FEDERAL AGRICULTURAL MORTGAGE CORPORATION
FARMER MAC
Consent Solicitation
This consent solicitation is being made in connection with a three-for-one
split of Farmer Mac's Class C Non-Voting Common Stock (the "Class C Stock"),
which your Board of Directors has authorized, subject to the approval of an
amendment to the Farmer Mac by-laws. That amendment would eliminate the
three-to-one dividend and liquidation preferences currently accorded to the
Class C Stock relative to Farmer Mac's Class A and Class B Voting Common Stock
(collectively, the "Voting Common Stock"). These materials contain important
information about the stock split and the amendment. The Board of Directors is
recommending approval of the amendment as being in the best interests of Farmer
Mac and all of its stockholders.
The following pages include information on:
the stock split (questions 1 to 10);
the proposed amendment to the by-laws (questions 11 and 12);
procedures for the consent solicitation (questions 13 to 19); and
current stock ownership and other matters relating to Farmer Mac
(questions 20 to 22).
This consent solicitation was first mailed to stockholders on or about June 4,
1999. Stockholders are requested to return their consent forms by July 15, 1999.
The Stock Split
1. What is the stock split?
On April 12, 1999, Farmer Mac's Board of Directors authorized a
three-for-one split of the Class C Stock, subject to receipt of approval from
the Class C Stockholders of an amendment to Farmer Mac's by-laws to eliminate
the three-to-one dividend and liquidation preferences applicable to Class C
Stock. Together, the stock split and the by-law amendment will maintain
unchanged the total economic interest of each Class C Stockholder.
2. Why is the stock being split?
We propose to split the Class C Stock for two principal reasons - to
simplify the reporting of Farmer Mac's earnings per share and improve the
liquidity in the Class C Stock. Currently, when Farmer Mac reports its earnings,
generally accepted accounting principles require that it report earnings per
share for the Class C Stock separately from the reporting of earnings per share
for the Voting Common Stock, since Class C Stockholders have different rights
than Voting Common Stockholders with respect to any dividends that may be paid
or any liquidation proceeds that may be distributed. Accordingly, the
preferences are reflected in Farmer Mac's financial statements in the separate
presentation of earnings per share for each class of stock.
We believe, based on numerous comments and questions we have received from
investors and stock analysts, that the existence of the preferences, and the
separate presentation of earnings per share in the financial statements, have
created a level of complexity that would be eliminated through the by-law
amendment, which would equalize, on a per share basis, the rights of all
stockholders with respect to any payment of dividends and distribution of
liquidation proceeds.
We believe the stock split also will improve the liquidity of the Class C
Stock. A three-for-one stock split will reduce the price of the stock, making it
more accessible to a wider spectrum of investors, particularly individuals. In
addition, the number of Class C shares will triple as a result of the stock
split. We believe these occurrences will increase the trading volume of the
Class C Stock and, thereby, enhance liquidity, which should add to stockholder
value.
3. Why is the stock split subject to receipt of approval of a by-law
amendment?
When the Class C Stock was originally created in connection with Farmer
Mac's initial public offering in 1988, the Board of Directors provided in the
by-laws that the Class C Stock would have three-to-one dividend and liquidation
preferences relative to the two classes of Voting Common Stock. The by-laws
provide further that these preferences can be decreased "only by the affirmative
vote of the holders of two-thirds of the outstanding shares of the non-voting
common stock."
While this decrease would happen automatically in a corporation that had
only one class of common stock outstanding, it is necessary to amend the by-laws
of a corporation like Farmer Mac that has multiple classes of common stock in
order to maintain the relative interests of the stockholders in the corporation
before and after the stock split. Accordingly, the Board has conditioned the
stock split on approval of the by-law amendment, which would give all
stockholders - voting and non-voting - equal rights to share in any dividends
paid or distribution of assets.
4. What will my right to dividends and liquidation distributions be after the
amendment and the stock split?
After the amendment, the Class C Stock will no longer have three-to-one
dividend and liquidation preferences over the Voting Common Stock; however, each
Class C Stockholder who owned one share of Class C Stock before the stock split
will own three Class C shares after the stock split, thus preserving the
relative interests of Class C Stockholders before and after the amendment and
the stock split.
5. How and when will the stock split be carried out?
The stock split will be effected by means of a stock dividend of two
shares of Class C Stock for each outstanding share of Class C Stock, as of the
record date for the split. The record date will be set as soon as practicable
after Farmer Mac receives consents from the requisite two-thirds of the Class C
Stockholders approving the amendment of the by-laws. Assuming the requisite
consents are received by July 15, 1999, the end of the initial solicitation
period (see question 16 below), Farmer Mac anticipates that the record date for
the split would be on or about July 23, 1999. If the solicitation period is
extended, the record date for the split would be deferred until approximately
ten days after the receipt of the requisite consents.
Stockholders of record as of the close of business on the record date for
the split will be entitled to receive two new shares of Class C Stock in
addition to each Class C share that they hold as of that date. Farmer Mac
expects to begin mailing to registered Class C Stockholders certificates
representing the additional shares approximately two weeks following the record
date.
Certificates representing shares issued prior to the split will continue to
represent the same number of shares after the effective date. Therefore, please
do not destroy your existing certificates or return them to Farmer Mac.
Stockholders whose shares are held by a broker or other nominee in "street
name" will not receive certificates representing the new Class C shares.
Instead, their accounts will be credited with the new Class C shares in
accordance with the procedures used by their broker or nominee.
6. Will the new Class C shares resulting from the stock split be different
from currently outstanding Class C shares?
No. Since the stock split will occur only after the by-law amendment has
been approved, all shares of Class C Stock, whether issued before or after the
amendment and the stock split, will be identical. Each new share of Class C
Stock will be fully paid and nonassessable and, like currently outstanding Class
C shares, will not carry any preemptive rights or any voting rights, except as
to matters that involve the Class C Stock. The par value of the Class C Stock
will not change as a result of the amendment or the stock split.
7. How will the stock split affect outstanding stock options on Class C
Stock?
The stock split will result in a three-for-one adjustment in the number of
shares of Class C Stock associated with outstanding stock option grants and a
corresponding reduction in the exercise prices of outstanding option grants.
8. Will the stock split be taxable?
The Corporation has been advised by tax counsel that, under existing
United States federal income tax laws, the stock split will not result in gain
or loss or realization of taxable income to holders of the Class C Stock.
Immediately after the stock split, the tax basis of each share of Class C
Stock will be one-third of the tax basis before the stock split. For United
States federal income tax purposes, each new share of Class C Stock will be
deemed to have been acquired at the same time as the original share of Class C
Stock with respect to which the new share of Class C Stock was issued.
The laws of jurisdictions other than the United States may impose income
taxes on the receipt of the additional shares of Class C Stock. Stockholders may
wish to consult their own tax advisors with respect to these and other possible
tax consequences of the stock split.
9. Will the new shares be listed on a stock exchange?
Farmer Mac will apply to list the additional shares issued pursuant to the
stock split on the New York Stock Exchange.
10. Will the stock split affect Farmer Mac's financial statements?
On Farmer Mac's consolidated balance sheet, the stock split will result in
the allocation of an amount equal to the aggregate par value of the new shares
of Class C Stock resulting from the stock split (approximately $6 million) to
the "Class C Non-Voting Common Stock" line of stockholders' equity, and a
corresponding deduction of the same amount from the "Additional paid-in capital"
line. Farmer Mac's reported amounts of issued and outstanding Class C Stock will
also be adjusted on a three-for-one basis.
The stock split itself will not affect Farmer Mac's income or cash flow
statements, except to the extent of the costs of this consent solicitation and
related activities to effectuate the by-law amendment and the stock split, which
are not material to Farmer Mac.
After the stock split, however, Farmer Mac will simply report earnings per
share for its "Common Stock." It will no longer separately report earnings per
share for the Voting Common Stock and the Class C Stock. Earnings per share for
all prior periods will be restated to reflect the stock split and to ensure that
they are presented on a consistent basis.
Amendment to the By-Laws
11. What is the proposed amendment to the by-laws?
The two paragraphs in Farmer Mac's by-laws that address the three-to-one
dividend and liquidation preferences currently read as follows:
Article VI, Section 4, second paragraph --
The ratio of any dividends paid on each share of non-voting common stock
to any dividends paid on each share of voting common stock shall be
three-to-one. . . Such ratio may be decreased only by the affirmative vote
of the holders of two-thirds of the outstanding shares of the non-voting
common stock.
Article VI, Section 7, paragraph (b) --
In the event of any liquidation, dissolution, or winding up
of the Corporation's business. . . (b) [t]he ratio of any
distributions to the holders of non-voting common stock to
any distributions to the holders of voting common stock shall
be three-to-one per share. Such ratio may be decreased only
by the affirmative vote of the holders of two-thirds of the
outstanding shares of the non-voting common stock.
The proposed amendment, which would delete each of those paragraphs, states
that:
Section 4 of Article VI shall be amended by deleting the second paragraph
thereof in its entirety.
Section 7 of Article VI shall be amended by deleting paragraph (b) thereof
in its entirety.
12. Can either the stock split or the amendment occur without the other?
No. The stock split and the amendment are each conditioned on the
occurrence of the other. Without the requisite Class C Stockholder approval of
the amendment, the stock dividend will not be paid and the amendment, by its
terms, is not effective until the stock dividend is paid.
The Consent Solicitation
13. Who is being asked to approve the by-law amendment?
Only Class C Stockholders of record at the close of business on May 27,
1999 are entitled to execute and deliver consents with respect to the proposed
by-law amendment. On that date, there were 3,093,858 shares of Class C Stock
outstanding and entitled to consent with respect to the amendment. Each Class C
share is entitled to one consent.
As noted above (question 5), a separate record date will be set for the
stock split, assuming the amendment to the by-laws is approved.
14. What level of approval is required for the by-law amendment?
Approval of the by-law amendment will require the execution and delivery
to Farmer Mac of written consents on behalf of the holders of two-thirds of the
issued and outstanding shares of Class C Stock.
15. How do I consent to the by-law amendment?
You may consent to the proposed by-law amendment with respect to your
shares by completing and signing the enclosed consent form and returning it to
Farmer Mac on or before the final consent date (as described under question 16
below).
If your shares are held in "street name," your broker or nominee
may authorize consent on your behalf if you do not direct your broker
or nominee not to do so.
Please not that not returning your consent or abstaining from the vote has the
same impact as disapproving the amendment, since approval of the amendment
requires written consent on behalf of the holders of two-thirds of the Class C
Stock outstanding and entitled to vote, rather than simply two-thirds of those
who actually execute and deliver consents.
16. What is the deadline for delivering my consent?
We have set July 15, 1999 as the targeted final date for receipt of
consents. If Farmer Mac has received consents on behalf of the holders of
two-thirds of the Class C Stock by that date, the consent solicitation period
will expire, and Farmer Mac will proceed with the stock split.
We reserve the right to extend the final date for receipt of consents
beyond July 15, 1999 in the event that the requisite two-thirds approval has not
been obtained by that date. Any such extension may be made without notice to
individual Class C Stockholders.
17. Is my consent irrevocable?
No. Even after you have submitted your consent form, you may file with the
Secretary of Farmer Mac a notice of revocation or a subsequently dated consent
form at any time before the final consent date.
18. What is the recommendation of the Board of Directors?
The Board of Directors has approved the amendment of the by-laws and
believes that the amendment and the completion of the stock split are in the
best interest of Farmer Mac and all of its stockholders. Accordingly, the Board
recommends that Class C Stockholders consent to the amendment.
19. How are costs of this solicitation being borne?
The expenses of preparing, printing and mailing these consent solicitation
materials are being borne by Farmer Mac. Farmer Mac has retained D.F. King &
Co., to assist in the solicitation. For these services, Farmer Mac will pay D.F.
King & Co. a fee of $5,000 and reimburse it for certain out-of-pocket
disbursements and expenses. Officers and regular employees of Farmer Mac may,
but without compensation other than their regular compensation, solicit consents
by further mailing or personal conversations, or by telephone, telex, facsimile
or electronic means. Farmer Mac will, upon request, reimburse brokerage firms
and others for their reasonable expenses in forwarding solicitation material to
the beneficial owners of stock.
Additional Information
20. Stock Ownership
The following table gives information about the ownership of Class C Stock
as of May 7, 1999, by 5% or greater stockholders.
Name and
Address of Number of Shares Percent of
Beneficial Owner Beneficially Owned Class C Stock
Owned(1)
Zions Bancorporation(2) 500,100 shares of
Salt Lake City, UT Class C Stock 16.16%
1 This percentage is determined by dividing the number of shares of Class C
Stock owned by the total number of shares of Class C Stock outstanding.
2 W. David Hemingway, a Farmer Mac director, is Executive Vice President of
Zions Bancorporation.
<PAGE>
The following table gives information about the ownership of Class C Stock
as of May 7, 1999, by the directors and executive officers of Farmer Mac
individually and as a group.
<TABLE>
<CAPTION>
<S> <C> <C>
Class C Stock 3
No. Shares Percent
Michael T. Bennett 35,949 1.2%
Charles Eugene Branstool 3,496 *
Thomas R. Clark 43,537 1.4%
Nancy E. Corsiglia 44,917 1.5%
Christopher A. Dunn 34,349 1.1%
Henry D. Edelman 109,925 3.6%
Kenneth E. Graff 3,333 *
W. David Hemingway 4 504,711 16.3%
Mitchell A. Johnson 6,152 *
Lowell L. Junkins 3,333 *
James A. McCarthy 3,401 *
Robert J. Mulder 3,396 *
John G. Nelson, III 3,374 *
David J. Nolan 3,464 *
Peter T. Paul 1,333 *
Marilyn Peters 3,374 *
John Dan Raines 3,333 *
Darryl W. Rhodes 2,068 *
Tom D. Stenson 4,610 *
Gordon Clyde Southern 3,657 *
Clyde A. Wheeler 3,471 *
All directors and
executive officers as a 825,183 26.7%
group
</TABLE>
* Less than 1%.
3 Includes shares of Class C Stock that may be acquired within 60 days
through the exercise of stock options as follows: Mr. Edelman, 103,521 shares:
Mr. Bennett, 35,377 shares; Mr. Clark, 41,877 shares; Ms. Corsiglia, 42,854
shares: Mr. Dunn, 32,378 shares; Mr. Stenson, 3,966 shares; each of the members
of the Board of Directors other than Mr. Paul, 3,333 shares; Mr. Paul, 1,333
shares; and all directors and executive officers as a group, 307,968.
4 As Executive Vice President of Zions Bancorporation, Mr. Hemingway may be
deemed to be the beneficial of the 500,100 shares of Class C Stock owned by the
holding company. Mr. Hemingway disclaims beneficial ownership of those shares.
Of the 4,564 shares if Class C Stock attributed to Mr. Hemingway, 273 shares are
owned by his two sons.
<PAGE>
21. How can I obtain more information about the stock split or the
by-law amendment?
We have set up a special toll-free number to answer any questions
you may have about the stock split and/or the by-law amendment. That
number is 1-800-735-3568.
22. How can I obtain more information about Farmer Mac?
Farmer Mac files annual, quarterly and special reports, proxy statements
and other information with the Securities and Exchange Commission. You may read
and copy any reports, statements or other information filed by Farmer Mac at the
SEC's public reference rooms in Washington, D.C., New York City, and Chicago,
Illinois. Farmer Mac's SEC filings are also available on its web site at
www.farmermac.com or the SEC's web site at www.sec.gov or from commercial
document retrieval services. You may also request a copy of Farmer Mac's
financial reports filed with the SEC by contacting Farmer Mac's Corporate
Secretary, c/o Federal Agricultural Mortgage Corporation, 919 18th Street, N.W.,
Washington, D.C. 20006.
By order of the Board of Directors,
Michael T. Bennett
Corporate Secretary
June 1, 1999
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<PAGE>
Please mark vote as in this example. X
FEDERAL AGRICULTURAL MORTGAGE CORPORATION
Consent Card
Solicited on Behalf of the Board of Directors
The undersigned hereby takes the following action with respect to all of
the shares of Class C Non-Voting Common Stock of the Federal Agricultural
Mortgage Corporation that the undersigned is entitled to vote:
Consents Does Not Consent Abstains To the amendment to the By-Laws of the
[ ] [ ] [ ] Federal Agricultural Mortgage Corporation
to eliminate the three-to-one dividend
and liquidation preferences applicable
to Class C Non-Voting Common Stock
relative to Class A and Class B Voting
Common Stock.
The Board of Directors recommends giving consent to the amendment.
Marking the box "Consents" constitutes your written consent to the
amendment. However, if no box is marked, your signature below will evidence your
written consent to the amendment as recommended by the Board of Directors.
Please sign exactly as your name appears on the books of the Corporation.
Joint owners should each sign personally. Trustees and other fiduciaries should
indicate the capacity in which they sign, and where more than one name appears,
a majority must sign. If a corporation, this signature should be that of an
authorized officer who should state his or her title.
Stockholder sign here: Co-owner sign here: Date:
