked prices quoted on such date by any principal market maker for
such Government Obligations 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 (II) the accrued interest on such Government Obligations (except
to the extent Transferred pursuant to any applicable provision of
this Agreement or included in the applicable price referred to in (I)
of this clause (A)) as of such date
(iii) The provisions of Paragraph 5(i) 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) The Counterparty is not a Defaulting Party
(2) The Custodian is 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 Baa1 by Moody's.
(ii) Use of Posted Collateral. The provisions of Paragraph 6(c) will not
apply to Morgan or the Counterparty.
(h) DISTRIBUTIONS AND INTEREST AMOUNT.
(i) Interest Rate. The "Interest Rate" will be 0%.
(ii) Transfer of Interest Amount. The provisions of Paragraph 6(d)(ii)
will not apply.
<PAGE>
-5-
(i) ADDITIONAL 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 Morgan:
Morgan Guaranty Trust Company of New York
Attention: Credit Enhancement Administration Group
With respect to the Counterparty:
[Provide address for notices if different from address in Schedule]
(l) 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 Morgan; 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
<PAGE>
-6-
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 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 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 Morgan, when that Morgan (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.
<PAGE>
-7-
Please confirm your agreement to the terms of the foregoing Paragraph 13 by
signing below.
MORGAN GUARANTY TRUST COMPANY
OF NEW YORK
/s/ John B. V. Anderson
By: _______________________________
Name: John B. V. Anderson
Title: Vice President
KANSAS ELECTRIC POWER COOPERATIVE, INC.
/s/ Stephen E. Parr
By: _______________________________
Name: Stephen E. Parr
Title: Executive Vice President
<PAGE>
JP MORGAN
Morgan Guaranty SWAP TRANSACTION
Trust Company of
New York
60 Wall Street
New York NY
10260-0060
Date:
The purpose of this letter agreement is to confirm the terms
and conditions of the Transaction entered into between:
MORGAN GUARANTY TRUST COMPANY OF NEW YORK
and
KANSAS ELECTRIC POWER COOPERATIVE, INC.
on the Trade Date and identified by the Morgan Deal Number specified
below (the "Transaction"). This letter agreement constitutes a
"Confirmation" as referred to in the ISDA Master Agreement specified
below.
The definitions and provisions contained in the 1991 ISDA Definitions
(as published by the International Swap Dealers Association, Inc.) are
incorporated into this Confirmation. In the event of any inconsistency
between those definitions and provisions and this Confirmation, this
Confirmation will govern.
This Confirmation supplements, forms part of, and is subject to, the
ISDA Master Agreement dated as of 20 December 1996, as amended and
supplemented from time to time (the "Agreement"), between MORGAN
GUARANTY TRUST COMPANY OF NEW YORK ("Morgan") and KANSAS ELECTRIC
POWER COOPERATIVE, INC. (the "Counterparty"). All provisions contained
in the Agreement govern this Confirmation except as expressly modified
below.
The terms of the particular Transaction to which this Confirmation
relates are as follows:
Morgan Deal Number:
Trade Date: 23rd December, 1996
Effective Date: 18 December 1997
A subsidiary of
J.P. Morgan & Co.
Incorporated
<PAGE>
JP MORGAN
-2-
Termination Date: 4 December 2017, subject to adjustment in
accordance with the Following Business Day
Convention; provided that this Transaction may
be terminated prior to the Maturity Date in
accordance with the provisions of the Agreement.
FIXED AMOUNTS:
Fixed Rate Payer: Counterparty
Notional Amount: As of the Effective Date an amount equal to
US$57,390,000.00, thereafter an amount equal to
the outstanding Principal Balance (as defined in
the Trust Agreement) of the Certificates.
Fixed Rate Payer Payment Dates: Each 4 June and 4 December occurring during the
period commencing on the Effective Date up to,
and including, the Termination Date, subject to
adjustment in accordance with the Following
Business Day Convention and there will be no
adjustment to the Calculation Period.
Fixed Rate: 7.654 percent, subject to adjustment as set
forth below
Fixed Rate Day Count Fraction: 30/360
<PAGE>
JP MORGAN
-3-
Fixed Rate Payer Adjustment: Subject to the following conditions the
Fixed Rate shall be adjusted as follows:
(i) Upon the sale of the Certificates
pursuant to a public offering
following the Effective Date of the
Registration Statement for the Trust
Certificates pursuant to the
Securities Act of 1933, minus 10
basis points (-0.10%) and
(ii) Upon fulfillment by the Counterparty
of all requirements of the Employee
Retirement Income Security Act of
1974, as amended ("ERISA") so that
the Certificates may be sold without
any limitation to "employee benefit
plans" (as such term is defined in
Section 3(3) of ERISA), minus five
basis points (-0.05%).
<PAGE>
JP MORGAN
-4-
Floating Amounts:
Floating Rate Payer: Morgan
Notional Amount: As of the Effective Date an amount
equal to US$57,390,000.00, thereafter
an amount equal to the Principal
Balance (as defined in the Trust
Agreement) of the Certificates.
Floating Rate Payer Payment Dates: Each Certificate Interest Payment Date
(as defined in the Trust Agreement).
The Floating Rate Payer Payment Dates
shall be subject to adjustment in
accordance with the Following Business
Day Convention and there will be an
adjustment to the Calculation Period.
Floating Rate: Determined in accordance with the
procedure for establishing the interest
distributable with respect to the
Certificates as set forth in Section
9.1 of the Trust Agreement but in no
case greater than 18% per annum or such
higher rate as Morgan and the Liquidity
Provider (as defined in the Trust
Agreement) may agree to be the "Maximum
Certificate Rate" under the Trust
Agreement.
Designated Maturity: Initially, Weekly and thereafter shall
be determined in accordance with
Section 9.1 of the Trust Agreement.
Floating Rate Day Count Fraction: Actual/360
Reset Dates: On each Rate Setting Date (as defined
in the Trust Agreement).
<PAGE>
JP MORGAN
-5-
Business Day: Any day of the year other than (i) Saturday
or Sunday, (ii) a legal public holiday under
5 U.S.C. Section 6103 for the purpose of
statutes relating to pay and leave of
employees or any other day declared to be a
legal public holiday for the purpose of
statutes relating to pay and leave of
employees by federal statute or federal
Executive Order, (iii) any day on wich banks
in the city in which the principal corporate
trust office of the Trustee is located are
required or authorized to remain closed,
(iv) any day on which banks in the city or
cities in which the principal office of the
Remarketing Agent (as defined in the Trust
Agreement), Liquidity Provider (as defined
in the Trust Agreement) and Servicer (as
defined in the Trust Agreement) is located
are required or authorized to remain closed,
(v) and any day that is not a local Business
Day hereunder, and (vi) any day on which the
New York Stock Exchange is closed.
ADDITIONAL DEFINITIONS:
"Certificates" means the certificates issued by the Rural Electric
Cooperative Grantor Trust (KEPCO) Series 1997 pursuant to the Trust
Agreement.
"Trust Agreement" means the Trust Agreement among the National Rural
Utilities Cooperative Finance Corporation, Kansas Electric Power
Cooperative, Inc. and The First National Bank of Chicago, as Trustee, dated
as of December 20, 1996 and as in effect as of the Trade Date.
ACCOUNTS DETAILS
PAYMENTS TO MORGAN:
Account for Payments in US Dollars: Morgan Guaranty Trust Company of New York
23 Wall Street
New York
<PAGE>
JP MORGAN
-6-
Floating Amounts:
Morgan Guaranty Trust Company of New York - London Office
ABA Number:
Account Number 670 070 54
Reference: Further credit to Swaps Group Account:
10005035
Please send MT100 cover cable to MGT
London
PAYMENTS TO COUNTERPARTY:
Prior December 18, 1997:
Account for payments in USD: Kansas Electric Power Cooperative, Inc.
Favour: Commerce Bank and Trust, Topeka, Kansas
ABA/Bank No.: 1011 00 728
Account No.: 052191
Reference: KEPCO
After December 18, 1997
Account for payments in USD: The First National Bank of Chicago, as
Trustee for the Rural Electric
Cooperative Grantor Trust (KEPCO)
Series 1997
Favour:
The First National Bank of Chicago
ABA/Bank No.:
071 000 013
Clearing Account No.: 48115377
Reference: Credit Trust No. 19-200112
Attention: S. McGrath/KEPCO
Offices
(a) The Office of Morgan for the Transaction is LONDON; and
(b) the Office of the Counterparty for the Transaction is, prior to
December 18, 1997, TOPEKA, KANSAS and thereafter CHICAGO, ILLINOIS.
ALL ENQUIRIES REGARDING PAYMENTS AND/OR RATE RESETTINGS ONLY SHOULD BE SENT TO:
MORGAN GUARANTY TRUST COMPANY OF NEW YORK
60 VICTORIA EMBANKMENT
LONDON, EC4Y 0JP
<PAGE>
JP MORGAN
-7-
ATTENTION: JOANNE CASE
TELEPHONE: 44 1 71 325 3783
FACSIMILE: 44 1 71 325 3862/3863
TELEX: 896631 MGT G
CABLE: MORGANBANK
PLEASE QUOTE THE MORGAN DEAL NUMBER INDICATED ABOVE.
ALL ENQUIRIES REGARDING CONFIRMATION SHOULD BE SENT TO:
MORGAN GUARANTY TRUST COMPANY OF NEW YORK
60 WALL STREET
NEW YORK, NEW YORK 10260
ATTENTION: DEBRA MILNE-JAMES
DOCUMENTATION CONTROL GROUP
TELEPHONE: 1-212-648-3510
FACSIMILE: 1-212-648-5117
PLEASE QUOTE THE MORGAN DEAL NUMBER INDICATED ABOVE.
Each party represents that (i) it is entering into the transaction evidenced
hereby as principal (and not as agent or in any other capacity; (ii) the other
party is not acting as a fiduciary for it; (iii) it is not relying upon any
representations except those expressly set forth in the Agreement or this
Confirmation; (iv) it has consulted with its own legal, regulatory, tax,
business, investment, financial, and accounting advisors to the extent it has
deemed necessary, and it has made its own investment, hedging, and trading
decisions based upon its own judgment and upon any advice from such advisors as
it has deemed necessary and not upon any view expressed by the other party; and
(v) it is entering into this transaction with a full understanding of the terms,
conditions and risks thereof and it is capable of and willing to assume those
risks.
MORGAN GUARANTY TRUST KANSAS ELECTRIC POWER
COMPANY OF NEW YORK COOPERATIVE, INC.
By: /s/ J.B.V. Anderson By: /s/ Stephen E. Parr
----------------------------- ----------------------------
John B. V. Anderson, Stephen E. Parr,
Vice President Executive Vice President and
Chief Executive Officer
<PAGE>
EXHIBIT 10.7
LIQUIDITY PROTECTION AGREEMENT
LIQUIDITY PROTECTION AGREEMENT dated as of December 20, 1996 by and
between Kansas Electric Power Cooperative, Inc., a Kansas non-profit electric
generation and transmission cooperative corporation (the "Cooperative"), and
Morgan Guaranty Trust Company of New York ("Morgan").
W I T N E S S E T H:
WHEREAS, in 1988 the Cooperative prepaid certain of its loans from the
Federal Financing Bank, which were guaranteed by the United States of America,
acting through the Administrator (the "Administrator") of the Rural
Electrification Administration of the Department of Agriculture (which has been
succeeded with respect to the administration of certain electric and telephone
loan programs by the Rural Utilities Service, an agency of the United States
Department of Agriculture established pursuant to Section 232 of the Federal
Cooperative Insurance Reform and Department of Agriculture Reorganization Act of
1994 (Pub.L. 103-354, 108 Stat. 3178) (together with its successors, the
"RUS")), with amounts borrowed from the National Rural Utilities Cooperative
Finance Corporation, a District of Columbia cooperative association (together
with its successors, "CFC"), pursuant to a Loan Agreement dated as of February
15, 1988 between CFC and the Cooperative (the "Original Loan Agreement" and, as
amended by the First Amendment to Loan Agreement dated as of December 20, 1996
and effective as provided therein (the "First Amendment to Loan Agreement") and
as further amended and supplemented from time to time in accordance with the
terms thereof and hereof, the "Loan Agreement");
WHEREAS, CFC established the Rural Electric Cooperative Grantor Trusts
(KEPCO) Series 1988 K1-1988 K3 (collectively, the "Original Trusts") for the
purpose of holding the notes (the "Original Notes") evidencing the Cooperative's
repayment obligations under the loan (the "1988 Loan") made by CFC to the
Cooperative pursuant to the Original Loan Agreement, which obligations were
guaranteed by the United States of America acting through the Administrator of
the RUS (as amended and supplemented from time to time in accordance with the
terms thereof and hereof, the "Federal Guaranty");
<PAGE>
WHEREAS, the Cooperative and CFC desire to cause "Note One" and "Note
Two" of the Original Notes, evidencing portions of the 1988 Loan in the original
principal amounts of $11,075,000 and $51,340,000, respectively (as amended and
supplemented by the First Amendment to Loan Agreement and as further amended and
supplemented from time to time in accordance with the terms thereof and hereof,
collectively, the "Notes"), to be purchased on a date agreed to by CFC, the RUS
and the Cooperative and on which such purchase is permitted to occur (the
"Refinancing Date") and to cause the amendments of the 1988 Loan and the Notes
pursuant to the First Amendment to Loan Agreement to become effective on the
Refinancing Date;
WHEREAS, the Notes are eligible for purchase on any Business Day (as
defined in the Loan Agreement) on or after the Business Day immediately prior to
December 15, 1997;
WHEREAS, the Cooperative has notified the trustee under the Original
Trusts that, with the approval of the Administrator, it desires that CFC
purchase the Notes and that such trustee redeem the related certificates of
beneficial interest therein and terminate the related Original Trusts on the
Refinancing Date, for the purpose of amending certain terms of the 1988 Loan and
the Notes, depositing the Notes in a new trust created pursuant to the Trust
Agreement referred to below and issuing new certificates of beneficial interest
therein (as amended and supplemented in accordance with the terms thereof and
hereof, the "Certificates");
WHEREAS, CFC, as lender under the Loan Agreement, depositor of the
Original Trusts and servicer of the Notes, has agreed to cause the Notes, with
the Federal Guaranty endorsed thereon, to be delivered to the Trustee (as
defined below) on the Refinancing Date for deposit in the Rural Electric
Cooperative Grantor Trust (KEPCO) Series 1997 created pursuant to the Trust
Agreement dated as of December 20, 1996 and effective as provided therein (as
amended and supplemented from time to time in accordance with the terms thereof
and hereof, the "Trust Agreement") among CFC, the Cooperative and The First
National Bank of Chicago, as trustee;
WHEREAS, contemporaneously herewith, the Cooperative and Morgan are
entering into the Swap Agreement (as defined below), which will be assigned by
the Cooperative to and deposited in the Trust on the Refinancing Date, pursuant
to which Morgan will pay to the Trustee (as assignee of the Cooperative) a
variable rate of interest
2
<PAGE>
equivalent to the variable rate of interest distributable in respect of the
Certificates and the Trustee will pay to Morgan a fixed rate of interest;
WHEREAS, the Cooperative and Morgan each believe that they will derive
financial benefit with respect to the transactions contemplated by the Swap
Agreement if a liquidity facility is provided in respect of the Certificates;
and
WHEREAS, Morgan is willing to provide, or cause to be provided, a
liquidity facility in respect of the Certificates until such time as all
outstanding Certificates have been paid in full or as otherwise provided herein,
all upon the terms and conditions set forth in this Agreement;
NOW, THEREFORE, for and in consideration of the premises and the
mutual covenants and agreements hereinafter set forth, it is agreed by and among
the parties hereto as follows:
ARTICLE I
DEFINITIONS
SECTION 1.1. Unless otherwise defined herein, all
capitalized terms shall have the meanings set forth below and if not so defined
shall have the meaning ascribed thereto in the hereinabove defined Trust
Agreement:
"ALTERNATE LIQUIDITY FACILITY" means each replacement or substitute
irrevocable letter of credit and related reimbursement agreement, line of
credit, standby certificate purchase agreement or similar agreement providing
for the purchase of all or a portion of the Certificates, as the same may be
amended, supplemented and extended from time to time.
"FIRST AMENDMENT TO LOAN GUARANTEE AGREEMENT" means the First
Amendment to Loan Guarantee and Servicing Agreement dated as of December 20,
1996 and effective as provided therein, among the United States of America,
acting through the Administrator of the RUS, the Cooperative, CFC and The First
National Bank of Chicago, as trustee.
"LIQUIDITY FACILITY" means (i) at the time of issuance of the
Certificates, the irrevocable letter of credit and related reimbursement
agreement, line of credit, standby certificate purchase agreement or similar
agreement providing for the purchase of all or a portion of the
3
<PAGE>
Certificates, as the same may be amended and supplemented from time to time, and
(ii) upon the effectiveness thereof, any Alternate Liquidity Facility.
"LOAN GUARANTEE AGREEMENT" means the Original Loan Guarantee
Agreement, as amended by the First Amendment to Loan Guarantee Agreement and as
further amended and supplemented from time to time in accordance with the terms
thereof and hereof.
"MOODY'S" means Moody's Investors Service, Inc., a Delaware
corporation, and its successors.
"ORIGINAL LOAN GUARANTEE AGREEMENT" means the Loan Guarantee and
Servicing Agreement dated as of February 18, 1988 among CFC, The First National
Bank of Chicago, as trustee, the Cooperative and the United States of America,
acting through the Administrator of the RUS.
"RELATED DOCUMENTS" means the form of standby certificate purchase
agreement attached as Exhibit A hereto, the Trust Agreement, the Certificates,
the Original Loan Agreement, the First Amendment to Loan Agreement, the Loan
Agreement, the Original Notes, the Notes, the Original Loan Guarantee Agreement,
the First Amendment to Loan Guarantee Agreement, the Loan Guarantee Agreement,
the Federal Guaranty, the Remarketing Agreement, the Underwriting Agreement and
the Swap Agreement and any other agreement or instrument relating to the
transactions contemplated hereby or thereby.
"S&P" means Standard & Poor's Rating Services, a division of The
McGraw Hill Companies, Inc., and its successors.
"SWAP AGREEMENT" means the International Swap Dealers Association
("ISDA") Master Agreement dated as of December 20, 1996 between Morgan and the
Cooperative, including the Schedule to the Master Agreement and the Credit
Support Annex to such Schedule, each dated as of December 20, 1996, and the
Confirmation with respect thereto dated the date of the execution and delivery
thereof by Morgan and the Cooperative, in each case as amended and supplemented
from time to time, pursuant to which the Cooperative and Morgan are entering
into a U.S. Dollar Interest Rate Swap Transaction relating to the transactions
contemplated by the Trust Agreement.
4
<PAGE>
ARTICLE II
PROVISION OF LIQUIDITY FACILITY
SECTION 2.1. As and to the extent provided herein, from the date
hereof until the termination of this Agreement, Morgan agrees and shall be
obligated to provide or cause to be provided to the Cooperative a Liquidity
Facility upon the issuance of the Certificates and on or prior to the expiration
or termination of each Liquidity Facility then in effect in accordance with its
terms, and the Cooperative agrees to accept and shall be obligated to enter into
each such Liquidity Facility. The Cooperative shall notify Morgan of any early
termination of any Liquidity Facility promptly upon receipt of notice thereof or
otherwise becoming aware thereof.
Each Liquidity Facility shall be for a term of not less than 364 days
(unless the remaining term of this Agreement is less than 364 days) as shall be
determined by Morgan, but in no event shall such term extend beyond the final
maturity of the Certificates. Each Alternate Liquidity Facility shall comply
with the applicable requirements and conditions precedent of the Trust Agreement
for delivery of an Alternate Liquidity Facility (including opinions and
documentation as described in the Trust Agreement). The delivery of each
Liquidity Facility in accordance herewith shall result in a short-term rating of
the Certificates of not less than "A-1" in the case of S&P or "P-1" in the case
of Moody's (as evidenced by rating letters delivered when such Liquidity
Facility is delivered pursuant to the Trust Agreement).
SECTION 2.2. Morgan agrees to deliver or cause to be delivered a
Liquidity Facility to the Cooperative (i) upon the issuance and sale of the
Certificates pursuant to the Underwriting Agreement, (ii) at least sixty (60)
days prior to a Morgan-directed termination of the Liquidity Facility then in
effect in accordance with Section 2.3 hereof, (iii) at least sixty (60) days
prior to the scheduled expiration of the term of the Liquidity Facility then in
effect and (iv) no more than ninety (90) days following (x) a withdrawal,
suspension or reduction of the short-term rating of the Certificates below "A-1"
by S&P or below "P-1" by Moody's as a result of a withdrawal, suspension or
reduction in the rating by such Rating Agency with respect to the provider of
the Liquidity Facility then in effect or (y) a breach by the provider of the
Liquidity Facility of its obligations thereunder, as the case may be, but in no
event later than the fifth day preceding any termination of the Liquidity
Facility resulting from such
5
<PAGE>
rating withdrawal, suspension or reduction or such breach. The Cooperative,
subject to the provisions of the Trust Agreement, agrees to execute the initial
Liquidity Facility on or before the time of issuance and sale of the
Certificates pursuant to the Underwriting Agreement, and any Alternate Liquidity
Facility within ten Business Days following receipt of such Alternate Liquidity
Facility; provided that (i) the Cooperative shall have the authority to enter
into the initial Liquidity Facility or such Alternate Liquidity Facility, as the
case may be, pursuant to all governing laws and regulations and (ii) the
Cooperative's execution, delivery and performance of the initial Liquidity
Facility or such Alternate Liquidity Facility, as the case may be, shall not be
in conflict with any stated public policy of the Cooperative with respect to its
practices for doing business with a type or class of provider of the initial
Liquidity Facility or such Alternate Liquidity Facility. Any such Alternate
Liquidity Facility shall take effect upon the acceptance by and delivery to the
Trustee of such Alternate Liquidity Facility in accordance with the Trust
Agreement. Each Liquidity Facility shall be in substantially the form set forth
in Exhibit A hereto (if a standby certificate purchase agreement), with only
such changes and modifications thereto as shall be approved by each of the
parties (such approval to be evidenced by their execution thereof) and by Morgan
(if Morgan is not a party to such Liquidity Facility), including such changes as
are necessary to conform such form to a letter of credit structure in lieu of a
standby certificate purchase agreement as well as to the requirements of the
Trust Agreement for an Alternate Liquidity Facility.
SECTION 2.3. The Cooperative agrees that it shall not terminate any
Liquidity Facility or replace the provider thereof, as the case may be, unless
directed in writing by Morgan.
SECTION 2.4. Notwithstanding the foregoing, Morgan shall have no
obligation to provide or enter into any Liquidity Facility if (i) the Federal
Guaranty is terminated or cancelled, or the Administrator or any other Federal
governmental authority or official with competent jurisdiction shall claim or
assert in writing, or shall fail to contest any claim or assertion made in any
action or proceeding, or any governmental authority with competent jurisdiction
shall announce, find or rule, that the Federal Guaranty is null and void or
otherwise invalid or unenforceable against the United States of America, either
in whole or in part; (ii) at any time on or before the Refinancing Date, the
Cooperative shall fail to make any payment in respect of any indebtedness of the
Cooperative
6
<PAGE>
that is guaranteed by the United States of America (or any agency or
instrumentality thereof) when due or within any applicable grace period; (iii)
at any time on or before the Refinancing Date, a case or proceeding seeking
liquidation, reorganization or other relief with respect to the Cooperative or
its debts under any bankruptcy, insolvency or other similar law now or hereafter
in effect, or seeking the appointment of a trustee, receiver, liquidator,
custodian or other similar official of the Cooperative or any substantial part
of its property, shall be commenced by or against the Cooperative, or the
Cooperative shall take any action to authorize or consent to any of the
foregoing or (iv) any of the conditions described in Section 5.2 hereof shall
have occurred.
SECTION 2.5. (a) The Cooperative and Morgan agree that, in the case
of any Liquidity Facility that is not provided by Morgan, the fees and other
amounts required to be paid to such provider pursuant to Sections 2.03(e), 2.05,
2.06(e) and 8.03(c) and the first sentence of 8.03(a) of the form of standby
certificate purchase agreement attached as Exhibit A hereto (or any similar
provision of any other Liquidity Facility) shall be paid by Morgan so long as
Morgan has received all Swap Provider Payments and any Termination Amount then
due to it under the Swap Agreement. Notwithstanding the foregoing, it is
understood and agreed that the Cooperative shall be obligated to pay such fees
and other amounts to the extent that Morgan has no obligation, or fails, to pay
such fees and other amounts; provided, however, that the Cooperative shall
have no obligation to pay the unpaid fees and other amounts payable under
Sections 2.05, 2.06(e) and 8.03(c) of the form of standby certificate purchase
agreement attached as Exhibit A hereto (or any similar provision of any other
Liquidity Facility) to the extent that the sum of such unpaid fees and other
amounts exceed an amount equal to 0.25% per annum (computed on the basis of a
year of 365 days (or 366 days in a leap year) and paid for the actual number of
days elapsed (including the first day but excluding the last day) in the period
for which payment is due) of the "Commitment" under (and as defined in) the
Liquidity Facility then in effect.
(b) The Cooperative and Morgan further agree that, in the case of any
Liquidity Facility provided by Morgan, the amounts required to be paid to Morgan
pursuant to Sections 2.03(e), 2.05, 2.06(e) and 8.03(c) and the first sentence
of 8.03(a) of the form of standby certificate purchase agreement attached as
Exhibit A hereto (or any similar provision of any other Liquidity Facility)
shall be deemed to have been paid so long as the Swap Agreement is in
7
<PAGE>
effect and Morgan has received all payments then due to it under the Swap
Agreement.
(c) The Cooperative and Morgan agree that if Morgan fails to receive
when due any amount due to it under the Swap Agreement, the Cooperative shall be
obligated to compensate Morgan for its commitment hereunder to provide or enter
into a Liquidity Facility as follows:
(i) if Morgan has not received payment in full of the initial
payment required to be paid to it under the Swap Agreement, the Cooperative
shall pay an amount equal to (x) 0.10% per annum of the Standby Amount as
set forth on the signature page hereof during the period from and after the
date hereof to but excluding the earlier of the Refinancing Date and the
termination of this Agreement as provided in Section 5.2 hereof plus, if
applicable, (y) 0.25% per annum of the "Available Commitment" under (and as
defined in) each Liquidity Facility then in effect during the period from
and after the Refinancing Date to but excluding the termination of this
Agreement as provided in Section 5.2 hereof; and
(ii) in all other cases, the Cooperative shall pay an amount equal to
0.25% per annum of the "Available Commitment" under (and as defined in)
each Liquidity Facility then in effect during the period from and after the
later of the Refinancing Date and the most recent date on which Morgan
received payment in full of the amounts then required to be paid to it
under the Swap Agreement to but excluding the termination of this Agreement
as provided in Section 5.2 hereof.
The amounts payable under this Section 2.5(c) shall be computed on the basis of
a year of 365 days (or 366 days in a leap year) and paid for the actual number
of days elapsed (including the first day but excluding the last day) and shall
be payable upon the termination of this Agreement as provided in Section 5.2
hereof.
SECTION 2.6. Morgan and the Cooperative hereby agree that in the event
either S&P or Moody's shall cease to exist or shall no longer be in the business
of rating debt securities, Morgan and the Cooperative shall use their best
efforts to mutually agree upon a substitute or substitute rating agencies or
other mutually acceptable criteria for purposes of compliance with the foregoing
provisions of Article II of this Agreement.
8
<PAGE>
ARTICLE III
CERTAIN COVENANTS; EXPENSES
SECTION 3.1. In connection with the execution and delivery of any
Liquidity Facility and remarketing of Certificates supported thereby, Morgan and
the Cooperative agree to cooperate, each with the other, in furnishing
prospectuses and other information, reports, certificates, opinions and
appropriate documentation, all as reasonably required for any registration,
qualification, offering or sale of Certificates (in each case to the extent
describing Morgan or the provider of any Liquidity Facility), and each such
party shall provide such notices and other designations and documentation and
take all other actions and proceedings reasonably necessary to effectuate and
carry out the foregoing. It is understood that in connection with the offering,
sale or remarketing of Certificates, Morgan shall, as between Morgan and the
Cooperative be responsible for its compliance, and for causing the compliance by
any other provider of a Liquidity Facility, with any registration, qualification
or other requirements under any federal or state law or regulation applicable to
the provider of such Liquidity Facility, and Morgan shall, as between Morgan and
the Cooperative indemnify the Cooperative against any claims or liabilities
arising out of any failure to so comply; provided that nothing herein shall be
construed to require Morgan to indemnify against or otherwise be responsible for
compliance with any requirements under federal or state law or regulations with
respect to any securities laws or any information provided in connection with
the offering, sale or remarketing of Certificates other than such information
provided by Morgan as a description of Morgan. The Cooperative agrees it shall
not refer to Morgan in any offering statement, prospectus or other documentation
in connection with the offering, sale or remarketing of Certificates without
Morgan's prior written consent.
SECTION 3.2. The Cooperative agrees that all reasonable costs and
expenses of Morgan, including the reasonable fees and expenses of special
counsel to Morgan, in connection with the preparation, execution, delivery and
administration of this Agreement, the Swap Agreement, any Liquidity Facility and
any other documents which may be delivered in connection with this Agreement and
the transactions contemplated hereby, will be for the account of or paid by
Morgan so long as Morgan has received all amounts then due to it under the Swap
Agreement.
SECTION 3.3. (a) The Cooperative agrees to provide Morgan with any
amendments or supplements to the
9
<PAGE>
Trust Agreement, the Liquidity Facility, the Remarketing Agreement and any other
Related Document as soon as practicable following execution thereof.
Notwithstanding the foregoing, the Cooperative agrees that it will not enter
into or consent to any amendment, supplement or modification to, or termination
or waiver of, the Trust Agreement, the Loan Agreement, the Loan Guaranty
Agreement, the Federal Guaranty, the Remarketing Agreement, the Notes or the
Certificates without Morgan's prior consent if such amendment, supplement,
modification, termination or waiver might in any way adversely affect the rights
or interests of any provider of any Liquidity Facility or of Morgan under this
Agreement or as a potential provider of any Liquidity Facility.
(b) The Cooperative agrees to deliver to Morgan: (i) a copy of each
report, certificate or other information delivered or required to be delivered
by the Cooperative to the provider of any Liquidity Facility (if other than
Morgan) and (ii) from time to time such information regarding the Cooperative
(including, without limitation, the financial position, results of operations,
business or prospects of the Cooperative) as Morgan may reasonably request, in
each case to the extent such report, certificate or other information has not
been otherwise provided under the Swap Agreement.
SECTION 3.4. No amendment or waiver of any provision of this
Agreement nor consent to any departure therefrom by any party shall be effective
unless the same shall be in writing and signed by Morgan and the Cooperative.
ARTICLE IV
CLOSING OF LIQUIDITY FACILITY
SECTION 4.1. Subject to the provisions of Section 3.1 hereof to the
effect that Morgan and not the Cooperative shall, as between Morgan and the
Cooperative, be responsible for compliance with any registration, qualification
or other requirements under federal or state law or regulation applicable to the
provider of the Liquidity Facility, the Cooperative covenants and agrees that it
shall obtain all approvals and authorizations with respect to the execution,
delivery and performance by it of each Liquidity Facility.
SECTION 4.2. The Cooperative and Morgan each agree to cause to be
delivered opinions of counsel
10
<PAGE>
reasonably satisfactory to the other party relating to the authority for, due
authorization, execution and delivery of and validity and enforceability of each
Liquidity Facility, including opinions of counsel to the provider of each
Alternate Liquidity Facility required by the Trust Agreement, and, in the case
of any provider of a Liquidity Facility that is a foreign bank, to the effect
that such provider would be considered a "bank" for purposes of Section 3(a)(2)
of the Securities Act of 1933, as amended, and certificates of the provider of
each Liquidity Facility to the effect that (x) such provider is a national bank
or is duly licensed as a banking institution, or has received a license to
maintain a branch or agency, under the laws of the United States or America or
any state or territory thereof or the District of Columbia and (y) the business
of such provider is substantially confined to banking.
SECTION 4.3. The Cooperative and Morgan each agree to cause to be
provided such instruments, opinions, certifications and documents (in addition
to those referenced in Section 4.1 and 4.2 hereof) as the other party may
reasonably request in connection with the delivery of each Liquidity Facility.
ARTICLE V
EFFECTIVE DATE AND TERM; PARTIES IN INTEREST
SECTION 5.1. (a) The Cooperative hereby makes to the Morgan the same
representations and warranties as are made by it in the Trust Agreement and each
other Related Document, which representations and warranties, as well as the
related defined terms contained therein (unless otherwise defined herein), are
hereby incorporated by reference with the same effect as if each and every such
representation and warranty and defined term were set forth herein in its
entirety (except that (i) the representation and warranty contained in Section
5.04 of the form of standby certificate purchase agreement attached as Exhibit A
hereto shall be made with respect to the audited financial statements of the
Cooperative for the fiscal year ended December 31, 1995, (ii) the representation
and warranty contained in Section 5.05 of such standby certificate purchase
agreement shall be modified by replacing the phrase "Except as disclosed in the
Offering Statement" with the phrase "Except as previously disclosed to Morgan in
writing" and (iii) the representation and warranty contained in Section 5.07
shall be omitted).
11
<PAGE>
(b) This Agreement shall become effective upon the execution and
delivery hereof by the parties and the receipt by Morgan of such opinions of
counsel, instruments, certifications and documents, in form and substance
satisfactory to Morgan, as Morgan may reasonably request, relating to the
Cooperative, this Agreement, the Related Documents and the transactions
contemplated hereby and thereby and the parties thereto, including, without
limitation, the opinions of counsel, instruments, certifications and documents
described in Annex I hereto. In addition, the effectiveness of this Agreement
shall be further subject to the conditions (i) that the representations and
warranties of the Cooperative contained (or incorporated by reference herein)
are true and correct on the date of such effectiveness as though made on and as
of such date, (ii) that no event has occurred and is continuing, or would result
from the effectiveness of this Agreement, which constitutes a "Default" (as
defined in the standby certificate purchase agreement attached as Exhibit A
hereto), (iii) that since December 31, 1995, there has been no material adverse
change in the business, financial position, results of operations or prospects
of the Cooperative and (iv) that all conditions precedent to the execution and
delivery of the Related Documents (other than the execution and delivery of the
Confirmation relating to the Swap Agreement and the issuance of the
Certificates) shall have occurred. Morgan shall promptly notify the Cooperative
of the effectiveness of this Agreement, and such notice shall be conclusive and
binding on all parties hereto.
SECTION 5.2. This Agreement shall continue in force and effect until
the first to occur of (i) the expiration or earlier termination of the Swap
Agreement, (ii) the occurrence of any of the conditions described in Section 2.4
hereof, (iii) December 18, 1997, if on such date the Certificates shall not have
been issued and sold pursuant to a registered public offering or a private
placement transaction in accordance with Rule 144A promulgated under the
Securities Act of 1933, as amended, and (iv) December 15, 2017; provided that
the obligation of Morgan set forth in Section 3.1 and the obligations of the
Cooperative set forth in Section 2.5 shall survive any such termination of this
Agreement.
SECTION 5.3. This Agreement is entered into solely for the benefit of
the parties hereto and nothing herein shall confer rights upon or be construed
to be to the benefit of or enforceable by the Trustee, the Certificateholders or
any third party.
12
<PAGE>
ARTICLE VI
SEVERABILITY; COUNTERPARTS
SECTION 6.1. In case any one or more of the provisions of this
Agreement shall for any reason be held to be illegal or invalid by a court of
competent jurisdiction, it is the intention of each of the parties hereto that
such illegality or invalidity shall not affect any other provision hereof, but
this Agreement shall be construed and enforced as if such illegal or invalid
provision had not been contained herein unless a court holds that the provisions
are not separable from the other provisions of this Agreement.
SECTION 6.2. This Agreement, and each written agreement relating
hereto, may be executed in counterparts, each of which will be deemed an
original.
ARTICLE VII
NOTICES
SECTION 7.1. Any notice, demand, or request provided for in this
Agreement shall be in writing and shall be deemed properly sent, given, or made
if delivered in person or sent by registered or certified mail, postage prepaid,
to the persons specified below, or at such other addresses or to the attention
of such other officers as may be designated by written notice to the other party
hereto:
Kansas Electric Power Cooperative, Inc.
P.O. Box 4877
Topeka, Kansas 66604
Attention: Executive Vice President
Telephone: (913) 271-4830
Telecopy: (913) 271-4888
Morgan Guaranty Trust Company of New York
60 Wall Street
New York, New York 10260
Attention: Public Finance Credit and Portfolio
Telephone: (212) 648-4411
Telecopy: (212) 648-5256
13
<PAGE>
IN WITNESS WHEREOF, this Agreement has been signed by the authorized
representatives of the parties hereto on the date set forth above:
KANSAS ELECTRIC POWER COOPERATIVE, INC.
By /s/ Stephen E. Parr
------------------------------------
Title: Executive Vice President and
Chief Executive Officer
MORGAN GUARANTY TRUST
COMPANY OF NEW YORK
Standby Amount:
By /s/ John B. Anderson
--------------------------------------
$57,390,000 Title: Vice President
14
<PAGE>
ANNEX I
LIST OF PRINCIPAL CLOSING DOCUMENTS*
1. opinion of Vinson & Elkins L.L.P., special finance counsel for the
Cooperative, dated the effective date of the Agreement (the "Effective Date"),
substantially in the form of Exhibit F to the Trust Agreement
2. opinion of Harold Haun, Esq., General Counsel of the Cooperative,
dated the Effective Date, substantially in the form of Exhibit E to the Trust
Agreement
3. opinions of John J. List, Esq., Senior Vice President and General
Counsel of CFC, and of Milbank, Tweed, Hadley & McCloy, special counsel to CFC,
each dated the Effective Date, substantially in the forms of Exhibits B and C,
respectively, to the Trust Agreement
4. copies of resolutions of the Board of Directors of the Cooperative
authorizing the execution, delivery and performance by the Cooperative of the
Agreement and the transactions contemplated thereby (including the execution,
delivery and performance of the Related Documents to be executed and delivered
by the Cooperative on the Effective Date), certified by the Secretary or an
Assistant Secretary of the Cooperative (which certificate, dated the Effective
Date, shall state that such resolutions are in full force and effect on the
Effective Date and have not been amended or supplemented in any manner)
5. certified copies of all approvals, authorizations or consents of,
or notices to or filings or registrations with, any governmental body, agency or
official required for the Cooperative to execute, deliver or perform the
Agreement, the form of Standby Agreement or any of the Related Documents
6. a certificate of the Secretary or an Assistant Secretary of the
Cooperative, dated the Effective Date, certifying as to the names and true
signatures of the officers of the Cooperative authorized to execute the
Agreement and any other document to be delivered by the Cooperative under the
Agreement
- --------------
* Capitalized terms used, and not defined, in this Annex I have the meanings
assigned to such terms in the Liquidity Protection Agreement.
<PAGE>
7. copy of the administrative record setting forth the recommendation
of the RUS for approval of the First Amendment to Loan Guarantee Agreement and
the transactions contemplated thereby
8. an executed copy of each document, instrument, certificate and
opinion delivered pursuant to, and in connection with the execution and delivery
of, each Related Document (together with, in the case of each such opinion
(other than any opinion of counsel to the underwriter delivered solely to the
underwriter), a letter from the counsel rendering such opinion to the effect
that Morgan is entitled to rely on such opinion as if it were addressed to
Morgan)
9. a certificate of the Executive Vice President and Chief Executive
Officer of the Cooperative, dated the Effective Date, stating that, to the best
of such officer's knowledge after due inquiry:
(i) the representations and warranties of the Cooperative
contained (or incorporated by reference in) in the Agreement are true and
correct on and as of the Effective Date as though made on and as of the
Effective Date;
(ii) since December 31, 1995, there has been no material adverse
change in the business, financial position, results of operations or
prospects of the Cooperative; and
(iii) no event has occurred and is continuing, or would result
from the effectiveness of the Agreement, which constitutes a Default (as
defined in the form of standby certificate purchase agreement attached as
Exhibit A to the Agreement).
2
<PAGE>
EXHIBIT 10.8
STANDBY CERTIFICATE PURCHASE AGREEMENT
dated as of
_______ __, ____
between
Kansas Electric Power Cooperative, Inc.
and
[name of Bank]
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE I
DEFINITIONS
SECTION 1.01. Definitions....................................... 3
SECTION 1.02. Accounting Terms and Determinations............... 9
SECTION 1.03. Incorporation of Certain Definitions.............. 9
ARTICLE II
COMMITMENT TO PURCHASE CERTIFICATES
SECTION 2.01. Commitment to Purchase Unremarketed Certificates. 9
SECTION 2.02. Method of Purchasing............................. 10
SECTION 2.03. Termination or Reduction of Available Commitment. 11
SECTION 2.04. Sale by the Bank of Certificates................. 12
SECTION 2.05. Commitment Fees.................................. 13
SECTION 2.06. Disbursements by the Bank........................ 14
SECTION 2.07. General Provisions as to Payments................ 16
SECTION 2.08. Computation of Interest and Fees................. 16
SECTION 2.09. Extension of Scheduled Termination Date.......... 17
ARTICLE III
CONDITIONS TO PURCHASE
SECTION 3.01. Conditions to Each Purchase...................... 17
ARTICLE IV
CONDITIONS TO EFFECTIVENESS
SECTION 4.01. Conditions to Effectiveness...................... 19
----------------
/1/ The Table of Contents is not a part of this Agreement.
<PAGE>
Page
----
ARTICLE V
REPRESENTATIONS AND WARRANTIES
SECTION 5.01. Existence and Power.............................. 21
SECTION 5.02. Corporate and Governmental Authorization;
Noncontravention................................. 21
SECTION 5.03. Valid and Binding Agreements..................... 22
SECTION 5.04. Financial Information............................ 22
SECTION 5.05. Litigation....................................... 22
SECTION 5.06. No Defaults...................................... 22
SECTION 5.07. Offering Materials............................... 22
SECTION 5.08. Not a Public Utility Holding Company............. 22
SECTION 5.09. Not an Investment Company........................ 23
SECTION 5.10. Incorporation of Representations and Warranties
by Reference..................................... 23
ARTICLE VI
COVENANTS
SECTION 6.01. Information...................................... 23
SECTION 6.02. Payment of Obligations........................... 24
SECTION 6.03. Conduct of Business and Maintenance of Existence. 24
SECTION 6.04. Inspection of Property, Books and Records........ 25
SECTION 6.05. Incorporation by Reference....................... 25
SECTION 6.06. Consolidations, Mergers and Sales of Assets...... 25
SECTION 6.07. Related Documents................................ 26
ARTICLE VII
EVENTS OF DEFAULT
SECTION 7.01. Events of Default................................ 26
ARTICLE VIII
MISCELLANEOUS
SECTION 8.01. Notices.......................................... 29
SECTION 8.02. No Waivers....................................... 30
SECTION 8.03. Expenses; Documentary Taxes; Indemnification;
Reduced Return................................... 30
ii
<PAGE>
Page
----
SECTION 8.04. Liability of the Bank............................ 32
SECTION 8.05. Amendments and Waivers........................... 33
SECTION 8.06. Successors and Assigns........................... 33
SECTION 8.07. Governing Law.................................... 34
SECTION 8.08. Counterparts; Integration........................ 35
SECTION 8.09. Severability..................................... 35
SECTION 8.10. Headings......................................... 35
Exhibit A - Form of Opinion of Special Finance Counsel for the Cooperative
Exhibit B - Form of Opinion of General Counsel of the Cooperative
Exhibit C - Form of Letter from Trustee and Tender Agent to Bank
iii
<PAGE>
STANDBY CERTIFICATE PURCHASE AGREEMENT
AGREEMENT dated as of _____ __, ____ between KANSAS ELECTRIC POWER
COOPERATIVE, INC. and [NAME OF BANK].
WHEREAS, in 1988 the Kansas Electric Power Cooperative, Inc., a Kansas
non-profit electric generation and transmission cooperative corporation
(together with its successors, the "Cooperative"), prepaid certain of its loans
from the Federal Financing Bank, which were guaranteed by the Administrator (the
"Administrator") of the Rural Electrification Administration of the Department
of Agriculture (which has been succeeded with respect to the administration of
certain electric and telephone loan programs by the Rural Utilities Service, an
agency of the United States Department of Agriculture established pursuant to
Section 232 of the Federal Cooperative Insurance Reform and Department of
Agriculture Reorganization Act of 1994 (Pub.L. 103-354, 108 Stat. 3178)
(together with its successors, the "RUS")), with amounts borrowed from the
National Rural Utilities Cooperative Finance Corporation, a District of Columbia
cooperative association (together with its successors, "CFC"), pursuant to a
Loan Agreement dated as of February 15, 1988 between CFC and the Cooperative
(the "Original Loan Agreement" and, as amended by the First Amendment to Loan
Agreement dated as of December 20, 1996 and effective as provided therein (the
"First Amendment to Loan Agreement") and as further amended and supplemented
from time to time in accordance with the terms thereof and hereof, the "Loan
Agreement");
WHEREAS, CFC established the Rural Electric Cooperative Grantor Trusts
(KEPCO) Series 1988 K1-1988 K3 (collectively, the "Original Trusts") for the
purpose of holding the notes (the "Original Notes") evidencing the Cooperative's
repayment obligations under the loan (the "1988 Loan") made by CFC to the
Cooperative pursuant to the Original Loan Agreement, which obligations were
guaranteed by the United States of America, acting through the Administrator of
the RUS (as amended and supplemented from time to time in accordance with the
terms thereof and hereof, the "Federal Guaranty");
WHEREAS, the Cooperative and CFC desire to cause "Note One" and "Note
Two" of the Original Notes, evidencing portions of the 1988 Loan in the original
principal amounts of $11,075,000 and $51,340,000, respectively (as amended and
supplemented by the First Amendment to Loan Agreement and as
<PAGE>
further amended and supplemented from time to time in accordance with the terms
thereof and hereof, collectively, the "Notes"), to be purchased by CFC on a date
agreed to by CFC, the RUS and the Cooperative and on which such purchase is
permitted to occur (the "Refinancing Date") and to cause the amendment of the
1988 Loan and the Notes pursuant to the First Amendment to Loan Agreement to
become effective on the Refinancing Date; and
WHEREAS, the Notes are eligible for redemption or purchase on any
Business Day (as defined in the Loan Agreement) on or after the Business Day
immediately prior to December 15, 1997; and
WHEREAS, the Cooperative has notified the trustee under the Original
Trusts that, with the approval of the Administrator, it desires that CFC
purchase the Notes and that such trustee redeem the related certificates of
beneficial interest therein and terminate the related Original Trusts on the
Refinancing Date, for the purpose of amending certain terms of the 1988 Loan and
the Notes and issuing new certificates of beneficial interest therein; and
WHEREAS, CFC, as lender under the Loan Agreement, depositor of the
Original Trusts and servicer of the Notes, has agreed to cause the Notes, with
the Federal Guaranty endorsed thereon, to be delivered to the Trustee (as
defined below) on the Refinancing Date for deposit in the Rural Electric
Cooperative Grantor Trust (KEPCO) Series 1997 (the "Trust") created pursuant to
the Trust Agreement dated as of December 20, 1996 and effective as provided
therein (as amended and supplemented from time to time in accordance with the
terms thereof and hereof, the "Trust Agreement") among CFC, the Cooperative and
The First National Bank of Chicago, as trustee (together with its successors,
the "Trustee");
WHEREAS, the Cooperative has entered into the Swap Agreement (as
defined below) with the Swap Provider (as defined below) which has been assigned
to the Trust, such assignment to be effective automatically on the Refinancing
Date, and pursuant to which the Swap Provider will pay to the Trustee a variable
rate of interest and the Trustee will pay a fixed rate of interest;
WHEREAS, the Cooperative and the Swap Provider each believe that they
will derive financial benefit with respect to the transactions contemplated by
the Swap Agreement if a liquidity facility is obtained from the Bank providing
for the timely payment of the purchase price with respect to unremarketed
certificates of beneficial interest
2
<PAGE>
tendered or deemed tendered pursuant to the Trust Agreement on or prior to the
Scheduled Termination Date as provided herein; and
WHEREAS, the Bank is willing to purchase and hold such certificates of
beneficial interest tendered or deemed tendered pursuant to the Trust Agreement,
all upon the terms and conditions set forth in this Agreement;
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.01. Definitions. Capitalized terms used herein but not
otherwise defined herein shall have the following meanings:
"Agreement" means this Standby Certificate Purchase Agreement, as the
same may from time to time be amended or supplemented.
"Authorized Representative" means any of the Executive Vice President,
Chief Executive Officer, Director-Finance and Accounting and General Counsel of
the Cooperative.
"Available Commitment" as of any date means the sum of the Available
Principal Commitment and the Available Interest Commitment, in each case as of
such date.
"Available Interest Commitment" initially means the amount set forth
opposite the name of the Bank as its "Interest Commitment" on the signature
pages hereof on the Effective Date, which amount is equal to ___ days of
interest distributable in respect of the aggregate principal amount of the
Certificates, calculated at the rate of [18]% per annum and on the basis of the
actual number of days elapsed in a year of 360 days, and thereafter means such
initial amount adjusted from time to time as follows: (a) downward by an amount
that bears the same proportion to such initial amount as the amount of any
reduction in the Available Principal Commitment pursuant to the definition of
"Available Principal Commitment" bears to the initial Available Principal
Commitment and (b) upward by an amount that bears the same proportion to such
initial amount as the amount of any increase in the Available Principal
Commitment pursuant to clause (c) of the definition of "Available
3
<PAGE>
Principal Commitment" bears to the initial Available Principal Commitment.
"Available Principal Commitment" initially means the amount set forth
opposite the name of the Bank as its "Principal Commitment" on the signature
pages hereof and thereafter means such initial amount adjusted from time to time
as follows: (a) downward by the amount of any reduction of the Available
Principal Commitment pursuant to the first sentence of Section 2.03; (b)
downward by the principal amount of any Certificates purchased by the Bank
pursuant to Section 2.02; and (c) subject to the proviso to the first sentence
of Section 2.03, upward by the principal amount of any Certificates, theretofore
purchased by the Bank pursuant to Section 2.02, which are sold by the Bank
(regardless of the purchase price received for such Certificates).
"Bank" means [name of Bank] and its successors.
"Bank Rate" means (i) with respect to any disbursement by the Bank of
the Purchase Price of any Unremarketed Certificate, (a) for any day during the
period from the date such disbursement is made to but excluding the earliest of
(x) the 90th day from and after such date and (y) the date such disbursement is
required to be paid (whether at maturity or by acceleration or otherwise), the
Base Rate for such day, (b) for any day from and after such 90th day to but
excluding the date such disbursement is required to be paid (whether at maturity
or by acceleration or otherwise), the sum of the Base Rate plus 1% and (c) on
and after the date such disbursement is required to be paid (whether at maturity
or by acceleration or otherwise), the sum of the Base Rate plus 2% and (ii) with
respect to any overdue amount, the sum of the Base Rate plus 2%.
"Base Rate" means, for any day, a rate per annum equal to the higher
of (i) the Prime Rate for such day and (ii) the sum of 1/2 of 1% plus the
Federal Funds Rate for such day.
"Business Day" means any day, except (i) a Saturday, Sunday or other
day on which commercial banks in New York City and any other city or cities in
which the principal offices of the Trustee, the Remarketing Agent and the
Servicer are located are authorized by law to close, (ii) a legal public holiday
under 5 U.S.C. (S) 6103 for the purpose of statutes relating to pay and leave of
employees or any other day declared to be a legal public holiday for the purpose
of statutes relating to pay and leave of employees by Federal statute or Federal
Executive order,
4
<PAGE>
(iii) any day which is not a "Local Business Day" (as defined in the Swap
Agreement) and (iv) any day on which the New York Stock Exchange is closed.
"Certificate" means a Rural Electric Cooperative Grantor Trust
Certificate (KEPCO) Series 1997 executed and delivered by the Trustee pursuant
to the Trust Agreement representing an undivided fractional interest in the
assets of the Trust.
"Commitment" means the Available Commitment determined without regard
to any adjustment to the Available Principal Commitment made pursuant to clause
(b) or (c) of the definition thereof.
"Default" means any condition or event which constitutes an Event of
Default or which with the giving of notice or lapse of time or both would,
unless cured or waived, become an Event of Default.
"DTC" has the meaning set forth in Section 2.01(c).
"Effective Date" means the date this Agreement becomes effective in
accordance with Section 4.01.
"Event of Default" has the meaning set forth in Section 7.01.
"Federal Funds Rate" means, for any day, the rate per annum (rounded
upward, if necessary, to the nearest 1/100th of 1%) equal to the weighted
average of the rates on overnight Federal funds transactions with members of the
Federal Reserve System arranged by Federal funds brokers on such day, as
published by the Federal Reserve Bank of New York on the Business Day next
succeeding such day, provided that (i) if such day is not a Business Day, the
Federal Funds Rate for such day shall be such rate on such transactions on the
next preceding Business Day as so published on the next succeeding Business Day
and (ii) if no such rate is so published on such next succeeding Business Day,
the Federal Funds Rate for such day shall be the average rate quoted to Morgan
Guaranty Trust Company of New York on such day on such transactions as
determined by the Bank.
"Government" means the United States of America, acting through the
Administrator of the RUS.
"Indemnitee" has the meaning set forth in Section 8.03(b).
5
<PAGE>
"Interest Payment Date" means each date on which interest is
distributable in respect of the Certificates.
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind, or any other type of
preferential arrangement that has the practical effect of creating a security
interest, in respect of such asset. For the purposes of this Agreement, the
Cooperative shall be deemed to own subject to a Lien any asset which it has
acquired or holds subject to the interest of a vendor or lessor under any
conditional sale agreement, capital lease or other title retention agreement
relating to such asset.
"Loan Guarantee and Servicing Agreement" means the Loan Guarantee and
Servicing Agreement dated as of February 15, 1988, as amended by the First
Amendment to Loan Guarantee and Servicing Agreement dated as of December 20,
1996 and effective as provided therein, among the United States of America,
acting through the Administrator of the RUS, the Cooperative, CFC and the
Trustee, and as further amended and supplemented from time to time in accordance
with the terms thereof and hereof.
"Moody's" means Moody's Investors Service, Inc., a Delaware
corporation, and its successors and assigns, and if such corporation shall be
dissolved or liquidated or no longer perform the functions of a securities
rating agency, "Moody's" shall be deemed to refer to any other nationally
recognized statistical rating organization (other than S&P) designated by the
Bank and not disapproved by the Cooperative if such an organization shall exist.
"Morgan Guaranty" means Morgan Guaranty Trust Company of New York.
"Notice of Bank Purchase" has the meaning set forth in Section 2.02.
"Offering Statement" means (i) the [describe offering materials]
relating to the Certificates dated [date], as the same may from time to time be
amended or supplemented, and (ii) each other document used by the Cooperative,
the Trust, CFC or the Remarketing Agent in offering or remarketing the
Certificates.
"Parent" means, with respect to the Bank, any Person controlling the
Bank.
"Participant" has the meaning set forth in Section 8.06(b).
6
<PAGE>
"Person" means 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.
"Prime Rate" means the rate of interest publicly announced by Morgan
Guaranty in New York City from time to time as its Prime Rate.
["Prior Liquidity Facility" means [describe Liquidity Facility to be
replaced].]*
"Purchase Contract" means the Forward Certificate Purchase Agreement
dated December 20, 1996 among CFC, the Cooperative and Alex. Brown & Sons
Incorporated.
"Purchase Date" means any Business Day during the Purchase Period with
respect to which the Bank has received a Notice of Bank Purchase pursuant to
Section 2.02 hereof.
"Purchase Notice" has the meaning specified in Section 2.04(a).
"Purchase Period" means the period from the date hereof to and
including the earlier of (i) the Scheduled Termination Date, (ii) the date on
which no Certificates are outstanding and (iii) the date on which the Commitment
has been terminated in its entirety pursuant to Section 2.03 or Article VII.
"Purchase Price" with respect to any Certificates means the aggregate
principal amount of such Certificates plus Stated Interest distributable with
respect to such Certificates as of the Purchase Date.
"Purchased Certificate" means any Certificate purchased pursuant to
Section 2.02 until such time, if ever, as such Certificate is deemed no longer a
Purchased Certificate pursuant to Section 2.04(b).
"Purchaser" has the meaning specified in Section 2.04(a).
"Regulations" means the regulations promulgated by the RUS amending 7
C.F.R. Chapter XVII by adding Part 1786 and implementing the provisions of
Section 1401 of the Omnibus Budget Reconciliation Act of 1987 (P.L. 100-203)
- -------------------
* Include in any Alternate Liquidity Facility.
7
<PAGE>
relating to Section 306(A) of the Rural Electrification Act of 1936 (7 U.S.C.
(S)(S) 901 et seq.), as amended.
"Related Documents" means the Trust Agreement, the Certificates, the
Loan Agreement, the Notes, the Loan Guarantee and Servicing Agreement, the
Federal Guaranty, the Swap Agreement, the Remarketing Agreement and the Offering
Statement. For purposes of this Agreement, references to the Related Documents,
when used with reference to any Person, shall refer only to those Related
Documents to which such Person is a party or to which such Person is otherwise
subject.
"Remarketing Agent" means Alex. Brown & Sons Incorporated, or any
successor or assigns permitted under the Remarketing Agreement and the Trust
Agreement.
"Remarketing Agreement" means the Remarketing Agreement dated as of
December 20, 1996 and effective as provided therein by and between the
Cooperative and the Remarketing Agent, as amended and supplemented from time to
time in accordance with the terms hereof and thereof.
"S&P" means Standard & Poor's Rating Services, a division of The
McGraw Hill Companies, Inc., a New York corporation, and its successors and
assigns, and if such division shall be dissolved or liquidated or no longer
perform the functions of a securities rating agency, "S&P" shall be deemed to
refer to any other nationally recognized statistical rating organization (other
than Moody's) designated by the Bank and not disapproved by the Cooperative if
such an organization shall exist.
"Scheduled Termination Date" means [date] or such later date to which
the Scheduled Termination Date shall have been extended pursuant to Section 2.09
(or if such day is not a Business Day, the next preceding Business Day).
"Stated Interest" means, with respect to any Certificates and for any
period, the amount of interest which is distributable with respect thereto
during such period.
"Swap Agreement" means the International Swap Dealers Association
("ISDA") Master Agreement dated as of December 20, 1996 between Morgan Guaranty
and the Cooperative, including the Schedule to the Master Agreement and the
Credit Support Annex to such Schedule, each dated as of December 20, 1996, and
the Confirmation with respect thereto dated __________________, pursuant to
which the Cooperative and Morgan Guaranty have entered into a U.S.
8
<PAGE>
Dollar Interest Rate Swap Transaction (MGT Deal No. _______), in each case as
amended and supplemented from time to time.
"Swap Provider" means (i) Morgan Guaranty, as counterparty under the
Swap Agreement or (ii) the provider of any Alternate Swap Agreement.
"Tender Agent" means The First National Bank of Chicago, as tender
agent under the Trust Agreement, or any successor in such capacity.
"Unremarketed Certificate" means any Certificate which is tendered
and/or deemed tendered (or otherwise available) for purchase pursuant to the
provisions of the Trust Agreement, unless the same has been remarketed by the
Remarketing Agent and the proceeds from the remarketing thereof have been
received by the Remarketing Agent or the Tender Agent.
SECTION 1.02. Accounting Terms and Determina tions. Unless otherwise
specified herein, all accounting terms used herein shall be interpreted, all
accounting determinations hereunder shall be made and all financial statements
required to be delivered hereunder shall be prepared in accordance with
generally accepted accounting principles, as in effect from time to time,
applied on a basis consistent (except for changes concurred in by the
Cooperative's independent public accountants) with the most recent accounting
report of the Cooperative delivered or required to be delivered, as the case may
be, by Section 5.04 or 6.01.
SECTION 1.03. Incorporation of Certain Definitions. Each capitalized
term used herein and not otherwise defined herein shall have the meaning
provided therefor (including through incorporation by reference) in the Trust
Agreement.
ARTICLE II
COMMITMENT TO PURCHASE CERTIFICATES
SECTION 2.01. Commitment to Purchase Unremarketed Certificates. The
Bank agrees, on the terms and conditions contained in this Agreement, to
purchase Unremarketed Certificates from time to time during the Purchase Period
at the Purchase Price. The aggregate principal amount (or portion thereof) of
any Unremarketed Certificate purchased on any Purchase Date shall not exceed the
Available
9
<PAGE>
Principal Commitment on such date. The aggregate amount of the Purchase Price
comprising interest on any Purchase Date shall not exceed the lesser of (1) the
Available Interest Commitment on such date and (2) if the Purchase Date is other
than an Interest Payment Date, the aggregate amount of interest distributable in
respect of such Certificate from and including the next preceding Interest
Payment Date to but excluding such Purchase Date and, if the Purchase Date is an
Interest Payment Date, zero. The Bank agrees that all amounts paid by it with
respect to the Purchase Price of Unremarketed Certificates shall be paid from
its own funds and shall not be paid from funds or property of the Cooperative.
SECTION 2.02. Method of Purchasing. Pursuant to Section 9.3(i) of
the Trust Agreement, the Tender Agent will give notice to the Bank as provided
below if, on any Purchase Date, Unremarketed Certificates are to be purchased by
the Bank pursuant to this Section. If on any Purchase Date the Bank receives
not later than 11:30 A.M. (New York City time) a telephonic notice, confirmed in
writing, from the Tender Agent, pursuant to Section 9.3(i) of the Trust
Agreement (such notice to be referred to as a "Notice of Bank Purchase"),
specifying (i) that Unremarketed Certificates are to be purchased by the Bank on
such Purchase Date pursuant to this Section, (ii) the aggregate Purchase Price
of such Unremarketed Certificates and (iii) the amount of such aggregate
Purchase Price comprising principal and interest, respectively, the Bank will,
unless it determines that any of the applicable conditions specified in Section
3.01 are not satisfied, transfer not later than 2:30 P.M. (New York City time)
on such Purchase Date to the Tender Agent in immediately available funds, an
amount equal to the aggregate Purchase Price of such Unremarketed Certificates
for deposit into the "Purchase Account" (the "Purchase Account") within the
"Purchase and Remarketing Fund" established pursuant to Section 9.6 of the Trust
Agreement. For purposes of determining compliance with the preceding sentence,
payment shall be deemed transferred when the Bank has delivered (or has caused
to be delivered) appropriate wire transfer instructions to an appropriate
Federal Reserve Bank and has received an appropriate acknowledgment of such
instructions from such Federal Reserve Bank. A Notice of Bank Purchase shall be
irrevocable after receipt thereof by the Bank. The Bank (in its capacity as
purchaser of Certificates pursuant to this Agreement) shall have no
responsibility for, or incur any liability in respect of, any act, or any
failure to act, by the Tender Agent which results in the failure of the Tender
Agent (x) to credit the Purchase Account with funds made available to the Tender
Agent by the Bank pursuant to this
10
<PAGE>
Section or (y) to effect the purchase of Certificates with such funds pursuant
to this Section and Sections 9.3(b)(ii) and 9.3(g) of the Trust Agreement.
Certificates purchased pursuant to this Section 2.02 shall be promptly
transferred by book-entry to the Bank's participant account at DTC (or, if the
Certificates are no longer held in book-entry only form at DTC, shall be
promptly registered in the name of the Bank or, if directed by the Bank in
writing, its nominee or designee, and shall be promptly delivered by the Tender
Agent to or as directed by the Bank and, prior to such delivery, shall be held
in trust by the Tender Agent for the benefit of the Bank).
SECTION 2.03. Termination or Reduction of Available Commitment. (a)
Upon any redemption, repayment or other payment of all or any portion of the
principal amount of the Certificates, the aggregate Available Principal
Commitment shall automatically be reduced by the principal amount of the
Certificates so redeemed, repaid or otherwise paid as the case may be; provided
that, if at the time of any reduction in the Available Principal Commitment
pursuant to this sentence any of the Certificates are Purchased Certificates,
the portion of such reduction attributable to such Purchased Certificates shall
not become effective unless and until such Certificates are no longer Purchased
Certificates.
(b) Except as otherwise provided herein, the Commitments shall
terminate on the Scheduled Termination Date.
(c) Notwithstanding the foregoing, if an Event of Default described
in subsection (a) of Section 7.01 has occurred and is continuing, the Bank may
deliver a notice to that effect to the Cooperative, the Trustee and the
Remarketing Agent and the Commitment shall terminate as follows:
(i) in the case of any Event of Default described in subsection
(a)(i) of Section 7.01, the Commitment shall terminate in accordance with
the provisions of paragraph (1) of Section 7.01; and
(ii) in the case of any Event of Default described in subsection
(a)(ii) of Section 7.01, the Commitment shall terminate in accordance with
the provisions of paragraph (2) of Section 7.01 (it being understood that
the obligation of the Bank to purchase Unremarketed Certificates hereunder
shall be suspended immediately upon the occurrence of such Event of Default
and shall
11
<PAGE>
be subject to reinstatement or termination, as the case may be, as provided
in paragraph (2) of Section 7.01).
Upon any such termination of the Commitment, the Bank shall have no further
obligation to purchase Unremarketed Certificates.
(d) In addition, the Commitment shall terminate on the date on which
the Trustee notifies the Bank that an Alternate Liquidity Facility has been
deposited with the Trustee and is effective.
(e) The Cooperative may, upon at least ten Business Days' prior
notice to the Bank, but only if an Alternate Liquidity Facility is then
effective, terminate the Commitment at any time (i) following imposition of an
increase in or adjustment to the commitment fee payable hereunder by virtue of
the occurrence of an event or condition as described in Section 8.03(c) hereof
or (ii) if the Bank's short-term debt securities shall be rated below "A-1" by
S&P or below "P-1" by Moody's or such ratings shall be withdrawn or suspended or
(iii) if the Bank shall have breached its obligation under this Agreement to
purchase Unremarketed Certificates, provided that in the event of any such
termination, the Bank shall receive any and all amounts then due and owing to
the Bank under this Agreement. The Cooperative and the Bank agree that Morgan
Guaranty (or, if any Person other than Morgan Guaranty or an affiliate of Morgan
Guaranty is the Swap Provider, such other Person) shall pay such amounts so long
as the Swap Agreement with Morgan Guaranty (or its affiliate) or such other
Person, as the case may be, is in effect and the Swap Provider has received all
amounts in respect of Swap Provider Payments and any Termination Amount then due
to it under the Swap Agreement, it being understood and agreed that the
Cooperative shall remain obligated to pay such amounts to the extent that Morgan
Guaranty or such other Person, as the case may be, is not obligated, or fails,
to pay such amounts.
SECTION 2.04. Sale by the Bank of Certificates. (a) Purchase
Notices. Prior to 11:30 A.M. (New York City time) on any Business Day on which
the Bank holds Purchased Certificates, the Remarketing Agent may deliver a
notice (a "Purchase Notice") to the Bank and the Cooperative stating that it has
located a purchaser (the "Purchaser") for some or all of such Certificates and
that such Purchaser desires to purchase on such Business Day Certificates at a
price of par plus Stated Interest that would be distributable on such Business
Day if such Business Day were an Interest Payment Date.
12
<PAGE>
(b) Sale of Remarketed Certificates. The Bank shall sell any
Purchased Certificate or Certificates to any Purchaser on the same Business Day
that the Purchase Notice is received by the Bank in accordance with subsection
(a) of this Section. Subject to the payment of the purchase price thereof as
provided hereinafter, such Purchased Certificate or Certificates shall
thereafter be deemed not to be a Purchased Certificate or Certificates and the
Bank will deliver such Purchased Certificate or Certificates to the Tender Agent
by 2:30 P.M. (New York City time) on such Business Day against receipt of the
purchase price therefor, in an amount at least equal to the sum of principal
thereof plus Stated Interest that would be distributable in respect of such
principal amount on such Business Day if such Business Day were an Interest
Payment Date, in immediately available funds at the Bank's address referred to
in Section 8.01.
(c) Other Terms Relating to Sales. Any sale of a Purchased
Certificate, or portion thereof, pursuant to this Section shall, to the fullest
extent permitted by applicable law, be without recourse to the seller and
without representation or warranty of any kind. Purchased Certificates sold
pursuant to this Section 2.04 shall be deemed to have been sold on a last in,
first out basis with the Certificates being most recently purchased being deemed
to have been sold first.
SECTION 2.05. Commitment Fees. During the Purchase Period, a
commitment fee shall be payable to the Bank, which commitment fee shall (a)
accrue for each day from and including the Effective Date to and including the
last day of the Purchase Period at the rate of 0.__% per annum on the amount of
the Available Commitment on such day and (b) be payable on each date on which
the Cooperative is obligated to make a payment under the Swap Agreement. The
Cooperative and the Bank agree that Morgan Guaranty (or, if any Person other
than Morgan Guaranty or an affiliate of Morgan Guaranty is the Swap Provider,
such other Person) shall pay such commitment fee so long as the Swap Agreement
with Morgan Guaranty (or its affiliate) or such other Person, as the case may
be, is in effect and the Swap Provider has received all amounts in respect of
Swap Provider Payments and any Termination Amount then due to it under the Swap
Agreement, it being understood and agreed that the Cooperative shall remain
obligated to pay such commitment fee to the extent that Morgan Guaranty or such
other Person, as the case may be, is not obligated, or fails, to pay such
commitment fee; provided, however, that the Cooperative shall have no obligation
to pay such unpaid commitment fee to the extent that the sum of such unpaid
13
<PAGE>
commitment fee and the unpaid amounts payable under Sections 2.06(e) and 8.03(c)
hereof exceed an amount equal to 0.25% per annum (computed on the basis of a
year of 365 days (or 366 days in a leap year) and paid for the actual number of
days elapsed (including the first day but excluding the last day) in the period
for which payment is due) of the Commitment.
SECTION 2.06. Disbursements by the Bank. (a) Each disbursement made
by the Bank of the Purchase Price of Unremarketed Certificates purchased on any
Purchase Date (a "disbursement") shall bear interest on the outstanding
principal amount thereof, for each day from the date such disbursement is made
until such disbursement is repaid or required to be repaid hereunder, at a rate
per annum equal to the Bank Rate for such day. Such interest shall be payable
in arrears (x) on each Interest Payment Date until the date such disbursement is
repaid or required to be repaid pursuant to subsection (b) below, (y) upon the
date such disbursement is so repaid or required to be repaid and (z) after such
repayment date, upon demand on the first Interest Payment Date occurring after
such repayment date or the date of such demand, as the case may be.
(b) Each disbursement shall be payable as follows:
(i) The portion (if any) of each disbursement attributable to
the payment of the portion of Purchase Price consisting of Stated Interest
shall be repaid, together with interest accrued thereon, on the first
Interest Payment Date occurring after the making of such disbursement.
(ii) The remaining portion of such disbursement shall be repaid,
together with interest accrued thereon, on each date on which any principal
of the Purchased Certificate(s) purchased with the proceeds of such
disbursement is paid, whether at maturity, upon redemption or otherwise
(including any portion of the purchase price attributable to principal paid
upon the remarketing of such Purchased Certificate(s)), as and to the
extent required in clause (c) below; provided that if all such Purchased
Certificate(s) have been remarketed, any remaining unpaid portion of such
disbursement shall be repaid, together with interest accrued thereon, on
the first Interest Payment Date occurring after such remarketing.
(c) Payments in respect of principal and interest or of the purchase
price received by the Bank in respect of
14
<PAGE>
any Purchased Certificates (whether at maturity, upon redemption or otherwise,
including payments made with the proceeds of amounts received upon the
remarketing of such Purchased Certificates) shall be applied in the following
order of priorities: first, to the payment of interest on the related
disbursement that is due and unpaid hereunder; second, to the repayment of the
principal amount of the related disbursement; and third, to the extent of any
excess, to Morgan Guaranty (or, if any Person other than Morgan Guaranty or an
affiliate of Morgan Guaranty is the Swap Provider, such other Person).
(d) The payment obligations under this Section 2.06 shall be credited
by and to the extent of any amounts which are paid in respect of the Purchased
Certificates, received by the Bank and applied to such payment in accordance
with subsection (c) above, and such obligation shall be discharged to such
extent; provided that in the event that all or part of any such amount is
recovered from the Bank as a preference, fraudulent transfer or similar payment
under any bankruptcy, insolvency or similar law, such obligation shall be
reinstated as though such amount had not been paid.
(e) The Cooperative and the Bank agree that Morgan Guaranty (or, if
any Person other than Morgan Guaranty or an affiliate of Morgan Guaranty is the
Swap Provider, such other Person) will pay to the Bank (i) each amount payable
under clause (i) of Section 2.06(b), (ii) on each Interest Payment Date
applicable to any Purchased Certificate purchased with the proceeds of any
disbursement, the excess, if any, of the amount of interest payable in respect
of such disbursement over the amount of Stated Interest distributable in respect
of such Purchased Certificate, (iii) on each date on which any Purchased
Certificate purchased with the proceeds of any disbursement is redeemed or paid
at maturity, the excess, if any, of the amount of interest payable in respect of
such disbursement over the amount of Stated Interest distributable in respect of
such Purchased Certificate and (iv) on the first Interest Payment Date occurring
after the remarketing of all Purchased Certificate(s) purchased with the
proceeds of any disbursement, the amount (if any) payable pursuant to the
proviso to clause (ii) of Section 2.06(b), in each case to the extent such
amounts are unpaid and so long as the Swap Agreement with Morgan Guaranty (or
its affiliate) or such other Person, as the case may be, is in effect and the
Swap Provider has received all amounts in respect of Swap Provider Payments and
any Termination Amount due to it under the Swap Agreement, it being understood
and agreed that the Cooperative shall remain obligated to pay such amounts to
15
<PAGE>
the extent that Morgan Guaranty or such other Person, as the case may be, is not
obligated, or fails, to pay such amounts; provided, however, that the
Cooperative shall not be obligated to pay such amounts to the extent that the
sum of such unpaid amounts and the unpaid fees and other amounts payable under
Sections 2.05 and 8.03(c) hereof exceed an amount equal to 0.25% per annum
(computed on the basis of a year of 365 days (or 366 days in a leap year) and
paid for the actual number of days elapsed (including the first day but
excluding the last day) in the period for which payment is due) of the
Commitment. The obligation of Morgan Guaranty (or such other Person) under this
Section 2.06(e) may be further evidenced by documentation mutually acceptable to
the Bank and Morgan Guaranty (or such other Person).
SECTION 2.07. General Provisions as to Payments. (a) Except as
otherwise provided in Section 2.04, all payments to be received by the Bank
hereunder shall be received by it no later than 1:00 P.M. (New York City time)
on the due date therefor, and any payment received by the Bank after 1:00 P.M.
(New York City time) shall be deemed to have been received by the Bank on the
next Business Day. All payments by or on behalf of the Cooperative to the Bank
hereunder shall be made in U.S. dollars and in immediately available funds. All
such payments, unless otherwise directed by the Bank in writing, shall be
transferred to the Bank at its address referred to in Section 8.01. If any
payment due hereunder is due on a day that is not a Business Day, then such
amount shall be due on the next succeeding Business Day. If the date for any
payment of principal is extended pursuant to the preceding sentence, by
operation of law or otherwise, interest thereon shall be payable for such
extended time.
(b) Any overdue payment hereunder shall bear interest, payable on
demand on the first Interest Payment Date occurring after the date of such
demand (or, if no Certificates are outstanding, on demand), for each day
thereafter until paid in full, at a rate equal to the sum of the Base Rate plus
2%.
SECTION 2.08. Computation of Interest and Fees. Interest based on
the Prime Rate and fees shall be computed on the basis of a year of 365 days (or
366 days in a leap year) and paid for the actual number of days elapsed
(including the first day but excluding the last day). Interest based on the
Federal Funds Rate shall be computed on the basis of a year of 360 days and paid
for the actual number of days elapsed (including the first day but excluding the
last day).
16
<PAGE>
SECTION 2.09. Extension of Scheduled Termination Date. (a) By the
180th day prior to the Scheduled Termination Date, the Bank shall give to the
Cooperative and (if it is not the Bank) Morgan Guaranty notice as to whether, in
its sole discretion, it elects to extend or not to extend the Scheduled
Termination Date and, in the case of any election to extend, specifying the
period of such extension; provided that if the Bank gives notice that the
Scheduled Termination Date will not be extended, the Purchase Period will expire
upon the Scheduled Termination Date then in effect.
(b) If the Scheduled Termination Date is extended, the Cooperative
shall be deemed to have made the representations and warranties contained herein
and in the Related Documents on and as of the date on which the Scheduled
Termination Date is so extended.
ARTICLE III
CONDITIONS TO PURCHASE
SECTION 3.01. Conditions to Each Purchase. The obligation of the
Bank to purchase Unremarketed Certificates hereunder on any Purchase Date is
subject to receipt by the Bank of a Notice of Bank Purchase as required by
Section 2.02, the condition that the Unremarketed Certificates to be so
purchased are not held by or for the account of the Cooperative or any affiliate
thereof and the further condition that none of the following events or
conditions shall exist:
(a) the Government shall fail, wholly or parti ally, to make a payment
when and as required under the Federal Guaranty;
(b) the Administrator or any other Federal governmental authority or
official with competent jurisdiction shall claim or assert in writing that the
Federal Guaranty is invalid or unenforceable against the Government, or the
Administrator or any other Federal governmental authority or official with
competent jurisdiction shall repudiate in writing the obligations of the
Government or deny that the Government has any further liability under the
Federal Guaranty; or the validity or enforceability of the Federal Guaranty
shall be contested in any contest or proceeding (including an appellate
proceeding) directly or indirectly by the Administrator or any other Federal
governmental authority or official with competent
17
<PAGE>
jurisdiction and, in the case of a Person other than the Administrator or any
other Federal governmental authority or official with competent jurisdiction,
the Government shall fail to defend or assert such validity or enforceability or
to appeal such contest or proceeding pursuant to appropriate proceedings or
actions;
(c) any governmental authority with competent jurisdiction shall
announce, find or rule that the Federal Guaranty is null and void or otherwise
invalid or unenforceable against the Government;
(d) the Federal Guaranty shall be cancelled or terminated, or shall be
amended or modified such that payment of principal of or interest on any Note
shall not be guaranteed thereby, or shall cease to constitute a full faith and
credit obligation of the United States of America;
(e) a court of competent jurisdiction shall enter a final
nonappealable judgment that the Federal Guaranty is not valid and binding on or
enforceable against the Government;
(f) an "Illegality" (as defined in the Swap Agreement), other than an
Illegality with respect to the Cooperative, shall have occurred and be
continuing;
(g) any governmental authority with competent jurisdiction shall
announce, find or rule that the Swap Agreement is null and void or otherwise
invalid or unenforceable against either party thereto;
(h) the Swap Agreement shall be cancelled or terminated without
payment of all amounts required under Section 7.5 of the Trust Agreement or
replacement thereof by an Alternate Swap Agreement; or
(i) a court of competent jurisdiction shall enter a final
nonappealable judgment that the Swap Agreement is not valid and binding on or
enforceable against either party thereto.
Each purchase hereunder shall be deemed to be a representation and warranty by
the Cooperative on and as of the date of such purchase as to the fact that none
of the events specified in clauses (a) through (i), inclusive, of this Section
3.01 shall have occurred and be continuing.
18
<PAGE>
ARTICLE IV
CONDITIONS TO EFFECTIVENESS
SECTION 4.01. Conditions to Effectiveness. This Agreement shall
become effective on the date on which each of the following conditions shall
have been satisfied (or waived in accordance with Section 8.05):
(a) The Bank shall have received on or before the Effective Date:
(i) counterparts hereof signed by each of the parties hereto;
(ii) an opinion of each of Vinson & Elkins L.L.P., special
finance counsel for the Cooperative, dated the Effective Date, and of
Harold Haun, Esq., General Counsel of the Cooperative, dated the Effective
Date, substantially in the forms required to be delivered on the
Refinancing Date pursuant to the Purchase Contract;
(iii) copies of resolutions of the Board of Directors of the
Cooperative authorizing the execution, delivery and performance by the
Cooperative of this Agreement, certified by the Secretary or an Assistant
Secretary of the Cooperative (which certificate, dated the Effective Date,
shall state that such resolutions are in full force and effect on the
Effective Date and have not been amended or supplemented in any manner);
(iv) certified copies of all approvals, authorizations or
consents of, or notices to or filings or registrations with, any
governmental body, agency or official required for the Cooperative to
execute, deliver or perform this Agreement or any of the Related Documents;
(v) a certificate of the Secretary or an Assistant Secretary of
the Cooperative, dated the Effective Date, certifying as to the names and
true signatures of the officers of the Cooperative authorized to execute
this Agreement and any other document to be delivered by the Cooperative
hereunder;
(vi) evidence that, upon issuance, the Certificates will receive
credit ratings of AAA/A-1
19
<PAGE>
or higher from S&P and Aa1/P-1 or higher from Moody's;
(vii) copies, certified to be true and complete, of each of the
Related Documents (including all amendments or supplements thereto);
(viii) a letter, dated the Effective Date, from the Trustee and
Tender Agent to the Bank substantially in the form of Exhibit C hereto;
[(ix) an executed copy of each document, instrument, certificate
and opinion delivered pursuant to each Related Document (together with, in
the case of each such opinion (other than any opinion of counsel to the
underwriter or Remarketing Agent delivered solely to the underwriter or the
Remarketing Agent, respectively), a letter from the counsel rendering such
opinion to the effect that the Bank is entitled to rely on such opinion as
if it were addressed to the Bank);]* and
(x) such other documents, instruments, approvals (and, if
requested by the Bank, certified duplicates of executed copies thereof) or
opinions as the Bank may reasonably request.
(b) The following statements shall be true and shall be deemed to have
been represented by the Cooperative as being true on and as of the Effective
Date, and the Bank shall have received a certificate of an Authorized
Representative of the Cooperative dated the Effective Date, stating that, to the
best of such officer's knowledge after due inquiry, no event or condition
described in Section 3.01 has occurred and is continuing, or would result from
the effectiveness of this Agreement.
(c) [All conditions precedent to (i) the issuance of the Certificates
under the Related Documents and under applicable law, (ii) the creation of the
Trust, the refinancing of the Notes and the deposit thereof in the Trust, (iii)
the continuation of the Federal Guaranty and (iv) the purchase of the
Certificates by the underwriter under the Purchase Contract (other than delivery
of this Agreement) shall have been satisfied without waiver, and each such
issuance, creation,
- -----------------
* Include for initial Liquidity Facility.
20
<PAGE>
continuation and purchase shall have occurred.]* [All conditions precedent to
the substitution of the Prior Liquidity Facility under the Trust Agreement shall
have occurred, including, without limitation, the payment of all amounts payable
to the provider of such Prior Liquidity Facility in respect thereof, and the
Prior Liquidity Facility shall have been terminated.]**
The Bank shall promptly notify the Cooperative, the Trustee, the Swap Provider
and the Remarketing Agent of the Effective Date, and such notice shall be
conclusive and binding on all parties hereto.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
The Cooperative represents and warrants, as of the date hereof, each
Purchase Date and each anniversary of the Effective Date that:
SECTION 5.01. Existence and Power. The Cooperative is a non-profit
electric generation and transmission cooperative corporation duly organized,
validly existing and in good standing under the laws of the State of Kansas and
has full power and authority and all material governmental licenses,
authorizations, consents and approvals required to own and operate its
properties and to carry on its activities as now conducted.
SECTION 5.02. Corporate and Governmental Authorization;
Noncontravention. The execution, delivery and performance by the Cooperative of
this Agreement and the Related Documents are within its corporate powers, have
been duly authorized by all necessary action, require no action by or in respect
of, or filing with, any governmental body, agency or official (other than
approvals by the Administrator, which have been obtained), do not violate any
provision of its Articles of Incorporation or bylaws and do not contravene, or
constitute a default under, any provision of applicable law or regulation, or of
any agreement, judgment, injunction, order, decree or other instrument binding
upon the Cooperative or any of its assets or result in the creation or
imposition of any Lien on any asset of the Cooperative.
- -----------------
* Include for initial Liquidity Facility.
** Include for any Alternate Liquidity Facility.
21
<PAGE>
SECTION 5.03. Valid and Binding Agreements. This Agreement and each
Related Document constitutes a valid and binding agreement of the Cooperative.
SECTION 5.04. Financial Information. The audited balance sheet of
the Cooperative as at December 31, 19/20__ and the related audited statements of
operations, changes in patronage capital (deficit) and cash flows for the fiscal
year then ended, a copy of which has been delivered to the Bank, fairly present
the financial condition of the Cooperative at such date and the results of
operations for such year, in conformity with generally accepted accounting
principles.
SECTION 5.05. Litigation. Except as disclosed in the Offering
Statement, there is no action, suit or proceeding pending against or, to the
knowledge of the Cooperative, threatened against or affecting the Cooperative
before any court or arbitrator or any governmental body, agency or official in
which there is a reasonable possibility of an adverse decision which could
materially adversely affect the business, financial position or results of
operations of the Cooperative or that in any manner draws into question the
validity or enforceability of this Agreement or the Related Documents.
SECTION 5.06. No Defaults. The Cooperative is not in default in the
payment of any amounts due and payable in respect of any indebtedness of the
Cooperative that is guaranteed, either directly or indirectly, by the United
States of America.
SECTION 5.07. Offering Materials. The Offering Statement is accurate
in all material respects for the purposes for which its use is or shall be
authorized; and the Offering Statement does not, and any supplement or amendment
thereto shall not, contain any untrue statement of a material fact or omit to
state any material fact necessary to make the statements made therein, in the
light of the circumstances under which they are or were made, not misleading;
provided that the Cooperative makes no represen tation as to the accuracy or
completeness of the information relating to the Bank provided in writing by the
Bank for inclusion in the Offering Statement.
SECTION 5.08. Not a Public Utility Holding Company. The Cooperative
is not subject to regulation as a "holding company", or a "subsidiary company"
of a "holding company", or an "affiliate" of a "holding company" or of a
"subsidiary company" of a "holding company", as such terms are defined in, and
is not otherwise subject to regulation
22
<PAGE>
under, the Public Utility Holding Company Act of 1935, as amended.
SECTION 5.09. Not an Investment Company. The Cooperative is not an
"investment company" within the meaning of the Investment Company Act of 1940,
as amended.
SECTION 5.10. Incorporation of Representations and Warranties by
Reference. The Cooperative hereby makes to the Bank the same representations
and warranties as are made by it in the Trust Agreement and each other Related
Document, which representations and warranties, as well as the related defined
terms contained therein, are hereby incorporated by reference with the same
effect as if each and every such representation and warranty and defined term
were set forth herein in its entirety. No amendment to any such representation
and warranty or defined term made pursuant to any such Related Document shall be
effective to amend such representation and warranty or defined term as
incorporated by reference herein without the prior consent of the Bank.
ARTICLE VI
COVENANTS
The Cooperative agrees that, so long as the Bank has any Commitment
hereunder or any amount payable under any Purchased Certificate remains unpaid:
SECTION 6.01. Information. The Cooperative will deliver, or cause to
be delivered, to the Bank:
(a) as soon as available and in any event within 120 days after
the end of each fiscal year of the Cooperative, a balance sheet of the
Cooperative as of the end of such fiscal year and the related statements of
operations, changes in patronage capital (deficit) and cash flows for such
fiscal year, setting forth in each case in comparative form the figures for the
previous fiscal year, all reported on without material qualification by the
Cooperative's independent public accountants;
(b) as soon as available and in any event within 60 days after
the end of each of the first three quarters of each fiscal year of the
Cooperative, a balance sheet of the Cooperative as of the end of such quarter
and the related statements of operations, changes in patronage capital (deficit)
and cash flows
23
<PAGE>
for such quarter and for the portion of the Cooperative's fiscal year ended at
the end of such quarter, setting forth in the case of such statements of
operations and changes in patronage capital (deficit) and cash flows in
comparative form the figures for the corresponding quarter and the corresponding
portion of the Cooperative's previous fiscal year, all certified (subject to
normal year-end adjustments) as to fairness of presentation, generally accepted
accounting principles and consistency by an Authorized Representative of the
Cooperative;
(c) within five days after any Authorized Representative of the
Cooperative obtains knowledge of any Default, if such Default is then
continuing, a certificate of an Authorized Representative of the Cooperative
specifying the nature of such Default, the period of its existence and the
action which the Cooperative is taking or proposes to take with respect thereto;
(d) simultaneously with the furnishing thereof, a copy of any
report or other information delivered by the Cooperative to the Trustee or CFC
or (if not the same Person as the Bank) the Swap Provider pursuant to any
Related Document or furnished to (or available to be furnished to) holders of
Certificates; and
(e) from time to time with such information regarding the
Cooperative (including without limitation the financial position, results of
operations, business or prospects of the Cooperative) as the Bank may reasonably
request;
SECTION 6.02. Payment of Obligations. The Cooperative will pay and
discharge, at or before maturity, all of its material obligations and
liabilities, including, without limitation, tax liabilities, except where the
same may be contested in good faith by appropriate proceedings, and will
maintain, in accordance with generally accepted accounting principles,
appropriate reserves for the accrual of the same.
SECTION 6.03. Conduct of Business and Maintenance of Existence. The
Cooperative will continue to engage in business as now conducted by it, and,
except as otherwise permitted in Section 6.06 hereof, will preserve, renew and
keep in full force and effect its corporate existence and will take all action
to maintain all rights, privileges and franchises necessary or desirable in the
normal conduct of
24
<PAGE>
its business and to perform its obligations under this Agreement and the Related
Documents.
SECTION 6.04. Inspection of Property, Books and Records. The
Cooperative will keep proper books of record and account in which full, true and
correct entries shall be made of all dealings and transactions in relation to
its business and activities and will permit representatives of the Bank at the
Bank's expense to visit and inspect any of its properties, to examine and make
abstracts from any of its books and records and to discuss its affairs, finances
and accounts with its officers, employees and independent public accountants,
all at such reasonable times and as often as may reasonably be desired.
SECTION 6.05. Incorporation by Reference. The Cooperative will
perform and comply with each and every obligation, covenant and agreement
required to be performed or observed by it in or pursuant to the Trust
Agreement, the Loan Agreement and each other Related Document, which provisions,
as well as the related defined terms contained therein, are hereby incorporated
by reference herein with the same effect as if each and every such provision
were set forth herein in its entirety. To the extent that any such incorporated
provision permits the Trustee or the holders of one or more Certificates or any
other Person or Persons to waive compliance with such provision or requires that
a document, opinion or other instrument or any event or condition be acceptable
or satisfactory to the Trustee or the holders of one or more Certificates or any
other Person or Persons, for purposes of this Agreement, such provision shall be
complied with only if it is waived by the Bank and such document, opinion or
other instrument and such event or condition shall be acceptable or satisfactory
only if it is acceptable or satisfactory to the Bank unless such consent is not
required pursuant to Section 6.07. No amendment to, or waiver of, such
obligations, covenants and agreements or defined terms made pursuant to any of
the Related Documents shall be effective to amend or waive such obligations,
covenants and agreements and defined terms as incorporated by reference herein
without the consent of the Bank unless such consent is not required pursuant to
Section 6.07.
SECTION 6.06. Consolidations, Mergers and Sales of Assets. The
Cooperative will not (i) terminate, wind up, liquidate or dissolve its affairs
or consolidate or merge with or into any Person or (ii) sell, transfer, convey
or lease (whether in a single transaction or a series of transactions) all or
substantially all of its properties or assets to any Person, unless, in the case
of any such consolidation or merger with or into any Person or any such
25
<PAGE>
sale, transfer or lease to any Person, such Person shall have assumed, in
writing, the obligations of the Cooperative hereunder.
SECTION 6.07. Related Documents. The Cooperative will not enter into
or consent to any amendment, supplement or modification to, or termination or
waiver of, and will not accept the benefit of any waiver of, any provision of
any of the Related Documents without the Bank's prior consent if such amendment,
supplement, modification, termination or waiver might in any way adversely
affect the rights or interests of the Bank hereunder or thereunder; provided
that the Cooperative shall not, without the Bank's prior consent, (i) consent
to, or otherwise permit to be made, any termination or amendment of or
modification to the Federal Guaranty or (ii) include, or permit to be included,
any material or reference relating to the Bank in any offering or remarketing
circular or document (other than any offering or remarketing materials in effect
on the Effective Date) or tombstone advertisement used in connection with the
offering and sale or the re-offering and resale or the remarketing of the
Certificates.
ARTICLE VII
EVENTS OF DEFAULT
SECTION 7.01. Events of Default. If one or more of the following
events ("Events of Default") shall have occurred and be continuing:
(a) (i) any one or more of the events or conditions set forth in
clauses (a) through (e), inclusive, of Section 3.01 shall occur or exist or (ii)
any one or more of the events or conditions set forth in clauses (f) through
(i), inclusive, of Section 3.01 shall occur or exist;
(b) any interest on any Note or any fees or other amounts
payable hereunder (including any principal of or any interest on any
disbursement made by the Bank of the Purchase Price of any Unremarketed
Certificate) shall not be paid within six Business Days after the date thereof;
(c) the Cooperative shall fail to observe or perform any
covenant contained in Section 6.06 or 6.07;
(d) the Cooperative shall fail to observe or perform any
covenant or agreement applicable to it and
26
<PAGE>
contained in this Agreement (other than those covered by clause (b) or (c)
above) or in any Related Document for 90 days after written notice thereof has
been given to the Cooperative by the Bank;
(e) any representation, warranty, certification or statement
made by the Cooperative in this Agreement or in any Related Document or in any
certificate, financial statement or other document delivered pursuant hereto or
thereto shall prove to have been incorrect in any material respect when made (or
deemed made);
(f) the Cooperative shall commence a voluntary case or other
proceeding seeking liquidation, reorganization or other relief with respect to
itself or its debts under any bankruptcy, insolvency or other similar law now or
hereafter in effect or seeking the appointment of a trustee, receiver,
liquidator, custodian or other similar official of it or any substantial part of
its property, or shall consent to any such relief or to the appointment of or
taking possession by any such official in an involuntary case or other
proceeding commenced against it, or shall make a general assignment for the
benefit of creditors, or shall fail generally to pay its debts as they become
due, or shall take any action to authorize any of the foregoing;
(g) an involuntary case or other proceeding shall have been
commenced against the Cooperative seeking liquidation, reorganization or other
relief with respect to it or its debts under any bankruptcy, insolvency or other
similar law now or hereafter in effect or seeking the appointment of a trustee,
receiver, liquidator, custodian or other similar official of it or any
substantial part of its property, and such involuntary case or other proceeding
shall remain undismissed and unstayed for a period of 60 days; or the
Cooperative or any court or governmental authority having jurisdiction over the
Cooperative shall have declared a moratorium or taken similar action with
respect to any debts of the Cooperative; or
(h) any representation, warranty, certification or statement
made or deemed made by the Government or the Administrator under or pursuant to
any Related Document or in any document, instrument, statement or certificate
delivered in connection herewith or therewith shall prove to have been incorrect
in any material respect when made or deemed made;
27
<PAGE>
(i) any provision of this Agreement or any Related Document
(other than the Federal Guaranty and the Swap Agreement) shall at any time cease
to be legal, valid, binding and enforceable on the Cooperative, the Servicer or
the Government, as the case may be, or shall be declared to be null and void, or
the legality, validity or enforceability of any of the foregoing or of the
transactions contemplated thereby shall be contested by the Cooperative, the
Servicer, the Administrator, the Government or any other governmental authority
having competent jurisdiction;
(j) any event or condition which constitutes an "event of
default" under any Related Document shall have occurred and be continuing; or
(k) the holders of the Certificates shall for any reason cease
to have any unencumbered interest in the Trust, or the Trustee, the Servicer,
the Cooperative, the Administrator, the Government or any other governmental
authority having competent jurisdiction shall so assert in writing;
then the Bank may take one or more of the following actions:
(1) In the case of any Event of Default specified in subsection (a)(i) of
Section 7.01, the Commitment and the obligation of the Bank to purchase
Unremarketed Certificates hereunder shall terminate immediately without notice
or demand to any Person. Promptly upon the occurrence of such Event of Default,
the Bank shall give written notice of the same to the Cooperative, the Trustee
and the Remarketing Agent; provided, however, that the Bank shall not incur any
liability or responsibility whatsoever by reason of the Bank's failure to give
such notice and such failure shall in no way affect the termination of the
Commitment and the obligation of the Bank to purchase Unremarketed Certificates
pursuant to this Agreement.
(2) In the case of any Event of Default specified in subsection (a)(ii) of
Section 7.01, the obligation of the Bank to purchase Unremarketed Certificates
shall be suspended immediately (but not terminated) without notice or demand to
any Person and thereafter the Bank shall be under no obligation to purchase any
Unremarketed Certificate until such obligation is reinstated as described below
in this paragraph (2). Promptly upon the occurrence of such Event of Default,
the Bank shall notify the Cooperative, the Trustee and
28
<PAGE>
the Remarketing Agent of such suspension; provided, however, that the Bank shall
not incur any liability or responsibility whatsoever by reason of the Bank's
failure to give such notice and such failure shall in no way affect the
suspension of the obligation of the Bank to purchase Unremarketed Certificates
pursuant to this Agreement. If the Bank receives notice on or before the close
of business on the fifth Business Day following the occurrence of such Event of
Default that an Alternate Swap Agreement has been deposited with the Trustee and
is effective, then the obligation of the Bank to purchase Unremarketed
Certificates hereunder shall thereupon be reinstated (unless the Commitment has
been terminated pursuant to any other provision of this Agreement). If the Bank
fails to receive notice by the close of business on such fifth Business Day that
an Alternate Swap Agreement has been deposited with the Trustee and is
effective, then the Commitment and the obligation of the Bank to purchase
Unremarketed Certificates hereunder shall, unless previously terminated pursuant
to any other provision of this Agreement, at such time terminate without notice
or demand and, thereafter, the Bank shall be under no obligation to purchase
Unremarketed Certificates. A suspension pursuant to this paragraph (2) shall not
in any event extend the Scheduled Expiration Date or affect any other remedy
under this Section 7.01.
(3) In the case of any Event of Default, the Bank shall have the right to
take any actions permitted by applicable law and to pursue all remedies
(including, without limitation, the right to demand and receive specific
performance provided at law or in equity); provided, however, that the Bank
shall not have the right to terminate or suspend the Commitment or its
obligation to purchase Unremarketed Certificates other than as provided in
paragraph (1) or (2) above or the right to accelerate any amount due hereunder
at any time prior to the termination of the Commitment in accordance with this
Agreement.
ARTICLE VIII
MISCELLANEOUS
SECTION 8.01. Notices. All notices, requests, consents and other
communications to any party hereunder shall be in writing (including bank wire,
telex, telecopier or similar writing) and shall be given to such party at its
address, telex or telecopy number set forth on the signature
29
<PAGE>
pages hereof, or at such other address or telex or telecopier number as such
party may hereafter specify for the purpose by at least five Business Days'
prior notice to the other party. Each such notice, request, consent or other
communication shall be effective (i) if given by telex, when such telex is
transmitted to the telex number specified in this Section and the appropriate
answerback is received, (ii) if given by telecopy, when such telecopy is
transmitted to the specified telecopier number and its receipt is acknowledged,
(iii) if given by mail, 72 hours after such communication is deposited in the
mails with first class postage prepaid, addressed as aforesaid or (iii) if given
by any other means, when delivered at the address specified in this Section;
provided that notices to the Bank pursuant to Section 2.02 and 2.04 shall be
effective immediately upon receipt thereof.
SECTION 8.02. No Waivers. No failure or delay by the Bank in
exercising any right, power or privilege hereunder or under any Purchased
Certificate or other Related Document shall operate as a waiver thereof nor
shall any single or partial exercise thereof preclude any other or further
exercise thereof or the exercise of any other right, power or privilege. The
rights and remedies herein provided shall be cumulative and not exclusive of any
rights or remedies provided by law.
SECTION 8.03. Expenses; Documentary Taxes; Indemnification; Reduced
Return. (a) The Cooperative and the Bank agree that Morgan Guaranty (or, if
any Person other than Morgan Guaranty or an affiliate of Morgan Guaranty is the
Swap Provider, such other Person) shall pay the reasonable out-of-pocket
expenses of the Bank, including the reasonable fees and disbursements of counsel
for the Bank, in connection with the preparation, execution and delivery of (x)
this Agreement and (y) any Related Documents scheduled to become effective on or
about the Effective Date, so long as the Swap Agreement with Morgan Guaranty (or
its affiliate) or such other Person, as the case may be, is in effect and the
Swap Provider has received all amounts in respect of Swap Provider Payments and
any Termination Amount then due to it under the Swap Agreement, it being
understood and agreed that the Cooperative shall remain obligated to pay such
amounts to the extent that Morgan Guaranty or such other Person is not
obligated, or fails, to pay such amounts. The Cooperative shall pay all out-of-
pocket expenses, including the reasonable fees and disbursements of counsel for
the Bank, in connection with (i) any waiver or consent hereunder or under any
Related Document or any amendment hereof or thereof or (ii) any Default or
alleged Default hereunder or thereunder, including in connection
30
<PAGE>
with any collection, bankruptcy, insolvency and other enforcement proceedings
resulting therefrom. In addition, the Cooperative shall be obligated to pay any
and all stamp, transfer, documentary and other taxes, assessments, charges and
fees payable or determined to be payable in connection with the execution,
delivery, filing or recording of this Agreement or any Related Document or any
instrument filed or recorded in connection with the transactions contemplated
hereby or thereby and shall agree to hold each Bank harmless from and against
any and all liabilities with respect to or resulting from any delay in paying or
omitting to pay any such taxes, assessments, charges or fees.
(b) The Cooperative, to the fullest extent it may lawfully do so,
hereby indemnifies the Bank and their respective affiliates and the respective
directors, officers, agents and employees of each of the foregoing (each an
"Indemnitee") and holds each Indemnitee harmless from and against any and all
claims, damages, losses, liabilities, cost or expenses which such Indemnitee may
incur (or which may be claimed against such Indemnitee by any Person whatsoever)
by reason of any untrue statement or alleged untrue statement of any material
fact contained (or incorporated by reference) in the Offering Statement or in
any supplement or amendment thereof, or the omission or alleged omission to
state therein a material fact necessary to make such statements, in the light of
the circumstances under which they are or were made, not misleading, except
insofar as such claims, damages, losses, liabilities, costs or expenses are
caused by any such untrue statement or alleged untrue statement or omission
based upon information relating to the Bank furnished to the Cooperative in
writing by the Bank expressly for use therein.
(c) If the Bank shall have determined that, after the date hereof,
the adoption of any applicable law, rule or regulation regarding capital
adequacy, or any change in any such law, rule or regulation, or any change in
the interpretation or administration thereof by any governmental authority,
central bank or comparable agency charged with the interpretation or
administration thereof, or any request or directive regarding capital adequacy
(whether or not having the force of law) of any such authority, central bank or
comparable agency, has or would have the effect of reducing the rate of return
on capital of the Bank (or its Parent) as a consequence of the Bank's
obligations hereunder to a level below that which the Bank (or its Parent) could
have achieved but for such adoption, change, request or directive (taking into
consideration its policies with respect to capital adequacy) by an amount deemed
by the Bank to be material, then from time to time, following receipt by
31
<PAGE>
the Cooperative, the Swap Provider and the Trustee of a certificate claiming
compensation under this Section, as described below, but in no event earlier
than the earliest date of payment by the Cooperative under the Swap Agreement
occurring at least 90 days following receipt by the Cooperative and the Trustee
of notice by the Bank pursuant to the immediately succeeding sentence, the Bank
shall be paid such additional amount or amounts as will compensate the Bank (or
its Parent) for such reduction, it being understood and agreed that such
additional amount or amounts shall be paid by Morgan Guaranty (or, if any Person
other than Morgan Guaranty or an affiliate of Morgan Guaranty is the Swap
Provider, such other Person) so long as the Swap Agreement with Morgan Guaranty
(or its affiliate) or such other Person, as the case may be, is in effect and
the Swap Provider has received all amounts in respect of Swap Provider Payments
and any Termination Amount then due to it under the Swap Agreement, it being
understood and agreed that the Cooperative shall remain obligated to pay such
amounts to the extent that Morgan Guaranty or such other Person, as the case may
be, is not obligated, or fails, to pay such amounts; provided, however, that the
Cooperative shall have no obligation to pay such unpaid amounts to the extent
that the sum of such unpaid amounts and the unpaid fees and other amounts
payable under Sections 2.05 and 2.06(e) hereof exceed an amount equal to 0.25%
per annum (computed on the basis of a year of 365 days (or 366 days in a leap
year) and paid for the actual number of days elapsed (including the first day
but excluding the last day) in the period for which payment is due) of the
Commitment. The Bank will promptly notify the Cooperative, the Swap Provider and
the Trustee of any event of which it has knowledge, occurring after the date
hereof, which will entitle the Bank to compensation pursuant to this Section. A
certificate of the Bank claiming compensation under this Section and setting
forth the additional amount or amounts to be paid to it hereunder shall be
conclusive in the absence of manifest error. In determining such amount, the
Bank may use any reasonable averaging and attribution methods.
SECTION 8.04. Liability of the Bank. (a) The Cooperative assumes any
and all risks with respect to the acts or omissions of the Trustee, the Tender
Agent and the Remarketing Agent in connection with its use of this Agreement or
any amounts made available by the Bank hereunder. Neither the Bank nor any of
its officers, directors, employees or agents shall be liable or responsible for
any of the following: (i) the use that may be made of this Agreement or any
amounts made available by the Bank hereunder or for any acts or omissions of the
Trustee, the Tender Agent or the Remarketing Agent in
32
<PAGE>
connection therewith; (ii) the validity, sufficiency or genuineness of documents
(except for the validity and enforceability of the Bank's obligations
hereunder), even if such documents should in fact prove to be in any or all
respects invalid, insufficient, fraudulent or forged; or (iii) any other
circumstances whatsoever in making or failing to make payment under this
Agreement, except only that the Cooperative shall have a claim against the Bank
and the Bank shall be liable to the Cooperative to the extent, but only to the
extent, of any direct, as opposed to consequential, damages suffered by the
Cooperative that the Cooperative proves were proximately caused by the Bank's
breach of its obligation to make payment under this Agreement strictly in
accordance with the terms hereof or for any direct loss or damage caused by the
gross negligence or willful misconduct of the Bank; provided, however, that the
maximum amount of damages recoverable by the Cooperative as provided above is
expressly limited to an amount equal to the Available Commitment. In furtherance
and not in limitation of the foregoing, the Bank may accept documents that
appear on their face to be in order, without responsibility for further
investigation, regardless of any notice or information to the contrary.
(b) It is understood that in connection with the offering, sale or
remarketing of Certificates, the Bank shall, as between the Bank and the
Cooperative, be responsible for its compliance with any registration,
qualification or other requirements under any federal or state law or regulation
applicable to it, and the Bank shall, as between the Bank and the Cooperative,
indemnify the Cooperative against any claims or liabilities arising out of any
failure to so comply; provided that nothing herein shall be construed to require
the Bank to indemnify against or otherwise be responsible for compliance with
any requirements under federal or state law or regulations with respect to any
securities laws or any information provided in connection with the offering,
sale or remarketing of Certificates other than such information provided by the
Bank as a description of the Bank.
SECTION 8.05. Amendments and Waivers. Any provision of this
Agreement may be amended or waived if, but only if, such amendment or waiver is
in writing and is signed by the Cooperative and the Bank and, if the Bank is not
Morgan Guaranty, approved by Morgan Guaranty.
SECTION 8.06. Successors and Assigns. (a) The obligations of the
Cooperative under this Agreement shall continue until the later of the Scheduled
Termination Date and the date upon which all amounts due and owing to the
33
<PAGE>
Bank shall have been paid in full. The provisions of this Agreement shall be
binding upon and inure to the benefit of the parties hereto and their respective
successors and assigns, except that the Cooperative may not assign or otherwise
transfer any of its rights under this Agreement without the prior consent of the
Bank; provided, however, that the obligations of the Cooperative pursuant to
Sections 8.03(a) and (b) shall survive the termination of this Agreement.
(b) The Bank may at any time grant to one or more banks or other
institutions (each a "Participant") partici pating interests in its Commitment
or any or all of its Purchased Certificates. In the event of any such grant by
the Bank of a participating interest to a Participant, whether or not upon
notice to the Cooperative, the Bank shall remain responsible for the performance
of its obligations hereunder, and the Cooperative shall continue to deal solely
and directly with the Bank in connection with the Bank's rights and obligations
under this Agreement. Any agreement pursuant to which the Bank may grant such a
participating interest shall provide that the Bank shall retain the sole right
and responsibility to enforce the obligations of the Cooperative hereunder
including, without limitation, the right to approve any amendment, modification
or waiver of any provision of this Agreement. The Cooperative agrees that each
Participant shall, to the extent provided in its participation agreement, be
entitled to the benefits of Section 8.03(c) with respect to its participating
interest; provided that no Participant shall be entitled to receive any greater
amount pursuant to such provisions than the transferor Bank would have been
entitled to receive thereunder in respect of the participating interest granted
by such Bank had it not granted such participating interest. An assignment or
other transfer which is not permitted by subsection (c) below shall be given
effect for purposes of this Agreement only to the extent of a participating
interest granted in accordance with this subsection (b).
(c) Any Bank may at any time assign all or any portion of its rights
under this Agreement and its Purchased Certificates to a Federal Reserve Bank.
No such assignment shall release the transferor Bank from its obligations
hereunder.
SECTION 8.07. Governing Law. This Agreement shall be governed by and
construed in accordance with the law of the State of New York.
34
<PAGE>
SECTION 8.08. Counterparts; Integration. This Agreement may be
signed in any number of counterparts, each of which shall be an original, with
the same effect as if the signatures thereto and hereto were upon the same
instrument. This Agreement constitutes the entire agreement and understanding
among the parties hereto and supersedes any and all prior agreements and
understandings, oral or written, relating to the subject matter hereof.
SECTION 8.09. Severability. Any provision of this Agreement 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 affecting the validity, enforceability or legality of such
provision in any other jurisdiction.
SECTION 8.10. Headings. Section headings in this Agreement are
included herein for convenience of reference only and shall not constitute a
part of this Agreement for any other purpose.
35
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed by their respective authorized officers as of the day and year
first above written.
KANSAS ELECTRIC POWER
COOPERATIVE, INC.
By ___________________________
Title: Executive Vice President and Chief
Executive Officer
P.O. Box 4877
Topeka, Kansas 66604
Attention: Executive Vice President
Telephone: (913) 271-4830
Telecopy: (913) 271-4888
Commitments
- -----------
Principal
Commitment: $[57,390,000] [NAME OF BANK]
Interest
Commitment: $ By
----------- --------------------------------------
Title:
[Address of Bank]
- -------------------------
Telecopier:
Total Commitments Attention:
Payment (wire) instructions:
$
=================
[Acknowledged:
MORGAN GUARANTY TRUST COMPANY
OF NEW YORK, individually and
as the initial Swap Provider
By
-------------------------]
Title:
36
<PAGE>
EXHIBIT A
FORM OF
OPINION OF SPECIAL FINANCE COUNSEL FOR
THE COOPERATIVE
---------------------------
[see form of opinion to be delivered pursuant
to the Purchase Contract at the Refinancing Date]
A-1
<PAGE>
EXHIBIT B
FORM OF
OPINION OF GENERAL COUNSEL OF
THE COOPERATIVE
-----------------------------
[see form of opinion to be delivered pursuant
to the Purchase Contract at the Refinancing Date]
B-1
<PAGE>
EXHIBIT C
FORM OF TRUSTEE'S AND
TENDER AGENT'S LETTER
---------------------
[Dated the Effective Date]
[name of Bank]
[address of Bank]
Re: Standby Certificate Purchase Agreement dated as of [date] between Kansas
Electric Cooperative, Inc. and [name of Bank] (as amended from time to
time, the "Agreement")
Gentlemen:
We refer to the above-referenced Agreement. Terms used herein and not
otherwise defined herein are used herein as defined in (or incorporated by
reference in) the Agreement.
We hereby agree to enforce the provisions of the Trust Agreement for
your benefit to the extent applicable. The undersigned, in its capacity as
Trustee and Tender Agent, further agrees to perform its obligations under the
Trust Agreement.
Very truly yours,
THE FIRST NATIONAL BANK OF CHICAGO,
as Trustee and as Tender Agent
By
-------------------------------
Title:
C-1
<PAGE>
EXHIBIT 25.1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM T-1
--------
STATEMENT OF ELIGIBILITY
UNDER THE TRUST INDENTURE ACT OF 1939
OF A CORPORATION DESIGNATED TO ACT AS TRUSTEE
CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY
OF A TRUSTEE PURSUANT TO SECTION 305(B)(2) _____
---------------------------------
THE FIRST NATIONAL BANK OF CHICAGO
(EXACT NAME OF TRUSTEE AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
A NATIONAL BANKING ASSOCIATION 36-0899825
(I.R.S. EMPLOYER
IDENTIFICATION NUMBER)
ONE FIRST NATIONAL PLAZA,
CHICAGO, ILLINOIS 60670-0126
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
</TABLE>
THE FIRST NATIONAL BANK OF CHICAGO
ONE FIRST NATIONAL PLAZA, SUITE 0286
CHICAGO, ILLINOIS 60670-0286
ATTN: LYNN A. GOLDSTEIN, LAW DEPARTMENT (312) 732-6919
(NAME, ADDRESS AND TELEPHONE NUMBER OF AGENT FOR SERVICE)
-----------------------------------
KANSAS ELECTRIC POWER COOPERATIVE, INC.
(EXACT NAME OF OBLIGOR AS SPECIFIED IN ITS CHARTER)
KANSAS 48-0836984
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
5990 S.W. 28TH STREET
TOPEKA, KANSAS 66614
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
GRANTOR TRUST CERTIFICATES
OF
RURAL ELECTRIC COOPERATIVE GRANTOR TRUST (KEPCO) SERIES 1997
(TITLE OF INDENTURE SECURITIES)
<PAGE>
ITEM 1. GENERAL INFORMATION. FURNISH THE FOLLOWING INFORMATION AS TO THE
TRUSTEE:
(A) NAME AND ADDRESS OF EACH EXAMINING OR
SUPERVISING AUTHORITY TO WHICH IT IS SUBJECT.
Comptroller of Currency, Washington, D.C.,
Federal Deposit Insurance Corporation,
Washington, D.C., The Board of Governors of
the Federal Reserve System, Washington D.C.
(B) WHETHER IT IS AUTHORIZED TO EXERCISE
CORPORATE TRUST POWERS.
The trustee is authorized to exercise corporate
trust powers.
ITEM 2. AFFILIATIONS WITH THE OBLIGOR. IF THE OBLIGOR IS AN AFFILIATE OF THE
TRUSTEE, DESCRIBE EACH SUCH AFFILIATION.
No such affiliation exists with the trustee.
ITEM 16. LIST OF EXHIBITS. LIST BELOW ALL EXHIBITS FILED AS A PART OF THIS
STATEMENT OF ELIGIBILITY.
1. A copy of the articles of association of the
trustee now in effect.*
2. A copy of the certificates of authority of the
trustee to commence business.*
3. A copy of the authorization of the trustee to
exercise corporate trust powers.*
4. A copy of the existing by-laws of the trustee.*
5. Not Applicable.
6. The consent of the trustee required by
Section 321(b) of the Act.
2
<PAGE>
7. A copy of the latest report of condition of the
trustee published pursuant to law or the
requirements of its supervising or examining
authority.
8. Not Applicable.
9. Not Applicable.
Pursuant to the requirements of the Trust Indenture Act of 1939, as amended, the
trustee, The First National Bank of Chicago, a national banking association
organized and existing under the laws of the United States of America, has duly
caused this Statement of Eligibility to be signed on its behalf by the
undersigned, thereunto duly authorized, all in the City of Chicago and State of
Illinois, on the 31st day of March, 1997.
THE FIRST NATIONAL BANK OF CHICAGO,
TRUSTEE
BY /s/ RICHARD D. MANELLA
---------------------------------
RICHARD D. MANELLA
VICE PRESIDENT
* EXHIBITS 1, 2, 3 AND 4 ARE HEREIN INCORPORATED BY REFERENCE TO EXHIBITS
BEARING IDENTICAL NUMBERS IN ITEM 16 OF THE FORM T-1 OF THE FIRST NATIONAL BANK
OF CHICAGO, FILED AS EXHIBIT 25.1 TO THE REGISTRATION STATEMENT ON FORM S-3 OF
SUNAMERICA INC. FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 25,
1996 (REGISTRATION NO. 333-14201).
3
<PAGE>
EXHIBIT 6
THE CONSENT OF THE TRUSTEE REQUIRED
BY SECTION 321(b) OF THE ACT
March 31, 1997
Securities and Exchange Commission
Washington, D.C. 20549
Gentlemen:
In connection with the qualification of a trust agreement entered into by The
First National Bank of Chicago, Trustee, pertaining to the issuance of Grantor
Trust Certificates of Rural Electric Cooperative Grantor Trust (KEPCO) Series
1997, the undersigned, in accordance with Section 321(b) of the Trust Indenture
Act of 1939, as amended, hereby consents that the reports of examinations of the
undersigned, made by Federal or State authorities authorized to make such
examinations, may be furnished by such authorities to the Securities and
Exchange Commission upon its request therefor.
Very truly yours,
THE FIRST NATIONAL BANK OF CHICAGO
BY: /s/ RICHARD D. MANELLA
-------------------------------
RICHARD D. MANELLA
VICE PRESIDENT
4
<PAGE>
EXHIBIT 7
<TABLE>
<S> <C> <C>
Legal Title of Bank: The First National Bank of Chicago Call Date: 12/31/96 ST-BK: 17-1630 FFIEC 031
Address: One First National Plaza, Ste 0460 Page RC-1
City, State Zip: Chicago, IL 60670
FDIC Certificate No.: 0/3/6/1/8
---------
</TABLE>
CONSOLIDATED REPORT OF CONDITION FOR INSURED COMMERCIAL
AND STATE-CHARTERED SAVINGS BANKS FOR DECEMBER 31, 1996
All schedules are to be reported in thousands of dollars. Unless otherwise
indicated, report the amount outstanding of the last business day of the
quarter.
SCHEDULE RC--BALANCE SHEET
<TABLE>
<CAPTION>
C400
DOLLAR AMOUNTS IN ------------
THOUSANDS RCFD BIL MIL THOU (-
----------------- ---- ------------- -----
<S> <C> <C> <C> <C>
ASSETS
1. Cash and balances due from depository institutions (from
Schedule RC-A):
a. Noninterest-bearing balances and currency and coin(1) 0081 4,586,399 1.a.
b. Interest-bearing balances(2) 0071 5,224,838 1.b.
2. Securities
a. Held-to-maturity securities(from Schedule RC-B, column A) 1754 0 2.a.
b. Available-for-sale securities (from Schedule RC-B, column D) 1773 3,335,304 2.b.
3. Federal funds sold and securities purchased under agreements
to resell in domestic offices of the bank and its Edge and
Agreement subsidiaries, and in IBFs:
a. Federal Funds sold 0276 4,157,626 3.a.
b. Securities purchased under agreements to resell 0277 96,125 3.b.
4. Loans and lease financing receivables:
a. Loans and leases, net of unearned income (from Schedule
RC-C) RCFD 2122 23,448,929 4.a.
b. LESS: Allowance for loan and lease losses RCFD 3123 419,373 4.b.
c. LESS: Allocated transfer risk reserve RCFD 3128 0 4.c.
d. Loans and leases, net of unearned income, allowance, and
reserve (item 4.a minus 4.b and 4.c) 2125 23,029,556 4.d.
5. Assets held in trading accounts 3545 7,888,514 5.
6. Premises and fixed assets (including capitalized leases) 2145 701,700 6.
7. Other real estate owned (from Schedule RC-M) 2150 11,061 7.
8. Investments in unconsolidated subsidiaries and associated
companies (from Schedule RC-M) 2130 62,681 8.
9. Customers' liability to this bank on acceptances outstanding 2155 480,933 9.
10. Intangible assets (from Schedule RC-M) 2143 303,014 10.
11. Other assets (from Schedule RC-F) 2160 1,745,155 11.
12. Total assets (sum of items 1 through 11) 2170 51,622,906 12.
- ------------------
(1) Includes cash items in process of collection and unposted debits.
(2) Includes time certificates of deposit not held for trading.
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
Legal Title of Bank: The First National Bank of Chicago Call Date: 12/31/96 ST-BK: 17-1630 FFIEC 031
Address: One First National Plaza, Ste 0460 Page RC-2
City, State Zip: Chicago, IL 60670
FDIC Certificate No.: 0/3/6/1/8
---------
SCHEDULE RC-CONTINUED
DOLLAR AMOUNTS IN
THOUSANDS BIL MIL THOU
----------------- -------------
<S> <C> <C> <C> <C>
LIABILITIES
13. Deposits:
a. In domestic offices (sum of totals of columns A and C
from Schedule RC-E, part 1) RCON 2200 22,032,796 13.a.
(1) Noninterest-bearing(1) RCON 6631 9,190,670 13.a.1
(2) Interest-bearing RCON 6636 12,842,126 13.a.2
b. In foreign offices, Edge and Agreement subsidiaries,
and IBFs (from Schedule RC-E, part II) RCFN 2200 10,861,857 13.b.
(1) Noninterest bearing RCFN 6631 285,745 13.b.1
(2) Interest-bearing RCFN 6636 10,576,382 13.b.2
14. Federal funds purchased and securities sold under
agreements to repurchase in domestic offices of the bank
and of its Edge and Agreement subsidiaries, and in IBFs:
a. Federal funds purchased RCFD 0278 2,639,255 14.a.
b. Securities sold under agreements to repurchase RCFD 0279 66,564 14.b.
15. a. Demand notes issued to the U.S. Treasury RCON 2840 121,352 15.a.
b. Trading Liabilities RCFD 3548 5,793,742 15b.
16. Other borrowed money:
a. With original maturity of one year or less RCFD 2332 2,665,232 16.a.
b. With original maturity of more than one year RCFD 2333 58,105 16b.
17. Mortgage indebtedness and obligations under capitalized
leases RCFD 2910 285,671 17.
18. Bank's liability on acceptance executed and outstanding RCFD 2920 480,933 18.
19. Subordinated notes and debentures RCFD 3200 1,400,000 19.
20. Other liabilities (from Schedule RC-G) RCFD 2930 1,199,147 20.
21. Total liabilities (sum of items 13 through 20) RCFD 2948 47,604,654 21.
22. Limited-Life preferred stock and related surplus RCFD 3282 0 22.
EQUITY CAPITAL
23. Perpetual preferred stock and related surplus RCFD 3838 0 23.
24. Common stock RCFD 3230 200,858 24.
25. Surplus (exclude all surplus related to preferred stock) RCFD 3839 2,934,523 25.
26. a. Undivided profits and capital reserves RCFD 3632 865,652 26.a.
b. Net unrealized holding gains (losses) on
available-for-sale securities RCFD 8434 18,441 26.b.
27. Cumulative foreign currency translation adjustments RCFD 3284 (1,222) 27.
28. Total equity capital (sum of items 23 through 27) RCFD 3210 4,018,252 28.
29. Total liabilities, limited-life preferred stock, and
equity capital (sum of items 21, 22, and 28) RCFD 3300 51,622,906 29.
Memorandum
To be reported only with the March Report of Condition.
1. Indicate in the box at the right the number of the statement below that best
describes the most comprehensive level of auditing work performed for the bank
Number
-----------------
by independent external auditors as of any date during 1995 RCFD 6724 N/A M.1.
-----------------
1 = Independent audit of the bank conducted in accordance
with generally accepted auditing standards by a certified
public accounting firm which submits a report on the bank
2 = Independent audit of the bank's parent holding company
conducted in accordance with generally accepted auditing
standards by a certified public accounting firm which submits
a report on the consolidated holding company (but not on the bank
separately)
3 = Directors' examination of the bank conducted in accordance with
generally accepted auditing standards by a certified public
accounting firm (may be required by state chartering authority)
4 = Directors' examination of the bank performed by other external
auditors (may be required by state chartering authority)
5 = Review of the bank's financial statements by external auditors
6 = Compilation of the bank's financial statements by external auditors
7 = Other audit procedures (excluding tax preparation work)
8 = No external audit work
- -------------------
(1) Includes total demand deposits and noninterest-bearing time and savings deposits.
</TABLE>
6
