<PAGE>
As filed with the Securities and Exchange Commission on November 12, 1997
Registration No. 333-25029
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------
AMENDMENT NO. 3 TO
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>
<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 23001 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
NOVEMBER 12, 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 $408,000) will be paid by the Cooperative. See
"Underwriting."
The Certificates are offered subject to receipt and acceptance by BT Alex.
Brown Incorporated, the successor in interest by merger to 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.
BT ALEX. BROWN
Prospectus dated November 14, 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 defined in
"Glossary") 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 defined in
"Glossary"). 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 defined in "Glossary"). 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 Morgan
Guaranty Trust Company of New York.
On the date of the issuance of the Refunded Certificates (as herein defined)
to CFC, 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.
2
<PAGE>
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.
3
<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 defined in
"--Plan of Financing") 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
Refunded Certificates (as hereinafter
defined), 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
4
<PAGE>
or misrepresentation of which the holder
of a Guarantee had actual knowledge at
the time it became a holder.
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 BT Alex. Brown Incorporated, the
successor in interest by merger to 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 defined in "Glossary"), 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 Morgan Guaranty Trust Company of New
York. 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
5
<PAGE>
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 "Description of the
Certificates--Conversion of Interest
Rate Mode on Certificates." There is no
involvement by the Trust, the
Cooperative or CFC in directing the
Remarketing Agent.
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."
6
<PAGE>
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."
LIQUIDITY RISK........................ 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 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 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
7
<PAGE>
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).
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..................... BT Alex. Brown Incorporated.
SWAP COUNTERPARTY..................... Morgan Guaranty Trust Company of New
York (in such capacity, "Morgan
Guaranty").
8
<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.
9
<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 its 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. Morgan Guaranty currently has a
long-term credit rating of "AAA" from S&P and "Aa1" from Moody's.
The following table sets forth certain summarized financial information of
Morgan Guaranty as of the dates and for the periods indicated. The information
presented is in accordance with generally accepted accounting principles, except
for the income statement data for the nine months ended September 30, 1997 and
1996. Such interim data was prepared on a regulatory basis and substantially
complies with generally accepted accounting principles.
10
<PAGE>
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
------------------- -------------------------------------------------
(Dollars in millions) 1997 1996 1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA /(1)/
Trading Account Assets $ 92,703 $ 64,424 $ 72,899 $ 55,373 $ 45,497 $ 31,725 $16,862
Total Loans $ 31,833 $ 29,837 $ 27,943 $ 23,319 $ 21,970 $ 24,300 $26,393
Total Assets $200,794 $152,500 $164,813 $135,713 $121,590 $101,467 $79,512
Total Deposits $ 56,602 $ 50,270 $ 53,074 $ 47,074 $ 45,108 $ 40,623 $32,992
Total Liabilities $190,431 $142,990 $154,922 $126,728 $113,124 $ 92,853 $73,484
Allowance for Credit Losses $ 1,095 $ 1,112 $ 1,115 $ 1,129 $ 1,130 $ 1,157 $ 1,257
Stockholder's Equity $ 10,363 $ 9,510 $ 9,891 $ 8,985 $ 7,977 $ 7,772 $ 6,131
NINE MONTHS
ENDED
SEPTEMBER 30, YEARS ENDED DECEMBER 31,
------------------- -------------------------------------------------
(Dollars in millions) 1997 1996 1996 1995 1994 1993 1992
INCOME STATEMENT DATA/(1)/
Net Interest Revenue $ 1,143 $ 1,246 $ 1,807 $ 2,139 $ 1,869 $ 1,632 $ 1,459
Provision for Credit Losses ($8) $ 0 ($1) ($10) $ 0 $ 0 $ 55
-------- -------- -------- -------- -------- -------- -------
Net Interest Revenue After
Provision for Credit Losses $ 1,151 $ 1,246 $ 1,808 $ 2,149 $ 1,869 $ 1,632 $ 1,404
Non-Interest Revenue $ 2,874 $ 2,674 $ 3,110 $ 2,312 $ 1,981 $ 3,369 $ 2,603
Operating Expenses $ 2,685 $ 2,620 $ 3,121 $ 2,886 $ 2,626 $ 2,691 $ 2,253
-------- -------- -------- -------- -------- -------- -------
Income before Income Taxes,
Extraordinary Items, and
Cumulative Effective of Change
in Accounting Method $ 1,340 $ 1,300 $ 1,797 $ 1,575 $ 1,224 $ 2,310 $ 1,754
Income Taxes $ 477 $ 427 $ 599 $ 569 $ 412 $ 831 $ 625
-------- -------- -------- -------- -------- -------- -------
Income before Extraordinary
Items and Cumulative Effect of
Change in Accounting Method $ 863 $ 873 $ 1,198 $ 1,006 $ 812 $ 1,479 $ 1,129
Extraordinary Items and
Cumulative Effect of Change
in Accounting Method $ 0 $ 0 $ 0 $ 0 $ 0 ($146) $ 442
-------- -------- -------- -------- -------- -------- -------
Net Income $ 863 $ 873 $ 1,198 $ 1,006 $ 812 $ 1,333 $ 1,571
=================== =================================================
</TABLE>
/(1)/ 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.
The consolidated statement of condition of Morgan Guaranty as of September
30, 1997, is set forth on page 9 of Exhibit 99 to Form 8-K dated October 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 and a copy of the most recent quarterly Consolidated
Reports of Condition and Income of Morgan Guaranty filed with the Board of
Governors of the Federal Reserve System, with exhibits omitted. 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.
Telephone requests may be directed to (212) 648-3380.
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.
11
<PAGE>
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, 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 (except that the regulations provide that pursuant to 7
C.F.R. (S) 1786.28(c)(5) the Notes may be transferred (i) to a similar trust in
connection with a refunding loan made by the lender pursuant to 7 C.F.R. (S)
1786.28(c)(3) or (ii) as an undivided pro rata interest in a pool of
obligations).
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.
In the event of any default in the payment of principal and/or interest on
the Notes by the Cooperative, the Guarantees obligate the RUS to pay the amount
of any deficiency on the Notes, which should not affect the Certificateholders.
Pursuant to 7 C.F.R. (S) 1717.1204, the Cooperative is permitted to seek a
negotiated reduction of certain of its debt, including the Notes, owed to or
guaranteed by the RUS. In the event such a debt reduction was agreed to by the
RUS and such reduction applied to the Notes, the RUS would, pursuant to the
terms of the Loan Guarantee Agreement and the Guarantees, assume the
Cooperative's obligation to pay the Notes. The RUS could, among other options,
as discussed under "Description of the Certificates--Mandatory Redemption,"
prepay the Notes and redeem the Certificates.
12
<PAGE>
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 of the issuance of the Refunded Certificates to CFC
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. While there is no definitive authority about the meaning of this
qualification within the context of the Rural Electrification Act, the
Cooperative believes that it means that if a fraud had been committed on the
United States of America in connection with obtaining the Guarantees and the
holder of the Guarantees had actual knowledge of that fraud at the time it
became such a holder, the United States of America could contest the
enforceability of the Guarantees held by such holder. The Notes and Guarantees
were issued in 1988 for the purpose of refinancing debt owed by the Cooperative
to the United States of America and were deposited with the Trustee at that
time. No claim of fraud or misrepresentation with respect thereto has been
asserted since that time. The Cooperative does not have any knowledge of any
fraud or misrepresentation with respect to the issuance of the Guarantees. 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.
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.
13
<PAGE>
THE SWAP AGREEMENT
The Swap Agreement, a copy of which has been 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 defined in "Glossary") 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 defined below)) 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, 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)
14
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RISKS ASSOCIATED WITH THE SWAP AGREEMENT
As discussed under "DESCRIPTION OF THE CERTIFICATES--Determination of
Interest Rate" and "--Distributions on Certificates," payments of Interest due
to Certificateholders on each Interest Payment Date are to be made initially
from the variable rate Swap Payments to be made by Morgan Guaranty pursuant to
the Swap Agreement. In that regard, prospective Certificateholders should be
aware of the following considerations.
1. INTEREST RATE RISK: As discussed under "DESCRIPTION OF THE
CERTIFICATES--Determination of Interest Rate," 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, will be the rate established by the Remarketing Agent on the
Wednesday on which such Weekly Rate Period commences 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. Because such rate is determined with reference to market
interest rates, such rate is subject to fluctuation, which may be
substantial, thereby affecting the yield on the Certificates to
Certificateholders.
2. TERMINATION OF THE SWAP AGREEMENT: As discussed under "THE SWAP
AGREEMENT," the Swap Agreement is subject to termination by (i) Morgan
Guaranty upon the occurrence of a Swap Agreement Event of Default or Swap
Agreement Termination Event with respect to the other party to the Swap
Agreement, (ii) by the Cooperative in the event of a Swap Provider Default,
or (iii) by the Cooperative or the RUS upon an Elective Termination. With
respect to terminations pursuant to (i) and (ii) above, the Cooperative has
agreed to use reasonable efforts to replace the Swap Agreement with an
Alternate Swap Agreement; however, the Cooperative is not obligated to
deliver an Alternate Swap Agreement and is not liable to Certificateholders
in the event that it is unable to do so. As discussed under "DESCRIPTION
OF THE CERTIFICATES--Determination of Interest Rate," in the event that the
Swap Agreement is no longer in effect, Certificateholders will 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).
With respect to a termination pursuant to (iii) above, such a
termination may not occur 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.
A termination of the Swap Agreement could affect the yield on the
Certificates to Certificateholders. Depending on interest rates at the
time of termination, Certificateholders could receive a higher or lower
interest rate which could be variable (in the event an Alternate Swap
Agreement is in place) or fixed.
3. AMENDMENT OF THE SWAP AGREEMENT: The Swap Agreement is subject to
amendment by the Trustee and the Swap Provider. However, such an amendment
may not become effective unless the Trustee receives, among other things,
(i) the consent of Certificateholders with aggregate Fractional Interests
representing 51% or more of the Trust, (ii) Rating Confirmation Notices,
and (iii) 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. See "THE SWAP AGREEMENT."
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
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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 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 Morgan Guaranty Trust Company of New York, 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
December 17, 1998, 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.
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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 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
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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."
THE REMARKETING AGREEMENT
The Cooperative and Alex. Brown & Sons Incorporated 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. On
September 1, 1997, Alex. Brown & Sons Incorporated merged with and into BT
Securities Corporation, a Delaware corporation, which simultaneously changed its
name to BT Alex. Brown Incorporated, whereupon BT Alex. Brown Incorporated
succeeded to the rights and obligations of Alex. Brown & Sons Incorporated as
Remarketing Agent under the Remarketing Agreement. 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, as amended
by a First Amendment to Trust Agreement, (the "Trust Agreement") among CFC, as
depositor and Servicer of the Notes, the Cooperative and the Trustee, copies of
which are filed as exhibits 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 are defined in "Glossary." 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
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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)
PRINCIPAL PAYMENT SCHEDULE ON THE CERTIFICATES
Principal
Payment Date Payment Due
------------ -----------
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
===========
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.
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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 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")
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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 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
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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.
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)
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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)
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
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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 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
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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)
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.
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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 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)
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"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 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,
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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
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 defined below),
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)
REPORTS TO THE SECURITIES AND EXCHANGE COMMISSION
It is contemplated that the Trust will file periodic reports under the
Securities Exchange Act of 1934 (which reports will contain information
typically contained in reports filed by trusts issuing asset-backed securities)
so long as the Certificates are outstanding. The Trust's Annual Report on Form
10-K will also include (to the extent publicly available) information concerning
the Swap Provider of the same type as furnished above under "MORGAN GUARANTY
TRUST COMPANY OF NEW YORK."
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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, (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)
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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)
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)
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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)
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).
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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 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.
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((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 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
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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)
FEDERAL INCOME TAX CONSEQUENCES
Set forth below is a general discussion of 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
that may be relevant to particular investors, some of whom may be subject to
special rules. Prospective investors are urged 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").
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
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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.
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.
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 urged 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.
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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 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 urged 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 defined
below) 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.
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.
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 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
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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.
Prospective investors, whether or not they are residents of, or otherwise
subject to, taxation in the District of Columbia, Virginia or Illinois, are
urged 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 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
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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. On September 1, 1997, Alex. Brown & Sons Incorporated merged with
and into BT Securities Corporation, a Delaware corporation, which simultaneously
changed its name to BT Alex. Brown Incorporated, whereupon BT Alex. Brown
Incorporated succeeded to the rights and obligations of Alex. Brown & Sons
Incorporated as the Underwriter under the Underwriting Agreement. 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 at 100% of
their principal amount.
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. BT Alex. Brown Incorporated has
entered into a Consulting Agreement with John Nuveen & Co. Inc. (the
"Consultant"), pursuant to which the Underwriter has agreed to pay to the
Consultant a fee of $110,000, and to reimburse Consultant for certain expenses
incurred by Consultant in connection with services provided to the Underwriter.
The Consultant is not acting as an underwriter with respect to the offering of
the Certificates.
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 Underwriter 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.
"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
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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 in the initial
Standby Certificate Purchase Agreement will be equal to the number of days of
interest distributable with respect to the aggregate principal amount of the
Certificates, calculated at the rate of 18% per annum (in the initial Standby
Certificate Purchase Agreement), required to obtain a satisfactory rating from
Moody's and S&P, 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.
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"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.
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"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")
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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 mode pursuant to which the interest
rate, interest rate payment characteristics, and other features of the
Certificates are determined, which shall be either 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.
42
<PAGE>
"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.
"Moody's" shall mean Moody's Investors Service, Inc.
"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
43
<PAGE>
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.
"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, a grantor trust.
"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).
44
<PAGE>
"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 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 BT Alex. Brown Incorporated, the successor
in interest by merger to 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.).
"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(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 December 17, 1998 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.
45
<PAGE>
"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 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).
"Synthetic Note" is defined in "Federal Income Tax Consequences--Tax Status
of the Trust and the Assets Held by the Trust."
"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, entered into as
of December 20, 1996, as amended by that certain First Amendment to Trust
Agreement, dated as of July 1, 1997, both 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.
46
<PAGE>
"Underwriter" shall mean BT Alex. Brown Incorporated, the successor by
merger to 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 (which thereafter merged with and into BT Securities Corporation,
which changed its name to BT Alex. Brown Incorporated), the Cooperative and CFC
pursuant to which the Cooperative and CFC agree to sell the Certificates and the
Underwriter agrees to purchase or place the Certificates on the Refinancing
Date, or any agreement serving the same purpose with a successor Underwriter.
"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.
47
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
================================================================================ ===================================
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 $57,390,000
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 Rural Electric Cooperative
OF NEW YORK, THE REMARKETING AGENT, OR KANSAS ELECTRIC POWER COOPERATIVE, INC., Guartor Trust Certificates
SINCE THE DATE HEREOF. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OR A (KEPCO) Series 1997
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 PROSPECTUS
Page November 14, 1997
----
AVAILABLE INFORMATION 2
PROSPECTUS SUMMARY 4 --------------------
BACKGROUND 9
KANSAS ELECTRIC POWER COOPERATIVE, INC. 10
NATIONAL RURAL UTILITIES COOPERATIVE BT ALEX. BROWN
FINANCE CORPORATION 10
MORGAN GUARANTY TRUST COMPANY OF
NEW YORK 10
USE OF PROCEEDS 11
THE NOTES 11
THE GUARANTEES 12
THE SWAP AGREEMENT 14
THE LIQUIDITY FACILITY 15
THE REMARKETING AGREEMENT 18
DESCRIPTION OF THE CERTIFICATES 18
FEDERAL INCOME TAX CONSEQUENCES 34
STATE AND LOCAL INCOME TAX
CONSEQUENCES 36
ERISA CONSIDERATIONS 37
UNDERWRITING 38
LEGAL MATTERS 38
GLOSSARY 38
UNTIL FEBRUARY 14, 1998, 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.
================================================================================ ===================================
</TABLE>
<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:
<TABLE>
<S> <C>
Registration fee, Securities and Exchange Commission..................... $ 17,391
Trustee's fees and expenses.............................................. 7,000
Printing costs........................................................... 3,000
Accounting fees and expenses............................................. -0-
Legal fees and expenses (other than Blue Sky fees and expenses).......... 335,000
Rating agency fees....................................................... 43,250
Blue Sky fees and expenses............................................... 2,000
Miscellaneous............................................................ 359
--------
Total............................................................ $408,000
========
</TABLE>
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.
<TABLE>
<CAPTION>
(a) Exhibits:
<S> <C> <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
*4.2 -- First Amendment to Trust Agreement, dated as of July 1, 1997
*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>
(b) Financial statement filed as part of the Registration Statement: none.
_______________
* Filed with Amendment No. 1
** Filed with Amendment No. 2
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.
II-2
<PAGE>
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 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>
SIGNATURE
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 3 to Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the County of
Fairfax, Commonwealth of Virginia, on the 12th day of November, 1997.
NATIONAL RURAL UTILITIES
COOPERATIVE FINANCE CORPORATION
By: /s/ STEVEN L. LILLY
----------------------------------------
Steven L. Lilly
Senior Vice President and
Chief Financial Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 3 to Registration Statement has been signed below by the following persons
in the capacities indicated on the 12th day of November, 1997.
Signature Title
--------- -----
/s/ SHELDON C. PETERSEN* Governor and Chief Executive Officer
- ------------------------------
Sheldon C. Petersen
/s/ STEVEN L. LILLY* Senior Vice President and
- ------------------------------ Chief Financial Officer
Steven L. Lilly
/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
- ------------------------------ Director
Robert J. Bauman
- ------------------------------ Director
Glenn English
II-4
<PAGE>
/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
- ------------------------------ Director
Clifford Stewart
/s/ ROBERT STROUP* Director
- ------------------------------
Robert Stroup
II-5
<PAGE>
/s/ ROBERT C. WADE* Director
- ------------------------------
Robert C. Wade
/s/ ROBERT O. WILLIAMS* Director
- ------------------------------
Robert O. Williams
*By: /s/ STEVEN L. LILLY
--------------------------
Steven L. Lilly
Attorney-in-Fact
II-6
