As filed with the Securities and Exchange Commission on August 9, 2010  

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.  20549

FORM 10-Q
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2010
 
Commission File Number 001-14951
 
 
FEDERAL AGRICULTURAL MORTGAGE CORPORATION
(Exact name of registrant as specified in its charter)

Federally chartered instrumentality
of the United States
 
52-1578738
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. employer identification number)

1133 Twenty-First Street, N.W., Suite 600
Washington, D.C.
 
20036
(Address of principal executive offices)
 
(Zip code)

(202) 872-7700
(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
 
Yes          x                                 No            ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
 
Yes          ¨                                 No            ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer      
¨
Accelerated filer   ¨
        
Non-accelerated filer        
x
Smaller reporting company   ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
 
Yes          ¨                                 No            x

As of August 2, 2010 the registrant had 1,030,780 shares of Class A Voting Common Stock, 500,301 shares of Class B Voting Common Stock and 8,746,123 shares of Class C Non-Voting Common Stock outstanding.

 
 

 

PART I - FINANCIAL INFORMATION

Item 1.
Condensed Consolidated Financial Statements

The following information concerning Farmer Mac’s interim unaudited condensed consolidated financial statements is included in this report beginning on the pages listed below:

Condensed Consolidated Balance Sheets as of June 30, 2010 and December 31, 2009
3
Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2010 and 2009
4
Condensed Consolidated Statements of Equity for the six months ended June 30, 2010 and 2009
5
Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2010 and 2009
6
Notes to Condensed Consolidated Financial Statements
7
 
 
-2-

 

FEDERAL AGRICULTURAL MORTGAGE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
   
June 30,
   
December 31,
 
   
2010
   
2009
 
   
(in thousands)
 
Assets:
           
Cash and cash equivalents
  $ 325,333     $ 654,794  
Investment securities:
               
Available-for-sale, at fair value
    1,175,376       1,041,923  
Trading, at fair value
    81,956       89,972  
Total investment securities
    1,257,332       1,131,895  
Farmer Mac Guaranteed Securities:
               
Available-for-sale, at fair value
    1,718,140       2,524,867  
Trading, at fair value
    -       874,129  
Total Farmer Mac Guaranteed Securities
    1,718,140       3,398,996  
USDA Guaranteed Securities:
               
Available-for-sale, at fair value
    880,424       -  
Trading, at fair value
    386,496       -  
Total USDA Guaranteed Securities
    1,266,920       -  
Loans:
               
Loans held for sale, at lower of cost or fair value
    908,778       666,534  
Loans held for investment, at amortized cost
    96,057       93,478  
Loans held for investment in consolidated trusts, at amortized cost
    1,332,624       -  
Allowance for loan losses
    (9,495 )     (6,292 )
Total loans, net of allowance
    2,327,964       753,720  
Real estate owned, at lower of cost or fair value
    4,023       739  
Financial derivatives, at fair value
    37,121       15,040  
Interest receivable
    72,616       67,178  
Guarantee and commitment fees receivable
    36,579       55,016  
Deferred tax asset, net
    10,405       24,146  
Prepaid expenses and other assets
    43,057       37,289  
Total Assets
  $ 7,099,490     $ 6,138,813  
                 
Liabilities, Mezzanine Equity and Equity:
               
Liabilities:
               
Notes payable:
               
Due within one year
  $ 3,226,745     $ 3,662,898  
Due after one year
    2,269,421       1,908,713  
Total notes payable
    5,496,166       5,571,611  
Debt securities of consolidated trusts held by third parties
    882,629       -  
Financial derivatives, at fair value
    132,675       107,367  
Accrued interest payable
    52,913       39,562  
Guarantee and commitment obligation
    32,762       48,526  
Accounts payable and accrued expenses
    19,397       23,445  
Reserve for losses
    9,470       7,895  
Total Liabilities
    6,626,012       5,798,406  
                 
Commitments and Contingencies (Note 5)
               
                 
Mezzanine Equity:
               
Series B redeemable preferred stock, par value $1,000 per share, 150,000 shares authorized, issued and outstanding as of December 31, 2009 (redemption value $150,000,000)
    -       144,216  
Stockholders' Equity:
               
Preferred stock:
               
Series C, par value $1,000 per share, 100,000 shares authorized, 57,578 issued and outstanding
    57,578       57,578  
Common stock:
               
Class A Voting, $1 par value, no maximum authorization, 1,030,780 shares outstanding
    1,031       1,031  
Class B Voting, $1 par value, no maximum authorization, 500,301 shares outstanding
    500       500  
Class C Non-Voting, $1 par value, no maximum authorization, 8,745,269 shares outstanding as of June 30, 2010 and 8,610,918 shares outstanding as of December 31, 2009
    8,745       8,611  
Additional paid-in capital
    98,925       97,090  
Accumulated other comprehensive income
    31,469       3,254  
Retained earnings
    33,377       28,127  
Total Stockholders' Equity
    231,625       196,191  
Non-controlling interest - preferred stock
    241,853       -  
Total Equity
    473,478       196,191  
Total Liabilities, Mezzanine Equity and Equity
  $ 7,099,490     $ 6,138,813  
See accompanying notes to condensed consolidated financial statements.

 
-3-

 

FEDERAL AGRICULTURAL MORTGAGE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)

   
For the Three Months Ended
   
For the Six Months Ended
 
   
June 30, 2010
   
June 30, 2009
   
June 30, 2010
   
June 30, 2009
 
   
(in thousands, except per share amounts)
 
Interest income:
                       
Investments and cash equivalents
  $ 6,390     $ 7,049     $ 12,873     $ 15,958  
Farmer Mac and USDA Guaranteed Securities
    18,795       25,805       39,626       53,564  
Loans
    32,142       8,896       65,560       19,381  
Total interest income
    57,327       41,750       118,059       88,903  
Total interest expense
    35,719       21,849       72,834       45,562  
Net interest income
    21,608       19,901       45,225       43,341  
Recoveries/(provision) for loan losses
    1,870       5,693       (980 )     2,159  
Net interest income after recoveries/(provision) for loan losses
    23,478       25,594       44,245       45,500  
                                 
Non-interest (expense)/income:
                               
Guarantee and commitment fees
    5,710       7,908       11,629       15,318  
(Losses)/gains on financial derivatives
    (15,840 )     21,528       (21,644 )     23,239  
Gains on trading assets
    5,058       35       8,425       31,660  
Other-than-temporary impairment losses
    -       (2,292 )     -       (2,373 )
(Losses)/gains on sale of available-for-sale investment securities
    -       (300 )     240       2,850  
Gains on sale of loans and Farmer Mac Guaranteed Securities
    -       -       -       1,581  
Lower of cost or fair value adjustment on loans held for sale
    90       -       (2,184 )     -  
Other income
    211       101       1,040       335  
Non-interest (expense)/income
    (4,771 )     26,980       (2,494 )     72,610  
                                 
Non-interest expense:
                               
Compensation and employee benefits
    3,907       3,572       7,418       7,597  
General and administrative
    2,051       2,986       4,554       5,900  
Regulatory fees
    562       512       1,125       1,025  
Real estate owned operating costs/(income), net
    298       (16 )     308       5  
Provision/(recoveries) for losses
    3,043       (529 )     1,575       1,990  
Non-interest expense
    9,861       6,525       14,980       16,517  
Income before income taxes
    8,846       46,049       26,771       101,593  
Income tax expense
    756       16,534       5,092       34,624  
Net income
    8,090       29,515       21,679       66,969  
Less: Net income attributable to non-controlling interest - preferred stock dividends
    (5,546 )     -       (9,614 )     -  
Net income attributable to Farmer Mac
    2,544       29,515       12,065       66,969  
Preferred stock dividends
    (720 )     (4,130 )     (2,690 )     (8,066 )
Loss on retirement of preferred stock
    -       -       (5,784 )     -  
Net income available to common stockholders
  $ 1,824     $ 25,385     $ 3,591     $ 58,903  
                                 
Earnings per common share and dividends:
                               
Basic earnings per common share
  $ 0.18     $ 2.50     $ 0.35     $ 5.81  
Diluted earnings per common share
  $ 0.17     $ 2.49     $ 0.34     $ 5.80  
Common stock dividends per common share
  $ 0.05     $ 0.05     $ 0.10     $ 0.10  
See accompanying notes to condensed consolidated financial statements.

 
-4-

 

FEDERAL AGRICULTURAL MORTGAGE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
(unaudited )
   
For the Six Months Ended
 
   
June 30, 2010
   
June 30, 2009
 
   
Shares
   
Amount
   
Shares
   
Amount
 
   
(in thousands)
 
Preferred stock:
                       
Balance, beginning of period
    58     $ 57,578       9     $ 9,200  
Issuance of Series C preferred stock
    -       -       31       30,800  
Balance, end of period
    58     $ 57,578       40     $ 40,000  
Common stock:
                               
Balance, beginning of period
    10,142     $ 10,142       10,132     $ 10,132  
Issuance of Class C common stock
    121       121       6       6  
Exercise of stock options and SARs
    13       13       -       -  
Balance, end of period
    10,276     $ 10,276       10,138     $ 10,138  
Additional paid-in capital:
                               
Balance, beginning of period
          $ 97,090             $ 95,572  
Stock-based compensation expense
            1,507               1,543  
Issuance of Class C common stock
            22               11  
Excercise, vesting and cancelation of stock options, SARs and restricted stock
            306                 (1,165
Balance, end of period
          $ 98,925             $ 95,961  
Retained earnings/(accumulated deficit):
                               
Balance, beginning of period
          $ 28,127             $ (52,144 )
Net income attributable to Farmer Mac
            12,065               66,969  
Cash dividends:
                               
Preferred stock, Series B ($8.33 per share)
            (1,250 )             (7,476 )
Preferred stock, Series C ($12.50 per share)
            (1,440 )             (590 )
Common stock ($0.05 per share)
            (1,020 )             (1,014 )
Loss on retirement of preferred stock
            (5,784 )             -  
Cumulative effect of adoption of new accounting standard, net of tax
            2,679               -  
Balance, end of period
          $ 33,377             $ 5,745  
Accumulated other comprehensive income/(loss):
                               
Balance, beginning of period
          $ 3,254             $ (47,412 )
Change in unrealized gain on available-for-sale securities, net of tax and reclassification adjustments
            28,163               34,776  
Change in unrealized gain on financial derivatives, net of tax and reclassification adjustments
            52               90  
Balance, end of period
          $ 31,469             $ (12,546 )
Total Stockholders' Equity
          $ 231,625             $ 139,298  
Non-controlling interest:
                               
Balance, beginning of period
          $ -             $ -  
Preferred stock - Farmer Mac II LLC
            241,853               -  
Balance, end of period
          $ 241,853             $ -  
Total Equity
          $ 473,478             $ 139,298  
                                 
Comprehensive income:
                               
Net income
          $ 21,679             $ 66,969  
Changes in accumulated other comprehensive income, net of tax
            28,215               34,866  
Comprehensive income
            49,894               101,835  
Less: Comprehensive income attributable to non-controlling interest
            9,614               -  
Total comprehensive income
          $ 40,280             $ 101,835  
 
See accompanying notes to condensed consolidated financial statements.

 
-5-

 

FEDERAL AGRICULTURAL MORTGAGE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
   
For the Six Months Ended
 
   
June 30, 2010
   
June 30, 2009
 
   
(in thousands)
 
Cash flows from operating activities:
           
Net income
  $ 21,679     $ 66,969  
Adjustments to reconcile net income to net cash (used in)/provided by operating activities:
               
Net amortization of premiums and discounts on loans, investments, and Farmer Mac and USDA Guaranteed Securities
    6,150       2,207  
Amortization of debt premiums, discounts and issuance costs
    3,033       8,116  
Proceeds from repayment and sale of trading investment securities
    400       472  
Purchases of loans held for sale
    (293,003 )     (53,045 )
Proceeds from repayment of loans held for sale
    46,835       16,117  
Net change in fair value of trading securities, financial derivatives and loans held for sale
    (5,288 )     (77,939 )
Amortization of transition adjustment on financial derivatives
    80       89  
Other-than-temporary impairment losses
    -       2,373  
Gains on sale of loans and Farmer Mac Guaranteed Securities
    -       (1,581 )
Gains on the sale of available-for-sale investments securities
    (240 )     (2,850 )
Total provision/(recoveries) for losses
    2,555       (169 )
Deferred income taxes
    (3,347 )     37,164  
Stock-based compensation expense
    1,508       1,543  
(Increase)/decrease in interest receivable
    (5,438 )     19,262  
Decrease in guarantee and commitment fees receivable
    18,437       5,026  
(Increase)/decrease in other assets
    (2,576 )     42,734  
Increase/(decrease) in accrued interest payable
    13,351       (1,711 )
Decrease in other liabilities
    (19,294 )     (7,686 )
Net cash (used in)/provided by operating activities
    (215,158 )     57,091  
Cash flows from investing activities:
               
Purchases of available-for-sale investment securities
    (306,239 )     -  
Purchases of Farmer Mac Guaranteed Securities
    (216,302 )     (949,480 )
Purchases of loans held for investment
    (19,924 )     (14,670 )
Purchases of defaulted loans
    (3,403 )     (5,602 )
Proceeds from repayment of available-for-sale investment securities
    112,337       129,265  
Proceeds from repayment of Farmer Mac Guaranteed Securities
    202,526       137,572  
Proceeds from repayment of loans held for investment
    142,328       34,252  
Proceeds from sale of available-for-sale investment securities
    69,175       153,100  
Proceeds from sale of trading securities - fair value option
    5,013       -  
Proceeds from sale of Farmer Mac Guaranteed Securities
    12,906       17,224  
Proceeds from sale of loans
    -       358,953  
Net cash used in investing activities
    (1,583 )     (139,386 )
Cash flows from financing activities:
               
Proceeds from issuance of discount notes
    31,919,565       27,760,730  
Proceeds from issuance of medium-term notes
    1,006,272       2,074,185  
Payments to redeem discount notes
    (32,095,725 )     (27,974,911 )
Payments to redeem medium-term notes
    (908,590 )     (1,715,000 )
Tax benefit from tax deduction in excess of compensation cost recognized
    747       -  
Payments to third parties on debt securities of consolidated trusts
    (113,749 )     -  
Proceeds from common stock issuance
    168       17  
Issuance costs on retirement of preferred stock
    (5,784 )     -  
Proceeds from preferred stock issuance - Farmer Mac II LLC
    241,853       -  
Proceeds from preferred stock issuance
    -       30,800  
Retirement of Series B Preferred stock
    (144,216 )     -  
Dividends paid - Non-controlling interest - preferred stock
    (9,551 )     -  
Dividends paid on common and preferred stock
    (3,710 )     (9,080 )
Net cash (used in)/ provided by financing activities
    (112,720 )     166,741  
Net (decrease)/increase in cash and cash equivalents
    (329,461 )     84,446  
Cash and cash equivalents at beginning of period
    654,794       278,412  
Cash and cash equivalents at end of period
  $ 325,333     $ 362,858  
See accompanying notes to condensed consolidated financial statements.

 
-6-

 
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

Note 1.
Accounting Policies

The interim unaudited condensed consolidated financial statements of the Federal Agricultural Mortgage Corporation (“Farmer Mac” or the “Corporation”) and subsidiaries have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”).  These interim unaudited condensed consolidated financial statements reflect all normal and recurring adjustments that are, in the opinion of management, necessary to present a fair statement of the financial position and the results of operations and cash flows of Farmer Mac for the interim periods presented.  Certain information and footnote disclosures normally included in the annual consolidated financial statements have been condensed or omitted as permitted by SEC rules and regulations.  The December 31, 2009 condensed consolidated balance sheet presented in this report has been derived from the Corporation’s audited 2009 consolidated financial statements.  Management believes that the disclosures are adequate to present fairly the condensed consolidated financial statements as of the dates and for the periods presented.  These interim unaudited condensed consolidated financial statements should be read in conjunction with the audited 2009 consolidated financial statements of Farmer Mac included in the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2009 filed with the SEC on March 16, 2010 (as updated by the Current Report on Form 8-K filed with the SEC on August 4, 2010).  Results for interim periods are not necessarily indicative of those that may be expected for the fiscal year.  Below is a summary of Farmer Mac’s significant accounting policies.

 
-7-

 

(a)     Cash and Cash Equivalents and Statements of Cash Flows

Farmer Mac considers highly liquid investment securities with maturities at the time of purchase of three months or less to be cash equivalents.  The carrying value of cash and cash equivalents is a reasonable estimate of their fair value.  Changes in the balance of cash and cash equivalents are reported in the condensed consolidated statements of cash flows.  The following table sets forth information regarding certain cash and non-cash transactions for the six months ended June 30, 2010 and 2009.

   
For the Six Months Ended
 
   
June 30, 2010
   
June 30, 2009
 
   
(in thousands)
 
Cash paid during the period for:
           
Interest
  $ 37,989     $ 42,465  
Income taxes
    12,000       10,000  
Non-cash activity:
               
Real estate owned acquired through foreclosure
    3,580       40,955  
Loans acquired and securitized as Farmer Mac Guaranteed Securities
    1,288       17,224  
Consolidation of Farmer Mac I Guaranteed Securities from off-balance sheet to loans held for investment in consolidated trusts
    1,401,659       -  
Consolidation of Farmer Mac I Guaranteed Securities from off-balance sheet to debt securities of consolidated trusts held by third parties
    1,401,659       -  
Transfers of available-for-sale Farmer Mac I Guaranteed Securities to loans held for investment in consolidated trusts, upon the adoption of new consolidation guidance
    5,385       -  
Transfers of trading Farmer Mac Guaranteed Securities - Rural Utilities to loans held for investment in consolidated trusts, upon the adoption of new consolidation guidance
    451,448       -  
Deconsolidation of loans held for investment in consolidated trusts - transferred to off- balance sheet Farmer Mac I Guaranteed Securities
    414,462       -  
Deconsolidation of debt securities of consolidated trusts held by third parties - transferred to off- balance sheet Farmer Mac I Guaranteed Securities
    414,462       -  
Transfers of Farmer Mac I Guaranteed Securities to loans held for sale
    -       288,012  
Transfers of loans held for investment to loans held for sale
    -       617,072  

(b)      Allowance for Losses

As of June 30, 2010, Farmer Mac maintained an allowance for losses to cover estimated probable losses on loans held and loans underlying LTSPCs, Farmer Mac I Guaranteed Securities and Farmer Mac Guaranteed Securities – Rural Utilities.

The allowance for losses is increased through periodic provisions for loan losses that are charged against net interest income and provisions for losses that are charged to non-interest expense and is reduced by charge-offs for actual losses, net of recoveries.  Negative provisions, or releases of allowance for losses, are recorded in the event that the estimate of probable losses as of the end of a period is lower than the estimate at the beginning of the period.

 
-8-

 

Farmer Mac’s methodology for determining its allowance for losses incorporates the Corporation’s automated loan classification system.  That system scores loans based on criteria such as historical repayment performance, indicators of current financial condition, loan seasoning, loan size and loan-to-value ratio.  For the purposes of the loss allowance methodology, the loans in Farmer Mac’s portfolio of loans and loans underlying Farmer Mac I Guaranteed Securities and LTSPCs have been scored and classified for each calendar quarter since first quarter 2000.  The allowance methodology captures the migration of loan scores across concurrent and overlapping three-year time horizons and calculates loss rates separately within each loan classification for (1) loans underlying LTSPCs and (2) loans held and loans underlying Farmer Mac I Guaranteed Securities.  The calculated loss rates are applied to the current classification distribution of unimpaired loans in Farmer Mac’s portfolio to estimate inherent losses, on the assumption that the historical credit losses and trends used to calculate loss rates will continue in the future.  Management evaluates this assumption by taking into consideration factors, including:
 
 
·
economic conditions;
 
·
geographic and agricultural commodity/product concentrations in the portfolio;
 
·
the credit profile of the portfolio;
 
·
delinquency trends of the portfolio;
 
·
historical charge-off and recovery activities of the portfolio; and
 
·
other factors to capture current portfolio trends and characteristics that differ from historical experience.

Management believes that its use of this methodology produces a reliable estimate of probable losses, as of the balance sheet date, for all loans held and loans underlying Farmer Mac I Guaranteed Securities and LTSPCs, in accordance with the standard on accounting for contingencies issued by the Financial Accounting Standards Board (“FASB”).

Farmer Mac separately evaluates the rural utilities loans it owns, as well as the lender obligations and loans underlying or securing its Farmer Mac Guaranteed Securities – Rural Utilities, to determine if there are probable losses inherent in those assets.

Farmer Mac also analyzes assets in its portfolio for impairment in accordance with the FASB standard on measuring individual impairment of a loan.  Farmer Mac’s impaired assets include:
 
 
·
non-performing assets (loans 90 days or more past due, in foreclosure, restructured, in bankruptcy – including loans performing under either their original loan terms or a court-approved bankruptcy plan – and real estate owned (“REO”);
 
·
loans for which Farmer Mac has adjusted the timing of borrowers’ payment schedules, but still expects to collect all amounts due and has not made economic concessions; and
 
·
additional performing loans that have previously been delinquent or are secured by real estate that produces agricultural commodities or products currently under stress.

For loans with an updated appraised value, other updated collateral valuation or management’s estimate of discounted collateral value, this analysis includes the measurement of the fair value of the underlying collateral for individual loans relative to the total recorded investment, including principal, interest and advances.  In the event that the collateral value does not support the total recorded investment, Farmer Mac provides a specific allowance for the difference between the recorded investment and its fair value, less estimated costs to liquidate the collateral.  For the remaining impaired assets without updated valuations, this analysis is performed in the aggregate in consideration of the similar risk characteristics of the assets and historical statistics.

 
-9-

 

The table below summarizes the components of Farmer Mac’s allowance for losses as of June 30, 2010 and December 31, 2009:
 
   
June 30,
   
December 31,
 
   
2010
   
2009
 
   
(in thousands)
 
Allowance for loan losses
  $ 9,495     $ 6,292  
Reserve for losses:
               
Off-balance sheet Farmer Mac I Guaranteed Securities
    560       2,033  
LTSPCs
    8,910       5,862  
Total allowance for losses
  $ 18,965     $ 14,187  

The following table summarizes the changes in the components of Farmer Mac’s allowance for losses for the three and six months ended June 30, 2010 and 2009:

   
June 30, 2010
   
June 30, 2009
 
   
Allowance
         
Total
   
Allowance
         
Total
 
   
for Loan
   
Reserve
   
Allowance
   
for Loan
   
Reserve
   
Allowance
 
   
Losses
   
for Losses
   
for Losses
   
Losses
   
for Losses
   
for Losses
 
   
(in thousands)
 
For the Three Months Ended:
                                   
Beginning balance
  $ 9,142     $ 6,427     $ 15,569     $ 13,228     $ 8,025     $ 21,253  
Provision/(recovery) for losses
    (1,870 )     3,043       1,173       (5,693 )     (529 )     (6,222 )
Charge-offs
    -       -       -       (5,725 )     -       (5,725 )
Recoveries
    2,223       -       2,223       -       -       -  
Ending balance
  $ 9,495     $ 9,470     $ 18,965     $ 1,810     $ 7,496     $ 9,306  
                                                 
For the Six Months Ended:
                                               
Beginning balance
  $ 6,292     $ 7,895     $ 14,187     $ 10,929     $ 5,506     $ 16,435  
Provision/(recovery) for losses
    980       1,575       2,555       (2,159 )     1,990       (169 )
Charge-offs
    -       -       -       (7,725 )     -       (7,725 )
Recoveries
    2,223       -       2,223       765       -       765  
Ending balance
  $ 9,495     $ 9,470     $ 18,965     $ 1,810     $ 7,496     $ 9,306  

Upon the adoption of the new consolidation guidance on January 1, 2010, Farmer Mac reclassified $2.0 million from the reserve for losses to the allowance for loan losses as a result of Farmer Mac being determined the primary beneficiary of certain VIEs with beneficial interests owned by third party investors.  In June 2010, Farmer Mac deconsolidated certain VIEs with beneficial interests owned by third party investors because Farmer Mac was no longer determined to be the primary beneficiary.  This deconsolidation did not result in a material reclassification from the allowance for loan losses to the reserve for losses during second quarter 2010.  Consolidated interests in VIEs with beneficial interests owned by third party investors are presented as “loans held for investment in consolidated trusts” on Farmer Mac’s condensed consolidated balance sheets.  Upon deconsolidation, Farmer Mac classifies these interests as off-balance sheet Farmer Mac Guaranteed Securities.

 
-10-

 

No allowance for losses has been provided for AgVantage securities, securities issued under the Farmer Mac II program (“Farmer Mac II Guaranteed Securities”), or USDA Guaranteed Securities.  Each AgVantage security is a general obligation of an issuing institution approved by Farmer Mac and is collateralized by eligible loans in an amount at least equal to the outstanding principal amount of the security.  Farmer Mac excludes the loans that secure AgVantage securities from the credit risk metrics it discloses because of the credit quality of the issuing institutions, the collateralization level for the securities, and because delinquent loans are required to be removed from the pool of pledged loans and replaced with current eligible loans.  As of June 30, 2010, there were no probable losses inherent in Farmer Mac’s AgVantage securities due to the credit quality of the obligors, as well as the underlying collateral.  As of June 30, 2010, Farmer Mac had not experienced any credit losses on any AgVantage securities.  The guaranteed portions (“USDA-guaranteed portions”) of certain agricultural, rural development, business & industry and community facilities loans presented as “USDA Guaranteed Securities,” as well as those USDA-guaranteed portions that collateralize Farmer Mac II Guaranteed Securities, are guaranteed by the United States Department of Agriculture (“USDA”).  Each USDA guarantee is an obligation backed by the full faith and credit of the United States.  As of June 30, 2010, neither Farmer Mac nor Farmer Mac II LLC had experienced any credit losses on any USDA Guaranteed Securities held or on any Farmer Mac II Guaranteed Securities.

As of June 30, 2010, Farmer Mac individually analyzed $49.2 million of its $147.4 million of impaired assets for collateral shortfalls against updated appraised values, other updated collateral valuations or discounted values.  Farmer Mac evaluated the remaining $98.2 million of impaired assets for which updated valuations were not available in the aggregate in consideration of their similar risk characteristics and historical statistics.  Farmer Mac’s specific allowance for under-collateralized assets was $3.0 million as of June 30, 2010 and $0.6 million as of December 31, 2009.  Farmer Mac’s non-specific or general allowances were $16.0 million as of June 30, 2010 and $13.6 million as of December 31, 2009.

Farmer Mac recognized interest income of approximately $0.4 million and $0.9 million on impaired loans during the three and six months ended June 30, 2010, respectively, compared to $0.6 million and $1.7 million, respectively, during the same periods in 2009.  During the three and six months ended June 30, 2010, Farmer Mac’s average investment in impaired loans was $115.7 million and $124.3 million, respectively, compared to $142.4 million and $136.2 million, respectively, for the same periods in 2009.

(c)      Financial Derivatives

Farmer Mac enters into transactions involving financial derivatives principally to protect against risk from the effects of market price or interest rate movements on the value of certain assets, future cash flows or debt issuance, not for trading or speculative purposes.  Farmer Mac enters into interest rate swap contracts to adjust the characteristics of its short-term debt to match more closely the cash flow and duration characteristics of its longer-term loans and other assets, and also to adjust the characteristics of its long-term debt to match more closely the cash flow and duration characteristics of its short-term assets, thereby reducing interest rate risk and often times deriving an overall lower effective cost of borrowing than would otherwise be available to Farmer Mac in the conventional debt market.  Farmer Mac also recognizes certain contracts and commitments as derivatives when the characteristics of those contracts and commitments meet the definition of a derivative.

 
-11-

 

Farmer Mac manages the interest rate risk related to loans it has committed to acquire, but has not yet purchased and permanently funded, through the use of forward sale contracts on the debt of other government-sponsored enterprises (“GSEs”), futures contracts involving U.S. Treasury securities and interest rate swap contracts.  Farmer Mac uses forward sale contracts on GSE securities to reduce its interest rate exposure to changes in both U.S. Treasury rates and spreads on Farmer Mac debt.  The notional amounts of these contracts are determined based on a duration-matched hedge ratio between the hedged item and the hedge instrument.  Gains or losses generated by these hedge transactions should offset changes in funding costs.

All financial derivatives are recorded on the balance sheet at fair value as a freestanding asset or liability.  Farmer Mac does not designate its financial derivatives as fair value hedges or cash flow hedges; therefore, the changes in the fair values of financial derivatives are reported as gains or losses on financial derivatives in the condensed consolidated statements of operations without any corresponding changes in the fair values of the hedged items.

The following tables summarize information related to Farmer Mac’s financial derivatives as of June 30, 2010 and December 31, 2009:
 
   
June 30, 2010
 
                                       
Weighted-
 
                     
Weighted-
   
Weighted-
   
Weighted-
   
Average
 
                     
Average
   
Average
   
Average
   
Remaining
 
   
Notional
   
Fair Value
   
Pay
   
Receive
   
Forward
   
Life
 
   
Amount
   
Asset
   
(Liability)
   
Rate
   
Rate
   
Price
   
(in years)
 
   
(dollars in thousands)
 
Interest rate swaps:
                                         
Pay fixed callable
  $ 45,121     $ -     $ (790 )  
5.67%
   
0.46%
         
7.37
 
Pay fixed non-callable
    1,204,883       -       (127,543 )  
4.95%
   
0.40%
         
4.10
 
Receive fixed callable
    345,000       36       (194 )  
0.12%
   
0.24%
         
0.40
 
Receive fixed non-callable
    2,123,972       38,676       (234 )  
0.56%
   
1.62%
         
1.92
 
Basis swaps
    221,012       -       (3,878 )  
1.71%
   
0.28%
         
2.19
 
Credit default swaps
    30,000       342       -    
1.00%
   
0.00%
         
1.56
 
Agency forwards
    87,976       -       (825 )              
101.72
         
Treasury futures
    10,700       -       (28 )              
122.29
         
Credit valuation adjustment
    -       (1,933 )     817                              
Total financial derivatives
  $ 4,068,664     $ 37,121     $ (132,675 )                            
 
 
-12-

 

   
December 31, 2009
 
                                       
Weighted-
 
                     
Weighted-
   
Weighted-
   
Weighted-
   
Average
 
                     
Average
   
Average
   
Average
   
Remaining
 
   
Notional
   
Fair Value
   
Pay
   
Receive
   
Forward
   
Life
 
   
Amount
   
Asset
   
(Liability)
   
Rate
   
Rate
   
Price
   
(in years)
 
   
(dollars in thousands)
 
Interest rate swaps:
                                         
Pay fixed callable
  $ 65,686     $ -     $ (1,725 )   5.70%    
0.27%
         
7.78
 
Pay fixed non-callable
    1,236,156       5       (99,913 )  
4.95%
   
0.26%
         
4.62
 
Receive fixed callable
    300,000       236       -    
0.09%
   
0.54%
         
0.76
 
Receive fixed non-callable
    2,262,714       14,298       (2,815 )  
0.41%
   
1.80%
         
2.25
 
Basis swaps
    262,177       294       (3,673 )  
1.63%
   
0.61%
         
2.39
 
Credit default swaps
    30,000       -       (214 )  
1.00%
   
0.00%
         
2.14
 
Agency forwards
    75,511       453       -                
101.22
         
Treasury futures
    20,500       3       -                
115.47
         
Credit valuation adjustment
    -       (249 )     973                              
Total financial derivatives
  $ 4,252,744     $ 15,040     $ (107,367 )                            
 
In the normal course of business, collateral requirements contained in Farmer Mac’s derivative contracts are enforced by Farmer Mac and its counterparties.  Upon enforcement of the collateral requirements, the amount of collateral posted is typically based on the net fair value of all derivative contracts with the counterparty, i.e., derivative assets net of derivative liabilities at the counterparty level.  If Farmer Mac were to be in violation of certain provisions of the derivative contracts, the related counterparty could request payment or full collateralization on the derivative contracts.  As of June 30, 2010, the fair value of Farmer Mac’s derivatives in a net liability position at the counterparty level, which includes accrued interest but excludes any adjustment for nonperformance risk, was $118.5 million.  As of June 30, 2010, Farmer Mac posted assets with a fair value of $37.1 million as collateral for its derivatives in net liability positions.  If Farmer Mac had breached certain provisions of the derivative contracts as of June 30, 2010, it could have been required to settle its obligations under the agreements or post additional collateral of $81.4 million.

The following table summarizes the effects of Farmer Mac’s financial derivatives on the condensed consolidated statements of operations for the three and six months ended June 30, 2010 and 2009:
 
   
(Losses)/Gains on Financial Derivatives
 
   
For   the   Three   Months   Ended
   
For   the   Six   Months   Ended
 
   
June   30,   2010
   
June   30,   2009
   
June   30,   2010
   
June   30,   2009
 
   
(in thousands)
 
                         
Interest rate swaps
  $ (14,624 )   $ 21,720     $ (19,390 )   $ 24,380  
Agency forwards
    (1,339 )     (199 )     (1,938 )     (1,078 )
Treasury futures
    (393 )     84       (641 )     75  
Credit default swaps
    561       -       405       -  
      (15,795 )     21,605       (21,564 )     23,377  
Amortization of derivatives transition adjustment
    (45 )     (77 )     (80 )     (138 )
Total
  $ (15,840 )   $ 21,528     $ (21,644 )   $ 23,239  
 
 
-13-

 
 
As of June 30, 2010 and December 31, 2009, respectively, Farmer Mac had approximately $6,000 of net after-tax unrealized gains and $0.1 million of net after-tax unrealized losses on financial derivatives included in accumulated other comprehensive income related to the financial derivatives transition adjustment.  These amounts will be reclassified into earnings in the same period or periods during which the hedged forecasted transactions (either the payment of interest or the issuance of discount notes) affect earnings or immediately when it becomes probable that the original hedged forecasted transaction will not occur within two months of the originally specified date.  Over the next 12 months, Farmer Mac estimates that $56,000 of unrealized losses currently reported in accumulated other comprehensive income will be reclassified into earnings.

As of June 30, 2010, Farmer Mac had outstanding basis swaps with Zions First National Bank, a related party, with total notional amount of $96.0 million and a fair value of $(3.7) million, compared to $105.2 million and $(3.7) million, respectively, as of December 31, 2009.  Under the terms of those basis swaps, Farmer Mac pays Constant Maturity Treasury-based rates and receives LIBOR.  Those swaps economically hedge most of the interest rate basis risk related to loans Farmer Mac purchases that pay a Constant Maturity Treasury based-rate and the discount notes Farmer Mac issues to fund the loan purchases (the pricing of discount notes is closely correlated to LIBOR rates).  Farmer Mac recorded unrealized losses on those outstanding basis swaps for three and six months ended June 30, 2010 of $0.1 million and $25,000 respectively, compared to unrealized gains of $0.8 million and $0.3 million, respectively, for the same periods in 2009.

 
-14-

 

(d)     Earnings Per Common Share

Basic earnings per common share are based on the weighted-average number of shares of common stock outstanding.  Diluted earnings per common share are based on the weighted-average number of shares of common stock outstanding adjusted to include all potentially dilutive common stock options, stock appreciation rights (“SARs”) and nonvested restricted stock awards.  The following schedule reconciles basic and diluted earnings per common share (“EPS”) for the three and six months ended June 30, 2010 and 2009:

   
For the Three Months Ended
 
   
June 30, 2010
   
June 30, 2009
 
   
Net
         
$ per
   
Net
         
$ per
 
   
Income
   
Shares
   
Share
   
Income
   
Shares
   
Share
 
   
(in thousands, except per share amounts)
 
Basic EPS
                                   
Net income available to common stockholders
  $ 1,824       10,210     $ 0.18     $ 25,385       10,138     $ 2.50  
Effect of dilutive securities:
                                               
Stock options, SARs and restricted stock (1)
            400       (0.01 )             38       (0.01 )
Diluted EPS
  $ 1,824       10,610     $ 0.17     $ 25,385       10,176     $ 2.49  

(1)  
For the three months ended June 30, 2010 and 2009, stock options, SARs and nonvested restricted stock of 1,650,050 and 1,862,829, respectively, were outstanding but not included in the computation of diluted earnings per share of common stock because they were anti-dilutive.  For the three months ended June 30, 2010, 126,000 contingent shares of nonvested restricted stock were outstanding but not included in the computation of diluted earnings per share because the performance conditions were not met.

   
For the Six Months Ended
 
   
June 30, 2010
   
June 30, 2009
 
   
Net
         
$ per
   
Net
         
$ per
 
   
Income
   
Shares
   
Share
   
Income
   
Shares
   
Share
 
   
(in thousands, except per share amounts)
 
Basic EPS
                                   
Net income available to common stockholders
  $ 3,591       10,177     $ 0.35     $ 58,903       10,136     $ 5.81  
Effect of dilutive securities:
                                               
Stock options, SARs and restricted stock (1)
            354       (0.01 )             19        (0.01 )
Diluted EPS
  $ 3,591       10,531     $ 0.34     $ 58,903       10,155     $ 5.80  

(1)
For the six months ended June 30, 2010 and 2009, stock options, SARs and nonvested restricted stock of 1,616,008 and 1,881,885, respectively, were outstanding but not included in the computation of diluted earnings per share of common stock because they were anti-dilutive.  For the six months ended June 30, 2010, 104,250 contingent shares of nonvested restricted stock were outstanding but not included in the computation of diluted earnings per share because the performance conditions were not met.

 
-15-

 
 
(e)      Stock-Based Compensation

During 2008, Farmer Mac’s stockholders approved the 2008 Omnibus Incentive Compensation Plan that authorizes the grants of restricted stock, stock options and SARs, among other alternative forms of equity-based compensation, to directors, officers and other employees.  SARs awarded to officers and employees vest annually in thirds and SARs awarded to directors vest fully after approximately one year.  If not exercised or terminated earlier due to the termination of employment or service on the Board, SARs granted to officers or employees expire after ten years and those granted to directors expire after seven years.  For all SARs granted, the exercise price is equal to the closing price of the Class C Non-Voting Common Stock on the date of grant.  SARs granted during second quarter 2010 have exercise prices of $12.20 per share.  Restricted stock was awarded to directors during second quarter 2010 and vests fully after approximately one year.  Restricted stock awarded to officers during second quarter 2010 vests after approximately three years and only vests if certain performance conditions are met.  Restricted stock awards granted to both directors and officers are not issued until full vesting occurs.

For the three and six months ended June 30, 2010, Farmer Mac recognized $0.8 million and $1.5 million, respectively, of compensation expense related to stock options, SARs and restricted stock, compared to $0.9 million and $1.6 million, respectively, for the same periods in 2009.

 
-16-

 

The following tables summarize activity related to stock options, SARs and nonvested restricted stock awards for the three and six months ended June 30, 2010 and 2009:

   
June 30, 2010
   
June 30, 2009
 
   
Stock
   
Weighted-
   
Stock
   
Weighted-
 
   
Options
   
Average
   
Options
   
Average
 
   
and
   
Exercise
   
and
   
Exercise
 
   
SARs
   
Price
   
SARs
   
Price
 
For the Three Months Ended:
                       
Outstanding, beginning of period
    1,799,465     $ 22.68       1,697,829     $ 24.66  
Granted
    247,000       12.20       165,000       5.93  
Exercised
    (21,331 )     13.15       -       -  
Canceled
    (102,084 )     20.88       (106,864 )     22.12  
Outstanding, end of period
    1,923,050     $ 21.53       1,755,965     $ 23.06  
                                 
For the Six Months Ended:
                               
Outstanding, beginning of period
    1,799,465     $ 22.68       2,237,711     $ 25.54  
Granted
    247,000       12.20       165,000       5.93  
Exercised
    (21,331 )     13.15       -       -  
Canceled
    (102,084 )     20.88       (646,746 )     27.28  
Outstanding, end of period
    1,923,050     $ 21.53       1,755,965     $ 23.06  
                                 
Stock options and SARs exercisable at the end of the period
    1,433,792     $ 25.04       1,349,258     $ 25.51  

   
June 30, 2010
   
June 30, 2009
 
         
Weighted-
         
Weighted-
 
   
Nonvested
   
Average
   
Nonvested
   
Average
 
   
Restricted
   
Grant-date
   
Restricted
   
Grant-date
 
   
Stock
   
Fair  Value
   
Stock
   
Fair  Value
 
For the Three Months Ended:
                       
Outstanding, beginning of period
    200,548     $ 5.93       -     $ -  
Granted
    111,085       12.28       200,548       5.93  
Canceled
    (11,599 )     8.15       -       -  
Vested and issued
    (118,048 )     5.93       -       -  
Outstanding, end of period
    181,986     $ 9.66       200,548     $ 5.93  
                                 
For the Six Months Ended:
                               
Outstanding, beginning of period
    200,548     $ 5.93       -     $ -  
Granted
    111,085       12.28       200,548       5.93  
Canceled
    (11,599 )     8.15       -       -  
Vested and issued
    (118,048 )     5.93       -       -  
Outstanding, end of period
    181,986     $ 9.66       200,548     $ 5.93  

The cancellations of stock options, SARs and nonvested restricted stock during the first six months of 2010 were due to unvested SARs and nonvested restricted stock terminating in accordance with the provisions of the applicable plans upon directors’ or officers’ departures from Farmer Mac and vested options terminating unexercised on their expiration date.  The cancellations of stock options and SARs during the first six months of 2009 were due to unvested options or SARS terminating and the cancellation of a portion of vested options upon employees’ and officers’ departures from Farmer Mac.

 
-17-

 

For the three and six months ended June 30, 2010, the additional paid-in capital received from exercises of stock options and SARs and the vesting of restricted stock was $0.3 million.  The reduction of income taxes to be paid as a result of the deduction for exercises of stock options and SARs and the vesting or accelerated tax elections of restricted stock was $0.9 million for the three and six months ended June 30, 2010.  There were no exercises of stock options or SARS during the comparable periods in 2009.

The following tables summarize information regarding stock options, SARs and nonvested restricted stock outstanding as of June 30, 2010:

   
Outstanding
 
Exercisable
   
Vested or Expected to Vest
       
Weighted-
       
Weighted-
       
Weighted-
   
Stock
 
Average
 
Stock
   
Average
   
Stock
 
Average
Range of
 
Options
 
Remaining
 
Options
   
Remaining
   
Options
 
Remaining
Exercise
 
and
 
Contractual
 
and
   
Contractual
   
and
 
Contractual
Prices
 
SARs
 
Life
 
SARs
   
Life
   
SARs
 
Life
                             
$5.00 - $ 9.99
    273,000  
8.8 years
    68,000    
8.7 years
      231,500  
8.8 years
10.00 - 14.99
    247,000  
9.8 years
    -    
-
      222,300  
9.8 years
15.00 - 19.99
    81,722  
3.7 years
    81,722    
3.7 years
      81,722  
3.7 years
20.00 - 24.99
    486,457  
4.2 years
    486,457    
4.2 years
      486,457  
4.2 years
25.00 - 29.99
    621,203  
4.3 years
    591,944    
4.1 years
      617,742  
4.3 years
30.00 - 34.99
    213,668  
1.6 years
    205,669    
1.4 years
      211,268  
1.6 years
      1,923,050         1,433,792               1,850,989    

   
Outstanding
 
Expected to Vest
       
Weighted-
     
Weighted-
Weighted-
     
Average
     
Average
Average
 
Nonvested
 
Remaining
 
Nonvested
 
Remaining
Grant-Date
 
Restricted
 
Contractual
 
Restricted
 
Contractual
Fair Value
 
Stock
 
Life
 
Stock
 
Life
                 
$5.00 - $ 9.99
    75,000  
1.8 years
    67,500  
1.8 years
10.00 - 14.99
    104,287  
1.7 years
    93,859  
1.7 years
15.00 - 19.99
    2,699  
0.8 years
    2,426  
0.8 years
      181,986         163,785    

The weighted-average grant date fair value of options and SARs granted during the six months ended June 30, 2010 and 2009 were $8.31 and $4.12 per share, respectively.  The weighted-average grant date fair value of nonvested shares granted during the six months ended June 30, 2010 and 2009 were $12.28 and $5.93 per share, respectively.  The fair values for SARs and stock options were estimated using the Black-Scholes option pricing model based on the following assumptions:

   
2010
   
2009
 
Risk-free interest rate
 
3.3%
   
1.5%
 
Expected years until exercise
 
7 years
   
7 years
 
Expected stock volatility
 
88.3%
   
104.3%
 
Dividend yield
 
1.8%
   
3.4%
 
 
 
-18-

 

(f)       Fair Value Measurement

Effective January 1, 2008, Farmer Mac adopted new accounting guidance for fair value measurements.  The guidance defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date and establishes a fair value hierarchy that ranks the quality and reliability of the inputs to valuation techniques used to measure fair value.  The hierarchy gives highest rank to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurements) and the lowest rank to unobservable inputs (level 3 measurements).

Farmer Mac’s assessment of the significance of the input to the fair value measurement requires judgment, and considers factors specific to the financial instrument.  Both observable and unobservable inputs may be used to determine the fair value of positions that Farmer Mac has classified within the level 3 category.  As a result, the unrealized gains and losses for assets and liabilities within the level 3 category may include changes in fair value that were attributable to both observable inputs (e.g., changes in market interest rates) and unobservable inputs (e.g., changes in long-dated volatilities).

See Note 7 for more information regarding fair value measurement.

(g)   Consolidation of Variable Interest Entities

Farmer Mac has interests in various entities that are considered to be variable interest entities (“VIEs”).  These interests include investments in securities issued by VIEs, such as Farmer Mac agricultural mortgage-backed securities created pursuant to Farmer Mac’s securitization transactions and mortgage and asset-backed trusts that Farmer Mac did not create.  Effective January 1, 2010, Farmer Mac adopted two new accounting standards that eliminated the concept of qualifying special purpose entities (“QSPEs”) and amended the accounting for transfers of financial assets and the consolidation model for variable interest entities (“VIEs”).  All formerly designated QSPEs were evaluated for consolidation in accordance with the new consolidation model, which changed the method of analyzing which party to a VIE should consolidate the VIE.  The new consolidation model uses a qualitative evaluation that requires consolidation of an entity when the reporting enterprise both (1) has the power to direct matters which significantly impact the activities and success of the entity, and (2) has exposure to benefits and/or losses that could potentially be significant to the entity.  The reporting enterprise that meets both these conditions is deemed the primary beneficiary of the VIE.

The new consolidation standard requires the incremental assets and liabilities consolidated upon adoption to initially be reported at their carrying amounts.  Carrying amount refers to the amount at which the assets and liabilities would have been carried in the consolidated financial statements if the new guidance had been effective when Farmer Mac first met the conditions to be the primary beneficiary of the VIE.  If determining the carrying amounts is not practicable, the assets and liabilities of the VIE shall be measured at fair value at the date the new standards first apply.  For the outstanding trusts consolidated effective January 1, 2010, Farmer Mac initially recorded the assets and liabilities on the consolidated balance sheet at their carrying amounts, adjusted, where applicable, for fair value option elections that had been made previously.  Accrued interest and allowance for losses have also been recognized as appropriate.

 
-19-

 

Although these new accounting standards did not change the economic risk to Farmer Mac’s business, specifically Farmer Mac’s liquidity, credit and interest rate risks, the adoption of these new accounting standards has a significant impact on the presentation of Farmer Mac’s consolidated financial statements beginning in 2010.  On the consolidated balance sheet, there was an increase in loans held for investment, interest receivable, debt and accrued interest payable, and a decrease in available-for-sale and trading Farmer Mac Guaranteed Securities, the reclassification of a portion of the reserve for losses to allowance for loan losses, and the elimination of the guarantee and commitment fees receivable and guarantee and commitment obligations related to the consolidated trusts.  On the income statement, there was an increase in interest income and interest expense attributable to the assets and liabilities of the consolidated trusts and a reclassification of a portion of guarantee fee income to interest income.

The VIEs in which Farmer Mac has a variable interest are limited to securitization trusts.  The major judgment in determining if Farmer Mac is the primary beneficiary was whether Farmer Mac had the power to direct the activities of the trust that potentially had the most significant impact on the economic performance of the trust.  Generally, the ability to make decisions regarding default mitigation was evidence of that power.  Farmer Mac determined that it was the primary beneficiary for the securitization trusts related to most Farmer Mac I and all Rural Utilities securitization transactions because of its rights as guarantor under both programs to control the default mitigation activities of the trusts.  For certain securitization trusts created when loans subject to LTSPCs were converted to Farmer Mac I Guaranteed Securities, Farmer Mac determined that it was not the primary beneficiary since the power to make decisions regarding default mitigation was shared among unrelated parties.  For similar securitization transactions where the power to make decisions regarding default mitigation was shared with a related party, Farmer Mac determined that it was the primary beneficiary because the applicable accounting guidance does not permit parties within a related party group to conclude that the power is shared.

For those trusts that Farmer Mac is the primary beneficiary, the assets and liabilities are presented on the condensed consolidated balance sheet as “Loans held for investment in consolidated trusts” and “Debt securities of consolidated trusts held by third parties,” respectively.  These assets can only be used to satisfy the obligations of the trust.

For those trusts where Farmer Mac has a variable interest but has not been determined to be the primary beneficiary, Farmer Mac’s interests are recorded as either Farmer Mac Guaranteed Securities or Investment Securities.  Farmer Mac’s involvement in on-balance sheet VIEs classified as Farmer Mac Guaranteed Securities include securitization trusts under the Farmer Mac II program and trusts related to the AgVantage program.  In the case of Farmer Mac II trusts, Farmer Mac was not determined to be the primary beneficiary because it does not have the decision-making power over default mitigation activities.  For the AgVantage trusts, Farmer Mac currently does not have the power to direct the activities that have the most significant economic impact to the trust unless, as guarantor, there is a default by the issuer of the trust securities.  Should there be a default, Farmer Mac would reassess whether it is primary beneficiary of those trusts.  For VIEs classified as Investment Securities, which include asset-backed securities and GSE-guaranteed mortgage-backed securities, Farmer Mac was determined not to be the primary beneficiary because of the lack of voting rights or other powers to direct the activities of the trust.  As of June 30, 2010, the Farmer Mac Guaranteed Securities trusts and Investment Securities trusts have carrying amounts on the condensed consolidated balance sheet totaling $74.7 million and $434.4 million, respectively, which is Farmer Mac’s maximum exposure to loss.  In addition, Farmer Mac has a variable interest in off-balance sheet VIEs, which include a guarantee of timely payment of principal and interest, totaling $3.3 billion as of June 30, 2010.

 
-20-

 

(h)     New Accounting Standards

Accounting for Transfers of Financial Assets

On December 23, 2009, the FASB issued an Accounting Standards Update (“ASU”), which codifies recent accounting guidance related to transfers of financial assets.  The new guidance eliminates the concept of a QSPE, changes the requirements for derecognizing financial assets and enhances information reported to financial statement users by increasing the transparency or disclosures about transfers of financial assets and an entity’s continuing involvement with transferred financial assets.  Farmer Mac adopted the ASU on January 1, 2010 and the impact of adoption was not material to Farmer Mac’s financial position, results of operations or cash flows.

Variable Interest Entities

On December 23, 2009, the FASB issued an ASU, which codifies recent accounting guidance on consolidation of VIEs.  The new guidance replaces the quantitative-based risks-and-rewards calculation for determining which reporting entity, if any, has a controlling financial interest in a VIE with an approach focused on identifying which reporting entity has (1) the power to direct the activities of a VIE that most significantly affect the entity’s economic performance and (2) the obligation to absorb losses of, or the right to receive benefits from, the entity.  The ASU requires additional disclosures about a reporting entity’s involvement with VIEs and about any significant changes in risk exposure as a result of that involvement.  Farmer Mac adopted this ASU on January 1, 2010, which resulted in the consolidation of assets and liabilities onto Farmer Mac’s balance sheet in connection with trusts that previously qualified for the QSPE exception.  Additionally, interest income and interest expense related to the consolidated assets and liabilities of the trusts will be reflected in the statement of operations.

As of December 31, 2009, Farmer Mac disclosed the impact of adopting the new consolidation standard as an increase in consolidated assets of $292.8 million, requiring incremental regulatory capital of $5.9 million, and an increase in retained earnings of $2.6 million.  Upon adoption, Farmer Mac reassessed its securitization trusts created when loans subject to LTSPCs were converted to Farmer Mac I Guaranteed Securities in consideration of the related party relationship with certain counterparties to these transactions and concluded that additional trusts required consolidation.  The actual impact upon adoption was an increase in consolidated assets of $1.5 billion, which resulted in an incremental capital requirement of $30.4 million.  The transition adjustment upon adoption did not change significantly from the reported amount, increasing retained earnings by $2.7 million, which is presented in the Condensed Consolidated Statement of Equity as “Cumulative effect of adoption of new accounting standard, net of tax.”

 
-21-

 

Accounting Standards Update on Fair Value Measurements and Disclosures

On January 21, 2010, the FASB issued a new accounting standard, which amends FASB guidance on fair value measurements and disclosures to add new requirements for disclosures about transfers into and out of levels 1 and 2 and separate disclosures about purchases, sales, issuance, and settlements relating to level 3 measurements.  The new standard also clarifies existing fair value disclosures about the level of disaggregation and about inputs and valuation techniques used to measure fair value.  The ASU is effective for first quarter 2010 reporting except for the level 3 activity disclosures, which are effective in first quarter 2011.  Adoption of the new accounting guidance did not have a significant impact on Farmer Mac’s fair value disclosures.

Effect of a Loan Modification When the Loan Is Part of a Pool That Is Accounted for as a Single Asset

On April 29, 2010, the FASB issued ASU 2010-18, Effect of a Loan Modification When the Loan is Part of a Pool That Is Accounted for as a Single Asset , which established that modifications of loans that are accounted for within a pool under the guidance for acquisitions of credit-impaired loans do not result in the removal of those loans from the pool, even if the modification of those loans would otherwise be considered a troubled debt restructuring.  Loans accounted for individually under the guidance for acquisitions of credit-impaired loans continue to be subject to the accounting provisions for troubled debt restructurings.  The ASU is effective for third quarter 2010 reporting.  Adoption of ASU 2010-18 will not have a material effect on Farmer Mac’s financial position, results of operations or cash flows.

Credit Quality of Financing Receivables and the Allowance for Credit Losses

On July 21, 2010, the FASB issued ASU 2010-20, Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses, which requires more robust and disaggregated disclosures to assist financial statement users in understanding more clearly an entity’s credit risk exposures to finance receivables and the related allowance for credit losses.  The new and amended disclosure requirements focus on five areas:  nonaccrual and past due loans; allowance for credit losses; impaired loans; credit quality information; and modifications.  The disclosures that relate to information as of the end of a reporting period will be effective for periods ending on or after December 15, 2010 and information related to activity that occurs during a reporting period will be effective for the first interim or annual period beginning after December 15, 2010.  Since ASU 2010-20 only requires additional disclosures, it will not have an impact on Farmer Mac’s financial position, results of operations or cash flows.

(i)        Reclassifications

Certain reclassifications of prior period information were made to conform to the current period presentation.

 
-22-

 

Note 2.
Investment Securities

The following tables present the amortized cost and estimated fair values of Farmer Mac’s investments as of June 30, 2010 and December 31, 2009.

   
June 30, 2010
 
   
Amortized
   
Unrealized
   
Unrealized
       
   
Cost
   
Gains
   
Losses
   
Fair Value
 
   
(in thousands)
 
Available-for-sale:
                       
Floating rate auction-rate certificates backed by Government guaranteed student loans
  $ 74,100     $ -     $ (10,756 )   $ 63,344  
Floating rate asset-backed securities
    19,271       4       (11 )     19,264  
Floating rate corporate debt securities
    197,821       292       (2,197 )     195,916  
Floating rate Government/GSE guaranteed mortgage-backed securities
    405,477       3,084       (270 )     408,291  
Fixed rate GSE guaranteed mortgage-backed securities
    5,055       368       -       5,423  
Floating rate GSE subordinated debt
    70,000       -       (14,855 )     55,145  
Fixed rate GSE preferred stock
    80,160       6,926       -       87,086  
Fixed rate senior agency debt
    5,490       2       -       5,492  
Fixed rate U.S. Treasuries
    335,191       224       -       335,415  
Total available-for-sale
    1,192,565       10,900       (28,089 )     1,175,376  
                                 
Trading:
                               
Floating rate asset-backed securities
    6,307       -       (4,895 )     1,412  
Fixed rate GSE preferred stock
    84,202       -       (3,658 )     80,544  
Total trading
    90,509       -       (8,553 )     81,956  
Total investment securities
  $ 1,283,074     $ 10,900     $ (36,642 )   $ 1,257,332  

   
December 31, 2009
 
   
Amortized
   
Unrealized
   
Unrealized
       
   
Cost
   
Gains
   
Losses
   
Fair Value
 
   
(in thousands)
 
Available-for-sale:
                       
Floating rate auction-rate certificates backed by Government guaranteed student loans
  $ 74,100     $ -     $ (1,216 )   $ 72,884  
Floating rate asset-backed securities
    58,157       26       (40 )     58,143  
Floating rate corporate debt securities
    246,758       267       (1,420 )     245,605  
Floating rate Government/GSE guaranteed mortgage-backed securities
    404,452       1,188       (1,419 )     404,221  
Fixed rate GSE guaranteed mortgage-backed securities
    6,248       289       -       6,537  
Floating rate GSE subordinated debt
    70,000       -       (22,438 )     47,562  
Fixed rate GSE preferred stock
    90,543       -       (1,332 )     89,211  
Fixed rate U.S. Treasuries
    117,810       -       (50 )     117,760  
Total available-for-sale
    1,068,068       1,770       (27,915 )     1,041,923  
                                 
Trading:
                               
Floating rate asset-backed securities
    6,708       -       (4,884 )     1,824  
Fixed rate GSE preferred stock
    89,637       -       (1,489 )     88,148  
Total trading
    96,345       -       (6,373 )     89,972  
Total investment securities
  $ 1,164,413     $ 1,770     $ (34,288 )   $ 1,131,895  
 
 
-23-

 

During the three and six months ended June 20, 2010, Farmer Mac did not recognize in earnings any other-than-temporary impairment charges, compared to charges of $1.0 million and $1.1 million for the same periods in 2009.  The other-than-temporary impairment charges in 2009 were related to investments in CIT Group, Inc corporate debt securities and Fannie Mae floating rate preferred stock.

During the three months ended June 30, 2010, Farmer Mac did not receive any proceeds from the sale of securities from its available-for-sale investment portfolio, compared to proceeds of $8.6 million for the same period in 2009, resulting in gross realized losses of $0.3 million.  During the six months ended June 30, 2010, Farmer Mac received proceeds of $69.2 million from the sale of securities from its available-for-sale investment portfolio, resulting in gross realized gains of $0.4 million and gross realized losses of $0.2 million, compared to proceeds of $153.1 million for the same period in 2009, resulting in gross realized gains of $3.2 million and gross realized losses of $0.3 million.

 
-24-

 
 
As of June 30, 2010 and December 31, 2009, unrealized losses on available-for-sale investment securities were as follows:

   
June 30, 2010
 
   
Available-for-Sale Securities
 
   
Unrealized loss position for
   
Unrealized loss position
 
   
less than 12 months
   
more than 12 months
 
         
Unrealized
         
Unrealized
 
   
Fair Value
   
Loss
   
Fair  Value
   
Loss
 
   
(in thousands)
 
                         
Floating rate corporate debt securities
  $ 38,543     $ (49 )   $ 107,820     $ (2,148 )
Floating rate asset-backed securities
    5,249       (1 )     5,042       (10 )
Floating rate auction-rate certificates backed by Government guaranteed student loans
    -       -       63,344       (10,756 )
Floating rate Government/GSE guaranteed mortgage-backed securities
    73,596       (47 )     30,724       (223 )
Floating rate GSE subordinated debt
    -       -       55,145       (14,855 )
Fixed rate senior agency debt
    -       -       -       -  
Fixed rate U.S. Treasuries
    -       -       -       -  
Total
  $ 117,388     $ (97 )   $ 262,075     $ (27,992 )

   
December 31, 2009
 
   
Available-for-Sale Securities
 
   
Unrealized loss position for
   
Unrealized loss position
 
   
less than 12 months
   
more than 12 months
 
         
Unrealized
         
Unrealized
 
   
Fair Value
   
Loss
   
Fair  Value
   
Loss
 
   
(in thousands)
 
                         
Floating rate corporate debt securities
  $ -     $ -     $ 182,745     $ (1,420 )
Floating rate asset-backed securities
    -       -       17,319       (40 )
Floating rate auction-rate certificates backed by Government guaranteed student loans
    -       -       72,884       (1,216 )
Floating rate Government/GSE guaranteed mortgage-backed securities
    116,754       (645 )     121,877       (774 )
Floating rate GSE subordinated debt
    -       -       47,562       (22,438 )
Fixed rate GSE preferred stock
    89,211       (1,332 )     -       -  
Fixed rate U.S. Treasuries
    117,760       (50 )     -       -  
Total
  $ 323,725     $ (2,027 )   $ 442,387     $ (25,888 )

The temporary unrealized losses presented above are principally due to a general widening of credit spreads from the dates of acquisition to June 30, 2010 and December 31, 2009, as applicable.  The resulting decreases in fair values reflect an increase in the perceived risk by the financial markets related to those securities.  As of June 30, 2010, all of the investment securities in an unrealized loss position were rated at least “A” by a nationally recognized statistical rating organization.  As of December 31, 2009, all of the investment securities in an unrealized loss position were rated at least “A,” except one that was not rated.  The unrealized losses were on 51 and 86 individual investment securities as of June 30, 2010 and December 31, 2009, respectively.

 
-25-

 


As of June 30, 2010, 41 of the securities in loss positions had been in loss positions for more than 12 months and had a total unrealized loss of $28.0 million.  As of December 31, 2009, 73 of the securities in loss positions had been in loss positions for more than 12 months and had a total unrealized loss of $25.9 million.  Securities in unrealized loss positions 12 months or more have a fair value as of June 30, 2010 that is, on average, approximately 90 percent of their amortized cost basis.  Farmer Mac believes that all these unrealized losses are recoverable within a reasonable period of time through changes in credit spreads or maturity and expects to recover the amortized cost basis of these securities.  Accordingly, Farmer Mac has concluded that none of the unrealized losses on these available-for-sale investment securities represent other-than-temporary impairment as of June 30, 2010.  Farmer Mac does not intend to sell these securities and it is not more likely than not that Farmer Mac will be required to sell the securities before recovery of the amortized cost basis.

Farmer Mac did not own any held-to-maturity investments as of June 30, 2010 and 2009.  As of June 30, 2010, Farmer Mac owned trading investments with an amortized cost of $90.5 million, a fair value of $82.0 million, and a weighted-average yield of 8.10 percent.  The amortized cost, fair value and weighted-average yield of investments by remaining contractual maturity for available-for-sale investment securities as of June 30, 2010 are set forth below.  Asset-backed and mortgage-backed securities are included based on their final maturities, although the actual maturities may differ due to prepayments of the underlying assets or mortgages.

   
Investment Securities Available-for-Sale
 
   
as of June 30, 2010
 
   
Amortized
         
Weighted-
 
   
Cost
   
Fair Value
   
Average  Yield
 
   
(dollars in thousands)
 
                   
Due within one year
  $ 374,289     $ 374,486    
0.35%
 
Due after one year through five years
    176,535       174,617    
0.62%
 
Due after five years through ten years
    99,355       100,120    
2.74%
 
Due after ten years
    542,386       526,153    
2.78%
 
Total
  $ 1,192,565     $ 1,175,376    
1.69%
 

 
-26-

 

Note 3.
Farmer Mac Guaranteed Securities and USDA Guaranteed Securities

The following table sets forth information about on-balance sheet Farmer Mac Guaranteed Securities and USDA Guaranteed Securities as of June 30, 2010 and December 31, 2009.

   
June 30, 2010
 
   
Available-
             
   
for-Sale
   
Trading
   
Total
 
   
(in thousands)
 
Farmer Mac I
  $ 47,821     $ -     $ 47,821  
Farmer Mac II
    40,436       -       40,436  
Rural Utilities
    1,629,883       -       1,629,883  
Farmer Mac Guaranteed Securities
    1,718,140       -       1,718,140  
USDA Guaranteed Securities
    880,424       386,496       1,266,920  
Total
  $ 2,598,564     $ 386,496     $ 2,985,060  
                         
Amortized cost
  $ 2,543,878     $ 382,357     $ 2,926,235  
Unrealized gains
    56,187       4,369       60,556  
Unrealized losses
    (1,501 )     (230 )     (1,731 )
Fair value
  $ 2,598,564     $ 386,496     $ 2,985,060  
                         
   
December 31, 2009
 
   
Available-
                 
   
for-Sale
   
Trading
   
Total
 
   
(in thousands)
 
Farmer Mac I
  $ 56,864     $ -     $ 56,864  
Farmer Mac II
    764,792       422,681       1,187,473  
Rural Utilities
    1,703,211       451,448       2,154,659  
Total
  $ 2,524,867     $ 874,129     $ 3,398,996  
                         
Amortized cost
  $ 2,493,644     $ 817,631     $ 3,311,275  
Unrealized gains
    39,657       56,569       96,226  
Unrealized losses
    (8,434 )     (71 )     (8,505 )
Fair value
  $ 2,524,867     $ 874,129     $ 3,398,996  

Upon the adoption of the new consolidation guidance on January 1, 2010, Farmer Mac was determined to be the primary beneficiary of certain VIEs where Farmer Mac held beneficial interests in trusts used as vehicles for the securitization of agricultural real estate mortgage loans or rural utilities loans.  Prior to 2010, Farmer Mac presented these beneficial interests as “Farmer Mac Guaranteed Securities” on the condensed consolidated balance sheets.  Upon consolidation, Farmer Mac transferred these assets from Farmer Mac Guaranteed Securities to loans held for investment in consolidated trusts.  The transferred assets on January 1, 2010 included Farmer Mac Guaranteed Securities – Rural Utilities with an unpaid principal balance of $412.9 million and a fair value of $455.6 million and Farmer Mac I Guaranteed Securities with an unpaid principal balance of $5.3 million and a fair value of $5.6 million.

 
-27-

 

On January 25, 2010, Farmer Mac contributed substantially all of the assets, in excess of $1.1 billion, comprising the Farmer Mac II program to Farmer Mac’s subsidiary, Farmer Mac II LLC.  The assets that Farmer Mac contributed to Farmer Mac II LLC consisted primarily of USDA-guaranteed portions that had not been securitized by Farmer Mac (i.e., transferred to a trust whereby Farmer Mac II Guaranteed Securities were issued) but also included $35.0 million of Farmer Mac II Guaranteed Securities.  Farmer Mac did not guarantee the timely payment of principal and interest on the $1.1 billion of contributed USDA-guaranteed portions and will provide a guarantee in connection with the issuance of Farmer Mac II Guaranteed Securities only to the extent that either Farmer Mac or Farmer Mac II LLC is approached or referred by an investor.  Farmer Mac will not issue Farmer Mac II Guaranteed Securities to Farmer Mac II LLC in the future.  The contributed USDA-guaranteed portions had previously been presented as Farmer Mac II Guaranteed Securities on the condensed consolidated financial statements of Farmer Mac and are now presented as USDA Guaranteed Securities on the condensed consolidated balance sheets.  The assets of Farmer Mac II LLC would be available to creditors of Farmer Mac only after all obligations owed to creditors of and equity holders in Farmer Mac II LLC had been satisfied.

The temporary unrealized losses presented above are principally due to changes in interest rates from the date of acquisition to June 30, 2010 and December 31, 2009, as applicable.  As of June 30, 2010 and December 31, 2009, the unrealized losses presented above are related to Farmer Mac II and USDA Guaranteed Securities, which are backed by the full faith and credit of the United States.  Therefore, Farmer Mac has concluded that none of the unrealized losses on its available-for-sale Farmer Mac Guaranteed Securities represents an other-than-temporary impairment as of June 30, 2010 and December 31, 2009.  Farmer Mac does not intend to sell these securities and it is not more likely than not that Farmer Mac will be required to sell the securities before recovery of the amortized cost basis.

Farmer Mac realized no gains or losses from the sale of Farmer Mac and USDA Guaranteed Securities for the three and six months ended June 30, 2010 and 2009.

The table below presents a sensitivity analysis for the Corporation’s on-balance sheet Farmer Mac and USDA Guaranteed Securities as of June 30, 2010 and December 31, 2009.

   
June 30,
   
December 31,
 
   
2010
   
2009
 
   
(dollars in thousands)
 
Fair value of beneficial interests retained in Farmer Mac and USDA Guaranteed Securities
  $ 2,985,060     $ 3,398,996  
                 
Weighted-average remaining life (in years)
    3.2       3.7  
                 
Weighted-average prepayment speed (annual rate)
    6.0 %     3.8 %
Effect on fair value of a 10% adverse change
  $ (1,188 )   $ (18 )
Effect on fair value of a 20% adverse change
  $ (2,295 )   $ (36 )
                 
Weighted-average discount rate
    2.7 %     2.8 %
Effect on fair value of a 10% adverse change
  $ (15,735 )   $ (22,081 )
Effect on fair value of a 20% adverse change
  $ (31,756 )   $ (44,531 )

 
-28-

 

These sensitivities are hypothetical.  Changes in fair value based on 10 percent or 20 percent variations in assumptions generally cannot be extrapolated because the relationship of the change in assumptions to the change in fair value may not be linear.  Also, the effect of a variation in a particular assumption on the fair value of the retained interest is calculated without changing any other assumption.  In fact, changes in one factor may result in changes in another (for example, increases in market interest rates may result in lower prepayments), which might amplify or counteract the sensitivities.

The table below presents the outstanding principal balances for Farmer Mac loans, LTSPCs and Farmer Mac and USDA Guaranteed Securities as of June 30, 2010 and December 31, 2009.

Outstanding Balance of Farmer Mac Loans and Loans Underlying
 
Farmer Mac and USDA Guaranteed Securities and LTSPCs
 
   
June 30,
   
December 31,
 
   
2010
   
2009
 
   
(in thousands)
 
On-balance sheet:
           
Farmer Mac I:
           
Loans
  $ 844,227     $ 733,422  
Loans held in trusts:
               
Beneficial interests owned by Farmer Mac
    4,369       5,307  
Beneficial interests owned by third party investors
    880,035       -  
Farmer Mac Guaranteed Securities - AgVantage
    43,550       48,800  
Farmer Mac II:
               
USDA Guaranteed Securities
    1,218,329       -  
Farmer Mac Guaranteed Securities
    41,756       1,164,996  
Rural Utilities:
               
Loans
    165,388       28,644  
Loans held in trusts:
               
Beneficial interests owned by Farmer Mac
    406,679       412,948  
Farmer Mac Guaranteed Securities - AgVantage
    1,587,200       1,675,000  
Total on-balance sheet
  $ 5,191,533     $ 4,069,117  
                 
Off-balance sheet:
               
Farmer Mac I:
               
AgVantage
  $ 2,945,000     $ 2,945,000  
LTSPCs
    1,739,979       2,165,706  
Farmer Mac Guaranteed Securities
    826,910       1,492,239  
Farmer Mac II:
               
Farmer Mac Guaranteed Securities
    40,860       34,802  
Rural Utilities:
               
AgVantage
    14,393       14,240  
Total off-balance sheet
  $ 5,567,142     $ 6,651,987  
Total
  $ 10,758,675     $ 10,721,104  

 
-29-

 

When particular criteria are met, such as the default of the borrower, Farmer Mac becomes entitled to purchase the defaulted loans underlying Farmer Mac Guaranteed Securities (commonly referred to as “removal-of-account” provisions).  Farmer Mac records all such defaulted loans at their unpaid principal balance during the period in which Farmer Mac becomes entitled to purchase the loans and therefore regains effective control over the transferred loans.  Considering the low loan-to-value ratios in its portfolio, Farmer Mac believes that it is probable at the acquisition of these loans that it will be able to collect all contractually required payments receivable.  Subsequent to the purchase, such defaulted loans are treated as nonaccrual loans and, therefore, interest is accounted for on the cash basis.  Any decreases in expected cash flows are recognized as impairment.  The following table presents information related to Farmer Mac’s acquisition of defaulted loans for the three and six months ended June 30, 2010 and 2009 and the outstanding balances and carrying amounts of all such loans as of June 30, 2010 and December 31, 2009, respectively.

   
For the Three Months Ended
   
For the Six Months Ended
 
   
June 30,
   
June 30,
   
June 30,
   
June 30,
 
   
2010
   
2009
   
2010
   
2009
 
   
(in thousands)
 
                         
Unpaid principal balance at acquisition date
  $ 913     $ 572     $ 3,403     $ 5,637  
Contractually required payments receivable
    913       572       3,470       5,646  
Impairment recognized subsequent to acquisition
    359       5,725       1,740       7,725  
Recovery/release of allowance for defaulted loans
    2,924       -       2,924       -  

   
June 30,
   
December 31,
 
   
2010
   
2009
 
   
(in thousands)
 
             
Outstanding balance
  $ 34,813     $ 50,409  
Carrying amount
    30,656       29,994  

Net credit losses and 90-day delinquencies as of and for the periods indicated for Farmer Mac Guaranteed Securities, loans and LTSPCs are presented in the table below.  Information is not presented for loans underlying AgVantage securities, USDA Guaranteed Securities, Farmer Mac II Guaranteed Securities, or rural utilities loans held or underlying Farmer Mac Guaranteed Securities – Rural Utilities.  Each AgVantage security is a general obligation of an issuing institution approved by Farmer Mac and is secured by eligible loans in an amount at least equal to the outstanding principal amount of the security.  Farmer Mac excludes the loans that secure AgVantage securities from the credit risk metrics it discloses because of the credit quality of the issuing institutions, the collateralization level for the securities, and because delinquent loans are required to be removed from the pool of pledged loans and replaced with current eligible loans.  As of June 30, 2010, there were no probable losses inherent in Farmer Mac’s AgVantage securities due to the credit quality of the obligors, as well as the underlying collateral.  As of June 30, 2010, Farmer Mac had not experienced any credit losses on any AgVantage securities.  The USDA-guaranteed portions presented as USDA Guaranteed Securities, as well as those that collateralize Farmer Mac II Guaranteed Securities, are guaranteed by the United States Department of Agriculture.  Each USDA guarantee is an obligation backed by the full faith and credit of the United States.  As of June 30, 2010, neither Farmer Mac nor Farmer Mac II LLC had experienced any credit losses on any USDA Guaranteed Securities or Farmer Mac II Guaranteed Securities.  As of June 30, 2010, there were no delinquencies and no probable losses inherent in Farmer Mac’s rural utilities loans held or in any Farmer Mac Guaranteed Securities – Rural Utilities.  As of June 30, 2010, Farmer Mac had not experienced any credit losses on any of those loans or securities.

 
-30-

 

   
90-Day
   
Net Credit
 
   
Delinquencies (1)
   
(Recoveries)/Losses (2)
 
   
As of
   
As of
   
As of
   
For the Six Months Ended
 
   
June 30,
   
December 31,
   
June 30,
   
June 30,
   
June 30,
 
   
2010
   
2009
   
2009
   
2010
   
2009
 
   
(in thousands)
 
On-balance sheet assets:
                             
Farmer Mac I:
                             
Loans
  $ 38,709     $ 35,470     $ 23,546     $ (1,926 )   $ 6,960  
Total on-balance sheet
  $ 38,709     $ 35,470     $ 23,546     $ (1,926 )   $ 6,960  
Off-balance sheet assets:
                                       
Farmer Mac I:
                                       
LTSPCs
  $ 17,302     $ 14,056     $ 18,761     $ -     $ -  
Guaranteed Securities
    -       -       -       -       -  
Total off-balance sheet
  $ 17,302     $ 14,056     $ 18,761     $ -     $ -  
Total
  $ 56,011     $ 49,526     $ 42,307     $ (1,926 )   $ 6,960  

(1)
Includes loans and loans underlying Farmer Mac I Guaranteed Securities and LTSPCs that are 90 days or more past due, in foreclosure, restructured after delinquency, and in bankruptcy, excluding loans performing under either their original loan terms or a court-approved bankruptcy plan.
(2)
Includes loans and loans underlying Farmer Mac I Guaranteed Securities, LTSPCs and REO.

 
-31-

 

Note 4.
Comprehensive Income

Comprehensive income represents all changes in stockholders’ equity except those resulting from investments by or distributions to stockholders, and is comprised primarily of net income and unrealized gains and losses on securities available-for-sale, net of related taxes.  The following table sets forth Farmer Mac’s comprehensive income for the three and six months ended June 30, 2010 and 2009:

   
For the Three Months Ended
   
For the Six Months Ended
 
   
June 30,
   
June 30,
   
June 30,
   
June 30,
 
   
2010
   
2009
   
2010
   
2009
 
   
(in thousands)
 
                         
Net income
  $ 8,090     $ 29,515     $ 21,679     $ 66,969  
Available-for-sale securities, net of tax:
                               
Net unrealized holding gains
    23,853       32,178       28,353       33,941  
Reclassification adjustment for realized losses/(gains)
    -       835       (190 )     835  
Net change from available-for-sale securities (1)
    23,853       33,013       28,163       34,776  
Financial derivatives, net of tax:
                               
Reclassification for amortization of financial derivatives transition adjustment (2)
    29       50       52       90  
Other comprehensive income, net of tax
    23,882       33,063       28,215       34,866  
Comprehensive income
    31,972       62,578       49,894       101,835  
Less: Comprehensive income attributable to non-controlling interest
    5,546       -       9,614       -  
Total comprehensive income
  $ 26,426     $ 62,578     $ 40,280     $ 101,835  

(1)
Unrealized gains on available for sale securities is shown net of income tax expense of $12.8 million and $17.8 million for the three months ended June 30, 2010 and 2009, respectively, and $15.3 million and $18.7 million for the six months ended June 30, 2010 and 2009, respectively.
(2)
Amortization of financial derivatives transition adjustment is shown net of income tax expense of $16,000 and $27,000 for the three months ended June 30, 2010 and 2009, respectively, and $28,000 and $48,000 for the six months ended June 30, 2010 and 2009, respectively.

 
-32-

 

The following table presents Farmer Mac’s accumulated other comprehensive income as of June 30, 2010 and December 31, 2009 and changes in the components of accumulated other comprehensive income for the three months ended June 30, 2010 and the year ended December 31, 2009.

   
June 30,
   
December 31,
 
   
2010
   
2009
 
   
(in thousands)
 
Available-for-sale securities:
           
Beginning balance
  $ 3,300     $ (47,214 )
Net unrealized gains, net of tax
    28,163       50,514  
Ending balance
  $ 31,463     $ 3,300  
                 
Financial derivatives:
               
Beginning balance
  $ (46 )   $ (198 )
Amortization of financial derivatives transition adjustment, net of tax
    52       152  
Ending balance
  $ 6     $ (46 )
Accumulated other comprehensive income, net of tax
  $ 31,469     $ 3,254  

Note 5.
Off-Balance Sheet Guarantees and Long Term Standby Purchase Commitments

Farmer Mac offers approved lenders two credit enhancement alternatives to increase their liquidity or lending capacity while retaining the cash flow benefits of their loans:  (1) Farmer Mac Guaranteed Securities, which are available through the Farmer Mac I program, the Farmer Mac II program or the Rural Utilities program, and (2) Long Term Standby Purchase Commitments (“LTSPCs”), which are available through the Farmer Mac I program or Rural Utilities program.  For securitization trusts where Farmer Mac is the primary beneficiary, as described in Note 1(g), the trust assets and liabilities are included on Farmer Mac’s condensed consolidated balance sheet.  Upon consolidation, Farmer Mac eliminates the portion of the guarantee and commitment fees receivable and guarantee and commitment obligations related to the consolidated trusts.  For the remainder of these transactions, or in the event of deconsolidation, both of these alternatives result in the creation of off-balance sheet obligations for Farmer Mac.  Farmer Mac accounts for these transactions and other financial guarantees in accordance with FASB guidance on accounting for guarantees.  Farmer Mac records, at the inception of a guarantee, a liability for the fair value of its obligation to stand ready to perform under the terms of each guarantee and an asset that is equal to the fair value of the fees that will be received over the life of each guarantee.  The fair values of the guarantee obligation and asset at inception are based on the present value of expected cash flows using management’s best estimate of certain key assumptions, which include prepayment speeds, forward yield curves and discount rates commensurate with the risks involved.  Because the cash flows of these instruments may be interest rate path dependent, these values and projected discount rates are derived using a Monte Carlo simulation model.  The guarantee obligation and corresponding asset are subsequently amortized into guarantee and commitment fee income in relation to the decline in the unpaid principal balance on the underlying agricultural real estate mortgage and rural utilities loans.

 
-33-

 

Off-Balance Sheet Farmer Mac Guaranteed Securities

Eligible loans and other eligible assets may be placed into trusts that are used as vehicles for the securitization of the transferred assets and the Farmer Mac-guaranteed beneficial interests in the trusts are sold to investors.  Proceeds from new securitizations during the six months ended June 30, 2010 and 2009 were $12.9 million and $17.2 million, respectively.  The following table summarizes cash flows received from and paid to trusts used for securitizations:

   
For the Six Months Ended
 
   
June 30, 2010
   
June 30, 2009
 
   
(in thousands)
 
Proceeds from new securitizations
  $ 12,906     $ 17,224  
Guarantee fees received
    2,620       5,858  
Purchases of assets from the trusts
    (2,323 )     -  
Servicing advances
    (343 )     7  
Repayments of servicing advances
    174       2  
 
The following table presents the maximum principal amount of potential undiscounted future payments that Farmer Mac could be required to make under all off-balance sheet Farmer Mac Guaranteed Securities as of June 30, 2010 and December 31, 2009, not including offsets provided by any recourse provisions, recoveries from third parties or collateral for the underlying loans.
 
Outstanding Balance of Off-Balance Sheet
 
Farmer Mac Guaranteed Securities
 
   
June 30,
   
December 31,
 
   
2010
   
2009
 
   
(in thousands)
 
Farmer Mac I:
           
AgVantage
  $ 2,945,000     $ 2,945,000  
Farmer Mac Guaranteed Securities
    826,910       1,492,239  
Farmer Mac II Guaranteed Securities
    40,860       34,802  
Rural Utilities AgVantage
    14,393       14,240  
Total off-balance sheet Farmer Mac Guaranteed Securities
  $ 3,827,163     $ 4,486,281  

For those securities issued or modified on or after January 1, 2003, Farmer Mac has recorded a liability for its obligation to stand ready under the guarantee in the guarantee and commitment obligation on the condensed consolidated balance sheet.  This liability approximated $20.2 million as of June 30, 2010 and $33.9 million as of December 31, 2009.  Upon adoption of the new consolidation guidance on January 1, 2010, Farmer Mac eliminated $15.5 million of the guarantee and commitment obligation related to the consolidated trusts.  During second quarter 2010, Farmer Mac deconsolidated $414.5 million of certain securitization trusts created when loans subject to LTSPCs were converted to Farmer Mac I Guaranteed Securities because Farmer Mac was no longer determined to be the primary beneficiary when the counterparty to the transaction ceased being a related party as a result of changes to the membership of Farmer Mac’s board of directors.  This deconsolidation resulted in an increase to the guarantee and commitment obligation of $2.7 million as of June 30, 2010.  See Note 1(g) for more information.  As of June 30, 2010, the weighted-average remaining maturity of all loans underlying off-balance sheet Farmer Mac Guaranteed Securities, excluding AgVantage securities, was 14.1 years.  For information on Farmer Mac’s methodology for determining the reserve for losses on off-balance sheet Farmer Mac Guaranteed Securities, see Note 1(b).

 
-34-

 

In the future, Farmer Mac will provide a guarantee in connection with the issuance of Farmer Mac II Guaranteed Securities only to the extent that Farmer Mac or Farmer Mac II LLC is approached or referred by an investor. Farmer Mac will not issue Farmer Mac II Guaranteed Securities to Farmer Mac II LLC in the future.

LTSPCs

An LTSPC is a commitment by Farmer Mac to purchase eligible loans from a segregated pool of loans under enumerated circumstances, either for cash or in exchange for Farmer Mac Guaranteed Securities, on one or more undetermined future dates.  As consideration for its assumption of the credit risk on loans underlying an LTSPC, Farmer Mac receives a commitment fee payable monthly in arrears in an amount approximating what would have been the guarantee fee if the transaction were structured as Farmer Mac Guaranteed Securities.

The maximum principal amount of potential undiscounted future payments that Farmer Mac could be requested to make under all LTSPCs, not including offsets provided by any recourse provisions, recoveries from third parties or collateral for the underlying loans, was $1.7 billion as of June 30, 2010 and $2.2 billion as of December 31, 2009.

As of June 30, 2010, the weighted-average remaining maturity of all loans underlying LTSPCs was 14.4 years.  For those LTSPCs issued or modified on or after January 1, 2003, Farmer Mac has recorded a liability for its obligation to stand ready under the commitment in the guarantee and commitment obligation on the condensed consolidated balance sheet.  This liability approximated $12.5 million as of June 30, 2010 and $14.7 million as of December 31, 2009.

Note 6.
Stockholders’ Equity and Mezzanine Equity

Common Stock

Farmer Mac has three classes of common stock outstanding:
 
· 
Class A Voting Common Stock, which may be held only by banks, insurance companies and other financial institutions or similar entities that are not institutions of the Farm Credit System.  By federal statute, no holder of Class A Voting Common Stock may directly or indirectly be a beneficial owner of more than 33 percent of the outstanding shares of that class of stock;
· 
Class B Voting Common Stock, which may be held only by institutions of the Farm Credit System.  There are no restrictions on the maximum holdings of Class B Voting Common Stock; and

 
-35-

 

·
Class C Non-Voting Common Stock, which has no ownership restrictions.

From fourth quarter 2004 through fourth quarter 2008, Farmer Mac paid a quarterly dividend of $0.10 per share on all classes of the Corporation’s common stock.  From first quarter 2009 through second quarter 2010, Farmer Mac paid a quarterly dividend of $0.05 per share on all classes of the Corporation’s common stock.  On August 5, 2010, Farmer Mac’s board of directors declared a quarterly dividend of $0.05 per share on the Corporation’s common stock that is scheduled to be paid on September 30, 2010.  Farmer Mac’s ability to declare and pay a dividend could be restricted if it failed to comply with regulatory capital requirements.

Preferred Stock

During 2010 and 2009, Farmer Mac had two series of preferred stock outstanding:
 
·
Series B preferred stock, which was newly issued on September 30, 2008 and on December 15, 2008, was temporary equity and is reported as Mezzanine Equity on the condensed consolidated balance sheets because it contained redemption features that, although remote, were not solely within the control of Farmer Mac, was repurchased and retired on January 25, 2010 such that none was outstanding on June 30, 2010; and
·
Series C preferred stock, which was newly issued during fourth quarter 2008 and during 2009, is a component of Stockholders’ Equity on the condensed consolidated balance sheets.

The Series C preferred stock was issued pursuant to an initiative under which any participant who used Farmer Mac for a credit enhancement or purchase transaction in excess of $20.0 million was required to purchase an equity interest in Farmer Mac in the form of shares of Series C preferred stock, thereby enabling Farmer Mac to raise additional capital to support its mission of providing liquidity and lending capacity to agricultural and rural utilities lenders.  Farmer Mac sold the 57,578 shares of Series C preferred stock without registration under the Securities Act of 1933, as amended, in reliance upon the exemption provided by Section 3(a)(2), for an aggregate purchase price of $57.6 million or $1,000 per share.  There were 57,578 shares of Series C preferred stock outstanding as of June 30, 2010, all held by the National Rural Utilities Cooperative Finance Corporation (“National Rural”).  This initiative that required participants to purchase Series C preferred stock ended in fourth quarter 2009.

Farmer Mac’s ability to declare and pay dividends on its outstanding preferred stock could be restricted if it failed to comply with regulatory capital requirements.  All series of Farmer Mac’s preferred stock are included as components of core capital for regulatory and statutory capital compliance measurements.

Non-Controlling Interest in Subsidiary

On January 25, 2010, Farmer Mac completed a private offering of $250.0 million aggregate face amount of securities issued by a newly formed Delaware statutory trust.  The trust securities represent undivided beneficial ownership interests in 250,000 shares of non-cumulative perpetual preferred stock (the “Company Preferred Stock”) of Farmer Mac’s subsidiary, Farmer Mac II LLC, a Delaware limited liability company.  The Company Preferred Stock has a liquidation preference of $1,000 per share.

 
-36-

 

The $250.0 million of proceeds from the offering were used by the trust to purchase the Company Preferred Stock from Farmer Mac.  Farmer Mac II LLC issued its Company Preferred Stock and its common equity interest to Farmer Mac as consideration for the contribution by Farmer Mac to Farmer Mac II LLC of substantially all of the assets, in excess of $1.1 billion, comprising the Farmer Mac II program business.  Farmer Mac used the proceeds from the sale of the Company Preferred Stock to the Trust to repurchase and retire Farmer Mac’s outstanding Series B preferred stock, which had an aggregate liquidation preference of $150.0 million, and for general corporate purposes.  The Company Preferred Stock is permanent equity of Farmer Mac II LLC and presented as “Non-controlling interest – preferred stock” within permanent equity on the consolidated balance sheets of Farmer Mac.

Statutory and Regulatory Capital Requirements

Farmer Mac is subject to, and as of June 30, 2010 was in compliance with, its three statutory and regulatory capital requirements:
 
· 
Minimum capital – Farmer Mac’s minimum capital level is equal to the sum of 2.75 percent of Farmer Mac’s aggregate on-balance sheet assets, as calculated for regulatory purposes, plus 0.75 percent of the aggregate off-balance sheet obligations of Farmer Mac, including Farmer Mac Guaranteed Securities and LTSPCs;
· 
Critical capital – Farmer Mac’s critical capital level is equal to 50 percent of the minimum capital requirement at that time; and
· 
Risk-based capital – the Farm Credit Administration (“FCA”) has established a risk-based capital stress test for Farmer Mac.

As of June 30, 2010, Farmer Mac’s minimum and critical capital requirements were $235.4 million and $117.7 million, respectively, and Farmer Mac’s core capital level (common and preferred stock outstanding plus non-controlling interest – preferred stock, additional paid-in-capital and retained earnings) was $442.0 million, $206.6 million above the minimum capital requirement and $324.3 million above the critical capital requirement.  As of December 31, 2009, Farmer Mac’s minimum and critical capital requirements were $217.0 million and $108.5 million, respectively, and its actual core capital level was $337.2 million, $120.2 million above the minimum capital requirement and $228.7 million above the critical capital requirement.

Based on the risk-based capital stress test, Farmer Mac’s risk-based capital requirement as of June 30, 2010 was $29.9 million and Farmer Mac’s regulatory capital (core capital plus the allowance for losses) of $461.0 million exceeded that requirement by approximately $431.1 million.  See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Regulatory Matters” for more information about proposed changes to the risk-based capital stress test applicable to Farmer Mac.

 
-37-

 

Note 7.
Fair Value Disclosure

Fair Value Measurement

Effective January 1, 2008, Farmer Mac adopted FASB guidance on fair value measurements, which defines fair value, establishes a hierarchy for ranking fair value measurements, and expands disclosures about fair value measurements.  Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (also referred to as an exit price).

In determining fair value, Farmer Mac uses various valuation approaches, including market, income and/or cost approaches.  The fair value hierarchy requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.  When available, the fair value of Farmer Mac’s financial instruments is based on quoted market prices, valuation techniques that use observable market-based inputs or unobservable inputs that are corroborated by market data.  Pricing information obtained from third parties is internally validated for reasonableness prior to use in the consolidated financial statements.

 
-38-

 
 
When observable market prices are not readily available, Farmer Mac estimates fair value using techniques that rely on alternate market data or internally-developed models using significant inputs that are generally less readily observable.  Market data includes prices of financial instruments with similar maturities and characteristics, interest rate yield curves, measures of volatility and prepayment rates.  If market data needed to estimate fair value is not available, Farmer Mac estimates fair value using internally-developed models that employ a discounted cash flow approach.  Even when market assumptions are not readily available, Farmer Mac’s assumptions reflect those that market participants would likely use in pricing the asset or liability at the measurement date.

The fair value hierarchy ranks the quality and reliability of the information used to determine fair values.  The hierarchy gives highest priority to unadjusted quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs.  The standard describes the following three levels used to classify fair value measurements:

Level 1
Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.
 
Level 2
Quoted prices in markets that are not active or financial instruments for which all significant inputs are observable, either directly or indirectly.
 
Level 3 
Prices or valuations that require unobservable inputs that are significant to the fair value measurement.

Farmer Mac performed a detailed analysis of the assets and liabilities carried at fair value to determine the appropriate level based on the transparency of the inputs used in the valuation techniques.  In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy.  In such cases, an instrument’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement.  Farmer Mac’s assessment of the significance of a particular input to the fair value measurement of an instrument requires judgment and consideration of factors specific to the instrument.  While Farmer Mac believes its valuation methods are appropriate and consistent with those of other market participants, using different methodologies or assumptions to determine fair value could result in a materially different estimate of the fair value of some financial instruments.

The following is a description of the fair value techniques used for instruments measured at fair value as well as the general classification of such instruments pursuant to the valuation hierarchy described above.  Fair value measurements related to financial instruments that are reported at fair value in the consolidated financial statements each period are referred to as recurring fair value measurements.  Fair value measurements related to financial instruments that are not reported at fair value each period but are subject to fair value adjustments in certain circumstances are referred to as non-recurring fair value measurements.

Recurring Fair Value Measurements and Classification

Available-for-Sale and Trading Investment Securities

The fair value of investments in U.S. Treasuries is based on unadjusted quoted prices in active markets.  Farmer Mac classifies these fair value measurements as level 1.

 
-39-

 

For a significant portion of Farmer Mac’s investment portfolio, including most asset-backed securities, corporate debt securities, Government/GSE guaranteed mortgage-backed securities and preferred stock issued by GSEs, fair value is primarily determined using a reputable and nationally recognized third party pricing service.  The prices obtained are non-binding and generally representative of recent market trades.  The fair value of certain asset-backed and Government guaranteed mortgage-backed securities are estimated based on quotations from brokers or dealers.  Farmer Mac corroborates its primary valuation source by obtaining a secondary price from another independent third party pricing service.  Farmer Mac classifies these fair value measurements as level 2.

For investment securities that are thinly traded or not quoted, Farmer Mac estimates fair value using internally-developed models that employ a discounted cash flow approach.  Farmer Mac maximizes the use of observable market data, including prices of financial instruments with similar maturities and characteristics, duration, interest rate yield curves, measures of volatility and prepayment rates.  Farmer Mac generally considers a market to be thinly traded or not quoted if the following conditions exist: (1) there are few transactions for the financial instruments; (2) the prices in the market are not current; (3) the price quotes vary significantly either over time or among independent pricing services or dealers; or (4) there is a limited availability of public market information.  Farmer Mac classifies these fair value measurements as level 3.

During first quarter 2010, Farmer Mac transferred its investments in the subordinated debt and preferred stock of CoBank, ACB and its investment in the preferred stock of AgFirst Farm Credit Bank, with par values of $70.0 million, $88.5 million and $88.0 million, respectively, as of December 31, 2009, from level 3 measurements to level 2 measurements.  Taking into consideration its own recently executed trades during first quarter 2010, along with an increase in observable trading activity for these securities, Farmer Mac determined that the best estimates of fair value for these securities as of March 31, 2010 and June 30, 2010 were the fair values provided by an independent third party pricing service.  Farmer Mac transferred these securities out of level 3 based on their fair values as of the beginning of the first quarter 2010.

Available-for-Sale and Trading Farmer Mac and USDA Guaranteed Securities

Farmer Mac estimates the fair value of its Farmer Mac and USDA Guaranteed Securities by discounting the projected cash flows of these instruments at projected interest rates.  The fair values are based on the present value of expected cash flows using management’s best estimate of certain key assumptions, which include prepayment speeds, forward yield curves and discount rates commensurate with the risks involved.  Farmer Mac classifies these measurements as level 3 because there is limited market activity and therefore little or no price transparency.  On a sample basis, Farmer Mac corroborates the fair value of it Farmer Mac and USDA Guaranteed Securities by obtaining a secondary valuation from an independent third party service.

Upon the adoption of the new consolidation guidance on January 1, 2010, Farmer Mac was deemed to be the primary beneficiary of certain VIEs where Farmer Mac held beneficial interests in trusts used as vehicles for the securitization of agricultural real estate mortgage loans or rural utilities loans.  Prior to 2010, Farmer Mac presented these beneficial interests as “Farmer Mac Guaranteed Securities” on the condensed consolidated balance sheet and reported them at their fair value.  Upon consolidation, Farmer Mac transferred these assets from “Farmer Mac Guaranteed Securities” to “Loans held for investment in consolidated trusts.”  Going forward, these loans will be reported at their amortized cost and will no longer be included in recurring fair value measurements.  Farmer Mac transferred these securities out of level 3 based on their fair values as of the beginning of the quarterly reporting period.

 
-40-

 
 
Financial Derivatives

The fair value of exchange-traded U.S. Treasury futures is based on unadjusted quoted prices for identical financial instruments.  Farmer Mac classifies these fair value measurements as level 1.

Farmer Mac’s derivatives portfolio consists primarily of interest rate swaps, credit default swaps and forward sales contracts on the debt of other GSEs.  Farmer Mac estimates the fair value of these financial instruments based upon the counterparty valuations.  Farmer Mac internally values its derivative portfolio using a discounted cash flow valuation technique and obtains a secondary valuation for certain interest rate swaps to corroborate the counterparty valuations.  Farmer Mac also regularly reviews the counterparty valuations as part of the collateral exchange process.  Farmer Mac classifies these fair value measurements as level 2.

Certain basis swaps are nonstandard interest rate swap structures and are therefore internally modeled using significant assumptions and unobservable inputs, resulting in level 3 classification.  Farmer Mac uses a discounted cash flow valuation technique, using management’s best estimate of certain key assumptions, which include prepayment speeds, forward yield curves and discounted rates commensurate with the risks involved.

As of June 30, 2010 and December 31, 2009, the consideration of credit risk related to both Farmer Mac and the counterparties resulted in an adjustment to the valuations of Farmer Mac’s derivative portfolio of $(1.1) million and $0.7 million, respectively.  See Note 1(c) for further information regarding Farmer Mac’s derivative portfolio.

Nonrecurring Fair Value Measurements and Classification

Loans Held for Sale

Loans held for sale are reported at the lower of cost or fair value in the consolidated balance sheets.  Farmer Mac internally models the fair value of loans by discounting the projected cash flows of these instruments at projected interest rates.  The fair values are based on the present value of expected cash flows using management’s best estimate of certain key assumptions, which include prepayment speeds, forward yield curves and discount rates commensurate with the risks involved.  The fair values of these instruments are classified as level 3 measurements.  As of June 30, 2010, Farmer Mac recorded an adjustment of $2.3 million to report loans held for sale at the lower of cost or fair value.  As of December 31, 2009, Farmer Mac recorded an adjustment of $0.1 million to report loans held for sale at the lower of cost or fair value.
 
 
-41-

 

Loans Held for Investment

Certain loans in Farmer Mac’s held for investment loan portfolio are measured at fair value when they are determined to be impaired.  Impaired loans are reported at fair value less estimated cost to sell.  The fair value of the loan is generally based on the fair value of the underlying property, which is determined by third-party appraisals when available.  When third-party appraisals are not available, fair value is estimated based on factors such as prices for comparable properties in similar geographical areas and/or assessment through observation of such properties.  Farmer Mac classifies these fair values as level 3 measurements.

Real Estate Owned

Farmer Mac initially records REO properties at fair value less costs to sell and subsequently records them at the lower of carrying value or fair value less costs to sell.  The fair value of REO is determined by third-party appraisals when available.  When third-party appraisals are not available, fair value is estimated based on factors such as prices for comparable properties in similar geographical areas and/or assessment through observation of such properties.  Farmer Mac classifies the REO fair values as level 3 measurements.

Fair Value Classification and Transfers

As of June 30, 2010, Farmer Mac’s assets and liabilities recorded at fair value include financial instruments valued at $3.2 billion whose fair values were estimated by management in the absence of readily determinable fair values (i.e., level 3).  These financial instruments measured as level 3 represented 45 percent of the total assets and 70 percent of financial instruments measured at fair value as of June 30, 2010.  As of December 31, 2009, Farmer Mac’s asset and liabilities recorded at fair value included financial instruments valued at $3.7 billion whose fair values were estimated by management in the absence of readily determinable fair values (i.e., level 3).  These financial instruments measured as level 3 represented 61 percent of the total assets and 80 percent of financial instruments measured at fair value as of December 31, 2009.

The following tables present information about Farmer Mac’s asset and liabilities measured at fair value on a recurring and nonrecurring basis as of June 30, 2010 and December 31, 2009, respectively, and indicate the fair value hierarchy of the valuation techniques used by Farmer Mac to determine such fair value.

 
-42-

 
 
Assets and Liabilities Measured at Fair Value as of June 30, 2010


   
Level 1
   
Level 2
   
Level 3
   
Total
 
   
(in thousands)
 
Recurring:
                       
Assets:
               
Investment securities:
               
Available-for-sale:
               
Floating rate auction-rate certificates backed by Government guaranteed student loans
  $ -     $ -     $ 63,344     $ 63,344  
Floating rate asset-backed securities
    -       19,264       -       19,264  
Floating rate corporate debt securities
    -       195,916       -       195,916  
Floating rate Government/GSE guaranteed mortgage-backed securities
    -       408,291       -       408,291  
Fixed rate GSE guaranteed mortgage-backed securities
    -       5,423       -       5,423  
Floating rate GSE subordinated debt
    -       55,145       -       55,145  
Floating rate GSE preferred stock
    -       87,086       -       87,086  
U.S. Treasuries
    335,415       -       -       335,415  
Senior agency debt
    -       5,492       -       5,492  
Total available-for-sale
    335,415       776,617       63,344       1,175,376  
Trading:
                               
Floating rate asset-backed securities
    -       -       1,412       1,412  
Fixed rate GSE preferred stock
    -       80,544       -       80,544  
Total trading
    -       80,544       1,412       81,956  
Total investment securities
    335,415       857,161       64,756       1,257,332  
Farmer Mac Guaranteed Securities:
                               
Available-for-sale:
                               
Farmer Mac I
    -       -       47,821       47,821  
Farmer Mac II
    -       -       40,436       40,436  
Rural Utilities
    -       -       1,629,883       1,629,883  
Total available-for-sale
    -       -       1,718,140       1,718,140  
Trading - Farmer Mac II
    -       -       -       -  
Total Farmer Mac Guaranteed Securities
    -       -       1,718,140       1,718,140  
USDA Guaranteed Securities:
                               
Available-for-sale
    -       -       880,424       880,424  
Trading
    -       -       386,496       386,496  
Total USDA Guaranteed Securities
    -       -       1,266,920       1,266,920  
Financial derivatives
    -       37,121       -       37,121  
Total Assets at fair value
  $ 335,415     $ 894,282     $ 3,049,816     $ 4,279,513  
Liabilities:
                               
Financial derivatives
  $ (28 )   $ (128,969 )   $ (3,678 )   $ (132,675 )  
Total Liabilities at fair value
  $ (28 )   $ (128,969 )   $ (3,678 )   $ (132,675 )  
Nonrecurring:
                               
Assets:
                               
Loans held for sale, at lower of cost or fair value
  $ -     $ -     $ 163,065     $ 163,065  
Loans held for investment, at fair value
    -       -       4,256       4,256  
Total Assets at fair value
  $ -     $ -     $ 167,321     $ 167,321  
 
 
-43-

 

Assets and Liabilities Measured at Fair Value as of December 31, 2009

 
   
Level 1
   
Level 2
   
Level 3
   
Total
 
 
 
(in thousands)
 
Recurring:  
     
Assets:
                       
Investment securities:
                       
Available-for-sale:
                       
Floating rate auction-rate certificates backed by Government guaranteed student loans
  $ -     $ -     $ 72,884     $ 72,884  
Floating rate asset-backed securities
    -       58,143       -       58,143  
Floating rate corporate debt securities
    -       245,605       -       245,605  
Floating rate Government/GSE guaranteed mortgage-backed securities
    -       404,221       -       404,221  
Fixed rate GSE guaranteed mortgage-backed securities
    -       6,537       -       6,537  
Floating rate GSE subordinated debt
    -       -       47,562       47,562  
Fixed rate GSE preferred stock
    -       -       89,211       89,211  
U.S. Treasuries
    117,760       -       -       117,760  
Total available-for-sale
    117,760       714,506       209,657       1,041,923  
Trading:
                               
Floating rate asset-backed securities
    -       -       1,824       1,824  
Fixed rate GSE preferred stock
    -       -       88,148       88,148  
Total trading
    -       -       89,972       89,972  
Total investment securities
    117,760       714,506       299,629       1,131,895  
Farmer Mac Guaranteed Securities:
                               
Available-for-sale:
                               
Farmer Mac I
    -       -       56,864       56,864  
Farmer Mac II
    -       -       764,792       764,792  
Rural Utilities
    -       -       1,703,211       1,703,211  
Total available-for-sale
    -       -       2,524,867       2,524,867  
Trading:
                               
Farmer Mac II
    -       -       422,681       422,681  
Rural Utilities
    -       -       451,448       451,448  
Total trading
    -       -       874,129       874,129  
Total Farmer Mac Guaranteed Securities
    -       -       3,398,996       3,398,996  
                                 
Financial derivatives
    3       15,037       -       15,040  
Total Assets at fair value
  $ 117,763     $ 729,543     $ 3,698,625     $ 4,545,931  
                                 
Liabilities:
                               
Financial derivatives
  $ -     $ 103,714     $ 3,653     $ 107,367  
Total Liabilities at fair value
  $ -     $ 103,714     $ 3,653     $ 107,367  
Nonrecurring:
                               
Assets:
                               
Loans held for sale
  $ -     $ -     $ 28,505     $ 28,505  
Total Assets at fair value
  $ -     $ -     $ 28,505     $ 28,505  
 
 
-44-

 
 
The following tables present additional information about assets and liabilities measured at fair value on a recurring and nonrecurring basis for which Farmer Mac has used significant level 3 inputs to determine fair value. Net transfers in and/or out of level 3 are based on the fair values of the assets and liabilities as of the beginning of the quarterly reporting period.
 
Level 3 Assets and Liabilities Measured at Fair Value for the Three Months Ended June 30, 2010

   
Beginning
Balance
   
Purchases,
Sales,
Issuances and
Settlements,
net
   
Realized and
Unrealized
Gains/(Losses)
included in
Income
   
Unrealized
Gains/(Losses)
included in Other
Comprehensive
Income
   
Net Transfers In
and/or Out
   
Ending Balance
 
 
 
(in thousands)
 
Recurring:  
     
Assets:
                                   
Investment securities:
                                   
Available-for-sale:
                                   
Floating rate auction-rate certificates backed by Government guaranteed student loans
  $ 62,256     $ -     $ -     $ 1,088     $ -     $ 63,344  
Floating rate GSE subordinated debt
    -       -       -       -       -       -  
Fixed rate GSE preferred stock
    -       -       -       -       -       -  
Total available-for-sale investment securities
    62,256       -       -       1,088       -       63,344  
Trading:
                                               
Floating rate asset-backed securities(1)
    1,452       (166 )     126       -       -       1,412  
Fixed rate GSE preferred stock
    -       -       -       -       -       -  
Total trading investment securities
    1,452       (166 )     126       -       -       1,412  
Total investment securities
    63,708       (166 )     126       1,088       -       64,756  
Farmer Mac Guaranteed Securities:
                                               
Available-for-sale:
                                               
Farmer Mac I
    48,080       (1,508 )     -       1,249       -       47,821  
Farmer Mac II
    39,692       502       -       242       -       40,436  
Rural Utilities
    1,706,155       (87,799 )     -       11,527       -       1,629,883  
Total available-for-sale
    1,793,927       (88,805 )     -       13,018       -       1,718,140  
Trading:
                                               
Farmer Mac II
    -       -       -       -       -       -  
Rural Utilities
    -       -       -       -       -       -  
Total trading
    -       -       -       -       -       -  
Total Farmer Mac Guaranteed Securities
    1,793,927       (88,805 )     -       13,018       -       1,718,140  
USDA Guaranteed Securities:
                                               
Available-for-sale
    781,823       84,682       -       13,919       -       880,424  
Trading(2)
    407,844       (26,931 )     5,583       -       -       386,496  
Total USDA Guaranteed Securities
    1,189,667       57,751       5,583       13,919       -       1,266,920  
Total Assets at fair value
  $ 3,047,302     $ (31,220 )   $ 5,709     $ 28,025     $ -     $ 3,049,816  
Liabilities:
                                               
Financial derivatives(3)
  $ (3,591 )   $ -     $ (87 )   $ -     $ -     $ (3,678 )
Total Liabilities at fair value
  $ (3,591 )   $ -     $ (87 )   $ -     $ -     $ (3,678 )
Nonrecurring:
                                               
Assets:
                                               
Loans held for sale, at lower of cost or fair value
  $ 85,248     $ -     $ 90     $ -     $ 77,727     $ 163,065  
Loans held for investment, at fair value
    10,522       -       (584 )     -       (5,682 )     4,256  
Total Assets at fair value
  $ 95,770     $ -     $ (494 )   $ -     $ 72,045     $ 167,321  

(1) Unrealized gains are attributable to assets still held as of June 30, 2010 and are recorded in gains on trading assets.
(2) Includes unrealized gains of $4.0 million attributable to assets still held as of June 30, 2010 that are recorded in gains on trading assets.
(3) Unrealized losses are attributable to liabilities still held as of June 30, 2010 and are recorded in (losses)/gains on financial derivatives.
 
 
-45-

 

Level 3 Assets and Liabilities Measured at Fair Value for the Three Months Ended June 30, 2009


   
Beginning
Balance
   
Purchases,
Sales,
Issuances and
Settlements,
net
   
Realized and
Unrealized
Gains/(Losses)
included in
Income
   
Unrealized
Gains/(Losses)
included in Other
Comprehensive
Income
   
Net Transfers In
and/or Out
   
Ending Balance
 
 
 
(in thousands)
 
Recurring:  
     
Assets:
                                   
Investment Securities:
                                   
Available-for-sale:
                                   
Floating rate auction-rate certificates backed by Government guaranteed student loans
  $ 67,636     $ -     $ -     $ 1,080     $ -     $ 68,716  
Floating rate GSE subordinated debt
    -       -       -       5,055       49,132       54,187  
Total available-for-sale
    67,636       -       -       6,135       49,132       122,903  
Trading:
                                               
Floating rate asset-backed securities(1)
    1,962       (205 )     180       -       -       1,937  
Fixed rate GSE preferred stock(1)
    176,790       (333 )     7,043       -       -       183,500  
Total trading
    178,752       (538 )     7,223       -       -       185,437  
Total investment securities
    246,388       (538 )     7,223       6,135       49,132       308,340  
Farmer Mac Guaranteed Securities:
                                               
Available-for-sale:
                                               
Farmer Mac I
    63,216       (6,570 )     -       (1,014 )     -       55,632  
Farmer Mac II
    588,996       56,760       -       (1,184 )     -       644,572  
Rural Utilities
    912,695       500,000       -       11,382       -       1,424,077  
Total available-for-sale
    1,564,907       550,190       -       9,184       -       2,124,281  
Trading:
                                               
Farmer Mac II(2)
    476,681       (23,428 )     (5,296 )     -       -       447,957  
Rural Utilities(1)
    449,066       -       (1,892 )     -       -       447,174  
Total trading
    925,747       (23,428 )     (7,188 )     -       -       895,131  
Total Farmer Mac Guaranteed Securities
    2,490,654       526,762       (7,188 )     9,184       -       3,019,412  
Total Assets at fair value
  $ 2,737,042     $ 526,224     $ 35     $ 15,319     $ 49,132     $ 3,327,752  
Liabilities:
                                               
Financial Derivatives(3)
  $ (4,236 )   $ -     $ 886     $ -     $ -     $ (3,350 )
Total Liabilities at fair value
  $ (4,236 )   $ -     $ 886     $ -     $ -     $ (3,350 )
Nonrecurring:
                                               
Assets:
                                               
REO
  $ -     $ -     $ -     $ -     $ 43,260     $ 43,260  
Total Assets at fair value
  $ -     $ -     $ -     $ -     $ 43,260     $ 43,260  

(1) Unrealized gains/(losses) are attributable to assets still held as of June 30, 2009 and are recorded in gains on trading assets.
(2) Includes unrealized gains of approximately $4.9 million attributable to assets still held as of June 30, 2009 that are recorded in gains on trading assets.
(3) Unrealized gains are attributable to liabilities still held as of June 30, 2009 and are recorded in (losses)/gains on financial derivatives.
 
 
-46-

 

Level 3 Assets and Liabilities Measured at Fair Value for the Six Months Ended June 30, 2010

       
Beginning
Balance
   
Purchases,
Sales,
Issuances and
Settlements,
net
   
Realized and
Unrealized
Gains/(Losses)
included in
Income
   
Unrealized
Gains/(Losses)
included in Other
Comprehensive
Income
   
Net Transfers In
and/or Out
   
Ending Balance
 
   
 
(in thousands)
 
Recurring:  
     
Assets:
                                   
Investment securities:
                                   
Available-for-sale:
                                   
Floating rate auction-rate certificates backed by Government guaranteed student loans
  $ 72,884     $ -     $ -     $ (9,540 )   $ -     $ 63,344  
Floating rate GSE subordinated debt
    47,562       -       -       -       (47,562 )     -  
Fixed rate GSE preferred stock
    89,211       -       -       -       (89,211 )     -  
Total available-for-sale investment securities
    209,657       -       -       (9,540 )     (136,773 )     63,344  
Trading:
                                               
Floating rate asset-backed securities(1)
    1,824       (402 )     (10 )     -       -       1,412  
Fixed rate GSE preferred stock
    88,148       -               -       (88,148 )     -  
Total trading investment securities
    89,972       (402 )     (10 )     -       (88,148 )     1,412  
Total investment securities
    299,629       (402 )     (10 )     (9,540 )     (224,921 )     64,756  
Farmer Mac Guaranteed Securities:
                                               
Available-for-sale:
                                               
Farmer Mac I
    56,864       (5,265 )     -       1,607       (5,385 )     47,821  
Farmer Mac II
    764,792       197       -       (1,369 )     (723,184 )     40,436  
Rural Utilities
    1,703,211       (87,799 )     -       14,471       -       1,629,883  
Total available-for-sale
    2,524,867       (92,867 )     -       14,709       (728,569 )     1,718,140  
Trading:
                                               
Farmer Mac II
    422,681       -               -       (422,681 )     -  
Rural Utilities
    451,448       -       -       -       (451,448 )     -  
Total trading
    874,129       -       -       -       (874,129 )     -  
Total Farmer Mac Guaranteed Securities
    3,398,996       (92,867 )     -       14,709       (1,602,698 )     1,718,140  
USDA Guaranteed Securities:
                                               
Available-for-sale
    -       137,579       -       19,661       723,184       880,424  
Trading(2)
    -       (46,789 )     10,604       -       422,681       386,496  
Total USDA Guaranteed Securities
    -       90,790       10,604       19,661       1,145,865       1,266,920  
Total Assets at fair value
  $ 3,698,625     $ (2,479 )   $ 10,594     $ 24,830     $ (681,754 )   $ 3,049,816  
Liabilities:
                                               
Financial derivatives(3)
  $ (3,653 )   $ -     $ (25 )   $ -     $ -     $ (3,678 )
Total Liabilities at fair value
  $ (3,653 )   $ -     $ (25 )   $ -     $ -     $ (3,678 )
Nonrecurring:
                                               
Assets:
                                               
Loans held for sale, at lower of cost or fair value
  $ 28,505     $ -     $ (2,184 )   $ -     $ 136,744     $ 163,065  
Loans held for investment, at fair value
    -       -       (668 )     -       4,924       4,256  
Total Assets at fair value
  $ 28,505     $ -     $ (2,852 )   $ -     $ 141,668     $ 167,321  

(1) Unrealized losses are attributable to assets still held as of June 30, 2010 and are recorded in gains on trading assets.
(2) Includes unrealized gains of $8.0 million attributable to assets still held as of June 30, 2010 that are recorded in gains on trading assets.
(3) Unrealized losses are attributable to liabilities still held as of June 30, 2010 and are recorded in (losses)/gains on financial derivatives.
 
 
-47-

 
 
Level 3 Assets and Liabilities Measured at Fair Value for the Six Months Ended June 30, 2009


      
Beginning
Balance
   
Purchases,
Sales,
Issuances and
 Settlements,
net
   
Realized and
Unrealized
Gains/(Losses)
included in
Income
   
Unrealized
 Gains/(Losses)
included in Other
Comprehensive
Income
   
Net Transfers In
and/or Out
   
Ending Balance
 
  
 
(in thousands)
 
Recurring:  
     
Assets:
                                   
Investment Securities:
                                   
Available-for-sale:
                                   
Floating rate auction-rate certificates backed by Government guaranteed student loans
  $ 178,577     $ (119,850 )   $ -     $ 9,989     $ -     $ 68,716  
Floating rate GSE subordinated debt
    -       -       -       5,055       49,132       54,187  
Total available-for-sale
    178,577       (119,850 )     -       15,044       49,132       122,903  
Trading:
                                               
Floating rate asset-backed securities(1)
    2,211       (473 )     199       -       -       1,937  
Fixed rate GSE preferred stock(1)
    161,552       (681 )     22,629       -       -       183,500  
Total trading
    163,763       (1,154 )     22,828       -       -       185,437  
Total investment securities
    342,340       (121,004 )     22,828       15,044       49,132       308,340  
Farmer Mac Guaranteed Securities:
                                               
Available-for-sale:
                                               
Farmer Mac I
    349,292       (3,681 )     -       (1,967 )     (288,012 )     55,632  
Farmer Mac II
    522,565       118,251       -       3,756       -       644,572  
Rural Utilities
    639,837       770,000       -       14,240       -       1,424,077  
Total available-for-sale
    1,511,694       884,570       -       16,029       (288,012 )     2,124,281  
Trading:
                                               
Farmer Mac II(2)
    496,863       (47,342 )     (1,564 )     -       -       447,957  
Rural Utilities(1)
    442,687       (5,909 )     10,396       -       -       447,174  
Total trading
    939,550       (53,251 )     8,832       -       -       895,131  
Total Farmer Mac Guaranteed Securities
    2,451,244       831,319       8,832       16,029       (288,012 )     3,019,412  
Total Assets at fair value
  $ 2,793,584     $ 710,315     $ 31,660     $ 31,073     $ (238,880 )   $ 3,327,752  
Liabilities:
                                               
Financial Derivatives(3)
  $ (3,719 )   $ -     $ 369     $ -     $ -     $ (3,350 )
Total Liabilities at fair value
  $ (3,719 )   $ -     $ 369     $ -     $ -     $ (3,350 )
Nonrecurring:
                                               
Assets:
                                               
REO
  $ -     $ -     $ -     $ -     $ 43,260     $ 43,260  
Total Assets at fair value
  $ -     $ -     $ -     $ -     $ 43,260     $ 43,260  

(1) Unrealized gains are attributable to assets still held as of June 30, 2009 and are recorded in gains on trading assets.
(2) Includes unrealized losses of approximately $0.9 million attributable to assets still held as of June 30, 2009 that are recorded in gains on trading assets.
(3) Unrealized gains are attributable to liabilities still held as of June 30, 2009 and are recorded in (losses)/gains on financial derivatives.

Fair Value Option

FASB guidance on the fair value option for financial instruments permits entities to make a one-time irrevocable election to report financial instruments at fair value with changes in fair value recorded in earnings as the occur. One of the FASB’s stated objectives of this guidance was to improve financial reporting by providing entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions.

Farmer Mac made no fair value option elections for the three and six months ended June 30, 2010 and 2009. For the three and six months ended June 30, 2010, Farmer Mac recorded net gains on trading assets of $4.9 million and $8.4 million, respectively, for changes in fair values of assets selected for the fair value option, compared to $(0.1) million and $31.5 million for the same periods ended June 30, 2009. These gains are presented as “Gains on trading assets” in the condensed consolidated statements of operations.

 
-48-

 
 
Disclosures about Fair Value of Financial Instruments

The following table sets forth the estimated fair values and the carrying amounts for financial assets, liabilities and guarantees and commitments as of June 30, 2010 and December 31, 2009 in accordance with FASB guidance on disclosures about fair value of financial instruments.

   
June 30, 2010
   
December 31, 2009
 
   
Fair Value
   
Carrying
Amount
   
Fair Value
   
Carrying
Amount
 
   
(in thousands)
 
Financial assets:
                       
Cash and cash equivalents
  $ 325,333     $ 325,333     $ 654,794     $ 654,794  
Investment securities
    1,257,332       1,257,332       1,131,895       1,131,895  
Farmer Mac Guaranteed Securities
    1,718,140       1,718,140       3,398,996       3,398,996  
USDA Guaranteed Securities
    1,266,920       1,266,920       -       -  
Loans
    2,472,261       2,327,964       779,185       753,720  
                                 
Financial derivatives
    37,121       37,121       15,040       15,040  
Interest receivable
    72,616       72,616       67,178       67,178  
Guarantee and commitment fees receivable:
                               
LTSPCs
    13,280       13,430       14,591       15,896  
Farmer Mac Guaranteed Securities
    20,467       23,149       36,135       39,120  
Financial liabilities:
                               
Notes payable:
                               
Due within one year
    3,225,846       3,226,745       3,665,282       3,662,898  
Due after one year
    2,382,859       2,269,421       1,964,526       1,908,713  
Debt securities of consolidated trusts held by third parties
    957,761       882,629       -       -  
Financial derivatives
    132,675       132,675       107,367       107,367  
Accrued interest payable
    52,913       52,913       39,562       39,562  
Guarantee and commitment obligation:
                               
LTSPCs
    12,366       12,516       13,370       14,676  
Farmer Mac Guaranteed Securities
    17,564       20,246       30,865       33,850  

The carrying amount of cash and cash equivalents, certain short-term investment securities, interest receivable and accrued interest payable is a reasonable estimate of their approximate fair value. Farmer Mac estimates the fair value of its loans, guarantee and commitment fees receivable/obligation and notes payable by discounting the projected cash flows of these instruments at projected interest rates. The fair values are based on the present value of expected cash flows using management’s best estimate of certain key assumptions, which include prepayment speeds, forward yield curves and discount rates commensurate with the risks involved. Because the cash flows of these instruments may be interest rate path dependent, these values and projected discount rates are derived using a Monte Carlo simulation model. Different market assumptions and estimation methodologies could significantly affect estimated fair value amounts.
 
 
-49-

 
 

Note 8.
Business Segment Reporting

Farmer Mac accomplishes its congressional mission of providing liquidity and lending capacity to rural lenders through three programs – Farmer Mac I, Farmer Mac II and Rural Utilities. Prior to first quarter 2010, Farmer Mac reported its financial results as a single segment using GAAP-basis income. Beginning in first quarter 2010, Farmer Mac revised its segment financial reporting, by using core earnings, a non-GAAP financial measure, to reflect the manner in which management has begun assessing the Corporation’s performance since the contribution of substantially all of the Farmer Mac II program business to a subsidiary, Farmer Mac II LLC. Farmer Mac uses core earnings to measure corporate economic performance and develop financial plans because, in management’s view, core earnings more accurately represents Farmer Mac’s economic performance, transaction economics and business trends. Core earnings differs from GAAP net income primarily by excluding unrealized gains or losses on financial derivatives and trading assets, lower of cost or fair value adjustments on loans held for sale and other items related to the retirement of preferred stock and the amortization of premiums on assets consolidated at fair value. This non-GAAP financial measure may not be similar to non-GAAP financial measures disclosed by other companies.
 
 The financial information presented below reflects the accounts of Farmer Mac and its subsidiaries on a consolidated basis. Accordingly, the core earnings for Farmer Mac’s reportable operating segments will differ from the stand-alone financial statements of Farmer Mac’s subsidiaries. These differences will be due to various factors, including the reversal of unrealized gains and losses related to fair value changes of trading assets and financial derivatives, as well as the allocation of certain expenses such as dividends and interest expense related to the issuance of capital and the incurrence of indebtedness managed at the corporate level. The allocation of general and administrative expenses that are not directly attributable to an operating segment may also result in differences. The assets of Farmer Mac’s subsidiary Farmer Mac II LLC would be available to creditors of Farmer Mac only after all obligations owed to creditors of and equity holders in Farmer Mac II LLC had been satisfied. As of June 30, 2010, Farmer Mac II LLC held assets with a fair value of $1.3 billion, had debt outstanding of $46.0 million, had preferred stock outstanding with a liquidation preference of $250.0 million, and had $1.0 billion of common stock outstanding, all of which is held by Farmer Mac.

Management has determined that the Corporation’s operations consist of three reportable segments – Farmer Mac I, Farmer Mac II and Rural Utilities. Farmer Mac uses these three segments to generate revenue and manage business risk, and each segment is based on distinct products and distinct business activities. In addition to these three program operating segments, a corporate segment is presented. That segment represents activity in Farmer Mac’s non-program investment portfolio and other corporate activities. The segment financial results include directly attributable revenues and expenses. Corporate charges for administrative expenses that are not directly attributable to an operating segment are allocated based on headcount.

Each of the program operating segments generates revenue through purchasing loans or securities, committing to purchase loans, or guaranteeing securities backed by eligible loans. Purchases of both program and non-program assets are funded through debt issuance of various maturities. Management makes decisions about pricing, funding, guarantee and commitment fee levels, based on inherent credit risks, resource allocation and target returns on equity separately for each segment.
 
 
-50-

 
 
Under the Farmer Mac I program, Farmer Mac purchases or commits to purchase eligible mortgage loans secured by first liens on agricultural real estate, including through the issuance of LTSPCs.  Farmer Mac also guarantees securities representing interests in, or obligations secured by, pools of eligible agricultural real estate mortgage loans, and may purchase those securities.

Under the Farmer Mac II program, Farmer Mac II LLC purchases USDA-guaranteed portions of loans.  Farmer Mac currently operates only that part of the Farmer Mac II program that involves the guarantee of Farmer Mac II Guaranteed Securities, and only to the extent that either Farmer Mac or Farmer Mac II LLC is approached or referred by an investor.  Farmer Mac will not issue Farmer Mac II Guaranteed Securities to Farmer Mac II LLC in the future.

Under the Rural Utilities program, Farmer Mac’s business activities include loan purchases, guarantees and purchases of securities with respect to eligible rural utilities loans.  To date, all of the business under the Rural Utilities program has been with one lender, National Rural.

The following table presents core earnings for Farmer Mac’s reportable operating segments and a reconciliation to GAAP net income for the three and six months ended June 30, 2010 and 2009.  Farmer Mac has presented the financial information and disclosures for the prior periods to reflect the segment disclosures as if they had been in effect for all periods reported.
 
-51-

 
Core Earnings by Business Segment
For the Three Months Ended June 30, 2010

                           
Core
   
Reconciling
   
GAAP
 
   
Farmer   Mac   I
   
Farmer   Mac   II
   
Rural   Utilities
   
Corporate
   
Earnings
   
Adjustments
   
Income
 
   
(in thousands)
 
Interest income (1)
  $ 27,081     $ 13,825     $ 13,987     $ 6,390     $ 61,283     $ (3,956 )   $ 57,327  
Interest income related to consolidated   trusts owned by third parties reclassed   to guarantee fee income
    (1,282 )     -       -       -       (1,282 )     1,282       -  
Interest expense (2)
    (18,210 )     (11,262 )     (11,342 )     (3,638 )     (44,452 )     8,733       (35,719 )
Net effective spread
    7,589       2,563       2,645       2,752       15,549       6,059       21,608  
                                                         
Guarantee and commitment fees
    5,450       50       1,492       -       6,992       (1,282 )     5,710  
Other income/(expense) (3)
    411       -       -       (784 )     (373 )     (10,108 )     (10,481 )
Non-interest income/(loss)
    5,861       50       1,492       (784 )     6,619       (11,390 )     (4,771 )
                                                         
Recoveries of loan losses
    1,870       -       -       -       1,870       -       1,870  
                                                         
Reserve for losses
    (3,043 )     -       -       -       (3,043 )     -       (3,043 )
Other non-interest expense
    (3,350 )     (721 )     (1,038 )     (1,709 )     (6,818 )     -       (6,818 )
Non-interest expense (4)
    (6,393 )     (721 )     (1,038 )     (1,709 )     (9,861 )     -       (9,861 )
                                                         
Income before income taxes
    8,927       1,892       3,099       259       14,177       (5,331 )     8,846  
Income tax (expense)/benefit
    (3,124 )     (662 )     (1,085 )     2,249       (2,622 )     1,866       (756 )
Net income before dividends
    5,803       1,230       2,014       2,508       11,555       (3,465 )     8,090  
Preferred stock dividends
    -       -       -       (720 )     (720 )     -       (720 )
Net income
    5,803       1,230       2,014       1,788       10,835       (3,465 )     7,370  
Non-controlling interest
    -       -       -       (5,546 )     (5,546 )     -       (5,546 )
Segment core earnings
  $ 5,803     $ 1,230     $ 2,014     $ (3,758 )   $ 5,289     $ (3,465 )   $ 1,824  
                                                         
Total assets at carrying value
  $ 1,836,374     $ 1,324,674     $ 2,262,314     $ 1,676,128     $ -     $ -     $ 7,099,490  
Total on- and off-balance sheet program   assets at principal balance
    7,288,389       1,300,944       2,173,660       -       -       -       10,762,993  

Core   Earnings   by   Business   Segment
For   the   Three   Months   Ended   June   30,   2009

                           
Core
   
Reconciling
   
GAAP
 
   
Farmer   Mac   I
   
Farmer   Mac   II
   
Rural   Utilities
   
Corporate
   
Earnings
   
Adjustments
   
Income
 
   
(in thousands)
 
Interest income (1)
  $ 9,567     $ 11,656     $ 13,370     $ 7,049     $ 41,642     $ 108     $ 41,750  
Interest expense (2)
    (5,430 )     (9,960 )     (12,300 )     (4,096 )     (31,786 )     9,937       (21,849 )
Net effective spread
    4,137       1,696       1,070       2,953       9,856       10,045       19,901  
                                                         
Guarantee and commitment fees
    5,871       691       1,346       -       7,908       -       7,908  
Other (expense)/income (3)
    (93 )     -       -       (2,591 )     (2,684 )     21,756       19,072  
Non-interest income/(loss)
    5,778       691       1,346       (2,591 )     5,224       21,756       26,980  
                                                         
Recoveries of loan losses
    5,693       -       -       -       5,693       -       5,693  
                                                         
Recoveries of losses
    529       -       -       -       529       -       529  
Other non-interest expense
    (3,224 )     (958 )     (810 )     (2,062 )     (7,054 )     -       (7,054 )
Non-interest expense (4)
    (2,695 )     (958 )     (810 )     (2,062 )     (6,525 )     -       (6,525 )
                                                         
Income before income taxes
    12,913       1,429       1,606       (1,700 )     14,248       31,801       46,049  
Income tax (expense)/benefit
    (4,520 )     (500 )     (562 )     178       (5,404 )     (11,130 )     (16,534 )
Net income before dividends
    8,393       929       1,044       (1,522 )     8,844       20,671       29,515  
Preferred stock dividends
    -       -       -       (4,130 )     (4,130 )     -       (4,130 )
Segment core earnings
  $ 8,393     $ 929     $ 1,044     $ (5,652 )   $ 4,714     $ 20,671     $ 25,385  
                                                         
Total assets at carrying value
  $ 814,717     $ 1,108,455     $ 1,885,496     $ 1,514,016     $ -     $ -     $ 5,322,684  
Total on- and off-balance sheet program   assets at principal balance
    7,464,419       1,115,025       1,819,033       -       -       -       10,398,477  

(1)
Includes reconciling adjustments for yield maintenance income and amortization of premiums on assets consolidated at fair value to reflect core earnings amounts.
(2)
Based on effective funding cost determined for each operating segment, including the expense related to interest rate swaps, which is included in "other income" on the GAAP financial statements.
(3)
Includes reconciling adjustments for the reclassification of yield maintenance and the expense related to interest rate swaps and fair value adjustments on loans held for sale and financial derivatives.
(4)
Includes directly attributable costs and an allocation of indirectly attributable costs based on headcount.
 
-52-

 
Core Earnings by Business Segment
For the Six Months Ended June 30, 2010

                           
Core
   
Reconciling
   
GAAP
 
   
Farmer Mac  I
   
Farmer Mac  II
   
Rural  Utilities
   
Corporate
   
Earnings
   
Adjustments
   
Income
 
   
(in thousands)
 
Interest income (1)
  $ 55,763     $ 26,431     $ 27,940     $ 12,873     $ 123,007     $ (4,948 )   $ 118,059  
Interest income related to consolidated   trusts owned by third parties reclassed   to guarantee fee income
    (2,749 )     -       -       -       (2,749 )     2,749       -  
Interest expense (2)
    (38,250 )     (21,721 )     (22,636 )     (7,295 )     (89,902 )     17,068       (72,834 )
Net effective spread
    14,764       4,710       5,304       5,578       30,356       14,869       45,225  
                                                         
Guarantee and commitment fees
    11,000       351       3,027       -       14,378       (2,749 )     11,629  
Other income/(expense) (3)
    1,297       -       -       (1,233 )     64       (14,187 )     (14,123 )
Non-interest income/(loss)
    12,297       351       3,027       (1,233 )     14,442       (16,936 )     (2,494 )
                                                         
Provision for loan losses
    (980 )     -       -       -       (980 )     -       (980 )
                                                         
Reserve for losses
    (1,575 )     -       -       -       (1,575 )     -       (1,575 )
Other non-interest expense
    (6,386 )     (1,548 )     (2,067 )     (3,404 )     (13,405 )     -       (13,405 )
Non-interest expense (4)
    (7,961 )     (1,548 )     (2,067 )     (3,404 )     (14,980 )     -       (14,980 )
                                                         
Income before income taxes
    18,120       3,513       6,264       941       28,838       (2,067 )     26,771  
Income tax (expense)/benefit
    (6,342 )     (1,230 )     (2,192 )     3,949       (5,815 )     723       (5,092 )
Net income before dividends
    11,778       2,283       4,072       4,890       23,023       (1,344 )     21,679  
Preferred stock dividends
    -       -       -       (2,690 )     (2,690 )     (5,784 )     (8,474 )
Net income
    11,778       2,283       4,072       2,200       20,333       (7,128 )     13,205  
Non-controlling interest
    -       -       -       (9,614 )     (9,614 )     -       (9,614 )
Segment core earnings
  $ 11,778     $ 2,283     $ 4,072     $ (7,414 )   $ 10,719     $ (7,128 )   $ 3,591  
                                                         
Total assets at carrying value
  $ 1,836,374     $ 1,324,674     $ 2,262,314     $ 1,676,128     $ -     $ -     $ 7,099,490  
Total on- and off-balance sheet program   assets at principal balance
    7,288,389       1,300,944       2,173,660       -       -       -       10,762,993  

Core Earnings by Business Segment
For the Six Months Ended June 30, 2009

                           
Core
   
Reconciling
   
GAAP
 
   
Farmer Mac  I
   
Farmer Mac  II
   
Rural  Utilities
   
Corporate
   
Earnings
   
Adjustments
   
Income
 
   
(in thousands)
 
Interest income (1)
  $ 24,589     $ 23,101     $ 24,883     $ 15,958     $ 88,531     $ 372     $ 88,903  
Interest expense (2)
    (13,878 )     (20,241 )     (22,829 )     (9,139 )     (66,087 )     20,525       (45,562 )
Net effective spread
    10,711       2,860       2,054       6,819       22,444       20,897       43,341  
                                                         
Guarantee and commitment fees
    11,761       1,343       2,214       -       15,318       -       15,318  
Other income/(expense) (3)
    2,287       -       -       (92 )     2,195       55,097       57,292  
Non-interest income/(loss)
    14,048       1,343       2,214       (92 )     17,513       55,097       72,610  
                                                         
Recoveries of loan losses
    2,159       -       -       -       2,159       -       2,159  
                                                         
Reserve for losses
    (1,990 )     -       -       -       (1,990 )     -       (1,990 )
Other non-interest expense
    (6,661 )     (1,967 )     (1,664 )     (4,235 )     (14,527 )     -       (14,527 )
Non-interest expense (4)
    (8,651 )     (1,967 )     (1,664 )     (4,235 )     (16,517 )     -       (16,517 )
                                                         
Income before income taxes
    18,267       2,236       2,604       2,492       25,599       75,994       101,593  
Income tax (expense)/benefit
    (6,393 )     (783 )     (911 )     61       (8,026 )     (26,598 )     (34,624 )
Net income before dividends
    11,874       1,453       1,693       2,553       17,573       49,396       66,969  
Preferred stock dividends
    -       -       -       (8,066 )     (8,066 )     -       (8,066 )
Segment core earnings
  $ 11,874     $ 1,453     $ 1,693     $ (5,513 )   $ 9,507     $ 49,396     $ 58,903  
                                                         
Total assets at carrying value
  $ 814,717     $ 1,108,455     $ 1,885,496     $ 1,514,016     $ -     $ -     $ 5,322,684  
Total on- and off-balance sheet program   assets at principal balance
    7,464,419       1,115,025       1,819,033       -       -       -       10,398,477  

(1)
Includes reconciling adjustments for yield maintenance income and amortization of premiums on assets consolidated at fair value to reflect core earnings amounts.
(2)
Based on effective funding cost determined for each operating segment, including the expense related to interest rate swaps, which is included in "other income" on the GAAP financial statements.
(3)
Includes reconciling adjustments for the reclassification of yield maintenance and the expense related to interest rate swaps and fair value adjustments on loans held for sale and financial derivatives.
(4)
Includes directly attributable costs and an allocation of indirectly attributable costs based on headcount.
 
-53-


Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations

Financial information is consolidated to include the accounts of Farmer Mac and its subsidiaries, Farmer Mac Mortgage Securities Corporation and Farmer Mac II LLC.  Farmer Mac II LLC was formed as a Delaware limited liability company in December 2009 to operate substantially all of the business related to the Farmer Mac II program – primarily the acquisition of USDA-guaranteed portions.  The business operations of Farmer Mac II LLC began in January 2010.  In the future, Farmer Mac will operate only that part of the Farmer Mac II program that involves the issuance of Farmer Mac II Guaranteed Securities, and only to the extent that Farmer Mac is approached or referred by an investor.  Farmer Mac will not issue Farmer Mac II Guaranteed Securities to Farmer Mac II LLC in the future.

This discussion and analysis of financial condition and results of operations should be read together with:  (1) the interim unaudited condensed consolidated financial statements and the related notes that appear elsewhere in this report; (2) Farmer Mac’s Annual Report on Form 10-K for the fiscal year ended December 31, 2009 filed with the SEC on March 16, 2010; and (3) the Current Report on Form 8-K filed with the SEC on August 4, 2010, which updated the aforementioned Form 10-K.

The discussion below is not necessarily indicative of future results.
 
Special Note Regarding Forward-Looking Statements

Some statements made in this report are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 pertaining to management’s current expectations as to Farmer Mac’s future financial results, business prospects and business developments.  Forward-looking statements include, without limitation, any statement that may predict, forecast, indicate or imply future results, performance or achievements, and typically are accompanied by, and identified with, such terms as “anticipates,” “believes,” “expects,” “intends,” “should” and similar phrases.  The following management’s discussion and analysis includes forward-looking statements addressing Farmer Mac’s:
 
 
·
prospects for earnings;
 
·
prospects for growth in loan purchase, guarantee, securitization, and LTSPC volume;
 
·
trends in net interest income;
 
·
trends in portfolio credit quality, delinquencies, and provisions for losses;
 
·
trends in expenses;
 
·
trends in non-program investments;
 
·
prospects for asset impairments and allowance for losses;
 
·
changes in capital position; and
 
·
other business and financial matters.
 
-54-

 
Management’s expectations for Farmer Mac’s future necessarily involve a number of assumptions and estimates and the evaluation of risks and uncertainties.  Various factors or events could cause Farmer Mac’s actual results to differ materially from the expectations as expressed or implied by the forward-looking statements, including the factors discussed under “Risk Factors” in Part I, Item 1A of Farmer Mac’s Annual Report on Form 10-K for the year ended December 31, 2009 filed with the SEC on March 16, 2010, as well as uncertainties regarding:
 
 
·
the availability to Farmer Mac and Farmer Mac II LLC of debt financing on reasonable rates and terms;
 
·
legislative or regulatory developments that could affect Farmer Mac;
 
·
fluctuations in the fair value of assets held by Farmer Mac and Farmer Mac II LLC;
 
·
the rate and direction of development of the secondary market for agricultural mortgage and rural utilities loans, including lender interest in Farmer Mac credit products and the Farmer Mac secondary market;
 
·
the general rate of growth in agricultural mortgage and rural utilities indebtedness;
 
·
borrower preferences for fixed rate agricultural mortgage indebtedness;
 
·
the impact of economic conditions and real estate values on agricultural mortgage lending;
 
·
the willingness of investors to invest in Farmer Mac Guaranteed Securities;
 
·
developments in the financial markets, including possible investor, analyst and rating agency reactions to events involving GSEs, including Farmer Mac; and
 
·
the future level of interest rates, commodity prices, and export demand for U.S. agricultural products.

In light of these potential risks and uncertainties, no undue reliance should be placed on any forward-looking statements expressed in this report.  Furthermore, Farmer Mac undertakes no obligation to release publicly the results of revisions to any forward-looking statements that may be made to reflect new information or any future events or circumstances, except as otherwise mandated by the SEC.

Overview

With the new capital raised during first quarter 2010, Farmer Mac is well-positioned to partner with agricultural and rural utilities lenders, and Farmer Mac II LLC is well-positioned to partner with lenders participating in USDA’s guaranteed loan programs, to continue to fulfill Farmer Mac’s mission to provide capital and liquidity to rural America.  As of June 30, 2010, Farmer Mac’s excess core capital above its statutory minimum capital requirement was $206.6 million.

During first and second quarters 2010, increased loan purchase activity in the Farmer Mac I program continued in part due to attractive long-term fixed interest rates offered by Farmer Mac along with farmers and ranchers reaching Farmer Mac’s commercial bank business partners’   borrower exposure limits.  Similarly, purchases of USDA Guaranteed Securities by Farmer Mac II LLC were at a record pace for second quarter 2010.  While Farmer Mac did not complete any of the larger portfolio transactions during second quarter that have contributed to its historical growth, in July 2010 Farmer Mac purchased an aggregate of $250.0 million of AgVantage securities in two transactions.  Those purchases were the first Farmer Mac I program portfolio transactions of comparable size completed since third quarter 2008.
 
-55-


The growth in Farmer Mac’s Rural Utilities program continued during 2010 with the purchase of $136.7 million of loans under that program during the six months ended June 30, 2010.  That growth occurred at a lower rate than in 2008 and 2009 when Farmer Mac purchased general obligation notes from National Rural secured by eligible rural utilities loans in AgVantage structures in several larger transactions.  Beginning in August 2009 and continuing through 2010, the majority of Farmer Mac’s rural utilities business was direct purchases of distribution cooperative rural utilities loans, and this trend of purchasing eligible rural utilities loans, as opposed to guaranteeing general obligations secured by eligible loans in AgVantage transactions, is expected to continue for the foreseeable future under the Rural Utilities program.  In late 2009, Farmer Mac developed underwriting standards for the purchase of loans to generation and transmission cooperatives.  Farmer Mac expects to begin purchasing these types of rural utilities loans during third quarter 2010.

Critical Accounting Policies and Estimates

The preparation of Farmer Mac’s consolidated financial statements in conformity with GAAP requires the use of estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and related notes for the periods presented.  Actual results could differ from those estimates.  The critical accounting policies that are both important to the portrayal of Farmer Mac’s financial position and results of operations and require complex, subjective judgments are the accounting policies for:  (1) the allowance for losses, (2) fair value measurement, and (3) other-than-temporary impairment.

For a discussion of Farmer Mac’s critical accounting policies related to the allowance for losses, fair value measurement and other-than-temporary impairment and the related use of estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and related notes for the periods presented, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Estimates” in the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2009 filed with the SEC on March 16, 2010 (as updated by the Current Report on Form 8-K filed with the SEC on August 4, 2010).

Results of Operations

Farmer Mac’s net income available to common stockholders for second quarter 2010 was $1.8 million or $0.17 per diluted common share, compared to net income of $25.4 million or $2.49 per diluted common share for second quarter 2009.  For the six months ended June 30, 2010, Farmer Mac s net income available to common stockholders was $3.6 million, compared to $58.9 million for the six months ended June 30, 2009.
 
-56-

 
Farmer Mac uses core earnings, a non-GAAP financial measure, to measure corporate economic performance and develop financial plans because, in financial management’s view, core earnings more accurately represents Farmer Mac’s economic performance, transaction economics and business trends.  Core earnings differs from GAAP net income primarily by excluding unrealized gains or losses on financial derivatives and trading assets, lower of cost or fair value adjustments on loans held for sale and other items related to the retirement of preferred stock and the amortization of premiums on assets consolidated at fair value.  Farmer Mac’s disclosure of this non-GAAP measure is not intended to replace GAAP information but, rather, to supplement it.  A reconciliation of Farmer Mac’s GAAP net income available to common stockholders to core earnings is presented in the following table, and those reconciling items are described in more detail below the table.

Reconciliation of GAAP Net Income Available to Common Stockholders to Core Earnings
   
For the Three Months Ended
 
   
June 30, 2010
   
June 30, 2009
 
         
Per   Diluted
         
Per   Diluted
 
         
Share
         
Share
 
   
(in thousands, except per share amounts)
 
GAAP net income available   to common stockholders
  $ 1,824     $ 0.17     $ 25,385     $ 2.49  
Less the net of tax effects of:
                               
Unrealized (losses)/gains on financial derivatives
    (4,016 )     (0.38 )     20,281       1.99  
Unrealized gains on trading assets
    3,288       0.31       23       -  
Amortization of premiums on assets consolidated at fair value
    (2,701 )     (0.25 )     -       -  
Issuance costs on the retirement of preferred stock
    -       -       -       -  
Net effects of settlements on agency forward contracts
    (94 )     (0.01 )     367       0.04  
Lower of cost or fair value adjustment on loans held for sale
    58       -       -       -  
Core earnings
  $ 5,289     $ 0.50     $ 4,714     $ 0.46  

   
For the Six Months Ended
 
   
June 30, 2010
   
June 30, 2009
 
         
Per   Diluted
         
Per   Diluted
 
         
Share
         
Share
 
   
(in thousands, except per share amounts)
 
GAAP net income available   to common stockholders
  $ 3,591     $ 0.34     $ 58,903     $ 5.80  
Less the net of tax effects of:
                               
Unrealized (losses)/gains on financial derivatives
    (2,129 )     (0.20 )     30,009       2.95  
Unrealized gains on trading assets
    5,476       0.52       20,580       2.03  
Amortization of premiums on assets consolidated at fair value
    (3,383 )     (0.32 )     -       -  
Issuance costs on the retirement of preferred stock
    (5,784 )     (0.56 )     -       -  
Net effects of settlements on agency forward contracts
    112       0.01       (1,193 )     (0.12 )
Lower of cost or fair value adjustment on loans held for sale
    (1,420 )     (0.13 )     -       -  
Core earnings
  $ 10,719     $ 1.02     $ 9,507     $ 0.94  

Changes in the fair values of financial derivatives and trading assets have historically contributed significant volatility to Farmer Mac’s periodic earnings.  Consistent with that trend, Farmer Mac’s second quarter 2010 loss on financial derivatives was $15.8 million, compared to a gain of $21.5 million during second quarter 2009.  For the six months ended June 30, 2010, the loss on financial derivatives was $21.6 million, compared to a gain of $23.2 million for the six months ended June 30, 2009.  Fair value gains on trading assets totaled $5.1 million for second quarter 2010, compared to gains of $35,000 for second quarter 2009.  For the six months ended June 30, 2010 the gains on trading assets totaled $8.4 million, compared to $31.7 million for the same period in 2009.  While these volatile changes in fair values of derivatives and trading assets may at times produce significant income, as was the case in 2009, they may also produce significant losses, as was the case in the first six months of 2010 and as has been the case in previous reporting periods.  Future changes in those values cannot be reliably predicted; however, as of June 30, 2010, the cumulative fair value of after-tax losses recorded on financial derivatives was $62.1 million.   Over time, Farmer Mac will realize in earnings the net effect of the cash settlements on its interest rate swap contracts , which may on its own produce either income or expense, but is expected to generate positive effective net spread when combined with the interest earned and paid on the assets and liabilities Farmer Mac holds on its balance sheet.  This positive effective net spread will continue to build retained earnings and capital over time .  Although the unrealized fair value fluctuations experienced throughout the term of the financial derivative s will temporarily impact earnings and capital, th ose fluctuations will have no permanent effect if the financial derivatives are held to maturity , as is generally expected .
 
-57-

 
Upon the adoption of the new consolidation guidance on January 1, 2010, Farmer Mac was determined to be the primary beneficiary of certain VIEs where Farmer Mac held beneficial interests in trusts used as vehicles for the securitization of rural utilities loans.  Upon consolidation, Farmer Mac transferred these assets from “Farmer Mac Guaranteed Securities” to “Loans held for investment in consolidated trusts” on its condensed consolidated balance sheet.  Farmer Mac transferred these assets at their fair value, which resulted in an unamortized premium of $42.7 million.  This premium is being amortized over the contractual lives of the underlying loans and that amortization is not included in Farmer Mac’s core earnings.

In January 2010, Farmer Mac contributed substantially all of the assets, in excess of $1.1 billion, comprising the Farmer Mac II program to a subsidiary, Farmer Mac II LLC.  Farmer Mac transferred these assets at their fair value, which resulted in an unamortized premium of $39.1 million being recorded by Farmer Mac II LLC.  This premium is being amortized over the estimated remaining lives of the underlying USDA-guaranteed portions and is not included in Farmer Mac’s core earnings.

In January 2010, Farmer Mac retired and repurchased all of the outstanding shares of Series B preferred stock with proceeds from the completed capital raise.  As a result of the repurchase, Farmer Mac wrote off $5.8 million of deferred issuance costs related to those Series B preferred shares as loss on retirement of preferred stock on the condensed consolidated statements of operations.

In addition to those adjustments to reconcile Farmer Mac’s GAAP net income available to common stockholders to core earnings, Farmer Mac’s year-to-date 2009 results benefited from two transactions that were not replicated in the year-to-date 2010 results.  The first was the sale of a pool of loans with a total principal balance of $354.5 million that resulted in a gain of $1.6 million.  The second transaction was the sale of Lehman Brothers Holdings Inc. senior debt securities that had been written down to $5.4 million as of December 31, 2008.  The sale of those securities during first quarter 2009 for $8.6 million resulted in a $3.2 million recovery of previously written off losses.

The following sections provide more detail regarding specific components of Farmer Mac’s results of operations.
 
-58-

 
Net Interest Income .  Net interest income for the three and six months ended June 30, 2010 was $21.6 million and $45.2 million, respectively, compared to $19.9 million and $43.3 million for the same periods during 2009.  Beginning in first quarter 2010, net interest income includes the reclassification of guarantee fees related to certain Farmer Mac Guaranteed Securities previously reported as off-balance sheet as a result of the adoption of the new consolidation guidance.  For the three and six months ended June 30, 2010, these reclassifications resulted in an increase in net interest income of $1.3 million and $2.7 million, respectively and a decrease in the net interest yield of 18 basis points and 19 basis points, respectively.  The decrease in the net interest yield is the result of the average rate earned on guarantee fees being lower than the net interest spread earned on assets Farmer Mac purchases and holds on-balance sheet.  For the six months ended June 30, 2010 and 2009, the net interest yield was 129 basis and 176 basis points, respectively.  Excluding the impacts of the guarantee fee reclassifications, the net interest yield was 148 basis points for the six months ended June 30, 2010, compared to 176 basis points for the six months ended June 30, 2009.
 
The following table provides information regarding interest-earning assets and funding for the six months ended June 30, 2010 and 2009.  The balance of non-accruing loans is included in the average balance of interest-earning loans and Farmer Mac and USDA Guaranteed Securities presented, though the related income is accounted for on the cash basis.  Therefore, as the balance of non-accruing loans and the income received increases or decreases, the net interest yield will fluctuate accordingly.  The balance of consolidated loans with beneficial interests owned by third parties is disclosed in the net effect of consolidated trusts and is not included in the average balances of interest-earning assets and interest-bearing liabilities.  The interest income and expense associated with these trusts are shown net in the net effect of consolidated trusts.  The average rate earned on cash and investments reflects lower short-term market rates during the six months ended June 30, 2010 compared to the six months ended June 30, 2009.  The lower average rate on loans and Farmer Mac and USDA Guaranteed Securities during the six months ended June 30, 2010 reflects the decline in market rates reflected in the rates on loans acquired or reset during the past year.  The lower average rate on Farmer Mac’s notes payable due within one year is consistent with general trends in average short-term rates during the periods presented.  The downward trend in the average rate on notes payable due after one year reflects the retirement of older debt and the issuance of new debt at lower market rates during the latter part of 2008, throughout 2009 and the first half of 2010.
 
-59-

 
   
For the Six Months Ended
 
   
June 30, 2010
 
June 30, 2009
 
   
Average
   
Income/
   
Average
 
Average
   
Income/
   
Average
 
   
Balance
   
Expense
   
Rate
 
Balance
   
Expense
   
Rate
 
   
(dollars in thousands)
 
Interest-earning assets:
                                 
Cash and investments
  $ 1,535,482     $ 12,873    
1.68%
  $ 1,554,738     $ 15,958    
2.05%
 
Loans and Farmer Mac and USDA
                                         
Guaranteed Securities (1)
    4,194,011       70,980    
3.38%
    3,359,356       72,945    
4.34%
 
Total interest-earning assets
    5,729,493       83,853    
2.93%
    4,914,094       88,903    
3.62%
 
Funding:
                                         
Notes payable due within one year
    3,049,991       5,137    
0.34%
    3,223,496       15,144    
0.94%
 
Notes payable due after one year (2)
    2,276,958       36,240    
3.18%
    1,482,193       30,418    
4.10%
 
Total interest-bearing liabilities (3)
    5,326,949       41,377    
1.55%
    4,705,689       45,562    
1.94%
 
Net non-interest-bearing funding
    402,544       -           208,405       -        
Total funding
    5,729,493       41,377    
1.44%
    4,914,094       45,562    
1.85%
 
Net interest income/yield prior to consolidation of certain trusts
    5,729,493       42,476    
1.48%
    4,914,094       43,341    
1.76%
 
Net effect of consolidated trusts (4)
    1,308,514       2,749    
0.42%
    -       -    
0.00%
 
Adjusted net interest income/yield
  $ 7,038,007     $ 45,225    
1.29%
  $ 4,914,094     $ 43,341    
1.76%
 

(1)
Excludes interest income of $34.2 million related to consolidated trusts with beneficial interests owned by third parties.
(2)
Includes current portion of long-term notes.
(3)
Excludes interest expense of $31.5 million related to consolidated trusts with beneficial interests owned by third parties.
(4)
Includes the effect of consolidated trusts with beneficial interests owned by third party investors.
 
The following table sets forth information regarding the changes in the components of Farmer Mac’s net interest income for the periods indicated.  For each category, information is provided on changes attributable to changes in volume (change in volume multiplied by old rate) and changes in rate (change in rate multiplied by old volume).  Combined rate/volume variances, the third element of the calculation, are allocated based on their relative size.  The decreases in income due to changes in rate reflect the reset of variable-rate investments and adjustable-rate mortgages to lower rates and the acquisition of new lower-yielding investments, loans and Farmer Mac and USDA Guaranteed Securities, as described above.  The decreases in expense reflect the decreased cost of funding due to lower interest rates in the debt markets.

   
For the Six Months Ended June 30, 2010
 
   
Compared to the Six Months Ended
 
   
June 30, 2009
 
   
Increase/(Decrease) Due to
 
   
Rate
   
Volume
   
Total
 
   
(in thousands)
 
Income from interest-earning assets:
                 
Cash and investments
  $ (2,889 )   $ (195 )   $ (3,084 )
Loans and Farmer Mac and USDA
                       
Guaranteed Securities
    (17,970 )     16,005       (1,965 )
Total
    (20,859 )     15,810       (5,049 )
Expense from interest-bearing liabilities
    (9,724 )     5,540       (4,184 )
Change in net interest income prior to
                       
consolidation of certain trusts (1)
  $ (11,135 )   $ 10,270     $ (865 )

(1) Excludes the effect of consolidated trusts with beneficial interests owned by third parties.
 
-60-

 
In addition to the guarantee fee reclassification described above, the net interest yield includes yield maintenance payments received upon the early payoff of certain borrower’s loans and the amortization of premiums on assets consolidated at fair value and excludes the accrual of income and expense related to the payments on financial derivatives.  The following paragraphs describe the effects of these items on the net interest yield and the table below presents them as adjustments to reconcile to the net effective spread Farmer Mac earns on the difference between its interest-earning assets and its net funding costs, including payments for income and expense related to financial derivatives.

Farmer Mac accounts for its financial derivatives as undesignated financial derivatives.  Accordingly, the Corporation records the income or expense related to financial derivatives as gains and losses on financial derivatives.  For the three months ended June 30, 2010, this resulted in an increase of the net interest yield of $8.7 million (60 basis points), compared to an increase of the net interest yield of $9.9 million (83 basis points) for the three months ended June 30, 2009.  For the six months ended June 30, 2010, this resulted in an increase of the net interest yield of $17.1 million (60 basis points), compared to an increase of the net interest yield of $20.5 million (84 basis points) for the six months ended June 30, 2009.

Farmer Mac’s net interest income and net interest yields for the three months ended June 30, 2010 and 2009 included the benefits of yield maintenance payments of $0.2 million (1 basis point) and $0.1 million (1 basis point), respectively.  The net interest yields for the six months ended June 30, 2010 and 2009 included the benefits of yield maintenance payments of $0.3 million (1 basis point) and $0.4 million (2 basis points), respectively.  Yield maintenance payments represent the present value of expected future interest income streams and accelerate the recognition of interest income from the related loans.  Because the timing and size of these payments vary greatly, variations do not necessarily indicate positive or negative trends to gauge future financial results.

 Upon the adoption of the new consolidation guidance on January 1, 2010, Farmer Mac was determined to be the primary beneficiary of certain VIEs where Farmer Mac held beneficial interests in trusts used as vehicles for the securitization of agricultural real estate mortgage loans or rural utilities loans.  Upon consolidation, Farmer Mac transferred these assets from “Farmer Mac Guaranteed Securities” to “Loans held for investment in consolidated trusts.”  The transferred assets on January 1, 2010 included Farmer Mac Guaranteed Securities – Rural Utilities with an unpaid principal balance of $412.9 million and a fair value of $455.6 million.  Farmer Mac was reporting these assets at their fair values, with changes in fair value recorded in earnings, based on its election of the fair value option in 2008.  Upon consolidation of the underlying rural utilities loans, Farmer Mac reclassified the unrealized gain of $42.7 million as of January 1, 2010 to unamortized premiums on loans held for investment.  The related premium is being amortized over the contractual lives of the underlying rural utilities loans.

On January 25, 2010, Farmer Mac contributed substantially all of the assets, in excess of $1.1 billion, comprising the Farmer Mac II program to Farmer Mac’s subsidiary, Farmer Mac II LLC.  Farmer Mac transferred these assets at their fair value which resulted in an unamortized premium of $39.1 million being recorded by Farmer Mac II LLC.  This premium is being amortized over the estimated remaining lives of the underlying USDA Guaranteed Securities.
 
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Farmer Mac’s net interest income and net interest yield for the three and six months ended June 30, 2010 include expenses of $4.2 million (29 basis points) and $5.2 million (18 basis points), respectively, related to the amortization of the premiums described above.

The following table presents the net effective spread between Farmer Mac’s interest-earning assets and its net funding costs.  This spread is measured by including income or expense related to financial derivatives and subtracting yield maintenance payments and the amortization of premiums on assets consolidated at fair value.

   
For the Three Months Ended
   
For the Six Months Ended
 
   
June 30, 2010
   
June 30, 2009
   
June 30, 2010
   
June 30, 2009
 
   
Dollars
   
Yield
   
Dollars
   
Yield
   
Dollars
   
Yield
   
Dollars
   
Yield
 
   
(dollars in thousands)
 
                                                 
Net interest income/yield
  $ 20,326    
1.40%
    $ 19,901    
1.66%
    $ 42,476    
1.48%
    $ 43,341    
1.76%
 
Expense related to financial derivatives
    (8,733 )  
-0.60%
      (9,937 )  
-0.83%
      (17,068 )  
-0.60%
      (20,525 )  
-0.84%
 
Yield maintenance payments
    (200 )  
-0.01%
      (108 )  
-0.01%
      (256 )  
-0.01%
      (372 )  
-0.02%
 
Amortization of premiums on assets consolidated at fair value
    4,156    
0.29%
      -    
-
      5,204    
0.18%
      -    
-
 
Net effective spread
  $ 15,549    
1.08%
    $ 9,856    
0.82%
    $ 30,356    
1.05%
    $ 22,444    
0.90%
 
 
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Provision for Loan Losses . During the three months ended June 30, 2010, Farmer Mac recorded releases to its allowance for loan losses of $1.9 million and recoveries of $2.2 million.  The releases recorded during second quarter 2010 were the result of increased provision needs of $0.3 million offset by recoveries of $2.2 million on a loan secured by an ethanol plant.  During the six months ended June 30, 2010, Farmer Mac recorded provisions to its allowance for loan losses of $1.0 million and recoveries of $2.2 million.  The provisions to the allowance for loan losses during the first half of 2010 include:
 
 
·
the reclassification of $2.0 million from the reserve for losses to the allowance for loan losses upon adoption of the new consolidation guidance in first quarter 2010;
 
·
increased provision needs of $1.2 million; offset by
 
·
recoveries of $2.2 million on a loan secured by an ethanol plant.
 
During the three and six months ended June 30, 2009, Farmer Mac recorded releases to its allowance for loan losses of $5.7 million and $2.2 million, respectively.  Farmer Mac also recorded $5.7 million and $7.7 million of charge-offs, respectively, for the three and six months ended June 30, 2009.  Farmer Mac recorded no recoveries during the three months ended June 30, 2009 and $0.8 million of recoveries for the six months ended June 30, 2009.  The activity in the allowance for loan losses in 2009 was largely attributable to defaulted ethanol loans previously purchased from AgStar Financial Services, a related party, pursuant to the terms of an LTSPC agreement.  As of June 30, 2010, Farmer Mac’s total allowance for loan losses was $9.5 million, compared to $6.3 million as of December 31, 2009 and $1.8 million as of June 30, 2009.  See “—Risk Management—Credit Risk – Loans.”

Provision for Losses .  During the three and six months ended June 30, 2010, Farmer Mac recorded provisions to its reserve for losses of $3.0 million and $1.6 million, respectively.  The provisions recorded in the second quarter 2010 primarily relate to Farmer Mac’s exposure to the ethanol industry pursuant to loans underlying LTSPCs.  Farmer Mac recorded provisions to its reserve for losses of $3.6 million in the first half of 2010, which were partially offset by the reclassification of $2.0 million from the reserve for losses to the allowance for loan losses upon adoption of the new consolidation guidance in first quarter 2010.  During the three and six months ended June 30, 2009, Farmer Mac recorded a release of $0.5 million and provisions of $2.0 million, respectively, for losses related to its guarantee activities and LTSPCs.  As of June 30, 2010, Farmer Mac’s reserve for losses was $9.5 million, compared to $7.9 million as of December 31, 2009 and $7.5 million as of June 30, 2009.  See “—Risk Management—Credit Risk – Loans.”

Guarantee and Commitment Fees .  Guarantee and commitment fees, which compensate Farmer Mac for assuming the credit risk on loans underlying Farmer Mac Guaranteed Securities and LTSPCs, were $5.7 million for second quarter 2010 and $11.6 million for the six months ended June 30, 2010, compared to $7.9 million for second quarter 2009 and $15.3 million for the six months ended June 30, 2009.  Guarantee and commitment fees for the three and six months ended June 30, 2010 includes the reclassification of $1.3 million and $2.7 million, respectively, to net interest income related to Farmer Mac Guaranteed Securities previously reported as off- balance sheet as a result of the adoption of the new consolidation guidance.
 
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Gains and Losses on Financial Derivatives .  Farmer Mac accounts for its financial derivatives as undesignated financial derivatives and does not apply hedge accounting available under FASB guidance on derivatives.  The net effect of gains and losses on financial derivatives for the three and six months ended June 30, 2010 was a net loss of $15.8 million and $21.6 million, respectively, compared to net gains of $21.5 million and $23.2 million, respectively, for the same periods in 2009.   The components of gains and losses on financial derivatives for the three and six months ended June 30, 2010 and 2009 are summarized in the following table:

   
For the Three Months Ended
   
For the Six Months Ended
 
   
June 30, 2010
   
June 30, 2009
   
June 30, 2010
   
June 30, 2009
 
   
(in thousands)
 
                         
Realized:
                       
Expense related to financial derivatives
  $ (8,733 )   $ (9,937 )   $ (17,068 )   $ (20,525 )
(Losses)/gains due to terminations or net settlements
    (885 )     255       (1,257 )     (2,378 )
Unrealized (losses)/gains due to fair value changes
    (6,177 )     31,287       (3,239 )     46,280  
Amortization of financial derivatives transition adjustment
    (45 )     (77 )     (80 )     (138 )
(Losses)/gains on financial derivatives
  $ (15,840 )   $ 21,528     $ (21,644 )   $ 23,239  

The accrual of periodic cash settlements for interest paid or received from Farmer Mac’s interest rate swap   contracts is shown as e xpense related to financial derivatives in the table above.  Payments or receipts to terminate derivative positions or net cash settle forward sales contracts on the debt of other GSEs and U.S. Treasury futures are included in gains/(losses) due to terminations or net settlements.  Changes in the fair value of Farmer Mac’s open derivative positions are captured in unrealized gains/(losses) due to fair value changes and are primarily the result of fluctuations in market interest rates.  The amortization of the financial derivatives transition adjustment reflects the reclassification into earnings of the unrealized gains/(losses) on financial derivatives included in accumulated other comprehensive income/(loss) as a result of the adoption of the FASB standard on derivatives.   The remaining financial derivatives transition adjustment will be reclassified into earnings in the same period or periods during which the hedged forecasted transactions (either the payment of interest or the issuance of discount notes) affect earnings or immediately when it becomes probable that the original hedged forecasted transaction will not occur within two months of the originally specified date.

For the three and six months ended June 30, 2010, Farmer Mac was a party to interest rate swap contracts with one related party, Zions First National Bank.  Farmer Mac realized expenses of $0.8 million and $1.6 million for three and six months ended June 30, 2010 and June 30, 2009, respectively.  Farmer Mac recognized unrealized losses $0.1 million and $25,000 for the three and six months ended June 30, 2010, respectively, compared to unrealized gains of $0.8 million and $0.3 million, respectively, for the same periods in 2009.

Gains and Losses on Trading Assets .  During the three and six months ended June 30, 2010, Farmer Mac recognized gains on trading assets of $5.1 million and $8.4 million, respectively, compared to gains of $35,000 and $31.7 million, respectively, for the same periods in 2009.  During first quarter 2010, Farmer Mac changed its primary source of valuation for its investment in the preferred stock of AgFirst Farm Credit Bank.  Taking into consideration its own recently executed trades during first quarter 2010, along with an increase in observable trading activity for this and similar securities, Farmer Mac determined that the best estimates of fair value for this security as of March 31, 2010 and June 30, 2010 were the fair values provided by an independent third party pricing service.  For the three and six months ended June 30, 2010, Farmer Mac recorded $0.7 million and $2.2 million of trading losses, respectively, related to the decline in the fair value of its investment in AgFirst Farm Credit Bank preferred stock.  During first and second quarters 2010, Farmer Mac also recorded trading gains of $5.0 million and $5.6 million, respectively, related to an increase in the fair value of the USDA Guaranteed Securities contributed to its subsidiary, Farmer Mac II LLC, which had previously been selected for the fair value option.
 
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Farmer Mac made no fair value option elections during the three and six months ended June 30, 2010 and 2009.

Gains and Losses on Sale of Available-for-Sale Investment Securities .  During the three months ended June 30, 2010, Farmer Mac did not sell any securities from its available-for-sale- portfolio, compared to realized losses of $0.3 million from the sale of securities for the three months ended June 30, 2009.  During the six months ended June 30, 2010, Farmer Mac realized gains of $0.2 million from the sale of securities from its available-for-sale portfolio, compared to gains of $2.9 million six months ended June 30, 2009.

General and Administrative Expenses .  General and administrative expenses, including legal, independent audit, and consulting fees, were $2.1 million for second quarter 2010 and $4.6 million for the six months ended June 30, 2010, compared to $3.0 million and $5.9 million, respectively, for the same periods in 2009.  The higher level of expenses in 2009 compared to 2010 was largely attributable to legal and consulting fees related to the development of Farmer Mac programs and related transactions.

Regulatory Fees .   Regulatory fees for the three and six months ended June 30, 2010 were $0.6 million and $1.1 million, respectively, compared to $0.5 million and $1.0 million for the same periods in 2009.  FCA has advised Farmer Mac that its estimated fees for the federal fiscal year ending September 30, 2010 will be $2.3 million, compared to $2.1 million for the federal fiscal year ended September 30, 2009.  After the end of a federal government fiscal year, FCA may revise its prior year estimated assessments to reflect actual costs incurred, and has issued both additional assessments and refunds in the past.

Income Tax Expense/Benefit .  Income tax expense totaled $0.8 million and $5.1 million for the three and six months ended June 30, 2010, respectively, compared to $16.5 million and $34.6 million, respectively, for the same periods in 2009.  Income tax expense decreased significantly primarily due to the decrease in pre-tax book income.  Farmer Mac’s effective tax rates for the three and six months ended June 30, 2010 were 8.5 percent and 19.0 percent, respectively, compared to 35.9 percent and 34.0 percent, respectively, for the same periods in 2009.  The reduction in the effective tax rate was due primarily to the income attributed to the non-controlling interest in Farmer Mac II LLC, for which Farmer Mac does not accrue income tax expense.
 
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Business Volume .   During second quarter 2010, Farmer Mac added $331.5 million of new program volume in the form of:
 
 
·
purchases of $98.2 million of Farmer Mac I loans;
 
·
the placement of $32.4 million of Farmer Mac I loans under LTSPCs;
 
·
purchases of $123.2 million of USDA-guaranteed portions of loans; and
 
·
purchases of $77.7 million of Rural Utilities loans.
 
This new business volume was partially offset by principal paydowns on outstanding loans and loans underlying Farmer Mac Guaranteed Securities and LTSPCs.  Farmer Mac’s outstanding program volume was $10.8 billion as of June 30, 2010.

In addition to the second quarter business volume, in July 2010 Farmer Mac purchased (1) $200.0 million of AgVantage securities representing a five-year general obligation of MetLife Insurance Company of Connecticut secured by agricultural mortgage loans eligible for the Farmer Mac I program; and (2) $50.0 million of AgVantage securities representing a five-year general obligation of Metropolitan Life Insurance Company secured by agricultural mortgage loans eligible for the Farmer Mac I program.

The following table sets forth loan purchase, LTSPC and guarantee activities for current loans under the Farmer Mac I, Farmer Mac II and Rural Utilities programs during the periods indicated:

Farmer Mac Loan Purchases, Guarantees and LTSPCs
   
For the Three Months Ended
   
For the Six Months Ended
 
   
June 30,
   
June 30,
   
June 30,
   
June 30,
 
   
2010
   
2009
   
2010
   
2009
 
   
(in thousands)
 
Farmer Mac I:
                       
Loans
  $ 98,235     $ 37,900     $ 176,183     $ 67,714  
LTSPCs
    32,430       22,717       109,573       88,437  
AgVantage
    -       -       -       -  
Farmer Mac II:
                               
USDA Guaranteed Securities
    115,109       -       201,672       -  
Farmer Mac Guaranteed Securities
    7,953       96,322       13,678       175,377  
Rural Utilities:
                               
Loans
    77,726       -       136,744       -  
Guaranteed Securities
    -       900,000       -       1,170,000  
Total purchases, guarantees and commitments
  $ 331,453     $ 1,056,939     $ 637,850     $ 1,501,528  
 
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The outstanding principal balance of loans held and loans underlying LTSPCs and on- and off-balance sheet Farmer Mac and USDA Guaranteed Securities was $10.8 billion as of June 30, 2010 and $10.7 billion as of December 31, 2009.  The following table sets forth information regarding those outstanding balances as of the dates indicated:

Outstanding Balance of Farmer Mac Loans and Loans Underlying
Farmer Mac and USDA Guaranteed Securities and LTSPCs
   
June 30,
   
December 31,
 
   
2010
   
2009
 
   
(in thousands)
 
On-balance sheet:
           
Farmer Mac I:
           
Loans
  $ 844,227     $ 733,422  
Loans held in trusts:
               
Beneficial interests owned by Farmer Mac
    4,369       5,307  
Beneficial interests owned by third party investors
    880,035       -  
Farmer Mac Guaranteed Securities - AgVantage
    43,550       48,800  
Farmer Mac II:
               
USDA Guaranteed Securities
    1,218,329       -  
Farmer Mac Guaranteed Securities
    41,756       1,164,996  
Rural Utilities:
               
Loans
    165,388       28,644  
Loans held in trusts:
               
Beneficial interests owned by Farmer Mac
    406,679       412,948  
Farmer Mac Guaranteed Securities - AgVantage
    1,587,200       1,675,000  
Total on-balance sheet
  $ 5,191,533     $ 4,069,117  
                 
Off-balance sheet:
               
Farmer Mac I:
               
AgVantage
  $ 2,945,000     $ 2,945,000  
LTSPCs
    1,739,979       2,165,706  
Farmer Mac Guaranteed Securities
    826,910       1,492,239  
Farmer Mac II:
               
Farmer Mac Guaranteed Securities
    40,860       34,802  
Rural Utilities:
               
AgVantage
    14,393       14,240  
Total off-balance sheet
  $ 5,567,142     $ 6,651,987  
Total
  $ 10,758,675     $ 10,721,104  

Of the $10.8 billion outstanding principal balance of volume included in Farmer Mac’s three programs as of June 30, 2010, $4.6 billion are Farmer Mac Guaranteed Securities structured as AgVantage securities.  Each AgVantage security is a general obligation of an issuing institution approved by Farmer Mac and is secured by eligible loans in an amount at least equal to the outstanding principal amount of the security.  Unlike business volume in the form of purchased loans and loans underlying LTSPCs and non-AgVantage Farmer Mac Guaranteed Securities, the Farmer Mac Guaranteed Securities structured as AgVantage securities generally do not pay down principal based on amortization schedules and instead have fixed maturity dates when the secured general obligation is due.
 
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The following table summarizes by maturity date the outstanding principal amount of AgVantage securities as of June 30, 2010.
 
AgVantage Balances by Year of Maturity
 
   
As of
 
   
June 30, 2010
 
   
(in thousands)
 
       
2010
  $ 102,550  
2011
    2,051,400  
2012
    497,000  
2013
    157,750  
2014
    761,900  
Thereafter
    1,019,543  
Total
  $ 4,590,143  
 
As shown in the table above, $2.1 billion of the outstanding $4.6 billion of AgVantage securities matures in 2011.  If the issuer of a maturing AgVantage security does not refinance the security through Farmer Mac and Farmer Mac does not find alternate sources of business volume, the Corporation’s income could be adversely affected.  However, the income effect of less AgVantage business may not be material and will likely not be proportional to the amount of any decrease in business volume as a result of the maturity of AgVantage securities.

The weighted-average ages of the Farmer Mac I newly originated and current seasoned loans purchased during each of second quarter 2010 and second quarter 2009 was less than one month.  Of the Farmer Mac I newly originated and current seasoned loans purchased during second quarter 2010 and second quarter 2009, 75 percent and 77 percent, respectively, had principal amortization periods longer than the maturity date, resulting in balloon payments at maturity, with a weighted-average remaining terms to maturity of 15.0 years and 16.2 years, respectively.  The weighted-average age of delinquent loans purchased out of securitized pools and LTSPCs during second quarter 2010 and second quarter 2009 was 5.6 years and 2.3 years, respectively.

As part of fulfilling its guarantee obligations for Farmer Mac I Guaranteed Securities and commitments to purchase eligible loans underlying LTSPCs, Farmer Mac purchases defaulted loans, all of which are at least 90 days delinquent or in material non-monetary default at the time of purchase, out of the loan pools underlying those securities and LTSPCs, and records the purchased loans as such on its balance sheet.  The purchase price for defaulted loans purchased out of Farmer Mac I Guaranteed Securities is the current outstanding principal balance of the loan plus accrued and unpaid interest.  The purchase price for defaulted loans purchased under an LTSPC is the then-current outstanding principal balance of the loan, with accrued and unpaid interest on the defaulted loans payable out of any future loan payments or liquidation proceeds as received.  The purchase price of a defaulted loan is not an indicator of the expected loss on that loan; many other factors affect expected loss, if any, on loans so purchased.  See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Risk Management—Credit Risk—Loans” in the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2009 filed with the SEC on March 16, 2010 (as updated by the Current Report on Form 8-K filed with the SEC on August 4, 2010).
 
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The following table presents Farmer Mac’s loan purchases of newly originated and current seasoned loans and defaulted loans purchased underlying Farmer Mac I Guaranteed Securities and LTSPCs:
 
  
 
For the Three Months  Ended
   
For the Six Months Ended
 
   
June 30,
   
June 30,
   
June 30,
   
June 30,
 
   
2010
   
2009
   
2010
   
2009
 
   
(in thousands)
 
Farmer Mac I newly originated and current seasoned loan purchases
  $ 98,235     $ 37,900     $ 176,183     $ 67,714  
Defaulted loans purchased underlying Farmer Mac I Guaranteed Securities owned by third party investors
    -       -       2,323       -  
Defaulted loans purchased underlying LTSPCs
    913       572       1,080       3,386  
Defaulted loans underlying on-balance sheet Farmer Mac I Guaranteed Securities transferred to loans
    -       -       -       2,216  
Total loan purchases
  $ 99,148     $ 38,472     $ 179,586     $ 73,316  

Farmer Mac II LLC .   In January 2010, Farmer Mac contributed substantially all of the assets comprising the Farmer Mac II program (in excess of $1.1 billion) to Farmer Mac’s subsidiary, Farmer Mac II LLC.  The assets that Farmer Mac contributed to Farmer Mac II LLC consisted primarily of USDA-guaranteed portions that had not been securitized by Farmer Mac but also included $35.0 million of Farmer Mac II Guaranteed Securities.  Farmer Mac did not guarantee the timely payment of principal and interest on the $1.1 billion of contributed USDA-guaranteed portions and will provide a guarantee in connection with the issuance of Farmer Mac II Guaranteed Securities only to the extent that either Farmer Mac or Farmer Mac II LLC is approached by an investor.  The contributed USDA-guaranteed portions had previously been presented as Farmer Mac II Guaranteed Securities on the condensed consolidated financial statements of Farmer Mac and are now presented as “USDA Guaranteed Securities” on the condensed consolidated balance sheets.  The financial information presented in this report reflects the accounts of Farmer Mac and its subsidiaries on a consolidated basis.  Accordingly, Farmer Mac’s reportable operating segments presented in this report will differ from the stand-alone financial statements of Farmer Mac II LLC.  Those separate financial statements are available on the website of Farmer Mac II LLC.

The assets of Farmer Mac II LLC would be available to creditors of Farmer Mac only after all obligations owed to creditors of and equity holders in Farmer Mac II LLC had been satisfied.  As of June 30, 2010, Farmer Mac II LLC held assets with a fair value of $1.3 billion, had debt outstanding of $46.0 million, had preferred stock outstanding with a liquidation preference of $250.0 million, and had $1.0 billion of common stock outstanding, all of which is held by Farmer Mac.  For more information about the formation and operations of Farmer Mac II LLC and the features of the preferred stock issued by Farmer Mac II LLC in January 2010, see Notes 3, 5, 6 and 8 to the condensed consolidated financial statements and Note 15 to the consolidated financial statements in the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2009 filed with the SEC on March 16, 2010 (as updated by the Current Report on Form 8-K filed with the SEC on August 4, 2010).
 
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Outlook .  The agricultural sector is made up of diverse industries that respond in different ways to changes in economic conditions.  Those industries often are affected differently, sometimes positively and sometimes negatively, by prevailing economic conditions, which results in cycles where one or more industries may be under stress at any one time.  Conditions in the agricultural sector during 2009 and the first half of 2010 were more stable than the national economy in general, but agriculture was not completely insulated from the effects of the economic downturn and remained subject to traditional commodity price cycles and national agricultural and energy policy reconsideration.  Although some industries in the agricultural sector prospered, others, such as the dairy sector, experienced operating losses throughout most of 2009 due to oversupply and the worldwide economic slowdown.  This situation has only slightly moderated throughout 2010, as low-cost dairy operators began to operate close to or slightly above break-even cash flow levels.  Farmer Mac expects that the remainder of 2010 will continue to be a challenge for dairy producers, which could lead to higher delinquencies and additional provisions for losses and charge-offs.  The protein sector (i.e., cattle, poultry and pork producers) has seen continued improvement in prices received during the first half of 2010.  However, given the multi-year period of stress and recent trends in feed prices, these industries will continue to be monitored closely.  In addition, competing interests for the water supply have limited the flow to farmers in some areas to a level well below that embedded in long-standing water contract agreements.  Ethanol margins tightened during the first half of 2010, and, on average, ethanol plants operated at breakeven levels.  Federal support of this industry, in the form of an excise tax credit and an import tariff, expire at the end of 2010 and Congress is in the process of considering what, if any, future price supports should be in place.  Congress is considering an increase in the mandate for ethanol use, which would be a positive for the industry, but a reduction in or loss of current price supports via blending credits or tax policies would be detrimental to the industry.  Farmer Mac will continue to closely monitor developments in industries and geographic areas experiencing stress.  The cyclical credit issues related to the agricultural sector are expected to remain within Farmer Mac’s historical experience, but are likely to be greater than the historical average.

With respect to the agricultural operating and lending markets, recent farmland sales have reflected more limited interest and the effects of reduced profitability in some of the noted agricultural sectors.  Elevated farm input costs and lower current commodity prices have significantly squeezed profits and the related farmer demand for additional land, especially in the dairy sector and those isolated stressed irrigation water areas.  Although these factors have slowed the rapid farm real estate value appreciation of the past several years, Farmer Mac generally expects farmland values to remain stable.  Farmer Mac also monitors the establishment and evolution of governmental policies and regulations that affect farmers, ranchers, and lenders, including agricultural polices contained in the current Farm Bill due to expire in 2012.  Congress has begun the process of preparing a new Farm Bill that is targeted to be passed in 2012.
 
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Broader trends underway now, such as the deleveraging of capital, will also have an effect in reducing credit availability from traditional lenders to the agricultural sector.  Accordingly, Farmer Mac expects a growing need for financial vehicles to expand credit availability to those agricultural industries that have sound financial fundamentals, which presents both a challenge and an opportunity that Farmer Mac is actively pursuing.  For example, based on recent communications between a Farmer Mac commercial bank business partner and its banking regulator, it is expected that loans from commercial banks that are placed in the LTSPC program will receive favorable capital treatment, thereby increasing opportunities for LTSPC transactions with commercial banks.  As the disruptions in the financial industry subside and agricultural lenders’ business strategies are recast, Farmer Mac has identified and is pursuing related business opportunities and is confident new business partners will result.

Farmer Mac also foresees opportunities for continued business growth in the rural utilities segment, though not at the pace experienced during 2008 and 2009.  In the near term, Farmer Mac expects that the majority of any new rural utilities business will be in the form of direct credit exposures to both electric distribution and generation and transmission loans through purchases of those loans, rather than indirect credit exposures to those loans through AgVantage transactions.

Farmer Mac expects that, in the near term, demand for rural utilities loans will reflect the state of the general economy.  Recently, electric consumption has been reduced, which has slowed loan demand, but is expected to return as the economy strengthens.  The industry recently added significant new generation capacity for the first time since the 1970s, and in some areas planned residential and commercial development did not keep pace with generation expansion.  Nonetheless, Farmer Mac believes that the rural utilities sector is a strong and growing industry with significant needs for future financing during the next five to ten years, as capital will be needed to finance the construction of new generation and transmission facilities, modernize existing equipment, and comply with environmental regulations.  Farmer Mac’s ability to participate in the growth of the rural utilities portion of its business will be limited by Farmer Mac’s limits on borrower exposures, its overall risk tolerance, and the ability of Farmer Mac to maintain its funding costs at levels conducive to further growth in the Rural Utilities program.

The electrical power generated by and for rural electric cooperatives generally uses coal as a fuel, and Farmer Mac continues to closely monitor the risk factors associated with the electric industry and their potential effect on the Corporation’s rural utilities portfolio.  As green energy sources continue to be developed, new power transmission lines will be needed to support the development and operation of many new wind and solar power plants to transfer their power from remote locations to the ultimate consumer.  Public policy shifts in the energy sector, such as carbon tax, cap and trade legislation, and clean energy incentives, may also alter Farmer Mac’s opportunities in this area as cooperatives invest in clean energy projects and demand-side management and have more limited funding options for the construction of new coal-fired generating projects.  Any of those developments could lead to increased or decreased business volume for Farmer Mac in the rural utilities sector depending on how any new initiatives, legislation, or regulations are implemented and their effect on lending to rural utilities cooperative borrowers.
 
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With lenders in both the agricultural and rural utilities sectors continuing to face capital markets and economic challenges, Farmer Mac represents a source of liquidity, capital, and risk management to help lenders meet the borrowing needs of their customers.  Farmer Mac intends to continue to explore new possibilities for advancing the Corporation’s mission of serving the financing needs of agriculture and rural America, especially as the structures, strategies, and programs deployed by the financial markets continue to evolve in attempts to unlock the credit markets.  These efforts will take time to develop, but Farmer Mac believes that the flexibility provided in its charter is a strength that offers advantages in current market conditions.  The charter permits both (1) loan purchases, which create value in new loan originations by providing liquidity for them, and (2) guarantees and LTSPCs, which enhance the value of eligible loans already in the portfolios of lenders while reducing the required regulatory capital support for those loans.  Farmer Mac’s business strategies in the near term will focus on flexibility, identification of opportunities, and growth through multiple channels and with numerous business partners.  In pursuing these objectives, Farmer Mac intends to actively search for new program business, aggressively work with business partners to create new products, continue to improve operations with the goal of improving the customer experience, and continue to seek out new relationships and strengthen long-term relationships.

Balance Sheet Review

During first quarter 2010, Farmer Mac adopted two new accounting standards that eliminated the concept of QSPEs and amended the accounting for transfers of financial assets and the consolidation model for VIEs.  The impact upon adoption was an increase in consolidated assets and liabilities of $1.5 billion, which resulted in an incremental regulatory capital requirement of $30.4 million.  Pursuant to this new guidance, Farmer Mac routinely assesses its securitization trusts to determine whether it is the primary beneficiary and thereby required to consolidate the assets and liabilities of the trust onto its balance sheet, or if determined not to be the primary beneficiary of a previously consolidated trust, deconsolidate the assets and liabilities from its balance sheet.

As of March 31, 2010, Farmer Mac consolidated $1.1 billion of its outstanding $1.4 billion securitization trusts created when loans subject to LTSPCs were converted to Farmer Mac I Guaranteed Securities at the request of program participants.  Those securitization transactions contain provisions resulting in shared power over default mitigation decisions.  For those transactions where the power is shared with a related party (as defined by applicable accounting guidance), Farmer Mac was determined to be the primary beneficiary and thus is required to consolidate the assets and liabilities of the trust onto its balance sheet.  For those transactions where the power was shared with an unrelated party, Farmer Mac was not determined to be the primary beneficiary and is not required to consolidate the assets and liabilities of the trust onto its balance sheet.

Determinations about which business partners of Farmer Mac are related parties often depend on whether an officer or director of that business partner is a member of Farmer Mac’s board of directors, ten of whom are elected on an annual basis by the holders of Farmer Mac’s outstanding voting common stock.  Changes in the membership of the board of directors may result in Farmer Mac consolidating a trust previously disclosed as off-balance sheet, or deconsolidating a trust previously consolidated on balance sheet.  Although this will have no net effect on Farmer Mac’s net income, it may, at times, produce volatility in the statutory minimum capital Farmer Mac is required to hold.

At Farmer Mac’s Annual Meeting of Stockholders on June 3, 2010, ten directors were elected to serve one-year terms, nine of whom were re-elected as directors of Farmer Mac and one of whom was new to Farmer Mac’s board.  As a result of this change in membership of the board of directors, Farmer Mac deconsolidated $0.4 billion of securitization transactions with a business partner that was no longer a related party (as defined by applicable accounting guidance).  As of June 30, 2010, Farmer Mac consolidated $0.6 billion of its outstanding $1.4 billion securitization trusts created when loans subject to LTSPCs were converted to Farmer Mac I Guaranteed Securities at the request of program participants.
 
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For more information on Farmer Mac’s policy relating to the consolidation of VIEs, see Note 1(g) to the condensed consolidated financial statements.  For a discussion of Farmer Mac’s related party transactions, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Related Party Transactions” and Note 3 in the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2009 filed with the SEC on March 16, 2010 (as updated by the Current Report on Form 8-K filed with the SEC on August 4, 2010).

Assets .  Total assets were $7.1 billion as of June 30, 2010 and $6.1 billion as of December 31, 2009.  The increase in the first half of 2010 was largely attributable to the consolidation as of March 31, 2010 of $1.3 billion of off-balance sheet Farmer Mac Guaranteed Securities resulting from the adoption of new consolidation guidance.  During the second quarter 2010, this increase was partially offset by the deconsolidation of $0.4 billion of Farmer Mac Guaranteed Securities due to a change in related party status.  A corresponding increase to liabilities was also recorded and presented as “Debt securities of consolidated trusts held by third parties” on the condensed consolidated balance sheets.

As of June 30, 2010, Farmer Mac had $325.3 million of cash and cash equivalents, compared to $654.8 million as of December 31, 2009.  As of June 30, 2010, Farmer Mac had $1.3 billion of investment securities, compared to $1.1 billion as of December 31, 2009.

Liabilities and Total Equity .  During the six months ended June 30, 2010, total liabilities increased $0.8 billion as a result of the consolidation of trusts.  Total equity, including mezzanine equity, increased $133.1 million during the same period.  The increase in total equity was primarily the result of raising new capital.  On January 25, 2010, Farmer Mac used the proceeds from the sale of $250.0 million of preferred stock of its subsidiary, Farmer Mac II LLC, to repurchase and retire the Corporation’s $150.0 million of outstanding Series B preferred stock and to further strengthen Farmer Mac’s financial position to support the continued fulfillment of its mission.  That transaction provided Farmer Mac with additional capital at a significantly lower cost, with the net effective cost of the new $250.0 million of preferred stock of 5.77 percent per year after consideration of the consolidated tax benefits to Farmer Mac.  As a result, the net cost of the new preferred stock on Farmer Mac’s consolidated financial statements will be approximately $14.4 million per year, compared to an annual cost of $18.0 million per year for the $150.0 million of Series B preferred stock (based on the 2010 dividend rate of 12 percent for the Series B preferred stock, which was scheduled to increase to 14 percent at the end of 2010 and 16 percent in 2011).

Regulatory Capital Compliance .  Farmer Mac was in compliance with its statutory minimum capital requirement and its risk-based capital standard as of June 30, 2010.  Farmer Mac is required to hold capital at the higher of its statutory minimum capital requirement or the amount required by its risk-based capital stress test.  As of June 30, 2010, Farmer Mac’s core capital totaled $442.0 million and exceeded its statutory minimum capital requirement of $235.4 million by $206.6 million.  As of December 31, 2009, Farmer Mac’s core capital totaled $337.2 million and exceeded its statutory minimum capital requirement of $217.0 million by $120.2 million.  As of June 30, 2010, Farmer Mac’s risk-based capital stress test generated a risk-based capital requirement of $29.9 million.  Farmer Mac’s regulatory capital of $461.0 million exceeded that amount by approximately $431.1 million.  Accumulated other comprehensive income/(loss) is not a component of Farmer Mac’s core capital or regulatory capital.  For more information, see “—Liquidity and Capital Resources—Capital” and “—Regulatory Matters.”

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Off-Balance Sheet Program Activities

Farmer Mac offers approved lenders two credit enhancement alternatives to increase their liquidity or lending capacity while retaining the cash flow benefits of their loans:  (1) Farmer Mac Guaranteed Securities, which are available through each of the Farmer Mac I, Farmer Mac II and Rural Utilities programs; and (2) LTSPCs, which are available only through the Farmer Mac I and Rural Utilities programs.  For securitization trusts where Farmer Mac is the primary beneficiary, the trust assets and liabilities are included on Farmer Mac’s condensed consolidated balance sheet.  For the remainder of these transactions, and in the event of deconsolidation, both of these alternatives result in the creation of off-balance sheet obligations for Farmer Mac.  In the future, Farmer Mac will operate only that part of the Farmer Mac II program that involves the transfer of USDA-guaranteed portions to trusts and the issuance of Farmer Mac II Guaranteed Securities, and will only do so to the extent that Farmer Mac is approached or referred by an investor.  Farmer Mac will not issue Farmer Mac II Guaranteed Securities to Farmer Mac II LLC in the future.  See Note 5 to the condensed consolidated financial statements for further information regarding Farmer Mac’s off-balance sheet program activities.
 
Risk Management

Credit Risk – Loans .    Farmer Mac is exposed to credit risk resulting from the failure of borrowers to repay their loans in conjunction with a deficiency in the value of the collateral relative to the outstanding balance of the loan and the costs of liquidation.  Farmer Mac is exposed to credit risk on:
 
 
·
loans held;
 
·
loans underlying Farmer Mac Guaranteed Securities; and
 
·
loans underlying LTSPCs.
 
Farmer Mac generally assumes 100 percent of the credit risk on loans held and loans underlying Farmer Mac I Guaranteed Securities, LTSPCs and Farmer Mac Guaranteed Securities – Rural Utilities.  Farmer Mac has direct credit exposure on loans in non-AgVantage transactions and indirect credit exposure on AgVantage transactions, which involve a general obligation of a lender secured by qualified loans.  The credit exposure of Farmer Mac and Farmer Mac II LLC on USDA-guaranteed portions is covered by the full faith and credit of the United States.  Farmer Mac believes that the Corporation and Farmer Mac II LLC have little or no credit risk exposure to USDA-guaranteed portions because of the USDA guarantee.  As of June 30, 2010, neither Farmer Mac nor Farmer Mac II LLC had experienced any credit losses on any USDA-guaranteed portions or Farmer Mac II Guaranteed Securities and does not expect to incur any such losses in the future.
 
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Farmer Mac has established underwriting, collateral valuation and documentation standards for eligible loans to mitigate the risk of loss from borrower defaults and to provide guidance concerning the management, administration and conduct of underwriting and appraisals to all participating sellers and potential sellers in its programs.  In general, Farmer Mac limits its maximum loan size to $22.5 million for transactions involving direct exposure to credit risk on loans and $50.0 million for AgVantage and similar Rural Utilities transactions that involve a general obligation of a lender and include indirect exposure to credit risk on the underlying loans.  More detailed information regarding loan limits and Farmer Mac’s underwriting and collateral valuation standards and seller eligibility requirements are presented in “Business—Farmer Mac Programs—Farmer Mac I—Underwriting and Collateral Valuation (Appraisal) Standards,” “Business—Farmer Mac Programs—Farmer Mac I—Sellers” and “Business—Farmer Mac Programs—Rural Utilities” in the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2009 filed with the SEC on March 16, 2010.

Farmer Mac has developed different underwriting standards for rural utilities loans that depend on whether direct or indirect credit exposure is assumed on a loan and whether the borrower is an electric distribution cooperative or a generation and transmission cooperative.  As of June 30, 2010, there were no delinquencies or non-performing assets in Farmer Mac’s portfolio of rural utilities loans, which includes rural utilities loans held and rural utilities loans underlying or securing Farmer Mac Guaranteed Securities – Rural Utilities.  Farmer Mac’s current direct credit exposure to rural utilities loans as of June 30, 2010 was $572.1 million, all of which loans were to electric distribution cooperatives.  Farmer Mac also had indirect credit exposure to the rural utilities loans securing Farmer Mac Guaranteed Securities – Rural Utilities structured as AgVantage securities, some of which were secured by loans to generation and transmission cooperatives.  See “—Credit Risk – Institutional” for more information about Farmer Mac’s credit risk on AgVantage securities.

Farmer Mac AgVantage securities are general obligations of institutions approved by Farmer Mac and are secured by eligible loans in an amount at least equal to the outstanding principal amount of the security.  Farmer Mac excludes the loans that secure AgVantage securities from the credit risk metrics it discloses because of the credit quality of the issuing institutions, the collateralization level for the securities, and because delinquent loans are required to be removed from the pool of pledged loans and replaced with current eligible loans.  As of June 30, 2010, Farmer Mac had not experienced any credit losses on any AgVantage securities and does not expect to incur any such losses in the future.

Farmer Mac maintains an allowance for losses to cover estimated probable losses on loans held and loans underlying Farmer Mac I Guaranteed Securities, LTSPCs and Farmer Mac Guaranteed Securities – Rural Utilities.  The methodology that Farmer Mac uses to determine the level of its allowance for losses is described in “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Estimates—Allowance for Losses” in the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2009 filed with the SEC on March 16, 2010 (as updated by the Current Report on Form 8-K filed with the SEC on August 4, 2010).  Management believes that this methodology produces a reliable estimate of probable losses, as of the balance sheet date, for all loans held and loans underlying Farmer Mac Guaranteed Securities and LTSPCs, in accordance with FASB standards on accounting for contingencies and on measuring individual impairment of a loan.
 
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The following table summarizes the components of Farmer Mac’s allowance for losses as of June 30, 2010 and December 31, 2009:

   
June 30,
   
December 31,
 
   
2010
   
2009
 
   
(in thousands)
 
Allowance for loan losses
  $ 9,495     $ 6,292  
Reserve for losses:
               
Off-balance sheet Farmer Mac I Guaranteed Securities
    560       2,033  
LTSPCs
    8,910       5,862  
      Total
  $ 18,965     $ 14,187  

Upon the adoption of the new consolidation guidance on January 1, 2010, Farmer Mac reclassified $2.0 million from the reserve for losses to the allowance for loan losses as a result of Farmer Mac being determined the primary beneficiary of certain VIEs with beneficial interests owned by third party investors.  In June 2010, Farmer Mac deconsolidated certain VIEs with beneficial interests owned by third party investors because Farmer Mac was no longer determined to be the primary beneficiary.  This deconsolidation did not result in a material reclassification from the allowance for loan losses to the reserve for losses during second quarter 2010.  Consolidated interests in VIEs with beneficial interests owned by third party investors are presented as “loans held for investment in consolidated trusts” on Farmer Mac’s condensed consolidated balance sheets.  Upon deconsolidation, Farmer Mac classifies these interests as off-balance sheet Farmer Mac Guaranteed Securities.

The following table summarizes the changes in the components of Farmer Mac’s allowance for losses for the three and six months ended June 30, 2010 and 2009:

   
June 30, 2010
   
June 30, 2009
 
   
Allowance
         
Total
   
Allowance
         
Total
 
   
for Loan
   
Reserve
   
Allowance
   
for Loan
   
Reserve
   
Allowance
 
   
Losses
   
for Losses
   
for Losses
   
Losses
   
for Losses
   
for Losses
 
   
(in thousands)
 
For the Three Months Ended:
                                   
Beginning balance
  $ 9,142     $ 6,427     $ 15,569     $ 13,228     $ 8,025     $ 21,253  
Provision/(recovery) for losses
    (1,870 )     3,043       1,173       (5,693 )     (529 )     (6,222 )
Charge-offs
    -       -       -       (5,725 )     -       (5,725 )
Recoveries
    2,223       -       2,223       -       -       -  
Ending balance
  $ 9,495     $ 9,470     $ 18,965     $ 1,810     $ 7,496     $ 9,306  
                                                 
For the Six Months Ended:
                                               
Beginning balance
  $ 6,292     $ 7,895     $ 14,187     $ 10,929     $ 5,506     $ 16,435  
Provision/(recovery) for losses
    980       1,575       2,555       (2,159 )     1,990       (169 )
Charge-offs
    -       -       -       (7,725 )     -       (7,725 )
Recoveries
    2,223       -       2,223       765       -       765  
Ending balance
  $ 9,495     $ 9,470     $ 18,965     $ 1,810     $ 7,496     $ 9,306  

 
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During the three and six months ended June 30, 2010, Farmer Mac recorded a provision to its allowance for losses of $1.2 million and $2.6 million, respectively, compared to releases of its allowance for losses of $6.2 million and $0.2 million, respectively, for the same periods in 2009.  Farmer Mac recorded no charge-offs during the three and six months ended June 30, 2010, compared to charge-offs of $5.7 million and $7.7 million during the same periods in 2009.  Farmer Mac recorded recoveries of $2.2 million for both the three and six months ended June 30, 2010, compared to no recoveries in three months ended June 30, 2009 and $0.8 million in recoveries for the six months ended June 30, 2009.  There was no previously accrued or advanced interest on loans or Farmer Mac I Guaranteed Securities charged off in second quarter 2010 or second quarter 2009.  As of June 30, 2010, Farmer Mac’s allowance for losses totaled $19.0 million, or 44 basis points of the outstanding principal balance of loans held and loans underlying Farmer Mac I Guaranteed Securities (excluding AgVantage securities) and LTSPCs, compared to $14.2 million or 32 basis points as of December 31, 2009.

As of June 30, 2010, Farmer Mac’s 90-day delinquencies were $56.0 million (1.30 percent), compared to $42.3 million (0.95 percent) as of June 30, 2009.  Ethanol loans comprised $10.9 million of the 90-day delinquencies as of June 30, 2010, compared to $18.8 million as of June 30, 2009.  As of June 30, 2010, Farmer Mac’s non-performing assets totaled $71.3 million (1.66 percent), compared to $97.1 million (2.17 percent) as of June 30, 2009.  Ethanol loans comprised $10.9 million of non-performing assets as of June 30, 2010, compared to $59.7 million as of June 30, 2009.  Loans that have been restructured were insignificant and are included within the reported 90-day delinquency and non-performing asset disclosures.  From quarter to quarter, Farmer Mac anticipates that 90-day delinquencies and non-performing assets will fluctuate, both in dollars and as a percentage of the outstanding portfolio, with higher levels likely at the end of the first and third quarters of each year corresponding to the annual (January 1 st ) and semi-annual (January 1 st and July 1 st ) payment characteristics of most Farmer Mac I loans.

As of June 30, 2010, Farmer Mac’s ethanol exposure, which includes loans held and loans subject to LTSPCs, was $239.8 million on 29 different plants, with an additional $50.9 million of undisbursed commitments.  Other than the undisbursed commitments, Farmer Mac is not seeking to add more ethanol loan exposure to its portfolio.

 
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The following table presents historical information regarding Farmer Mac’s non-performing assets and 90-day delinquencies in the Farmer Mac I program compared to the principal balance of all loans held and loans underlying Farmer Mac I Guaranteed Securities (excluding AgVantage securities) and LTSPCs:

   
Outstanding
                               
    
Loans,
               
Less:
             
    
Guarantees (1),
   
Non-
         
REO and
             
    
LTSPCs,
   
performing
         
Performing
   
90-day
       
   
and REO
   
Assets
   
Percentage
   
Bankruptcies
   
Delinquencies
   
Percentage
 
   
(dollars in thousands)
 
As of:
                                   
June 30, 2010
  $ 4,299,417     $ 71,300    
1.66%
    $ 15,289     $ 56,011    
1.30%
 
March 31, 2010
    4,303,663       83,977    
1.95%
      13,542       70,435    
1.64%
 
December 31, 2009
    4,396,642       62,020    
1.41%
      12,494       49,526    
1.13%
 
September 30, 2009
    4,379,450       84,779    
1.94%
      25,341       59,438    
1.36%
 
June 30, 2009
    4,471,567       97,123    
2.17%
      54,816       42,307    
0.95%
 
March 31, 2009
    4,530,892       96,175    
2.12%
      9,941       86,234    
1.90%
 
December 31, 2008
    4,983,963       80,032    
1.61%
      12,912       67,120    
1.35%
 
September 30, 2008
    4,989,755       32,883    
0.66%
      21,402       11,481    
0.23%
 
June 30, 2008
    4,937,870       28,230    
0.57%
      23,060       5,170    
0.11%
 

(1) Excludes loans underlying AgVantage securities.

As of June 30, 2010, Farmer Mac individually analyzed $49.2 million of its $147.4 million of impaired assets for collateral shortfalls against updated appraised values, other updated collateral valuations or discounted values.  Farmer Mac evaluated the remaining $98.2 million of impaired assets for which updated valuations were not available in the aggregate in consideration of their similar risk characteristics and historical statistics.  As of June 30, 2010, Farmer Mac had recorded specific allowances of $3.0 million for under-collateralized assets.  Farmer Mac’s non-specific or general allowances were $16.0 million as of June 30, 2010.

As of June 30, 2010, the weighted-average original loan-to-value ratio (“LTV”) for loans held and loans underlying LTSPCs and Farmer Mac I Guaranteed Securities (excluding AgVantage securities) was 51.2 percent, and the weighted-average original LTV for all non-performing assets was 54.6 percent.

 
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The following table presents outstanding loans held and loans underlying LTSPCs and Farmer Mac I Guaranteed Securities (excluding AgVantage securities) and non-performing assets as of June 30, 2010 by year of origination, geographic region and commodity/collateral type.

Farmer Mac I Non-performing Assets as of June 30, 2010
 
   
Distribution of
 
Outstanding
             
   
Outstanding
 
Loans,
             
   
Loans,
 
Guarantees,
   
Non-
   
Non-
 
   
Guarantees,
 
LTSPCs
   
performing
   
performing
 
   
LTSPCs and REO
 
and REO (1)
   
Assets (2)
   
Asset Rate
 
   
(dollars in thousands)
 
By year of origination:
                     
Before 1997
 
7%
  $ 294,463     $ 7,526    
2.56%
 
1997
 
3%
    114,511       1,634    
1.43%
 
1998
 
4%
    169,036       3,912    
2.31%
 
1999
 
5%
    227,130       2,749    
1.21%
 
2000
 
3%
    117,116       1,105    
0.94%
 
2001
 
5%
    220,277       6,900    
3.13%
 
2002
 
7%
    294,580       5,644    
1.92%
 
2003
 
8%
    341,848       3,878    
1.13%
 
2004
 
6%
    279,141       1,420    
0.51%
 
2005
 
10%
    410,563       2,189    
0.53%
 
2006
 
11%
    462,031       1,890    
0.41%
 
2007
 
10%
    436,435       21,766    
4.99%
 
2008
 
10%
    461,879       10,687    
2.31%
 
2009
 
6%
    274,210       -    
0.00%
 
2010
 
5%
    196,197       -    
0.00%
 
Total
 
100%
  $ 4,299,417     $ 71,300    
1.66%
 
                           
By geographic region (1):
                         
Northwest
 
15%
  $ 655,873     $ 17,375    
2.65%
 
Southwest
 
40%
    1,692,623       16,438    
0.97%
 
Mid-North
 
21%
    920,198       17,116    
1.86%
 
Mid-South
 
12%
    534,883       11,030    
2.06%
 
Northeast
 
8%
    338,517       4,068    
1.20%
 
Southeast
 
4%
    157,323       5,273    
3.35%
 
Total
 
100%
  $ 4,299,417     $ 71,300    
1.66%
 
                           
By commodity/collateral type:
                         
Crops
 
40%
  $ 1,692,849     $ 25,299    
1.49%
 
Permanent plantings
 
19%
    831,908       12,536    
1.51%
 
Livestock
 
27%
    1,180,931       15,741    
1.33%
 
Part-time farm/rural housing
 
7%
    314,928       6,600    
2.10%
 
Ag storage and processing
                         
(including ethanol facilities)
 
6%
    252,639       10,893    
4.31%
 
Other
 
1%
    26,162       231    
0.88%
 
Total
 
100%
  $ 4,299,417     $ 71,300    
1.66%
 

(1)
Excludes loans underlying AgVantage securities.
(2)
Includes loans 90 days or more past due, in foreclosure, restructured after delinquency, in bankruptcy (including loans performing under either their original loan terms or a court-approved bankruptcy plan), and real estate owned.
(3)
Geographic regions - Northwest (AK, ID, MT, ND, NE, OR, SD, WA, WY); Southwest (AZ, CA, CO, HI, NM, NV, UT); Mid-North (IA, IL, IN, MI, MN, MO, WI); Mid-South (KS, OK, TX); Northeast (CT, DE, KY, MA, MD, ME, NC, NH, NJ, NY, OH, PA, RI, TN, VA, VT, WV); and Southeast (AL, AR, FL, GA, LA, MS, SC).

 
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The following table presents Farmer Mac’s cumulative net credit losses relative to the cumulative original balance for all loans purchased and loans underlying LTSPCs and Farmer Mac I Guaranteed Securities (excluding AgVantage securities) as of June 30, 2010, by year of origination, geographic region and commodity/collateral type.  The purpose of this information is to present information regarding losses relative to original guarantees and commitments.

Farmer Mac I Credit Losses Relative to all
 
Cumulative Original Loans, Guarantees and LTSPCs
 
As of June 30, 2010
 
                   
   
Cumulative
             
   
Original Loans,
   
Cumulative
   
Cumulative
 
    
Guarantees and
   
Net Credit
   
Loss
 
   
LTSPCs
   
Losses
   
Rate
 
   
(dollars in thousands)
 
By year of origination:
                 
Before 1997
  $ 3,449,100     $ 1,593    
0.05%
 
1997
    765,895       2,256    
0.29%
 
1998
    1,142,569       3,885    
0.34%
 
1999
    1,164,917       1,291    
0.11%
 
2000
    763,480       2,550    
0.33%
 
2001
    1,121,439       45    
0.00%
 
2002
    1,123,116       -    
0.00%
 
2003
    931,446       -    
0.00%
 
2004
    652,102       32    
0.00%
 
2005
    778,419       131    
0.02%
 
2006
    809,238       7,689    
0.95%
 
2007
    582,272       750    
0.13%
 
2008
    578,451       1,821    
0.31%
 
2009
    323,946       1,193    
0.37%
 
2010
    216,792       -    
0.00%
 
Total
  $ 14,403,182     $ 23,236    
0.16%
 
By geographic region (1):
                     
Northwest
  $ 2,632,691     $ 10,569    
0.40%
 
Southwest
    5,657,975       6,010    
0.11%
 
Mid-North
    2,451,650       6,659    
0.27%
 
Mid-South
    1,336,984       (314 )  
-0.02%
 
Northeast
    1,299,422       83    
0.01%
 
Southeast
    1,024,460       229    
0.02%
 
Total
  $ 14,403,182     $ 23,236    
0.16%
 
By commodity/collateral type:
                     
Crops
  $ 5,772,301     $ 1,309    
0.02%
 
Permanent plantings
    3,193,304       9,378    
0.29%
 
Livestock
    3,732,126       2,676    
0.07%
 
Part-time farm/rural housing
    1,010,283       371    
0.04%
 
Ag storage and processing
                     
(including ethanol facilities) (2)
    545,556       9,502    
1.74%
 
Other
    149,612       -    
0.00%
 
Total
  $ 14,403,182     $ 23,236    
0.16%
 

(1)
Geographic regions - Northwest (AK, ID, MT, ND, NE, OR, SD, WA, WY); Southwest (AZ, CA, CO, HI, NM, NV, UT); Mid-North (IA, IL, IN, MI, MN, MO, WI); Mid-South (KS, OK, TX);Northeast (CT, DE, KY, MA, MD, ME, NC, NH, NJ, NY, OH, PA, RI, TN, VA, VT, WV); and Southeast (AL, AR, FL, GA, LA, MS, SC).

(2)
Several of the loans underlying agricultural storage and processing LTSPCs are for facilities under construction and, as of June 30, 2010, approximately $50.9 million of the loans were not yet disbursed by the lender.

 
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Historically, losses and collateral deficiencies have been less prevalent in the loans secured by real estate producing agricultural commodities that receive significant government support (such as cotton, soybeans, wheat, and corn) and more prevalent in those that do not receive such support (such as the protein sector, permanent plantings and vegetables). However, the level of government support may vary and is not necessarily the primary factor to forecast future losses and collateral deficiencies. In Farmer Mac’s experience, another significant determinant of ultimate losses on loans is the degree to which the collateral is specialized or highly improved, such as permanent plantings and facilities. As adverse economic conditions persist for the agricultural commodities or products related to those types of collateral, the prospective sale value of the collateral is likely to decrease and the related loans may become under-collateralized.

This analysis is consistent with corresponding commodity analyses, which indicate that Farmer Mac has experienced higher loss and collateral deficiency rates in its loans classified as permanent plantings as well as storage and processing loans, which include Farmer Mac’s exposure to loans on ethanol plants.  Most of the loans classified as permanent plantings do not receive significant government support and are therefore more susceptible to adverse commodity-specific economic trends, while the collateral for storage and processing loans is typically highly improved and specialized.  Farmer Mac anticipates that one or more particular commodity groups will be under economic pressure at any one time and actively manages its portfolio to mitigate concentration risks while preserving Farmer Mac’s ability to meet the financing needs of all commodity groups.  See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Results of Operations—Outlook.”

Analysis of portfolio performance by geographic distribution indicates that, while commodities are the primary determinant of exposure to loss, within most commodity groups certain geographic areas allow greater economies of scale or proximity to markets than others and, consequently, result in more successful farms within the commodity group.  Likewise, certain geographic areas offer better growing conditions than others and, consequently, result in more versatile and more successful farms within a given commodity group – and the ability to switch crops among commodity groups.

Farmer Mac’s methodologies for pricing its guarantee and commitment fees, managing credit risks and providing adequate allowances for losses consider all of the foregoing factors and information.

Credit Risk – Institutional .  Farmer Mac is also exposed to credit risk arising from its business relationships with other institutions, including:
 
 
·
issuers of AgVantage securities and other investments held or guaranteed by Farmer Mac;
 
·
sellers and servicers; and
 
·
interest rate swap contract counterparties.

 
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AgVantage securities are general obligations of the AgVantage issuers and are secured by eligible loans in an amount at least equal to the outstanding principal amount of the security, with some level of overcollateralization also required for Farmer Mac I AgVantage securities.  The required collateralization level is established at the time of issuance and does not change during the life of the security.  In AgVantage transactions, the corporate obligor is required to remove from the pool of pledged collateral any loan that becomes more than 30 days delinquent in the payment of principal or interest and to substitute an eligible loan that is current in payment to maintain the minimum required collateralization level.  In the event of a default on the general obligation, Farmer Mac would have recourse to the pledged collateral and have rights to the ongoing borrower payments of principal and interest.  For a more detailed description of AgVantage securities, see “Business—Farmer Mac Programs—Farmer Mac I—AgVantage Securities” in the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2009 filed with the SEC on March 16, 2010.

Outstanding AgVantage on-balance sheet Farmer Mac I Guaranteed Securities totaled $43.6 million and $48.8 million as of June 30, 2010 and December 31, 2009, respectively.  Farmer Mac Guaranteed Securities – Rural Utilities structured as AgVantage transactions issued by National Rural totaled $1.6 billion and $1.7 billion as of June 30, 2010 and December 31, 2009, respectively.  In addition, outstanding off-balance sheet AgVantage Farmer Mac I Guaranteed Securities totaled $2.9 billion as of June 30, 2010 and December 31, 2009.  The following table provides information about the issuers of AgVantage securities, as well as the required collateralization levels for those transactions as of June 30, 2010 and December 31, 2009.

   
June 30, 2010
   
December 31, 2009
 
          
Credit
   
Required
         
Credit
   
Required
 
Counterparty
 
Balance
   
Rating
   
Collateralization
   
Balance
   
Rating
   
Collateralization
 
   
(dollars in thousands)
 
                                     
MetLife (1)
  $ 2,500,000    
AA-
   
103%
    $ 2,500,000    
AA-
   
103%
 
National Rural
    1,601,593    
A
   
100%
      1,689,240    
A
   
100%
 
M&I Bank
    475,000    
BBB
   
106%
      475,000    
BBB
   
106%
 
Other (2)
    13,550    
N/A
   
111% to 120%
       18,800    
N/A
   
111% to 120%
  
Total outstanding
  $ 4,590,143                 $ 4,683,040              

(1)
MetLife was put on credit watch negative (*-) in February 2010.
(2)
Consists of AgVantage securities issued by 5 different issuers as of June 30, 2010 and 6 different issuers as of December 31, 2009.
 
Farmer Mac manages institutional credit risk related to sellers and servicers by requiring those institutions to meet Farmer Mac’s standards for creditworthiness.  Farmer Mac monitors the financial condition of those institutions by evaluating financial statements and bank credit rating agency reports.  For more information on Farmer Mac’s approval of sellers, see “Business—Farmer Mac Programs—Farmer Mac I—Sellers” in the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2009 filed with the SEC on March 16, 2010.

Credit Risk – Other Investments .  As of June 30, 2010, Farmer Mac had $325.3 million of cash and cash equivalents and $1.3 billion of investment securities.  The management of the credit risk inherent in these investments is governed by Farmer Mac’s own policies and FCA’s Liquidity and Investment Regulations.

 
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In general, these policies and regulations require each investment or issuer of an investment to be highly rated by a nationally-recognized statistical rating organization (“NRSRO”).  Investments in mortgage securities and asset-backed securities are required to have a rating in the highest NRSRO category.  Corporate debt securities with maturities of no more than five years but more than three years are required to be rated in one of the two highest categories; corporate debt securities with maturities of three years or less are required to be rated in one of the three highest categories.  There are investments for which a rating is not required, such as obligations of the United States or diversified investment funds regulated under the Investment Company Act of 1940.  Investments in diversified investment funds are further limited to those funds that are holding only instruments approved for direct investment by Farmer Mac.

FCA’s Liquidity and Investment Regulations and Farmer Mac’s policies also establish concentration limits, which are intended to limit exposure to any one counterparty.  FCA’s Liquidity and Investment Regulations limit Farmer Mac’s total credit exposure to any single issuer of securities and uncollateralized financial derivatives is limited by regulation to 25 percent of the Corporation’s regulatory capital (as of June 30, 2010, 25 percent of Farmer Mac’s regulatory capital was $115.2 million).  This limitation is not applied to the obligations of the United States or to qualified investment funds.  The limitation applied to the obligations of any GSE is 100 percent of Farmer Mac’s regulatory capital.  Since June 2009, Farmer Mac’s policies applicable to new investments have limited the Corporation’s total exposure to any single issuer of securities and uncollateralized financial derivatives to the lower of (1) 10 percent of the Corporation’s regulatory capital and (2) 50 percent of the expected net interest income from the investment portfolio over 12 months.
 
Interest Rate Risk .  Farmer Mac is subject to interest rate risk on all assets held for investment because of possible timing differences in the cash flows of the assets and related liabilities.  This risk is primarily related to loans held and on-balance sheet Farmer Mac Guaranteed Securities due to the ability of borrowers to prepay their mortgages before the scheduled maturities, thereby increasing the risk of asset and liability cash flow mismatches.  Cash flow mismatches in a changing interest rate environment can reduce the earnings of the Corporation if assets repay sooner than expected and the resulting cash flows must be reinvested in lower-yielding investments when Farmer Mac’s funding costs cannot be correspondingly reduced, or if assets repay more slowly than expected and the associated debt must be replaced by higher-cost debt.

Yield maintenance provisions and other prepayment penalties contained in many agricultural mortgage and rural utilities loans reduce, but do not eliminate, prepayment risk, particularly in the case of a defaulted loan where yield maintenance may not be collected.  Those provisions require borrowers to make an additional payment when they prepay their loans so that, when reinvested with the prepaid principal, yield maintenance payments generate substantially the same cash flows that would have been generated had the loan not prepaid.  Those provisions create a disincentive to prepayment and compensate the Corporation for some of its interest rate risks.  As of June 30, 2010, 17 percent of the outstanding balance of loans in the Farmer Mac I program where Farmer Mac either owned the loan or the beneficial interest in the underlying loan had yield maintenance provisions and 8 percent had other forms of prepayment protection (together covering 48 percent of all loans with fixed interest rates).  Of the Farmer Mac I current loans purchased in second quarter 2010, none had yield maintenance or other forms of prepayment protection.  As of June 30, 2010, none of the USDA-guaranteed portions held or underlying Farmer Mac II Guaranteed Securities had yield maintenance provisions; however, 12 percent contained prepayment penalties.  Of the USDA-guaranteed portions purchased in the first six months of 2010, 8 percent contained various forms of prepayment penalties.  As of June 30, 2010, 29 percent of the rural utilities loans owned by Farmer Mac had yield maintenance provisions.  Of the rural utilities loans purchased in second quarter 2010, 37 percent had yield maintenance provisions.  As of June 30, 2010, all of the rural utilities loans held in trusts where Farmer Mac owned the beneficial interest in the underlying loan had yield maintenance provisions.

 
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Taking into consideration the prepayment provisions and the default probabilities associated with its mortgage assets, Farmer Mac uses prepayment models to project and value cash flows associated with these assets.  Because borrowers’ behaviors in various interest rate environments may change over time, Farmer Mac periodically evaluates the effectiveness of these models compared to actual prepayment experience and adjusts and refines the models as necessary to improve the precision of subsequent prepayment forecasts.

Farmer Mac’s $325.3 million of cash and cash equivalents mature within three months and are funded with discount notes having similar maturities.  As of June 30, 2010, $743.4 million of the $1.3 billion of investment securities (59 percent) were floating rate securities with rates that adjust within one year or fixed rate securities with original maturities between three months and one year.  Such securities are funded with floating rate medium-term notes or discount notes that closely match the rate adjustment dates of the associated investments. As of June 30, 2010, Farmer Mac had outstanding discount notes of $2.1 billion, medium-term notes that mature within one year of $1.1 billion and medium-term notes that mature after one year of $2.3 billion.

The goal of interest rate risk management at Farmer Mac is to create and maintain a portfolio that generates stable earnings and value across a variety of interest rate environments.  Farmer Mac’s primary strategy for managing interest rate risk is to fund asset purchases with liabilities that have similar durations and cash flows so that they will perform similarly as interest rates change.  To achieve this match, Farmer Mac issues discount notes and both callable and non-callable medium-term notes across a spectrum of maturities.  Farmer Mac issues callable debt to offset the prepayment risk associated with some loans.  By using a blend of liabilities that includes callable debt, the interest rate sensitivities of the liabilities tend to increase or decrease as interest rates change in a manner similar to changes in the interest rate sensitivities of the assets.  Farmer Mac also uses financial derivatives to better match the durations of the Corporation’s assets and liabilities, thereby reducing overall interest rate sensitivity.

An important “stress test” of Farmer Mac’s exposure to long-term interest rate risk is the measurement of the sensitivity of its market value of equity (“MVE”) to yield curve shocks.  MVE represents management’s estimate of the present value of all future cash flows from on- and off-balance sheet assets, liabilities and financial derivatives, discounted at current interest rates and appropriate spreads.  Farmer Mac’s MVE sensitivity decreased significantly during the first half of 2010.  This reduction in sensitivity resulted from the $250.0 million of preferred stock issued by the Corporation’s subsidiary, Farmer Mac II LLC.  This transaction extended the duration of Farmer Mac’s liabilities relative to its assets thereby reducing MVE sensitivity.  The following schedule summarizes the results of Farmer Mac’s MVE sensitivity analysis as of June 30, 2010 and December 31, 2009 to an immediate and instantaneous uniform or “parallel” shift in the yield curve.

 
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Percentage Change in MVE from
Base Case
 
Interest Rate
 
June 30,
   
December 31,
 
Scenario
 
2010
   
2009
 
+ 300 bp
 
3.4%
   
-23.1%
 
+ 200 bp
 
4.9%
   
-13.8%
 
+ 100 bp
 
4.1%
   
-5.4%
 
- 100 bp
 
*
   
*
 
- 200 bp
 
*
   
*
 
- 300 bp
 
*
   
*
 

*
As of the date indicated, a parallel shift of the U.S. Treasury yield curve by the number of basis points indicated produced negative interest rates for portions or all of this curve.

As of June 30, 2010, Farmer Mac’s effective duration gap, another standard measure of interest rate risk that measures the difference between the sensitivities of assets compared to that of liabilities, was minus 2.2 months, compared to plus 1.1 months as of December 31, 2009.  This change in duration gap is also attributable to the preferred stock issued by Farmer Mac II LLC.  Duration matching helps to maintain the correlation of cash flows and stabilize portfolio earnings even when interest rates are not stable.

Farmer Mac also calculates the sensitivity of net interest income (“NII”) to changes in interest rates which represents a shorter-term measure of interest rate risk.  As of June 30, 2010, a parallel increase of 100 basis points would have decreased Farmer Mac’s NII by 7.1 percent, while a parallel decrease of 25 basis points would have decreased NII by 3.2   percent.  Farmer Mac also measures the sensitivity of both MVE and NII to a variety of non-parallel interest rate shocks, including flattening and steepening yield curve scenarios.  As of June 30, 2010, both MVE and NII showed similar or lesser sensitivity to non-parallel shocks than to the parallel shocks.

The economic effects of financial derivatives are included in the Corporation’s MVE, NII and duration gap analyses.  Farmer Mac enters into the following financial derivative transactions principally to protect against risk from the effects of market price or interest rate movements on the value of assets, future cash flows, credit exposure and debt issuance, not for trading or speculative purposes:
 
 
·
“pay-fixed” interest rate swaps, in which it pays fixed rates of interest to, and receives floating rates of interest from, counterparties;
 
·
“receive-fixed” interest rate swaps, in which it receives fixed rates of interest from, and pays floating rates of interest to, counterparties;
 
·
“basis swaps,” in which it pays variable rates of interest based on one index to, and receives variable rates of interest based on another index from, counterparties; and

 
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·
“credit default swaps,” in which it pays a periodic fee to a counterparty in exchange for the counterparty’s agreement to make payments in the event of an instrument’s default or other credit event.
 
As of June 30, 2010, Farmer Mac had $4.1 billion combined notional amount of interest rate and credit default swaps, with terms ranging from one to fifteen years, of which $1.3 billion were pay-fixed interest rate swaps, $2.5 billion were receive-fixed interest rate swaps, $0.2 billion were basis swaps and $30.0 million were credit default swaps.
 
Liquidity and Capital Resources

Farmer Mac depends on regular access to the capital markets for liquidity, and Farmer Mac maintained access to the capital markets at favorable rates throughout second quarter 2010.  Assuming continuation of current market conditions, Farmer Mac believes it has sufficient liquidity and capital resources to support its operations for the next 12 months and for the foreseeable future.  Farmer Mac also has a liquidity contingency plan to manage unanticipated disruptions in its access to the capital markets.  That plan involves borrowing through repurchase agreement arrangements and the sale of liquid assets.  In accordance with the calculation prescribed by FCA regulations, Farmer Mac maintains a minimum of 60 days of liquidity and a target of 90 days of liquidity.  In accordance with the methodology prescribed by those regulations, Farmer Mac maintained an average of 155 days of liquidity during second quarter 2010 and had 169 days of liquidity as of June 30, 2010.

Debt Issuance .  Farmer Mac funds its purchases of program and non-program assets primarily by issuing debt obligations of various maturities in the public capital markets.  Debt obligations issued by Farmer Mac include discount notes and fixed and floating rate medium-term notes, including callable notes.  Farmer Mac also issues discount notes and medium-term notes to obtain funds to finance its investment activities, transaction costs, guarantee payments and LTSPC purchase obligations.  See “Business—Financing—Debt Issuance” in the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2009 filed with the SEC on March 16, 2010 for more information about Farmer Mac’s debt issuance.

Farmer Mac’s board of directors has authorized the issuance of up to $7.0 billion of discount notes and medium-term notes (of which $5.5 billion was outstanding as of June 30, 2010), subject to periodic review of the adequacy of that level relative to Farmer Mac’s borrowing requirements.  Farmer Mac invests the proceeds of such issuances in loans, Farmer Mac Guaranteed Securities, and non-program investment assets in accordance with policies established by its board of directors and subject to regulations established by FCA.

Liquidity .  The funding and liquidity needs of Farmer Mac’s business are driven by the purchase of loans, USDA-guaranteed portions and Farmer Mac Guaranteed Securities; the maturities of and interest payments on Farmer Mac’s discount notes and medium-term notes; and payment of principal and interest on Farmer Mac Guaranteed Securities.  Farmer Mac’s primary sources of funds to meet these needs are:
 
 
·
principal and interest payments and ongoing guarantee and commitment fees received on loans, Farmer Mac Guaranteed Securities, and LTSPCs;
 
·
principal and interest payments received from investment securities; and

 
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·
the issuance of new discount notes and medium-term notes.

Farmer Mac’s short-term borrowing costs have remained at favorable levels despite continued market volatility.  Prior to 2009, Farmer Mac historically used pay-fixed interest rate swaps, combined with a planned series of discount note issuances, as an alternative source of effectively fixed rate funding.  While the swap market may have provided favorable effectively fixed rates, interest rate swap transactions expose Farmer Mac to the risk of future widening of its own issuance spreads versus corresponding LIBOR rates.  If the spreads on the Farmer Mac discount notes were to increase relative to LIBOR, Farmer Mac would be exposed to a commensurate reduction on its net interest yield on the notional amount of its pay-fixed interest rate swaps and its LIBOR-based floating rate assets.  Conversely, if the rates on the Farmer Mac discount notes were to decrease relative to LIBOR, Farmer Mac would benefit from a commensurate increase on its net interest yield on the notional amount of its pay-fixed interest rate swaps and its LIBOR-based floating rate assets.  Further, the widespread use of pay-fixed interest rate swaps subjected the Corporation’s regulatory capital surplus to the potential adverse effects of a downward move in the fair values of those interest rate swaps.  Such a downward move was seen in the third and fourth quarters of 2008.  Since September 2008, Farmer Mac has systematically entered into various offsetting interest rate swaps (receive-fixed swaps) to counteract the fair value movements of previously-existing swaps.  These transactions have dampened the susceptibility of Farmer Mac’s regulatory capital surplus to changes in the fair values of its financial derivatives.  Farmer Mac remains cautious about using pay-fixed interest rate swaps, but may use that type of financial derivative as necessary in the future to manage specific interest rate risks for specific transactions.

The following table presents Farmer Mac’s cash and cash equivalents and investment securities which, in addition to the proceeds from the issuance of discount notes and medium-term notes, comprise Farmer Mac’s primary sources of liquidity.

   
June 30,
   
December 31,
 
   
2010
   
2009
 
   
(in thousands)
 
Cash and cash equivalents
  $ 325,333     $ 654,794  
Investment securities:
               
Guaranteed by US Government agencies
    636,489       635,679  
Guaranteed by GSEs
    340,907       117,760  
Corporate debt securities
    195,916       245,605  
Asset-backed securities principally backed by Government
               
 guaranteed student loans (1)
    84,020       132,851  
 Total
  $ 1,582,665     $ 1,786,689  

(1)  
None of Farmer Mac's asset-backed securities were backed by sub-prime or Alt-A residential or commercial mortgages or home-equity loans.

 
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Farmer Mac’s asset-backed investment securities include callable, AAA-rated auction-rate certificates (“ARCs”), the interest rates on which are reset through an auction process, most commonly at intervals of 28 days, or at formula-based floating rates as set forth in the related transaction documents in the event of a failed auction.  These formula-based floating rates, which may at times reset to zero, are intended to preserve the underlying principal balance of the securities and avoid overall cash shortfalls.  Accordingly, payments of accrued interest may also be delayed and are ultimately subject to cash availability.  Beginning in mid-February 2008, there were widespread failures of the auction mechanism designed to provide regular liquidity to these types of securities.  Consequently, Farmer Mac has not sold any of its ARCs into the auctions since that time.  All ARCs held by Farmer Mac are collateralized entirely by pools of Federal Family Education Loan Program (“FFELP”) guaranteed student loans that are backed by the full faith and credit of the United States.  Farmer Mac continues to believe that the credit quality of these securities is high, based on the underlying collateralization and the securities’ continued AAA ratings.  To date, Farmer Mac has received all interest due on ARCs it holds and expects to continue to do so.  Farmer Mac does not believe that the auction failures will affect the Corporation’s liquidity or its ability to fund its operations or make dividend payments.  All ARCs held by Farmer Mac are callable by the issuers at par at any time.

Farmer Mac held $63.3 million of ARCs as of June 30, 2010, compared to $72.9 million as of December 31, 2009.  As of June 30, 2010, Farmer Mac’s carrying value of its ARCs was 85 percent of par.  The discounted carrying value reflects uncertainty regarding the ability to obtain par in the absence of any active market trading.

As of June 30, 2010 and December 31, 2009, Farmer Mac had a remaining investment of $0.5 million and $5.3 million, respectively, in The Reserve Primary Fund (the “Fund”), a money market fund that has suspended redemptions and is being liquidated.  Farmer Mac has presented its unsettled trades in the Fund as “Prepaid expenses and other assets” on the condensed consolidated balance sheets.  Farmer Mac received the remaining investment in the Fund on July 16, 2010, resulting in a recovery of $37,000 of amounts previously written off.

Capital .  During the six months ended June 30, 2010, Farmer Mac issued $250.0 million of non-voting, non-cumulative preferred stock of its newly formed subsidiary Farmer Mac II LLC and simultaneously retired and repurchased all $150.0 million Farmer Mac Series B preferred stock.  No Series C preferred stock was issued in first or second quarters 2010.  For more information about the Series C preferred stock, see Note 6 to the condensed consolidated financial statements and Farmer Mac’s Form 10-K for the fiscal year ended December 31, 2009 filed with the SEC on March 16, 2010 (as updated by the Current Report on Form 8-K filed with the SEC on August 4, 2010).  See “—Balance Sheet Review—Capital” for more information about Farmer Mac’s capital position and “—Regulatory Matters” for more information about proposed changes to the risk-based capital stress test applicable to Farmer Mac.
 
Other Matters

Common Stock Dividends .  For the first and second quarters of 2010 and for each quarter in 2009, Farmer Mac’s board of directors declared a quarterly dividend of $0.05 per share on the Corporation’s common stock.  Farmer Mac’s ability to pay dividends on its common stock is subject to the payment of dividends on its outstanding preferred stock.  On August 5, 2010, Farmer Mac’s board of directors declared a quarterly dividend of $0.05 per share on the Corporation’s common stock, payable on September 30, 2010 to shareholders of record on September 15, 2010.  Farmer Mac’s ability to declare and pay dividends could be restricted if it were to fail to comply with the applicable regulatory capital requirements.  See “Business—Government Regulation of Farmer Mac—Regulation—Capital Standards—Enforcement levels” in Farmer Mac’s Annual Report on Form 10-K for the fiscal year ended December 31, 2009 filed with the SEC on March 16, 2010.

 
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Preferred Stock Dividends.   For the first and second quarters of 2010, Farmer Mac’s board of directors declared a quarterly dividend of $12.50 per share on the Corporation’s Series C Preferred Stock.  On August 5, 2010, Farmer Mac’s board of directors declared a quarterly dividend of $12.50 per share on the Corporation’s Series C Preferred Stock, payable on September 30, 2010 to shareholders of record on September 15, 2010. On January 25, 2010, all of the outstanding shares of the Corporation’s Series B preferred stock was repurchased and retired.  The price paid to repurchase the Series B Preferred Stock included accrued dividends of $8.33 per share through the purchase date.

Non-controlling Interest.   For the first and second quarter 2010, Farmer Mac II LLC’s board of directors declared a quarterly dividend of $16.02 per share and $22.1875 per share, respectively, on the company’s preferred stock.  On August 5, 2010, Farmer Mac II LLC’s board of directors declared a quarterly dividend of $22.1875 per share payable on September 30, 2010 to holders of record on September 15, 2010.  Farmer Mac’s net income attributable to non-controlling interest totaled $5.5 million and $9.6 million for the three and six months ended June 30, 2010, respectively.  These amounts represent the gross dividend cost of the Farmer Mac II LLC preferred stock held by third parties.  Pre-tax income is reduced by this dividend cost before Farmer Mac’s income tax expense is determined.
 
Regulatory Matters
 
In the January 22, 2010 issue of the Federal Register, FCA published for public comment a proposed rule that would revise certain FCA regulations governing the risk-based capital stress test applicable to Farmer Mac.  In its announcement of the proposed rule, FCA stated that the purpose of the proposed changes is to update the risk-based capital model to address the addition of rural utilities loans to Farmer Mac’s program authorities, to revise the existing treatment of risk mitigations of general obligations in the AgVantage structure, and to revise the treatment of counterparty risk on Farmer Mac’s non-program investments.  The public comment period for the proposed rule closed April 22, 2010.  Farmer Mac has provided written comments on the proposed rule to FCA.

In the preamble to the proposed rule, FCA noted that had the proposed rule been in effect on March 31, 2009, Farmer Mac’s risk-based capital requirement as of that date would have been approximately $62.9 million, compared to the risk-based capital requirement of approximately $40.1 million under the existing risk-based capital stress test at that time.  Farmer Mac is required to hold capital at the higher of the statutory minimum capital requirement or the amount required by the risk-based capital stress test.  As of June 30, 2010, Farmer Mac’s minimum capital requirement was $235.4 million, and Farmer Mac’s core capital level was $442.0 million, $206.6 million above the minimum capital requirement.  Based on the risk-based capital stress test currently in effect, Farmer Mac’s risk-based capital requirement as of June 30, 2010 was $29.9 million, and Farmer Mac’s regulatory capital of $461.0 million exceeded that requirement by approximately $431.1 million.

 
-89-

 

On May 19, 2010, FCA issued an advance notice of proposed rulemaking (“ANPRM”) regarding the Corporation’s investments and liquidity portfolio policies and solicited comments.  The public comment period for the ANPRM closed on July 6, 2010, and Farmer Mac provided written comments to the ANPRM on July 2, 2010.

On July 21, 2010, President Obama signed into law the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”).  The Dodd-Frank Act contains a variety of provisions designed to regulate financial markets, including credit and derivatives transactions.  Certain provisions of the Dodd-Frank Act, such as the requirement to retain a five percent credit risk in any securitized loan, do not apply to Farmer Mac or, with respect to any loan sold to Farmer Mac, the seller of such loan.  In addition, Farmer Mac’s equity and debt securities are excluded from the Dodd-Frank Act’s prohibitions on proprietary trading by banking entities.  However, certain provisions of the Dodd-Frank Act, such as those regarding derivatives regulation, corporate governance and executive compensation, do not contain specific exemptions for Farmer Mac.  Until various studies are completed and final regulations are promulgated pursuant to the Dodd-Frank Act, the full effect of the legislation on the Corporation’s business activities and operations cannot be completely assessed, particularly how it will affect the Corporation s hedging operations and costs.  Farmer Mac will continue to monitor all applicable developments in the implementation of the Dodd-Frank Act and expects to be able to adapt successfully to any new applicable legislative and regulatory requirements.

 
-90-

 

Supplemental Information

The following tables present quarterly and annual information regarding loan purchases, guarantees and LTSPCs and outstanding loans, guarantees and LTSPCs.

Farmer Mac Purchases, Guarantees and LTSPCs
 
   
Farmer Mac I
   
Farmer Mac II
   
Rural Utilities
       
   
Loans and
         
and USDA
   
Loans and
       
   
Guaranteed
         
Guaranteed
   
Guaranteed
       
   
Securities
   
LTSPCs (1)
   
Securities
   
Securities (2)
   
Total
 
   
(in thousands)
 
For the quarter ended:
                             
June 30, 2010
  $ 98,235     $ 32,430     $ 123,062     $ 77,726     $ 331,453  
March 31, 2010
    77,948       77,143       92,288       59,018       306,397  
December 31, 2009
    86,872       108,646       94,936       16,009       306,463  
September 30, 2009
    40,732       37,083       76,119       553,644       707,578  
June 30, 2009
    37,900       22,717       96,322       900,000       1,056,939  
March 31, 2009
    29,814       65,720       79,055       270,000       444,589  
December 31, 2008
    72,137       121,440       87,455       230,000       511,032  
September 30, 2008
    508,179       239,170       83,672       -       831,021  
June 30, 2008
    53,838       116,472       79,700       1,330,676       1,580,686  
                                         
For the year ended:
                                       
December 31, 2009
    195,318       234,166       346,432       1,739,653       2,515,569  
December 31, 2008
    671,622       530,363       303,941       1,560,676       3,066,602  

(1)
As of June 30, 2010, approximately $50.9 million of the loans underlying $545.6 million of AgStorage and processing LTSPCs (including ethanol facilities) were not yet disbursed by the lender.
(2)
The enactment of the Farm Bill on May 22, 2008 expanded Farmer Mac’s authorities to include providing a secondary market for rural electric and telephone loans made by cooperative lenders.

 
-91-

 

 
Guarantees and LTSPCs and USDA Guarantees
 
   
Farmer Mac I
   
Farmer Mac II
   
Rural Utilities
       
   
Loans and
         
and USDA
   
Loans and
       
   
Guaranteed
         
Guaranteed
   
Guaranteed
       
   
Securities
   
LTSPCs
   
Securities
   
Securities
   
Total
 
   
(in thousands)
 
As of:
                             
June 30, 2010 (1)
  $ 5,544,091     $ 1,739,979     $ 1,300,945     $ 2,173,660     $ 10,758,675  
March 31, 2010 (2)
    5,444,448       1,846,244       1,237,539       2,183,576       10,711,807  
December 31, 2009
    5,224,768       2,165,706       1,199,798       2,130,832       10,721,104  
September 30, 2009
    5,227,939       2,135,445       1,141,570       2,266,592       10,771,546  
June 30, 2009
    5,241,145       2,181,712       1,115,025       1,819,033       10,356,915  
March 31, 2009
    5,313,680       2,216,564       1,082,215       1,319,033       9,931,492  
December 31, 2008
    5,759,773       2,224,181       1,043,425       1,054,941       10,082,320  
September 30, 2008
    5,724,867       2,264,880       995,639       824,941       9,810,327  
June 30, 2008
    5,474,303       1,997,172       960,278       1,330,676       9,762,429  

(1)
The Loans and Guaranteed Securities and LTSPCs amounts reflect the conversion of $86.0 million of existing LTSPCs to Farmer Mac I Guaranteed Securities during the second quarter 2010 at the request of a program participant.
(2)
The Loans and Guaranteed Securities and LTSPCs amounts reflect the conversion of $265.8 million of existing LTSPCs to Farmer Mac I Guaranteed Securities during the first quarter 2010 at the request of a program participant.

Outstanding Balance of Loans Held and Loans Underlying
 
On-Balance Sheet Farmer Mac and USDA Guaranteed Securities
 
         
5-to-10-Year
         
Total
 
          
ARMs &
   
1-Month-to-
   
Held in
 
    
Fixed Rate
   
Resets
   
3 Year ARMs
   
Portfolio
 
   
(in thousands)
 
As of:
                       
June 30, 2010
  $ 2,347,206     $ 1,051,722     $ 1,914,096     $ 5,313,024  
March 31, 2010
    2,431,701       1,340,856       1,840,181       5,612,738  
December 31, 2009
    1,983,749       729,700       1,439,267       4,152,716  
September 30, 2009
    2,138,544       685,553       1,403,298       4,227,395  
June 30, 2009
    1,716,678       649,078       1,303,332       3,669,088  
March 31, 2009
    1,728,174       660,398       759,535       3,148,107  
December 31, 2008
    1,659,983       746,623       819,234       3,225,840  
September 30, 2008
    1,412,136       699,611       743,146       2,854,893  
June 30, 2008
    1,974,048       772,859       739,642       3,486,549  

 
-92-

 

Item 3.
Quantitative and Qualitative Disclosures About Market Risk

Farmer Mac is exposed to market risk attributable to changes in interest rates.  Farmer Mac manages this market risk by entering into various financial transactions, including financial derivatives, and by monitoring its exposure to changes in interest rates.  See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Risk Management—Interest Rate Risk” for more information about Farmer Mac’s exposure to interest rate risk and strategies to manage such risk.  For information regarding Farmer Mac’s use of and accounting policies for financial derivatives, see Note 1(c) to the condensed consolidated financial statements contained in this report.  See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources” for further information regarding Farmer Mac’s debt issuance and liquidity risks.
 
Item 4.
Controls and Procedures

(a)   Management’s Evaluation of Disclosure Controls and Procedures .  Farmer Mac maintains disclosure controls and procedures designed to ensure that information required to be disclosed in the Corporation’s periodic filings under the Securities Exchange Act of 1934 (the “Exchange Act”), including this report, is recorded, processed, summarized and reported on a timely basis.  These disclosure controls and procedures include controls and procedures designed to ensure that information required to be disclosed under the Exchange Act is accumulated and communicated to the Corporation’s management on a timely basis to allow decisions regarding required disclosure.  Management, including Farmer Mac’s Chief Executive Officer (the “CEO”) and Chief Financial Officer (the “CFO”), has evaluated the effectiveness of the design and operation of the Corporation’s disclosure controls and procedures (as defined under Rules 13a-15(e) and 15d-15(e) of the Exchange Act) as of June 30, 2010.

The Corporation carried out the evaluation required by paragraph (b) of Exchange Act Rules 13a-15 and 15d-15, under the supervision and with the participation of management, including the CEO and CFO, of the effectiveness of Farmer Mac’s disclosure controls and procedures.  Based upon this evaluation, the CEO and CFO concluded that the Corporation’s disclosure controls and procedures were effective as of June 30, 2010.

(b)   Changes in Internal Control Over Financial Reporting .  There were no changes in Farmer Mac’s internal control over financial reporting during the quarter ended June 30, 2010 that has materially affected, or is reasonably likely to materially affect, Farmer Mac’s internal control over financial reporting.

 
-93-

 
 
PART II - OTHER INFORMATION

Item 1.
Legal Proceedings

None.

Item 1A.
Risk Factors

There were no material changes from the risk factors previously disclosed in Farmer Mac’s Annual Report on Form 10-K for the year ended December 31, 2009 filed with the SEC on March 16, 2010.

Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
 
 
(a)
Farmer Mac is a federally chartered instrumentality of the United States and its debt and equity securities are exempt from registration pursuant to Section 3(a)(2) of the Securities Act of 1933.
 
During second quarter 2010, two types of transactions occurred related to Farmer Mac common stock that were not registered under the Securities Act of 1933 and not otherwise reported on a Current Report on Form 8-K:
 
 
1.
On April 26, 2010, pursuant to Farmer Mac’s policy that permits directors of Farmer Mac to elect to receive shares of Class C Non-Voting Common Stock in lieu of their cash retainers, Farmer Mac issued an aggregate of 1,114 shares of its Class C Non-Voting Common Stock to the five directors who elected to receive such stock in lieu of their cash retainers.  The number of shares issued to the directors was calculated based on a price of $11.33 per share, which was the closing price of the Class C Non-Voting Common Stock on March 31, 2010 as reported by the New York Stock Exchange.
 
 
2.
On June 3, 2010, Richard H. Davidson was granted 2,699 restricted shares of Farmer Mac’s Class C Non-Voting Common Stock in connection with his election as a director of the Corporation.  Those restricted shares have the same terms as the restricted shares granted to the other Farmer Mac directors on April 1, 2010 (as reported on a Current Report on Form 8-K filed on April 5, 2010) and will vest on March 31, 2011 or upon Mr. Davidson’s (i) death, (ii) disability or (iii) involuntary removal as a director without cause.

 
(b)
Not applicable.

 
(c)
None.

 
-94-

 

Item 3.
Defaults Upon Senior Securities

 
(a)
None.

 
(b)
None.

Item 4.
(Removed and Reserved)
 
 
Item 5.
Other Information

 
(a)
None.

 
(b)
None.

 
-95-

 

Item 6.
Exhibits

*
 
3.1
 
-
 
Title VIII of the Farm Credit Act of 1971, as most recently amended by the Food, Conservation and Energy Act of 2008 (Form 10-Q filed August 12, 2008).
             
**
 
3.2
 
-
 
Amended and Restated By-Laws of the Registrant.
             
*
 
4.1
 
-
 
Specimen Certificate for Farmer Mac Class A Voting Common Stock (Form 10-Q filed May 15, 2003).
             
*
 
4.2
 
-
 
Specimen Certificate for Farmer Mac Class B Voting Common Stock (Form 10-Q filed May 15, 2003).
             
*
 
4.3
 
-
 
Specimen Certificate for Farmer Mac Class C Non-Voting Common Stock (Form 10-Q filed May 15, 2003).
             
*
 
4.4
 
-
 
Amended and Restated Certificate of Designation of Terms and Conditions of Non-Voting Cumulative Preferred Stock, Series C (Previously filed as Exhibit 4.7 to Form 10-Q filed November 9, 2009).
             
†*
 
10.1
 
-
 
Amended and Restated 1997 Incentive Plan (Form 10-Q filed November 14, 2003).
             
†*
 
10.1.1
 
-
 
Form of stock option award agreement under 1997 Incentive Plan (Form 10-K filed March 16, 2005).
             
†*
 
10.1.2
 
-
 
2008 Omnibus Incentive Plan (Form 10-Q filed August 12, 2008).
             
†*
 
10.1.3
 
-
 
Form of SAR Agreement under the 2008 Omnibus Incentive Plan (Previously filed as Exhibit 10 to Form 8-K filed June 11, 2008).
             
†*
 
10.1.4
 
-
 
Form of Restricted Stock Agreement (Officers) under the 2008 Omnibus Incentive Plan (Previously filed as Exhibit 10.1 to Form 8-K filed June 10, 2009).
             
†*
 
10.1.5
 
-
 
Form of Restricted Stock Agreement (Directors) under the 2008 Omnibus Incentive Plan (Previously filed as Exhibit 10.2 to Form 8-K filed June 10, 2009).
             
†*
 
10.2
 
-
 
Employment Agreement dated as of March 1, 2009 between Michael A. Gerber and the Registrant (Form 10-Q filed May 12, 2009).
 

*
Incorporated by reference to the indicated prior filing.
**
Filed with this report.
Management contract or compensatory plan.
#
Portions of this exhibit have been omitted pursuant to a request for confidential treatment.

 
-96-

 

†*
 
10.3
 
-
 
Compiled Amended and Restated Employment Contract dated as of June 5, 2008 between Tom D. Stenson and the Registrant (Previously filed as Exhibit 10.4 to Form 10-Q filed August 12, 2008).
             
†*
 
10.4
 
-
 
Compiled Amended and Restated Employment Contract dated June 5, 2008 between Timothy L. Buzby and the Registrant (Previously filed as Exhibit 10.5 to Form 10-Q filed August 12, 2008).
             
†*
 
10.4.1
 
-
 
Amendment No. 6 to Employment Contract between Timothy L. Buzby and the Registrant, dated as of April 2, 2009 (Form 10-Q filed August 10, 2009).
             
†*
 
10.5
 
-
 
Compiled Amended and Restated Employment Contract dated June 5, 2008 between Mary K. Waters and the Registrant (Previously filed as Exhibit 10.6 to Form 10-Q filed August 12, 2008).
             
   
10.6
 
-
 
Exhibit number reserved for future use.
             
*
 
10.7
 
-
 
Farmer Mac I Seller/Servicer Agreement dated as of August 7, 1996 between Zions First National Bank and the Registrant (Form 10-Q filed November 14, 2002).
             
*
 
10.8
 
-
 
Medium-Term Notes U.S. Selling Agency Agreement dated as of October 1, 1998 between Zions First National Bank and the Registrant (Form 10-Q filed November 14, 2002).
             
*
 
10.9
 
-
 
Discount Note Dealer Agreement dated as of September 18, 1996 between Zions First National Bank and the Registrant (Form 10-Q filed November 14, 2002).
             
*#
 
10.10
 
-
 
ISDA Master Agreement and Credit Support Annex dated as of June 26, 1997 between Zions First National Bank and the Registrant (Form 10-Q filed November 14, 2002).
             
*#
 
10.11
 
-
 
Amended and Restated Master Central Servicing Agreement dated as of May 1, 2004 between Zions First National Bank and the Registrant (Previously filed as Exhibit 10.11.2 to Form 10-Q filed August 9, 2004).
             
*#
 
10.11.1
 
-
 
Amendment No. 1 to Amended and Restated Master Central Servicing Agreement between Zions First National Bank and the Registrant, dated as of June 1, 2009 (Form 10-Q filed August 10, 2009).
 

*
Incorporated by reference to the indicated prior filing.
**
Filed with this report.
Management contract or compensatory plan.
#
Portions of this exhibit have been omitted pursuant to a request for confidential treatment.

 
-97-

 

*#
 
10.12
 
-
 
Loan Closing File Review Agreement dated as of August 2, 2005 between Zions First National Bank and the Registrant (Form 10-Q filed November 9, 2005).
             
*#
 
10.13
 
-
 
Long Term Standby Commitment to Purchase dated as of August 1, 1998 between AgFirst Farm Credit Bank and the Registrant (Form 10-Q filed November 14, 2002).
             
*#
 
10.13.1
 
-
 
Amendment No. 1 dated as of January 1, 2000 to Long Term Standby Commitment to Purchase dated as of August 1, 1998 between AgFirst Farm Credit Bank and the Registrant (Form 10-Q filed November 14, 2002).
             
*
 
10.13.2
 
-
 
Amendment No. 2 dated as of September 1, 2002 to Long Term Standby Commitment to Purchase dated as of August 1, 1998, as amended by Amendment No. 1 dated as of January 1, 2000, between AgFirst Farm Credit Bank and the Registrant (Form 10-Q filed November 14, 2002).
             
*
 
10.14
 
-
 
Lease Agreement, dated June 28, 2001 between EOP – Two Lafayette, L.L.C. and the Registrant (Previously filed as Exhibit 10.10 to Form 10-K filed March 27, 2002).
             
*#
 
10.15
 
-
 
Long Term Standby Commitment to Purchase dated as of August 1, 2007 between Farm Credit Bank of Texas and the Registrant (Previously filed as Exhibit 10.20 to Form 10-Q filed November 8, 2007).
             
*#
 
10.16
 
-
 
Long Term Standby Commitment to Purchase dated as of June 1, 2003 between Farm Credit Bank of Texas and the Registrant (Form 10-Q filed November 9, 2004).
             
*#
 
10.16.1
 
-
 
Amendment No. 1 dated as of December 8, 2006 to Long Term Standby Commitment to Purchase dated as of June 1, 2003 between Farm Credit Bank of Texas and the Registrant (Form 10-K filed March 15, 2007).
             
*#
 
10.17
 
-
 
Central Servicer Delinquent Loan Servicing Transfer Agreement dated as of July 1, 2004 between AgFirst Farm Credit Bank and the Registrant (Form 10-Q filed November 9, 2004).
             
†*
 
10.18
 
-
 
Form of Indemnification Agreement for Directors (Previously filed as Exhibit 10.1 to Form 8-K filed April 9, 2008).
             
†*
 
10.19
 
-
 
Description of compensation agreement between the Registrant and its directors (Form 10-Q filed August 9, 2007).
 

*
Incorporated by reference to the indicated prior filing.
**
Filed with this report.
Management contract or compensatory plan.
#
Portions of this exhibit have been omitted pursuant to a request for confidential treatment.

 
-98-

 

†*
 
10.20
 
-
 
Agreement and General Release dated as of January 30, 2009 between Henry D. Edelman and the Registrant (Form 10-Q filed May 12, 2009).
             
†*
 
10.21
 
-
 
Agreement and General Release dated as of February 6, 2009 between Nancy E. Corsiglia and the Registrant (Form 10-Q filed May 12, 2009).
             
**
 
10.22
     
Master Trust, Sale and Servicing Agreement dated as of October 20, 2006 between CFC Advantage, LLC, National Rural Utilities Cooperative Finance Corporation, U.S. Bank National Association, and the Registrant.
             
**
 
10.23
     
Registration Rights Agreement Series 2007-1 dated as of February 15, 2007 between CFC Advantage, LLC, National Rural Utilities Cooperative Finance Corporation, and the Registrant.
             
**
 
10.24
     
Registration Rights Agreement Series 2007-2 dated as of August 10, 2007 between CFC Advantage, LLC, National Rural Utilities Cooperative Finance Corporation and the Registrant.
             
**
 
10.25
     
Note Purchase Agreement dated as of December 15, 2008 between Farmer Mac Mortgage Securities Corporation, National Rural Utilities Cooperative Finance Corporation, and the Registrant.
             
**
 
10.25.1
     
First Amendment to Note Purchase Agreement dated as of July 13, 2009 between Farmer Mac Mortgage Securities Corporation, National Rural Utilities Cooperative Finance Corporation, and the Registrant.
             
**
 
10.26
     
Pledge Agreement dated as of December 15, 2008 between Farmer Mac Mortgage Securities Corporation, National Rural Utilities Cooperative Finance Corporation, U.S. Bank Trust National Association, and the Registrant.
             
**
 
10.26.1
     
First Amendment to Pledge Agreement dated as of September 23, 2009 between Farmer Mac Mortgage Securities Corporation, National Rural Utilities Cooperative Finance Corporation, U.S. Bank Trust National Association, and the Registrant.
             
**
 
10.27
     
Setoff Rights Letter Agreement dated as of December 15, 2008 between National Rural Utilities Cooperative Finance Corporation, Farmer Mac Mortgage Securities Corporation, and the Registrant.
             
**
 
10.28
     
Note Purchase Agreement dated as of February 5, 2009 between Farmer Mac Mortgage Securities Corporation, National Rural Utilities Cooperative Finance Corporation, and the Registrant.
 

*
Incorporated by reference to the indicated prior filing.
**
Filed with this report.
Management contract or compensatory plan.
#
Portions of this exhibit have been omitted pursuant to a request for confidential treatment.

 
-99-

 

**
 
10.28.1
 
First Amendment to Note Purchase Agreement dated as of July 13, 2009 between Farmer Mac Mortgage Securities Corporation, National Rural Utilities Cooperative Finance Corporation, and the Registrant.
         
**
 
10.29
 
Pledge Agreement dated as of February 5, 2009 between Farmer Mac Mortgage Securities Corporation, National Rural Utilities Cooperative Finance Corporation, U.S. Bank Trust National Association, and the Registrant.
         
**
 
10.29.1
 
First Amendment to Pledge Agreement dated as of September 23, 2009 between Farmer Mac Mortgage Securities Corporation, National Rural Utilities Cooperative Finance Corporation, U.S. Bank Trust National Association, and the Registrant.
         
**
 
10.30
 
Setoff Rights Letter Agreement dated as of February 5, 2009 between National Rural Utilities Cooperative Finance Corporation, Farmer Mac Mortgage Securities Corporation, and the Registrant.
         
**
 
10.31
 
Note Purchase Agreement dated as of March 23, 2009 between Farmer Mac Mortgage Securities Corporation, National Rural Utilities Cooperative Finance Corporation, and the Registrant.
         
**
 
10.32
 
Pledge Agreement dated as of March 23, 2009 between Farmer Mac Mortgage Securities Corporation, National Rural Utilities Cooperative Finance Corporation, U.S. Bank Trust National Association, and the Registrant.
         
**
 
10.32.1
 
First Amendment to Pledge Agreement dated as of September 23, 2009 between Farmer Mac Mortgage Securities Corporation, National Rural Utilities Cooperative Finance Corporation, U.S. Bank Trust National Association, and the Registrant.
         
**
 
10.33
 
Setoff Rights Letter Agreement dated as of March 23, 2009 between National Rural Utilities Cooperative Finance Corporation, Farmer Mac Mortgage Securities Corporation, and the Registrant.
         
**
 
10.34
 
Note Purchase Agreement dated as of May 22, 2009 between Farmer Mac Mortgage Securities Corporation, National Rural Utilities Cooperative Finance Corporation, and the Registrant.
 

*
Incorporated by reference to the indicated prior filing.
**
Filed with this report.
Management contract or compensatory plan.
#
Portions of this exhibit have been omitted pursuant to a request for confidential treatment.

 
-100-

 

**
 
10.35
     
Pledge Agreement dated as of May 22, 2009 between Farmer Mac Mortgage Securities Corporation, National Rural Utilities Cooperative Finance Corporation, U.S. Bank Trust National Association, and the Registrant.
             
**
 
10.36
     
Setoff Rights Letter Agreement dated as of May 22, 2009 between National Rural Utilities Cooperative Finance Corporation, Farmer Mac Mortgage Securities Corporation, and the Registrant.
             
**
 
10.37
     
Master Sale and Servicing Agreement dated as of July 24, 2009 between National Rural Utilities Cooperative Finance Corporation and the Registrant.
             
**
 
10.37.1
     
Amendment No. 1 to Master Sale and Servicing Agreement dated as of February 1, 2010 between National Rural Utilities Cooperative Finance Corporation and the Registrant.
             
**#
 
10.38
     
Credit Support Agreement dated as of September 1, 2009 between National Rural Utilities Cooperative Finance Corporation and the Registrant.
             
**
 
10.39
     
Indenture dated as of September 1, 2009 between National Rural Utilities Cooperative Finance Corporation, U.S. Bank National Association and the Registrant.
             
*
 
21
 
-
 
List of Registrant’s subsidiaries (Form 10-K filed March 16, 2010).
             
**
 
31.1
 
-
 
Certification of Chief Executive Officer relating to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2010, pursuant to Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
             
**
 
31.2
 
-
 
Certification of Chief Financial Officer relating to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2010, pursuant to Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
             
**
 
32
 
-
 
Certification of Chief Executive Officer and Chief Financial Officer relating to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2010, pursuant to 18 U.S.C. § 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 

*
Incorporated by reference to the indicated prior filing.
**
Filed with this report.
Management contract or compensatory plan.
#
Portions of this exhibit have been omitted pursuant to a request for confidential treatment.
 
 
-101-

 

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

FEDERAL AGRICULTURAL MORTGAGE CORPORATION

August 9, 2010

 
By:
     /s/ Michael A. Gerber
   
Michael A. Gerber
President and Chief Executive Officer
(Principal Executive Officer)

   
    /s/ Timothy L. Buzby
   
Timothy L. Buzby
Senior Vice President – Chief Financial Officer and Treasurer
(Principal Financial Officer)

 
-102-

 

EXHIBIT 3.2

BY-LAWS OF THE

FEDERAL AGRICULTURAL MORTGAGE CORPORATION

(“FARMER MAC”)

as amended by the Board of Directors
through June 2, 2010

 

 

Table of Contents

ARTICLE I
NAME AND LOCATION OF OFFICES
         
Section 1.
 
Name
 
1
Section 2.
 
Principal Office and Other Offices
 
1
Section 3.
 
Seal
 
1
Section 4.
 
Service of Process
 
1
Section 5.
 
Fiscal Year
 
1
         
ARTICLE II
PURPOSES
         
Section 1.
 
Statutory Purposes
 
1
Section 2.
 
Ancillary Purposes
 
2
         
ARTICLE III
OFFICERS AND EMPLOYEES
         
Section 1.
 
Number and Type
 
2
Section 2.
 
Appointment and Confirmation
 
2
Section 3.
 
Removal
 
2
Section 4.
 
Vacancies
 
2
Section 5.
 
The President
 
3
Section 6.
 
The Secretary
 
3
Section 7.
 
The Treasurer
 
3
Section 8.
 
The Controller
 
3
Section 9.
 
Employee Conduct
 
4
Section 10.
 
Outside or Private Employment
 
4
         
ARTICLE IV
BOARD OF DIRECTORS
         
Section 1.
 
Powers
 
4
Section 2.
 
Number and Type of Directors
 
5
Section 3.
 
Meetings and Waiver of Notice
 
6
Section 4.
 
Meetings by Telephone
 
6
Section 5.
 
Quorum
 
6
Section 6.
 
Action Without a Meeting
 
6
Section 7.
 
Compensation
 
7
 
 
i

 

Section 8.
 
Chairman and Vice Chairman
 
7
Section 9.
 
Standing Committees
 
7
   
(a)        Audit Committee
 
7
   
(b)        Compensation Committee
 
8
   
(c)        Corporate Governance Committee
 
8
   
(d)        Credit Committee
 
9
   
(e)        Finance Committee
 
9
   
(f)         Marketing Committee
 
10
   
(g)        Public Policy Committee
 
10
Section 10.
 
Ad Hoc Committees
 
10
         
ARTICLE V
SHAREHOLDERS
         
Section 1.
 
Special Meeting
 
10
Section 2.
 
Annual Meeting
 
11
Section 3.
 
Notice
 
11
Section 4.
 
Waiver of Notice
 
11
Section 5.
 
Record Date
 
11
Section 6.
 
Voting Lists
 
12
Section 7.
 
Quorum
 
12
Section 8.
 
Proxies
 
12
Section 9.
 
Organization
 
13
Section 10.
 
Voting of Shares
 
13
Section 11.
 
Inspectors of Votes
 
14
         
ARTICLE VI
SHARES OF STOCK
         
Section 1.
 
Issuance and Conditions
 
14
Section 2.
 
Common Stock
 
14
Section 3.
 
Redemption
 
15
Section 4.
 
Dividends on Voting Common Stock and Non-Voting Common Stock
 
15
Section 5.
 
Preferred Stock
 
15
Section 6.
 
Dividends, Redemption, Conversion of Preferred Shares
 
15
Section 7.
 
Preference on Liquidation
 
16
Section 8.
 
Purchase of Own Shares
 
16
Section 9.
 
Consideration for Shares
 
16
Section 10.
 
Stated Capital
 
16
Section 11.
 
No Preemptive Rights
 
17
Section 12.
 
Liability of Shareholders
 
17
Section 13.
 
Reclassifications, Etc
 
17

 
ii

 

ARTICLE VII
CERTIFICATES FOR SHARES AND THEIR TRANSFER
         
Section 1.
 
Certificates
 
17
Section 2.
 
Contents
 
18
Section 3.
 
Transfer
 
18
Section 4.
 
Records
 
19
         
ARTICLE VIII
INDEMNIFICATION
         
Section 1.
 
Authorization
 
19
Section 2.
 
Procedure
 
20
Section 3.
 
Advance Payments
 
20
Section 4.
 
Other Rights to Indemnification
 
20
Section 5.
 
Indemnification Insurance
 
20
         
ARTICLE IX
CONTRACTS, LOANS, CHECKS, DEPOSITS AND INVESTMENTS
         
Section 1.
 
Contracts
 
21
Section 2.
 
Loans
 
21
Section 3.
 
Checks, Drafts, etc.
 
21
Section 4.
 
Deposits
 
21
Section 5.
 
Investments
 
21
         
   
ARTICLE X
   
   
FACSIMILE SIGNATURES
 
21
         
   
ARTICLE XI
   
   
AMENDMENTS
  
22

 
iii

 

ARTICLE I

NAME AND LOCATION OF OFFICES

Section 1.
Name

The Corporation shall do business as the Federal Agricultural Mortgage Corporation.

Section 2.
Principal Office and Other Offices

The principal office of the Corporation shall be located in Washington, D.C.  The Corporation may establish other offices in such other places, within or without the District of Columbia, as the Board of Directors shall, from time to time, deem useful for the conduct of the Corporation’s business.

Section 3.
Seal

The seal of the Corporation shall be of such design as shall be approved and adopted from time to time by the Board of Directors, and may be affixed to any document by impression, by printing, by rubber stamp, or otherwise.

Section 4.
Service of Process

The Corporate Secretary or any Assistant Secretary of the Corporation shall be agents of the Corporation upon whom any process, notice or demand required or permitted by law to be served upon the Corporation may be served.

Section 5.
Fiscal Year

The fiscal year of the Corporation shall end on the thirty-first day of December of each year.

ARTICLE II

PURPOSES

Section 1.
Statutory Purposes

The Corporation is organized pursuant to its governing statute, Title VIII of the Farm Credit Act of 1971, as amended, to provide a secondary market for agricultural real estate mortgage loans and to enhance the ability of individuals in small rural communities to obtain financing for moderate-priced homes and to undertake such other activities authorized by such Act as may be necessary and appropriate to further the availability of funds for agricultural real estate mortgage loans and housing in small rural communities.

 

 

Section 2.
Ancillary Purposes

The Corporation is further organized to engage in such other related activities that are not prohibited and as the Board of Directors shall from time to time determine to be in the furtherance of its statutory purposes.

ARTICLE III

OFFICERS AND EMPLOYEES

Section 1.
Number and Type

The officers of the Corporation shall be a President, one or more Executive and/or Senior Vice Presidents (the number thereof to be determined by the Board of Directors), a Secretary, a Treasurer, and a Controller, each of whom shall be appointed by resolution of the Board of Directors.  Such other executive officers as may be deemed necessary may be appointed by resolution of the Board of Directors.  Any other officers, including, if appropriate, one or more Vice Presidents of the Corporation, shall be appointed by the President.  Any of the above offices may be held by the same person, except the offices of President and Secretary.

Section 2.
Appointment and Confirmation

The initial officers of the Corporation shall be appointed and confirmed at such time as may be appropriate.   Thereafter, the officers shall be appointed and confirmed annually at the first meeting of the Board of Directors held after each annual meeting of the shareholders.  If the selection of officers is not held at such meeting, such selection shall be held as soon thereafter as practicable.  Each officer shall hold office until his successor shall have been duly appointed and confirmed or until his death or until he shall resign or shall have been removed in the manner hereinafter provided.

 Section 3.
Removal

Any officer may be removed by a majority of the Board of Directors, whenever in its judgment the best interests of the Corporation would be served thereby, but such removal shall be without prejudice to the contract rights, if any, of the persons so removed.  Appointment or confirmation of an officer shall not of itself create contract rights.

 Section 4.
Vacancies

A vacancy in an office because of death, resignation, removal, disqualification or otherwise, may be filled by the Chairman of the Board of Directors, subject to confirmation by the Board of Directors at the meeting next following the appointment, for the unexpired portion of the term.

 
2

 

Section 5.
The President

The President shall be the principal executive officer of the Corporation and, subject to the control of the Board of Directors, shall in general supervise and control all of the business and affairs of the Corporation.  He may sign, singly or with the Secretary or any other proper officer of the Corporation authorized by the Board of Directors, certificates for shares of the Corporation, any deeds, mortgages, bonds, contracts, or other instruments which the Board of Directors has authorized to be executed, except where the signing and execution thereof shall be expressly delegated by the Board of Directors to some other officer or agent of the Corporation, or shall be required to be otherwise signed or executed, and in general shall perform all duties incident to the office of President and such other duties as may be prescribed by the Board of Directors from time to time.

Section 6.
The Secretary

The Secretary shall: (a) keep the minutes of the shareholders’ and of the Board of Directors’ meetings in one or more books provided for that purpose; (b) see that all notices are duly given in accordance with the provisions of these By-Laws; (c) be the custodian of the corporate records and of the seal of the Corporation and see that the Seal of the Corporation is affixed to all documents, the execution of which on behalf of the Corporation under its seal is duly authorized; (d) keep a register of the post office address of each shareholder which shall be furnished to the Secretary by such  shareholder; (e) sign with the President, certificates for shares of the Corporation, the issuance of which shall have been authorized by resolution of the Board of Directors; (f) have general control of the stock transfer books of the Corporation; and (g) in general, perform all duties incident to the office of Secretary and such other duties as from time to time may be assigned to him by the President or by the Board of Directors.

Section 7.
The Treasurer

The Treasurer shall: (a) have charge and custody of and be responsible for all funds and securities of the Corporation, receive and give receipts for monies due and payable to the Corporation from any source whatsoever, and deposit all such monies in the name of the Corporation in such banks, trust companies or other depositories as shall be selected in accordance with a resolution of the Board of Directors; and (b) in general, perform all of the duties incident to the office of Treasurer and such other duties as from time to time may be assigned to him by the President or by the Board of Directors.

Section 8.
The Controller

The Controller shall: (a) keep full and accurate accounts of all assets, liabilities, commitments, receipts, disbursements, and other financial transactions of the Corporation; (b) certify vouchers for payment by the Treasurer or his designee, and designate, with the written concurrence of the Chairman of the Board, such other officers, agents, and employees, severally, who may so certify; and (c) in general, perform all the duties ordinarily incident to the office of Controller and such other duties as may be assigned to him by the Board of Directors or by the Chairman of the Board.

 
3

 

Section 9.
Employee Conduct

No officer or employee shall engage, directly or indirectly, in any personal business transaction or private arrangement for personal profit which arises from or is based upon his official position or authority or upon confidential information which he gains by reason of such position or authority, and he shall reasonably restrict his personal business affairs so as to avoid conflicts of interest with his official duties.  No officer or employee shall divulge confidential information to any unauthorized person, or release any such information in advance of authorization for its release, nor shall he accept, directly or indirectly, any valuable gift favor or service from any person with whom he transacts business on behalf of the Corporation.

Section 10.
Outside Private Employment

No officer or employee shall have any outside or private employment or affiliation with any firm or organization incompatible with his concurrent employment by the Corporation and he shall not accept or perform any outside or private employment which the President of the Corporation determines will interfere with the efficient performance of his official duties.  Any officer or employee who intends to perform services for compensation or to engage in any business shall report his intention to do so to the President of the Corporation prior to such acceptance or performance.

ARTICLE IV

BOARD OF DIRECTORS

Section 1.
Powers

Except as otherwise provided in these By-Laws, the powers of the Corporation shall be exercised by the Board of Directors, which shall have all powers granted to it by the Corporation’s governing statute, as may be amended from time to time, and such other powers including, but not limited to, the power:

a.  to determine the general policies that shall govern the operations of the Corporation;

b.  to issue stock in the manner provided in Section 8.4 of TitleVIII of the Farm Credit Act of 1971, as amended;

c.  to adopt, alter and use a corporate seal, which shall be judicially noted;

d.  to provide for a president, one or more vice presidents, secretary, treasurer, and such other officers, employees and agents, as may be necessary and define their duties and compensation levels, all without regard to title 5, United States Code, and require surety bonds or make other provisions against losses occasioned by acts of the aforementioned persons;

 
4

 

e.  to provide guarantees in the manner provided under Section 8.6 of Title VIII of the Farm Credit Act of 1971, as amended;

f.  to have succession until dissolved by law enacted by the Congress;

g.  to prescribe such standards as may be necessary to carry out Title VIII of the Farm Credit Act of 1971, as amended;

h.  to enter into contracts and make payments with respect to the contracts;

i.  to sue and be sued in its corporate capacity and to complain and defend in any action brought by or against the Corporation in any state or federal court of competent jurisdiction;

j.  to make and perform contracts, agreements, and commitments with persons and entities both inside and outside the Farm Credit System;

k.  to acquire, hold, lease, mortgage or dispose of, at public or private sale, real and personal property, purchase or sell any securities or obligations, and otherwise exercise all the usual incidents of ownership of property necessary and convenient to the business of the Corporation;

1.  to conduct its business, carry on its operations, and have officers and exercise the power granted by the governing statute in any state without regard to any qualification or similar statute in any such state;

m.  to accept gifts or donations of services, of property, real, personal or mixed, tangible or intangible; and

n.  to exercise such other incidental powers as are necessary to carry out the powers, duties, and functions of the Corporation in accordance with the governing statute.

Section 2.
Number and Type of Directors

The Board of Directors shall consist of those directors appointed or elected as provided in Section 8.2 of Title VIII of the Farm Credit Act of 1971, as amended.
 
5

 
Section 3. 
Meetings and Waiver of Notice

The Board of Directors shall meet at the call of the Chairman or a majority of its members.  Notice shall be given to each member by the Secretary at the direction of the calling authority.  Such notice shall be by letter, telegram, cable, or radiogram delivered for transmission not later than during the third day immediately preceding the day of the meeting or by word of mouth, telephone, or radio phone, received not later than during the second day immediately preceding the day of the meeting.  Notice of any such meeting may be waived in writing signed by the person or persons entitled thereto either before or after the time of the meeting.  Neither the business to be transacted at, nor the purpose of, any meeting of the Board of Directors need be specified in the notice or waiver of notice of the meeting.

Section 4.
Meetings by Telephone

Any meeting of the Board of Directors or any meeting of a Board committee may be held with the members of the Board or such committee participating in such meeting by telephone or by any other means of communication by which all such members participating in the meeting are able to speak to and hear one another.

Section 5.
Quorum

The presence, in person or otherwise, in accordance with Section 6 of this Article, of eight of the then incumbent members of the Board of Directors or of a majority of the then incumbent members of a Board committee, as applicable, at the time of any meeting of the Board or such committee, shall constitute a quorum for the transaction of business.  The act of the majority of such members present at a meeting at which a quorum is present shall be the act of the Board of Directors or committee, as applicable, unless the act of a greater number is required by these By-Laws.  Members may not be represented by proxy at any meeting of the Board of Directors or committee thereof.

Section 6.
Action Without a Meeting

Any action required to be taken by the Board of Directors at a meeting, or by a committee of the Board at a meeting can be taken without a meeting, if a consent in writing, setting forth the actions so taken, is later signed by a majority of the directors, or a majority of the members of the committee, as the case may be.  Such consent shall have the same effect as a majority vote of the Board of Directors or committee, as the case may be.  Written notice of any action taken pursuant to this section by a majority of the directors, or members of a committee, as the case may be, shall, within 10 days of such action, be given to all directors or members of a committee not consenting to the action.
 
6

 
Section 7. 
Compensation

Each director shall be paid such compensation as may be fixed from time to time by resolution of the Board of Directors, and each director shall also be reimbursed for his or her travel and subsistence expenses incurred while attending meetings of the Board of Directors or committees thereof.

Section 8.
Chairman and Vice Chairman

Under the authority of the Corporation’s governing statute, the President of the United States shall designate one director from among those directors appointed by the President as provided in Section 8.2 of the Farm Credit Act of 1971, as amended, to be Chairman of the Board of Directors.  The Chairman shall preside over meetings of the Board of Directors.

The Board of Directors shall select a Vice Chairman from among the directors appointed by the President of the United States who shall have all the rights, duties and obligations of the Chairman at any time when the incumbent Chairman is absent, unable or unwilling so to act, and at any time when there is a vacancy in the office of Chairman.   The Vice Chairman shall serve at the pleasure of the Board and shall be selected no less frequently than annually for a term expiring on December 31 of each year.

Section 9.
Standing Committees

The Standing Committees described in this Section shall have such responsibilities and authority as are set forth herein, together with such other responsibilities and authority as may from time to time be provided in resolutions adopted by the Board of Directors.  The Board of Directors shall designate members of the Standing Committees from among its members.

 
(a)
Audit Committee

The Audit Committee shall select and engage independent accountants to audit the books, records and accounts of the Corporation and its subsidiaries, if any, and to perform such other duties as the Committee may from time to time prescribe.  The Committee shall review the scope of audits as recommended by the public accountants to ensure that the recommended scope is sufficiently comprehensive.  The Audit Committee’s selection of accountants shall be made annually in advance of the Annual Meeting of Stockholders and shall be submitted for ratification or rejection at such meeting.

The Audit Committee shall receive a special report from the independent accountants, prior to the public accountants’ report on the published financial statements.  The special report shall, among other things, point out and describe each material item affecting the financial statements of the Corporation which might in the opinion of the independent public accountants receive, under generally accepted accounting principles, treatment varying from that proposed for such statements.   The Committee shall decide in its discretion upon the treatment to be accorded such items and shall take such other action in respect of the special report as the Committee may deem appropriate.  A copy of the special report shall be transmitted to the Compensation Committee, together with the Audit Committee’s decision.

 
7

 

 
(b)
Compensation Committee

The Compensation Committee shall make recommendations to the Board on the salaries and benefit plans of all corporate directors and officers.  The Committee shall recommend a framework to the Board for all compensation plans and shall have authority to act within the framework approved by the Board.  The Committee shall have exclusive jurisdiction on behalf of the Corporation to make recommendations to the full Board to approve, disapprove, modify or amend all plans to compensate employees eligible for incentive compensation.

The Compensation Committee shall review and approve, prior to implementation, any employee benefit plan and any amendment or modification thereof submitted to the Board to the extent such plan or amendment or modification affects employees under its jurisdiction.

 
(c)
Corporate Governance Committee

The Corporate Governance Committee shall assist the Board in: (i) developing and recommending to the Board a set of effective corporate governance guidelines and principles applicable to the Corporation; (ii) reviewing, on a regular basis, the overall corporate governance of the Corporation and recommending improvements when necessary; and (iii) identifying individuals qualified to serve as directors and recommending to the Board nominees for the directors to be elected by the holders of voting common stock at each Annual Meeting of Stockholders.  In addition, the Corporate Governance Committee shall, during the intervals between meetings of the Board, have and may exercise the powers of the Board, other than those assigned to the Audit and Compensation Committees, except that it shall not have the authority to take any of the following actions:

 
·
the submission to stockholders of any action requiring stockholders’ authorization;
 
·
the filling of vacancies on the Board of Directors or on the Corporate Governance Committee;
 
·
the fixing of compensation of directors for serving on the Board or on the Corporate Governance Committee;
 
·
the removal of any director, the President or any Vice President, except that vacancies in established management positions may be filled subject to ratification by the Board of Directors;
 
·
the amendment or repeal of the By-Laws or the adoption of new by-laws;
 
·
the amendment or repeal of any resolution of the Board which, by its terms, is not so amendable or repealable;
 
·
the declaration of dividends; and

 
8

 

 
·
any action which the Chairman or Vice Chairman of the Board of Directors (in the event that the Vice Chairman is the Chairman of the Board due to the absence, inability or unwillingness of the Chairman so to act) or the President shall, by written instrument filed with the Secretary, designate as a matter which should be considered by the Board of Directors.

The Corporate Governance Committee shall include two members of the Board who were appointed by the President of the United States, one of whom shall be the chairman of the Committee, and two representatives from each of the Corporation’s two elected classes of directors.  The designation of such Committee and the delegation thereto of authority shall not relieve any director of any duty he or she owes to the Corporation.  The Corporate Governance Committee shall meet at the call of its chairman or a majority of its members.  A majority of the members of the Committee shall constitute a quorum sufficient for the taking of any action by the Committee, except that at least one member appointed by the President of the United States, one member who has been elected to the Board by the holders of Class A voting common stock and one member who has been elected to the Board by the holders of Class B voting common stock must be present to constitute a quorum.  The action of the majority of the members of the Committee present at a duly convened meeting shall be the action of the Committee.  Members of the Committee may not be represented by proxy at any meeting of the Committee.  In connection with each regular meeting of the Board of Directors, the minutes of all meetings of the Corporate Governance Committee since the last meeting of the Board shall be distributed to the Board, and the Board shall take such action, if any, as the Board may deem appropriate, to approve, alter or rescind actions, if any, previously taken by the Committee under these By-Laws, provided that rights or acts of third parties vested or taken in reliance on such action prior to any such alteration or rescission shall not be adversely affected thereby.

 
(d)
Credit Committee

The Credit Committee shall have primary responsibility for reviewing and approving all policy matters relating to changes, additions or deletions to the credit, collateral valuation, underwriting and loan diversification standards and any forms or documents used in the Corporation’s programs.  The Committee shall have primary responsibility for matters relating to mortgage portfolio servicing and management, including the methodology that results in the Corporation’s allowance for loan losses.

 
(e)
Finance Committee

The Finance Committee shall be responsible for determining the financial policies of the Corporation and managing the Corporation’s financial affairs, except those financial policies and affairs that are assigned to the Audit and Compensation Committees.

 
9

 

The guarantee fee policies of the Corporation shall be reviewed and approved by the Finance Committee and recommended to the Board for its approval.   All capital expenditures of the Corporation shall be approved by the Committee, except that it may authorize the President to approve expenditures which do not involve the Corporation in a new line of business.  All action taken by the Finance Committee shall be reported to the Board and shall be subject to revision by the Board, provided that no acts or rights of third parties shall be affected thereby.

 
(f)
Marketing Committee

The Marketing Committee shall have primary responsibility for the development of the Corporation’s programs and shall make recommendations to the Board with respect to commencement of new programs and modification or discontinuance of existing programs.  The Committee shall routinely monitor the Corporation’s success in accomplishing its Marketing Plan as contained in the Business Plan.

 
(g)
Public Policy Committee

The Public Policy Committee shall consider matters of public policy referred to it by the Board or the Chairman including: (i) the Corporation’s relationship with and policies regarding Borrowers; (ii) the Corporation’s relationship with and policies regarding Congress and governmental agencies and instrumentalities; and (iii) matters which generate actual or apparent conflicts of interest between the Corporation and one or more of its directors.  The Committee shall report the outcome of its evaluation of matters under preceding clause (iii) within a reasonable time after reference is made.

Section 10.
Ad Hoc Committees

The Board of Directors may, by resolution adopted by a majority of its members, designate from among its members one or more ad hoc committees, each of which to the extent provided in the resolution and in these By-Laws shall have and may exercise all the authority of the Board of Directors.  No such ad hoc committee shall have the authority of the Board of Directors in reference to any powers reserved to the full Board of Directors by the resolution or these By-Laws.

ARTICLE V

SHAREHOLDERS

Section 1.
Special Meeting

Special meetings of the shareholders shall be held upon the call of either the Chairman or a majority of the directors of the Corporation, and shall be called by the Chairman upon the written request of holders of at least one-third of the shares of the Corporation having voting power.  A special meeting may be called for any purpose or purposes for which shareholders may legally meet, and shall be held, within or without the District of Columbia, at such place as may be determined by the Chairman or a majority of the directors of the Corporation, whichever shall call the meeting.

 
10

 

Section 2.
Annual Meeting

An annual meeting of the shareholders shall be held each year at such date and at such time as designated by the Board of Directors.  At the meeting, the shareholders entitled to vote shall elect directors and transact such other business as may properly be brought before the meeting.

Section 3.
Notice

Written or printed notice stating the place, day and hour of any meeting and, in the case of a special meeting, the purpose for which the meeting is called, shall be delivered not less than 10 nor more than 50 days before the date of the meeting, either personally or by mail, by or at the direction of the Chairman of the Board, or the Secretary, or the officer or persons calling the meeting, to each shareholder of record entitled to vote at such meeting.  If mailed, such notice shall be deemed to be delivered when deposited in the United States mail with postage thereon prepaid, addressed to the shareholder at his address as it appears on the stock transfer books of the Corporation or such other address as the shareholder has in writing instructed the Secretary.

Section 4.
Waiver of Notice

Attendance by a shareholder at a shareholders’ meeting, whether in person or by proxy, without objection to the notice or lack thereof, shall constitute a waiver of notice of the meeting.  Any shareholder may, either before or after the time of the meeting, execute a waiver of notice of such meeting.

Section 5.
Record Date

For the purpose of determining shareholders entitled to notice or to vote at any meeting of shareholders or any adjournment thereof, or shareholders entitled to receive payment of any dividend, or in order to make a determination of shareholders for any other proper purpose, the Board of Directors shall fix in advance a date as the record date for any such determination of shareholders, such date in any case to be not more than 60 days, in the case of a meeting of shareholders, not less than 10 days prior to the date on which the particular action requiring such determination of shareholders is to be taken.  If the Board of Directors fails to designate such a date, the date on which notice of the meeting is mailed or the date on which the resolution of the Board of Directors declaring such dividends is adopted, as the case may be, shall be the record date for such determination of shareholders.  When a date is set for the determination of shareholders entitled to vote at any meeting of shareholders, such determination shall apply to any adjournment thereof.

 
11

 

Section 6.
Voting Lists

The officer or agent having charge of the stock transfer books for shares of the Corporation shall make a complete record of the shareholders entitled to vote at each meeting of the shareholders or any adjournment thereof, arranged in alphabetical order, with the address and the number of shares held by each.  Such officer or agent shall also prepare two separate lists of such shareholders, one indicating in alphabetical order which shareholders are financial institutions not members of the Farm Credit System and another indicating in alphabetical order which shareholders are member institutions of the Farm Credit System.  Such records shall be produced and kept open at the time and place of the meeting and shall be subject to inspection by any shareholder during the whole time of the meeting for the purposes thereof.

Section 7.
Quorum

A majority of the outstanding shares of the Corporation entitled to vote, represented in person or by proxy, shall constitute a quorum at a meeting of shareholders.  If less than a majority of the outstanding shares are represented at a meeting, a majority of the shares so represented may adjourn a meeting from time to time without further notice.  At such adjourned meeting at which a quorum shall be present or represented, any business may be transacted which might have been transacted at the meeting as originally notified.  The shareholders present at a duly organized meeting may continue to transact business until adjournment, notwithstanding the withdrawal of enough shareholders to leave less than a quorum.  Shares of its own stock belonging to the Corporation shall not be counted in determining the total number of outstanding shares at any given time.

Section 8.
Proxies

At all meetings of shareholders, a shareholder entitled to vote may vote by proxy executed in writing by the shareholder or by its duly authorized attorney in fact.  Shares standing in the name of another corporation may be voted by such officer, agent or proxy as the by-laws of such corporation may prescribe, or, in the absence of such provisions, as the board of directors of such corporation may determine.  All proxies shall be filed with the Secretary of the Corporation before or at the time of the meeting, and shall be revocable, if such revocation be in writing, until exercised.  No proxy shall be valid after eleven months from the date of its executions unless otherwise provided in the proxy.

The Board of Directors may solicit proxies from shareholders to be voted by such person or persons as shall be designated by resolution of the Board of Directors.  The Corporation shall assume the expense of solicitations undertaken by the Board.

Any solicitation of proxies by the Corporation shall contain the names of all persons the Corporation proposes to nominate for directorships to be filled at the next meeting, their business addresses, and a brief summary of their business experience during the last five years.  Each proxy solicitation shall be accompanied by a copy of the most recent annual report of the Corporation which report, to the satisfaction of the Board of Directors, shall reasonably represent the financial situation of the Corporation as of the time of its preparation.

 
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If any shareholder entitled to vote at a meeting of shareholders shall seek a list of shareholders for the purpose of soliciting proxies from any other shareholders, the Corporation may, at its option, either (a) provide the soliciting shareholder with a complete and current list containing the names of all shareholders of the Corporation entitled to vote at such meeting; and their addresses as they appear on the transfer books of the Corporation; or (b) mail such proxy solicitations on behalf of the soliciting shareholders, upon being furnished the material to be mailed and the reasonable cost of the mailing.

Section 9.
Organization

Meetings of the shareholders shall be presided over by the Chairman of the Board of Directors.  The Secretary of the Corporation shall act as secretary of every meeting and, if the Secretary is not present, the meeting shall choose any person present to act as secretary of the meeting.

Section 10.
Voting of Shares

Except as provided in this Section, at every meeting of the shareholders, every holder of common stock entitled to vote on a matter coming before such meeting shall be entitled to one vote for each share of common stock registered in its name on the stock transfer books of the Corporation at the close of the record date.

At each election of directors, the Chairman of the meeting shall inform the shareholders present of the persons appointed by the President of the United States to be the appointed directors of the Corporation.  The shareholders entitled to vote for the election of directors which are institutions of the Farm Credit System shall constitute a single class and shall then proceed to elect five directors.  Following the election of directors by shareholders which are institutions of the Farm Credit System, the shareholders entitled to vote for the election of directors which are financial institutions and are not institutions of the Farm Credit System shall constitute a single class and shall proceed to elect five directors.

Every holder of common stock entitled to vote for the election of directors shall have the right to cast the number of votes that is equal to the product of the number of shares owned by it multiplied by the number of directors to be elected of the class for which it may vote, and it may cast all such votes for one person or may distribute them evenly or unevenly among any number of persons not greater than the number of such directors of such class to be elected, at its option.  Shares of its own stock belonging to the Corporation shall not be eligible to vote on any matter.

 
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Section 11.
Inspectors of Votes

The Board of Directors, in advance of any meeting of shareholders, may appoint one or more Inspectors of Votes to act at the meeting or any adjournment thereof.  In case any person so appointed resigns or fails to act, the vacancy may be filled by appointment by the Chairman of the meeting.  The Inspectors of Votes shall determine all questions concerning the qualification of voters, the validity of proxies, the acceptance or rejection of votes and, with respect to each vote by ballot, shall collect and count the ballots and report in writing to the secretary of the meeting the result of the vote.  The Inspectors of Votes need not be shareholders of the Corporation.  No person who is an officer or director of the Corporation, or who is a candidate for election as a director, shall be eligible to be an Inspector of Votes.

ARTICLE VI

SHARES OF STOCK

Section 1.
Issuance and Conditions

The Board of Directors shall have the power in accordance with the provisions of the governing statute to authorize the issuance of voting common, non-voting common and preferred shares of stock.  The Board of Directors may by resolution impose a stock purchase requirement as a prerequisite to participation in any program of the Corporation.  Any stock purchase requirement shall not apply to any participant who is prohibited by law from acquiring stock of the Corporation, provided such participant undertakes to make such purchase when such legal restrictions are alleviated, or to such otherwise eligible participants as the Board may by resolution provide.

Section 2.
Common Stock

The Corporation shall have voting common stock having such par value as may be fixed by the Board of Directors, which may only be issued to institutions which are authorized to be issued such shares pursuant to Title VIII of the Farm Credit Act of 1971, as amended.

The Corporation may issue non-voting common stock having such par value as may be fixed by the Board of Directors, which may be issued without limitations as to the status of the holders thereof.

Except as otherwise provided in these By-Laws, the powers, preferences and relative and other special rights and the qualifications, limitations and restrictions applicable to all shares of common stock, whether voting common stock or non-voting common stock, shall be identical in every respect.

 
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Except as provided in this Section, the voting common stock and the non-voting common stock of the Corporation shall be fully transferable, except that, as to the Corporation, they shall be transferred only on the books of the Corporation.

Section 3.
Redemption

Whenever the Corporation shall determine that any shares of the voting common stock of the Corporation are held by a person, including a partnership, joint venture, trust, corporation or any other association, not eligible to acquire such shares under the provisions of Title VIII of the Farm Credit Act of 1971, as amended, the Corporation shall notify such person in writing that such shares are to be disposed of to a person eligible to acquire such shares within a period of not more than 30 days.  If the Corporation determines that the shares have not been transferred within 30 days of such notice, the Corporation may redeem such shares at the lesser of the fair market value thereof or the book value thereof at the date established for such redemption.

The power to redeem voting common stock found to be held by ineligible persons granted by this Section shall not be deemed to limit the right of the Corporation, at its discretion, to pursue any other lawful remedy against such ineligible person.

Section 4.
Dividends on Voting Common Stock and Non-Voting Common Stock

To the extent that income is earned and realized, the Board of Directors may from time to time declare and the Corporation shall pay, dividends on the voting common stock and the non-voting common stock, except that no such dividends shall be payable with respect to any share that has been called for redemption after the date established for such redemption.  No dividend shall be declared or paid on any share of voting common stock or non-voting common stock at any time when any dividend is due on the shares of preferred stock and has not been paid.

Section 5.
Preferred Stock

The Corporation may issue shares of preferred stock having such par value, and such other powers, preferences and relative and other special rights, and qualifications, limitations and restrictions applicable thereto, as may be fixed by the Board of Directors.   Such shares shall be freely transferable, except that, as to the Corporation, such shares shall be transferred only on the books of the Corporation.

Section 6.
Dividends, Redemption, Conversion of Preferred Shares

The holders of the preferred shares shall be entitled to such rate of cumulative dividends, and such shares shall be subject to such redemption or conversion provisions, as may be provided for at the time of issuance.  Such dividends shall be paid out of the net income of the Corporation, to the extent earned and realized.

 
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Section 7.
Preference on Liquidation

In the event of any liquidation, dissolution, or winding up of the Corporation’s business, the holders of shares of preferred stock shall be paid in full at par value thereof, plus all accrued dividends, before the holders of the voting common stock and non-voting common stock receive any payment.

Section 8.
Purchase of Own Shares

The Corporation shall have the right, pursuant to resolution by the Board of Directors, to purchase, take, receive or otherwise acquire its own shares, but purchases, whether direct or indirect, shall be made only to the extent of unreserved and unrestricted earned or capital surplus available therefor.

Section 9.
Consideration for Shares

The Corporation shall issue shares of stock for such consideration, expressed in dollars, but not less than the par value thereof, as shall be fixed from time to time by the Board of Directors.  That part of the surplus of the Corporation which is transferred to stated capital upon issuance of shares as a share dividend shall be deemed to be the consideration for the shares so issued.

The consideration for the issuance of shares may be paid, in whole or in part, in cash or other property acceptable to the Board of Directors, except that a promissory note shall not constitute payment or partial payment for the issuance of shares of the Corporation.

Section 10.
Stated Capital

The consideration received upon the issuance of any share of stock shall constitute stated capital to the extent of the par value of such shares and the excess, if any, of such consideration shall constitute capital surplus.  The stated capital of the Corporation may be increased from time to time by resolution of the Board of Directors directing that all or a part of the surplus of the Corporation be transferred to stated capital.  The Board of Directors may direct that the amount of the surplus so transferred shall be deemed to be stated capital in respect of any designated class of shares.

The Board of Directors may, by resolution from time to time, reduce the stated capital of the Corporation but only in the amount of the aggregate par value of any shares of the Corporation which shall have been reacquired and canceled.  Any surplus created by virtue of a reduction of stated capital shall be deemed to be capital surplus.

 
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Section 11.
No Preemptive Rights

No holder of the shares of the Corporation of any class, now or hereafter authorized, shall as such holder have any preemptive or preferential rights to subscribe to, purchase, or receive any shares of the Corporation of any class, now or hereafter authorized, or any rights or options for any such shares or any rights or options to subscribe to or purchase any such shares or other securities convertible into or exchangeable for or carrying rights or options to purchase shares of any class or other securities, which may at any time be issued, sold or offered for sale by the Corporation or  subjected to the rights or options to purchase granted by the Corporation.

Section 12.
Liability of Shareholders

A holder of shares of the Corporation shall be under no obligation to the Corporation with respect to such shares other than the obligation to pay to the Corporation the full consideration for which such shares were or are to be issued.

Any person becoming a transferee of shares in good faith and without notice or knowledge that the full consideration thereof had not been paid shall not be personally liable to the Corporation for any unpaid portion of such consideration.

Section 13.
Reclassifications, Etc.

No class of outstanding voting or non-voting common stock may be subdivided, combined, reclassified or otherwise changed unless contemporaneously therewith all other classes of outstanding common stock are subdivided, combined, reclassified or otherwise changed in the same proportion and in the same manner.

ARTICLE VII

CERTIFICATES FOR SHARES AND THEIR TRANSFER

Section 1.
Certificates

The interest of each shareholder of the Corporation shall be evidenced by (i) certificates representing shares of stock of the Corporation, certifying the number of shares represented thereby, (ii) uncertificated shares that may be evidenced by a book-entry maintained by a transfer agent or registrar of such stock, or (iii) a combination of both (i) and (ii).  Any such shares shall be in such form not inconsistent with the governing statute of the Corporation as the Board of Directors may from time to time prescribe.

To the extent that shares are represented by certificates of stock, such certificates shall be signed by the Chairman of the Board of Directors or the President and by the Secretary or Assistant Secretary and sealed with the corporate seal or an engraved or printed facsimile thereof.  The signatures of such officers upon a certificate may be facsimile if the certificate is manually signed on behalf of a transfer agent or a registrar other than the Corporation itself or one of its employees.  In the event that any officer who has signed or whose facsimile signature has been placed upon such certificate shall have ceased to be such before such certificate is issued, it may be issued by the Corporation with the same effect as if such officer had not ceased to be such at the time of the issue.

 
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Each certificate or share shall be consecutively numbered or otherwise identified.   The name and address of the person to whom the shares represented thereby are issued, with the number of shares and date of issue, shall be entered on the stock transfer books of the Corporation.  All certificates surrendered to the Corporation for transfer shall be canceled, and no new certificate shall be issued until the former certificate for a like number of shares shall have been surrendered and canceled, except that in the case of a lost, destroyed or mutilated certificate, a new certificate may be issued upon such terms and with indemnity to the Corporation as the Board of Directors may prescribe.

Section 2.
Contents

Each certificate representing shares shall state:

 
a.
That the Corporation is organized pursuant to an Act of Congress;

 
b.
The name of the person to whom issued;

 
c.
The number and class of shares, and the designation of the series, if any, which such certificate represents;

 
d.
The par value of each share represented by such certificate;

 
e.
The provisions by which such shares may be redeemed; and

 
f.
That the shares represented shall not have any preemptive rights to purchase unissued or treasury shares of the Corporation.

Each certificate representing shares of preferred stock shall state upon the face thereof the annual dividend rate for such shares, and shall state upon the reverse side thereof the powers, preferences and relative and other special rights and the qualifications, limitations and restrictions applicable to such shares of preferred stock.

No certificate shall be issued for any share until such share is fully paid.

Section 3.
Transfer

Transfer of certificated shares of the Corporation shall be made only on the stock transfer books of the Corporation by the holder of record thereof or by his legal representative, who shall furnish proper evidence of the authority to transfer, or by his attorney thereto authorized by power of attorney duly executed and filed with the Secretary of the Corporation, and on surrender for cancellation of the certificate for such shares.

 
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Transfer of uncertificated shares of the Corporation shall be made only on the stock transfer books of the Corporation upon receipt of proper transfer instructions from the holder of record thereof or by his legal representative, who shall furnish proper evidence of the authority to transfer, or by his attorney thereto authorized by power of attorney duly executed and filed with the Secretary of the Corporation.

The person in whose name shares stand on the books of the Corporation shall be deemed by the Corporation to be the owner thereof for all purposes.

Section 4.
Records

The Corporation shall keep at its principal place of business, or at the office of its transfer agent or registrar, a record of its shareholders, giving the names and addresses of all shareholders and the number of shares held by each.  Any person who shall be the holder of at least five percent of the aggregate number of shares of any class of common stock of the Corporation shall upon written demand stating the purpose therefor, have the right to examine, in person, or by agent or attorney, duly authorized in writing, at any reasonable time or times, for any proper purpose, the Corporation’s record of shareholders and minutes of meetings of the shareholders and the Board of Directors, and to make extracts therefrom.

ARTICLE VIII

INDEMNIFICATION

Section 1.
Authorization

The Corporation shall, to the extent permitted by law, indemnify any person who was or is a party, whether as a plaintiff acting with the approval of the Board of Directors or as a defendant, or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative and whether formal or informal, by reason of the fact that he or she is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses, including attorneys’ fees, judgments, fines and amounts paid in settlement actually and reasonably incurred by him or her in connection with such action, suit or proceeding if he or she acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of the Corporation and, with respect to any criminal action or proceeding, had no reasonable cause to believe his or her conduct was unlawful.   Any such person shall be indemnified by the Corporation to the extent he or she is successful in the action, suit or proceeding.   The termination of any action, suit or proceeding by judgment, order, settlement, conviction or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the Corporation, and, with respect to any criminal proceeding, had reasonable cause to believe that his or her conduct was unlawful.

 
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Section 2.
Procedure

Any indemnification under this Article shall be made by the Corporation only as authorized in the specific case upon a determination that indemnification is proper in the circumstances because the officer, director, employee or agent has met the applicable standard of conduct set forth in this Article.  Such determination shall be made by a majority vote of the members of the Board of Directors who were not parties to such action, suit or proceeding.   If all members of the Board of Directors were parties to such action, suit or proceeding, such determination shall be made either (a) by legal counsel or (b) by the shareholders at the next meeting of shareholders.  In any case under this Article, the Board or shareholders are authorized to obtain the opinion of independent legal counsel.

Section 3.
Advance Payments

Expenses, including attorneys’ fees, incurred in defending a civil, criminal, administrative or investigative action, suit or proceeding, whether formal or informal, shall be paid by the Corporation in advance of the final disposition of such action, suit or proceeding as authorized in the manner provided in section 2 of this Article upon receipt of an undertaking by or on behalf of the director, officer, employee or agent to repay such amount only if it shall ultimately be determined that he or she is not entitled to be indemnified by the Corporation.

Section 4.
Other Rights to Indemnification

The indemnification provided in this Article shall not be deemed exclusive of any other rights to which the director, officer, employee or agent may be entitled under any by-law, agreement, vote of shareholders or disinterested directors or otherwise.  The indemnification provided by this Article shall continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of the heirs, executors, and administrators of such a person.

Section 5.
Indemnification Insurance

The Corporation, pursuant to a resolution of the Corporation, may purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the Corporation or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against him or her in any such capacity or arising out of his status as such whether or not the Corporation would have the power to indemnify him or her against such liability under the provisions of this Article.

 
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ARTICLE IX

CONTRACTS, LOANS, CHECKS, DEPOSITS AND STATEMENTS

Section 1.
Contracts

The Board of Directors may authorize the Chairman or officers of the Corporation to enter into any contract or execute and deliver any instrument in the name of and on behalf of the Corporation, and such authority may be general or confined to specific instances.

Section 2.
Loans

No loans shall be contracted on behalf of the Corporation and no evidence of indebtedness shall be issued in its name unless authorized by a resolution of the Board of Directors.  Such authority may be general or confined to specific instances.

Section 3.
Checks, Drafts, etc.

All checks, drafts or other orders for the payment of money, notes or other evidence of indebtedness issued in the name of the Corporation shall be signed by the Chairman or officers of the Corporation and in such manner as shall from time to time be determined by a resolution of the Board of Directors.

Section 4.
Deposits

All funds of the Corporation not otherwise employed shall be deposited from time to time to the credit of the Corporation at such banks, trust companies or other depositories as the Board of Directors may select.

Section 5.
Investments

The Board of Directors may authorize the Chairman or officers of the Corporation to invest the funds of the Corporation in such securities and in such manner as shall from time to time be determined by a resolution of the Board of Directors.

ARTICLE X

FACSIMILE SIGNATURES

The Board of Directors may by resolution authorize the use of facsimile signatures in lieu of manual signatures.

 
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ARTICLE XI

AMENDMENTS

These By-Laws may be altered, amended or repealed and new by-laws, consistent with the governing statute, may be adopted by the majority vote of the Board of Directors.

 
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EXHIBIT 10.22
 
EXECUTION COPY
   

 
CFC ADVANTAGE, LLC ,
as Depositor
 
NATIONAL RURAL UTILITIES
COOPERATIVE FINANCE CORPORATION,
as Master Servicer
 
and
 
U.S. BANK NATIONAL ASSOCIATION,
as Trustee
 
and
 
FEDERAL AGRICULTURAL MORTGAGE CORPORATION,
as Calculation and Paying Agent
 

 
MASTER TRUST, SALE AND SERVICING AGREEMENT
 

 
Dated as of October 20, 2006
 

 

 
MASTER TRUST, SALE AND SERVICING AGREEMENT made and entered into as of October 20, 2006 by and among the CFC ADVANTAGE, LLC, a Delaware limited liability company, as depositor (in such capacity, the “ Depositor ”), NATIONAL RURAL UTILITIES COOPERATIVE FINANCE CORPORATION, a cooperative association organized and existing under the laws of the District of Columbia, as master servicer (in such capacity, the “ Master Servicer ”), U.S. BANK NATIONAL ASSOCIATION, a national banking association, as trustee (in such capacity, the “ Trustee ”), and FEDERAL AGRICULTURAL MORTGAGE CORPORATION, a federally chartered instrumentality of the United States, as calculation and paying agent (in such capacity, the “ Calculation and Paying Agent ”).
 
WITNESSETH
 
WHEREAS, National Rural Utilities Cooperative Finance Corporation (“ CFC ”) owns or will from time to time own certain Qualified Loans.
 
WHEREAS, CFC desires from time to time to assemble pools of Qualified Loans and, pursuant to the Master Loan Purchase Agreement, by and between CFC and the Depositor (the “ Master Loan Purchase Agreement ”), to sell to the Depositor the Qualified Loans identified in connection with the execution and delivery of each Master Loan Purchase Agreement Supplement upon the terms and subject to the conditions set forth therein.
 
WHEREAS, contemporaneously with the sale by CFC to the Depositor of such Loans, the Depositor will sell such Loans to the Trustee in connection with the execution and delivery of each Issue Supplement upon the terms and subject to the conditions set forth herein.
 
WHEREAS, each of the Trusts created pursuant to this Master Agreement and the related Issue Supplement shall issue a series of Rural Utilities MBS Certificates, backed by certain Loans identified in the related Issue Supplement, and bearing the designation specified in each such Issue Supplement.
 
NOW, THEREFORE, the parties to this Master Agreement, in the capacities hereinabove set forth, in consideration of the agreements and other good and valuable consideration, the receipt and sufficiency of which are acknowledged, do hereby undertake and otherwise agree as follows:
 
ARTICLE I
Defined Terms
 
Section 1.01.  General Definitions .   Whenever used in this Master Agreement, the following words and phrases shall have the following meanings:
 
Additional Collateral Documents:   With respect to any Loan, any security documents (including any UCC-1, UCC-2 or UCC-3 financing statement), other than those listed in clauses (i) through (iv) of Section 2.02(b), that evidence the creation or perfection of a security interest in the related Mortgaged Property and are in the possession of or within the control of the Depositor.
 

 
Affiliate:   With respect to any particular Person, (a) any Person that, directly or indirectly, is in control of, is controlled by, or is under common control with, such Person or (b) any person who is a director or officer or general partner (i) of such Person, (ii) of any subsidiary of such Person, or (iii) of any Person described in clause (a) above.  For purposes of this definition, control of a Person shall mean the power, direct or indirect, (i) to vote 5% or more of the securities having ordinary voting power to elect the directors of such Person, or (ii) to direct or cause the direction of the management and policies of such Person whether by contract or otherwise.
 
Aggregate Certificate Principal Balance:   With respect to any date of determination, the aggregate Certificate Principal Balance of all Certificates of a Series as of the date of determination.
 
Authenticating Agent:   The meaning ascribed to such term in Section 3.02.
 
Authorized Officer:   The Chairman of the Board, the President or any Vice President.
 
Available Interest:   With respect to any Distribution Date, the sum of the following amounts received during the related Collection Period:  (i) that portion of all collections on the Loans other than Defaulted Loans allocable to interest including, without limitation, interest paid at default rates, penalties and late payment fees, and (ii) Cash Liquidation Proceeds to the extent allocable to interest (net of the sum of any amounts expended by the Master Servicer for the account of the Borrower and not already netted from the amount of Available Principal for such Distribution Period) received on a Defaulted Loan in accordance with the Master Servicer’s Customary Servicing Procedures.
 
Available Principal:   With respect to any Distribution Date, the sum of the following amounts received during the related Collection Period:  (i) that portion of all collections on the Loans other than Defaulted Loans allocable to principal, (ii) Cash Liquidation Proceeds to the extent allocable to principal (net of the sum of any amount expended by the Master Servicer for the account of the Borrower) due on Defaulted Loans in accordance with the Master Servicer’s Customary Servicing Procedures, and (iii) any Substitution Adjustment Principal Amount.
 
Borrower:   The obligor or obligors under a Loan.
 
Business Day:   Any day other than (i) a Saturday or a Sunday, (ii) a day on which the Federal Reserve Bank of New York authorizes banking institutions in the Second Federal Reserve District to be closed, (iii) a day on which banking institutions in the District of Columbia or the State of New York are required or authorized by law to be closed, or (iv) a day on which the principal offices of the Trustee, the Calculation and Paying Agent or the Master Servicer are closed.
 
Cash Liquidation Proceeds:   All cash proceeds recovered by the Master Servicer with respect to the termination of any Defaulted Loan, including all Other Insurance Proceeds, Condemnation Proceeds and other payments or recoveries whether made at one time or over a period of time, in connection with the sale or assignment of such Defaulted Loan, trustee’s sale, foreclosure sale or otherwise.
 
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Certificate:   A Rural Utilities MBS Certificate, which is issued pursuant to the terms of this Master Agreement and the applicable Issue Supplement.
 
Certificate Account:   With respect to any Series, the account created and maintained with respect to the Certificates of such Series pursuant to Section 6.01.
 
Certificate Account Deposit Date:   With respect to any Distribution Date, the 20th day of the month of such Distribution Date relating to such Series, or if not a Business Day, the Business Day immediately preceding such date.
 
Certificate Distribution Amount: With respect to any Series, the meaning ascribed to such term in the related Issue Supplement.
 
Certificate Distribution Amount Determination Date:   With respect to a Series and any Distribution Date relating to such Series, the 10th Business Day during the month of such Distribution Date.
 
Certificate Principal Balance:   With respect to any Certificate prior to the initial Distribution Date for the related Series, the Denomination thereof and, as to any Certificate subsequent to such initial Distribution Date, the Denomination thereof multiplied by the Certificate Principal Factor applicable to such Class of Certificate.
 
Certificate Principal Factor:   With respect to any date of determination and as to any Class of Certificates, a fraction, the numerator of which is (i) the aggregate of the Denominations of all Certificates of such Class less (ii) the aggregate amount of all Principal Distribution Amounts, if any, allocable to such Class prior to such date of determination, and the denominator of which is the aggregate of the Denominations of all of the Certificates of such Class.
 
Certificate Registrar:   The meaning ascribed to such term in Section 3.03.
 
Certificate Register:   The meaning ascribed to such term in Section 3.03.
 
Certificateholder or Holder:   With respect to each Series, the person in whose name a certificate is registered in the Certificate Register.
 
Class:   With respect to any Series, all Certificates of such Series with the same terms.
 
Class A Distributable Amount:   With respect to any Distribution Date, the sum of the Class A Principal Distributable Amount and the Class A Interest Distributable Amount.
 
Class A Interest Carryover Shortfall: As of the close of business on any Distribution Date, the excess, if any, of the Class A Interest Distributable Amount for such Distribution Date plus any outstanding unpaid interest owed to holders of Class A Certificates from the preceding Distribution Date, plus interest on such outstanding unpaid interest amount, to the extent permitted by law, at the Class A Pass-Through Rate from such preceding Distribution Date to but not including such current Distribution Date, over the amount of interest that the holders of the Class A Certificates actually received on such current Distribution Date.
 
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Class A Interest Distributable Amount: With respect to any Series, the meaning ascribed to such term in the related Issue Supplement.
 
Class A Pass-Through Rate:   With respect to any Series, the meaning ascribed to such term in the related Issue Supplement.
 
Class A Percentage:   With respect to any Distribution Date, 99%.
 
Class A Principal Carryover Shortfall: As of the close of business on any Distribution Date, the excess, if any, of the Class A Principal Distributable Amount for such Distribution Date plus any outstanding unpaid principal owed to holders of Class A Certificates from preceding Distribution Dates over the amount of principal that the holders of the Class A Certificates actually received on such current Distribution Date.
 
Class A Principal Distributable Amount: With respect to any Distribution Date, the Class A Percentage of the sum of:  (i) the principal portion of all collections on the Loans, including prepayments of principal received during the related Collection Period, (ii) the aggregate of all Substitution Adjustment Principal Amounts received in connection with the substitution of Loans during the related Collection Period, (iii) the principal portion of the Repurchase Price received with respect to any Defective Loan during the related Collection Period and (iv) the aggregate outstanding principal balance as of the beginning of the related Collection Period of all Loans that became Defaulted Loans during the related Collection Period (without duplication of amounts referred to in clauses (i) and (ii) above).
 
Class B Distributable Amount:   With respect to any Distribution Date, the sum of the Class B Principal Distributable Amount and the Class B Interest Distributable Amount.
 
Class B Interest Carryover Shortfall: As of the close of business on any Distribution Date, the excess, if any, of the Class B Interest Distributable Amount for such Distribution Date plus any outstanding unpaid interest owed to holders of Class B Certificates from the preceding Distribution Date plus interest on such outstanding unpaid interest amount, to the extent permitted by law, at the Class B Pass-Through Rate from such preceding Distribution Date to but not including such Distribution Date, over the amount of interest that the holders of the Class B Certificates actually received on such current Distribution Date.
 
Class B Interest Distributable Amount: With respect to any Series, the meaning ascribed to such term in the related Issue Supplement.
 
Class B Pass-Through Rate:   With respect to any Series, the meaning ascribed to such terms in the related Issue Supplement.
 
Class B Percentage:   With respect to any Distribution Date, 1%.
 
Class B Principal Carryover Shortfall:   As of the close of any Distribution Date, the excess, if any, of the Class B Principal Distributable Amount plus any outstanding unpaid principal owed to holders of Class B Certificates from the preceding Distribution Date over the amount of principal that the holders of the Class B Certificates actually received on such current Distribution Date.
 
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Class B Principal Distributable Amount:   means, with respect to any Distribution Date, the Class B Percentage of the sum of:  (i) the principal portion of all collections on the Loans, including prepayments of principal received during the related Collection Period, (ii) the aggregate of all Substitution Adjustment Principal Amounts received in connection with the substitution of Loans during the related Collection Period, (iii) the principal portion of the Repurchase Price received with respect to any Defective Loan during the related Collection Period and (iv)  the aggregate outstanding principal balance as of the beginning of the related Collection Period of all Loans that became Defaulted Loans during the related Collection Period (without duplication of amounts referred to in clauses (i) and (ii) above).
 
Class Certificate Principal Balance:   With respect to any Class at any time, the aggregate of the Certificate Principal Balances of all Certificates of such Class.
 
Code:   The Internal Revenue Code of 1986, as amended, and the rules and regulations promulgated thereunder.
 
Collection Period:   With respect to any Series and any Distribution Date, the 6 calendar months immediately preceding the month in which such Distribution Date falls.
 
Compliance Certification:   The annual certification by a Borrower to CFC under the related Loan Agreement.
 
Condemnation Proceeds: All awards or settlements in respect of a taking of an entire Mortgaged Property by exercise of the power of eminent domain or condemnation.
 
Customary Servicing Procedures:   With respect to the Master Servicer, the customary and usual standards of practice employed by the Master Servicer when servicing and administering loans in the Master Servicer’s portfolio of a type comparable to the loans included in each applicable Trust Fund.
 
Cut-Off Date:   With respect to any Loan, the last day of the month preceding the month of the Series Closing Date on which such Loan became a part of the Trust Fund established on that Series Closing Date.
 
Custodial Account:   With respect to any Series, the account created and maintained by the applicable Master Servicer pursuant to Section 5.02(b) with respect to the Loans within the Trust Fund relating to such Series.
 
Cut-Off Date Principal Balance:   With respect to any Loan other than an Eligible Substitute Loan, the unpaid principal balance thereof at the Cut-Off Date after giving effect to all installments of principal due on or prior thereto, whether or not received.  As to any Eligible Substitute Loan, the unpaid principal balance thereof as of the date such Eligible Substitute Loan is sold to the Trustee hereunder.
 
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Defaulted Loan:   Any Loan as to which (i) any payment or part thereof, remains unpaid for 30 days or more after the original due date for such payment, (ii)  the related Borrower is subject to any bankruptcy or insolvency proceeding, (iii) the lien of the related Mortgage has been foreclosed, the related Mortgaged Property has been sold pursuant to a power of sale or trustee’s sale or repossessed, or proceedings for foreclosure, sale or repossession have been commenced, or (iv) the Master Servicer has determined, consistent with Customary Servicing Procedures, that such Loan is not collectible.
 
Defective Loan:   Any Loan which is required to be cured, repurchased or substituted for pursuant to Section 2.02 or Section 4.02.
 
Denomination:   With respect to any Certificate, the principal balance of such Certificate as of the Series Closing Date on which such Certificate was issued.
 
Distribution Date:   With respect to any Series, the dates specified in the related Issue Supplement as a Distribution Date for the Certificates of such Series.
 
DSC Ratio:   The DSC Coverage Ratio for any Borrower, for any calendar year means the ratio determined by adding such Borrower’s Patronage Capital and Operating Margins, Non-Operating Margins – Interest, cash received in respect of generation and transmission and other capital credits, Interest Expense with respect to Long-Term Debt and Depreciation and Amortization Expense for such year, and dividing the sum so obtained by the sum of all payments of principal and interest expense required to be made during such year on account of such Borrower’s Long-Term Debt (but in the event any portion of such Borrower’s Long-Term Debt is refinanced during such year the payments of principal and interest expense required to be made during such year in respect thereof shall be based  (in lieu of actual payments thereon) upon the larger of (x) an annualization of such payments required to be made with respect to the refinancing debt during the portion of such year such refinancing debt is outstanding and (y) the payments of principal and interest expense required to be made during the following year on account of such refinancing debt); Patronage Capital and Operating Margins, Interest Expense with respect to Long-Term Debt, Depreciation and Amortization Expense, principal and interest expense, Non-Operating Margins – Interest and Long-Term Debt being determined in accordance with the Uniform System of Accounts prescribed at the time by RUS or, if such Borrower is not required to maintain its accounts in accordance with said Uniform System of Accounts, otherwise determined in accordance with GAAP, except that in computing Interest Expense with respect to Long-Term Debt, and payments of interest required to be made on account of Long-Term Debt, for the purpose of the foregoing definition, there shall be added, to the extent not otherwise included, an amount equal to 33-1/3% of the excess of the Restricted Rentals paid by such Borrower for such year over 2% of such Borrower’s Equities and Margins for such year as defined in the Uniform System of Accounts prescribed by RUS or, if such Borrower is not required to maintain its accounts in accordance with said Uniform System of Accounts, otherwise determined in accordance with GAAP.
 
Due Date:   With respect to any Loan, any date upon which any Installment Payment is due in accordance with the terms of the related Mortgage Note.
 
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Eligible Account:   An account that is a segregated account (including a securities account) with an Eligible Depository.
 
Eligible Depository:   Any Reserve Bank, the Trustee or any other depository institution or trust company approved in writing by an Authorized Officer of the Calculation and Paying Agent incorporated under the laws of the United States of America or any state thereof and subject to supervision and examination by federal or state banking authorities.
 
Eligible Substitute Loan :   A Qualified Loan that is substituted for a Defective Loan pursuant to Section 2.02(d), Section 4.02 or Section 4.04.
 
Farmer Mac:   The Federal Agricultural Mortgage Corporation, a federally chartered instrumentality of the United States, together with its successors and assigns.
 
Form 7:   The reporting form designated as such by RUS, or in the event a Borrower does not borrow from RUS, the reporting form designated as such by CFC for its Class A distribution system members.
 
Final Distribution Date:   With respect to any Class, the Distribution Date specified in the related Issue Supplement as being the Distribution Date on or before which the Certificate Principal Balance of each Certificate within such Class shall have been reduced to zero.
 
GAAP:   Generally accepted accounting principles in the United States as in effect from time to time.
 
Governmental Authority:   Any nation or government, any state or other political subdivision thereof and any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government.
 
Initial Closing Date:   The date specified in the preamble to this Master Agreement.
 
Installment Payment :  With respect to any Loan and any Due Date, any payment of principal and/or interest thereon in accordance with the amortization schedule of such Loan (after adjustment for any curtailments occurring prior to the Due Date but before adjustment to such amortization schedule by reason of any bankruptcy or similar proceeding or any moratorium or similar waiver or grace period).
 
Interest Accrual Period:   With respect to any Class and Distribution Date, the period prior thereto specified in the related Issue Supplement.
 
Issue Supplement:   An instrument executed by the parties hereto pursuant to Section 2.01, which supplements this Master Agreement and identifies and establishes, among other things, a particular Trust and issues a particular Series of Certificates related to such Trust.
 
Investment Company Act:   The Investment Company Act of 1940, as amended .
 
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Investment Letter:   A letter substantially in the applicable form attached as an exhibit to the Issue Supplement in respect of a particular Series (with such changes and modifications as the Depositor, the Trustee and the Calculation and Paying Agent shall agree).
 
Key Ratio Trend Analysis :   An annual report generated by the Seller containing key financial and operating ratios and other growth indicators for each Borrower.
 
Loan Agreement:   An original loan agreement to which the applicable Borrower is a party and providing for the Loan which is evidenced by the related Mortgage Note and secured by the related Mortgage.
 
Loan Interest Rate:   With respect to any Loan, the per annum rate of interest borne thereby as specified in the Mortgage Note or the Loan Agreement relating to such Loan.
 
Loans:   With respect to each Trust Fund, the Qualified Loans identified on the Schedule of Qualified Loans relating to the Issue Supplement applicable to such Trust Fund.
 
Master Agreement:   This Master Trust, Sale and Servicing Agreement, as it may be modified, amended or supplemented in accordance with the applicable provisions hereof.
 
Mortgage:   An original mortgage, deed of trust or other instrument that constitutes a first lien on an interest in real property securing a Mortgage Note.  Such Mortgage may be an RUS form of mortgage, a CFC form of mortgage or the form specified by another lender and agreed to by CFC.  It is understood that the Mortgages provide that one or more promissory notes may be secured by such Mortgage without being specifically identified in such Mortgage and without such Mortgage being amended to reflect such fact.
 
Mortgage File:   The mortgage documents listed in Section 2.02(b) pertaining to the applicable Loan.
 
Mortgage Note:   The originally executed note or other evidence of indebtedness of a Borrower under a Loan, together with all riders thereto and amendments thereof.
 
Mortgaged Property:   The underlying property, which includes real property and may include improvements thereon, securing a Loan.
 
Net Loan Interest Rate:   With respect to any Loan, the Loan Interest Rate applicable to such Loan, net of the Servicing Fee Rate applicable to such Loan.
 
Officers’ Certificate:   With respect to any Person, a certificate signed by the Governor, the Chairman of the Board, the Vice Chairman of the Board, the President, any Executive Vice President, Senior Vice President, Vice President or Second Vice President, and any of the Treasurer, the Secretary, or any of the Assistant Treasurers or Assistant Secretaries of such Person delivered pursuant to this Master Agreement.
 
Opinion of Counsel:   A written opinion of counsel of a law firm reasonably acceptable to the recipient thereof.  Any Opinion of Counsel may be provided by in-house counsel of a Person if reasonably acceptable to the addressee thereof.
 
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Other Insurance Proceeds:   Proceeds of any hazard policy or other insurance policy covering a Mortgaged Property, to the extent such proceeds are not to be applied to the restoration of such Mortgaged Property or released to the Borrower in accordance with the procedures that the Master Servicer would follow in servicing Qualified Loans held for its own account.
 
Permitted Investments:   One or more of the following:
 
(i)           obligations of, or guaranteed as to principal and interest by, Farmer Mac or the United States or any agency or instrumentality thereof;
 
(ii)           repurchase agreements on obligations specified in clause (i), which repurchase agreements will mature not later than the day preceding the immediately following Distribution Date, provided that (a) the unsecured short-term obligations of the party agreeing to repurchase such obligations are at the time rated not less than A-1 by Standard & Poor's and not less than Prime-1 by Moody's, (b) such repurchase agreements are effected with a primary dealer recognized by a Federal Reserve Bank or (c) such repurchase agreements are secured by obligations specified in clause (i) above at not less than 102% of market value determined on a daily basis;
 
(iii)           demand and time deposits in, certificates of deposit of, or bankers' acceptances maturing in not more than 60 days and issued by, any depository institution or trust company incorporated under the laws of the United States of America or any state thereof and subject to supervision and examination by federal and/or state banking authorities, so long as at the time of such investment or contractual commitment providing for such investment the commercial paper or other short-term debt obligations of such depository institution or trust company (or in the case of a depository institution that is the principal subsidiary of a holding company, the commercial paper or other short-term obligations of such holding company) have rating of not less than A-1 from Standard & Poor's and a rating of not less than Prime-1 from Moody's;
 
(iv)           commercial paper (having remaining maturities of not more than 60 days) of any corporation incorporated under the laws of the United States or any state thereof, which on the date of acquisition has been rated not less than A-1by Standard & Poor's and not less than Prime-1 by Moody's;
 
(v)           securities bearing interest or sold at a discount issued by any corporation incorporated under the laws of the United States of America or any state thereof if such securities are rated in the highest  long-term unsecured rating categories at the time of investment or the contractual commitment providing for such investment by Standard & Poor's and Moody's; provided, however, that securities issued by any particular corporation will not be Permitted Investments to the extent that investment therein will cause the then outstanding principal amount of securities issued by such corporation and held as part of the Custodial Account for any Series to exceed 10% of the outstanding principal balance of the Qualified Loans included in the Trust for such Series (it being understood that the entity directing the investment shall be responsible for compliance with the foregoing restriction on investments);
 
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(vi)           units of a taxable money-market portfolio rated "P-1" by Moody's and "AAAm" by Standard & Poor's and restricted to investments in obligations issued or guaranteed by the United States of America or entities whose obligations are backed by the full faith and credit of the United States of America and repurchase agreements collateralized by such obligations (for which U.S. Bank National Association or an Affiliate thereof may act as portfolio advisor);
 
(vii)           units of a taxable money-market portfolio restricted to investments which would be “Permitted Investments” under paragraphs (i) through (vi) of this definition of “Permitted Investments”; and
 
(viii)          other obligations or securities that are specified in the Issue Supplement;
 
provided that any Permitted Investment shall mature not later than the next applicable Certificate Account Deposit Date (or on the next Distribution Date, in the case of Permitted Investments maintained in the Certificate Account); provided further, that a Permitted Investment may not be an investment which is subject to any deduction or withholding of tax with respect to a Certificateholder that is not a “United States person” under the Code.  Each Permitted Investment may be purchased by the Trustee or through an Affiliate of the Trustee.
 
Person:   Any legal person, including any individual, corporation, partnership, joint venture, association, joint stock company, trust, unincorporated organization or Governmental Authority.
 
Prepayment Premium:   With respect to any Loan, any premium or yield maintenance payment paid or payable, as the context requires, by the related Borrower in connection with any Principal Prepayment.
 
Principal Distribution Amount:   With respect to a particular Series and Distribution Date, the sum of the Class A Principal Distributable Amount and the Class B Principal Distributable Amount, each with respect to such series and such Distribution Date.
 
Principal Prepayment:   Any payment or other recovery of principal on a Loan which is received in advance of its scheduled Due Date, which is not accompanied by an amount of interest representing scheduled interest due on any date or dates in any month or months subsequent to the month of prepayment.
 
Qualified Loan:   A loan that satisfies the following criteria:
 
 
1.
The Borrower is a Class A Member of CFC; a distribution system eligible to borrow from RUS and serving primarily in communities of less than 50,000 residents.
 
 
2.
Such loan is a fixed or variable rate term loan that was closed by CFC.  At the time of sale, such loan has an outstanding principal amount in the range of $1 million to $22.5 million and a remaining period until maturity in the range of 3 to 35 years, provided that if such loan provides for an interest rate reset, the resets shall occur no more frequently than once every three years.  Such loan is secured by substantially all of the assets of the Borrower, which must include real estate.  Such assets may also secure one or more prior or future loans made by CFC, RUS or another party to the same Borrower.
 
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3.
Such loan is payable in full upon maturity or amortizes on a level principal or level debt service basis.
 
 
4.
Interest is payable on such loan semi-annually.  A 30/360 day year is used for calculation purposes.
 
 
5.
The documentation for such loan provides that in the event of prepayment of a fixed rate loan on any date other than an interest reset date, the Borrower must pay a premium equivalent to a market make whole amount.
 
 
6.
The full amount of such loan is advanced by the time of sale and no further draws are permitted.
 
 
7.
The Borrower’s ratio of equity to total assets, measured as of the end of the most recent calendar year prior to the time of sale, is at least 20%.
 
 
8.
The Borrower’s ratio of Long-Term Debt to net utility plant, measured as of the end of the most recent calendar year prior to the time of sale, does not exceed 90% (Net utility plant to be determined in accordance with the Uniform Systems of Accounts prescribed at the time by RUS); provided, that Long-Term Debt is determined in accordance with the Uniform System of Accounts prescribed at the time by RUS or, if such Borrower is not required to maintain its accounts in accordance with said Uniform System of Accounts, otherwise determined in accordance with GAAP.
 
 
9.
The average of the Borrower’s two highest annual DSC Ratios during the most recent three calendar years prior to the time of sale is not less than 1.4:1.
 
 
10.
At the time of the sale, CFC will have at least one other loan to the same Borrower in CFC’s portfolio.  In addition, at the time of sale, it will be the intention of CFC to maintain a credit relationship with such Borrower until such time as the Loan to such Borrower purchased by the Trustee pursuant to this Master Agreement and the related Issue Supplement is repaid in full.
 
 
11.
No event of default with respect to such loan shall have been declared by CFC and be continuing at the time of sale.
 
 
12.
Such loan shall have been documented in accordance with CFC’s existing practices and procedures at the time such loan was closed, provided that prior to its sale hereunder to the Trustee, the Mortgage Note and related Loan Agreement will be prepared and will include all of the provisions of a Qualified Loan contemplated by this Master Agreement.
 
Record Date:   With respect to any Distribution Date, the last day of the month immediately preceding the month of such Distribution Date.
 
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REO Property :  A Mortgaged Property acquired on behalf of the applicable Trust Fund through foreclosure or deed-in-lieu of foreclosure in connection with a Defaulted Loan.
 
Repurchase Price:   With respect to any Loan, the unpaid principal balance thereof together with accrued and unpaid interest thereon at the Loan Interest Rate to the Due Date next preceding the Distribution Date upon which the net proceeds of such Repurchase Price are to be distributed to the applicable Certificateholders.
 
Required Certificateholder :  With respect to any Series, the Class B Certificateholder.
 
Reserve Bank:   Any U.S. Federal Reserve Bank, including its branches.
 
Responsible Officer:   When used with respect to the Trustee, the Calculation and Paying Agent, the Depositor or the Master Servicer, any officer of such Person, including any Governor, Chairman or any President, any Vice President, any Assistant Vice President, any Assistant Treasurer, any Assistant Secretary or any other officer of such party customarily performing functions similar to those performed by the persons who at the time shall be such officers and, in respect of the Trustee in each case, who is responsible for the administration of this Master Agreement.
 
Restricted Rentals:   All rentals required to be paid under finance leases and charged to income, exclusive of any amounts paid under any such lease (whether or not designated therein as rental or additional rental) for maintenance or repairs, insurance, taxes, assessments, water rates or similar charges.  For the purpose of this definition the term “ finance lease ” shall mean any lease having a rental term (including the term for which such lease may be renewed or extended at the option of the lessee) in excess of 3 years and covering property having an initial cost in excess of $250,000 other than automobiles, trucks, trailers, tractors, other vehicles (including without limitation aircraft and ships), office, garage and warehouse space and office equipment (including without limitation computers).
 
Rule 144A:   The meaning ascribed to such term in Section 3.03(d).
 
RUS:   Means the Rural Utilities Service of the United States Department of Agriculture, acting by and through the Administrator of the Rural Utilities Service, and including any successor agencies or departments.
 
Schedule of Qualified Loans:   With respect to each Trust, the list of Loans transferred to the Trustee with respect to such Trust on the applicable Series Closing Date and incorporated into and made part of the applicable Issue Supplement, which list may be amended pursuant to Section 4.04 upon conveyance of an Eligible Substitute Loan.  Such schedule may consist of multiple reports that collectively set forth all of the requisite information.
 
Scheduled Principal Balance:   With respect to any Eligible Substitute Loan and the related date of substitution, the principal balance of such Eligible Substitute Loan as of such date of substitution.
 
Securities Act:   The Securities Act of 1933, as amended.
 
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Series :   A separate series of Certificates issued pursuant to this Master Agreement and the related Issue Supplement.
 
Series Closing Date:   With respect to any Series, the date specified in the related Issue Supplement, which date shall coincide with the Pool Closing Date specified in the PA Supplement for the related Loans.
 
Servicer Default:   An event described in Section 5.15.
 
Servicing Advances:   With respect to each Loan, all customary and reasonable costs and expenses (including the reasonable fees and disbursements of counsel to the Master Servicer) incurred in accordance with the Customary Servicing Procedures of the Master Servicer in the performance by the Master Servicer of its servicing obligations consisting of or relating to (i) the preservation, restoration and protection of the related Mortgaged Property, (ii) any enforcement or remedial activities or judicial proceedings, including foreclosures and (iii) the amendment, modification, restructuring or work-out of such Loan.
 
Servicing Certificate:   With respect to each Trust, a certificate completed and executed by a Servicing Officer on behalf of the Master Servicer in accordance with Section 5.13(a).  Each Servicing Certificate shall be substantially in the form of Exhibit A (with such changes and modifications as the Master Servicer, the Trustee and the Calculation and Paying Agent shall agree).
 
Servicing Fee:   With respect to each Loan, the product of (i) the Servicing Fee Rate with respect to such Loan, and (ii) the outstanding principal amount of such Loan, as determined in the following sentence.  The Servicing Fee shall be payable on the Due Date that interest on such Loan is payable and computed on the basis of the same time period with respect to which interest on such Loan is computed, without giving effect to any principal amount of such Loan paid or payable on the applicable Due Date.
 
Servicing Fee Rate:   With respect to each Loan within a Trust Fund, the rate per annum set forth in the applicable Issue Supplement or, if applicable, the Schedule of Qualified Loans relating to such Issue Supplement.
 
Servicing File :   The following documents pertaining to each Loan:
 
 
1.
a copy of the most recent Compliance Certification  by an officer of the related Borrower;
 
 
2.
the most recent fiscal year-end certified audit of such Borrower;
 
 
3.
a copy of the most recent unaudited annual financial statements of such Borrower (which may be set forth on a Seller form or Form 7); and
 
 
4.
the most recent Key Ratio Trend Analysis, as available.
 
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Servicing Officer :  Any officer of the Master Servicer involved in, or responsible for, the administration and servicing of the Loans whose name and specimen signature appears on a list of Servicing Officers furnished to the Trustee by the Master Servicer on the applicable Series Closing Date, as such list may from time to time be amended by delivery of written notice by an existing Servicing Officer.
 
Stated Principal Balance :  With respect to any Loan and date, the unpaid principal balance of such Loan as of the Due Date immediately preceding such date as specified in the amortization schedule at the time relating thereto (before any adjustment to such amortization schedule by reason of any moratorium or similar waiver or grace period) after giving effect to any previous partial Principal Prepayments and Cash Liquidation Proceeds allocable to principal and to the payment of principal due on such Due Date and irrespective of any delinquency in payment by the related Borrower.
 
Substitution Adjustment Principal Amount:   With respect to any date of substitution, the amount, if any, by which the unpaid principal balance of any Defective Loan for which one or more Eligible Substitute Loans are substituted on such date of substitution, exceeds the aggregate Scheduled Principal Balances of such Eligible Substitute Loans.
 
Total Available Amount: means, for each Distribution Date, the sum of the Available Interest and the Available Principal.
 
Trust:   Each separate trust created pursuant to this Master Agreement and each Issue Supplement.
 
Trust Fund:   With respect to any particular Series, the corpus of the Trust created by this Master Agreement and the Issue Supplement applicable thereto, consisting (without duplication) of (i) the Loans identified on the Schedule of Qualifying Loans relating to the applicable Issue Supplement, together with all proceeds thereof, (ii) the Mortgage Files and other documents delivered pursuant to Section 2.02(b), (iii) the rights in the Custodial Account relating to the applicable Trust and in all cash and investments therein from time to time, and (iv) the Certificate Account relating to the Certificates representing beneficial interests in such Trust Fund and in all cash and investments held therein.
 
Trustee:   The meaning ascribed to such term in the preamble to this Master Agreement.
 
Section 1.02.  Other Definitional Provisions .
 
(a)           All terms defined in this Master Agreement shall have the defined meanings when used in any Issue Supplement, certificate or other document made or delivered pursuant hereto unless otherwise defined therein.
 
(b)           As used in this Master Agreement and in any certificate or other document made or delivered pursuant hereto or thereto, accounting terms not defined in this Master Agreement or in any such Issue Supplement, certificate or other document, and accounting terms partly defined in this Master Agreement or in any such Issue Supplement, certificate or other document to the extent not defined, shall have the respective meanings given to them under GAAP.  To the extent that the definitions of accounting terms in this Master Agreement or in any such Issue Supplement, certificate or other document are inconsistent with the meanings of such terms under GAAP in effect on the date hereof, the definitions contained in this Master Agreement or in any such Issue Supplement certificate or other document shall control.
 
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(c)           The words “hereof,” “herein,” “hereunder,” and words of similar import when used in this Master Agreement shall refer to this Master Agreement as a whole and not to any particular provision of this Master Agreement; Section and Exhibit references contained in this Master Agreement are references to Sections and Exhibits in or to this Master Agreement unless otherwise specified; and the term “including” shall mean “including without limitation.”
 
(d)           The definitions contained in this Master Agreement are applicable to the singular as well as the plural forms of such terms and to the masculine as well as to the feminine and neuter genders of such terms.
 
ARTICLE II
Applicable Documentation; Sale of Qualifying Loans
 
Section 2.01.  Trust Established .   An Issue Supplement establishing a Trust, selling the applicable Loans and issuing the Certificates evidencing beneficial ownership interests in the Trust Fund of such Trust shall be executed by the Trustee, the Calculation and Paying Agent, the Depositor and the Master Servicer on each Series Closing Date.  Each Issue Supplement shall identify and relate to a particular Series of Certificates and establish a distinct Trust and a distinct Trust Fund.
 
Section 2.02.  Sale of Loans .
 
(a)           On each Series Closing Date, pursuant to the execution and delivery of the applicable Issue Supplement and concurrently with the delivery of the Series of Certificates issued on such Series Closing Date, the Depositor shall sell, transfer, assign, set-over and otherwise convey to the Trustee and the Trustee shall purchase from the Depositor, without recourse except as specifically set forth herein or in the Issue Supplement, all the right, title and interest of the Depositor in, to and under the Loans identified on the Schedule of Qualified Loans incorporated into such Issue Supplement.  The Loans identified on the Schedule of Qualified Loans incorporated into each Issue Supplement shall be identical to the Loans identified on the Schedule of Qualified Loans incorporated into the PA Supplement relating to such Series.  Each Issue Supplement shall specify the Servicing Fee Rate applicable to the Loans identified on the Schedule of Qualified Loans incorporated into such Issue Supplement.  In connection with such sale, the Depositor assigns to the Trustee or Trustees for the benefit of the Certificateholders all (but not less than all) of the Depositor's right, title and interest in, to and under any PA Supplement, together with all of its right, title and interest in, to and under the Master Loan Purchase Agreement as it relates to such PA Supplement, as provided in Section 4.05.  Such rights assigned to the Trustee include, but are not limited to, the rights of the Depositor under Section 2.01, Section 4.01 and Section 5.01 of the Master Loan Purchase Agreement.
 
(b)           In connection with such sale, transfer, assignment, setting over and conveyance described in Section 2.02(a), the Depositor will deliver to, or deposit with, the Trustee the following documents or instruments with respect to each Loan so sold, transferred, assigned, set over and otherwise conveyed:
 
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(i)           the Mortgage Note, endorsed, without recourse, to the Trustee, with all necessary intervening endorsements showing a complete chain of endorsement from the originator to the Depositor, if applicable;
 
(ii)          a copy of the applicable Mortgage;
 
(iii)         an original of each amendment to the Mortgage Note and a copy of each amendment to the Mortgage in CFC’s possession;
 
(iv)         the original Loan Agreement;
 
(v)          the original Opinion of Counsel of Borrower’s counsel; and
 
(vi)         copies of any Additional Collateral Documents.
 
The Depositor acknowledges and understands that ownership of each document in a Mortgage File is vested in the Trust.  Neither the Depositor nor the Master Servicer shall take any action inconsistent with such ownership.  Each of the Depositor and the Master Servicer (as the originator of the Loans) agrees to indicate on its books and records at each Series Closing Date that the Loans sold pursuant to Section 2.02(a) on such Series Closing Date have been sold to the Trustee, and to advise all inquiring parties that such Loans have been sold to the Trustee.
 
The Trustee acknowledges receipt of those documents referred to in this Section 2.02(b) and declares that it holds and will hold such documents and the other documents delivered to it constituting the Mortgage Files in trust for the exclusive use and benefit of all present and future Certificateholders.
 
(c)           The Depositor shall execute, acknowledge and deliver all other documents furnished to the Depositor by the Trustee as may be necessary to effectuate the transfer contemplated by this Section 2.02 and the applicable Issue Supplement to the Trustee of all right, title and interest of the Depositor in and to the Loans and the related Mortgages.
 
(d)           If within 90 days of the applicable Series Closing Date, the Trustee finds any document or documents constituting a part of a Mortgage File to be missing, mutilated, torn, damaged or defective on its face, the Trustee shall, as assignee of the rights of the Depositor under the Master Loan Purchase Agreement and the PA Supplements, notify the Depositor and CFC of such fact in writing.  CFC shall then correct or cure the subject matter of such notice within one year from the date of such notice.  If (x) CFC does not   correct or cure the subject matter of such notice within such one year period and (y) such omission or defect relates to any document identified in Section 2.02(b)(i), (ii), (iii), (iv) or (vi), the Trustee shall direct CFC to replace the related Defective Loan with one or more Eligible Substitute Loans in the manner and subject to the conditions set forth in Section 4.03 of the Master Loan Purchase Agreement.  Upon receipt of such Eligible Substitute Loan or Eligible Substitute Loans, the Trustee promptly shall deliver to the Depositor the related Mortgage File, and shall also execute and deliver such instruments of transfer or assignment prepared by the Depositor, in each case without recourse, as may be necessary to effectuate the transfer to the Depositor of all right, title and interest of the Trustee in and to each applicable Loan.
 
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Section 2.03.   Delivery and Payment .   With respect to each Series, the Depositor shall deliver to the Trustee on the related Series Closing Date, all of the documents referred to in Section 2.02(b) with respect to the applicable Loans, together with all interest and principal received on or with respect to the applicable Loans from and after the Cut-Off Date (other than payments due on such Loans on or before the Cut-Off Date and other than that portion of any payment of interest received after the Cut-Off Date that represents interest accruing on or prior to the Cut-Off Date).  Such delivery shall be made against payment to the Depositor of the Purchase Price for the applicable Loans as defined and set forth in the applicable Issue Supplement.
 
Section 2.04.   Safekeeping and Release of Required Documents .   The Mortgage Files and all other documents with respect to the Loans constituting part of a Trust Fund delivered by the Depositor pursuant to this Master Agreement and the applicable Issue Supplement shall be kept by the Trustee or an agent of the Trustee (appointed after consultation with the Depositor) on its behalf in trust for the exclusive use and benefit of all present and future Holders of Certificates of the applicable Series.
 
Section 2.05.  Authorized Officers .   The manual or facsimile signature of any individual appearing on this Master Agreement, any Issue Supplement or any document or certificate issued pursuant to this Master Agreement, and which is designated as the signature of a Responsible Officer of any Person, shall constitute conclusive evidence that such individual is, in fact, authorized to execute such document, notwithstanding that such authorization may have lapsed prior to the effective date of such document.
 
Section 2.06.  Delivery of Instruments .   The Trustee shall furnish to each Certificateholder, upon request, without attachments, copies of this Master Agreement, the Issue Supplement relating to such Certificateholder and the Certificate or Certificates held by such Holder.
 
Section 2.07.  Agreed Treatment of Trusts and Certificates .   The parties hereto and, by acceptance or acquisition of a Certificate, the Holder of each Certificate, intend to treat each Trust as a grantor trust for United States federal, state and local tax purposes, and to treat the Certificates (including all payments and proceeds with respect to such Certificates) as undivided beneficial ownership interests in the related Trust Fund for United States federal, state and local tax purposes.  The provisions of this Master Agreement shall be applied and interpreted to further this intention and agreement of the parties, including, without limitation, so as to circumscribe any right to exercise discretion granted to the Master Servicer, the Trustee or the Calculation and Paying Agent herein as to matters relating to the Loans.
 
Section 2.08.  Notice of Sale of Loans .   Promptly following each Series Closing Date, CFC shall notify the Borrower under each Loan identified on the related Schedule of Qualified Loans that such Loan has been conveyed to the Trust identified on such schedule.
 
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ARTICLE III
The Certificates
 
Section 3.01.  Certificates Issuable in Classes; General Provisions with Respect to Principal and Interest Distributions .   (a)  The Certificates may consist of only one Class or may be divided into two or more Classes and shall be designated generally as Rural Utilities MBS Certificates, with such particular designations added or incorporated into such title for the Certificates of any particular Class as specified in the related Issue Supplement.
 
(b)           Distributions on the Certificates shall be made in such amounts as among Classes of Certificates, and subject to such other conditions, as are provided in the Issue Supplement with respect to such Class.  Each Certificate will share ratably in all rights of the related Class.
 
Section 3.02.  Issuance and Authentication of Certificates .   (a)  The Certificates shall be issued in definitive, fully registered form only, substantially in the form attached to each Issue Supplement.  The Certificates shall be executed by manual or facsimile signature on behalf of the Certificate Registrar by an authorized officer.
 
(b)           No Certificate shall be entitled to any benefit under this Master Agreement, or be valid for any purpose, unless there appears on such Certificate a certificate of authentication executed by an authentication agent appointed by the Trustee (the “ Authenticating Agent ”) by manual signature, and such certificate of authentication upon any Certificate shall be conclusive evidence, and the only evidence, that such Certificate has been duly authenticated and delivered hereunder.  The Trustee is hereby initially appointed to act as the Authenticating Agent with power to act on the Trustee’s behalf in the authentication and delivery of the Certificates in connection with transfers and exchanges as herein provided.  If the Authenticating Agent resigns or is terminated, the Trustee shall appoint a successor Authenticating Agent which may be the Trustee or an affiliate thereof.
 
(c)           Except as limited by this Master Agreement, the Certificates of any Class shall be subject to the provisions of the related Issue Supplement.
 
Section 3.03.  Registration of Transfer and Exchange of Certificates; Transfer Restrictions .   (a)  At all times during the term of this Master Agreement, there shall be maintained at the office of a registrar appointed by the Trustee (the “ Certificate Registrar ”) a register (the “ Certificate Register ”) in which, subject to such reasonable regulations as the Certificate Registrar may prescribe, the Certificate Registrar shall provide for the registration of Certificates and transfers and exchanges of Certificates as herein provided.  The Trustee is hereby initially appointed as Certificate Registrar for the purpose of registering Certificates and transfers and exchanges of Certificates as herein provided.  The Trustee may appoint any other bank or trust company to act as Certificate Registrar under such conditions as the Trustee may prescribe; provided that the Trustee shall not be relieved of any of its duties or responsibilities hereunder as Certificate Registrar by reason of such appointment.  If the Trustee resigns or is removed in accordance with the terms hereof, the successor trustee shall immediately succeed to its predecessor’s duties as Certificate Registrar.
 
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(b)           In the event that there is a discrepancy between (i) the Certificate Principal Balance as noted on the grid attached to a Certificate and (ii) the Certificate Principal Balance reflected in the Certificate Register, the Certificate Register shall be controlling in the absence of manifest error.  No service charge shall be made to a Holder for any registration of transfer or exchange of Certificates, but the Certificate Registrar may require payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in connection with any registration of transfer or exchange of Certificates.
 
(c)           The Certificates shall contain the following restrictive legends:
 
THIS CERTIFICATE HAS NOT BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR ANY STATE SECURITY LAW.  THE HOLDER HEREOF AGREES THAT, FOR THE BENEFIT OF THE TRUST, NEITHER THIS CERTIFICATE NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE OFFERED, RESOLD, PLEDGED OR OTHERWISE TRANSFERRED (X) PRIOR TO THE SECOND ANNIVERSARY OF THE ISSUANCE HEREOF OR (Y) AT ANY TIME BY ANY TRANSFEROR THAT WAS AN AFFILIATE OF THE TRUST DURING THE THREE MONTHS PRECEDING THE DATE OF SUCH OFFER, RESALE, PLEDGE OR OTHER TRANSFER, IN EITHER CASE, OTHER THAN (1) TO THE TRUST, (2) TO A PERSON WHOM THE TRANSFEROR REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER WITHIN THE MEANING OF RULE 144A UNDER THE SECURITIES ACT (“RULE 144A”) PURCHASING FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER, IN EACH CASE, TO WHOM NOTICE IS GIVEN THAT THE OFFER, RESALE, PLEDGE OR OTHER TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, THAT, PRIOR TO SUCH TRANSFER, FURNISHES THE TRUSTEE WITH AN INVESTMENT LETTER RELATING TO THE TRANSFER OF THIS CERTIFICATE, (3) TO AN INSTITUTIONAL ACCREDITED INVESTOR (AS THAT TERM IS DESCRIBED IN RULE 501(A)(1), (2), (3) OR (7) UNDER THE SECURITIES ACT) THAT, PRIOR TO SUCH TRANSFER, FURNISHES THE TRUSTEE WITH AN INVESTMENT LETTER RELATING TO THE TRANSFER OF THIS CERTIFICATE, (4) TO NON-U.S. PERSONS IN AN OFFSHORE TRANSACTION IN ACCORDANCE WITH REGULATION S UNDER THE SECURITIES ACT, THAT, PRIOR TO THE TRANSFER, FURNISHES THE TRUSTEE WITH AN INVESTMENT LETTER RELATING TO THE TRANSFER OF THIS CERTIFICATE, (5) PURSUANT TO ANOTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS UNDER THE SECURITIES ACT, INCLUDING THAT PROVIDED BY RULE 144 (IF AVAILABLE) UNDER THE SECURITIES ACT, PROVIDED THAT, PRIOR TO THE TRANSFER, THE TRANSFEREE FURNISHES THE TRUSTEE WITH AN INVESTMENT LETTER RELATING TO THE TRANSFER OF THIS CERTIFICATE, OR (6) FOLLOWING THE REGISTRATION OF THIS CERTIFICATE UNDER THE SECURITIES ACT, AND IN EACH CASE, IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAW OF ANY STATE OF THE UNITED STATES OR ANY OTHER APPLICABLE JURISDICTION.
 
NO TRANSFER, SALE, PLEDGE OR OTHER DISPOSITION OF THIS CERTIFICATE OR INTEREST THEREIN SHALL BE MADE UNLESS THAT TRANSFER, SALE, PLEDGE OR OTHER DISPOSITION WILL NOT CAUSE THE TRUST TO BECOME SUBJECT TO REGISTRATION UNDER THE INVESTMENT COMPANY ACT OF 1940 (THE “INVESTMENT COMPANY ACT”) OR EXCEPT AS PROVIDED IN CLAUSE (6) ABOVE, TO BECOME SUBJEC TO REGISTRATION UNDER THE SECURITIES ACT.
 
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NO TRANSFER, SALE, PLEDGE OR OTHER DISPOSITION OF THIS CERTIFICATE OR INTEREST THEREIN MAY BE MADE TO ANY EMPLOYEE BENEFIT PLAN, TRUST OR ACCOUNT WHICH IS SUBJECT TO THE EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974 OR SECTION 4975 OF THE INTERNAL REVENUE CODE OF 1986, OR TO AN ENTITY WHOSE UNDERLYING ASSETS ARE SUBJECT TO THE EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974 OR SECTION 4975 OF THE INTERNAL REVENUE CODE OF 1986.
 
(d)           No Certificate, nor any interest or participation therein, may be offered, resold, pledged or otherwise transferred (i) prior to the second anniversary of the issuance hereof or (ii) at any time by any transferor that was an affiliate of the applicable Trust during the three months preceding the date of such offer, resale, pledge or other transfer, in either case, other than (1) to such Trust, (2) to a person whom the transferor reasonably believes is a qualified institutional buyer within the meaning of Rule 144A under the Securities Act (“ Rule 144A ”), purchasing for its own account or for the account of a qualified institutional buyer, in each case, to whom notice is given that the offer, resale, pledge or other transfer is being made in reliance on Rule 144A, that prior to the transfer of any Certificate, furnishes the Trustee with an Investment Letter relating to the transfer of such Certificate, (3) to an institutional accredited investor (as that term is described in Rule 501(a)(1), (2), (3) or (7) under the Securities Act) that prior to the transfer of any Certificate, furnishes the Trustee with an Investment Letter relating to the transfer of such Certificate, (4) to a non-U.S. person in an offshore transaction in accordance with regulation S under the Securities Act that prior to the transfer of any Certificate, furnishes the Trustee with an Investment Letter relating to the transfer of such Certificate, (5) pursuant to another available exemption from the registration requirements under the Securities Act, including that provided by Rule 144 (if available) under the Securities Act, provided that the transferee provide a written opinion of counsel acceptable to and in form and substance satisfactory to the Trustee opining as to such exemption, or (6) following the registration of the Certificates under the Securities Act, in each case, in accordance with any applicable securities Law of any state of the United States or any other applicable jurisdiction.  No transfer, sale, pledge or other disposition of any Certificate or interest therein shall be made unless that transfer, sale, pledge or other disposition will not cause the applicable Trust to become subject to registration under either the Securities Act or the Investment Company Act.  To the extent that any purported transfer, sale, pledge or other disposition of a Certificate or interest therein is made in contravention of the terms contained in this Section 3.03(d), such transfer shall be deemed null and void ab initio, shall have no effect hereunder and shall not be effective to grant or transfer any rights to the purported transferee.
 
(e)           No transfer, sale, pledge or other disposition of any Certificate or interest therein may be made to any employee benefit plan, trust or account which is subject to the Employee Retirement Income Security Act of 1974, as amended, or section 4975 of the Code, or to an entity whose underlying assets are subject to the Employee Retirement Income Security Act of 1974 or section 4975 of the Code.  The Calculation and Paying Agent hereby indemnifies and holds harmless the Depositor and CFC from and against all costs, expenses, fines, penalties, tax consequences, liabilities, obligations and losses, including without limitation reasonable attorneys’ fees and expenses, incurred by the Depositor , CFC or both as a result of, relating to, or as a consequence of the violation of the covenant in the preceding sentence.
 
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Section 3.04.  Mutilated, Destroyed, Lost or Stolen Certificates .   If (i) any mutilated Certificate is surrendered to the Trustee or the Trustee receives evidence to its satisfaction of the destruction, loss or theft of any Certificate, and (ii) there is delivered to the Trustee such security or indemnity as may be required by the Trustee, the Depositor or the Master Servicer to save the Trustee, the Depositor and the Master Servicer harmless, then, in the absence of notice to the Trustee that such Certificate has been acquired by a bona fide purchaser, the Trustee shall execute, authenticate and deliver, in exchange for or in lieu of any such mutilated, destroyed, lost or stolen Certificate, a new Certificate of like tenor, class and percentage interest.  Upon the issuance of any new Certificate under this Section 3.04, the Trustee may require the payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in connection therewith and any other expenses (including the fees and expenses of the Trustee) connected therewith.  Any duplicate Certificate issued pursuant to this Section 3.04 shall constitute complete and indefeasible evidence of ownership in the Trust Fund, as if originally issued, whether or not the lost, stolen or destroyed Certificate shall be found at any time.
 
Section 3.05.  Persons Deemed Owners .   The Trustee, the Depositor, the Master Servicer and any agent thereof may treat the Person in whose name any Certificate is registered as the owner of such Certificate for the purpose of receiving distributions pursuant to Section 6.04 and for all other purposes whatsoever.
 
ARTICLE IV
Representations and Warranties
 
Section 4.01.   Representations and Warranties of the Calculation and Paying Agent .   The Calculation and Paying Agent represents and warrants as of the Initial Closing Date and each Series Closing Date as follows:
 
(a)           The Calculation and Paying Agent is a federally chartered instrumentality of the United States duly organized, validly existing and in good standing under the laws governing its creation and existence and with corporate power and authority to conduct its business as it is currently being conducted; the Calculation and Paying Agent holds all licenses, certificates and permits necessary for the conduct of its business as it is currently being conducted.
 
(b)           The Calculation and Paying Agent has the requisite power and authority to execute and deliver this Master Agreement and each Issue Supplement and to perform its duties thereunder and to take all other actions and execute and deliver all other documents which are requisite or pertinent to the performance of such duties; the persons signing such documents and taking such actions on behalf of the Calculation and Paying Agent, respectively, have been duly authorized to do so and such documents and actions are valid, legally binding and enforceable against it in accordance with their terms.
 
(c)           No action, suit or proceeding is pending or, to the best of Calculation and Paying Agent’s knowledge, threatened against it that would prohibit its entering into this Master Agreement or any Issue Supplement or performing its obligations under this Master Agreement or any Issue Supplement or, in the reasonable opinion of the Calculation and Paying Agent has a reasonable likelihood of resulting in a material adverse effect on the transactions contemplated by this Master Agreement or any Issue Supplement.
 
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(d)           The Calculation and Paying Agent is not required to obtain the consent of any other Person or any consents, licenses, approvals or authorizations from, or registrations or declarations with, any governmental authority, bureau or agency in connection with the execution, delivery, performance, validity or enforceability of this Master Agreement, any Issue Supplement or any of the other agreements executed in connection therewith, except for such consents, licenses, approvals or authorizations, or registrations or declarations, as shall have been obtained or filed, as the case may be.
 
(e)           The Calculation and Paying Agent is not in default with respect to any order or decree of any court or any order, regulation or demand of any federal, state, municipal or governmental agency, which default would reasonably be expected to have consequences that would materially and adversely affect the condition (financial or otherwise) or operations of the Calculation and Paying Agent or its respective properties or would reasonably be expected to have consequences that would materially adversely affect the performance of the Calculation and Paying Agent hereunder or under any Issue Supplement.
 
(f)           The execution and delivery of this Master Agreement by the Calculation and Paying Agent and the performance and compliance with the terms of this Master Agreement  or any Issue Supplement by the Calculation and Paying Agent will not violate the statues and regulations which govern the operation of the Calculation and Paying Agent, or constitute a material default (or an event which, with notice or lapse of time, or both, would constitute a material default) under, or result in the material breach of, any material contract, agreement or other instrument to which the Calculation and Paying Agent is a party or which may be applicable to the Calculation and Paying Agent, or any of its assets.
 
(g)           The Calculation and Paying Agent is not in default hereunder and no event or circumstance has occurred or exists which, with notice or lapse of time or both, would constitute a default by the Calculation and Paying Agent hereunder.
 
Upon discovery by any party hereto of a breach of any of the representations and warranties set forth in this Section 4.01, such discovering party shall give prompt written notice to the other parties.  It is understood and agreed by the parties hereto that the representations and warranties set forth in this Section 4.01 shall survive delivery of the respective Mortgage Files to the Trustee.
 
Section 4.02.  Representations, Warranties and Agreement of the Depositor .   The Depositor hereby represents and warrants as of the Initial Closing Date and each Series Closing Date as follows:
 
(a)           The Depositor is a Delaware limited liability company duly organized, validly existing and in good standing under the laws governing its creation and existence and with the requisite power and authority to conduct its business as it is currently being conducted; the Depositor holds all licenses, certificates and permits necessary for the conduct of its business as it is currently being conducted.
 
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(b)           The Depositor has the requisite power and authority to execute and deliver this Master Agreement and each Issue Supplement, to transfer, assign and deliver all the Loans identified on each applicable Schedule of Qualified Loans to the Trustee and to take all other actions and execute and deliver all other documents which are requisite or pertinent to the transactions described in this Master Agreement and each Issue Supplement.  The persons signing such documents and taking such actions on its behalf have been duly authorized to do so and such documents and actions are valid, legally binding and enforceable against the Depositor in accordance with their respective terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium and other laws affecting the enforcement of creditors’ rights and to general principles of equity (regardless of whether such enforcement is considered in a proceeding in equity or at law).
 
(c)           The Depositor is not required to obtain the consent of any other Person or any consents, licenses, approvals or authorizations from, or registrations or declarations with, any governmental authority, bureau or agency in connection with the execution, delivery, performance, validity or enforceability of this Master Agreement or any Issue Supplement except for such consents, licenses, approvals or authorizations, or registrations or declarations, as shall have been obtained or filed, as the case may be.
 
(d)           No action, suit or proceeding is pending or, to the best of the Depositor’s knowledge, threatened against it that would prohibit it from entering into this Master Agreement or any Issue Supplement or performing its obligations under this Master Agreement and each Issue Supplement or, in the reasonable opinion of the Depositor has a reasonable likelihood of resulting in a material adverse effect on the transactions contemplated by this Master Agreement or any Issue Supplement.
 
(e)           The Depositor is not in default with respect to any order or decree of any court or any order, regulation or demand of any federal, state, municipal or governmental agency, which default would reasonably be expected to have consequences that would materially and adversely affect the condition (financial or otherwise) or operations of the Depositor or its properties or would reasonably be expected to have consequences that would materially adversely affect its performance hereunder or under any Issue Supplement.
 
(f)           This Master Agreement constitutes a valid transfer and assignment to the Trustee of all right, title and interest of the Depositor in and to the Loans, and the other property conveyed pursuant to this Master Agreement and each Issue Supplement.
 
(g)           The execution and delivery of this Master Agreement and each Issue Supplement by the Depositor and the performance and compliance with the terms of this Master Agreement and each Issue Supplement by the Depositor will not violate the organizational and operational documents of the Depositor, or constitute a material default (or an event which, with notice or lapse of time, or both, would constitute a material default) under, or result in the material breach of, any material contract, agreement or other instrument to which the Depositor is a party or which may be applicable to the Depositor, or any of its assets.
 
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(h)           Following payment in full for the Loans identified on a Schedule of Qualified Loans, the Depositor will have no right, title or interest in, to or under any such Loans, or the related Trust Fund or the assets and properties thereof.
 
Upon discovery by any party hereto of a breach of any of the representations and warranties set forth in this Section 4.02, such discovering party shall give prompt written notice thereof to the other parties.
 
If any party to this Master Trust Agreement becomes aware of any breach of any representation or warranty set forth in Section 4.01(i) of the Master Loan Purchase Agreement that materially and adversely affects the interests of the Trust Fund in the related Qualified Loan, that party shall promptly notify each of the other parties to this Master Agreement and the Required Certificateholder of such breach and the Trustee shall direct CFC to comply with its obligations under the Master Loan Purchase Agreement to either (i) cure such breach in all material respects, (ii) purchase the Defective Loan in question from the Trustee by the deposit of the Repurchase Price into an account designated by the Trustee, or (iii) replace such Defective Loan with one or more Eligible Substitute Loans in the manner and subject to the conditions set forth in Master Loan Purchase Agreement; provided , that CFC may only replace a Defective Loan with one or more Eligible Substitute Loans on or before the date which is two (2) years following the Series Closing Date relating to the Trust Fund which contains such Defective Loan.
 
It is understood and agreed by the parties hereto that the representations and warranties set forth in this Section 4.02 shall survive delivery of the respective Mortgage Files to the Trustee.
 
Section 4.03.  Representations and Warranties of the Master Servicer .   The Master Servicer hereby represents and warrants as of the Initial Closing Date and each Series Closing Date as follows:
 
(a)           The Master Servicer is a cooperative association duly organized, validly existing and in good standing under the laws governing its creation and existence and with the requisite power and authority to conduct its business as it is currently being conducted; the Master Servicer holds all licenses, certificates and permits necessary for the conduct of its business as it is currently being conducted and is or will be in compliance with the laws of each state in which any Mortgaged Property is located to the extent necessary to ensure the enforceability of each Loan.
 
(b)           The Master Servicer has the requisite power and authority to execute and deliver this Master Agreement and each Issue Supplement, to service and administer all the Loans identified on each applicable Schedule of Qualified Loans in accordance with the terms of this Master Agreement and each Issue Supplement, as applicable, and to take all other actions and execute and deliver all other documents which are requisite or pertinent to the transactions described in this Master Agreement and each Issue Supplement.  The persons signing such documents and taking such actions on its behalf have been duly authorized to do so and such documents and actions are valid, legally binding and enforceable against the Master Servicer in accordance with their respective terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium and other laws affecting the enforcement of creditors’ rights and to general principles of equity (regardless of whether such enforcement is considered in a proceeding in equity or at law).
 
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(c)           The Master Servicer is not required to obtain the consent of any other Person or any consents, licenses, approvals or authorizations from, or registrations or declarations with, any governmental authority, bureau or agency in connection with the execution, delivery, performance, validity or enforceability of this Master Agreement, any Issue Supplement or any of the other Transaction Documents, except for such consents, licenses, approvals or authorizations, or registrations or declarations, as shall have been obtained or filed, as the case may be.
 
(d)           No action, suit or proceeding is pending or, to the best of the Master Servicer’s knowledge, threatened against it that would prohibit it from entering into this Master Agreement or any Issue Supplement or performing its obligations under this Master Agreement and each Issue Supplement or, in the reasonable opinion of the Master Servicer has a reasonable likelihood of resulting in a material adverse effect on the transactions contemplated by this Master Agreement or any Issue Supplement.
 
(e)           The Master Servicer is not in default with respect to any order or decree of any court or any order, regulation or demand of any federal, state, municipal or governmental agency, which default would reasonably be expected to have consequences that would materially and adversely affect the condition (financial or otherwise) or operations of the Master Servicer or its respective properties or would reasonably be expected to have consequences that would materially adversely affect the performance of the Master Servicer hereunder or under any Issue Supplement.
 
(f)           The execution and delivery of this Master Agreement by the Master Servicer and the performance and compliance with the terms of this Master Agreement  or any Issue Supplement by the Master Servicer will not violate the Articles of Incorporation or Bylaws of the Master Servicer, or constitute a material default (or an event which, with notice or lapse of time, or both, would constitute a material default) under, or result in the material breach of, any material contract, agreement or other instrument to which the Master Servicer is a party or which may be applicable to the Master Servicer, or any of its assets.
 
(g)           No Servicer Default has occurred and is continuing and no event or circumstance has occurred or exists which, with notice or lapse of time or both, would constitute a Servicer Default.
 
Upon discovery by any party hereto of a breach of any of the representations and warranties set forth in this Section 4.03, such discovering party shall give prompt written notice to the other parties.  It is understood and agreed by the parties hereto that the representations and warranties set forth in this Section 4.03 shall survive delivery of the respective Mortgage Files to the Trustee.
 
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Section 4.04.   Substitution or Repurchase of Loans .
 
(a)           If CFC elects to substitute an Eligible Substitute Loan or Loans for a Defective Loan pursuant to the Master Loan Purchase Agreement, the Trustee shall direct CFC, on each date of substitution, to:
 
(i)           convey the Eligible Substitute Loans and deliver the related Mortgage Files to the Trustee as provided in Section 2.01(b) and Section 2.01(c) of the Master Loan Purchase Agreement and Section 2.02(b) and Section 2.02(c) hereof;
 
(ii)           deposit or cause to be deposited into the applicable Custodial Account no later than the date of substitution (A) the related Substitution Adjustment Principal Amount, if any, plus (B) interest on such Substitution Adjustment Principal Amount at the Loan Interest Rate of the related Defective Loan being replaced from the previous Due Date for such Defective Loan (or, if there has been no Due Date for such Loan subsequent to the Cut-Off Date, from the Cut-Off Date) to the Due Date next preceding the first Distribution Date to occur after such substitution, at which time such Substitution Adjustment Principal Amount and related interest is to be distributed to the applicable Certificateholders; and
 
(iii)           deliver to the Trustee an Officer’s Certificate certifying that the requirements of the Master Loan Purchase Agreement with respect to the replacement of the Defective Loans in question have been met.
 
(b)           The Depositor shall amend the Schedule of Qualified Loans to reflect the repurchase or transfer to CFC of each Loan that has become a Defective Loan and the substitution of the Eligible Substitute Loan or Loans and the Depositor shall deliver the amended Schedule of Qualified Loans to the Trustee.  Upon such substitution, each Eligible Substitute Loan shall be subject to the terms of this Master Agreement and the related Issue Supplement in all respects and all rights of the Depositor under the Master Loan Purchase Agreement with respect to such Eligible Substitute Loan shall be and hereby are assigned to the Trustee for the benefit of the Certificateholders.  Upon any such substitution and the deposit to the Custodial Account of the Repurchase Price or of any required Substitution Adjustment Principal Amount, the Trustee promptly shall deliver the Mortgage File relating to such Defective Loan to CFC and shall execute and deliver at CFC’s direction such instruments of transfer or assignment prepared by CFC, in each case without recourse, as shall be necessary to transfer to CFC, or its designee, any Defective Loan substituted for or repurchased pursuant to this Section 4.04(b).
 
Section 4.05.   Assignment of Interest in the Master Loan Purchase Agreement .   The Depositor hereby assigns to the Trustee for the benefit of the Certificateholders all (but not less than all) of the Depositor’s right, title and interest in, to and under any PA Supplement, together with all of its rights, title and interest in, to and under the Master Loan Purchase Agreement as it relates to such PA Supplement, to the Trustee or Trustees for the benefit of the Certificateholders.  The rights assigned under the Master Loan Purchase Agreement shall include, but not be limited to, the rights under Section 2.01, Section 4.01 and Section 5.01 of the Master Loan Purchase Agreement.  Insofar as such assignment relates to representations and warranties in the Master Loan Purchase Agreement and any remedies provided thereunder for any breach of such representations and warranties (including the provisions of Section 2.01(d), Section 4.01 and Section 4.02 of the Master Loan Purchase Agreement), such right, title and interest may be enforced by the Trustee on behalf of the Certificateholders.
 
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ARTICLE V
Administration And Servicing of Loans
 
Section 5.01.   Servicing of the Loans .   (a)  The Master Servicer hereby agrees to service and administer the Loans sold pursuant to this Master Agreement and each Issue Supplement in accordance with the terms of this Master Agreement, the applicable Issue Supplement, applicable law and the terms of the Loans.  In connection with such servicing and administration, the Master Servicer shall have full power and authority, acting alone and/or through sub-servicers, to do or cause to be done any and all things, in connection with such servicing and administration, that the Master Servicer may deem necessary or desirable and consistent with the terms of this Master Agreement including, but not limited to, the power and authority, subject to the terms hereof, (a) to execute and deliver, on behalf of the Trustee or the Certificateholders, customary consents or waivers and other instruments and documents, (b) to consent to transfers of any Mortgaged Property and assumptions of the Mortgage Notes and related Mortgages (but only in the manner provided in this Master Agreement), (c) to collect any Other Insurance Proceeds and other Cash Liquidation amounts, and (d) to effectuate foreclosure or other conversion of the ownership of the Mortgaged Property securing any Loan.  In servicing and administering the Loans, the Master Servicer shall employ procedures in accordance with the Customary Servicing Procedures of the Master Servicer.  The Master Servicer will exercise the same care in servicing the Loans that it exercises in servicing loans to the same Borrower held in the Master Servicer’s portfolio.  The Master Servicer will act in the best interest of the Trust Fund in servicing Loans held in such Trust Fund.  Without limiting the generality of the foregoing, the Master Servicer, in its own name or in the name of the Trustee, is hereby authorized and empowered by the Trustee, when the Master Servicer believes it appropriate in its reasonable judgment, to execute and deliver on behalf of the Trustee any and all instruments of satisfaction or cancellation, or of partial or full release or discharge, and all other comparable instruments, with respect to the Loans and with respect to the related Mortgaged Properties.  The Master Servicer shall prepare and deliver to the Trustee such documents requiring execution and delivery by it as is necessary or appropriate to enable the Master Servicer to service and administer the Loans to the extent that the Master Servicer is not permitted to execute and deliver such documents pursuant to the preceding sentence.  In addition to the foregoing, the Trustee shall provide a power of attorney or other appropriate authorization as shall be necessary or desirable, in the Master Servicer’s judgment, to enable the Master Servicer to act as the agent of the Trustee as the mortgagee under each Mortgage and as the secured party under each Additional Collateral Document.  Upon receipt of such documents, the Trustee, upon the direction of the Master Servicer, shall promptly execute such documents and deliver them to the Master Servicer.
 
(b)           With respect to each Loan as to which the Master Servicer holds one or more loans to the same Borrower in the Master Servicer’s portfolio on the applicable Series Closing Date (the “ Master Servicer’s Loans ”), the Master Servicer will provide the following information about each such Master Servicer’s Loan to the Trustee and the Required Certificateholder on such Series Closing Date:  (i) the type of credit involved in such Master Servicer’s Loan, (ii) whether such Master Servicer’s Loan is secured by some or all of the collateral which secures the Loan, (iii) the principal amount of such Master Servicer’s Loan, (iv) whether any Event of Default (as defined in such Master Servicer’s Loan) has occurred and is continuing, and (v) the maturity date of such Master Servicer’s Loan.
 
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(c)           The relationship of the Master Servicer (and of any successor to the Master Servicer as servicer under this Master Agreement) to each Trust, the Depositor, the Trustee and the Calculation and Paying Agent under this Master Agreement is intended by the parties to be that of an independent contractor and not that of a joint venture, partner or agent.
 
(d)           In accordance with the terms of this Master Agreement, the Master Servicer may waive, modify, amend or vary any term of any Loan or consent to the postponement of strict compliance with any such term or in any manner grant indulgence to any Borrower if in the Master Servicer’s judgment such waiver, modification, consent, postponement or indulgence will make it more likely that such Borrower will be able to successfully repay the Loan in question; provided , however , that the Master Servicer will notify the Trustee and the Required Certificateholder of each event of default (as such term is defined in the documentation for the applicable Loan) that has occurred and is continuing under the documentation for such Loan, and the Master Servicer shall not:  (i) waive any event of default under such Loan documents, (ii) reduce the Loan Interest Rate applicable to such Loan or forgive any principal, (iii) postpone any date for the payment of principal or interest on account of such Loan, (iv) extend the maturity date of such Loan, or (v) implement a workout plan, commence a foreclosure proceeding, accept a deed in lieu of foreclosure, conduct a pre-foreclosure sale or seek a deficiency judgment without, in each such case, giving the Trustee and the Required Certificateholder at least 10 Business Day’s prior written notice of its intention to do so (each such notice, a “ 10 Business Day Notice ”).  In addition to the foregoing, if one or more loans in the Master Servicer’s own portfolio present the same issue or issues as the Loan which is the subject of a 10 Business Day Notice but the Master Servicer does not propose to handle such issues under such loans in a manner similar to the proposal submitted to the Trustee and the Required Certificateholder, the Master Servicer will so state in the 10 Business Day Notice and include a description of how such issues will be handled in such loans.  If by the end of the applicable 10 Business Day Notice period, the Master Servicer has not received written notice from the Required Certificateholder disapproving of the proposal set forth in the applicable 10 Business Day Notice, the Master Servicer may proceed to implement such proposal.  If the Required Certificateholder notifies the Master Servicer within the applicable 10 Business Day Notice period that it disapproves of any such proposal with respect to a Loan, the Master Servicer and the Required Certificateholder will consult with one another as to the best way to proceed and the Required Certificateholder’s decision with respect to such Loan will be binding on the Master Servicer; provided , however, that the Master Servicer shall have the right to handle such issues under the loans in its own portfolio in such manner as the Master Servicer deems appropriate or desirable.
 
(e)           Without limiting the generality of the foregoing, the Master Servicer is hereby authorized and empowered to execute and deliver on behalf of itself and the Trustee, all agreements and instruments as may be necessary or desirable in connection with the performance of its rights and obligations pursuant to this Section 5.01.  If reasonably required by the Master Servicer, the Trustee shall furnish the Master Servicer with any powers of attorney and other documents necessary or appropriate to enable the Master Servicer to carry out its servicing and administrative duties under this Master Agreement, the Mortgages and the other documentation pertaining to the loans.
 
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(f)           In the ordinary course of business, the Master Servicer at any time may delegate any of its duties hereunder to any Person, including any of its Affiliates, who agrees to conduct such duties in accordance with this Master Agreement and each applicable Issue Supplement including those standards set forth in this Section 5.01.  Any such delegation may include entering into subservicing agreements with any Person or Persons, for the servicing and administration of the Loans or a portion thereof. Such delegation shall not relieve the Master Servicer of its liabilities and responsibilities with respect to such duties and shall not constitute a resignation.  Notwithstanding anything to the contrary contained herein, or in any agreement relating to any such delegation, the Master Servicer shall remain obligated and liable to the Trustee and the Certificateholder for the servicing and administration of the Loans in accordance with the provisions of this Master Agreement and each applicable Issue Supplement to the same extent and under the same terms and conditions as if it alone were servicing and administering the Loans. The Master Servicer shall provide the Trustee with written notice of delegation of any of its duties to any Person other than any of the Master Servicer’s Affiliates or their respective successors and assigns on the later of the respective Series Closing Date or 60 days prior to such delegation.
 
Section 5.02.  Collection of Loan Payments; Establishment of Series Custodial Accounts .
 
(a)           Continuously from the date hereof until the principal and interest on all Loans is paid in full, the Master Servicer will proceed diligently, in accordance with this Master Agreement, to collect all payments due under each of the Loans it services when the same shall become due and payable.
 
(b)           On each Series Closing Date, the Master Servicer shall establish and maintain a Custodial Account with respect to such Series, which shall be an Eligible Account.  The Master Servicer shall deposit or cause to be deposited into each applicable Custodial Account, all on a daily basis within two Business Days of receipt, except as otherwise specifically provided herein or in an applicable Issue Supplement, the following payments and collections received by the Master Servicer in respect of the Loans relating to such Series subsequent to the Cut-Off Date (other than in respect of interest accruing on the Loans on or before the Cut-Off Date applicable to such Series and principal due on the Loans on or before the Cut-Off Date applicable to such Series, which collections shall be paid to CFC) and the following amounts required to be deposited hereunder with respect to the Loans it services:
 
(i)           all payments on account of principal of the Loans in the Trust Fund of such Series, including Principal Prepayments with respect to such related Loans;
 
(ii)          all payments on account of interest on the Loans in the Trust Fund of such Series, net of the Servicing Fee with respect to such related Loans;
 
(iii)         all Other Insurance Proceeds and Cash Liquidation Proceeds, each with respect to the Loans in the Trust Fund of such Series;
 
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(iv)         all Repurchase Prices and all Substitution Adjustment Principal Amounts received by the Master Servicer with respect to the Loans in the Trust Fund of such Series; and
 
(v)          any other amounts required to be deposited hereunder.
 
If the Master Servicer shall deposit in any Custodial Account any amount not required to be deposited, it may at any time withdraw or direct the institution maintaining the applicable Custodial Account to withdraw such amount from the applicable Custodial Account, any provision herein to the contrary notwithstanding.  The Master Servicer shall maintain adequate records with respect to all withdrawals made pursuant to this Section 5.02.  Except as otherwise provided in Section 5.02(c), all funds required to be deposited in any Custodial Account shall be held in trust for the applicable Certificateholder of the related Trust until withdrawn in accordance with Section 5.04.
 
(c)           Each institution at which a Custodial Account is maintained for such Series shall invest the funds therein as directed in writing by the Required Certificateholder for such related Series in Permitted Investments, which shall mature not later than the next applicable Certificate Account Deposit Date and shall not be sold or disposed of prior to its maturity unless such Permitted Investments are in default.  All such Permitted Investments shall be made in the name of the Trustee of the related Trust.  All income or gain (net of any losses) realized from any such investment of funds on deposit in any Custodial Account shall, unless otherwise provided in the applicable Issue Supplement, on each Distribution Date be paid to the Required Certificateholder as provided in Section 7.02.
 
(d)           The Master Servicer shall give notice to the Trustee and the Calculation and Paying Agent of any proposed change of the location of any Custodial Account maintained by the Master Servicer not later than 2 days and not more than 45 days prior to any change thereof.
 
Section 5.03.   Realization Upon Defaulted Loans .   The Master Servicer shall use reasonable efforts to realize upon Defaulted Loans, in such manner as in the Master Servicer’s judgment will maximize the receipt of principal and interest by the Trustee.  The Master Servicer is obligated to make every effort it deems reasonable to work out a troubled Loan before proposing foreclosure, a deed in lieu of foreclosure, a pre-foreclosure sale or other remedial action.  The Master Servicer shall use reasonable efforts to foreclose upon or otherwise comparably convert the ownership of Mortgaged Properties securing such of the Loans as come into and continue in default and as to which no satisfactory arrangements can be made for collection of delinquent payments.  The foregoing is subject to the provisions that, in any case in which Mortgaged Property shall have suffered damage, the Master Servicer shall not be required to expend its own funds toward the restoration of such Mortgaged Property.
 
The decision of the Master Servicer to foreclose on a Defaulted Loan shall be subject to a determination by the Master Servicer that the proceeds of such foreclosure would exceed the costs and expenses of bringing such a proceeding.
 
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The proceeds from any liquidation of a Mortgage Loan will be applied in the following order of priority:  first, to reimburse the Master Servicer for any related unreimbursed Servicing Advances and Servicing Fees with respect to the related Loan; second, to reimburse the Trustee for any amounts incurred by it in connection with such Loan; third, to accrued and unpaid interest on the Loan at the Net Loan Rate to the Due Date occurring in the month in which such amounts are required to be distributed; and fourth, as a recovery of principal of such Loan.
 
In the event that, as a result of or in connection with the exercise of remedies with respect to a Loan, the Trust becomes the owner of real estate, the Master Servicer will immediately commence appropriate procedures, on behalf of the Trust, to liquidate such real estate.
 
Section 5.04.   Permitted Withdrawals From the Custodial Accounts .   The Master Servicer may, from time to time, and with respect to clause (i) below, shall, withdraw funds from the applicable Custodial Accounts for the following purposes:
 
(i)           on or prior to the close of business on the Certificate Account Deposit Date relating to each Distribution Date, to withdraw an amount equal to the related Certificate Distribution Amount with respect to the related Series on such Distribution Date, and deposit such amount into the Certificate Account relating to such Series on such Certificate Account Deposit Date;
 
(ii)           to pay to the Master Servicer (to the extent not previously retained) the servicing compensation to which it is entitled pursuant to Section 5.07;
 
(iii)          to reimburse the Master Servicer for unreimbursed Servicing Advances made by it in connection with the Loans in the Trust Fund relating to such Custodial Account, such right of reimbursement pursuant to this clause (iii) being limited to amounts received on the Loans in respect of which any such Servicing Advance was made;
 
(iv)          to pay to the Depositor, with respect to each Loan that has been repurchased or substituted for pursuant to Section 2.02(d) or Section 4.02, all amounts received thereon after the date of such repurchase or substitution (excluding any Installment Payment due on any Due Date prior to such date of repurchase);
 
(v)           to withdraw any amount deposited in such Custodial Account and not required to be deposited therein;
 
(vi)          to clear and terminate such Custodial Account upon termination of the related Series; and
 
(vii)         to reimburse the Master Servicer for expenses incurred by and reimbursable pursuant to Section 5.17.
 
Section 5.05.   Fidelity Bond, Insurance .   The Master Servicer shall maintain insurance coverage and financial institution bond protection consistent with that maintained by the Master Servicer as of the date of this Master Agreement.  Such insurance coverage shall include coverage in the amount of $4,000,000 insuring the Master Servicer against losses on account of employee dishonesty, loss inside the premises coverage, loss outside the premises coverage, money orders and counterfeit paper currency coverage and depositors forgery coverage.  Such financial institution bond protection shall include $6,000,000 single loss limit of liability coverage on account of forgery or alteration, securities, computer systems fraud, telefacsimile transfer fraud and voice initiated transfer fraud.
 
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Section 5.06.   Satisfaction of Mortgages and Release of Mortgage Files .   Upon the payment in full of any Loan, or the receipt by the Master Servicer of a notification that payment in full will be escrowed in a manner customary for such purposes, the Master Servicer shall immediately notify the Trustee.  Such notice shall include a statement to the effect that all amounts received or to be received in connection with such payment, which are required to be deposited in the related Custodial Account pursuant to Section 5.02, have been or will be so deposited, and shall request delivery to the Master Servicer of the portion of the Mortgage File held by the Trustee.  Upon receipt of such notice and request, the Trustee shall, within five (5) Business Days, deliver or cause to be delivered to the Master Servicer the related Mortgage File and the Master Servicer shall prepare and process any satisfaction or release that may be necessary.  In the event that the Trustee fails to deliver or cause to be delivered to the Master Servicer the related Mortgage File within five (5) Business Days of the Master Servicer’s request therefor, the Trustee shall be liable to the Master Servicer for any additional expenses or costs, including, but not limited to, outsourcing fees and penalties, incurred by the Master Servicer resulting from such failure.
 
From time to time and as appropriate for the servicing or foreclosure of a Loan, the Trustee shall, within five (5) Business Days of the Master Servicer’s request and delivery to the Trustee of a servicing receipt signed by a Servicing Officer, deliver or cause to be delivered to the Master Servicer the portion of the Mortgage File held by the Trustee.  Pursuant to the servicing receipt, the Master Servicer shall be obligated to return to the Trustee the related Mortgage File when the Master Servicer no longer needs such file, unless the Loan has been liquidated and the Cash Liquidation Proceeds relating to such Loan have been deposited in the applicable Custodial Account or the Mortgage File or a portion thereof has been delivered to an attorney, or to a public trustee or other public official as required by law, for purposes of initiating or pursuing legal action or other proceedings for the foreclosure of the Mortgaged Property either judicially or non-judicially.  In the event that the Trustee fails to deliver or cause to be delivered to the Master Servicer the portion of the Mortgage File held by the Trustee or its designee within five (5) Business Days of the Master Servicer’s request therefor, the Trustee shall be liable to the Master Servicer for any additional expenses or costs, including, but not limited to, outsourcing fees and penalties, incurred by the Master Servicer resulting from such failure.  Upon receipt of notice from the Master Servicer stating that such Loan was liquidated, the Trustee shall release the Master Servicer from its obligations under the related servicing receipt.
 
Section 5.07.   Servicing Compensation and Reimbursement .   With respect to each Distribution Date, the Master Servicer shall be entitled, out of the interest portion of amounts collected by the Master Servicer with respect to each Loan, to retain or withdraw from the applicable Custodial Account an amount equal to the Servicing Fee for such Distribution Date.
 
Additional servicing compensation in the form of assumption fees, and all other customary and ancillary income and fees shall be retained by the Master Servicer to the extent not required to be deposited in the Custodial Account pursuant to Section 5.02.  The Master Servicer shall be required to pay all expenses incurred by it in connection with its servicing activities hereunder and shall not be entitled to reimbursement therefor except that the Master Servicer is entitled to reimbursement for all Servicing Advances and as otherwise provided in this Master Agreement or any Issue Supplement.
 
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Section 5.08.   RUS .   The rights and obligations of the Depositor, Master Servicer, the Trustee, the Calculation and Paying Agent and any other Persons with respect to the administration and servicing of the Loans are subject in all respects to applicable law and  to the rights of RUS and all other Persons secured by any Mortgage.
 
Section 5.09.   Documents, Records and Funds in Possession of the Master Servicer to be Held for the Trustee .    The Master Servicer shall account fully to the Trustee for any funds received by the Master Servicer or which otherwise are collected by the Master Servicer, including any Cash Liquidation Proceeds, in respect of any Loan.  All Mortgage Files and funds collected or held by, or under the control of, the Master Servicer in respect of any Loans, whether from the collection of principal and interest payments or from Cash Liquidation Proceeds, including but not limited to any funds on deposit in the applicable Custodial Account, shall be held by the Master Servicer for and on behalf of the Trustee and shall be and remain the sole and exclusive property of the Trustee, subject to the applicable provisions of this Master Agreement and the Issue Supplement.  The Master Servicer also agrees that it shall not knowingly create, incur or subject any Mortgage File or any funds that are deposited in any Custodial Account or any Certificate Account, or any funds that otherwise are or may become due or payable to the Trustee or the Calculation and Paying Agent, to any claim, lien, security interest, judgment, levy, writ of attachment or other encumbrance created by the Master Servicer, or assert by legal action or otherwise any claim or right of setoff against any Mortgage File or any funds collected on, or in connection with, a Loan, except, however, that the Master Servicer shall be entitled to set off against and deduct from any such funds any amounts that are properly due and payable to the Master Servicer under this Master Agreement.
 
Section 5.10.   Rights of the Trustee in Respect of the Master Servicer .   The Trustee may, but is not obligated to, enforce the obligations of the Master Servicer hereunder and may, but is not obligated to, perform, or cause a designee to perform, any obligation of the Master Servicer hereunder upon the occurrence and during the continuation of a Servicer Default, and in connection with the performance of any such obligation to exercise the related rights of the Master Servicer hereunder; provided that the Master Servicer shall not be relieved of any of its obligations hereunder by virtue of such performance by the Trustee or its designee.  None of the Trustee or the Calculation and Paying Agent shall have any responsibility or liability for any action or failure to act by the Master Servicer nor shall either of the Trustee or the Calculation and Paying Agent be obligated to supervise the performance of the Master Servicer hereunder or otherwise.
 
Section 5.11.   Annual Statement as to Compliance .   The Master Servicer shall deliver to the Trustee and the Calculation and Paying Agent on or before the date which is 120 days after the end of the Master Servicer’s fiscal year, commencing with its 2007 fiscal year, an Officer’s Certificate stating, as to the signer thereof, that (a) a review of the activities of the Master Servicer during the preceding fiscal year and of the performance of the Master Servicer under this Master Agreement has been made under such officer’s supervision, and (b) to the best of such officer’s knowledge, based on such review, the Master Servicer has fulfilled all its obligations under this Master Agreement throughout such year, or, if there has been a default in the fulfillment of any such obligation, specifying each such default known to such officer and the nature and status thereof.
 
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Section 5.12.   Annual Independent Public Accountants’ Servicing Statement; Financial Statements .   The Master Servicer shall, at its own expense, on or before 120 days after the end of the Master Servicer’s fiscal year, commencing with the fiscal year, if any, during which the Certificates of a Series are registered under the Securities Act and each fiscal year thereafter during which such Certificates are subject to a reporting obligation under Section 13(a) or 15(d) of the Securities Exchange Act of 1934, cause a firm of independent public accountants (who may also render other services to the Master Servicer or any affiliate thereof) which is a member of the American Institute of Certified Public Accountants to furnish a statement to the Trustee to the effect that such firm has, with respect to the Master Servicer’s servicing operations under this Master Agreement with respect to such Series, examined such operations in accordance with the requirements of Item 1122 of Regulation AB, stating such firm’s conclusions relating thereto.  If the Trustee is asked by such accountants to approve the procedures used in such report, the Trustee shall do so only upon the direction of the Master Servicer.
 
Section 5.13.   Statements to Certificateholders .
 
(a)           With respect to each Trust and each Distribution Date, on the related Certificate Distribution Amount Determination Date, the Master Servicer shall forward the Servicing Certificate applicable to each Trust to the Calculation and Paying Agent and the Calculation and Paying Agent shall make such Servicing Certificate available, on a secure basis on its website or otherwise, to each applicable Certificateholder and the Trustee, but not to any other Person or Persons.
 
If a Servicer Default shall occur, on the Business Day following the related Certificate Distribution Amount Determination Date, the Master Servicer shall forward to the Calculation and Paying Agent, and the Calculation and Paying Agent shall forward or cause to be forwarded by mail or otherwise make available, on its website or otherwise, to each Certificateholder and the Trustee, a statement to such effect, including the nature thereof.  Such statement may be included in, or separate from, the regular statement sent to Certificateholders.
 
(b)           The Master Servicer shall forward to the Calculation and Paying Agent any other information reasonably requested by the Calculation and Paying Agent necessary to make distributions pursuant to Section 6.03 and Section 6.04.  The determination by the Master Servicer of the information contained in each Servicing Certificate shall, in the absence of obvious error, be deemed to be presumptively correct for all purposes hereunder, and the Trustee and the Calculation and Paying Agent shall be protected in relying upon the same without any independent check or verification.
 
Section 5.14.   Tax Returns .   The Master Servicer shall prepare or cause to be prepared for execution by the Trustee, and after execution shall file or cause to be filed, all tax and information returns of the each Trust Fund.
 
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Section 5.15.   Servicer Default .   With respect to any Trust Fund, each of the following events shall constitute a servicer default (each, a “ Servicer Default ”):
 
(a)           any failure by the Master Servicer to make any payment, deposit or transfer required to be made under the terms of this Master Agreement or the applicable Issue Supplement which continues unremedied for a period of five days after the date upon which written notice of such failure, requiring the same to be remedied, shall have been:  (i) received by the Master Servicer from the Trustee or the Calculation and Paying Agent, or (ii) received by the Master Servicer and the Trustee from the Required Certificateholder; or
 
(b)           failure on the part of the Master Servicer duly to observe or perform in any material respect any other of the covenants or agreements on the part of the Master Servicer in this Master Agreement or the applicable Issue Supplement which continues unremedied for a period of 60 days after the date on which written notice of such failure, requiring the same to be remedied, shall have been:  (i) received by the Master Servicer from the Trustee or the Calculation and Paying Agent, or (ii) received by the Master Servicer and the Trustee from the Required Certificateholder; or
 
(c)           a decree or order of a court or agency or supervisory authority having jurisdiction in the premises for the appointment of a conservator, receiver or liquidator in any insolvency, readjustment of debt, marshalling of assets and liabilities or similar proceedings, or for the winding-up or liquidation of its affairs, shall have been entered against the Master Servicer and such decree or order shall have remained in force undischarged or unstayed for a period of 60 days; or
 
(d)           consent by the Master Servicer to the appointment of a conservator, receiver or liquidator in any insolvency, readjustment of debt, marshalling of assets and liabilities or similar proceedings relating to the Master Servicer or to all or substantially all of its property; or
 
(e)           The Master Servicer’s admission in writing of its inability to pay its debts generally as they become due, filing of a petition to invoke any applicable insolvency or reorganization statute, making of an assignment for the benefit of its creditors, or voluntarily suspending payment of its obligations.
 
With respect to any Trust Fund, upon the occurrence of a Servicer Default, and so long as such Servicer Default shall not have been remedied, the Trustee or the Required Certificateholder may (a) terminate all obligations and duties imposed upon the Master Servicer under this Master Agreement and the related Issue Supplement, and (b) name and appoint a successor or successors to succeed to and assume all of such obligations and duties of the Master Servicer.  Such actions shall be effected by notice in writing to the Master Servicer and shall become effective upon receipt of such notice by the Master Servicer and the acceptance of such appointment by such successor or successors.
 
On and after the receipt by the Master Servicer of such written notice and the acceptance by the successor or successors to the Master Servicer, all obligations and duties imposed upon the Master Servicer under this Master Agreement and each related Issue Supplement shall pass to and vest in the successor or successors named in the notice, and such successor or successors shall be authorized, and hereby are authorized, to take all such action and execute and deliver all such instruments and documents on behalf of the Master Servicer, as attorney in fact or otherwise, as may be necessary and appropriate to effect the purposes of such written notice.  The Master Servicer shall pay the reasonable costs and expenses relating to a transition to a successor Master Servicer.
 
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Section 5.16.   Inspection Rights .   The Master Servicer shall, once per calendar year (or, if a Servicer Default has occurred and is continuing, as often as the Required Certificateholder deems necessary or appropriate), upon three Business Days’ prior written request from the Required Certificateholder, during normal business hours, permit the Required Certificateholder to examine the Servicing Files which relate to Loans in the Trust Funds; provided , that, notwithstanding such annual examination, if the Farm Credit Administration (as the Governmental Authority that regulates the Required Certificateholder) so requests, the Master Servicer shall, upon three Business Day’s prior written request from the Required Certificateholder (with evidence of such request by the Farm Credit Administration) or from the Farm Credit Administration, permit the Required Certificateholder to reexamine or permit the Farm Credit Administration to examine the Servicing File which relates to Loans in the Trust Funds, and provided , further , that any Person obtaining such information from the Master Servicer pursuant to this Section 5.16 shall be required to maintain the confidentiality thereof and use such information solely in connection with the transactions contemplated by this Master Agreement or as otherwise required by law, unless otherwise agreed to in writing by such Person and the Master Servicer, with such agreement by the Master Servicer not to be unreasonably withheld.
 
Section 5.17.   Limitation on Liability of the Depositor, the Master Servicer and Others .
 
(a)           Neither the Depositor, the Master Servicer nor any of the directors, officers, employees or agents of the Depositor or the Master Servicer shall be under any liability to the Trustee, the Trust Fund, the Calculation of Paying Agent or the Certificateholders for any action taken or for refraining from the taking of any action in good faith and without gross negligence pursuant to this Master Agreement or for errors in judgment; provided, however, that this provision shall not protect the Depositor, the Master Servicer or any such Person against any breach of warranties or representations made herein or any liability which would otherwise be imposed by reason of willful misfeasance, bad faith or gross negligence in the performance of  duties or by reason of disregard of obligations and duties hereunder.  The Depositor, the Master Servicer and any director, officer, employee or agent of the Depositor or the Master Servicer may rely in good faith on any document of any kind prima facie properly executed and submitted by any Person respecting any matters arising hereunder.  The Depositor, the Master Servicer and any director, officer, employee or agent of the Depositor or the Master Servicer shall be indemnified by the Trust Fund and held harmless by the Trust Fund against any loss, liability or expense incurred in connection with any legal action relating to this Master Agreement, any Issue Supplement, the transactions contemplated hereby or thereby, the Certificates, or the Depositor’s or the Master Servicer’s duties in connection therewith, other than any loss, liability or expense related to any specific Loan or Loans and any loss, liability or expense incurred by reason of willful misfeasance, bad faith or gross negligence in the performance of duties hereunder or by reason of disregard of obligations and duties hereunder.
 
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(b)           Neither the Depositor nor the Master Servicer shall be under any obligation to appear in, prosecute or defend any legal action that is not incidental to its respective duties under this Master Agreement and for which it will not be reimbursed or indemnified hereunder; provided, however, that each of the Depositor and the Master Servicer may in its discretion undertake any such action it may deem necessary or desirable in respect to this Master Agreement and the rights and duties of the parties hereto and the interests of the Certificateholders hereunder.  In such event, the legal expenses and costs of such action and any liability resulting therefrom shall be expenses, costs and liabilities of the Trust Fund, and the Depositor and the Master Servicer shall be entitled to be reimbursed therefore out of amounts attributable to the Qualified Loans on deposit in the Custodial Account as provided by Section 5.04.
 
(c)           The Master Servicer and its directors, officers, employees and agents shall be deemed to have exercised the degree of skill and care appropriate hereunder if such Person has acted in accordance with Customary Servicing Procedures and in good faith in (i) managing, administering, servicing, making collections, foreclosing, counseling with respect to, and supervising the Qualified Loans; (ii) administering, interpreting, and enforcing the Mortgages, Mortgage Notes and all forms, documents and certificates required thereunder; (iii) fulfilling all obligations hereunder; and (iv) all duties, obligations and actions taken in respect of the Mortgage Property.
 
ARTICLE VI
Series Certificate Accounts, Distributions
 
Section 6.01.   Series Certificate Accounts .   (a)  On or before each Series Closing Date, the Calculation and Paying Agent shall either (i) open with an Eligible Depository one or more trust accounts in the name of the Trustee applicable to the related Trust Fund created on such Series Closing Date that shall be the “Certificate Account” for such Series or (ii) in lieu of maintaining any such account or accounts, maintain the Certificate Account for the related Trust Fund by means of appropriate entries on its books and records designating all amounts credited thereto in respect of the Loans as being held by it for the benefit of the Holders of Certificates evidencing beneficial ownership interests in such Trust Fund.  To the extent that any Certificate Account for any Trust Fund is maintained by the Calculation and Paying Agent in the manner provided in clause (ii) above, all references herein to deposits and withdrawals from such Certificate Account shall be deemed to refer to credits and debits to the related books of the Calculation and Paying Agent.
 
(b)           The Calculation and Paying Agent shall deposit into each Certificate Account all amounts remitted to it by the Master Servicer representing withdrawals from the related Custodial Account.  All amounts deposited by the Calculation and Paying Agent from time to time in a Certificate Account, and all investments made with such moneys, including all income or other gain from such investments, shall be held by the Calculation and Paying Agent in the Certificate Account as part of the Trust Fund as herein provided, subject to withdrawal by the Calculation and Paying Agent for the purposes set forth in Section 6.03.
 
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(c)           All or a portion of amounts on deposit in the Certificate Account shall be invested and reinvested by Calculation and Paying Agent in one or more Permitted Investments bearing interest or sold at a discount.  No such investment shall mature later than the Business Day immediately preceding the next applicable Distribution Date; provided , however , that any investment on which the Eligible Depository, in its commercial capacity, the Trustee or the Calculation and Paying Agent is the obligor, may mature on the related Distribution Date.  No Permitted Investment may be sold while in a Certificate Account.
 
Section 6.02.   Calculation of Certificate Distribution Amount; Publication of Certificate Principal Factors .   On or before each Certificate Distribution Amount Determination Date, the Calculation and Paying Agent shall calculate the Available Interest, the Available Principal, the Class A Distributable Amount and the Class B Distributable Amount, each with respect to the related Distribution Date and, based on the Total Available Amount for such Distribution Date and the other distributions to be made on such Distribution Date, determine the amount distributable to Certificateholders of each class.  Immediately following each such calculation, the Calculation and Paying Agent shall notify the Trustee in writing as to the amount so calculated.  As soon as practicable thereafter, the Calculation and Paying Agent shall make available generally to the Certificateholder the Certificate Principal Factor for each Class of Certificates after giving effect to the distribution of the Class A Principal Distribution Amount and the Class B Principal Distribution Amount on the following Distribution Date.  All computations of interest accrued on any Certificate shall be made as specified in the applicable Issue Supplement.
 
Section 6.03.   Withdrawals from the Certificate Account .   The rights of the Class B Certificateholders to receive distributions in respect of the Class B Certificates shall be and hereby are subordinated to the rights of the Class A Certificateholders to receive distributions in respect of the Class A Certificates as provided below.  Amounts on deposit on any Distribution Date in any Certificate Account shall be withdrawn therefrom by the Calculation and Paying Agent, in the amounts required, to the extent funds are available therefor, for application as follows:
 
(i)           first, to the Class A Certificateholders, from Available Interest, an amount equal to the sum of the Class A Interest Distributable Amount and any outstanding Class A Interest Carryover Shortfall as of the close of business on the preceding Distribution Date; and if such Available Interest is insufficient, the Class A Certificateholders will receive such shortfall, to the extent available, from the Class B Percentage of Available Principal;
 
(ii)           second, to the Class A Certificateholders, from Available Principal, an amount equal to the sum of the Class A Principal Distributable Amount and any outstanding Class A Principal Carryover Shortfall as of the close of business on the preceding Distribution Date; and if such Available Principal is insufficient, the Class A Certificateholders will receive such shortfall from Available Interest (as such Available Interest has been reduced as described in clause (i) above);
 
(iii)           third, to the Class B Certificateholders, from Available Interest (as such Available Interest has been reduced by the distributions described above in clauses (i) and (ii) above), an amount equal to the sum of the Class B Interest Distributable Amount and any outstanding Class B Interest Carryover Shortfall as of the close of business on the preceding Distribution Date; and
 
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(iv)           fourth, to the Class B Certificateholders, from Available Principal (as such Available Principal has been reduced as described in clauses (ii) above), an amount equal to the sum of the Class B Principal Distributable Amount and any outstanding Class B Principal Carryover Shortfall as of the close of business on the preceding Distribution Date; and if such Available Principal is insufficient, the Class B Certificateholders will receive such shortfall from Available Interest (as such Available Interest has been reduced as described in clauses (i), (ii) and (iii) above).
 
Section 6.04.   Distributions on Certificates .   As provided in Section 6.03, on each Distribution Date, the Calculation and Paying Agent shall withdraw from each applicable Certificate Account to the extent of funds available therefor, the Certificate Distribution Amount applicable to each Series for such Distribution Date previously calculated by it pursuant to Section 6.02.  Any installment of interest or principal that is payable on any Certificate and that is on deposit in the applicable Certificate Account on the applicable Distribution Date, shall be paid to the Certificateholder of record thereof on the immediately preceding Record Date by wire transfer to an account specified in writing by such Certificateholder (or, if any Certificateholder shall not have specified such account in writing at least 3 Business Days prior to any Payment Date, by check or money order mailed to such Certificateholder at such Certificateholder’s address appearing in the Note Register); provided that the Calculation and Paying Agent shall not be required to pay to any such Certificateholder any amounts required to be withheld from a payment to such Certificateholder by any applicable tax law.
 
ARTICLE VII
Concerning the Calculation and Paying Agent
 
Section 7.01.   Duties of the Calculation and Paying Agent .   Farmer Mac, in its individual capacity, agrees to perform the following duties in connection with the Trust, subject to the terms of the related Issue Supplement and the Certificates:
 
(a)           Act as Calculation and Paying Agent, and in particular calculating amounts payable and remittance of payments to Certificateholders of each Series as required by Section 6.02 and Section 6.04 of this Master Agreement and making such verification as it deems necessary of the amounts deposited in each Custodial Account and Certificate Account, in each case by the Master Servicer hereunder;
 
(b)           Upon receipt of the Servicing Certificates as described in Section 5.13, make such Servicing Certificates available to each applicable Certificateholder and the Trustee as provided in Section 5.13.
 
Section 7.02.   Calculation and Paying Agent Compensation .   As compensation for its activities and obligations hereunder, with respect to each Series, unless otherwise provided in the Issue Supplement, the Calculation and Paying Agent shall on each Distribution Date for such Series, be entitled to all income or gain (net of any losses) realized from investment of funds on deposit in the applicable Custodial Account.
 
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(b)           The Calculation and Paying Agent shall pay all expenses incurred by it hereunder in connection with its activities and shall, except for any reimbursable expenses as may be set forth herein, not be entitled to reimbursement therefor.
 
Section 7.03.   Resignation .   The Calculation and Paying Agent shall not resign from the duties imposed upon it by the terms of this Master Agreement or, without the consent of the Master Servicer, voluntarily assign any of its rights or duties hereunder to any other Person.
 
Section 7.04.   Merger or Consolidation .   Any corporation or other entity into which the Calculation and Paying Agent is merged or consolidated, or any corporation or other entity resulting from any merger, conversion or consolidation to which the Calculation and Paying Agent shall be a party or any entity which shall by statute be a successor to the Calculation and Paying Agent shall succeed to and assume all duties imposed upon the Calculation and Paying Agent by the terms of this Master Agreement, without the filing of any instrument or the performance of any further act by the Calculation and Paying Agent or any Certificateholder.  The Calculation and Paying Agent promptly shall furnish written notice of such succession to the Trustee and all Certificateholders.
 
Section 7.05.   Calculation and Paying Agent as Holder .   Calculation and Paying Agent, in its individual or any other capacity, shall have the right to purchase and hold for its own account any Certificate issued pursuant to the terms of this Master Agreement and any Issue Supplement, notwithstanding the rights and duties conferred and imposed upon the Calculation and Paying Agent by this Master Agreement and any such applicable Issue Supplement.
 
ARTICLE VIII
Concerning the Trustee
 
Section 8.01.   Duties of Trustee .   (a) The Trustee, prior to the occurrence of a Servicer Default and after the curing of all Servicer Defaults that may have occurred, undertakes to perform such duties and only such duties as are specifically set forth in this Master Agreement.  If a Servicer Default occurs and is continuing, the Trustee shall exercise such of the rights and powers vested in it by this Master Agreement and use the same degree of care and skill in their exercise as a prudent investor would exercise or use under the circumstances in the conduct of such investor’s own affairs.  Any permissive right of the Trustee contained in this Master Agreement shall not be construed as a duty.
 
(b)           The Trustee, upon receipt of all resolutions, certificates, statements, opinions, reports, documents, orders or other instruments furnished to the Trustee, which are specifically required to be furnished pursuant to any provision of this Master Agreement, shall examine them to determine whether they conform to the requirements of this Master Agreement.  If any such instrument is found not to conform to the requirements of this Master Agreement in a material manner, the Trustee shall take action as it deems appropriate to have the instrument corrected and, if the instrument is not corrected to the Trustee’s satisfaction, the Trustee will provide notice thereof to the applicable Certificateholders.
 
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(c)           No provision of this Master Agreement shall be construed to relieve the Trustee from liability for its own negligent action, its own negligent failure to act or its own misconduct; provided , however , that:
 
(i)           prior to the occurrence of a Servicer Default, and after the curing of all such Servicer Defaults that may have occurred, the duties and obligations of the Trustee shall be determined solely by the express provisions of this Master Agreement and each Issue Supplement, the Trustee shall not be liable except for the performance of such duties and obligations as are specifically set forth in this Master Agreement, and each Issue Supplement, no implied covenants or obligations shall be read into this Master Agreement or any Issue Supplement against the Trustee and, in the absence of bad faith on the part of the Trustee, the Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon any certificates or opinions furnished to the Trustee and conforming to the requirements of this Master Agreement and each Issue Supplement;
 
(ii)           the Trustee shall not be personally liable for an error of judgment made in good faith by a Responsible Officer or Responsible Officers of the Trustee, unless it shall be proved that the Trustee was negligent in ascertaining the pertinent facts;
 
(iii)          the Trustee shall not be personally liable with respect to any action taken, suffered or omitted to be taken by it in good faith in accordance with the direction of the Calculation and Paying Agent as to the time, method and place of conducting any proceeding for any remedy available to the Trustee, or exercising any trust or power conferred upon the Trustee, under this Master Agreement or any Issue Supplement, and
 
(iv)          no provision of this Master Agreement or any Issue Supplement shall require the Trustee to expend or risk its own funds or otherwise incur any financial liability in the performance of any of its duties hereunder, or in the exercise of any of its rights or powers, if it shall have reasonable grounds for believing that repayment of such funds or adequate indemnity against such risk or liability is not reasonably assured to it.
 
(d)           For all purposes of this Master Agreement, the Trustee shall not be deemed to have knowledge of any Servicer Default or event that, with notice or lapse of time, or both, would become a Servicer Default, unless a Responsible Officer of the Trustee shall have received written notice thereof from a Certificateholder, the Calculation and Paying Agent or a Responsible Officer of the Trustee shall have actual knowledge thereof, and in the absence of such written notice or knowledge, no provision hereof requiring the taking of any action or the assumption of any duties or responsibility by the Trustee following the occurrence of any Servicer Default or event which, with notice or lapse of time, or both, would become a Servicer Default, shall be effective as to the Trustee.
 
Section 8.02.   Certain Matters Affecting the Trustee .   Except as otherwise provided in Section 8.01:
 
(a)           The Trustee may request and rely upon, and shall be protected in acting or refraining from acting upon, any resolution, Officer’s Certificate, certificate of auditors or any other certificate, statement, instrument, opinion, report, notice, request, consent, order, appraisal, bond or other paper or document prima facie in proper form and believed by it to be genuine and to have been signed or presented by the proper party or parties;
 
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(b)           The Trustee may consult with counsel (including counsel for the Calculation and Paying Agent) and any Opinion of Counsel shall be full and complete authorization and protection in respect of any action taken or suffered or omitted by it hereunder in good faith and in accordance with such Opinion of Counsel;
 
(c)           The Trustee shall be under no obligation to exercise any of the trusts or powers vested in it by this Master Agreement or any Issue Supplement or to institute, conduct or defend any litigation hereunder or in relation hereto at the request, order or direction of any of the Certificateholders or the Calculation and Paying Agent, pursuant to the provisions of this Master Agreement or any Issue Supplement, unless such Certificateholders or the Calculation and Paying Agent, as applicable, shall have offered to the Trustee reasonable security or indemnity against the costs, expenses and liabilities that may be incurred therein or thereby; nothing contained herein shall, however, relieve the Trustee of the obligation, upon the occurrence of a Servicer Default (which has not been cured), to exercise such of the rights and powers vested in it by this Master Agreement, and to use the same degree of care and skill in their exercise as a prudent investor would exercise or use under the circumstances in the conduct of such investor’s own affairs;
 
(d)           The Trustee shall not be personally liable for any action taken, suffered or omitted by it in good faith and believed by it to be authorized or within the discretion or rights or powers conferred upon it by this Master Agreement or any applicable Issue Supplement;
 
(e)           Prior to the occurrence of a Servicer Default hereunder and after the curing of all Servicer Defaults that may have occurred, the Trustee shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, report, notice, request, consent, order, approval, bond or other paper or document, unless requested in writing so to do by the Calculation and Paying Agent or by the Required Certificateholder; provided , however , that if the payment within a reasonable time to the Trustee of the costs, expenses or liabilities likely to be incurred by it in the making of such investigation is, in the opinion of the Trustee, not reasonably assured to the Trustee by the security afforded to it by the terms of this Master Agreement, the Trustee may require reasonable indemnity against such expense or liability as a condition to so proceeding the reasonable expense of every such investigation shall be paid by the Calculation and Paying Agent or the requesting Certificateholders, as applicable; and
 
(f)           The Trustee may execute any of the trusts or powers hereunder or perform any duties hereunder either directly or by or through agents or attorneys.
 
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Section 8.03.   Trustee Not Liable for Certificates or Loans .   Except as otherwise expressly provided herein, the Trustee shall not be accountable for the use or application by the Master Servicer or the Calculation and Paying Agent of any funds paid to the Master Servicer or the Calculation and Paying Agent, in respect of the Loans or deposited in or withdrawn from any Custodial Account or any Certificate Account by the Master Servicer or the Calculation and Paying Agent, as the case may be.  The Trustee makes no representations or warranties as to the validity or sufficiency of the Certificates or of any Loan or related document, except that the Trustee represents that this Master Agreement has been duly authorized, executed and delivered by it and, assuming due execution and delivery by the other parties hereto, constitutes its valid and binding obligation, enforceable against it in accordance with its terms, except that such enforceability may be subject to (i) applicable bankruptcy and insolvency laws and other similar laws affecting the enforcement of the rights of creditors generally, and (ii) general principles of equity regardless of whether such enforcement is considered in a proceeding in equity or at law.
 
Section 8.04.   Trustee May Own Certificates .   The Trustee in its individual or any other capacity may become the owner or pledgee of Certificates of any Series with the same rights it would have if it were not Trustee.
 
Section 8.05.   Indemnification of the Trustee .   Each Trust shall indemnify the Trustee in its individual capacity and as Trustee and any director, officer, employee or agent of the Trustee in its individual capacity and as Trustee for, and hold each of them harmless against, any loss or liability incurred by any of them in connection with such Trust without negligence or bad faith on the part of the Trustee in its individual capacity and as Trustee or any such director, officer, employee or agent of the Trustee in its individual capacity and as Trustee and arising out of or in connection with the acceptance or administration of the Trust created pursuant to this Master Agreement and each Issue Supplement, including the costs and expenses of defending the Trustee in its individual capacity and as Trustee or any such director, officer, employee or agent of the Trustee in its individual capacity and as Trustee against any claim or liability incurred by any of them in connection with the exercise or performance of any of their powers or duties hereunder without negligence or bad faith on its or their part and including any liability for any environmental hazards or issues relating to any Mortgaged Property, but not including any expenses incurred in the ordinary course of performing the Trustee’s duties as set forth herein.
 
Section 8.06.   Eligibility Requirements for Trustee .   The Trustee hereunder shall at all times be a corporation having its principal office in a state and city acceptable to the Calculation and Paying Agent and organized and doing business under the laws of such state or the United States of America, authorized under such laws to exercise corporate trust powers, having a combined capital and surplus of at least $50,000,000, and subject to supervision or examination by federal or state authority.  If such corporation publishes reports of condition at least annually, pursuant to law or to the requirements of the aforesaid supervising or examining authority, then for the purposes of this Section the combined capital and surplus of such corporation shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published.  In case at any time the Trustee shall cease to be eligible in accordance with the provisions of this Section, the Trustee shall resign immediately in the manner and with the effect specified in Section 8.07.  The Trustee shall secure an Opinion of Counsel (which shall be an expense of the Trustee) to the effect that, to the extent that the Trust is not subject to federal income taxation, the Trust Fund is not subject to state and local taxation in the jurisdiction where the Trustee is located.
 
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Section 8.07.   Resignation and Removal of the Trustee .   (a) The Trustee may at any time resign and be discharged from the trusts created pursuant to this Master Agreement by giving written notice of resignation to the Master Servicer and the Calculation and Paying Agent.  Upon receiving such notice of resignation, the Calculation and Paying Agent, after consultation with the Master Servicer, shall promptly appoint a successor trustee by written instrument, in duplicate, one copy of which instrument shall be delivered to the resigning Trustee and one copy to the successor trustee with a copy of such instrument delivered to the Master Servicer.  If no successor trustee shall have been so appointed and have accepted appointment within 90 days after giving of such notice of resignation, the resigning Trustee may petition any court of competent jurisdiction for the appointment of a successor trustee.
 
(b)           If at any time the Trustee shall cease to be eligible in accordance with the provisions of Section 8.06 and shall fail to resign after written request therefor by the Calculation and Paying Agent, or if at any time the Trustee shall become incapable of acting, 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 Calculation and Paying Agent may remove the Trustee and, after consultation with the Master Servicer, appoint a successor trustee by written instrument, in duplicate, one copy of which instrument shall be delivered to the Trustee so removed and one copy to the successor trustee, with a copy of such instrument delivered to the Master Servicer, and the Calculation and Paying Agent shall give written notice thereof to the Certificateholders.  Notwithstanding the foregoing, any liability of the Trustee under this Master Agreement arising prior to such termination shall survive such termination.
 
(c)           The Calculation and Paying Agent may at any time remove the Trustee solely pursuant to this Master Agreement and, after consultation with the Master Servicer, appoint a successor trustee by written instrument or instruments within 90 days of such predecessor trustee’s removal.  If no successor trustee shall have been so appointed and have accepted appointment within 90 days after the giving of such notice of removal, the predecessor trustee may petition any court of competent jurisdiction for the appointment of a successor trustee.
 
(d)           Any resignation or removal of the Trustee and appointment of a successor trustee pursuant to any of the provisions of this Section shall become effective upon acceptance of appointment by the successor trustee as provided in Section 8.08 but in no event shall it become effective until a successor has been appointed and has accepted the duties of the Trustee.
 
Section 8.08.   Successor Trustee .   (a) Any successor trustee appointed as provided in Section 8.07 shall execute, acknowledge and deliver to its predecessor trustee (with copies delivered to the Calculation and Paying Agent and the Master Servicer) an instrument accepting such appointment hereunder, and the successor trustee shall secure an Opinion of Counsel (which shall be an expense of such successor trustee) to the effect that, to the extent that the Trust is not subject to federal income taxation, the Trust Fund is not subject to state and local taxation in the jurisdiction where the successor trustee is located, whereupon the resignation or removal of the predecessor trustee shall become effective and such successor trustee, without any further act, deed or conveyance, shall become fully vested with all the rights, powers, duties and obligations of its predecessor hereunder, with the like effect as if originally named as trustee herein.  The predecessor trustee shall execute and deliver such instruments and do such other things as may reasonably be required for more fully and certainly vesting and confirming in the successor trustee all such rights, powers, duties and obligations.
 
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(b)           No successor trustee shall accept appointment as provided in this Section unless at the time of such acceptance such successor trustee shall be eligible under the provisions of Section 8.06.
 
Section 8.09.   Merger or Consolidation of Trustee .   Any corporation into which the Trustee may be merged or converted or with which it may be consolidated or any corporation resulting from any merger, conversion or consolidation to which the Trustee shall be a party, or any corporation succeeding to the business of the Trustee, shall be the successor of the Trustee hereunder, provided such corporation shall be eligible under the provisions of Section 8.06, without the execution or filing of any paper or any further act on the part of any of the parties hereto, anything herein to the contrary notwithstanding.
 
Section 8.10.   Appointment of Co-Trustee or Separate Trustee .   (a)Notwithstanding any other provisions hereof, at any time, for the purpose of meeting any legal requirements of any jurisdiction in which any part of a Trust Fund or property securing the same may at the time be located, the Calculation and Paying Agent (after consultation with the Master Servicer) and the Trustee, acting jointly, shall have the power to execute and deliver all instruments to appoint one or more Persons approved by the Trustee to act as co-trustee or co-trustees, jointly with the Trustee, or separate trustee or separate trustees, of all or any part of the related Trust Fund, and to vest in such Person or Persons, in such capacity, such title to such Trust Fund, or any part thereof, and, subject to the other provisions of this Section 8.10, such powers, duties, obligations, rights and trusts as Calculation and Paying Agent and the Trustee may consider necessary or desirable.  No co-trustee or separate trustee hereunder shall be required to meet the terms of eligibility as a successor trustee under Section 8.06.  Except as specifically provided in the first sentence of this paragraph, the Trustee shall have no other rights to appoint a co-trustee.
 
(b)           In the case of any appointment of a co-trustee or separate trustee pursuant to this Section 8.10, all rights, powers, duties and obligations conferred or imposed upon the Trustee shall be conferred or imposed upon and exercised or performed by the Trustee and such separate trustee or co-trustee jointly, except to the extent that under any law of any jurisdiction in which any particular act or acts are to be performed, the Trustee shall be incompetent or unqualified to perform such act or acts, in which event such rights, powers, duties and obligations (including the holding of title to any Trust Fund or any portion thereof in any such jurisdiction) shall be exercised and performed by such separate trustee or co-trustee at the direction of the Trustee.
 
(c)           Any notice, request or other writing given to the Trustee shall be deemed to have been given to each of the then separate trustees and co-trustees, as effectively as if given to each of them.  Every instrument appointing any separate trustee and co-trustee shall refer to this Master Agreement and the conditions of this ARTICLE VIII.  Each separate trustee and co-trustee, upon its acceptance of the trusts conferred, shall be vested with the estates or property specified in its instrument of appointment, either jointly with the Trustee or separately, as may be provided therein, subject to all the provisions of this Master Agreement, specifically including every provision of this Master Agreement relating to the conduct of, affecting the liability of, or affording protection to, the Trustee.  Every such instrument shall be filed with the Trustee.
 
(d)           Any separate trustee and co-trustee may at any time constitute the Trustee its agent or attorney-in-fact, with full power and authority, to the extent not prohibited by law, to do any lawful act under or in respect of this Master Agreement on its behalf and in its name.  If any separate trustee or co-trustee shall die, become incapable of acting, resign or be removed, all of its estates, properties, rights, remedies and trusts shall vest in and be exercised by the Trustee, to the extent permitted by law, without the appointment of a new or successor trustee.
 
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Section 8.11.   Trustee Fees .   As compensation for its services hereunder, the Trustee shall be entitled to receive from the Trust fees at such times, and in such amounts, as shall be specified in the related Issue Supplement.  The Trustee’s compensation shall not be limited by any law on compensation of a trustee of an express trust.
 
ARTICLE IX
Termination
 
Section 9.01.   Termination upon Purchase or Liquidation of All Loans .   The respective obligations and responsibilities of the Depositor, the Master Servicer, the Calculation and Paying Agent and the Trustee with respect to any Series of Certificates created hereby (other than the obligation of the Calculation and Paying Agent to make certain payments to Certificateholders after the Final Distribution Date) shall terminate upon the last action required to be taken by the Calculation and Paying Agent on the Final Distribution Date pursuant to this Article IX following the earlier of (a) the purchase of all the Loans and all REO Property remaining in the Trust Fund by the Master Servicer at a price equal to the sum of (i) 100% of the unpaid principal balance of each Loan in the applicable Trust Fund (other than any Loan as to which REO Property has been acquired and whose fair market value is included pursuant to clause (ii) below), (ii) the fair market value of such REO Property, plus any accrued and unpaid interest through the last day of the month of such purchase at the related Loan Interest Rate on the unpaid principal balance of each Loan (including any Loan as to which REO Property has been acquired) and (iii) any Repurchase Price owed to the applicable Trust Fund pursuant to Section 4.02 or (b) the final payment or other liquidation (or any advance with respect thereto) of the last Loan remaining in the Trust Fund or the disposition of all REO Property.
 
The Master Servicer may not exercise its purchase option for the Loans until all Repurchase Prices for the Defective Loans have been paid.
 
Regardless of the foregoing, in no event shall any Trust created hereby continue beyond the expiration of 21 years from the death of the last survivor of the descendants of Joseph P. Kennedy, the late ambassador of the United States to the Court of St. James’s, living on the date hereof.
 
The right of the Master Servicer to purchase the Loans in any Trust Fund is conditioned upon the aggregate Stated Principal Balance of the Loans in such Trust Fund being less than 10% of the unpaid principal balance of the Loans in such Trust Fund at the applicable Cut-off Date.  
 
If such right is exercised with respect to any Series by the Master Servicer, the Trustee shall, promptly following payment of the cleanup purchase price, deliver to the Master Servicer, or its respective designees, the Mortgage Files pertaining to such Loans applicable to such Series being purchased.
 
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Notice of the exercise of any purchase option by the Master Servicer and notice of any termination of any Trust, specifying the Final Distribution Date with respect to such Trust or the applicable Distribution Date, upon which the applicable Certificateholders may surrender their Certificates to the Calculation and Paying Agent for payment of the final distribution and for cancellation, shall be given promptly by the Calculation and Paying Agent by letter to the applicable Certificateholders mailed not earlier than the 10th day and not later than the 15th day of the month next preceding the month of such final distribution specifying (1)  the Final Distribution Date for such Series or the applicable Distribution Date, upon which final payment of the applicable Certificates will be made upon presentation and surrender of the Certificates of such Series at the office or agency of the Calculation and Paying Agent therein designated, (2) the amount of any such final payment and (3) that the Record Date otherwise applicable to such Distribution Date is not applicable, payments being made only upon presentation and surrender of the applicable Certificates at the office or agency of the Calculation and Paying Agent therein specified.  The Master Servicer exercising its call right shall remit to the Calculation and Paying Agent for deposit to the Distribution Account on or before the Final Distribution Date or the applicable Distribution Date, in immediately available funds an amount equal to the amount necessary to make the amount, if any, on deposit in the Distribution Account on such Final Distribution Date or Distribution Date, as applicable, equal to the purchase price for the related assets of the Trust Fund or any portion of the Trust Fund computed as above provided, together with a statement as to the amount to be distributed on each applicable Class of Certificates pursuant to the next succeeding paragraph.
 
Upon presentation and surrender of the applicable Certificates, the Calculation and Paying Agent shall cause to be distributed to the applicable Certificateholders of each Class, in the order set forth in Section 6.03 hereof, on the Final Distribution Date applicable to such Series or the applicable Distribution Date, and in proportion to their respective percentage interests, with respect to Certificateholders of the same Class, an amount equal, as to each such Class of Certificates, the Class Certificate Principal Balance thereof plus accrued interest thereon in the case of an interest-bearing Certificate.
 
If some or all Certificateholders do not surrender their Certificates for final payment and cancellation on or before the Final Distribution Date for the applicable Series, the Calculation and Paying Agent shall on such date cause all funds in the applicable Certificate Account not distributed in final distribution to such Certificateholders to continue to be held by the Calculation and Paying Agent in such Certificate Account for the benefit of such Certificateholders and the Calculation and Paying Agent shall give a second written notice to the remaining applicable Certificateholders to surrender their Certificates for cancellation and receive a final distribution with respect thereto.  If within one year after the second notice all the applicable Certificates shall not have been surrendered for cancellation, the Calculation and Paying Agent may take appropriate steps, or may appoint an agent to take appropriate steps, to contact the remaining applicable Certificateholders concerning surrender of their Certificates, and the cost thereof shall be paid out of the funds on deposit in such applicable Certificate Account.
 
Upon the exercise of the purchase option by the Master Servicer with respect to any Trust Fund, the applicable Trust Fund shall be terminated in accordance with applicable law.
 
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ARTICLE X
Supplemental Agreements
 
Section 10.01.   Permissible Without Action by Certificateholders .   The Depositor, the Master Servicer, the Calculation and Paying Agent and the Trustee, from time to time and at any time, may, without the consent of or notice (other than pursuant to Section 10.01(b)) to any Holder of a Certificate, enter into an agreement or other instrument supplemental hereto and which thereafter shall form a part hereof (so long as no such agreement or instrument affects the permitted activities of the Trust), for any one or more of the following purposes:
 
(a)           to add to the covenants of any part hereto, whether applicable to one or more Trusts;
 
(b)           to evidence the succession pursuant to ARTICLE VIII of another Person or Persons to the Trustee and the assumption by such successor or successors of the obligations of the Trustee hereunder;
 
(c)           to eliminate any right reserved to or conferred upon any party hereto;
 
(d)           to take such action to cure any ambiguity or correct or supplement any provision in this Master Agreement; or
 
(e)           to modify, eliminate or add to the provisions of this Master Agreement to such extent as shall be necessary so that the Trust is not subject to federal income taxation and state taxation; provided that (i) there shall have been delivered to the Trustee an Opinion of Counsel to the effect that such action is necessary or advisable to maintain such status, and (ii) such amendment shall not have any of the effects described in paragraphs (a) and (b) of the proviso to Section 10.02;
 
Section 10.02.   Waivers and Supplemental Agreements with Consent of Holders .   To the extent not permitted by Section 10.01, with the consent of the Required Certificateholder with respect to each Series which is affected thereby, (i) compliance by the Master Servicer or the Trustee with any of the terms of this Master Agreement may be waived or (ii) the parties hereto may enter into any supplemental agreement for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of this Master Agreement and any Issue Supplement or of modifying in any manner the rights of the Holders of the Certificates issued under this Master Agreement; provided that no such waiver or supplemental agreement shall:
 
(a)           without the consent of all Certificateholders affected thereby, reduce in any manner the amount of, or delay the timing of, distributions which are required to be made on any Certificate; or
 
(b)           without the consent of all Certificateholders, remove the aforesaid consent of the Required Certificateholder to any waiver or any supplemental agreement; or
 
(c)           without the consent of all Certificateholders, alter the classification of the Trust Fund as a grantor trust for federal income tax purposes.
 
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It shall not be necessary for Holders to approve the particular form of any proposed supplemental agreement, but it shall be sufficient if such Holders shall approve the substance thereof.
 
Promptly after the execution of any supplemental agreement pursuant to this Section, the Calculation and Paying Agent shall give notice thereof to Holders of Certificates.  Any failure of the Calculation and Paying Agent to give such notice, or any defect therein, shall not, however, in any way impair or affect the validity of any such supplemental agreement.
 
ARTICLE XI
Miscellaneous
 
Section 11.01.   Holders .   (a) The death or incapacity of any Holder of a Certificate shall not operate to terminate this Master Agreement or any Issue Supplement, nor entitle such Holder’s legal representative or heirs to claim an accounting or to take any action or proceeding in any court for a partition or winding up of the affairs of the related Trust, nor otherwise affect the rights, duties and obligations of any of the parties to this Master Agreement.
 
(b)           No Holder shall have any right to control or to participate in the control and administration of any Trust, nor shall any of the terms of this Master Agreement be construed to constitute the Holders and the Depositor, the Master Servicer, the Trustee or the Calculation and Paying Agent or the Calculation and Paying Agent as partners or members of an association, nor shall any Holder have any duty or liability to any third person by reason of any action taken by the parties to this Master Agreement pursuant to the provisions hereof and thereof.
 
(c)           No Holder shall have any right by virtue of any provision of this Master Agreement or any Issue Supplement to institute any suit, action or proceeding in equity or at law upon or under or with respect to this Master Agreement.  For the protection and enforcement of the provisions of this Section, each and every Holder and the Trustee shall be entitled to such relief as can be given either at law or in equity.
 
Section 11.02.   Governing Law .   The terms of this Master Agreement and any Certificates issued hereunder shall be governed by, and construed in accordance with, the laws of the State of New York.
 
Section 11.03.   Demands, Notices, Communications .   All formal demands, notices and communications by and between the Depositor, the Master Servicer, the Trustee, the Calculation and Paying Agent and the Holder of any Certificate shall be in writing and delivered in person or by first-class mail, postage prepaid (a) if to the Calculation and Paying Agent, to 919 18th Street, N.W., Washington, D.C. 20006, or to such other address as shall be set forth in a notification to Holders (b) if to the Depositor, to 2201 Cooperative Way, Herndon, VA  20171-3025, (c) if to the Master Servicer, to 2201 Cooperative Way, Herndon, VA  20171-3025, (d) if to the Trustee, to EP-MN-WS3D, 60 Livingston Ave., St. Paul, Minnesota 55107, Attn:  Structured Finance - CFC, or (e) if to the Holder of a Certificate, to the appropriate Holder at the address provided to the Certificate Registrar by such Holder.  Any notice so mailed within the time prescribed in this Master Agreement shall be conclusively presumed to have been duly given whether or not the Holder receives such notice.
 
49

 
Section 11.04.   Severability of Provisions .   If any one or more of the covenants, agreements, provisions or terms of this Master Agreement shall be for any reason whatsoever held invalid, then such covenants, agreements, provisions or terms shall be deemed severable from the remaining covenants, agreements, provisions or terms of this Master Agreement and shall in no way affect the validity or enforceability of the other provisions of this Master Agreement or of the Certificates or the rights of the Holders thereof.
 
50

 
IN WITNESS WHEREOF, the parties hereto hereby execute this Master Agreement as of the day and year first above written.
 
 
CFC ADVANTAGE, LLC, as Depositor
SEAL
   
     
 
By:
 
Attest:
Name:
 
Title:
     
 
FEDERAL AGRICULTURAL MORTGAGE
CORPORATION, as Calculation and Paying
Agent
SEAL
   
     
 
By:
 
Attest:
Name:
Title:
 
     
 
NATIONAL RURAL UTILITIES COOPERATIVE
FINANCE CORPORATION, as Master
Servicer
SEAL
   
     
 
By:
 
Attest:
Name:
Title:
 
     
 
U.S. BANK NATIONAL ASSOCIATION,
 
as Trustee
SEAL
   
     
 
By:
 
Attest:
Name:
Title:
 
 
[Signature Page to Master Trust, Sale and Servicing Agreement]
 

 
TABLE OF CONTENTS
 
   
Page
 
ARTICLE I
Defined Terms
     
Section 1.01.
General Definitions.
1
Section 1.02.
Other Definitional Provisions.
14
 
ARTICLE II
Applicable Documentation; Sale of Qualifying Loans
     
Section 2.01.
Trust Established.
15
Section 2.02.
Sale of Loans.
15
Section 2.03.
Delivery and Payment.
17
Section 2.04.
Safekeeping and Release of Required Documents.
17
Section 2.05.
Authorized Officers.
17
Section 2.06.
Delivery of Instruments.
17
Section 2.07.
Agreed Treatment of Trusts and Certificates.
17
Section 2.08.
Notice of Sale of Loans.
17
 
ARTICLE III
The Certificates
     
Section 3.01.
Certificates Issuable in Classes; General Provisions with Respect to Principal and Interest Distributions.
18
Section 3.02.
Issuance and Authentication of Certificates.
18
Section 3.03.
Registration of Transfer and Exchange of Certificates; Transfer Restrictions.
18
Section 3.04.
Mutilated, Destroyed, Lost or Stolen Certificates.
21
Section 3.05.
Persons Deemed Owners.
21
 
ARTICLE IV
Representations and Warranties
     
Section 4.01.
Representations and Warranties of the Calculation and Paying Agent.
21
Section 4.02.
Representations, Warranties and Agreement of the Depositor.
22
Section 4.03.
Representations and Warranties of the Master Servicer.
24
Section 4.04.
Substitution or Repurchase of Loans.
26
Section 4.05.
Assignment of Interest in the Master Loan Purchase Agreement.
26
 
ARTICLE V
Administration And Servicing of Loans
     
Section 5.01.
Servicing of the Loans.
27
Section 5.02.
Collection of Loan Payments; Establishment of Series Custodial Accounts.
29
Section 5.03.
Realization Upon Defaulted Loans.
30
 
-i-

 
TABLE OF CONTENTS
(continued)
   
Page
     
Section 5.04.
Permitted Withdrawals From the Custodial Accounts.
31
Section 5.05.
Fidelity Bond, Insurance.
31
Section 5.06.
Satisfaction of Mortgages and Release of Mortgage Files.
32
Section 5.07.
Servicing Compensation and Reimbursement.
32
Section 5.08.
RUS.
33
Section 5.09.
Documents, Records and Funds in Possession of the Master Servicer to be Held for the Trustee.
33
Section 5.10.
Rights of the Trustee in Respect of the Master Servicer.
33
Section 5.11.
Annual Statement as to Compliance.
33
Section 5.12.
Annual Independent Public Accountants’ Servicing Statement; Financial Statements.
34
Section 5.13.
Statements to Certificateholders.
34
Section 5.14.
Tax Returns.
34
Section 5.15.
Servicer Default.
35
Section 5.16.
Inspection Rights.
36
Section 5.17.
Limitation on Liability of the Depositor, the Master Servicer and Others.
36
 
ARTICLE VI
Series Certificate Accounts, Distributions
     
Section 6.01.
Series Certificate Accounts.
37
Section 6.02.
Calculation of Certificate Distribution Amount; Publication of Certificate Principal Factors.
38
Section 6.03.
Withdrawals from the Certificate Account.
38
Section 6.04.
Distributions on Certificates.
39
 
ARTICLE VII
Concerning the Calculation and Paying Agent
     
Section 7.01.
Duties of the Calculation and Paying Agent.
39
Section 7.02.
Calculation and Paying Agent Compensation.
39
Section 7.03.
Resignation.
40
Section 7.04.
Merger or Consolidation.
40
Section 7.05.
Calculation and Paying Agent as Holder.
40
 
ARTICLE VIII
Concerning the Trustee
     
Section 8.01.
Duties of Trustee.
40
Section 8.02.
Certain Matters Affecting the Trustee.
41
Section 8.03.
Trustee Not Liable for Certificates or Loans.
42
Section 8.04.
Trustee May Own Certificates.
43
Section 8.05.
Indemnification of the Trustee.
43
Section 8.06.
Eligibility Requirements for Trustee.
43
 
-ii-

 
TABLE OF CONTENTS
(continued)
   
Page
     
Section 8.07.
Resignation and Removal of the Trustee.
44
Section 8.08.
Successor Trustee.
44
Section 8.09.
Merger or Consolidation of Trustee.
45
Section 8.10.
Appointment of Co-Trustee or Separate Trustee.
45
Section 8.11.
Trustee Fees.
46
 
ARTICLE IX
Termination
     
Section 9.01.
Termination upon Purchase or Liquidation of All Loans.
46
 
ARTICLE X
Supplemental Agreements
     
Section 10.01.
Permissible Without Action by Certificateholders.
48
Section 10.02.
Waivers and Supplemental Agreements with Consent of Holders.
48
 
ARTICLE XI
Miscellaneous
     
Section 11.01.
Holders.
49
Section 11.02.
Governing Law.
49
Section 11.03.
Demands, Notices, Communications.
49
Section 11.04.
Severability of Provisions.
50
 
-iii-


EXHIBIT 10.23

EXECUTION COPY
 

 
FEDERAL AGRICULTURAL
MORTGAGE CORPORATION
 
CFC ADVANTAGE, LLC
 
NATIONAL RURAL UTILITIES
COOPERATIVE FINANCE CORPORATION
 

 
REGISTRATION RIGHTS AGREEMENT SERIES 2007-1
 

 
Dated as of February 15, 2007
 

 

 
TABLE OF CONTENTS
 
ARTICLE I
DEFINITIONS
     
Section 1.01.
Definitions.
1
 
ARTICLE II
REGISTRATION AND SALE
     
Section 2.01.
Registration Request.
1
Section 2.02.
Registration.
1
Section 2.03.
Expenses.
2
Section 2.04.
Conditions.
2
Section 2.05.
Rating.
3
Section 2.06.
Blackout Periods.
3
 
ARTICLE III
MISCELLANEOUS
     
Section 3.01.
GOVERNING LAW.
3
Section 3.02.
WAIVER OF JURY TRIAL.
3
Section 3.03.
Notices.
3
Section 3.04.
Benefit of Agreement.
3
Section 3.05.
Amendments and Waivers.
4
Section 3.06.
Counterparts.
4
Section 3.07.
Severability.
4
 
i

 
REGISTRATION RIGHTS AGREEMENT, dated as of February 15, 2007 between FEDERAL AGRICULTURAL MORTGAGE CORPORATION, a federally-chartered instrumentality of the United States and an institution of the Farm Credit System (“ Farmer Mac ”), CFC ADVANTAGE, LLC, a limited liability company existing under the laws of the State of Delaware (the “ Depositor ”), and NATIONAL RURAL UTILITIES COOPERATIVE FINANCE CORPORATION, a cooperative association existing under the laws of the District of Columbia (“ CFC ”).
 
RECITALS
 
WHEREAS, the Depositor wishes to cause Series 2007-1 Rural Utilities Trust, a grantor trust (the “ Issuer ”) to deliver the Certificates, and Farmer Mac wishes to purchase such Certificates, all on the terms and subject to the conditions set forth in the Certificate Purchase Agreement dated as of the date hereof by and among Farmer Mac, the Depositor and CFC (the “ Certificate Purchase Agreement ”); and
 
WHEREAS, Farmer Mac wishes to have the right to resell the Class A Certificates from time to time, including in a public offering registered under the Securities Act of 1933 (the “ Act ”);
 
NOW, THEREFORE, Farmer Mac, the Depositor and CFC agree as follows:
 
ARTICLE I
Definitions
 
SECTION 1.01.    Definitions .   Capitalized terms used herein and not defined herein shall have the meanings given to those terms in the Certificate Purchase Agreement.
 
ARTICLE II
Registration and Sale
 
SECTION 2.01.    Registration Request .   Under the conditions described herein, Farmer Mac may request the Depositor (such request, a “ Registration Request ”) to effect the registration under the Act of the issuance of Exchange Certificates (as defined below) in an amount set forth in the Registration Request and to deliver such Exchange Certificates to Farmer Mac in exchange for an equal amount of the Certificates (the “ Sale Certificates ”), and the sale by Farmer Mac of the Exchange Certificates.
 
SECTION 2.02.    Registration .
 
(a)           Upon receipt of a Registration Request, the Depositor shall be obligated to file a registration statement under the Act for the registration (the “ Registration ”) of such principal amount of Exchange Certificates (as defined below) as set forth in the Registration Request, registering the exchange by the Depositor with Farmer Mac of the Exchange Certificates for the Sale Certificates and the sale of the Exchange Certificates by Farmer Mac.  The Depositor shall use its reasonable best efforts to cause such registration statement to become effective within 180 days of receipt of the Registration Request.
 

 
(b)           As used herein, “ Exchange Certificates ” shall mean the Certificates delivered by the Issuer under the Master Agreement and the Issue Supplement having terms identical to the Sale Certificates except that they will be without the transfer restrictions set forth in Section 3.03(c) of the Master Agreement (other than the transfer restrictions set forth in the last paragraph of Section 3.03 of the Master Agreement), will be payable to the registered holder, available in denominations of $1,000 and integral multiples thereof and, to the extent the Master Agreement and Issue Supplement are required to be qualified under the Trust Indenture Act, will contain any terms required in order for the Master Agreement as supplemented by the Issue Supplement to be so qualified.
 
(c)            Periods of Effectiveness .  The Depositor agrees to keep the Registration Statement effective, and to update as necessary (including by incorporation by reference) any prospectus included in the Registration Statement, until the later of the completion of the distribution of the Exchange Certificates and 45 days after the Registration Statement has become effective.  The 45-day period provided in the preceding sentence, and the 180-day period provided in Section 2.02(a), shall be suspended during any Blackout Period as defined in Section 2.06 hereof.
 
SECTION 2.03.    Expenses .   Farmer Mac shall be responsible for the following expenses in connection with the Registration:  the SEC filing fee for the Registration Statement; the fees and expenses of its counsel, if any; the costs of having the Exchange Certificates rated; the underwriting commissions and discounts of its underwriters for the sale of the Exchange Certificates, if any; the reasonable fees and expenses of the Depositor’s and CFC’s counsel, if any; the reasonable fees and expenses of the Depositor’s and CFC’s auditors, if any; and the printing costs of the prospectus, if any.
 
SECTION 2.04.    Conditions .   The right of Farmer Mac to make a Registration Request shall be subject to the following conditions:
 
(a)           Farmer Mac can issue no more than one Registration Request with respect to the Certificates;
 
(b)           Farmer Mac shall provide all information (such as the plan of distribution) reasonably required by the Depositor to be included in the registration statement that relates to Farmer Mac’s sale of the Exchange Certificates;
 
(c)           If the sale of the Exchange Certificates by Farmer Mac is proposed to be by underwriters, then the firm or firms acting as underwriters for the offering will be subject to reasonable approval by CFC; and
 
(d)           The Issuer is not required to be registered under the Investment Company Act of 1940, as amended (the “ Investment Company Act ”) as a result of the issuance of the Registration Request or the sale by Farmer Mac of Exchange Certificates pursuant to a Registration Statement.
 
2

 
SECTION 2.05.    Rating .   If, in connection with the Registration Request and the sale of the Exchange Certificates by Farmer Mac, Farmer Mac requests that some or all of the Exchange Certificates be rated by one or more rating agencies, then, to the extent, if any, that such rating by any rating agency is conditioned upon the furnishing of documents or information or the taking of reasonable actions by the Depositor or CFC, each shall furnish such documents or information and take such reasonable actions; provided , that, without limiting the generality of the foregoing, for purposes of this Section 2.05, “reasonable action” shall not include any change in the structure of the transactions contemplated by the Certificate Documents, any material change in the servicing obligations of the Master Servicer or any requirement to obtain credit enhancement in respect of the Exchange Certificates.
 
SECTION 2.06.    Blackout Periods .   The Depositor shall have no obligation to cause the Registration Statement to become or to remain effective, and Farmer Mac agrees that it will not sell any Exchange Certificates, during any period or periods (which may not exceed 45 continuous days or 90 days in any calendar year) during which CFC has reasonably determined that it is not appropriate for Rural Utilities MBS Program Certificates to be sold pursuant to a Registration Statement ; provided that CFC shall not during any such period be selling for its own account any debt securities registered under the Act (each such period, a “ Blackout Period ”).
 
ARTICLE III
Miscellaneous
 
SECTION 3.01.    GOVERNING LAW .   THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE UNITED STATES OF AMERICA, TO THE EXTENT APPLICABLE.
 
SECTION 3.02.    WAIVER OF JURY TRIAL .   EACH PARTY HERETO HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY).  EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 3.02.
 
SECTION 3.03.    Notices .   All notices and other communications hereunder to be made to any party shall be in writing and shall be addressed as specified in Schedule I attached hereto as appropriate.  The address, telephone number or facsimile number for any party may be changed at any time and from time to time upon written notice given by such changing party to the other parties hereto.  A properly addressed notice or other communication shall be deemed to have been delivered at the time it is sent by facsimile (fax) transmission to the party or parties to which it is given.
 
SECTION 3.04.    Benefit of Agreement .   This Agreement shall become effective when it shall have been executed by Farmer Mac, the Depositor and CFC, and thereafter shall be binding upon and inure to the respective benefit of the parties and their permitted successors and assigns.
 
3

 
SECTION 3.05.    Amendments and Waivers .
 
(a)           No provision of this Agreement may be amended or modified except pursuant to an agreement in writing entered into by Farmer Mac, the Depositor and CFC.  No provision of this Agreement may be waived except in writing by the party or parties receiving the benefit of and under such provision.
 
(b)           No failure or delay of Farmer Mac, the Depositor or CFC in exercising any power or right hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such right or power, or any abandonment or discontinuance of steps to enforce such a right or power, preclude any other or further exercise thereof or the exercise of any other right or power.  No waiver of any provision of this Agreement or consent to any departure by Farmer Mac, the Depositor or CFC therefrom shall in any event be effective unless the same shall be authorized as provided in paragraph (a) of this Section 3.05, and then such waiver or consent shall be effective only in the specific instance and for the purpose for which given.  No notice or demand on Farmer Mac, the Depositor or CFC in any case shall entitle such party to any other or further notice or demand in similar or other circumstances.
 
SECTION 3.06.    Counterparts .   This Agreement may be executed in two or more counterparts, each of which shall be an original, but all of which together shall constitute one and the same instrument.
 
SECTION 3.07.    Severability .   If any term or provision of this Agreement or any Certificate Document or the application thereof to any circumstance shall in any jurisdiction and to any extent, be invalid or unenforceable, such term or such provision shall be ineffective as to such jurisdiction to the extent of such invalidity or enforceability without invalidating or rendering unenforceable any remaining terms or provisions of such Certificate Document or the application of such term or provision to circumstances other than those as to which it is held invalid or unenforceable.
 
4

 
IN WITNESS WHEREOF, the parties hereto have caused this Registration Rights Agreement to be duly executed, all as of the day and year first above written.
 
 
FEDERAL AGRICULTURAL
MORTGAGE CORPORATION
   
 
By
 
   
             
   
Name:
   
Title:
   
 
CFC ADVANTAGE, LLC
   
 
By
 
   
             
   
Name:
   
Title:
   
 
NATIONAL RURAL UTILITIES
COOPERATIVE FINANCE CORPORATION
   
 
By
 
   
             
   
Name:
   
Title:
 
[Signature Page to Series 2007-1 Registration Rights Agreement]
 

 
SCHEDULE I
 
Addresses for Notices
 
The addresses referred to in Section 3.03 hereof, for purposes of delivering communications and notices, are as follows:
 
If to Farmer Mac:
   
 
Federal Agricultural Mortgage Corporation
1133 21st Street, N.W., Suite 600
Washington, DC 20036
Fax: 202-872-7713
Attention of: Nancy E. Corsiglia, Chief Financial Officer
   
 
With a copy to:
   
 
Federal Agricultural Mortgage Corporation
1133 21st Street, N.W., Suite 600
Washington, DC 20036
Fax: 202-872-7713
Attention of:  Jerome G. Oslick, Vice President - General Counsel
   
If to CFC:
   
 
National Rural Utilities Cooperative Finance Corporation
2201 Cooperative Way
Herndon, VA 20171-3025
Telephone:  703-709-6718
Fax:  703-709-6819
Attention of:  Steven L. Lilly, Chief Financial Officer
   
 
With a copy to:
   
 
National Rural Utilities Cooperative Finance Corporation
2201 Cooperative Way
Herndon, VA 20171-3025
Telephone:  703-709-6712
Fax:  703-709-6811
Attention of: John J. List, Esq., General Counsel
   
If to Depositor:
   
 
CFC Advantage, LLC
2201 Cooperative Way
Herndon, VA 20171-3025
Telephone:  703-709-6712
Fax:  703-709-6811
Attention of: John J. List
 

 
EXHIBIT 10.24

EXECUTION VERSION

FEDERAL AGRICULTURAL
MORTGAGE CORPORATION

CFC ADVANTAGE, LLC

NATIONAL RURAL UTILITIES
COOPERATIVE FINANCE CORPORATION

REGISTRATION RIGHTS AGREEMENT SERIES 2007-2

Dated as of August 10, 2007
 

 
TABLE OF CONTENTS
 
ARTICLE I
 
 
DEFINITIONS
 
 
SECTION 1.01.Definitions
1
ARTICLE II
 
 
REGISTRA TION AND SALE
 
 
SECTION 2.0 l.Registration Request.
1
 
SECTION 2.02.Registration
1
 
SECTION 2.03.Expenses
2
 
SECTION 2.04.Conditions
2
 
SECTION 2.05.Rating
2
 
SECTION 2.06.Blackout Periods
3
ARTICLE III
 
 
MISCELLANEOUS
 
 
SECTION 3.0l.GOVERNING LAW
3
 
SECTION 3.02.WAIVER OF JURY TRIAL.
3
 
SECTION 3.03.Notices
3
 
SECTION 3.04.Benefit of Agreement.
3
 
SECTION 3.05.Amendments and Waivers
4
 
SECTION 3.06.Counterparts
4
 
SECTION 3.07.Severability
4
 

 
REGISTRATION RIGHTS AGREEMENT, dated as of August 10, 2007 between FEDERAL AGRICULTURAL MORTGAGE CORPORATION, a federally chartered instrumentality of the United States and an institution of the Farm Credit System (" Farmer Mac "), CFC ADVANTAGE, LLC, a limited liability company existing under the laws of the State of Delaware (the " Depositor "), and NATIONAL RURAL UTILITIES COOPERATIVE FINANCE CORPORATION, a cooperative association existing under the laws of the District of Columbia (" CFC ").

RECITALS

WHEREAS, the Depositor wishes to cause Series 2007-2 Rural Utilities Trust, a grantor trust (the " Issuer ") to deliver the Certificates, and Farmer Mac wishes to purchase such Certificates, all on the terms and subject to the conditions set forth in the Certificate Purchase Agreement dated as of the date hereof by and among Farmer Mac, the Depositor and CFC (the " Certificate Purchase Agreement "); and

WHEREAS, Farmer Mac wishes to have the right to resell the Series 2007-2 Tranche I Class A Certificates and Series 2007-2 Tranche II Class A Certificates (collectively, the " Certificates ") from time to time, including in a public offering registered under the Securities Act of 1933 (the " Act ");

NOW, THEREFORE, Farmer Mac, the Depositor and CFC agree as follows:

ARTICLE I Definitions

SECTION 1.01. Definitions . Capitalized terms used herein and not defined herein shall have the meanings given to those terms in the Certificate Purchase Agreement.

ARTICLE II
Registration and Sale

SECTION 2.01. Registration Request. Under the conditions described herein, Farmer Mac may request the Depositor (such request, a " Registration Request ") to effect the registration under the Act of the issuance of Exchange Certificates (as defined below) in an amount set forth in the Registration Request and to deliver such Exchange Certificates to Farmer Mac in exchange for an equal amount of the Certificates (the " Sale Certificates "), and the sale by Farmer Mac of the Exchange Certificates.

SECTION 2.02. Registration .

(a)           Upon receipt of a Registration Request, the Depositor shall be obligated to file a registration statement under the Act for the registration (the " Registration ") of such principal amount of Exchange Certificates (as defined below) as set forth in the Registration Request, registering the exchange by the Depositor with Farmer Mac of the Exchange Certificates for the Sale Certificates and the sale of the Exchange Certificates by Farmer Mac. The Depositor shall use its reasonable best efforts to cause such registration statement to become effective within 180 days of receipt of the Registration Request.
 

 
(b)           As used herein, " Exchange Certificates " shall mean the Certificates delivered by the Issuer under the Master Agreement and the Issue Supplement having terms identical to the Sale Certificates except that they will be without the transfer restrictions set forth in Section 3.03(c) of the Master Agreement (other than the transfer restrictions set forth in the last paragraph of Section 3.03 of the Master Agreement), will be payable to the registered holder, available in denominations of $1,000 and integral multiples thereof and, to the extent the Master Agreement and Issue Supplement are required to be qualified under the Trust Indenture Act, will contain any terms required in order for the Master Agreement as supplemented by the Issue Supplement to be so qualified.

(c)            Periods of Effectiveness . The Depositor agrees to keep the Registration Statement effective, and to update as necessary (including by incorporation by reference) any prospectus included in the Registration Statement, until the later of the completion of the distribution of the Exchange Certificates and 45 days after the Registration Statement has become effective. The 45-day period provided in the preceding sentence, and the 180-day period provided in Section 2.02(a), shall be suspended during any Blackout Period as defined in Section 2.06 hereof.

SECTION 2.03. Expenses . Farmer Mac shall be responsible for the following expenses in connection with the Registration: the SEC filing fee for the Registration Statement; the fees and expenses of its counsel, if any; the costs of having the Exchange Certificates rated; the underwriting commissions and discounts of its underwriters for the sale of the Exchange Certificates, if any; the reasonable fees and expenses of the Depositor's and CFC's counsel, if any; the reasonable fees and expenses of the Depositor's and CFC's auditors, if any; and the printing costs of the prospectus, if any.

SECTION 2.04. Conditions . The right of Farmer Mac to make a Registration Request shall be subject to the following conditions:

(a)           Farmer Mac can issue no more than one Registration Request with respect to the Certificates;

(b)           Farmer Mac shall provide all information (such as the plan of distribution) reasonably required by the Depositor to be included in the registration statement that relates to Farmer Mac's sale of the Exchange Certificates;

(c)           If the sale of the Exchange Certificates by Farmer Mac is proposed to be by underwriters, then the firm or firms acting as underwriters for the offering will be subject to reasonable approval by CFC; and

(d)           The Issuer is not required to be registered under the Investment Company Act of 1940, as amended (the " Investment Company Act ") as a result of the issuance of the Registration Request or the sale by Farmer Mac of Exchange Certificates pursuant to a Registration Statement.
 
2

 
SECTION 2.05. Rating . If, in connection with the Registration Request and the sale of the Exchange Certificates by Farmer Mac, Farmer Mac requests that some or all ofthe Exchange Certificates be rated by one or more rating agencies, then, to the extent, if any, that such rating by any rating agency is conditioned upon the furnishing of documents or information or the taking of reasonable actions by the Depositor or CFC, each shall furnish such documents or information and take such reasonable actions; provided , that, without limiting the generality of the foregoing, for purposes of this Section 2.05, "reasonable action" shall not include any change in the structure of the transactions contemplated by the Certificate Documents, any material change in the servicing obligations of the Master Servicer or any requirement to obtain credit enhancement in respect of the Exchange Certificates.

SECTION 2.06. Blackout Periods . The Depositor shall have no obligation to cause the Registration Statement to become or to remain effective, and Farmer Mac agrees that it will not sell any Exchange Certificates, during any period or periods (which may not exceed 45 continuous days or 90 days in any calendar year) during which CFC has reasonably determined that it is not appropriate for Rural Utilities MBS Program Certificates to be sold pursuant to a Registration Statement; provided that CFC shall not during any such period be selling for its own account any debt securities registered under the Act (each such period, a " Blackout Period ").

ARTICLE III
Miscellaneous

SECTION 3.01. GOVERNING LAW . THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE UNITED STATES OF AMERICA, TO THE EXTENT APPLICABLE.

SECTION 3.02. WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY W AlVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY). EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 3.02.

SECTION 3.03. Notices . All notices and other communications hereunder to be made to any party shall be in writing and shall be addressed as specified in Schedule I attached hereto as appropriate. The address, telephone number or facsimile number for any party may be changed at any time and from time to time upon written notice given by such changing party to the other parties hereto. A properly addressed notice or other communication shall be deemed to have been delivered at the time it is sent by facsimile (fax) transmission to the party or parties to which it is given.

SECTION 3.04. Benefit of Agreement. This Agreement shall become effective when it shall have been executed by Farmer Mac, the Depositor and CFC, and thereafter shall be binding upon and inure to the respective benefit of the parties and their permitted successors and assigns.
 
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SECTION 3.05. Amendments and Waivers .

(a)           No provision of this Agreement may be amended or modified except pursuant to an agreement in writing entered into by Farmer Mac, the Depositor and CFC. No provision of this Agreement may be waived except in writing by the party or parties receiving the benefit of and under such provision.

(b)           No failure or delay of Farmer Mac, the Depositor or CFC in exercising any power or right hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such right or power, or any abandonment or discontinuance of steps to enforce such a right or power, preclude any other or further exercise thereof or the exercise of any other right or power. No waiver of any provision of this Agreement or consent to any departure by Farmer Mac, the Depositor or CFC therefrom shall in any event be effective unless the same shall be authorized as provided in paragraph (a) of this Section 3.05, and then such waiver or consent shall be effective only in the specific instance and for the purpose for which given. No notice or demand on Farmer Mac, the Depositor or CFC in any case shall entitle such party to any other or further notice or demand in similar or other circumstances.

SECTION 3.06. Counterparts . This Agreement may be executed in two or more counterparts, each of which shall be an original, but all of which together shall constitute one and the same instrument.

SECTION 3.07. Severability . If any term or provision of this Agreement or any Certificate Document or the application thereof to any circumstance shall in any jurisdiction and to any extent, be invalid or unenforceable, such term or such provision shall be ineffective as to such jurisdiction to the extent of such invalidity or enforceability without invalidating or rendering unenforceable any remaining terms or provisions of such Certificate Document or the application of such term or provision to circumstances other than those as to which it is held invalid or unenforceable.
 
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IN WITNESS WHEREOF, the parties hereto have caused this Registration Rights Agreement to be duly executed, all as of the day and year first above written.

FEDERAL AGRICULTURAL MORTGAGE
CORPORATION
 
CFC ADVANTAGE,   LLC
 
NATIONAL RURAL UTILITIES COOPERATIVE
FINANCE CORPORATION

[Signature Page to Series 2007-2 Registration Rights Agreement]
 

 
SCHEDULE I

Addresses for Notices

The addresses referred to in Section 3.03 hereof, for purposes of delivering communications and notices, are as follows:

If to Farmer Mac:

Federal Agricultural Mortgage Corporation
1133 21st Street, N.W., Suite 600 Washington,
DC 20036
Fax: 202-872-7713
Attention of: Nancy E. Corsiglia, Chief Financial Officer
 
With a copy to:
 
Federal Agricultural Mortgage Corporation
1133 21st Street, N.W., Suite 600 Washington,
DC 20036
Fax: 202-872-7713
Attention of: Jerome G. Oslick, Vice President - General Counsel

Ifto CFC:

National Rural Utilities Cooperative Finance Corporation
2201 Cooperative Way
Herndon, VA 20171-3025
Telephone: 703-709-6718
Fax: 703-709-6819
Attention of: Steven L. Lilly, Chief Financial Officer
 
With a copy to:
 
National Rural Utilities Cooperative Finance Corporation
2201 Cooperative Way
Herndon, VA 20171-3025
Telephone: 703-709-6712
Fax: 703-709-6811
Attention of: John J. List, Esq., General Counsel
 

 
If to Depositor:

CFC Advantage, LLC
2201 Cooperative Way
Herndon, VA 20171-3025
Telephone: 703-709-6712
Fax: 703-709-6811
Attention of: John J. List
 

 

EXHIBIT 10.25
 

 
FARMER MAC MORTGAGE SECURITIES CORPORATION
as Note Purchaser

NATIONAL RURAL UTILITIES
COOPERATIVE FINANCE CORPORATION
as Borrower

FEDERAL AGRICULTURAL MORTGAGE CORPORATION
as Guarantor
 


NOTE PURCHASE AGREEMENT
 

 
Dated as of December 15, 2008
 


 
 

 

TABLE OF CONTENTS
 
 
Page
   
RECITALS
1
   
ARTICLE I DEFINITIONS
1
Definitions
1
Principles of Construction
5
   
ARTICLE II PURCHASE OF NOTES
5
Purchase of Notes; Minimum Denominations
5
Interest Rates and Payment
5
Maturity
7
   
ARTICLE III CONDITIONS PRECEDENT
7
Conditions Precedent to the Purchase of Each Note
7
Certificate of Pledged Collateral
8
   
ARTICLE IV REPORTING REQUIREMENTS
8
Annual Reporting Requirements
8
Default Notices
9
   
ARTICLE V REPRESENTATIONS OF THE PARTIES
9
Representations of Farmer Mac and the Purchaser
9
Representations of National Rural
9
   
ARTICLE VI SECURITY AND COLLATERAL
11
Security and Collateral
11
   
ARTICLE VII EVENTS OF DEFAULT
12
Events of Default
12
Acceleration
12
Remedies Not Exclusive
13
   
ARTICLE VIII MISCELLANEOUS
13
GOVERNING LAW
13
WAIVER OF JURY TRIAL
13
Notices
13
Benefit of Agreement
13
Entire Agreement
13
Amendments and Waivers
14
Counterparts
14
Termination of Agreement
14
Survival
14
Severability
14
   
ARTICLE IX GUARANTEE
15
Guarantee
15
Control by the Guarantor
16
 
 
 

 
  
Schedule I – Addresses for Notices
Schedule II – Form of Applicable Margin Notice
Schedule III – Form of Pricing Agreement

Annex A-1 – Form of Fixed Rate Note-5/1
Annex A-2 – Form of Fixed Rate Note 5Y
Annex A-3 – Form of Floating Rate Note
Annex B – Opinion of Counsel to National Rural
Annex C – Officers’ Certificate
Annex D – Form of Securities Purchase Agreement

 
 

 

NOTE PURCHASE AGREEMENT
 
NOTE PURCHASE AGREEMENT, dated as of December [15], 2008, among FARMER MAC MORTGAGE SECURITIES CORPORATION (the “ Purchaser ”), a wholly owned subsidiary of FEDERAL AGRICULTURAL MORTGAGE CORPORATION, a federally-chartered instrumentality of the United States and an institution of the Farm Credit System (“ Farmer Mac ” or the “ Guarantor ”); NATIONAL RURAL UTILITIES COOPERATIVE FINANCE CORPORATION, a cooperative association existing under the laws of the District of Columbia (“ National Rural ”); and Farmer Mac, as Guarantor.
 
RECITALS
 
WHEREAS National Rural wishes from time to time to issue and sell Notes to the Purchaser, and the Purchaser wishes from time to time to purchase such Notes from National Rural, all on the terms and subject to the conditions herein provided; and
 
WHEREAS Farmer Mac is an instrumentality of the United States formed to provide for a secondary marketing arrangement for agricultural real estate mortgages; National Rural is a non-profit cooperative and Farmer Mac, the Purchaser and National Rural have agreed that the Notes will be secured by the pledge of notes for borrowings from National Rural by members of National Rural, as provided herein.
 
NOW, THEREFORE, in consideration of the mutual agreements herein contained, Farmer Mac, the Purchaser and National Rural agree as follows:
 
DEFINITIONS
 
Definitions .  As used in this Agreement, the following terms shall have the following meanings:
 
 “ Agreement ” means this Note Purchase Agreement, as the same may be amended from time to time.
 
Applicable Margin ” means the Applicable Margin (LIBOR) or the Applicable Margin (Treasury), as the context may require.
 
Applicable Margin (LIBOR) ” means the margin to be added to the LIBOR Rate to determine the rate of interest payable on the Floating Rate Notes from time to time.  The Applicable Margin (LIBOR) shall be communicated in writing by Farmer Mac to National Rural in accordance with Section 2.02(d) hereof and calculated by Farmer Mac as follows: (i) Farmer Mac’s Cost of Funds (expressed in relation to the LIBOR Rate), plus 0.75%, minus (ii) the LIBOR Rate.  The Applicable Margin (LIBOR) for any Floating Rate Note shall be set forth in the applicable Pricing Agreement.

 
 

 

Applicable Margin (Treasury) ” means the margin to be added to the Treasury Rate to determine the rate of interest payable on the Fixed Rate Notes.  The Applicable Margin (Treasury) shall be communicated in writing by Farmer Mac to National Rural in accordance with Section 2.02(d) hereof and calculated by Farmer Mac as follows: (i) Farmer Mac’s Cost of Funds (expressed in relation to the Treasury Rate), plus 0.75%, minus (ii) the Treasury Rate.  The Applicable Margin (Treasury) for any Fixed Rate Note shall be set forth in the applicable Pricing Agreement.
 
Business Day ” means any day other than a Saturday, a Sunday, or a day on which any of the Federal Reserve Bank of New York, Farmer Mac’s office in Washington, DC or National Rural’s office in Virginia is not open for business.
 
Certificate of Pledged Collateral ” has the meaning given to that term in the Pledge Agreement.
 
Closing Date ” means the date of the closing of each issuance of Notes hereunder.
 
Collateral Agent ” means U.S. Bank Trust National Association, or its successor, as collateral agent under the Pledge Agreement.
 
Control Party ” means (i) the Guarantor, so long as no Guarantor Default has occurred and is continuing, or (ii) the holders of the Notes for so long as a Guarantor Default has occurred and is continuing.
 
Dollar ” or “ $ ” means the lawful money of the United States of America.
 
Eligible Member ” has the meaning given to that term in the Pledge Agreement.
 
Event of Default ” has the meaning given to that term in Section 7.01.
 
Farmer Mac’s Cost of Funds ” means the cost of funds quoted by Farmer Mac to National Rural based on Farmer Mac’s estimate of the economic cost to obtain cash funds from the wholesale funding market by issuing unsecured medium – term notes to fully fund to maturity the Note or Notes purchased by Farmer Mac from National Rural.
 
Farmer Mac Series C Preferred Stock ” means the Non-Voting Cumulative Preferred Stock Series C, of Farmer Mac.
 
Financial Statements ”, in respect of a Fiscal Year, means the consolidated financial statements (including footnotes) of National Rural for that Fiscal Year as audited by independent certified public accountants selected by National Rural.
 
Fiscal Year ” means the fiscal year of National Rural, as such may be changed from time to time, which at the date hereof commences on June 1 of each calendar year and ends on May 31 of the following calendar year.
 
Fixed Rate Notes ” means the Fixed Rate Notes-5/1 and the Fixed Rate Notes-5Y.

 
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Fixed Rate Notes-5/1 ” means one or more five-year fixed rate notes, callable after one year, of National Rural payable to the Purchaser, having the terms provided for in Article II of this Agreement and otherwise in the form of Annex A-1 attached hereto, except to the extent Farmer Mac and National Rural may have approved changes therein.
 
Fixed Rate Notes- 5Y ” means one or more five-year noncallable fixed rate notes of National Rural payable to the Purchaser, having the terms provided for in Article II of this Agreement and otherwise in the form of Annex A-2 attached hereto, except to the extent Farmer Mac and National Rural may have approved changes therein.
 
Floating Rate Notes ” means one or more two-year noncallable floating rate notes of National Rural payable to the Purchaser, having the terms provided for in Article II of this Agreement and otherwise in the form of Annex A-3 attached hereto, except to the extent Farmer Mac and National Rural may have approved changes therein.
 
Guarantor Default ” means a default by the Guarantor under its obligations pursuant to Article IX which is existing and continuing.
 
Interest Payment Date ” means an Interest Payment Date (Fixed Rate Note) or an Interest Payment Date (Floating Rate Note), as the context may require.
 
Interest Payment Date (Fixed Rate Note) ” means the dates set forth in the Pricing Agreement for fixed rate notes as the interest payment dates therefor; provided, however, that if any such date is not a Business Day, such Interest Payment Date that would otherwise be such date will be the next Business Day following such date.  The Interest Payment Dates (Fixed Rate Note) will be set forth in the applicable Pricing Agreement.
 
Interest Payment Date (Floating Rate Note) ” means the first (1 st ) day of each January, April, July and October, unless other dates are agreed by the parties hereto provided, however, that if any such date is not a Business Day, such Interest Payment Date that would otherwise be such date will be the next Business Day following such date.  The Interest Payment Dates (Floating Rate Note) will be set forth in the applicable Pricing Agreement.
 
Interest Period (Floating Rate Note)   means, until all outstanding principal amount of the Floating Rate Notes and interest accrued thereon have been paid in full, each 3-month period comprising a calendar quarter from and including the first day of a calendar quarter (i.e., January 1 st , April 1 st , July 1 st and October 1 st ) (unless another period is agreed by the parties hereto and set forth in the applicable Pricing Agreement) to and including the last day of the same calendar quarter (i.e., March 31 st , June 30 th , September 30 th and December 31 st ) (unless otherwise agreed by the parties hereto and set forth in a Pricing Agreement); provided , that the initial Interest Period (Floating Rate Note) means the period from and including the date of issuance to and excluding the first Interest Payment Date (Floating Rate Note) following the date of issuance; provided, further , that if any Interest Period (Floating Rate Note) would end on a day other than a Business Day, then such Interest Period shall be extended to and include the next succeeding Business Day and the next Interest Period shall commence on the next succeeding day.

 
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LIBOR Rate ” shall mean, for any Interest Period, the rate appearing on Reuters Page LIBOR01 (or on any successor or substitute page of such service, or if the Reuters service ceases to be available, any successor to or substitute for such service providing rate quotations comparable to those currently provided on such page of such service, as mutually agreed by National Rural and Farmer Mac from time to time for purposes of providing quotations of interest rates applicable to Dollar deposits in the London interbank market) as of 11:00 a.m., London time, on the day that is two London Banking Days prior to the commencement of such Interest Period (Floating Rate Note), as the rate for the offering of Dollar deposits with a maturity of three months.  Such rate shall apply for the initial Interest Period (Floating Rate Note) for any advance notwithstanding that such initial Interest Period (Floating Rate Note) for an advance may be shorter than three months.
 
London Banking Day ” shall mean any day on which commercial banks and foreign exchange markets settle payments and are open for general business (including dealings in foreign exchange and foreign currency deposits) in the Dollar, in London, England.
 
Member ” shall mean any Person who is member of National Rural.
 
National Rural Notice ” has the meaning given to that term in the Pledge Agreement.
 
Notes ” means the Fixed Rate Notes-5/1, the Fixed Rate Notes-5Y and the Floating Rate Notes, or any one or more of them as the context may require.
 
Note Documents ” means the Notes, this Agreement, and the Pledge Agreement.
 
Notice of Borrowing ” has the meaning set forth in Section 2.01 hereof.
 
Person ” means an individual, a corporation, a partnership, an association, a trust or any other entity or organization, including a government or political subdivision or an agency or instrumentality thereof.
 
Pledge Agreement ” means the Pledge Agreement dated as of the date hereof, among National Rural, the Purchaser, Farmer Mac and the Collateral Agent.
 
Pledged Collateral ” has the meaning given to that term in the Pledge Agreement.
 
Pledged Securities ” has the meaning given to that term in the Pledge Agreement.
 
Pricing Agreement ” means the Pricing Agreement for each issuance of Notes among Farmer Mac, the Purchaser and National Rural in the form of Schedule III attached hereto.
 
Securities Purchase Agreement ” means the Series C Preferred Stock Purchase Agreement, a form of which is attached hereto as Annex D .
 
Treasury Rate ” means the applicable 5-year benchmark United States Treasury rate at the time of pricing a Note, unless otherwise agreed to by the parties and set forth in the applicable Pricing Agreement.

 
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Principles of Construction .  Unless the context shall otherwise indicate, the terms defined in Section 1.01 hereof include the plural as well as the singular and the singular as well as the plural.  The words “hereafter”, “herein”, “hereof”, “hereto” and “hereunder”, and words of similar import, refer to this Agreement as a whole.  The descriptive headings of the various articles and sections of this Agreement were formulated and inserted for convenience only and shall not be deemed to affect the meaning or construction of the provisions hereof.
 
PURCHASE OF NOTES

Purchase of Notes; Minimum Denominations .  The Purchaser agrees to purchase Notes, at 100% of their principal amount, from time to time, on or before December 31, 2010, as requested by National Rural by written notice (each, a “ Notice of Borrowing ”) to Farmer Mac in an aggregate principal amount, for all Notes purchased hereunder, not in excess of $500 million, subject to satisfaction of the conditions set forth herein.   Each advance under this Agreement shall be disbursed in a minimum amount of $50 million and additional increments of $25 million in excess thereof.  Each advance shall price within 3 Business Days of National Rural providing a Notice of Borrowing to Farmer Mac and shall close and fund within 3 Business Days of pricing, subject to satisfaction of the conditions set forth herein and in accordance with the procedures set forth in Section 2.02(d) hereof.
 
Interest Rates and Payment .
 
Floating Rate Notes .  Each Floating Rate Note shall bear interest, payable quarterly in arrears unless otherwise agreed by the parties hereto and set forth in the applicable Pricing Agreement, on the outstanding principal amount thereof (computed on the basis of a 360-day year and the actual number of days elapsed) from its date of issuance until final payment on the maturity date thereof or otherwise at a variable rate per annum equal to the LIBOR Rate for each Interest Period (Floating Rate Note) plus the Applicable Margin (LIBOR).  The LIBOR Rate shall reset as of the first day of each Interest Period.  The (i) initial LIBOR Rate and (ii) Applicable Margin (LIBOR) for the term of each Floating Rate Note shall be specified in the applicable Pricing Agreement.  Interest only shall be payable on each Interest Payment Date (Floating Rate Note).  The Interest Payment Dates (Floating Rate Note) shall be determined at the time of an advance and set forth in the applicable Pricing Agreement.  The principal amount of each Floating Rate Note, together with any accrued but unpaid interest, shall be due and payable on the maturity date.
 
Fixed Rate Notes .  Each Fixed Rate Note-5/1 and Fixed Rate Note-5Y shall bear interest, payable semi-annually in arrears unless otherwise agreed by the parties hereto and set forth in the applicable Pricing Agreement on the outstanding principal amount thereof (computed on the basis of a 30-day month and a 360-day year) from its date of issuance until final payment on the maturity date thereof or otherwise at a fixed rate per annum equal to the Treasury Rate plus the Applicable Margin (Treasury), in each case as specified for the term of each Fixed Rate Note in the applicable Pricing Agreement.    Interest only shall be payable on each Interest Payment Date (Fixed Rate Note).  The Interest Payment Dates (Fixed Rate Note) shall be determined at the time of an advance and set forth in the applicable Pricing Agreement.  The principal amount of each Fixed Rate Note-5/1 and Fixed Rate Note-5Y, together with any accrued but unpaid interest, shall be due and payable on the applicable maturity date.

 
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Default Interest .  To the extent any payment of interest or principal is not paid when due, interest shall continue to accrue thereon at the applicable rate per annum determined as provided above plus one percent.
 
Notice of Borrowing; Determination of Applicable Margin; Procedure for Pricing .  (i)  Each Notice of Borrowing shall indicate the amount of Notes requested to be advanced and the type of Note that National Rural wishes to advance.  A Notice of Borrowing may request preliminary pricing indications for more than one type of Note, with the understanding that only one type of Note will be issued on any particular Closing Date, unless otherwise agreed by the parties hereto in a Pricing Agreement.  Each Notice of Borrowing shall also provide name, telephone and email contact information of an authorized representative of National Rural.
 
Upon receipt of a Notice of Borrowing from National Rural, Farmer Mac shall, within 2 Business Days, provide to National Rural a preliminary indication of the Applicable Margin (LIBOR) or Applicable Margin (Treasury), or both, as applicable to any Notice of Borrowing.  Upon an acceptance of such preliminary indication of pricing by National Rural, the applicable Note will price within one Business Day (and may price on the day of the preliminary pricing if the parties so agree) thereafter.  Farmer Mac shall provide National Rural with written notice of the final Applicable Margin (LIBOR) or Applicable Margin (Treasury) no later than the time of pricing of each advance.  National Rural shall be deemed to approve of such pricing so long as the Applicable Margin (LIBOR) or Applicable Margin (Treasury) shall not exceed the preliminary indication by more than 5 basis points (0.05%).  If the final pricing does exceed the preliminary indication by more than 5 basis points (0.05%), an authorized representative of National Rural must agree via email confirmation prior to or simultaneously with the pricing to accept such margin.
 
Payments and Prepayments.
 
Each Floating Rate Note and Fixed Rate Note-5Y shall not be prepayable during the term of such Note.
 
National Rural shall have the right, at its option, at any time and from time to time, to repay or prepay the principal amount of any Fixed Rate Note-5/1, in whole or in part, on or after the first (1 st ) anniversary of the applicable Closing Date on the scheduled call dates set forth in the applicable Pricing Agreement, upon at least nine (9) days prior written notice to Farmer Mac.  In the event that any such repayment or prepayment of the principal amount of any Note is made on a day other than an Interest Payment Date (Fixed Rate Note), accrued interest on the principal amount thereof shall be payable through and excluding the call date on which such repayment or prepayment is made.

 
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Payment Notice .  Farmer Mac shall send to National Rural, not later than the fifth Business Day prior to an Interest Payment Date for any Note, a notice setting forth the amount of principal and interest, as applicable, due and owing on the next Interest Payment Date for such Note.
 
SECTION 1.03.              Maturity .
 
Floating Rate Notes .  The Floating Rate Notes will mature the earlier of: (i) two years from the applicable Closing Date and (ii) December 31, 2012.
 
Fixed Rate Notes-5/1 .  The Fixed Rate Notes-5/1 will mature the earlier of: (i) five years from the applicable Closing Date and (ii) December 31, 2015.
 
Fixed Rate Notes-5Y .  The Fixed Rate Notes-5Y will mature the earlier of: (i) five years from the applicable Closing Date and (ii) December 31, 2015.
 
CONDITIONS PRECEDENT
 
Conditions Precedent to the Purchase of Each Note .  On each Closing Date, the Purchaser shall be under no obligation to purchase any Note unless and until the following conditions have been satisfied:
 
The Notes .  Farmer Mac shall have received the original of such Notes, duly executed on behalf of National Rural, in the applicable form attached as Annex A-1, A-2 or A-3 hereto.
 
The Pledge Agreement .  Farmer Mac shall have received an original of the Pledge Agreement duly executed on behalf of National Rural and the Collateral Agent.
 
Opinion of Counsel .  Farmer Mac shall have received an opinion of counsel to National Rural substantially in the form of Annex B, attached hereto.
 
Financial and Other Information .  National Rural shall have provided Farmer Mac with its most recent Financial Statements and such other information concerning National Rural as Farmer Mac shall have reasonably requested.
 
No Material Adverse Change .  National Rural shall have certified to Farmer Mac (in the manner specified in paragraph (i) of this Section 3.01), and Farmer Mac shall be satisfied, that no material adverse change shall have occurred in the financial condition or business of National Rural between the end of National Rural’s most recently completed Fiscal Year for which Financial Statements have been made publicly available and the date of the purchase of such Note, which has not been set forth in documents, certificates or financial information furnished to Farmer Mac or publicly filed.

 
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UCC Filing .  National Rural shall have provided Farmer Mac with evidence that National Rural has filed the financing statement required pursuant to Section 2.02(i) of the Pledge Agreement.
 
No Event of Default .  National Rural shall have certified to Farmer Mac and Farmer Mac shall be satisfied that no Event of Default shall have occurred and be continuing.
 
Invest to Participate .  National Rural shall have entered into a Securities Purchase Agreement to purchase Farmer Mac Series C Preferred Stock such that National Rural shall own or have agreed to purchase at least 4% of the aggregate principal amount of the Notes outstanding hereunder, taking into account the advance made on the Closing Date.
 
Certification of Senior Management .  National Rural shall have provided Farmer Mac a certification by any vice president of National Rural, substantially in the form of Annex C attached hereto, as to the following: (i) that National Rural is a lending institution organized as a private, not-for-profit, cooperative association with the appropriate expertise, experience and qualifications to make loans to its Members for rural electrification and related purposes; (ii) the matters to be certified under paragraphs (e) and (g) of this Section 3.01; and (iii) the representations and warranties of National Rural.
 
Certificate of Pledged Collateral .  No later than three Business Days after each advance hereunder, National Rural shall provide Farmer Mac a copy of a Certificate of Pledged Collateral, dated as of the last day of the calendar month most recently ended at least 10 Business Days prior to such authentication and delivery, in accordance with the terms of the Pledge Agreement.
 
REPORTING REQUIREMENTS
 
Annual Reporting Requirements .  So long as any Notes remain outstanding, National Rural shall provide Farmer Mac with the following items within 90 days of the end of each Fiscal Year, in each case, in form and substance satisfactory to Farmer Mac:
 
the Financial Statements for such Fiscal Year;
 
a Certificate of Pledged Collateral;
 
a receipt from the Collateral Agent, or such other evidence as is satisfactory to Farmer Mac, as to the Pledged Collateral held by the Collateral Agent at the end of such Fiscal Year; and

 
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such other information concerning National Rural as is reasonably requested by Farmer Mac.
 
Default Notices .  If an action, occurrence or event shall happen that is, or with notice and the passage of time would become, an Event of Default, National Rural shall deliver a National Rural Notice of such action, occurrence or event to Farmer Mac before 4:00 p.m. (District of Columbia time) on the Business Day following the date National Rural becomes aware of such action, occurrence or event, and, if such Event of Default should occur, shall submit to Farmer Mac, within five days thereafter, a report setting forth its views as to the reasons for the Event of Default, the anticipated duration of the Event of Default and what corrective actions National Rural is taking to cure such Event of Default.
 
REPRESENTATIONS OF THE PARTIES
 
Representations of Farmer Mac and the Purchaser .  Each of Farmer Mac and the Purchaser jointly and severally represent to National Rural that on the date hereof and on each date on which the Purchaser purchases a Note from National Rural:
 
it has all necessary authority and has taken all necessary corporate action, and obtained all necessary approvals, in order for it to execute and deliver all Note Documents to which it is a party and for its obligations and agreements under the Note Documents to constitute valid and binding obligations of Farmer Mac and the Purchaser; and in particular the terms of the transaction, and the actions taken by Farmer Mac and the Purchaser, are in compliance with and in satisfaction of the requirements of the Farm Credit Administration, as amended or waived by the Farm Credit Administration; and
 
The Purchaser is purchasing the Notes for its own account and not with a view to the distribution thereof, provided that the disposition by Farmer Mac or the Purchaser of their property shall at all times be within their control.  Farmer Mac and the Purchaser each understands that the Notes have not been registered under the Act and may be resold only if an exemption from registration is available.
 
Representations of National Rural ..  National Rural hereby represents to Farmer Mac and the Purchaser that on the date hereof and on each date on which the Purchaser purchases a Note from National Rural:
 
National Rural has been duly organized and is validly existing and in good standing as a cooperative association under the laws of the District of Columbia;
 
National Rural has the corporate power and authority to execute and deliver this Agreement, each of the other Note Documents and the applicable Pricing Agreement and Securities Purchase Agreement, if any, to consummate the transactions contemplated hereby and thereby and to perform its obligations hereunder and thereunder;

 
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National Rural has taken all necessary corporate and other action to authorize the execution and delivery of this Agreement, each of the other Note Documents and the applicable Pricing Agreement and Securities Purchase Agreement, if any, the consummation by National Rural of the transactions contemplated hereby and thereby and the performance by National Rural of its obligations hereunder and thereunder;
 
this Agreement, each of the other Note Documents and the applicable Pricing Agreement and Securities Purchase Agreement, if any, have been duly authorized, executed and delivered by National Rural and constitute the legal, valid and binding obligations of National Rural, enforceable against National Rural in accordance with their respective terms, subject to: (i) applicable bankruptcy, reorganization, insolvency, moratorium and other laws of general applicability relating to or affecting creditors’ rights generally; and (ii) the application of general principles of equity regardless of whether such enforceability is considered in a proceeding in equity or at law;
 
no approval, consent, authorization, order, waiver, exemption, variance, registration, filing, notification, qualification, license, permit or other action is now, or under existing law in the future will be, required to be obtained, given, made or taken, as the case may be, with, from or by any regulatory body, administrative agency or governmental authority having jurisdiction over National Rural or any third party under any agreement to which National Rural is a party to authorize the execution and delivery by National Rural of this Agreement, any of the other Note Documents or the applicable Pricing Agreement and Securities Purchase Agreement, if any, or the consummation by National Rural of the transactions contemplated hereby or thereby or the performance by National Rural of its obligations hereunder or thereunder;
 
neither the execution or delivery by National Rural of this Agreement, any of the other Note Documents or the applicable Pricing Agreement and Securities Purchase Agreement, if any, nor the consummation by National Rural of any of the transactions contemplated hereby or thereby nor the performance by National Rural of its obligations hereunder or thereunder, including, without limitation, the pledge of the Pledged Securities (as such term is defined in the Pledge Agreement) to Farmer Mac, conflicts with or will conflict with, violates or will violate, results in or will result in a breach of, constitutes or will constitute a default under, or results in or will result in the imposition of any lien or encumbrance pursuant to any term or provision of the articles of incorporation or the bylaws of National Rural or any provision of any existing law or any rule or regulation currently applicable to National Rural or any judgment, order or decree of any court or any regulatory body, administrative agency or governmental authority having jurisdiction over National Rural or the terms of any mortgage, indenture, contract or other agreement to which National Rural is a party or by which National Rural or any of its properties is bound;

 
10

 

there is no action, suit, proceeding or investigation before or by any court or any regulatory body, administrative agency or governmental authority presently pending or, to the knowledge of National Rural, threatened with respect to National Rural, this Agreement, any of the other Note Documents or the applicable Pricing Agreement and Securities Purchase Agreement, if any, challenging the validity or enforceability of this Agreement, any of the other Note Documents or the applicable Pricing Agreement and Securities Purchase Agreement, if any, or seeking to restrain, enjoin or otherwise prevent National Rural from engaging in its business as currently conducted or the consummation by National Rural of the transactions contemplated by this Agreement, any of the other Note Documents or the applicable Pricing Agreement and Securities Purchase Agreement, if any, or which, if adversely determined, would have a material adverse effect on National Rural’s financial condition or its ability to perform its obligations under this Agreement, any of the other Note Documents or the applicable Pricing Agreement and Securities Purchase Agreement, if any;
 
National Rural is a lending institution organized as a private, not-for-profit, cooperative association with the appropriate expertise, experience and qualifications to make loans to its Members for rural electrification purposes; and
 
no material adverse change has occurred in the financial condition or business of National Rural between the end of National Rural’s most recently completed Fiscal Year for which Financial Statements have been made publicly available and the date this representation is given which has not been set forth in documents, certificates or financial information furnished to Farmer Mac or publicly filed.
 
SECURITY AND COLLATERAL
 
Security and Collateral .
 
National Rural shall cause the Allowable Amount of the Pledged Collateral (as such terms are defined in the Pledge Agreement) to be at all times not less than 100% of the aggregate outstanding principal amount of the Notes.
 
National Rural shall not create, or permit to exist, any pledge, lien, charge, mortgage, encumbrance, debenture, hypothecation or other similar security instrument that secures, or in any way attaches to, such Pledged Collateral, other than the lien of the Pledge Agreement, without the prior written consent of Farmer Mac.

 
11

 

The Pledged Securities will at all times be notes issued to National Rural by Eligible Members (as defined in the Pledge Agreement).
 
EVENTS OF DEFAULT
 
Events of Default .  Each of the following actions, occurrences or events shall, but only (except in the case of subsections (a), (d) and (e) below) if National Rural does not cure such action, occurrence or event within 30 days of notice from Farmer Mac requesting that it be cured, constitute an “ Event of Default ” under the terms of this Agreement:
 
a failure by National Rural to make a payment of principal or interest on any Note for more than ten days after the same becomes due and payable;
 
a material representation by National Rural to Farmer Mac in connection with this Agreement, any Note or the Pledge Agreement, or any material information reported pursuant to Article V, shall prove to be incorrect or untrue in any material respect when made or deemed made;
 
a failure by National Rural to comply with any other material covenant or provision contained in this Agreement or any of the other Note Documents;
 
the entry of a decree or order by a court having jurisdiction in the premises adjudging National Rural a bankrupt or insolvent, or approving as properly filed a petition seeking reorganization, arrangement, adjustment or composition of or in respect of National Rural under the Federal Bankruptcy Act or any other applicable Federal or State law or law of the District of Columbia, or appointing a receiver, liquidator, assignee, trustee, sequestrator (or other similar official) of National Rural 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; or
 
the commencement by National Rural 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 petition or answer or consent seeking reorganization or relief under the Federal Bankruptcy Act 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 receiver, liquidator, assignee, trustee, sequestrator (or similar official) of National Rural 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 National Rural in furtherance of any such action.
 
Acceleration .  Upon the occurrence, and during the continuance, of an Event of Default, Farmer Mac may, upon notice to that effect to National Rural, declare the entire principal amount of, and accrued interest on, the Notes at the time outstanding to be immediately due and payable.

 
12

 

Remedies Not Exclusive .  Upon the occurrence, and during the continuance, of an Event of Default, Farmer Mac shall be entitled to take such other action as is provided for by law, in this Agreement, or in any of the other Note Documents, including injunctive or other equitable relief.
 
MISCELLANEOUS
 
GOVERNING LAW .  EXCEPT AS SET FORTH IN SECTION 9.01 HEREOF, THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, FEDERAL LAW.  TO THE EXTENT FEDERAL LAW INCORPORATES STATE LAW, THAT STATE LAW SHALL BE THE LAWS OF THE DISTRICT OF COLUMBIA APPLICABLE TO CONTRACTS MADE AND PERFORMED THEREIN.
 
WAIVER OF JURY TRIAL .  EACH PARTY HERETO HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY).  EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 8.02.
 
Notices .  All notices and other communications hereunder to be made to any party shall be in writing and shall be addressed as specified in Schedule I attached hereto as appropriate except as otherwise provided herein.  The address, telephone number, or facsimile number for any party may be changed at any time and from time to time upon written notice given by such changing party to the other parties hereto.  A properly addressed notice or other communication shall be deemed to have been delivered at the time it is sent by facsimile (fax) transmission to the party or parties to which it is given.
 
Benefit of Agreement .  This Agreement shall become effective when it shall have been executed by Farmer Mac, the Purchaser and National Rural, and thereafter shall be binding upon and inure to the respective benefit of the parties and their permitted successors and assigns.
 
Entire Agreement .  This Agreement, including the Schedules and Annexes hereto, and the other Note Documents, constitute the entire agreement between the parties hereto concerning the matters contained herein and supersede all prior oral and written agreements and understandings between the parties.

 
13

 

Amendments and Waivers .
 
No provision of this Agreement may be amended or modified except pursuant to an agreement in writing entered into by Farmer Mac, the Purchaser and National Rural.  No provision of this Agreement may be waived except in writing by the party or parties receiving the benefit of and under such provision.
 
No failure or delay of Farmer Mac, the Purchaser or National Rural in exercising any power or right hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such right or power, or any abandonment or discontinuance of steps to enforce such a right or power, preclude any other or further exercise thereof or the exercise of any other right or power.  No waiver of any provision of this Agreement or consent to any departure by National Rural therefrom shall in any event be effective unless the same shall be authorized as provided in paragraph (a) of this Section 8.06, and then such waiver or consent shall be effective only in the specific instance and for the purpose for which given.  No notice or demand on National Rural in any case shall entitle National Rural to any other or further notice or demand in similar or other circumstances.
 
Counterparts .  This Agreement may be executed in two or more counterparts, each of which shall be an original, but all of which together shall constitute one and the same instrument.
 
Termination of Agreement .  This Agreement shall terminate upon the indefeasible payment in full of all amounts payable hereunder and under the Notes.
 
Survival .  The representations and warranties of each of the parties hereto contained in this Agreement and contained in each of the other Note Documents, and the parties’ obligations under any and all thereof, shall survive and shall continue in effect following the execution and delivery of this Agreement, any disposition of the Notes and the expiration or other termination of any of the other Note Documents, but, in the case of each Note Document, shall not survive the expiration or the earlier termination of such Note Document, except to the extent expressly set forth in such Note Document.
 
Severability .  If any term or provision of this Agreement or any Note Document or the application thereof to any circumstance shall, in any jurisdiction and to any extent, be invalid or unenforceable, such term or such provision shall be ineffective as to such jurisdiction to the extent of such invalidity or unenforceability without invalidating or rendering unenforceable any remaining terms or provisions of such Note Document or the application of such term or provision to circumstances other than those as to which it is held invalid or unenforceable.

 
14

 

GUARANTEE
 
Guarantee .
 
The Guarantor agrees to pay in full to the holder of each Note, the principal of, and interest on, the Notes when due, whether at maturity, upon redemption or otherwise (the “ Guaranteed Obligations ”), on the applicable due date for such payment.
 
The Guarantor’s obligations hereunder shall inure to the benefit of and shall be enforceable by any holder of a Note if, for reason beyond the control of such holder, such holder shall have failed to receive the interest or principal, as applicable, payable to such holder any payment date, redemption date or stated maturity date.  The Guarantor hereby irrevocably agrees that its obligations hereunder shall be unconditional, irrespective of the validity, legality or enforceability of, or any change in or amendment to, this Agreement, the Pledge Agreement or any Note, the absence of any action to enforce the same, the waiver or consent by the holder of any Note or by the Collateral Agent with respect to any provisions of this Agreement or the Pledge Agreement, or any action to enforce the same or any other circumstance that might otherwise constitute a legal or equitable discharge or defense of a guarantor.  The Guarantor hereby waives diligence, presentment, demand of payment, protest or notice with respect to each Note or the interest represented thereby, and all demands whatsoever, and covenants that the guarantee will not be discharged except upon complete irrevocable payment of the principal and interest obligations represented by the Notes.
 
The Guarantor shall be subrogated to and is hereby assigned all rights of the holder of the Notes against National Rural and the proceeds of the Pledged Collateral, all in respect of any amounts paid by the Guarantor pursuant to the provisions of the guarantee contained in this Article IX.  Each holder shall execute and deliver to the Guarantor in each holder’s name such instruments and documents as the Guarantor may reasonably request in writing confirming or evidencing such subrogation and assignment.
 
No reference herein shall alter or impair the guarantee, which is absolute and unconditional, of the due and punctual payment of principal of, and interest on, the Notes, on the dates such payments are due.
 
The guarantee is not an obligation of, and is not a guarantee as to principal or interest by the Farm Credit Administration, the United States or any other agency or instrumentality of the United States (other than the Guarantor).
 
The guarantee shall be governed by, and construed in accordance with, Federal law.  To the extent Federal law incorporates state law, that state law shall be the laws of the District of Columbia applicable to contracts made and performed therein.

 
15

 

Control by the Guarantor .  If the Guarantor is the Control Party, the Guarantor shall be considered the holder of all Notes outstanding for all purposes under the Pledge Agreement and shall be permitted to take any and all actions permitted to be taken by the holder thereunder.  The Control Party will have the sole right to direct the time, method and place of conducting any proceeding for any remedy available to the Collateral Agent or any holder with respect to the Notes or exercising any power conferred on the Collateral Agent with respect to the Notes provided that:
 
such direction shall not be in conflict with any rule of law or with the Pledge Agreement;
 
the Collateral Agent shall have been provided with indemnity from the Control Party reasonably satisfactory to it; and
 
the Collateral Agent may take any other action deemed proper by such Collateral Agent that is not inconsistent with such direction, provided, however, that the Collateral Agent need not take any action which it determines might expose it to liability.
 
[SIGNATURE PAGE FOLLOWS]

 
16

 

IN WITNESS WHEREOF, each party hereto has caused this Agreement to be executed by an authorized officer as of the day and year first above written.
 
 
FARMER MAC MORTGAGE SECURITIES
 
CORPORATION,
     
 
By:
   
 
Title:
 

 
FEDERAL AGRICULTURAL
 
MORTGAGE CORPORATION,
     
 
By:
   
 
Title:
 

 
NATIONAL RURAL UTILITIES
 
COOPERATIVE FINANCE CORPORATION,
     
 
By:
   
 
Title:
 
 
 
 

 

SCHEDULE I
TO
NOTE PURCHASE AGREEMENT
 
Addresses for Notices
 
1.
The addresses referred to in Section 8.03 hereof, for purposes of delivering communications and notices, are as follows:
 
If to the Purchaser or Farmer Mac:
 
Federal Agricultural Mortgage Corporation
1133 21st Street, N.W., Suite 600
Washington, DC 20036
Fax:  202-872-7713
Attention of: Timothy L. Buzby, Vice President and Controller
 
With a copy to:
Federal Agricultural Mortgage Corporation
1133 21st Street, N.W., Suite 600
Washington, DC 20036
Fax:  202-872-7713
Attention of: Robert Owens/Jitin Singhal, Capital Markets Group
 
With a copy also to:
Federal Agricultural Mortgage Corporation
1133 21st Street, N.W., Suite 600
Washington, DC 20036
Fax:  202-872-7713
Attention of: Jerome G. Oslick, Vice President - General Counsel
 
If to National Rural:
 
National Rural Utilities Cooperative Finance Corporation
2201 Cooperative Way
Herndon, VA 20171-3025
Telephone:  703-709-6718
Fax:  703-709-6779
Attention of: Steven L. Lilly, Senior Vice President &
Chief Financial Officer
With a copy to:
 
National Rural Utilities Cooperative Finance Corporation
2201 Cooperative Way
Herndon, VA 20171-3025
Telephone:  703-709-6748
Fax:  703-709-6779
Attention of: John Suter, Vice President, Capital Market Funding

 
 

 

With a copy also to:
 
National Rural Utilities Cooperative Finance Corporation
2201 Cooperative Way
Herndon, VA 20171-3025
Telephone:  703-709-6712
Fax:  703-709-6811
Attention of: John J. List, Esq., Senior Vice President &
General Counsel

 
2

 

SCHEDULE II
TO
NOTE PURCHASE AGREEMENT

FORM OF
APPLICABLE MARGIN NOTICE

Issuer Name: National Rural Utilities Cooperative Finance Corporation
 
Date of Note(s):  __________________________
 
Type of Note: ____________________________
 
Applicable Margin:  ________________________
 
Effective Date of Applicable Margin:  _________________________
 
This Applicable Margin Notice is delivered pursuant to the Note Purchase Agreement, dated as of December 15, 2008 between Federal Agricultural Mortgage Corporation, Farmer Mac Mortgage Securities Corporation and National Rural Utilities Cooperative Finance Corporation (the “Note Purchase Agreement”).  Capitalized terms used but not defined herein shall have the meanings given to them in the Note Purchase Agreement.

FEDERAL AGRICULTURAL MORTGAGE CORPORATION

By:

  
  
 
  
Signature
Date          
 
Title of Authorized Officer

Name:  _____________________

PLEASE FAX TO:  
   
ATTN:
   

ACCEPTED BY:

NATIONAL RURAL UTILITIES COOPERATIVE FINANCE CORPORATION

By:

  
  
 
  
Signature
Date          
 
Title of Authorized Officer
Name:  _____________________
     

 
3

 

SCHEDULE III
TO
NOTE PURCHASE AGREEMENT

FORM OF PRICING AGREEMENT

The Federal Agricultural Mortgage Corporation, a federally chartered instrumentality of the United States and an institution of the Farm Credit System (“Farmer Mac”), Farmer Mac Mortgage Securities Corporation, a wholly owned subsidiary of Farmer Mac (the “Purchaser”) and National Rural Utilities Cooperative Finance Corporation, a cooperative association existing under the laws of the District of Columbia (“National Rural”), agree that, on _______ __, 20__ (the “Closing Date”), the Purchaser will purchase from National Rural and National Rural will sell to the Purchaser $________________ aggregate principal amount of [Fixed Rate Notes-5Y][Fixed Rate Notes-5/1 ][Floating Rate Notes] (the “Notes”) with the following terms:
 
[Initial LIBOR Rate: _______]
 
[Treasury Rate:______]
 
Applicable Margin (LIBOR or Treasury):__________
 
Interest Payment Dates:___________
 
Interest Periods:_____________
 
[The Notes may not be prepaid at any time.]
 
[The Notes may be not be prepaid prior to __________ __, 20__ [one year from the date of issuance].  On or after _____________ __, 20__ the Notes may be prepaid on the scheduled call dates set forth herein, in whole or in part, at the option of National Rural, according to the terms of the Note Purchase Agreement (as defined below).]
 
[Scheduled call dates: __________________]
 
The issuance and sale of the Notes by National Rural to the Purchaser shall occur under the terms and conditions of the Note Purchase Agreement, dated as of December 15, 2008, among Farmer Mac, the Purchaser and National Rural (the “Note Purchase Agreement”).  All of the provisions contained in the Note Purchase Agreement are hereby incorporated by reference in their entirety and shall be deemed to be a part of this Pricing Agreement to the same extent as if such provisions had been set forth in full herein.  Capitalized terms used herein and not defined herein shall have the meanings given to those terms in the Note Purchase Agreement.  This Pricing Agreement may be executed in two or more counterparts.

 
4

 

Agreed to this __ day of _______, 20__.
 
 
Federal Agricultural Mortgage Corporation,
   
 
By:
  
 
Name:
  
 
Title:
  
   
 
Farmer Mac Mortgage Securities
 
Corporation,
   
 
By:
  
 
Name:
  
 
Title:
  
   
 
National Rural Utilities Cooperative
 
Finance Corporation,
   
 
By:
  
 
Name:
  
 
Title:
  

 
5

 

ANNEX A-1

[FORM OF FIXED RATE NOTE-5/1]
 
NATIONAL RURAL UTILITIES COOPERATIVE FINANCE CORPORATION
 
__% Fixed Rate 5/1 Senior Note due _______
 
Washington, D.C.
____________, 20__
 
FOR VALUE RECEIVED, the undersigned, NATIONAL RURAL UTILITIES COOPERATIVE FINANCE CORPORATION (“ National Rural ”), a District of Columbia cooperative association, hereby promises to pay to FARMER MAC MORTGAGE SECURITIES CORPORATION, a wholly owned subsidiary of Farmer Mac (as defined below) (“ the Purchaser ”), or registered assigns, the principal sum of _______________ MILLION DOLLARS ($___,000,000.00) on __________________, together with interest computed from the date hereof according to the terms of the Note Purchase Agreement (as defined below).
 
Payments of principal and interest on this Note are to be made in lawful money of the United States of America  at such place as shall have been designated by written notice to National Rural from the registered holder of this Note as provided in the Note Purchase Agreement referred to below.
 
This Note is issued pursuant to a Note Purchase Agreement, dated as of December 15, 2008 (as from time to time amended, the “ Note Purchase Agreement ”), among National Rural, the Purchaser and Federal Agricultural Mortgage Corporation (“ Farmer Mac ”), and is entitled to the benefits thereof.  This Note is also entitled to the benefits of the Pledge Agreement, dated as of December 15, 2008, among National Rural, the Purchaser, Farmer Mac and the Collateral Agent named therein.
 
Capitalized terms used herein and not defined herein shall have the meanings given to those terms in the Note Purchase Agreement.
 
This Note is a registered Note and, upon surrender of this Note for registration of transfer or exchange, accompanied by a written instrument of transfer duly executed by the registered holder hereof or such holder’s attorney duly authorized in writing, a new Note will be issued to, and registered in the name of, the transferee.  Prior to due presentment for registration of transfer, National Rural may treat the person in whose name this Note is registered as the owner hereof for the purpose of receiving payment and for all other purposes, and National Rural will not be affected by any notice to the contrary.
 
This Note may be not be prepaid prior to __________ __, 20__ [one year from the date of issuance].  On or after _____________ __, 20__ this Note may be prepaid at any time, in whole or in part, at the option of National Rural, according to the terms of the Note Purchase Agreement and provided that, if such optional prepayment is made on a date other than an Interest Payment Date, accrued interest on the principal amount hereof that is being prepaid shall be payable through and excluding the date such optional prepayment is made.

 
 

 

If an Event of Default, as defined in the Note Purchase Agreement, occurs and is continuing, the principal of this Note may be declared due and payable in the manner, at the price and with the effect provided in the Note Purchase Agreement.
 
This Note shall be construed and enforced in accordance with, and the rights of National Rural and the holder hereof shall be governed by, the laws of the District of Columbia, excluding choice-of-law principles of the law of the District of Columbia that would require the application of the laws of another jurisdiction.
 
 
NATIONAL RURAL UTILITIES
 
COOPERATIVE FINANCE CORPORATION,
     
 
By
  
   
Name:
   
Title:

 
 

 
 
ANNEX A-2
 
[FORM OF FIXED RATE  NOTE-5Y]
 
NATIONAL RURAL UTILITIES COOPERATIVE FINANCE CORPORATION
 
__% Fixed Rate 5-Year Senior Note due _______
 
Washington, D.C.
____________, 20__
 
FOR VALUE RECEIVED, the undersigned, NATIONAL RURAL UTILITIES COOPERATIVE FINANCE CORPORATION (“ National Rural ”), a District of Columbia cooperative association, hereby promises to pay to FARMER MAC MORTGAGE SECURITIES CORPORATION, a wholly owned subsidiary of Farmer Mac (as defined below)(the “ Purchaser ”), or registered assigns, the principal sum of _______________ MILLION DOLLARS ($___,000,000.00) on __________________, together with interest computed from the date hereof according to the terms of the Note Purchase Agreement (as defined below).
 
Payments of principal and interest on this Note are to be made in lawful money of the United States of America  at such place as shall have been designated by written notice to National Rural from the registered holder of this Note as provided in the Note Purchase Agreement referred to below.
 
This Note is issued pursuant to a Note Purchase Agreement, dated as of December 15, 2008 (as from time to time amended, the “ Note Purchase Agreement ”), among National Rural, the Purchaser and Federal Agricultural Mortgage Corporation (“ Farmer Mac ”) and is entitled to the benefits thereof.  This Note is also entitled to the benefits of the Pledge Agreement, dated as of December 15, 2008, among National Rural, Farmer Mac, the Purchaser and the Collateral Agent named therein.
 
Capitalized terms used herein and not defined herein shall have the meanings given to those terms in the Note Purchase Agreement.
 
This Note is a registered Note and, upon surrender of this Note for registration of transfer or exchange, accompanied by a written instrument of transfer duly executed by the registered holder hereof or such holder’s attorney duly authorized in writing, a new Note will be issued to, and registered in the name of, the transferee.  Prior to due presentment for registration of transfer, National Rural may treat the person in whose name this Note is registered as the owner hereof for the purpose of receiving payment and for all other purposes, and National Rural will not be affected by any notice to the contrary.
 
This Note may not be prepaid at any time.
 
If an Event of Default, as defined in the Note Purchase Agreement, occurs and is continuing, the principal of this Note may be declared due and payable in the manner, at the price and with the effect provided in the Note Purchase Agreement.

 
 

 

This Note shall be construed and enforced in accordance with, and the rights of National Rural and the holder hereof shall be governed by, the laws of the District of Columbia, excluding choice-of-law principles of the law of the District of Columbia that would require the application of the laws of another jurisdiction.
 
 
NATIONAL RURAL UTILITIES
 
COOPERATIVE FINANCE CORPORATION,
   
 
By
 
   
Name:
   
Title:
 
 
 

 

ANNEX A-3

[FORM OF FLOATING RATE NOTE]
 
NATIONAL RURAL UTILITIES COOPERATIVE FINANCE CORPORATION
 
Variable Rate 2-Year Senior Note due _______
 
Washington, D.C.
____________, 20__
 
FOR VALUE RECEIVED, the undersigned, NATIONAL RURAL UTILITIES COOPERATIVE FINANCE CORPORATION (“ National Rural ”), a District of Columbia cooperative association, hereby promises to pay to FARMER MAC MORTGAGE SECURITIES CORPORATION, a wholly owned subsidiary of Farmer Mac (as defined below)(the “ Purchaser ”), or registered assigns, the principal sum of _______________ MILLION DOLLARS ($___,000,000.00) on __________________, together with interest computed from the date hereof according to the terms of the Note Purchase Agreement (as defined below).
 
Payments of principal and interest on this Note are to be made in lawful money of the United States of America  at such place as shall have been designated by written notice to National Rural from the registered holder of this Note as provided in the Note Purchase Agreement referred to below.
 
This Note is issued pursuant to a Note Purchase Agreement, dated as of December 15, 2008 (as from time to time amended, the “ Note Purchase Agreement ”), among National Rural, the Purchaser and Federal Agricultural Mortgage Corporation (“ Farmer Mac ”) and is entitled to the benefits thereof.  This Note is also entitled to the benefits of the Pledge Agreement, dated as of December 15, 2008, among National Rural, Farmer Mac, the Purchaser and the Collateral Agent named therein.
 
Capitalized terms used herein and not defined herein shall have the meanings given to those terms in the Note Purchase Agreement.
 
This Note is a registered Note and, upon surrender of this Note for registration of transfer or exchange, accompanied by a written instrument of transfer duly executed by the registered holder hereof or such holder’s attorney duly authorized in writing, a new Note will be issued to, and registered in the name of, the transferee.  Prior to due presentment for registration of transfer, National Rural may treat the person in whose name this Note is registered as the owner hereof for the purpose of receiving payment and for all other purposes, and National Rural will not be affected by any notice to the contrary.
 
This Note may not be prepaid at any time.
 
If an Event of Default, as defined in the Note Purchase Agreement, occurs and is continuing, the principal of this Note may be declared due and payable in the manner, at the price and with the effect provided in the Note Purchase Agreement.

 
 

 

This Note shall be construed and enforced in accordance with, and the rights of National Rural and the holder hereof shall be governed by, the laws of the District of Columbia, excluding choice-of-law principles of the law of the District of Columbia that would require the application of the laws of another jurisdiction.
 
 
NATIONAL RURAL UTILITIES
 
COOPERATIVE FINANCE CORPORATION,
     
 
By
 
   
Name:
   
Title:

 
 

 

ANNEX B
 
[FORM OF OPINION OF COUNSEL TO NATIONAL RURAL]
 
[•]

Federal Agricultural Mortgage Corporation
1133 Twenty-First Street, NW
Suite 600
Washington, DC 20036

Gentlemen:

I am delivering this opinion as general counsel (“Counsel”) of National Rural Utilities Cooperative Finance Corporation, a District of Columbia cooperative association (the “Borrower”), and am familiar with matters pertaining to the loan to Borrower in the principal amount of $500,000,000.00, provided for in the Note Purchase Agreement, dated as of December 15, 2008 (“Note Purchase Agreement"), among the Borrower, Farmer Mac Mortgage Securities Corporation (the “Purchaser”) and Federal Agricultural Mortgage Corporation (“Farmer Mac”).

I have examined such corporate records and proceedings of the Borrower, and such other documents as I have deemed necessary as a basis for the opinions hereinafter expressed.

I have also examined the following documents as executed and delivered: (a) the Note Purchase Agreement; (b) the Note dated as of ____________, in the principal amount of $____________ (“Note”), said Note payable to the Purchaser; and (c) the Pledge Agreement, dated as of December 15, 2008, among the Borrower, the Purchaser, Farmer Mac and U.S. Bank Trust National Association.  The documents described in items (a) through (c) above are collectively referred to herein as the "Note Documents."

Based on the foregoing, but subject to the assumptions, exceptions, qualifications and limitations hereinafter expressed, I am of the opinion that:

(1)           The Borrower has been duly incorporated and is validly existing as a cooperative association in good standing under the laws of the District of Columbia with corporate power and authority to execute and perform its obligations under the Note Documents.

(2)           The Note Documents have been duly authorized, executed and delivered by the Borrower, and such documents constitute the legal, valid and binding agreements of the Borrower, enforceable against the Borrower in accordance with their respective terms.

 
 

 

(3)           Neither the execution nor the delivery by the Borrower of any of the Note Documents nor the consummation by the Borrower of any of the transactions contemplated therein, including, without limitation, the pledge of the Pledged Securities (as such term is defined in the Pledge Agreement) to Farmer Mac, nor the fulfillment by the Borrower of the terms of any of the Note Documents will conflict with or violate, result in a breach of or constitute a default under any term or provision of the Articles of Incorporation or By-laws of the Borrower or any law or any regulation or any order known to Counsel currently applicable to the Borrower of any court, regulatory body, administrative agency or governmental body having jurisdiction over the Borrower or the terms of any indenture, deed of trust, note, note agreement or instrument to which the Borrower is a party or by which the Borrower or any of its properties is bound.

(4)           No approval, authorization, consent, order, registration, filing, qualification, license or permit of or with any state or Federal court or governmental agency or body having jurisdiction over the Borrower is required for any consummation by the Borrower of the transactions contemplated by the Note Documents; provided , however , no opinion is expressed as to the applicability of any Federal or state securities law to any sale, transfer or other disposition of the Note after the date hereof.

(5)           Except as set forth in writing and previously delivered to Farmer Mac, there is no pending or, to Counsel’s knowledge, threatened action, suit or proceeding before any court or governmental agency, authority or body or any arbitrator with respect to the Borrower, or any of the Note Documents, which, if adversely determined, would have a material adverse effect on the Borrower’s financial condition or its ability to perform its obligations under any of the Note Documents.

(6)           With respect to the Pledged Securities in the Certificate of Pledged Collateral, (x) all action with respect to the recording, registering or filing of financing statements in the jurisdiction of organization of National Rural has been taken as is necessary to perfect the security interest intended to be created in such items under the Uniform Commercial Code and (y) in the case of each Eligible Security constituting a certificated security or instrument under the Uniform Commercial Code, such Eligible Security has been delivered to the Collateral Agent such that the taking and retention of the possession by the Collateral Agent of such Eligible Security is sufficient to perfect the security interest to be created under the Uniform Commercial Code.  For purposes of the opinion set forth in this section (6), I have assumed that the Uniform Commercial Code of the District of Columbia is the same as that of the State of New York.

The foregoing opinions are subject to the following assumptions, exceptions, qualifications and limitations:
 
A.           I am a member of the Bar of the District of Columbia and render no opinion on the laws of any jurisdiction other than the laws of the District of Columbia, the federal laws of the United States of America and the General Corporation Law of the District of Columbia.

 
 

 

B.           My opinions are limited to the present laws and to the facts, as they presently exist.  I assume no obligation to revise or supplement this opinion should the present laws of the jurisdictions referred to in paragraph A above be changed by legislative action, judicial decision or otherwise.

C.           The opinions expressed in paragraph 2 above shall be understood to mean only that if there is a default in performance of an obligation, (i) if a failure to pay or other damage can be shown and (ii) if the defaulting party can be brought into a court which will hear the case and apply the governing law, then, subject to the availability of defenses, and to the exceptions set forth in the next paragraph, the court will provide a money damage (or perhaps injunctive or specific performance) remedy.

D.           My opinions are also subject to the effect of:  (1) bankruptcy, insolvency, reorganization, receivership, moratorium and other laws affecting creditors’ rights (including, without limitation, the effect of statutory and other law regarding fraudulent conveyances, fraudulent transfers and preferential transfers); and (2) the exercise of judicial discretion and the application of principles of equity, good faith, fair dealing, reasonableness, conscionability and materiality (regardless of whether the applicable agreements are considered in proceeding in equity or at law).

E.           This letter is rendered to you in connection with the Note Documents and the transactions related thereto, and may not be relied upon by any other person or by you in any other context or for any other purpose.

F.           I have assumed with your permission (i) the genuineness of all signatures by each party other than the Borrower, (ii) the authenticity of documents submitted to me as originals and the conformity to authentic original documents of all documents submitted to me as copies, and (iii) the due execution and delivery, pursuant to due authorization, of the Note Documents by each party other than the Borrower.

Yours sincerely,

John J. List
General Counsel

 
 

 

ANNEX C
 
[FORM OF OFFICERS’ CERTIFICATE]
 
Officers’ Certificate
 
TO:                      Federal Agricultural Mortgage Corporation.
 
We, _________________, _________________, and ________________, _____________________, of National Rural Utilities Cooperative Finance Corporation (“ National Rural ”), pursuant to the Note Purchase Agreement dated as of December 15, 2008, among National Rural, Farmer Mac Mortgage Securities Corporation, and Federal Agricultural Mortgage Corporation (the “ Note Purchase Agreement ”), hereby certify on behalf of National Rural that as at the date hereof:
 
(1)          National Rural is a lending institution organized as a private, not-for-profit, cooperative association with the appropriate expertise, experience and qualifications to make loans to its Members for rural electrification and related purposes;
 
(2)           no material adverse change has occurred in the financial condition of National Rural between the date of the end of National Rural’s most recently completed Fiscal Year for which Financial Statements have been made publicly available and the date hereof, which has not been set forth in documents, certificates, or financial information furnished to Farmer Mac or publicly filed;
 
(3)          all of the representations contained in Section 5.02 of the Note Purchase Agreement remain true and correct in all material respects on and as of the date hereof; and
 
(4)           no Event of Default exists.
 
Capitalized terms used in this certificate shall have the meanings given to those terms in the Note Purchase Agreement.
 
DATED as of this _____ day of ______________, _________.

 
NATIONAL RURAL UTILITIES
 
COOPERATIVE FINANCE
 
CORPORATION,
   
 
  
 
Name:
 
Title
   
 
  
 
Name:
 
Title:
 
 
 

 

ANNEX D
 
[FORM OF SERIES C PREFERRED STOCK PURCHASE AGREEMENT]

 
 

 
 
 
 
EXHIBIT 10.25.1

  
FARMER MAC MORTGAGE SECURITIES CORPORATION,
As Note Purchaser
 
NATIONAL RURAL UTILITIES
COOPERATIVE FINANCE CORPORATION,
As Borrower
 
FEDERAL AGRICULTURAL MORTGAGE CORPORATION,
As Guarantor

 
FIRST AMENDMENT TO NOTE PURCHASE AGREEMENT
 

 
Dated as of July 13, 2009  
 

 
 

 
 
FIRST AMENDMENT TO NOTE PURCHASE AGREEMENT
 
FIRST AMENDMENT TO NOTE PURCHASE AGREEMENT, dated as of July 13, 2009 (“Amendment”), among FARMER MAC MORTGAGE SECURITIES CORPORATION (the “ Purchaser ”), a wholly owned subsidiary of FEDERAL AGRICULTURAL MORTGAGE CORPORATION, a federally-chartered instrumentality of the United States and an institution of the Farm Credit System (“ Farmer Mac ” or the “ Guarantor ”); NATIONAL RURAL UTILITIES COOPERATIVE FINANCE CORPORATION, a cooperative association existing under the laws of the District of Columbia (“ National Rural ”); and Farmer Mac, as Guarantor.
 
RECITALS
 
WHEREAS, the Purchaser, Farmer Mac, and National Rural are parties to a certain Note Purchase Agreement dated as of December 15, 2009 (“Note Purchase Agreement”); and

WHEREAS, the parties have agreed to modify the Note Purchase Agreement as set forth herein.

NOW, THEREFORE, in consideration of the mutual agreements herein contained, Farmer Mac, the Purchaser and National Rural agree as follows:

1.            Recitals .  The foregoing Recitals are hereby incorporated by reference into this Amendment.

2.            Definitions .  Capitalized terms used herein and not otherwise defined shall have the meanings assigned to them in the Note Purchase Agreement.

3.            Amendment .

(a)           The Note Purchase Agreement is hereby amended by deleting the existing definition of Closing Date and replacing it with the following definition in Section 1.01:

Closing Date ” means the date of the funding of each issuance of Notes hereunder, which date shall be set forth in the applicable Pricing Agreement.

(b)           The Note Purchase Agreement is hereby amended by adding the following definition of Final Maturity Date in Section 1.01:

Final Maturity Date ” means December 31, 2016, or such other date as agreed to by the parties.

(c)           The Note Purchase Agreement is hereby amended by deleting Section 2.01 in its entirety and replacing it with the following:

 
 

 


SECTION 2.01          Purchase of Notes; Minimum Denominations .  The Purchaser agrees to purchase Notes, at 100% of their principal amount, from time to time, on or before the Final Maturity Date, as requested by National Rural by written notice (each, a “ Notice of Borrowing ”) to Farmer Mac in an aggregate principal amount, for all Notes outstanding hereunder at any one time, not in excess of $500 million, subject to satisfaction of the conditions set forth herein.  National Rural may borrow, repay (subject to the terms of the applicable Notes being repaid) and reborrow funds at any time or from time to time up to, but not including the Final Maturity Date.  Each advance under this Agreement shall be disbursed in a minimum amount of $50 million and additional increments of $5 million in excess thereof or such other amounts as agreed to in the applicable Pricing Agreement.  Each advance shall price within 3 Business Days of National Rural providing a Notice of Borrowing to Farmer Mac and shall close and fund within 3 Business Days of pricing, subject to satisfaction of the conditions set forth herein and in accordance with the procedures set forth in Section 2.02(d) hereof, unless otherwise agreed by the parties hereto and set forth in the applicable Pricing Agreement.
 
(d)          The Note Purchase Agreement is hereby amended by deleting Section 2.02(d) in its entirety and replacing it with the following:

(d)            Notice of Borrowing; Determination of Applicable Margin; Procedure for Pricing .  (i)  Each Notice of Borrowing shall indicate the amount of the Note and the desired maturity date of such Note that National Rural requests to be advanced.  A Notice of Borrowing may request preliminary pricing indications for more than one type of Note, with the understanding that only one type of Note will be issued on any particular Closing Date, unless otherwise agreed by the parties hereto in a Pricing Agreement.  Each Notice of Borrowing shall also provide name, telephone and email contact information of an authorized representative of National Rural.
 
(ii) Upon receipt of a Notice of Borrowing from National Rural, Farmer Mac shall, within 2 Business Days, provide to National Rural a preliminary indication of the Applicable Margin (LIBOR) or Applicable Margin (Treasury), or both, as applicable to any Notice of Borrowing; provided that Farmer Mac shall not be obligated to provide an indication of pricing if Farmer Mac uses its best efforts to obtain and provide such preliminary indication, but determines in its sole discretion reasonably exercised after consultation with National Rural that market conditions are unfavorable for the issuance of debt to fund Notes with the terms set forth in the Notice of Borrowing.  Upon an acceptance of such preliminary indication of pricing by National Rural, the applicable Note will price within one Business Day (and may price on the day of the preliminary pricing if the parties so agree) thereafter, unless the parties otherwise agree to a longer period of time as set forth in the applicable Pricing Agreement.  Farmer Mac shall provide National Rural with written notice of the final Applicable Margin (LIBOR) or Applicable Margin (Treasury) no later than the time of pricing of each advance.  National Rural shall be deemed to approve of such pricing so long as the Applicable Margin (LIBOR) or Applicable Margin (Treasury) shall not exceed the preliminary indication by more than 5 basis points (0.05%).  If the final pricing does exceed the preliminary indication by more than 5 basis points (0.05%), an authorized representative of National Rural must agree via email confirmation prior to or simultaneously with the pricing to accept such margin.
 
 
 

 

 
(e)          The Note Purchase Agreement is hereby amended by deleting Section 2.03 in its entirety and replacing it with the following:

SECTION 2.03           Maturity .  Each Note shall mature on the maturity date set forth in the applicable Pricing Agreement and in any event no later than the Final Maturity Date.

(f)          The Note Purchase Agreement is hereby amended by deleting Section 4.01(d) in its entirety and replacing it with the following:

(d)           such other information concerning National Rural or the Pledged Collateral as is reasonably requested by Farmer Mac.

4.            GOVERNING LAW .    THIS AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, FEDERAL LAW.  TO THE EXTENT FEDERAL LAW INCORPORATES STATE LAW, THAT STATE LAW SHALL BE THE LAWS OF THE DISTRICT OF COLUMBIA APPLICABLE TO CONTRACTS MADE AND PERFORMED THEREIN.
 
5.            Inconsistency with Note Purchase Agreement .  Except as otherwise amended or modified herein, the terms, conditions and provisions of the Note Purchase Agreement remain in full force and effect.  In the event of any conflict or inconsistency between the terms of this Amendment and the Note Purchase Agreement, the terms of this Amendment shall control.

6.            Counterparts .  This Amendment may be executed in two or more counterparts, each of which shall be an original, but all of which together shall constitute one and the same instrument.

 
[SIGNATURE PAGE FOLLOWS]
 
 
 

 

IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed as of the day and year first above written.

 
FARMER MAC MORTGAGE
SECURITIES CORPORATION
   
By:
 
Name: 
 
Title:
 
 
FEDERAL AGRICULTURAL
MORTGAGE CORPORATION
   
By:
 
Name: 
 
Title:
 

 
NATIONAL RURAL UTILITIES
COOPERATIVE FINANCE
CORPORATION
   
By:
 
Name: 
 
Title:
 
 
 
 

 

EXHIBIT 10.26
 

 
FARMER MAC MORTGAGE
SECURITIES CORPORATION,
As Note Purchaser

NATIONAL RURAL UTILITIES
COOPERATIVE FINANCE CORPORATION,
As Borrower

U.S. BANK TRUST NATIONAL ASSOCIATION,
As Collateral Agent

FEDERAL AGRICULTURAL
MORTGAGE CORPORATION,
As Guarantor
 

 
PLEDGE AGREEMENT
  

  
Dated as of December 15, 2008
     

 
 
 

 
 
i
 
ARTICLE I
 
Definitions
     
Section 1.01.
Definitions
3
Section 1.02.
Principles of Construction
7
     
ARTICLE II
 
Provisions as to Pledged Collateral
     
Section 2.01.
Holding of Pledged Securities
7
Section 2.02.
UCC Filings
7
Section 2.03.
Withdrawal and Substitution of Pledged Collateral
8
Section 2.04.
[Reserved]
8
Section 2.05.
Addition of Pledged Collateral
8
Section 2.06.
Accompanying Documentation
8
Section 2.07.
Renewal; Extension; Substitution
9
Section 2.08.
Voting Rights; Interest and Principal
9
Section 2.09.
Protection of Title; Payment of Taxes; Liens, etc
10
Section 2.10.
Maintenance of Pledged Collateral
11
Section 2.11.
Representations, Warranties and Covenants
11
Section 2.12.
Further Assurances
12
 
ARTICLE III
 
[Reserved]
 
ARTICLE IV
 
Remedies
     
Section 4.01.
Events of Default
12
Section 4.02.
Remedies upon Default
13
Section 4.03.
Application of Proceeds
14
Section 4.04.
Securities Act
15
     
ARTICLE V
 
The Collateral Agent
     
Section 5.01.
Certain Duties and Responsibilities
16
Section 5.02.
Certain Rights of Collateral Agent
17
Section 5.03.
Money Held by Collateral Agent
18
Section 5.04.
Compensation and Reimbursement
18

 
 

 
 
ii
 
Section 5.05.
Corporate Collateral Agent Required; Eligibility
19
Section 5.06.
Resignation and Removal; Appointment of Successor
19
Section 5.07.
Acceptance of Appointment by Successor
20
Section 5.08.
Merger, Conversion, Consolidation or Succession to Business
21
     
ARTICLE VI
 
Miscellaneous
     
Section 6.01.
Notices
21
Section 6.02.
Waivers; Amendment
21
Section 6.03.
Successors and Assigns
22
Section 6.04.
Counterparts; Effectiveness
22
Section 6.05.
Severability
22
Section 6.06.
GOVERNING LAW
22
Section 6.07.
WAIVER OF JURY TRIAL
22
Section 6.08.
Headings
22
Section 6.09.
Security Interest Absolute
23
Section 6.10.
Termination or Release
23
Section 6.11.
Collateral Agent Appointed Attorney-in-Fact
24
 
Schedule I – Additional Criteria for Eligible Securities
Schedule II – Addresses for Notices

Annex A – Form of Certificate of Pledged Collateral

 
 

 

PLEDGE AGREEMENT, dated as of December 15, 2008, among NATIONAL RURAL UTILITIES COOPERATIVE FINANCE CORPORATION, a District of Columbia cooperative association and its successors and assigns (hereinafter called “ National Rural ”), FARMER MAC MORTGAGE SECURITIES CORPORATION, (the “Purchaser”), a wholly owned subsidiary of FEDERAL AGRICULTURAL MORTGAGE CORPORATION, a federally-chartered instrumentality of the United States and an institution of the Farm Credit System and its successors and assigns (“ Farmer Mac ”), U.S. BANK TRUST NATIONAL ASSOCIATION, a national banking association and its successors and assigns (hereinafter called the “ Collateral Agent ”), and Farmer Mac, as Guarantor.
 
RECITALS OF NATIONAL RURAL
 
WHEREAS, National Rural may from time to time issue one or more Notes to the Purchaser, and the Purchaser may purchase such Notes, all upon the terms and subject to the conditions set forth in the Note Purchase Agreement; and
 
WHEREAS, National Rural is required pursuant to the terms of the Note Purchase Agreement to pledge certain property to the Collateral Agent for the benefit of the Control Party to secure National Rural’s obligations on the Notes;
 
NOW, THEREFORE, THIS PLEDGE AGREEMENT WITNESSETH that, to secure the performance of the certain Obligations contained in the Notes, the Note Purchase Agreement and herein, National Rural hereby assigns and pledges to the Collateral Agent, its successors and assigns, for the benefit of the Control Party, and grants to the Collateral Agent, its successors and assigns, for the benefit of the Control Party, a security interest in the following (collectively referred to as the “ Pledged Collateral ”) as provided in Article II: (a)(i) the Pledged Securities and the certificates representing the Pledged Securities; (ii) subject to Section 2.08, all payments of principal or interest, cash, instruments and other property from time to time received, receivable or otherwise distributed in respect of, in exchange for, and all other Proceeds received in respect of, the Pledged Securities pledged hereunder; (iii) subject to Section 2.08, all rights and privileges of National Rural with respect to the Pledged Securities; (iv) all Proceeds of any of the foregoing above; that may, on the date hereof or from time to time hereafter, be subjected to the Lien hereof by National Rural by delivery, assignment or pledge thereof to the Collateral Agent hereunder and the Collateral Agent is authorized to receive the same as additional security hereunder (subject to any reservations, limitations or conditions agreed to in writing by National Rural and the Control Party respecting the scope or priority of such security or the use and disposition of such property or the Proceeds thereof).

 
 

 

 3
 
TO HAVE AND TO HOLD the Pledged Collateral, together with all right, title, interest, powers, privileges and preferences pertaining or incidental thereto, unto the Collateral Agent, its successors and assigns, for the benefit of the Control Party, forever; subject , however , to the terms, covenants and conditions hereinafter set forth.
 
ARTICLE I
 
Definitions
 
SECTION 1.01.  Definitions.    As used in this Pledge Agreement, the following terms shall have the following meanings:
 
“Accounting Requirements” shall mean any system of accounts prescribed by a federal regulatory authority having jurisdiction over the Member or, in the absence thereof, the requirements of GAAP applicable to businesses similar to that of the Member.
 
Allowable Amount ” on any date, means with respect to Eligible Securities, the aggregate principal amount of such Eligible Securities theretofore advanced thereon which remains unpaid on such date.
 
Certificate of Pledged Collateral ” means a certificate delivered to the Collateral Agent and the Control Party substantially in the form of Annex A attached hereto.
 
Class A Member ” means any Class A Member of National Rural as described in National Rural’s Bylaws currently in effect.
 
Class B Member ” means any Class B Member of National Rural as described in National Rural’s Bylaws currently in effect.
 
Collateral Agent ” means the Person named as the “ Collateral Agent ” in the first paragraph of this instrument.
 
Control Party ” means (i) the Guarantor, so long as no Guarantor Default has occurred and is continuing, or (ii) the holders of the Notes for so long as a Guarantor Default has occurred and is continuing.
 
Control Party Notice ” and “ Control Party Order ” mean, respectively, a written notice or order signed by any Vice President of the Control Party and delivered to the Collateral Agent and National Rural.
 
Control Party Notice of Default ” has the meaning given to that term in Section 4.02.
 
Depreciation and Amortization Expense   shall mean an amount constituting the depreciation and amortization of the Member computed pursuant to Accounting Requirements.

 
 

 

 4
 
Eligible Member ” means any Class A Member or Class B Member of National Rural as described in National Rural’s Bylaws currently in effect.

Eligible Security ” means a note or bond of any Eligible Member payable or registered to, or to the order of, National Rural, (A) in respect of which (i) the outstanding principal amount under such note or bond, together with the outstanding principal amount of any other notes or bonds of such Eligible Member pledged hereunder or pledged to secure any other notes or bonds issued by National Rural to Farmer Mac or any affiliate or sold by National Rural or any affiliate to any trust whose beneficial ownership is owned or controlled by Farmer Mac, does not aggregate more than $35 million, (ii) no default has occurred in the payment of principal or interest in accordance with the terms of such note or bond that is continuing beyond the contractual grace period (if any) provided in such note or bond for such payment and (iii) no “event of default” as defined in such note or bond (or in any instrument creating a security interest in favor of National Rural in respect of such note or bond), shall exist that has resulted in the exercise of any right or remedy described in such note or bond (or in any such instrument); (B) which is not classified by National Rural as a non-performing loan under generally accepted accounting principles in the United States; and (C) which otherwise satisfies the criteria set forth on Schedule I hereto.
 
Equity ” means the aggregate of the Member's equities and margins computed pursuant to Accounting Requirements.
 
Event of Default ” has the meaning set forth in Section 4.01.
 
Facility Rating ” means the facility rating assigned by National Rural to an Eligible Security from time to time in accordance with National Rural's internal risk rating system.
 
GAAP ” means generally accepted accounting principles in the United States as in effect from time to time.
 
Guarantor Default ” means a default by the Guarantor under its obligations pursuant to Article IX of the Note Purchase Agreement which is existing and continuing.
 
Interest Expense ” means an amount constituting the interest expense with respect to Long-Term Debt of the Member computed pursuant to Accounting Requirements.
 
Lien ” means any lien, pledge, charge, mortgage, encumbrance, debenture, hypothecation or other similar security interest attaching to any part of the Pledged Collateral.
 
Lien of this Pledge Agreement ” or “ Lien hereof ” means the Lien created by these presents.

 
 

 

5
 
Long-Term Debt ” is determined in accordance with the Uniform System of Accounts prescribed at the time by RUS or, if such Member is not required to maintain its accounts in accordance with said Uniform System of Accounts, otherwise determined in accordance with GAAP.
 
Member ” shall mean any Person who is member of National Rural.
 
Modified Debt Service Coverage Ratio—Distribution ” shall mean the definition of Coverage Ratio as defined in the Indenture dated October 25, 2007 by and between National Rural Utilities Cooperative Finance Corporation and U.S. Bank National Association for the Collateral Trust Bonds.
 
" Modified Debt Service Coverage Ratio—G&T " shall mean the ratio determined as follows: for any calendar year add (i) Operating Margins, (ii) Non-Operating Margins—Interest, (iii) Interest Expense, (iv) Depreciation and Amortization Expense, and (v) cash received in respect of generation and transmission and other capital credits, and divide the sum so obtained by the sum of all payments of Principal and Interest Expense required to be made during such calendar year; provided , however , that in the event that any amount of Long-Term Debt has been refinanced during such year, the payments of Principal and Interest Expense required to be made during such year on account of such refinanced amount of Long-Term Debt shall be based (in lieu of actual payments required to be made on such refinanced amount of Long-Term Debt) upon the larger of (i) an annualization of the payments required to be made with respect to the refinancing debt during the portion of such year such refinancing debt is outstanding or (ii) the payment of Principal and Interest Expense required to be made during the following year on account of such refinancing debt.

National Rural Notice ” and “ National Rural Order ” mean, respectively, a written notice or order signed in the name of National Rural by either its Chief Executive Officer or its Chief Financial Officer, and by any Vice President of National Rural, and delivered to the Collateral Agent and the Control Party.
 
Non-Operating Margins—Interest ” means the amount representing the interest component of non-operating margins of the Member computed pursuant to Accounting Requirements.
 
Note Purchase Agreement ” means the Note Purchase Agreement dated the date hereof between National Rural, the Purchaser and Farmer Mac, as the same may be amended from time to time in accordance with the terms thereof.
 
Notes ” means the note or notes issued by National Rural to the Purchaser under the Note Purchase Agreement.
 
Obligations ” means the due and punctual performance of the obligations of National Rural to make payments of principal, and interest on the Notes.

 
 

 

6
 
Officers’ Certificate ” means a certificate signed by any Vice President of National Rural, and delivered to the Control Party and/or the Collateral Agent, as applicable.
 
Operating Margins ” means the amount of patronage capital and operating margins of the Member computed pursuant to Accounting Requirements.
 
Person ” means any individual, corporation, partnership, joint venture, association, joint-stock company, trust, unincorporated organization or government or any agency or political subdivision thereof.
 
Pledge Agreement ” means this Pledge Agreement, as originally executed and as it may from time to time be amended pursuant to the applicable provisions hereof.
 
Pledged Collateral ” has the meaning set forth in the Granting Clause.
 
Pledged Securities ” means at any time the Eligible Securities listed on Schedule A and/or Schedule B to the Certificate of Pledged Collateral most recently delivered.
 
Principal ” means the amount of principal billed on account of Long-Term Debt of the Member computed pursuant to Accounting Requirements.
 
Proceeds ” has the meaning specified in Section 9-102 of the Uniform Commercial Code.
 
RUS ” mean the Rural Utilities Service of the United States Department of Agriculture, acting by and through the Administrator of the Rural Utilities Service, and including any successor agencies or departments.
 
Total Assets Ratio ” means an amount constituting the total assets of the Member computed pursuant to Accounting Requirements.
 
Total Capitalization Ratio ” means the Total Margins and Equity as a percentage of the sum of ((1)Total Margins and Equity plus (2) Long Term Debt).
 
Total Margins and Equity ” means the Member’s total margins and equity computed pursuant to Accounting Requirements.
 
Uniform Commercial Code ” means the Uniform Commercial Code as from time to time in effect in the District of Columbia.
 
Vice President ” means any vice president of National Rural or Farmer Mac or the Purchaser, as applicable, whether or not designated by a number or a word or words added before or after the title “vice president”.

 
 

 

7
 
SECTION 1.02.  Other Defined Terms; Principles of Construction .  Capitalized terms used but not defined in this Pledge Agreement shall have the meanings given to them in the Note Purchase Agreement.  Unless the context shall otherwise indicate, the terms defined in Section 1.01 hereof include the plural as well as the singular and the singular as well as the plural.  The words “hereafter”, “herein”, “hereof”, “hereto” and “hereunder”, and words of similar import, refer to this Agreement as a whole.  The descriptive headings of the various articles and sections of this Agreement were formulated and inserted for convenience only and shall not be deemed to affect the meaning or construction of the provisions hereof.
 
ARTICLE II
 
Provisions as to Pledged Collateral
 
SECTION 2.01.  Holding of Pledged Securities.
 
(a)  National Rural shall provide to the Control Party, within thirty (30) days of a pledge of the Pledged Securities in connection with an advance, such back-up information as is reasonably necessary in order to allow the Control Party to confirm compliance of such Pledged Securities to the requisite criteria as outlined herein.  Upon receipt of the back-up information, the Control Party shall have ninety (90) days to object in writing to the inclusion of any item of the Pledged Securities as part of the Pledged Collateral.  If the Control Party reasonably determines that any of the Pledged Securities do not meet the criteria for Eligible Securities, then National Rural shall have thirty (30) days in which to provide substitute collateral, and the timeline specified above for National Rural to provide back-up material and confirmation shall also apply as to the substituted collateral.
 
(b)  The Collateral Agent, on behalf of the Control Party, shall hold the Pledged Securities in the name of National Rural (or its nominee), endorsed or assigned in blank or in favor of the Collateral Agent.  Upon occurrence of an Event of Default, the Collateral Agent, on behalf of the Control Party, shall have the right (in its sole and absolute discretion), to the extent a register is maintained therefor, to register the Pledged Securities in the Collateral Agent’s own name as pledgee, or in the name of the Collateral Agent’s nominee (as pledgee or as sub-agent) or to continue to hold the Pledged Securities in the name of National Rural, endorsed or assigned in blank or in favor of the Collateral Agent.  Upon cessation of such Event of Default, the Collateral Agent shall take such action as is necessary to again cause the Pledged Securities to be registered in the name of National Rural (or its nominee).
 
SECTION 2.02.  UCC Filings.    National Rural shall prepare and file in the proper Uniform Commercial Code filing office in the District of Columbia (i) on or prior to the date of the first purchase of a Note under the Note Purchaser Agreement, a financing statement recording the Collateral Agent’s interest in the Pledged Collateral; and (ii) from time to time thereafter, continuation statements or such other filings as are necessary to maintain the perfection of the Lien hereof on the Pledged Collateral.

 
 

 

8
 
SECTION 2.03.  Withdrawal and Substitution of Pledged Collateral.   (a)  Any part of the Pledged Collateral may be withdrawn by National Rural or substituted for other Eligible Securities by National Rural and shall be delivered to National Rural by the Collateral Agent upon National Rural Order at any time and from time to time, together with any other documents or instruments of transfer or assignment necessary to reassign to National Rural said Pledged Collateral and the interest of National Rural, provided the aggregate Allowable Amount of Pledged Collateral remaining after such withdrawal or substitution shall at least equal the aggregate principal amount of the Notes outstanding after such withdrawal or substitution, as shown by the Certificate of Pledged Collateral furnished to the Collateral Agent pursuant to Subsection (b)(i) of this Section.
 
(b)  Prior to any such withdrawal or substitution, the Collateral Agent shall be furnished with the following instruments:
 
(i) a Certificate of Pledged Collateral, dated as of the last day of the calendar month most recently ended at least 10 Business Days prior to such withdrawal or substitution, showing that immediately after such withdrawal or substitution the requirements of Subsection (a) of this Section will be satisfied; and
 
(ii) an Officers’ Certificate certifying that no Event of Default has occurred which has not been remedied.
 
Upon any such withdrawal or substitution, National Rural shall deliver any Eligible Securities to be substituted and the Collateral Agent shall execute any instruments of transfer or assignment specified in a National Rural Order as necessary to vest in National Rural any part of the Pledged Collateral withdrawn.
 
In case an Event of Default shall have occurred and be continuing, National Rural shall not withdraw or substitute any part of the Pledged Collateral.
 
SECTION 2.04.  [Reserved.]
 
SECTION 2.05.  Addition of Pledged Collateral.    At any time, National Rural may pledge additional Eligible Securities under this Pledge Agreement by delivering such Pledged Collateral to the Collateral Agent, accompanied by a Certificate of Pledged Collateral specifying such additional collateral and dated as of the last day of the calendar month most recently ended at least 10 Business Days prior thereto.
 
SECTION 2.06.  Accompanying Documentation.    Where Eligible Securities are delivered to the Collateral Agent under Section 2.01, 2.03 or Section 2.05, such securities shall be accompanied by the appropriate instruments of transfer executed in blank and in a form satisfactory to the Collateral Agent and by such other instruments and documents as the Collateral Agent may reasonably request.  All other property delivered to the Collateral Agent under Section 2.01, 2.03 or Section 2.05 and comprising part of the Pledged Collateral shall be accompanied by proper instruments of assignment duly executed by National Rural and such other instruments or documents as the Collateral Agent may reasonably request.

 
 

 

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SECTION 2.07.  Renewal; Extension; Substitution.   Unless and until an Event of Default shall have occurred and be continuing, National Rural may at any time renew or extend, subject to the Lien of this Pledge Agreement, any Pledged Security upon any terms or may accept in place of and in substitution for any such Pledged  Security, another Eligible Security or Securities of the same issuer or of any successor thereto for at least the same unpaid principal amount, all as evidenced by a National Rural Order delivered to the Collateral Agent; provided , however , that in case of any substitution, Eligible Securities substituted as aforesaid shall be subject to the Lien of this Pledge Agreement as part of the Pledged Collateral and be held in the same manner as those for which they shall be substituted, and in the case of each substituted Eligible Security National Rural shall provide an Officers’ Certificate certifying to the Collateral Agent that such substituted security satisfies the requirements of this Section.  So long as no Event of Default shall have occurred and be continuing, the Collateral Agent, upon National Rural Order stating that no Event of Default shall have occurred and be continuing, shall execute any consent to any such renewal, extension or substitution as shall be specified in such National Rural Order.
 
SECTION 2.08.  Voting Rights; Interest and Principal . (a)  Unless and until an Event of Default has occurred and is continuing, and the Control Party delivers to the Collateral Agent a Control Party Notice of Default suspending National Rural’s rights under this clause:
 
(i) National Rural shall be entitled to exercise any and all voting and/or other consensual rights and powers inuring to an owner of Pledged Securities or any part thereof provided that such rights and powers shall not be exercised in any manner inconsistent with the terms of the Note Purchase Agreement or this Pledge Agreement.
 
(ii) The Collateral Agent shall execute and deliver to National Rural, or cause to be executed and delivered to National Rural, all such proxies, powers of attorney and other instruments as National Rural may reasonably request for the purpose of enabling National Rural to exercise the voting and/or consensual rights and powers it is entitled to exercise pursuant to subparagraph (i) above.
 
(iii) National Rural shall be entitled to receive and retain any and all interest, principal and other distributions paid on or distributed in respect of the Pledged Securities; provided that any non-cash interest, principal or other distributions that would constitute Pledged Securities if pledged hereunder, and received in exchange for Pledged Securities or any part thereof pledged hereunder, or in redemption thereof, or as a result of any merger, consolidation, acquisition or other exchange of assets to which such issuer of Pledged Securities may be a party or otherwise, shall be and become part of the Pledged Collateral, and, if received by National Rural, shall not be commingled by National Rural with any of its other funds or property but shall be held separate and apart therefrom, shall be held in trust for the benefit of the Collateral Agent and shall be forthwith delivered to the Collateral Agent in the same form as so received (with any necessary endorsement).

 
 

 

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(b)  If an Event of Default shall have occurred and be continuing, then, to the extent such rights are suspended by the applicable Control Party Notice of Default, all rights of National Rural to interest, principal or other distributions that National Rural is authorized to receive pursuant to paragraph (a)(iii) of this Section 2.08 shall cease, and all such suspended rights shall thereupon become vested in the Collateral Agent, which shall have the sole and exclusive right and authority to receive and retain such interest, principal or other distributions.  All interest, principal or other distributions received by National Rural contrary to the provisions of this Section 2.08 shall be held in trust for the benefit of the Collateral Agent, shall be segregated from other property or funds of National Rural and shall be forthwith delivered to the Collateral Agent in the same form as so received (with any necessary endorsement).  Any and all money and other property paid over to or received by the Collateral Agent pursuant to the provisions of this paragraph (b) shall be retained by the Collateral Agent in an account to be established by the Collateral Agent upon receipt of such money or other property and shall be applied in accordance with the provisions of Section 4.03 to the fullest extent permitted by applicable law.  After all Events of Default have ceased, the Collateral Agent shall promptly repay to National Rural (without interest) all interest, principal or other distributions that National Rural would otherwise be permitted to retain pursuant to the terms of paragraph (a)(iii) of this Section 2.08 and that remain in such account.
 
(c)  If an Event of Default shall have occurred and be continuing, then, to the extent such rights are suspended by the applicable Control Party Notice of Default, all rights of National Rural to exercise the voting and consensual rights and powers it is entitled to exercise pursuant to paragraph (a)(i) of this Section 2.08, and the obligations of the Collateral Agent under paragraph (a)(ii) of this Section 2.08, shall cease, and all such rights shall thereupon become vested in the Collateral Agent, which shall have the sole and exclusive right and authority to exercise such voting and consensual rights and powers; provided that the Collateral Agent shall have the right from time to time during the existence of such Event of Default to permit National Rural to exercise such rights and powers.
 
SECTION 2.09.  Protection of Title; Payment of Taxes; Liens, etc.   National Rural will:
 
(i) duly and promptly pay and discharge, or cause to be paid and discharged, before they become delinquent, all taxes, assessments, governmental and other charges lawfully levied, assessed or imposed upon or against any of the Pledged Collateral, including the income or profits therefrom and the interests of the Collateral Agent in such Pledged Collateral;
 
(ii) duly observe and conform to all valid requirements of any governmental authority imposed upon National Rural relative to any of the Pledged Collateral, and all covenants, terms and conditions under or upon which any part thereof is held;

 
 

 

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(iii) cause to be paid and discharged all lawful claims (including, without limitation, income taxes) which, if unpaid, might become a lien or charge upon Pledged Collateral; and
 
(iv) do all things and take all actions necessary to keep the Lien of this Pledge Agreement a first and prior lien upon the Pledged Collateral and protect its title to the Pledged Collateral against loss by reason of any foreclosure or other proceeding to enforce any lien prior to or pari passu with the Lien of this Pledge Agreement.
 
Nothing contained in this Section shall require the payment of any such tax, assessment, claim, lien or charge or the compliance with any such requirement so long as the validity, application or amount thereof shall be contested in good faith; provided , however , that National Rural shall have set aside on its books such reserves (segregated to the extent required by generally accepted accounting principles) as shall be deemed adequate with respect thereto as determined by the Board of Directors of National Rural (or a committee thereof).
 
SECTION 2.10.  Maintenance of Pledged Collateral.   National Rural shall cause the Allowable Amount of Pledged Collateral held by the Collateral Agent at all times to be not less than 100% of the aggregate principal amount of the Notes outstanding.
 
SECTION 2.11.  Representations, Warranties and Covenants.   National Rural represents, warrants and covenants to the Collateral Agent, for the benefit of the Control Party, that from the time that they are pledged hereunder, and for so long as they are required to remain pledged:
 
(a) except for the Lien hereof and any Lien consented to in writing by Farmer Mac or the Control Party, National Rural (i) is and will continue to be the direct owner, beneficially and of record, of the Pledged Securities from time to time pledged hereunder, (ii) holds and will continue to hold the same free and clear of all Liens, other than Liens created by this Pledge Agreement, (iii) will make no assignment, pledge, hypothecation or transfer of, or create or permit to exist any security interest in or other Lien on, the Pledged Collateral, other than Liens created by this Pledge Agreement and (iv) will defend its title or interest thereto or therein against any and all Liens (other than the Lien created by this Pledge Agreement), however arising, of all Persons whomsoever;
 
(b) except for restrictions and limitations imposed by the Note Purchase Agreement or securities laws generally, the Pledged Securities are and will continue to be freely transferable and assignable, and none of the Pledged Securities are or will be subject to any restriction of any nature that might prohibit, impair, delay or otherwise affect the pledge of such Pledged Securities hereunder, the sale or disposition thereof pursuant hereto or the exercise by the Collateral Agent of rights and remedies hereunder;

 
 

 

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(c) National Rural has the power and authority to pledge the Pledged Collateral pledged by it hereunder in the manner hereby done or contemplated;
 
(d) no consent or approval of any governmental authority, any securities exchange or any other Person was or is necessary to the validity of the pledge effected hereby (other than such as have been obtained and are in full force and effect); and
 
(e) by virtue of the execution and delivery by National Rural of this Pledge Agreement, when any Pledged Securities are delivered to the Collateral Agent in accordance with this Pledge Agreement, the Collateral Agent will obtain a legal and valid Lien upon and security interest in such Pledged Securities as security for the payment and performance of the Obligations.
 
SECTION 2.12.  Further Assurances.   National Rural will execute and deliver, or cause to be executed and delivered, all such additional instruments and do, or cause to be done, all such additional acts as (a) may be necessary or proper, consistent with the Granting Clause hereof, to carry out the purposes of this Pledge Agreement and to make subject to the Lien hereof any property intended so to be subject or (b) may be necessary or proper to transfer to any successor the estate, powers, instruments and funds held hereunder and to confirm the Lien of this Pledge Agreement.  National Rural will also cause to be filed, registered or recorded any instruments of conveyance, transfer, assignment or further assurance in all offices in which such filing, registering or recording is necessary to the validity thereof or to give notice thereof.
 
ARTICLE III
 
[Reserved]
 
ARTICLE IV
 
Remedies
 
SECTION 4.01.  Events of Default.   Event of Default ”, wherever used herein, means any “Event of Default” as defined in Sections 7.01(a) of the Note Purchase Agreement, provided that, for the purposes of this Pledge Agreement:
 
(a) the Collateral Agent shall not be required to recognize that an Event of Default exists before such time as the Collateral Agent receives a Control Party Notice or National Rural Notice stating that an Event of Default exists and specifying the particulars of such default in reasonable detail; and
 
(b) the Collateral Agent shall not be required to recognize that an Event of Default has ceased until (i) such time as the Collateral Agent receives a Control Party Notice stipulating that such event has ceased to exist; or (ii) 30 days after receipt by the Collateral Agent of a National Rural Notice stipulating that such event has ceased to exist, provided that the Collateral Agent does not receive a Control Party Notice within such timeframe disputing the cessation of such Event of Default, and further provided that no additional Control Party Notice of Default shall have been received in respect of any other subsisting Event(s) of Default.  Upon receipt of any National Rural Notice under subparagraph (ii) of this Subsection, the Collateral Agent shall provide a copy of such National Rural Notice to the Control Party.

 
 

 

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SECTION 4.02.  Remedies upon Default.   If an Event of Default shall have occurred and be continuing, the Control Party may issue a notice (a “ Control Party Notice of Default ”), which may be combined with the notice provided under Section 4.01(b), suspending the rights of National Rural under Section 2.08 in part without suspending all such rights (as specified by the Control Party in its sole and absolute discretion) without waiving or otherwise affecting the Control Party’s rights to give additional Control Party Notices of Default from time to time suspending other rights under Section 2.08   so long as an Event of Default has occurred and is continuing.  Subject to paragraph (b) of this Section 4.02, upon cessation of an Event of Default, all rights of National Rural suspended under the applicable Control Party Notice of Default shall revest in National Rural.
 
(a)  Upon the occurrence of an Event of Default, the Collateral Agent shall, for the benefit and at the direction of the Control Party, have the right to exercise any and all rights afforded to a secured party under the Uniform Commercial Code or other applicable law.  Without limiting the generality of the foregoing, National Rural agrees that the Collateral Agent shall have the right, but only if so instructed by a the Control Party Order and subject to the requirements of applicable law and the Collateral Agent’s right (in its sole and absolute discretion) to receive indemnification or other reasonable assurances that its costs and expenses in connection therewith will be paid, to sell or otherwise dispose of all or any part of the Pledged Collateral at a public or private sale or at any broker’s board or on any securities exchange, for cash, upon credit or for future delivery as the Collateral Agent shall deem appropriate.  The Collateral Agent shall be authorized at any such sale of securities (if it deems it advisable to do so) to restrict the prospective bidders or purchasers to Persons who will represent and agree that they are purchasing the Pledged Collateral for their own account for investment and not with a view to the distribution or sale thereof, and upon consummation of any such sale the Collateral Agent shall have the right to assign, transfer and deliver to the purchaser or purchasers thereof the Pledged Collateral so sold.  Each such purchaser at any sale of Pledged Collateral shall hold the property sold absolutely, free from any claim or right on the part of National Rural, and National Rural hereby waives (to the extent permitted by law) all rights of redemption, stay and appraisal which National Rural now has or may at any time in the future have under any rule of law or statute now existing or hereafter enacted.

 
 

 

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(b)  The Collateral Agent shall give National Rural 10 days’ written notice (which National Rural agrees is reasonable notice within the meaning of Section 9-611 of the Uniform Commercial Code or its equivalent in other jurisdictions) of the Collateral Agent’s intention to make any sale of Pledged Collateral.  Such notice, in the case of a public sale, shall state the time and place for such sale and, in the case of a sale at a broker’s board or on a securities exchange, shall state the board or exchange at which such sale is to be made and the day on which the Collateral, or portion thereof, will first be offered for sale at such board or exchange.  Any such public sale shall be held at such time or times within ordinary business hours and at such place or places as the Collateral Agent may fix and state in the notice (if any) of such sale.  At any such sale, the Pledged Collateral, or portion thereof, to be sold may be sold in one lot as an entirety or in separate parcels, as the Collateral Agent may (in its sole and absolute discretion) determine.  The Collateral Agent shall not be obligated to make any sale of any Pledged Collateral if it shall determine not to do so, regardless of the fact that notice of sale of such Pledged Collateral shall have been given.  The Collateral Agent may, without notice or publication, adjourn any public or private sale or cause the same to be adjourned from time to time by announcement at the time and place fixed for sale, and such sale may, without further notice, be made at the time and place to which the same was so adjourned.  In case any sale of all or any part of the Pledged Collateral is made on credit or for future delivery, the Pledged Collateral so sold may be retained by the Collateral Agent until the sale price is paid by the purchaser or purchasers thereof, but the Collateral Agent shall not incur any liability in case any such purchaser or purchasers shall fail to take up and pay for the Pledged Collateral so sold and, in case of any such failure, such Pledged Collateral may be sold again upon like notice.  At any public (or, to the extent permitted by law, private) sale made pursuant to this Pledge Agreement, the Control Party may bid for or purchase, free (to the extent permitted by law) from any right of redemption, stay, valuation or appraisal on the part of National Rural (all said rights being also hereby waived and released to the extent permitted by law), the Pledged Collateral or any part thereof offered for sale and may make payment on account thereof by using any claim then due and payable to the Control Party from National Rural as a credit against the purchase price, and the Control Party may, upon compliance with the terms of sale, hold, retain and dispose of such property without further accountability to Pledged Collateral therefor.  For purposes hereof, a written agreement to purchase the Pledged Collateral or any portion thereof shall be treated as a sale thereof; the Collateral Agent shall be free to carry out such sale pursuant to such agreement and National Rural shall not be entitled to the return of the Pledged Collateral or any portion thereof subject thereto, notwithstanding the fact that after the Collateral Agent shall have entered into such an agreement all Events of Default shall have been remedied and the Obligations paid in full.  As an alternative to exercising the power of sale herein conferred upon it, the Collateral Agent may proceed by a suit or suits at law or in equity to foreclose this Pledge Agreement and to sell the Collateral or any portion thereof pursuant to a judgment or decree of a court or courts having competent jurisdiction or pursuant to a proceeding by a court-appointed receiver.  Any sale pursuant to the provisions of this Section 4.02 shall be deemed to conform to the commercially reasonable standards as provided in Section 9-610(b) of the Uniform Commercial Code or its equivalent in other jurisdictions.
 
SECTION 4.03.  Application of Proceeds.    The Collateral Agent shall apply the proceeds of any collection or sale of Pledged Collateral, including any Pledged Collateral consisting of cash, as follows to the fullest extent permitted by applicable law:

 
 

 

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FIRST, to the payment of all reasonable costs and expenses incurred by the Collateral Agent in connection with or reasonably related or reasonably incidental to such collection or sale or otherwise in connection with or related or incidental to this Pledge Agreement or any of the Obligations, including all court costs and the reasonable fees and expenses of its agents and legal counsel, the repayment of all advances made by the Collateral Agent (in its sole discretion) hereunder on behalf of National Rural and any other reasonable costs or expenses incurred in connection with the exercise of any right or remedy hereunder;
 
SECOND, to the payment to the Control Party in full of the Obligations ; such payment to be for an amount certified in a Control Party Notice delivered to the Collateral Agent as being the amount due and owing to the Control Party under the Obligations; and
 
THIRD, to National Rural, its successors or assigns, or as a court of competent jurisdiction may otherwise direct.
 
Upon any sale of the Pledged Collateral by the Collateral Agent (including pursuant to a power of sale granted by statute or under a judicial proceeding), the receipt of the Collateral Agent or of the officer making the sale shall be a sufficient discharge to the purchaser or purchasers of the Pledged Collateral so sold and such purchaser or purchasers shall not be obligated to see to the application of any part of the purchase money paid over to the Collateral Agent or such officer or be answerable in any way for the misapplication thereof.
 
SECTION 4.04.  Securities Act .    In view of the position of National Rural in relation to the Pledged Collateral, or because of other current or future circumstances, a question may arise under the Securities Act of 1933, as now or hereafter in effect, or any similar statute hereafter enacted analogous in purpose or effect (such Act and any such similar statute as from time to time in effect being called the “ Federal Securities Laws ”) with respect to any disposition of the Pledged Collateral permitted hereunder.  National Rural understands that compliance with the Federal Securities Laws might very strictly limit the course of conduct of the Collateral Agent if the Collateral Agent were to attempt to dispose of all or any part of the Pledged Collateral, and might also limit the extent to which or the manner in which any subsequent transferee of any Pledged Collateral could dispose of the same.  Similarly, there may be other legal restrictions or limitations affecting the Collateral Agent in any attempt to dispose of all or part of the Pledged Collateral under applicable Blue Sky or other state securities laws or similar laws analogous in purpose or effect.  National Rural recognizes that in light of such restrictions and limitations the Collateral Agent may, with respect to any sale of the Pledged Collateral, limit the purchasers to those who will agree, among other things, to acquire such Pledged Collateral for their own account, for investment, and not with a view to the distribution or resale thereof.  National Rural acknowledges and agrees that in light of such restrictions and limitations, the Collateral Agent, in its sole and absolute discretion (a) may proceed to make such a sale whether or not a registration statement for the purpose of registering such Pledged Collateral or part thereof shall have been filed under the Federal Securities Laws and (b) may approach and negotiate with a single potential purchaser to effect such sale.  National Rural acknowledges and agrees that any such sale might result in prices and other terms less favorable to the seller than if such sale were a public sale without such restrictions.  In the event of any such sale, the Collateral Agent shall incur no responsibility or liability for selling all or any part of the Pledged Collateral at a price that the Collateral Agent, in its sole and absolute discretion, may in good faith deem reasonable under the circumstances, notwithstanding the possibility that a substantially higher price might have been realized if the sale were deferred until after registration as aforesaid or if more than a single purchaser were approached.  The provisions of this Section 4.04 will apply notwithstanding the existence of a public or private market upon which the quotations or sales prices may exceed substantially the price at which the Collateral Agent sells.

 
 

 
 
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ARTICLE V
 
The Collateral Agent
 
SECTION 5.01.  Certain Duties and Responsibilities.   (a)  At all times under this Pledge Agreement:
 
(i) the Collateral Agent undertakes to perform such duties and only such duties as are specifically set forth in this Pledge Agreement, and no implied covenants or obligations shall be read into this Pledge Agreement against the Collateral Agent; and
 
(ii) in the absence of bad faith on its part, the Collateral Agent may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon certificates or opinions furnished to the Collateral Agent and substantially conforming to the requirements of this Pledge Agreement; but in the case of any such certificates or opinions which by any provision hereof are specifically required to be furnished to the Collateral Agent the Collateral Agent shall be under a duty to examine the same to determine whether or not they substantially conform to the requirements of this Pledge Agreement.
 
(b)  No provision of this Pledge Agreement shall be construed to relieve the Collateral Agent from liability for its own grossly negligent action, its own grossly negligent failure to act, or its own willful misconduct, except that:
 
(i) this Subsection shall not be construed to limit the effect of Subsection (a) of this Section;
 
(ii) the Collateral Agent shall not be liable for any error of judgment made in good faith, unless it shall be proved that the Collateral Agent was grossly negligent in ascertaining the pertinent facts; and
 
(iii) no provision of this Pledge Agreement shall require the Collateral Agent to expend or risk its own funds or otherwise incur any financial liability in the performance of any of its duties hereunder, or in the exercise of any of its rights or powers, if it shall have reasonable grounds for believing that repayment of such funds or adequate indemnity against such risk or liability is not reasonably assured to it.

 
 

 

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(c)  Whether or not therein expressly so provided, every provision of this Pledge Agreement relating to the conduct or affecting the liability of or affording protection to the Collateral Agent shall be subject to the provisions of this Section.
 
SECTION 5.02.  Certain Rights of Collateral Agent.   Except as otherwise provided in Section 5.01:
 
(a) the Collateral Agent may rely and shall be protected in acting or refraining from acting upon any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture or other paper or document believed by it to be genuine and to have been signed or presented by the proper party or parties;
 
(b) any request or direction of National Rural mentioned herein shall be sufficiently evidenced by a National Rural Notice or National Rural Order;
 
(c) any request or direction of the Control Party mentioned herein shall be sufficiently evidenced by a Control Party Notice or Control Party Order;
 
(d) whenever in the administration of this Pledge Agreement the Collateral Agent shall deem it desirable that a matter be proved or established prior to taking, suffering or omitting any action hereunder, the Collateral Agent (unless other evidence be herein specifically prescribed) may, in the absence of bad faith on its part, rely upon an Officers’ Certificate in the case of National Rural, and a certificate signed by any Vice President of the Control Party in the case of the Control Party;
 
(e) the Collateral Agent may consult with counsel and the advice of such counsel shall be full and complete authorization and protection in respect of any action taken, suffered or omitted by it hereunder in good faith and in reliance thereon;
 
(f) the Collateral Agent shall be under no obligation to exercise any of the rights or powers vested in it by this Pledge Agreement at the request or direction of either National Rural or the Control Party pursuant to this Pledge Agreement, unless such party shall have offered to the Collateral Agent reasonable security or indemnity against the costs, expenses and liabilities which might be incurred by it in compliance with such request or direction;
 
(g) the Collateral Agent shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture or other paper or document, or to recompute, verify, reclassify or recalculate any information contained therein, but the Collateral Agent, in its sole and absolute discretion, may make such further inquiry or investigation into such facts or matters as it may see fit, and, if the Collateral Agent shall determine to make such further inquiry or investigation, it shall be entitled to examine the books, records and premises of National Rural, personally or by agent or attorney;

 
 

 

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(h) the Collateral Agent may execute any of the powers hereunder or perform any duties hereunder either directly or by or through agents or attorneys and the Collateral Agent shall not be responsible for any misconduct or negligence on the part of any agent or attorney appointed with due care by it hereunder;
 
(i) unless explicitly stated herein to the contrary, the Collateral Agent shall have no duty to inquire as to the performance of National Rural’s covenants herein.  In addition, the Collateral Agent shall not be deemed to have knowledge of any Event of Default unless the Collateral Agent has received a Control Party Notice in accordance with Section 4.01(a), and shall not be deemed to have knowledge of the cessation of the same until such time as it receives a National Rural Notice in accordance with Section 4.01(b); and
 
(j) unless explicitly stated herein to the contrary, the Collateral Agent shall have no obligation to take any action with respect to any Event of Default until it has received a Control Party Notice applicable to such event in accordance with Section 4.01(a), and the Collateral Agent shall have no liability for any action or inaction taken, suffered or omitted in respect of any such event by it prior to such time as the applicable Control Party Notice is delivered.  Similarly, the Collateral Agent shall have no obligation to take any action with respect to the cessation of an Event of Default until it has received a National Rural Notice applicable to such event in accordance in accordance with Section 4.01(b), and the Collateral Agent shall have no liability for any action or inaction taken, suffered or omitted in respect of any such event by it prior to such time as the applicable National Rural Notice is delivered.
 
SECTION 5.03.  Money Held by Collateral Agent.    Money held by the Collateral Agent hereunder need not be segregated from other funds except to the extent required by law.  The Collateral Agent shall have no liability to pay interest on or (except as expressly provided herein) invest any such moneys.
 
SECTION 5.04.  Compensation and Reimbursement.   (a)   National Rural agrees:
 
(i) to pay to the Collateral Agent from time to time such reasonable compensation for all services rendered by it hereunder as shall have been set forth in an agreement signed by National Rural;
 
(ii) except as otherwise expressly provided herein, to reimburse the Collateral Agent upon its request for all reasonable expenses, out-of-pocket costs, disbursements and advances incurred or made by the Collateral Agent in accordance with any provision of this Pledge Agreement (including the reasonable compensation and the expenses and disbursements of its agents and counsel), except to the extent any such expense, disbursement or advance may be attributable to its gross negligence or bad faith; and

 
 

 

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(iii) to indemnify the Collateral Agent for, and to defend and hold it harmless against, any loss, liability or expense incurred without gross negligence or bad faith on its part, arising out of or in connection with the acceptance or administration of this Pledge Agreement or the performance of its duties hereunder, 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 hereunder, except to the extent such loss, liability or expense may be attributable to its gross negligence or bad faith; provided , however , that National Rural shall have no liability under this clause for any settlement of any litigation or other dispute effected without the prior written consent of National Rural (such consent not to be unreasonably withheld).
 
(b)  Any such amounts payable as provided hereunder shall be additional Obligations secured by the Lien hereof.  The provisions of this Section 5.04 shall remain operative and in full force and effect regardless of the termination of this Pledge Agreement or the Note Purchase Agreement, the consummation of the transactions contemplated hereby, the repayment of any of the Obligations, the invalidity or unenforceability of any term or provision of this Pledge Agreement or the Note Purchase Agreement, or any investigation made by or on behalf of the Collateral Agent or the Control Party.  All amounts due under this Section 5.04 shall be payable on written demand therefor.
 
SECTION 5.05.  Corporate Collateral Agent Required; Eligibility.   There shall at all times be a Collateral Agent hereunder which shall be a corporation or association organized and doing business under the laws of the United States of America or of any State, authorized under such laws to exercise corporate trust powers, having a combined capital and surplus of at least $50,000,000, subject to supervision or examination by Federal or State authority.  If such corporation publishes reports of condition at least annually, pursuant to law or to the requirements of the aforesaid supervising or examining authority, then for the purposes of this Section, the combined capital and surplus of such corporation shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published.  Neither National Rural nor any Person directly or indirectly controlling, controlled by or under common control with National Rural shall serve as Collateral Agent hereunder.  If at any time the Collateral Agent shall cease to be eligible in accordance with the provisions of this Section, it shall resign immediately in the manner and with the effect hereinafter specified in this Article.
 
SECTION 5.06.  Resignation and Removal; Appointment of Successor.   (a)  No resignation or removal of the Collateral Agent and no appointment of a successor Collateral Agent pursuant to this Article shall become effective until the acceptance of appointment by the successor Collateral Agent under Section 5.07.

 
 

 

20
 
(b)  The Collateral Agent may resign at any time by giving written notice thereof to National Rural.  If an instrument of acceptance by a successor Collateral Agent shall not have been delivered to the Collateral Agent within 30 days after the giving of such notice of resignation, the resigning Collateral Agent may petition any court of competent jurisdiction for the appointment of a successor Collateral Agent.
 
(c)  If at any time:
 
(i) except if an Event of Default has occurred and is continuing, National Rural, in its sole and absolute discretion, elects to remove the Collateral Agent; or
 
(ii) the Collateral Agent shall cease to be eligible under Section 5.05 or shall become incapable of acting or shall be adjudged a bankrupt or insolvent or a receiver of the Collateral Agent or of its property shall be appointed or any public officer shall take charge or control of the Collateral Agent or of its property or affairs for the purpose of rehabilitation, conservation or liquidation,
 
then, in any such case, National Rural may remove the Collateral Agent by delivery of a National Rural Order to that effect.
 
(d)  If the Collateral Agent shall resign, be removed or become incapable of acting, or if a vacancy shall occur in the office of Collateral Agent for any cause, National Rural shall promptly appoint a successor Collateral Agent by delivering a National Rural Notice to the retiring Collateral Agent, the successor Collateral Agent and the Control Party to such effect.
 
SECTION 5.07.  Acceptance of Appointment by Successor.   Every successor Collateral Agent appointed hereunder shall execute, acknowledge and deliver to National Rural, the Control Party and to the retiring Collateral Agent an instrument accepting such appointment, and thereupon the resignation or removal of the retiring Collateral Agent shall become effective and such successor Collateral Agent, without any further act, deed or conveyance, shall become vested with all the rights, powers, trusts and duties of the retiring Collateral Agent; but, on request of National Rural, the Control Party or the successor Collateral Agent, such retiring Collateral Agent shall, upon payment of its charges, execute and deliver an instrument transferring to such successor Collateral Agent all the rights, powers and trusts of the retiring Collateral Agent, and shall duly assign, transfer and deliver to such successor Collateral Agent all property and money held by such retiring Collateral Agent hereunder, subject nevertheless to its Lien, if any, provided for in Section 5.04.  Upon request of any such successor Collateral Agent, National Rural shall execute any and all instruments for more fully and certainly vesting in and confirming to such successor Collateral Agent all such rights, powers and trusts.
 
No successor Collateral Agent shall accept its appointment unless at the time of such acceptance such successor Collateral Agent shall be eligible under Section 5.05 hereof.

 
 

 

21
 
SECTION 5.08.  Merger, Conversion, Consolidation or Succession to Business.   Any corporation into which the Collateral Agent may be merged or converted or with which it may be consolidated, or any corporation resulting from any merger, conversion or consolidation to which the Collateral Agent shall be a party, or any corporation succeeding to all or substantially all of the corporate trust business of the Collateral Agent, shall be the successor of the Collateral Agent hereunder, provided such corporation shall be eligible under Section 5.05 hereof without the execution or filing of any paper or any further act on the part of any of the parties hereto.
 
ARTICLE VI
 
Miscellaneous
 
SECTION 6.01.  Notices.    All notices and other communications hereunder to be made to any party shall be in writing and shall be addressed as specified in Schedule II attached hereto as appropriate.  The address, telephone number, or facsimile number for any party may be changed at any time and from time to time upon written notice given by such changing party to the other parties hereto. A properly addressed notice or other communication shall be deemed to have been delivered at the time it is sent by facsimile (fax) transmission to the party or parties to which it is given.
 
(a)  All National Rural Notices and National Rural Orders delivered to the Collateral Agent shall be contemporaneously copied to the Control Party by National Rural; all Control Party Notices and Control Party Orders delivered to the Collateral Agent shall be contemporaneously copied by Farmer Mac to National Rural; and all Collateral Agent notices delivered to either National Rural or Farmer Mac shall be contemporaneously copied to the other such party by the Collateral Agent.
 
SECTION 6.02.  Waivers; Amendment.    (a)  No failure or delay by a party in exercising any right or power hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such right or power, or any abandonment or discontinuance of steps to enforce such a right or power, preclude any other or further exercise thereof or the exercise of any other right or power.  The rights and remedies of each party hereunder are cumulative and are not exclusive of any rights or remedies that such party would otherwise have.  No waiver of any provision of this Pledge Agreement or consent to any departure by any party therefrom shall in any event be effective unless the same shall be permitted by paragraph (b) of this Section 6.02, and then such waiver or consent shall be effective only in the specific instance and for the purpose for which given.  No notice or demand on any party in any case shall entitle any party to any other or further notice or demand in similar or other circumstances.
 
(b)  Neither this Pledge Agreement nor any provision hereof may be waived, amended or modified except pursuant to an agreement or agreements in writing entered into by National Rural, the Collateral Agent, the Purchaser and Farmer Mac.

 
 

 

22
 
SECTION 6.03.  Successors and Assigns.   Whenever in this Pledge Agreement any of the parties hereto is referred to, such reference shall be deemed to include the successors and assigns of such party; and all covenants, promises and agreements by or on behalf of National Rural, the Collateral Agent, the Purchaser, the Control Party or Farmer Mac that are contained in this Pledge Agreement shall bind and inure to the benefit of their respective successors and assigns.
 
SECTION 6.04.  Counterparts; Effectiveness.   This Pledge Agreement may be executed in counterparts, each of which shall constitute an original but all of which when taken together shall constitute a single contract.  Delivery of an executed signature page to this Pledge Agreement by facsimile transmission shall be as effective as delivery of a manually signed counterpart of this Pledge Agreement.
 
SECTION 6.05.  Severability.   Any provision of this Pledge Agreement held to be invalid, illegal or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such invalidity, illegality or unenforceability without affecting the validity, legality and enforceability of the remaining provisions hereof; and the invalidity of a particular provision in a particular jurisdiction shall not invalidate such provision in any other jurisdiction.  The parties shall endeavor in good-faith negotiations to replace the invalid, illegal or unenforceable provisions with valid provisions the economic effect of which comes as close as possible to that of the invalid, illegal or unenforceable provisions.
 
SECTION 6.06.  GOVERNING LAW.   THIS PLEDGE AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE UNITED STATES OF AMERICA, TO THE EXTENT APPLICABLE, AND OTHERWISE THE LAWS OF THE STATE OF NEW YORK.
 
SECTION 6.07.  WAIVER OF JURY TRIAL.   EACH PARTY HERETO HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS PLEDGE AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY).  EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS PLEDGE AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 6.07.
 
SECTION 6.08.  Headings.   Article and Section headings and the Table of Contents used herein are for convenience of reference only, are not part of this Pledge Agreement and are not to affect the construction of, or to be taken into consideration in interpreting, this Pledge Agreement.

 
 

 

23
 
SECTION 6.09.  Security Interest Absolute.   All rights of the Collateral Agent and/or the Control Party hereunder, the grant of a security interest in the Pledged Collateral and all obligations of National Rural hereunder shall be absolute and unconditional irrespective of (a) any lack of validity or enforceability of the Note Purchase Agreement, any Note, any agreement with respect to any of the Obligations or any other agreement or instrument relating to any of the foregoing, (b) any change in the time, manner or place of payment of, or in any other term of, all or any of the Obligations, or any other amendment or waiver of or any consent to any departure from the Note Purchase Agreement, any Note or any other agreement or instrument, (c) any exchange, release or non-perfection of any Lien on other collateral, or any release or amendment or waiver of or consent under or departure from any guarantee, securing or guaranteeing all or any of the Obligations, or (d) any other circumstance that might otherwise constitute a defense available to, or a discharge of, National Rural in respect of the Obligations or this Pledge Agreement.
 
SECTION 6.10.  Termination or Release.   (a)  This Pledge Agreement shall terminate on the date when the Obligations have been indefeasibly paid in full, and at such time the Lien hereof shall be released.
 
(b)  Upon any withdrawal, substitution or other disposal by National Rural of any Pledged Collateral that is permitted by the terms of this Pledge Agreement, or upon the effectiveness of any written consent to the release of the security interest granted hereby in any Pledged Collateral, the Lien hereof securing such Pledged Collateral shall be automatically released.
 
(c)  In connection with any termination or release pursuant to paragraph (a) or (b) the Collateral Agent shall deliver to National Rural the Pledged Collateral and shall execute and deliver to National Rural, at National Rural’s expense, all documents that National Rural shall reasonably request to evidence such termination or release.  Any execution and delivery of documents pursuant to this Section 6.10 shall be without recourse to or warranty by the Collateral Agent.

 
 

 

24
 
SECTION 6.11.  Collateral Agent Appointed Attorney-in-Fact.    National Rural hereby appoints the Collateral Agent the attorney-in-fact of National Rural for the purpose of, upon the occurrence and during the continuance of an Event of Default, carrying out the provisions of this Pledge Agreement with respect to the Pledged Collateral and taking any action and executing any instrument that the Collateral Agent may deem necessary or advisable to accomplish the purposes hereof, which appointment is irrevocable and coupled with an interest but is subject nevertheless to the terms and conditions of this Pledge Agreement.  Without limiting the generality of the foregoing, the Collateral Agent shall have the right, upon the occurrence and during the continuance of an Event of Default, with full power of substitution either in the Collateral Agent’s name or in the name of National Rural (a) to receive, endorse, assign and/or deliver any and all notes, acceptances, checks, drafts, money orders or other evidences of payment relating to the Pledged Collateral or any part thereof; (b) to demand, collect, receive payment of, give receipt for and give discharges and releases of all or any of the Pledged Collateral; (c) to commence and prosecute any and all suits, actions or proceedings at law or in equity in any court of competent jurisdiction to collect or otherwise realize on all or any of the Pledged Collateral or to enforce any rights in respect of any Pledged Collateral; (d) to settle, compromise, compound, adjust or defend any actions, suits or proceedings relating to all or any of the Pledged Collateral; (e) to notify, or to require National Rural to notify, obligors under Pledged Securities to make payment directly to the Collateral Agent; and (f) subject to the second sentence of Section 4.02(a), to use, sell, assign, transfer, pledge, make any agreement with respect to or otherwise deal with all or any of the Pledged Collateral, and to do all other acts and things necessary to carry out the purposes of this Pledge Agreement, as fully and completely as though the Collateral Agent were the absolute owner of the Pledged Collateral for all purposes; provided that nothing herein contained shall be construed as requiring or obligating the Collateral Agent to make any commitment or to make any inquiry as to the nature or sufficiency of any payment received by the Collateral Agent, or to present or file any claim or notice, or to take any action with respect to the Pledged Collateral or any part thereof or the moneys due or to become due in respect thereof or any property covered thereby.  The Collateral Agent and the Control Party shall be accountable only for amounts actually received as a result of the exercise of the powers granted to them herein, and neither they nor their officers, directors, employees or agents shall be responsible to National Rural for any act or failure to act hereunder, except for their own gross negligence or willful misconduct.
 
[SIGNATURE PAGE FOLLOWS]

 
 

 
 
IN WITNESS WHEREOF, the parties hereto have caused this Pledge Agreement to be duly executed, all as of the day and year first above written.
 
FARMER MAC MORTGAGE
SECURITIES CORPORATION,
 
by  
 
 
Name:
 
Title:
 
FEDERAL AGRICULTURAL
MORTGAGE CORPORATION,
 
by  
 
 
Name:
 
Title:
 
NATIONAL RURAL UTILITIES COOPERATIVE FINANCE CORPORATION,
 
By  
 
 
Name:
 
Title:
 
U.S. BANK TRUST NATIONAL ASSOCIATION,
   
By  
 
 
Name:
 
Title:
 
 
 

 

SCHEDULE I
TO
PLEDGE AGREEMENT
 
ADDITIONAL CRITERIA FOR ELIGIBLE SECURITIES 1

Criteria for Eligible Security of Class A Eligible Member :  Each Class A Eligible Member must satisfy the following criteria only on the date of the pledge of such Eligible Security:

 
·
Long-Term Debt to Net Utility Plant Ratio, as the average ratio of the most recent three full calendar years for which financial information is available, does not exceed 90%.

 
·
Modified Debt Service Coverage Ratio—Distribution, as the average ratio of the most recent three full calendar years for which financial information is available, is greater than or equal to 1.35.

 
·
Equity to Total Assets Ratio, as the average ratio of the most recent three full calendar years for which financial information is available, is greater than or equal to 20%.

 
·
The Eligible Security has a facility rating by National Rural of “4.9” or lower.

Criteria for Eligible Security of Class B Eligible Member :  Each Class B Eligible Member must satisfy the following criteria only on the date of the pledge of such Eligible Security:

 
·
Equity to Total Capitalization Ratio, as the average ratio of the most recent three full calendar years for which financial information is available, is greater than or equal to 25%.

 
·
Modified Debt Service Coverage Ratio—G&T, as the average ratio of the most recent three full calendar years for which financial information is available, is greater than or equal to 1.10.

 
·
Equity to Total Assets Ratio, as the average ratio of the most recent three full calendar years for which financial information is available, is greater than or equal to 10%.

 
·
The Eligible Security has a facility rating by National Rural of “4.9” or lower.


1 The criteria set forth on this Schedule I shall be required to be satisfied only as of the date of pledge of (1) any Pledged Securities that is being pledged for a new advance or (2) any Pledged Securities that is being pledged for an existing advance which is in substitution of, or in addition to, existing collateral, and such criteria shall not be required to be satisfied with respect to Eligible Securities after such date.


SCHEDULE II
TO
PLEDGE AGREEMENT
 
Addresses for Notices
 
The addresses referred to in Section 6.01 hereof, for purposes of delivering communications and notices, are as follows:
 
If to the Purchaser or Farmer Mac:
 
Federal Agricultural Mortgage Corporation
1133 21 st Street N.W., Suite 600
Washington, DC 20036
Fax:  202-872-7713
Attention: Timothy L. Buzby, Vice President/Controller

If to Farmer Mac:
 
Federal Agricultural Mortgage Corporation
1133 21st Street, N.W., Suite 600
Washington, DC 20036
Fax:  202-872-7713
Attention of: Timothy L. Buzby, Vice President/Controller

With a copy to:

Federal Agricultural Mortgage Corporation
1133 21st Street, N.W., Suite 600
Washington, DC 20036
Fax:  202-872-7713
Attention of: Jerome G. Oslick, Vice President - General Counsel

If to National Rural:

National Rural Utilities Cooperative Finance Corporation
2201 Cooperative Way
Herndon, VA 20171-3025
Telephone:  703-709-6718
Fax:  703-709-6779
Attention of: Steven L. Lilly, Senior Vice President &
Chief Financial Officer

 
 

 

SCHEDULE II
TO
PLEDGE AGREEMENT
 
With a copy to:

National Rural Utilities Cooperative Finance Corporation
2201 Cooperative Way
Herndon, VA 20171-3025
Telephone:  703-709-6712
Fax:  703-709-6811
Attention of: John J. List, Esq., Senior Vice President &
   General Counsel
If to the Collateral Agent:
 
U.S. Bank Trust National Association
100 Wall Street
Suite 1600
New York, NY 10005-3701
Telephone:  (212) 361-2893
Fax:  (212) 509-3384
Attention of: Beverly A. Freeney

 
 

 

ANNEX A
TO
PLEDGE AGREEMENT
 
NATIONAL RURAL UTILITIES
COOPERATIVE FINANCE CORPORATION
 
PLEDGE AGREEMENT DATED AS OF ________________, 2008
 
CERTIFICATE OF PLEDGED COLLATERAL FILED WITH
U.S. BANK TRUST NATIONAL ASSOCIATION, Collateral Agent
 
________________, Chief Executive Officer (or Chief Financial Officer) and ____________________, Vice-President, respectively, of National Rural Utilities Cooperative Finance Corporation, hereby certify to the Control Party and the Collateral Agent under the above-mentioned Pledge Agreement as amended to the date hereof (herein called the “Pledge Agreement”) as follows:
 
1.
 
The Allowable Amount of Pledged Collateral certified hereby, remaining on deposit with the Collateral Agent, as shown on Schedule A hereto, is
  $    
             
2.
 
The Allowable Amount of Pledged Collateral certified hereby, being deposited as shown on Schedule B hereto, is
  $    
 
           
3.
 
The aggregate principal amount of the Note(s) outstanding at the date hereof is
  $    
             
4.
 
The aggregate amount, if any, of the Note(s) to be issued on the basis of this Certificate is
  $    
             
5.
 
The sum of amounts in items 3 and 4 is
  $    
             
6.
 
The aggregate amount by which the Allowable Amount of Pledged Collateral exceeds the aggregate principal amount of the Note(s) outstanding (item 1 plus 2 and minus 5) is
  $    
             
7.
 
The Allowable Amount of Pledged Collateral which is included in items 1 and  2 above from Class B Eligible Members does not constitute more than 20% of the aggregate amount of any notes or bonds: (1) pledged hereunder; (2) pledged to secure any other notes or bonds issued by National Rural or any affiliate to Farmer Mac or any affiliate; (3) sold by National Rural or any affiliate to Farmer Mac or any affiliate; or (4) sold to any trust whose beneficial ownership is owned or controlled by Farmer Mac or an affiliate.
       

 
 

 

ANNEX A
TO
PLEDGE AGREEMENT
  
8.
 
To the knowledge of the undersigned, each Eligible Security from Class A Eligible Member the Allowable Amount of which is included in item 2 satisfies the following criteria on the date of this Certificate:  (1) Long-Term Debt to Net Utility Plant Ratio, as the average ratio of the most recent three full calendar years for which financial information is available, does not exceed 90%; (2) Modified Debt Service Coverage Ratio—Distribution, as the average ratio of the most recent three full calendar years for which financial information is available, is greater than or equal to 1.35; (3) Equity to Total Assets Ratio, as the average ratio of the most recent three full calendar years for which financial information is available, is greater than or equal to 20%; and (4) the Eligible Security has a Facility Rating by National Rural of “4.9” or better.
       
             
9.
 
To the knowledge of the undersigned, each Eligible Security from Class B Eligible Member the Allowable Amount of which is included in item 2 satisfies the following criteria on the date of this Certificate:  (1) Equity to Total Capitalization Ratio, as the average ratio of the most recent three full calendar years for which financial information is available, is greater than or equal to 25%; (2) Modified Debt Service Coverage Ratio—G&T, as the average ratio of the most recent three full calendar years for which financial information is available, is greater than or equal to 1.10; (3) Equity to Total Assets Ratio, as the average ratio of the most recent three full calendar years for which financial information is available, is greater than or equal to 10%; and (4) the Eligible Security has a Facility Rating by National Rural of “4.9” or better.
       
             
10.
 
So far as is known to the undersigned, no Event of Default exists.
       

 
 

 

ANNEX A
TO
PLEDGE AGREEMENT
 
All terms which are defined in the Pledge Agreement are used herein as so defined.
 
Dated:
 
 
 
 
 
 
OF NATIONAL RURAL UTILITIES
COOPERATIVE FINANCE CORPORATION
 
 
 

 

ANNEX A
TO
PLEDGE AGREEMENT
 
PLEDGED SECURITIES ON DEPOSIT
 
SCHEDULE A TO OFFICERS’ CERTIFICATE
DATED

Eligible Securities
 
Name of Issuer
   
Allowable Amount (Item 1)
 
Pledged Securities
(Here List Securities)
               


 
 

 

ANNEX A
TO
PLEDGE AGREEMENT
 
PLEDGED SECURITIES BEING DEPOSITED
 
SCHEDULE B TO OFFICERS’ CERTIFICATE
DATED

Eligible Securities
 
Name of Issuer
   
Allowable Amount (Item 2)
 
Pledged Securities
(Here List Securities)
               
 
 
 

 
 
EXHIBIT 10.26.1

 
FARMER MAC MORTGAGE
SECURITIES CORPORATION,
As Note Purchaser

NATIONAL RURAL UTILITIES
COOPERATIVE FINANCE CORPORATION,
As Borrower

U.S. BANK TRUST NATIONAL ASSOCIATION,
As Collateral Agent

FEDERAL AGRICULTURAL
MORTGAGE CORPORATION,
As Guarantor
 


FIRST AMENDMENT TO PLEDGE AGREEMENT
 

 
Dated as of September 23, 2009
 

 
 
 

 

FIRST AMENDMENT TO PLEDGE AGREEMENT
 
FIRST AMENDMENT TO PLEDGE AGREEMENT, dated as of September 23, 2009, among NATIONAL RURAL UTILITIES COOPERATIVE FINANCE CORPORATION, a District of Columbia cooperative association and its successors and assigns (hereinafter called “ National Rural ”), FARMER MAC MORTGAGE SECURITIES CORPORATION, (the “Purchaser”), a wholly owned subsidiary of FEDERAL AGRICULTURAL MORTGAGE CORPORATION, a federally-chartered instrumentality of the United States and an institution of the Farm Credit System and its successors and assigns (“ Farmer Mac ”), U.S. BANK TRUST NATIONAL ASSOCIATION, a national banking association and its successors and assigns (hereinafter called the “ Collateral Agent ”), and Farmer Mac, as Guarantor.
 
RECITALS
 
WHEREAS, the Purchaser, National Rural, Farmer Mac, and the Collateral Agent are parties to a certain Pledge Agreement dated as of December 15, 2008 (“Pledge Agreement”); and
 
WHEREAS, the parties have agreed to modify the Pledge Agreement as set forth herein.
 
NOW, THEREFORE, in consideration of the mutual agreements herein contained, Farmer Mac, the Purchaser, National Rural and the Collateral Agent agree as follows:
 
1.            Recitals .  The foregoing Recitals are hereby incorporated by reference into this Amendment.

2.            Definitions .  Capitalized terms used herein and not otherwise defined shall have the meanings assigned to them in the Pledge Agreement.

3.            Amendment .

(a)           The Pledge Agreement is hereby amended by deleting the definition of Allowable Amount in Section 1.01 in its entirety and replacing it with the following:

Allowable Amount ” on any date means, with respect to Eligible Securities, the aggregate principal amount of such Eligible Securities theretofore advanced thereon which remains unpaid on such date, subject to any limitation on the Allowable Amount applicable through the definition of “Eligible Security.”
 
(b)           The Pledge Agreement is hereby amended by deleting the definition of Eligible Security in Section 1.01 in its entirety and replacing it with the following:

 
 

 

Eligible Security ” means a note or bond of any Eligible Member payable or registered to, or to the order of, National Rural, (A) in respect of which (i) the outstanding principal amount under such note or bond, together with the outstanding principal amount of any other notes or bonds of such Eligible Member pledged hereunder or pledged to secure any other notes or bonds issued by National Rural to Farmer Mac or any affiliate or sold by National Rural or any affiliate to any trust whose beneficial ownership is owned or controlled by Farmer Mac, does not aggregate more than $35 million; provided, however, that a note or bond in excess of $35 million may be pledged hereunder but up to $35 million principal amount of such note or bond (considered together with any other note or bond of such Eligible Member pledged hereunder or pledged to secure any other notes or bonds issued by National Rural to Farmer Mac or any affiliate or sold by National Rural or any affiliate to Farmer Mac, any affiliate or any trust whose beneficial ownership is owned or controlled by Farmer Mac) shall be counted in the Allowable Amount of such Eligible Security (with the amount of any such excess recorded in Item 7 of the Certificate of Pledged Collateral in the form of Annex A attached hereto), (ii) no default has occurred in the payment of principal or interest in accordance with the terms of such note or bond that is continuing beyond the contractual grace period (if any) provided in such note or bond for such payment and (iii) no “event of default” as defined in such note or bond (or in any instrument creating a security interest in favor of National Rural in respect of such note or bond), shall exist that has resulted in the exercise of any right or remedy described in such note or bond (or in any such instrument); (B) which is not classified by National Rural as a non-performing loan under generally accepted accounting principles in the United States; and (C) which otherwise satisfies the criteria set forth on Schedule I hereto, as such Schedule I may be amended from time to time as mutually agreed upon in writing by Farmer Mac and National Rural, with notice of any such amendment to the Collateral Agent prior to the pledge of such Eligible Security.
 
(c)           The Pledge Agreement is hereby amended by deleting Section 2.01(a) in its entirety and replacing it with the following:

(a)           National Rural shall make available to the Control Party, within forty-five (45) days of a pledge of the Pledged Securities in connection with an advance (or for a longer period as National Rural and the Control Party agree), such back-up information as is reasonably necessary in order to allow the Control Party to confirm compliance of such Pledged Securities to the requisite criteria as outlined herein.  Upon receipt of the back-up information, the Control Party shall have ninety (90) days to object in writing to the inclusion of any item of the Pledged Securities as part of the Pledged Collateral.  If the Control Party reasonably determines that any of the Pledged Securities do not meet the criteria for Eligible Securities, then National Rural shall have forty-five (45) days in which to provide substitute collateral, and the timeline specified above for National Rural to make available back-up material and confirmation shall also apply as to the substituted collateral.
 
(d)           The Pledge Agreement is hereby amended by adding new Section 2.11(f) as follows:

 
 

 

(f)           the Allowable Amount of Pledged Collateral from Class B Members does not constitute more than 20% of the aggregate amount of any notes or bonds: (1) pledged hereunder; (2) pledged to secure any other notes or bonds issued by National Rural or any affiliate to Farmer Mac or any affiliate; (3) sold by National Rural or any affiliate to Farmer Mac or any affiliate; or (4) sold to any trust whose beneficial ownership is owned or controlled by Farmer Mac or an affiliate.
 
(e)           The Pledge Agreement is hereby amended by deleting Annex A to the Pledge Agreement in its entirety and replacing it with Annex A attached to this Amendment.

4.            GOVERNING LAW .    THIS AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, FEDERAL LAW.  TO THE EXTENT FEDERAL LAW INCORPORATES STATE LAW, THAT STATE LAW SHALL BE THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS MADE AND PERFORMED THEREIN.
 
5.            Inconsistency with Pledge Agreement .  Except as otherwise amended or modified herein, the terms, conditions and provisions of the Pledge Agreement remain in full force and effect.  In the event of any conflict or inconsistency between the terms of this Amendment and the Pledge Agreement, the terms of this Amendment shall control.

6.            Counterparts .  This Amendment may be executed in two or more counterparts, each of which shall be an original, but all of which together shall constitute one and the same instrument.
 
[SIGNATURE PAGE FOLLOWS]

 
 

 

IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed as of the day and year first above written.

 
FARMER MAC MORTGAGE
 
SECURITIES CORPORATION
     
 
By:
  
 
Title:
 
   
 
FEDERAL AGRICULTURAL
 
MORTGAGE CORPORATION
     
 
By:
  
 
Title:
 
   
 
NATIONAL RURAL UTILITIES
 
COOPERATIVE FINANCE
 
CORPORATION
     
 
By:
  
 
Title:
 
   
 
U.S. BANK TRUST NATIONAL
 
ASSOCIATION
     
 
By:
   
 
Title:
 

 
 

 

ANNEX A
TO
PLEDGE AGREEMENT
 
NATIONAL RURAL UTILITIES
COOPERATIVE FINANCE CORPORATION
 
PLEDGE AGREEMENT DATED AS OF DECEMBER 15, 2008
 
CERTIFICATE OF PLEDGED COLLATERAL FILED WITH
U.S. BANK NATIONAL ASSOCIATION, Collateral Agent
 
________________, Chief Executive Officer (or Chief Financial Officer or Controller) and ____________________, Vice-President, respectively, of National Rural Utilities Cooperative Finance Corporation, hereby certify to the Control Party and the Collateral Agent under the above-mentioned Pledge Agreement as amended to the date hereof (herein called the “Pledge Agreement”) as follows:
 
1.
The Allowable Amount of Pledged Collateral certified hereby, remaining on deposit with the Collateral Agent, as shown on Schedule A hereto, is
 
$
       
2.
The Allowable Amount of Pledged Collateral certified hereby, being deposited as shown on Schedule B hereto, is
 
$
       
3.
The aggregate principal amount of the Note(s) outstanding at the date hereof is
 
$
       
4.
The aggregate amount, if any, of the Note(s) to be issued on the basis of this Certificate is
 
$
       
5.
The sum of amounts in items 3 and 4 is
 
$
       
6.
The aggregate amount by which the Allowable Amount of Pledged Collateral exceeds the aggregate principal amount of the Note(s) outstanding (the sum of items 1 and 2 minus item 5) is
 
$
       
7.
The cumulative amount by which each Eligible Security listed on Schedule A or Schedule B exceeds $35 million is
 
$

 
 

 

ANNEX A
TO
PLEDGE AGREEMENT
    
8.
The Allowable Amount of Pledged Collateral which is included in items 1 and 2 above from Class B Eligible Members does not constitute more than 20% of the aggregate amount of any notes or bonds: (1) pledged hereunder; (2) pledged to secure any other notes or bonds issued by National Rural or any affiliate to Farmer Mac or any affiliate; (3) sold by National Rural or any affiliate to Farmer Mac or any affiliate; or (4) sold to any trust whose beneficial ownership is owned or controlled by Farmer Mac or an affiliate.
 
     
9.
To the knowledge of the undersigned, each Eligible Security from a Class A Eligible Member the Allowable Amount of which is included in item 2 satisfies the following criteria on the date of this Certificate:  (1) Long-Term Debt to Net Utility Plant Ratio, as the average ratio of the most recent three full calendar years for which financial information is available, does not exceed 90%; (2) Modified Debt Service Coverage Ratio—Distribution, as the average ratio of the most recent three full calendar years for which financial information is available, is greater than or equal to 1.35; (3) Equity to Total Assets Ratio, as the average ratio of the most recent three full calendar years for which financial information is available, is greater than or equal to 20%; and (4) the Eligible Security has a Facility Rating by National Rural of “4.9” or lower.
 
     
10.
To the knowledge of the undersigned, each Eligible Security from a Class B Eligible Member the Allowable Amount of which is included in item 2 satisfies the following criteria on the date of this Certificate:  (1) Equity to Total Capitalization Ratio, as the average ratio of the most recent three full calendar years for which financial information is available, is greater than or equal to 25%; (2) Modified Debt Service Coverage Ratio—G&T, as the average ratio of the most recent three full calendar years for which financial information is available, is greater than or equal to 1.10; (3) Equity to Total Assets Ratio, as the average ratio of the most recent three full calendar years for which financial information is available, is greater than or equal to 10%; and (4) the Eligible Security has a Facility Rating by National Rural of “4.9” or lower.
 

 
 

 

ANNEX A
TO
PLEDGE AGREEMENT
 
11.
So far as is known to the undersigned, no Event of Default exists.
 
     
12.
To the extent an Eligible Security listed on Schedule A or Schedule B has an outstanding principal amount of more than $35 million, the Allowable Amount of Pledged Collateral set forth in items 1 and 2 above reflects only $35 million with respect to such Eligible Security (or a lesser amount representing the difference between $35 million and the aggregate amount of any notes or bonds of the same Eligible Member pledged or sold to Farmer Mac or any affiliate in any previous transaction), with any excess above $35 million (or the lesser amount) reflected in item 7 above.
 
     
13.
Each Eligible Member whose notes are Pledged Securities has received or is eligible to receive a loan or commitment for a loan from RUS or any successor agency.
 

All terms which are defined in the Pledge Agreement are used herein as so defined.
 
Dated:  _____________________
 
 
  
   
 
  
   
 
OF NATIONAL RURAL UTILITIES
 
COOPERATIVE FINANCE CORPORATION

 
 

 

ANNEX A
TO
PLEDGE AGREEMENT
 
PLEDGED SECURITIES ON DEPOSIT
 
SCHEDULE A TO OFFICERS’ CERTIFICATE
DATED

Eligible Securities
 
Name of Issuer
   
Allowable Amount (Item 1)
 
Pledged Securities
(Here List Securities)
               

 
 

 

ANNEX A
TO
PLEDGE AGREEMENT
 
PLEDGED SECURITIES BEING DEPOSITED
 
SCHEDULE B TO OFFICERS’ CERTIFICATE
DATED
  
Eligible Securities
 
Name of Issuer
   
Allowable Amount (Item 2)
 
Pledged Securities
(Here List Securities)
               
 
 
 

 
 

EXHIBIT 10.27
December 15, 2008

National Rural Utilities Cooperative Finance Corporation
2201 Cooperative Way
Herndon, Virginia  20171

Re:   Setoff Rights under Note Purchase Agreement

Ladies and Gentlemen:

In connection with that certain Note Purchase Agreement, dated as of December 15, 2008 (the “ Agreement ”), by and among National Rural Utilities Cooperative Finance Corporation (“ National Rural ” or “ Borrower ”), Farmer Mac Mortgage Securities Corporation (“ Purchaser ”), and Federal Agricultural Mortgage Corporation (“ Guarantor ”), National Rural has agreed, in the event of a payment default by National Rural on the Notes, to grant the Control Party certain rights of setoff against amounts due and owing to National Rural on any Series C Preferred Stock, par value $1,000 per share (the “ Preferred Stock ”), of Guarantor.  Capitalized terms used but not otherwise defined herein shall have the meaning set forth in the Agreement.

Borrower, Guarantor and Purchaser hereby agree that in the event of, and only in the event of, a payment Event of Default by Borrower pursuant to Section 7.01(a) of the Agreement (“ Payment Default ”), the Control Party shall have the right, at the Control Party’s sole option and discretion, to setoff any amounts due to Borrower in respect of Guarantor’s Preferred Stock, whether in respect of dividends, redemption, liquidation or otherwise (the “ Preferred Payments ”), and to apply the Preferred Payments on a dollar-for-dollar basis against the amount of Borrower’s Payment Default.  Such setoff amount by the Control Party shall not exceed the amount of Borrower’s Payment Default, and under no circumstances shall Borrower be liable to Purchaser or the Guarantor in connection with the transactions described herein for any amount in excess of the principal amount of the Notes plus interest, as provided in the Agreement.  Borrower’s amount due under the Notes shall be satisfied and discharged to the extent of, but only to the extent of, the Control Party’s effective setoff.  If no Payment Default by Borrower has occurred, however, the Guarantor shall have no right to setoff or otherwise withhold the Preferred Payments from Borrower.  The Control Party shall provide Borrower with notice of, and reasonably detailed back up information with respect to, any setoff effected by the Control Party under this letter agreement.

The rights of the Control Party herein shall be in addition to, and not in substitution or limitation of, any other rights and remedies available to the Control Party, whether such rights or remedies arise pursuant to law, the Agreement or any other agreement between the parties.

[SIGNATURE PAGE FOLLOWS]

 
 

 

Please acknowledge your acceptance of the foregoing terms by executing this letter agreement in the space below, whereupon this agreement shall constitute a valid agreement binding upon Purchaser and Borrower.

 
Very truly yours,
   
 
FARMER MAC MORTGAGE SECURITIES
 
CORPORATION
     
 
By:
   
   
Name: Jerome G. Oslick
   
Title:   Vice President and Secretary
     
 
FEDERAL AGRICULTURAL
 
MORTGAGE CORPORATION
     
 
By:
   
   
Name:  Timothy L. Buzby
   
Title:    Vice President – Controller

ACKNOWLEDGED AND AGREED:
 
   
NATIONAL RURAL UTILITIES
 
COOPERATIVE FINANCE CORPORATION
 
     
By:
   
 
Name:
 
 
Title:
 
 
 
 

 
 
 
EXHIBIT 10.28

 
FARMER MAC MORTGAGE SECURITIES CORPORATION
as Note Purchaser

NATIONAL RURAL UTILITIES
COOPERATIVE FINANCE CORPORATION
as Borrower

FEDERAL AGRICULTURAL MORTGAGE CORPORATION
as Guarantor
 

 
NOTE PURCHASE AGREEMENT
 

 
Dated as of February 5, 2009
 

 
 

 

TABLE OF CONTENTS
 
 
Page
   
RECITALS
1
   
ARTICLE I DEFINITIONS
1
SECTION 1.01. Definitions
1
SECTION 1.02. Principles of Construction
5
   
ARTICLE II PURCHASE OF NOTES
5
SECTION 2.01. Purchase of Notes; Minimum Denominations
5
SECTION 2.02. Interest Rates and Payment
5
SECTION 2.03. Maturity
7
   
ARTICLE III CONDITIONS PRECEDENT
8
SECTION 3.01. Conditions Precedent to the Purchase of Each Note
8
SECTION 3.02. Certificate of Pledged Collateral
9
   
ARTICLE IV REPORTING REQUIREMENTS
9
SECTION 4.01. Annual Reporting Requirements
9
SECTION 4.02. Default Notices
9
   
ARTICLE V REPRESENTATIONS OF THE PARTIES
10
SECTION 5.01. Representations of Farmer Mac and the Purchaser
10
SECTION 5.02. Representations of National Rural
10
   
ARTICLE VI SECURITY AND COLLATERAL
12
SECTION 6.01. Security and Collateral
12
   
ARTICLE VII EVENTS OF DEFAULT
13
SECTION 7.01. Events of Default
13
SECTION 7.02. Acceleration
13
SECTION 7.03. Remedies Not Exclusive
14
   
ARTICLE VIII MISCELLANEOUS
14
SECTION 8.01. GOVERNING LAW
14
SECTION 8.02. WAIVER OF JURY TRIAL
14
SECTION 8.03. Notices
14
SECTION 8.04. Benefit of Agreement
14
SECTION 8.05. Entire Agreement
14
SECTION 8.06. Amendments and Waivers
15
SECTION 8.07. Counterparts
15
SECTION 8.08. Termination of Agreement
15
SECTION 8.09. Survival
15
SECTION 8.10. Severability
15
   
ARTICLE IX GUARANTEE
16
 
 
 

 

SECTION 9.01. Guarantee
16
SECTION 9.02. Control by the Guarantor
17

Schedule I – Addresses for Notices
Schedule II – Form of Applicable Margin Notice
Schedule III – Form of Pricing Agreement

Annex A-1 – Form of Fixed Rate Note-5/1
Annex A-2 – Form of Fixed Rate Note 5Y
Annex A-3 – Form of Floating Rate Note
Annex B – Opinion of Counsel to National Rural
Annex C – Officers’ Certificate
Annex D – Form of Securities Purchase Agreement

 
 

 

NOTE PURCHASE AGREEMENT
 
NOTE PURCHASE AGREEMENT, dated as of February 5, 2009, among FARMER MAC MORTGAGE SECURITIES CORPORATION (the “ Purchaser ”), a wholly owned subsidiary of FEDERAL AGRICULTURAL MORTGAGE CORPORATION, a federally-chartered instrumentality of the United States and an institution of the Farm Credit System (“ Farmer Mac ” or the “ Guarantor ”); NATIONAL RURAL UTILITIES COOPERATIVE FINANCE CORPORATION, a cooperative association existing under the laws of the District of Columbia (“ National Rural ”); and Farmer Mac, as Guarantor.
 
RECITALS
 
WHEREAS National Rural wishes from time to time to issue and sell Notes to the Purchaser, and the Purchaser wishes from time to time to purchase such Notes from National Rural, all on the terms and subject to the conditions herein provided; and
 
WHEREAS Farmer Mac is an instrumentality of the United States formed to provide for a secondary marketing arrangement for agricultural real estate mortgages; National Rural is a non-profit cooperative and Farmer Mac, the Purchaser and National Rural have agreed that the Notes will be secured by the pledge of notes for borrowings from National Rural by members of National Rural, as provided herein.
 
NOW, THEREFORE, in consideration of the mutual agreements herein contained, Farmer Mac, the Purchaser and National Rural agree as follows:
 
ARTICLE I
 
DEFINITIONS
 
SECTION 1.01.       Definitions  .  As used in this Agreement, the following terms shall have the following meanings:
 
Agreement ” means this Note Purchase Agreement, as the same may be amended from time to time.
 
Applicable Margin ” means the Applicable Margin (LIBOR) or the Applicable Margin (Treasury), as the context may require.
 
Applicable Margin (LIBOR) ” means the margin to be added to the LIBOR Rate to determine the rate of interest payable on the Floating Rate Notes from time to time.  The Applicable Margin (LIBOR) shall be communicated in writing by Farmer Mac to National Rural in accordance with Section 2.02(d) hereof, in the form of Schedule II hereof, and calculated by Farmer Mac as follows: (i) Farmer Mac’s Cost of Funds (expressed in relation to the LIBOR Rate), plus 0.75%, minus (ii) the LIBOR Rate.  The Applicable Margin (LIBOR) for any Floating Rate Note shall be set forth in the applicable Pricing Agreement.
 
 
 

 

Applicable Margin (Treasury) ” means the margin to be added to the Treasury Rate to determine the rate of interest payable on the Fixed Rate Notes.  The Applicable Margin (Treasury) shall be communicated in writing by Farmer Mac to National Rural in accordance with Section 2.02(d) hereof, in the form of Schedule II hereof, and calculated by Farmer Mac as follows: (i) Farmer Mac’s Cost of Funds (expressed in relation to the Treasury Rate), plus 0.75%, minus (ii) the Treasury Rate.  The Applicable Margin (Treasury) for any Fixed Rate Note shall be set forth in the applicable Pricing Agreement.
 
Business Day ” means any day other than a Saturday, a Sunday, or a day on which any of the Federal Reserve Bank of New York, Farmer Mac’s office in Washington, DC or National Rural’s office in Virginia is not open for business.
 
Certificate of Pledged Collateral ” has the meaning given to that term in the Pledge Agreement.
 
Closing Date ” means the date of the closing of each issuance of Notes hereunder.
 
Collateral Agent ” means U.S. Bank National Association, or its successor, as collateral agent under the Pledge Agreement.
 
Control Party ” means (i) the Guarantor, so long as no Guarantor Default has occurred and is continuing, or (ii) the holders of the Notes for so long as a Guarantor Default has occurred and is continuing.
 
Dollar ” or “ $ ” means the lawful money of the United States of America.
 
Eligible Member ” has the meaning given to that term in the Pledge Agreement.
 
Event of Default ” has the meaning given to that term in Section 7.01.
 
Farmer Mac’s Cost of Funds ” means the cost of funds quoted by Farmer Mac to National Rural based on Farmer Mac’s estimate of the economic cost to obtain cash funds from the wholesale funding market by issuing unsecured medium-term notes to fully fund to maturity the Note or Notes purchased by Purchaser from National Rural.
 
Farmer Mac Series C Preferred Stock ” means the Non-Voting Cumulative Preferred Stock Series C, of Farmer Mac.
 
Financial Statements ”, in respect of a Fiscal Year, means the consolidated financial statements (including footnotes) of National Rural for that Fiscal Year as audited by independent certified public accountants selected by National Rural.
 
Fiscal Year ” means the fiscal year of National Rural, as such may be changed from time to time, which at the date hereof commences on June 1 of each calendar year and ends on May 31 of the following calendar year.
 
Fixed Rate Notes ” means the Fixed Rate Notes-5/1, the Fixed Rate Notes-5Y, or any other fixed rate notes with terms determined by the parties pursuant to the terms of a Pricing Agreement.
 
 
2

 

Fixed Rate Notes-5/1 ” means one or more five-year fixed rate notes, callable after one year, of National Rural payable to the Purchaser, having the terms provided for in Article II of this Agreement and otherwise in the form of Annex A-1 attached hereto, except to the extent Farmer Mac and National Rural may have approved changes therein.
 
Fixed Rate Notes- 5Y ” means one or more five-year noncallable fixed rate notes of National Rural payable to the Purchaser, having the terms provided for in Article II of this Agreement and otherwise in the form of Annex A-2 attached hereto, except to the extent Farmer Mac and National Rural may have approved changes therein.
 
Floating Rate Notes ” means one or more two-year noncallable floating rate notes of National Rural payable to the Purchaser, having the terms provided for in Article II of this Agreement and otherwise in the form of Annex A-3 attached hereto, except to the extent Farmer Mac and National Rural may have approved changes therein, or any other floating rate notes with terms determined by the parties pursuant to the terms of a Pricing Agreement.
 
Guarantor Default ” means a default by the Guarantor under its obligations pursuant to Article IX which is existing and continuing.
 
Interest Payment Date ” means an Interest Payment Date (Fixed Rate Note) or an Interest Payment Date (Floating Rate Note), as the context may require.
 
Interest Payment Date (Fixed Rate Note) ” means the dates set forth in the Pricing Agreement for fixed rate notes as the interest payment dates therefor; provided, however, that if any such date is not a Business Day, such Interest Payment Date that would otherwise be such date will be the next Business Day following such date.  The Interest Payment Dates (Fixed Rate Note) will be set forth in the applicable Pricing Agreement.
 
Interest Payment Date (Floating Rate Note) ” means the first (1 st ) day of each January, April, July and October, unless other dates are agreed by the parties hereto; provided, however, that if any such date is not a Business Day, such Interest Payment Date that would otherwise be such date will be the next Business Day following such date.  The Interest Payment Dates (Floating Rate Note) will be set forth in the applicable Pricing Agreement.
 
Interest Period (Floating Rate Note)   means, until all outstanding principal amount of the Floating Rate Notes and interest accrued thereon have been paid in full, each 3-month period comprising a calendar quarter from and including the first day of a calendar quarter (i.e., January 1 st , April 1 st , July 1 st and October 1 st ) (unless another period is agreed by the parties hereto and set forth in the applicable Pricing Agreement) to and including the last day of the same calendar quarter (i.e., March 31 st , June 30 th , September 30 th and December 31 st ) (unless otherwise agreed by the parties hereto and set forth in a Pricing Agreement); provided , that the initial Interest Period (Floating Rate Note) means the period from and including the date of issuance to and excluding the first Interest Payment Date (Floating Rate Note) following the date of issuance; provided, further , that if any Interest Period (Floating Rate Note) would end on a day other than a Business Day, then such Interest Period shall be extended to and include the next succeeding Business Day and the next Interest Period shall commence on the next succeeding day.
 
 
3

 

LIBOR Rate ” shall mean, for any Interest Period, the rate appearing on Reuters Page LIBOR01 (or on any successor or substitute page of such service, or if the Reuters service ceases to be available, any successor to or substitute for such service providing rate quotations comparable to those currently provided on such page of such service, as mutually agreed by National Rural and Farmer Mac from time to time for purposes of providing quotations of interest rates applicable to Dollar deposits in the London interbank market) as of 11:00 a.m., London time, on the day that is two London Banking Days prior to the commencement of such Interest Period (Floating Rate Note), as the rate for the offering of Dollar deposits with a maturity of three months (unless another maturity is agreed by the parties hereto and set forth in the applicable Pricing Agreement).  Such rate shall apply for the initial Interest Period (Floating Rate Note) for any advance notwithstanding that such initial Interest Period (Floating Rate Note) for an advance may be shorter than three months.
 
London Banking Day ” shall mean any day on which commercial banks and foreign exchange markets settle payments and are open for general business (including dealings in foreign exchange and foreign currency deposits) in the Dollar, in London, England.
 
Member ” shall mean any Person who is member of National Rural.
 
National Rural Notice ” has the meaning given to that term in the Pledge Agreement.
 
Notes ” means the Fixed Rate Notes and the Floating Rate Notes, or any one or more of them as the context may require.
 
Note Documents ” means the Notes, this Agreement, and the Pledge Agreement.
 
Notice of Borrowing ” has the meaning set forth in Section 2.01 hereof.
 
Person ” means an individual, a corporation, a partnership, an association, a trust or any other entity or organization, including a government or political subdivision or an agency or instrumentality thereof.
 
Pledge Agreement ” means the Pledge Agreement dated as of the date hereof, among National Rural, the Purchaser, Farmer Mac and the Collateral Agent.
 
Pledged Collateral ” has the meaning given to that term in the Pledge Agreement.
 
Pledged Securities ” has the meaning given to that term in the Pledge Agreement.
 
Pricing Agreement ” means the Pricing Agreement for each issuance of Notes among Farmer Mac, the Purchaser and National Rural in the form of Schedule III attached hereto.
 
Securities Purchase Agreement ” means the Series C Preferred Stock Purchase Agreement, a form of which is attached hereto as Annex D .
 
 
4

 

Treasury Rate ” means the applicable 5-year benchmark United States Treasury rate at the time of pricing a Note, unless otherwise agreed to by the parties and set forth in the applicable Pricing Agreement.
 
SECTION 1.02.       Principles of Construction .  Unless the context shall otherwise indicate, the terms defined in Section 1.01 hereof include the plural as well as the singular and the singular as well as the plural.  The words “hereafter”, “herein”, “hereof”, “hereto” and “hereunder”, and words of similar import, refer to this Agreement as a whole.  The descriptive headings of the various articles and sections of this Agreement were formulated and inserted for convenience only and shall not be deemed to affect the meaning or construction of the provisions hereof.
 
ARTICLE II
 
PURCHASE OF NOTES
 
SECTION 2.01.       Purchase of Notes; Minimum Denominations .  The Purchaser agrees to purchase Notes, at 100% of their principal amount, from time to time, on or before February 28, 2011, as requested by National Rural by written notice (each, a “ Notice of Borrowing ”) to Farmer Mac in an aggregate principal amount, for all Notes purchased hereunder, not in excess of $500 million, subject to satisfaction of the conditions set forth herein.   Each advance under this Agreement shall be disbursed in a minimum amount of $50 million and additional increments of $5 million in excess thereof.  Each advance shall price within 3 Business Days of National Rural providing a Notice of Borrowing to Farmer Mac and shall close and fund within 3 Business Days of pricing, subject to satisfaction of the conditions set forth herein and in accordance with the procedures set forth in Section 2.02(d) hereof, unless otherwise agreed by the parties hereto and set forth in the applicable Pricing Agreement.
 
SECTION 2.02.       Interest Rates and Payment .  
 
(a)   Floating Rate Notes .  Each Floating Rate Note shall bear interest, payable quarterly in arrears unless otherwise agreed by the parties hereto and set forth in the applicable Pricing Agreement, on the outstanding principal amount thereof (computed on the basis of a 360-day year and the actual number of days elapsed) from its date of issuance until final payment on the maturity date thereof or otherwise at a variable rate per annum equal to the LIBOR Rate for each Interest Period (Floating Rate Note) plus the Applicable Margin (LIBOR).  The LIBOR Rate shall reset as of the first day of each Interest Period.  The (i) initial LIBOR Rate and (ii) Applicable Margin (LIBOR) for the term of each Floating Rate Note shall be specified in the applicable Pricing Agreement.  Interest only shall be payable on each Interest Payment Date (Floating Rate Note).  The Interest Payment Dates (Floating Rate Note) shall be determined at the time of an advance and set forth in the applicable Pricing Agreement.  The principal amount of each Floating Rate Note, together with any accrued but unpaid interest, shall be due and payable on the maturity date.
 
 
5

 

(b)   Fixed Rate Notes .  Each Fixed Rate Note shall bear interest, payable semi-annually in arrears unless otherwise agreed by the parties hereto and set forth in the applicable Pricing Agreement on the outstanding principal amount thereof (computed on the basis of a 30-day month and a 360-day year) from its date of issuance until final payment on the maturity date thereof or otherwise at a fixed rate per annum equal to the Treasury Rate plus the Applicable Margin (Treasury), in each case as specified for the term of each Fixed Rate Note in the applicable Pricing Agreement.  Interest only shall be payable on each Interest Payment Date (Fixed Rate Note).  The Interest Payment Dates (Fixed Rate Note) shall be determined at the time of an advance and set forth in the applicable Pricing Agreement.  The principal amount of each Fixed Rate Note, together with any accrued but unpaid interest, shall be due and payable on the applicable maturity date.
 
(c)   Default Interest .  To the extent any payment of interest or principal is not paid when due, interest shall continue to accrue thereon at the applicable rate per annum determined as provided above plus one percent.
 
(d)   Notice of Borrowing; Determination of Applicable Margin; Procedure for Pricing .    (i)  Each Notice of Borrowing shall indicate the amount of Notes requested to be advanced and the type of Note that National Rural wishes to advance.  A Notice of Borrowing may request preliminary pricing indications for more than one type of Note, with the understanding that only one type of Note will be issued on any particular Closing Date, unless otherwise agreed by the parties hereto in a Pricing Agreement.  Each Notice of Borrowing shall also provide name, telephone and email contact information of an authorized representative of National Rural.
 
(ii) Upon receipt of a Notice of Borrowing from National Rural, Farmer Mac shall, within 2 Business Days, provide to National Rural a preliminary indication of the Applicable Margin (LIBOR) or Applicable Margin (Treasury), or both, as applicable to any Notice of Borrowing. Upon an acceptance of such preliminary indication of pricing by National Rural, the applicable Note will price within one Business Day (and may price on the day of the preliminary pricing if the parties so agree) thereafter, unless the parties otherwise agree to a longer period of time as set forth in the applicable Pricing Agreement. Farmer Mac shall provide National Rural with written notice of the final Applicable Margin (LIBOR) or Applicable Margin (Treasury) no later than the time of pricing of each advance. National Rural shall be deemed to approve of such pricing so long as the Applicable Margin (LIBOR) or Applicable Margin (Treasury) shall not exceed the preliminary indication by more than 5 basis points (0.05%). If the final pricing does exceed the preliminary indication by more than 5 basis points (0.05%), an authorized representative of National Rural must agree via email confirmation prior to or simultaneously with the pricing to accept such margin.
 
 
6

 

(e)   Payments and Prepayments.
 
(i) Each Floating Rate Note and Fixed Rate Note-5Y shall not be prepayable during the term of such Note.
 
(ii) National Rural shall have the right, at its option, at any time and from time to time, to repay or prepay the principal amount of any Fixed Rate Note-5/1, in whole only or in whole or in part (as specified in the applicable Pricing Agreement) on or after the first (1 st ) anniversary of the applicable Closing Date on the scheduled call dates set forth in the applicable Pricing Agreement, upon at least nine (9) Business Days prior written notice to Farmer Mac, which notice shall be received by Farmer Mac on a day that is on or before the ninth Business Day prior to the related call date, but in any event, no later than noon eastern time on the ninth Business Day prior to the related call date. In the event that any such repayment or prepayment of the principal amount of any Note is made on a day other than an Interest Payment Date (Fixed Rate Note), accrued interest on the principal amount thereof shall be payable through and excluding the call date on which such repayment or prepayment is made.
 
(iii) The prepayment terms of any other type of Fixed Rate Note or Floating Rate Note shall be set forth in the applicable Pricing Agreement.
 
(f)   Payment Notice .  Farmer Mac shall send to National Rural, not later than the fifth Business Day prior to an Interest Payment Date for any Note, a notice setting forth the amount of principal and interest, as applicable, due and owing on the next Interest Payment Date for such Note.
 
SECTION 2.03.       Maturity .
 
(a)   Floating Rate Notes .  The Floating Rate Notes will mature the earlier of: (i) two years from the applicable Closing Date and (ii) February 28, 2013.
 
(b)   Fixed Rate Notes-5/1 .  The Fixed Rate Notes-5/1 will mature the earlier of: (i) five years from the applicable Closing Date and (ii) February 29, 2016.
 
(c)   Fixed Rate Notes-5Y .  The Fixed Rate Notes-5Y will mature the earlier of: (i) five years from the applicable Closing Date and (ii) February 29, 2016.
 
(d)   Other Notes .  Any other type of Note issued hereunder will have the maturity date set forth in the applicable Pricing Agreement.
 
 
7

 
 
ARTICLE III
 
CONDITIONS PRECEDENT
 
SECTION 3.01.       Conditions Precedent to the Purchase of Each Note .  On each Closing Date, the Purchaser shall be under no obligation to purchase any Note unless and until the following conditions have been satisfied:
 
(a)   The Notes .  Farmer Mac shall have received the original of such Notes, duly executed on behalf of National Rural, in the applicable form attached as Annex A-1, A-2 or A-3 hereto, or otherwise in a form agreed by the parties.
 
(b)   The Pledge Agreement .  Farmer Mac shall have received an original of the Pledge Agreement duly executed on behalf of National Rural and the Collateral Agent.
 
(c)   Opinion of Counsel .  Farmer Mac shall have received an opinion of counsel to National Rural substantially in the form of Annex B, attached hereto.
 
(d)   Financial and Other Information .  National Rural shall have provided Farmer Mac with its most recent Financial Statements and such other information concerning National Rural as Farmer Mac shall have reasonably requested.
 
(e)   No Material Adverse Change .  National Rural shall have certified to Farmer Mac (in the manner specified in paragraph (i) of this Section 3.01), and Farmer Mac shall be satisfied, that no material adverse change shall have occurred in the financial condition or business of National Rural between the end of National Rural’s most recently completed Fiscal Year for which Financial Statements have been made publicly available and the date of the purchase of such Note, which has not been set forth in documents, certificates or financial information furnished to Farmer Mac or publicly filed.
 
(f)   UCC Filing .  National Rural shall have provided Farmer Mac with evidence that National Rural has filed the financing statement required pursuant to Section 2.02(i) of the Pledge Agreement.
 
(g)   No Event of Default .  National Rural shall have certified to Farmer Mac and Farmer Mac shall be satisfied that no Event of Default shall have occurred and be continuing.
 
(h)   Invest to Participate .  National Rural shall have entered into a Securities Purchase Agreement to purchase Farmer Mac Series C Preferred Stock such that National Rural shall own or have agreed to purchase at least 4% of the sum of (1) the aggregate principal amount of the Notes outstanding hereunder and (2) the aggregate principal amount of the notes outstanding under the Note Purchase Agreement among the parties dated as of December 15, 2008, taking into account the advance made hereunder on the Closing Date.

 
8

 

(i)   Certification of Senior Management .  National Rural shall have provided Farmer Mac a certification by any vice president of National Rural, substantially in the form of Annex C attached hereto, as to the following: (i) that National Rural is a lending institution organized as a private, not-for-profit, cooperative association with the appropriate expertise, experience and qualifications to make loans to its Members for rural electrification and related purposes; (ii) the matters to be certified under paragraphs (e) and (g) of this Section 3.01; and (iii) the representations and warranties of National Rural.
 
SECTION 3.02.       Certificate of Pledged Collateral .  No later than three Business Days after each advance hereunder, National Rural shall provide Farmer Mac and the Collateral Agent a copy of a Certificate of Pledged Collateral, dated as of the last day of the calendar month most recently ended at least 10 Business Days prior to such authentication and delivery, or a more recent date, at National Rural’s option, in accordance with the terms of the Pledge Agreement.
 
ARTICLE IV
 
REPORTING REQUIREMENTS
 
SECTION 4.01.       Annual Reporting Requirements .  So long as any Notes remain outstanding, National Rural shall provide Farmer Mac with the following items within 90 days of the end of each Fiscal Year, in each case, in form and substance satisfactory to Farmer Mac:
 
(a)   the Financial Statements for such Fiscal Year;
 
(b)   a Certificate of Pledged Collateral;
 
(c)   a receipt from the Collateral Agent, or such other evidence as is satisfactory to Farmer Mac, as to the Pledged Collateral held by the Collateral Agent at the end of such Fiscal Year; and
 
(d)   such other information concerning National Rural as is reasonably requested by Farmer Mac.
 
SECTION 4.02.       Default Notices .  If an action, occurrence or event shall happen that is, or with notice and the passage of time would become, an Event of Default, National Rural shall deliver a National Rural Notice of such action, occurrence or event to Farmer Mac before 4:00 p.m. (District of Columbia time) on the Business Day following the date National Rural becomes aware of such action, occurrence or event, and, if such Event of Default should occur, shall submit to Farmer Mac, within five days thereafter, a report setting forth its views as to the reasons for the Event of Default, the anticipated duration of the Event of Default and what corrective actions National Rural is taking to cure such Event of Default.
 
 
9

 
 
ARTICLE V
 
REPRESENTATIONS OF THE PARTIES
 
SECTION 5.01.       Representations of Farmer Mac and the Purchaser .  Each of Farmer Mac and the Purchaser jointly and severally represent to National Rural that on the date hereof and on each date on which the Purchaser purchases a Note from National Rural:
 
(a)   it has all necessary authority and has taken all necessary corporate action, and obtained all necessary approvals, in order for it to execute and deliver all Note Documents to which it is a party and for its obligations and agreements under the Note Documents to constitute valid and binding obligations of Farmer Mac and the Purchaser; and in particular the terms of the transaction, and the actions taken by Farmer Mac and the Purchaser, are in compliance with and in satisfaction of the requirements of the Farm Credit Administration, as amended or waived by the Farm Credit Administration; and
 
(b)   The Purchaser is purchasing the Notes for its own account and not with a view to the distribution thereof, provided that the disposition by Farmer Mac or the Purchaser of their property shall at all times be within their control.  Farmer Mac and the Purchaser each understands that the Notes have not been registered under the Act and may be resold only if an exemption from registration is available.
 
SECTION 5.02.       Representations of National Rural .   National Rural hereby represents to Farmer Mac and the Purchaser that on the date hereof and on each date on which the Purchaser purchases a Note from National Rural:
 
(a)   National Rural has been duly organized and is validly existing and in good standing as a cooperative association under the laws of the District of Columbia;
 
(b)   National Rural has the corporate power and authority to execute and deliver this Agreement, each of the other Note Documents and the applicable Pricing Agreement and Securities Purchase Agreement, if any, to consummate the transactions contemplated hereby and thereby and to perform its obligations hereunder and thereunder;
 
(c)   National Rural has taken all necessary corporate and other action to authorize the execution and delivery of this Agreement, each of the other Note Documents and the applicable Pricing Agreement and Securities Purchase Agreement, if any, the consummation by National Rural of the transactions contemplated hereby and thereby and the performance by National Rural of its obligations hereunder and thereunder;
 
 
10

 

(d)   this Agreement, each of the other Note Documents and the applicable Pricing Agreement and Securities Purchase Agreement, if any, have been duly authorized, executed and delivered by National Rural and constitute the legal, valid and binding obligations of National Rural, enforceable against National Rural in accordance with their respective terms, subject to: (i) applicable bankruptcy, reorganization, insolvency, moratorium and other laws of general applicability relating to or affecting creditors’ rights generally; and (ii) the application of general principles of equity regardless of whether such enforceability is considered in a proceeding in equity or at law;
 
(e)   no approval, consent, authorization, order, waiver, exemption, variance, registration, filing, notification, qualification, license, permit or other action is now, or under existing law in the future will be, required to be obtained, given, made or taken, as the case may be, with, from or by any regulatory body, administrative agency or governmental authority having jurisdiction over National Rural or, except to the extent set forth on Schedule 5.02 hereto, any third party under any agreement to which National Rural is a party to authorize the execution and delivery by National Rural of this Agreement, any of the other Note Documents or the applicable Pricing Agreement and Securities Purchase Agreement, if any, or the consummation by National Rural of the transactions contemplated hereby or thereby or the performance by National Rural of its obligations hereunder or thereunder;
 
(f)   neither the execution or delivery by National Rural of this Agreement, any of the other Note Documents or the applicable Pricing Agreement and Securities Purchase Agreement, if any, nor the consummation by National Rural of any of the transactions contemplated hereby or thereby nor the performance by National Rural of its obligations hereunder or thereunder, including, without limitation, the pledge of the Pledged Securities (as such term is defined in the Pledge Agreement) to Farmer Mac, conflicts with or will conflict with, violates or will violate, results in or will result in a breach of, constitutes or will constitute a default under, or results in or will result in the imposition of any lien or encumbrance pursuant to any term or provision of the articles of incorporation or the bylaws of National Rural or any provision of any existing law or any rule or regulation currently applicable to National Rural or any judgment, order or decree of any court or any regulatory body, administrative agency or governmental authority having jurisdiction over National Rural or, except to the extent set forth on Schedule 5.02 hereto, the terms of any mortgage, indenture, contract or other agreement to which National Rural is a party or by which National Rural or any of its properties is bound;
 
(g)   there is no action, suit, proceeding or investigation before or by any court or any regulatory body, administrative agency or governmental authority presently pending or, to the knowledge of National Rural, threatened with respect to National Rural, this Agreement, any of the other Note Documents or the applicable Pricing Agreement and Securities Purchase Agreement, if any, challenging the validity or enforceability of this Agreement, any of the other Note Documents or the applicable Pricing Agreement and Securities Purchase Agreement, if any, or seeking to restrain, enjoin or otherwise prevent National Rural from engaging in its business as currently conducted or the consummation by National Rural of the transactions contemplated by this Agreement, any of the other Note Documents or the applicable Pricing Agreement and Securities Purchase Agreement, if any, or which, if adversely determined, would have a material adverse effect on National Rural’s financial condition or its ability to perform its obligations under this Agreement, any of the other Note Documents or the applicable Pricing Agreement and Securities Purchase Agreement, if any;
 
 
11

 

(h)   National Rural is a lending institution organized as a private, not-for-profit, cooperative association with the appropriate expertise, experience and qualifications to make loans to its Members for rural electrification purposes;
 
(i)   no material adverse change has occurred in the financial condition or business of National Rural between the end of National Rural’s most recently completed Fiscal Year for which Financial Statements have been made publicly available and the date this representation is given which has not been set forth in documents, certificates or financial information furnished to Farmer Mac or publicly filed; and
 
(j)   to the extent that National Rural is required to obtain the consent of any lenders or to amend any applicable credit agreement for National Rural to incur liens to secure a Note pursuant to the Agreement and the Pledge Agreement, as described in Schedule 5.02, National Rural shall have obtained such consent or amendment on or prior to each date on which the Purchaser purchases that Note from National Rural.
 
ARTICLE VI
 
SECURITY AND COLLATERAL
 
SECTION 6.01.       Security and Collateral .
 
(a)   National Rural shall cause the Allowable Amount of the Pledged Collateral (as such terms are defined in the Pledge Agreement) to be at all times not less than 100% of the aggregate outstanding principal amount of the Notes.
 
(b)   National Rural shall not create, or permit to exist, any pledge, lien, charge, mortgage, encumbrance, debenture, hypothecation or other similar security instrument that secures, or in any way attaches to, such Pledged Collateral, other than the lien of the Pledge Agreement, without the prior written consent of Farmer Mac.
 
(c)   The Pledged Securities will at all times be notes issued to National Rural by Eligible Members (as defined in the Pledge Agreement).
 
 
12

 
 
ARTICLE VII
 
EVENTS OF DEFAULT
 
SECTION 7.01.       Events of Default .  Each of the following actions, occurrences or events shall, but only (except in the case of subsections (a), (d) and (e) below) if National Rural does not cure such action, occurrence or event within 30 days of notice from Farmer Mac requesting that it be cured, constitute an “ Event of Default ” under the terms of this Agreement:
 
(a)   a failure by National Rural to make a payment of principal or interest on any Note for more than ten days after the same becomes due and payable;
 
(b)   a material representation by National Rural to Farmer Mac in connection with this Agreement, any Note or the Pledge Agreement, or any material information reported pursuant to Article V, shall prove to be incorrect or untrue in any material respect when made or deemed made;
 
(c)   a failure by National Rural to comply with any other material covenant or provision contained in this Agreement or any of the other Note Documents;
 
(d)   the entry of a decree or order by a court having jurisdiction in the premises adjudging National Rural a bankrupt or insolvent, or approving as properly filed a petition seeking reorganization, arrangement, adjustment or composition of or in respect of National Rural under the Federal Bankruptcy Act or any other applicable Federal or State law or law of the District of Columbia, or appointing a receiver, liquidator, assignee, trustee, sequestrator (or other similar official) of National Rural 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; or
 
(e)   the commencement by National Rural 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 petition or answer or consent seeking reorganization or relief under the Federal Bankruptcy Act 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 receiver, liquidator, assignee, trustee, sequestrator (or similar official) of National Rural 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 National Rural in furtherance of any such action.
 
SECTION 7.02.       Acceleration .  Upon the occurrence, and during the continuance, of an Event of Default, Farmer Mac may, upon notice to that effect to National Rural, declare the entire principal amount of, and accrued interest on, the Notes at the time outstanding to be immediately due and payable.
 
 
13

 

SECTION 7.03.       Remedies Not Exclusive .  Upon the occurrence, and during the continuance, of an Event of Default, Farmer Mac shall be entitled to take such other action as is provided for by law, in this Agreement, or in any of the other Note Documents, including injunctive or other equitable relief.
 
ARTICLE VIII
 
MISCELLANEOUS
 
SECTION 8.01.       GOVERNING LAW .  EXCEPT AS SET FORTH IN SECTION 9.01 HEREOF, THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, FEDERAL LAW.  TO THE EXTENT FEDERAL LAW INCORPORATES STATE LAW, THAT STATE LAW SHALL BE THE LAWS OF THE DISTRICT OF COLUMBIA APPLICABLE TO CONTRACTS MADE AND PERFORMED THEREIN.
 
SECTION 8.02.       WAIVER OF JURY TRIAL .  EACH PARTY HERETO HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY). EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 8.02.
 
SECTION 8.03.       Notices .  All notices and other communications hereunder to be made to any party shall be in writing and shall be addressed as specified in Schedule I attached hereto as appropriate except as otherwise provided herein.  The address, telephone number, or facsimile number for any party may be changed at any time and from time to time upon written notice given by such changing party to the other parties hereto.  A properly addressed notice or other communication shall be deemed to have been delivered at the time it is sent by facsimile (fax) transmission to the party or parties to which it is given.
 
SECTION 8.04.       Benefit of Agreement .  This Agreement shall become effective when it shall have been executed by Farmer Mac, the Purchaser and National Rural, and thereafter shall be binding upon and inure to the respective benefit of the parties and their permitted successors and assigns.
 
SECTION 8.05.       Entire Agreement .  This Agreement, including the Schedules and Annexes hereto, and the other Note Documents, constitute the entire agreement between the parties hereto concerning the matters contained herein and supersede all prior oral and written agreements and understandings between the parties.
 
 
14

 

SECTION 8.06.       Amendments and Waivers .
 
(a)   No provision of this Agreement may be amended or modified except pursuant to an agreement in writing entered into by Farmer Mac, the Purchaser and National Rural.  No provision of this Agreement may be waived except in writing by the party or parties receiving the benefit of and under such provision.
 
(b)   No failure or delay of Farmer Mac, the Purchaser or National Rural in exercising any power or right hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such right or power, or any abandonment or discontinuance of steps to enforce such a right or power, preclude any other or further exercise thereof or the exercise of any other right or power.  No waiver of any provision of this Agreement or consent to any departure by National Rural therefrom shall in any event be effective unless the same shall be authorized as provided in paragraph (a) of this Section 8.06, and then such waiver or consent shall be effective only in the specific instance and for the purpose for which given.  No notice or demand on National Rural in any case shall entitle National Rural to any other or further notice or demand in similar or other circumstances.
 
SECTION 8.07.       Counterparts .  This Agreement may be executed in two or more counterparts, each of which shall be an original, but all of which together shall constitute one and the same instrument.
 
SECTION 8.08.       Termination of Agreement .  This Agreement shall terminate upon the indefeasible payment in full of all amounts payable hereunder and under the Notes.
 
SECTION 8.09.       Survival .  The representations and warranties of each of the parties hereto contained in this Agreement and contained in each of the other Note Documents, and the parties’ obligations under any and all thereof, shall survive and shall continue in effect following the execution and delivery of this Agreement, any disposition of the Notes and the expiration or other termination of any of the other Note Documents, but, in the case of each Note Document, shall not survive the expiration or the earlier termination of such Note Document, except to the extent expressly set forth in such Note Document.
 
SECTION 8.10.       Severability .  If any term or provision of this Agreement or any Note Document or the application thereof to any circumstance shall, in any jurisdiction and to any extent, be invalid or unenforceable, such term or such provision shall be ineffective as to such jurisdiction to the extent of such invalidity or unenforceability without invalidating or rendering unenforceable any remaining terms or provisions of such Note Document or the application of such term or provision to circumstances other than those as to which it is held invalid or unenforceable.
 
 
15

 
 
ARTICLE IX
 
GUARANTEE
 
SECTION 9.01.       Guarantee .
 
(a)   The Guarantor agrees to pay in full to the holder of each Note, the principal of, and interest on, the Notes when due, whether at maturity, upon redemption or otherwise (the “ Guaranteed Obligations ”), on the applicable due date for such payment.
 
(b)   The Guarantor’s obligations hereunder shall inure to the benefit of and shall be enforceable by any holder of a Note if, for reason beyond the control of such holder, such holder shall have failed to receive the interest or principal, as applicable, payable to such holder any payment date, redemption date or stated maturity date.  The Guarantor hereby irrevocably agrees that its obligations hereunder shall be unconditional, irrespective of the validity, legality or enforceability of, or any change in or amendment to, this Agreement, the Pledge Agreement or any Note, the absence of any action to enforce the same, the waiver or consent by the holder of any Note or by the Collateral Agent with respect to any provisions of this Agreement or the Pledge Agreement, or any action to enforce the same or any other circumstance that might otherwise constitute a legal or equitable discharge or defense of a guarantor.  The Guarantor hereby waives diligence, presentment, demand of payment, protest or notice with respect to each Note or the interest represented thereby, and all demands whatsoever, and covenants that the guarantee will not be discharged except upon complete irrevocable payment of the principal and interest obligations represented by the Notes.
 
(c)   The Guarantor shall be subrogated to and is hereby assigned all rights of the holder of the Notes against National Rural and the proceeds of the Pledged Collateral, all in respect of any amounts paid by the Guarantor pursuant to the provisions of the guarantee contained in this Article IX.  Each holder shall execute and deliver to the Guarantor in each holder’s name such instruments and documents as the Guarantor may reasonably request in writing confirming or evidencing such subrogation and assignment.
 
(d)   No reference herein shall alter or impair the guarantee, which is absolute and unconditional, of the due and punctual payment of principal of, and interest on, the Notes, on the dates such payments are due.
 
(e)   The guarantee is not an obligation of, and is not a guarantee as to principal or interest by the Farm Credit Administration, the United States or any other agency or instrumentality of the United States (other than the Guarantor).
 
(f)   The guarantee shall be governed by, and construed in accordance with, Federal law.  To the extent Federal law incorporates state law, that state law shall be the laws of the District of Columbia applicable to contracts made and performed therein.
 
 
16

 

SECTION 9.02.       Control by the Guarantor If the Guarantor is the Control Party, the Guarantor shall be considered the holder of all Notes outstanding for all purposes under the Pledge Agreement and shall be permitted to take any and all actions permitted to be taken by the holder thereunder.  The Control Party will have the sole right to direct the time, method and place of conducting any proceeding for any remedy available to the Collateral Agent or any holder with respect to the Notes or exercising any power conferred on the Collateral Agent with respect to the Notes provided that:
 
(i) such direction shall not be in conflict with any rule of law or with the Pledge Agreement;
 
(ii) the Collateral Agent shall have been provided with indemnity from the Control Party reasonably satisfactory to it; and
 
(iii) the Collateral Agent may take any other action deemed proper by such Collateral Agent that is not inconsistent with such direction, provided, however, that the Collateral Agent need not take any action which it determines might expose it to liability.
 
[SIGNATURE PAGE FOLLOWS]

 
17

 

IN WITNESS WHEREOF, each party hereto has caused this Agreement to be executed by an authorized officer as of the day and year first above written.
 
FARMER MAC MORTGAGE SECURITIES
CORPORATION,
   
By:
 
Title:
 
 
FEDERAL AGRICULTURAL
MORTGAGE CORPORATION,
   
By:
 
Title:
 

NATIONAL RURAL UTILITIES
COOPERATIVE FINANCE CORPORATION,
   
By:
 
Title:
 
 
 
 

 

SCHEDULE I
TO
NOTE PURCHASE AGREEMENT
 
Addresses for Notices
 
1.
The addresses referred to in Section 8.03 hereof, for purposes of delivering communications and notices, are as follows:
 
If to the Purchaser or Farmer Mac:
 
Federal Agricultural Mortgage Corporation
1133 21st Street, N.W., Suite 600
Washington, DC 20036
Fax:  202-872-7713
Attention of: Timothy L. Buzby, Vice President and Controller
 
With a copy to:
Federal Agricultural Mortgage Corporation
1133 21st Street, N.W., Suite 600
Washington, DC 20036
Fax:  202-872-7713
Attention of: Robert Owens/Jitin Singhal, Capital Markets Group
 
With a copy also to:
Federal Agricultural Mortgage Corporation
1133 21st Street, N.W., Suite 600
Washington, DC 20036
Fax:  202-872-7713
Attention of: Jerome G. Oslick, Vice President - General Counsel
 
If to National Rural:
 
National Rural Utilities Cooperative Finance Corporation
2201 Cooperative Way
Herndon, VA 20171-3025
Telephone:  703-709-6718
Fax:  703-709-6779
Attention of: Steven L. Lilly, Senior Vice President &
Chief Financial Officer
With a copy to:
 
National Rural Utilities Cooperative Finance Corporation
2201 Cooperative Way
Herndon, VA 20171-3025
Telephone:  703-709-6748

 
 

 

Fax:  703-709-6779
Attention of: John Suter, Vice President, Capital Market Funding

With a copy also to:
 
National Rural Utilities Cooperative Finance Corporation
2201 Cooperative Way
Herndon, VA 20171-3025
Telephone:  703-709-6712
Fax:  703-709-6811
Attention of: John J. List, Esq., Senior Vice President &
General Counsel
 
 
2

 

SCHEDULE II
TO
NOTE PURCHASE AGREEMENT

FORM OF
APPLICABLE MARGIN NOTICE
 
Issuer Name: National Rural Utilities Cooperative Finance Corporation
 
Date of Note(s):  __________________________
 
Type of Note: ____________________________
 
Applicable Margin:  ________________________
 
Effective Date of Applicable Margin:  _________________________
 
This Applicable Margin Notice is delivered pursuant to the Note Purchase Agreement, dated as of February 5, 2009 among Federal Agricultural Mortgage Corporation, Farmer Mac Mortgage Securities Corporation and National Rural Utilities Cooperative Finance Corporation (the “Note Purchase Agreement”).  Capitalized terms used but not defined herein shall have the meanings given to them in the Note Purchase Agreement.
 
FEDERAL AGRICULTURAL MORTGAGE CORPORATION

By:

         
Signature
Date
 
Title of Authorized Officer
 
 
Name:  _____________________
 
PLEASE FAX TO:  ______________________   ATTN:  ________________________

ACCEPTED BY:

NATIONAL RURAL UTILITIES COOPERATIVE FINANCE CORPORATION

By:

         
Signature
Date
 
Title of Authorized Officer
 
 
Name:  _____________________

 
3

 

SCHEDULE III
TO
NOTE PURCHASE AGREEMENT

FORM OF PRICING AGREEMENT

The Federal Agricultural Mortgage Corporation, a federally chartered instrumentality of the United States and an institution of the Farm Credit System (“Farmer Mac”), Farmer Mac Mortgage Securities Corporation, a wholly owned subsidiary of Farmer Mac (the “Purchaser”) and National Rural Utilities Cooperative Finance Corporation, a cooperative association existing under the laws of the District of Columbia (“National Rural”), agree that, on _______ __, 20__ (the “Closing Date”), the Purchaser will purchase from National Rural and National Rural will sell to the Purchaser $________________ aggregate principal amount of [Fixed Rate Notes-5Y][Fixed Rate Notes-5/1 ][Floating Rate Notes][specify other Fixed Rate or Floating Rate Notes] (the “Notes”) with the following terms:
 
[Initial LIBOR Rate: _______]
 
[Treasury Rate:______]
 
Applicable Margin (LIBOR or Treasury):__________
 
Interest Payment Dates:___________
 
Interest Periods:_____________
 
[The Notes may not be prepaid at any time.]
 
[The Notes may not be prepaid prior to __________ __, 20__ [[one] year from the date of issuance].  On or after _____________ __, 20__ the Notes may be prepaid on the scheduled call dates set forth herein, in whole [only] [or in part], at the option of National Rural, according to the terms of the Note Purchase Agreement (as defined below).]
 
[Scheduled call dates: __________________]
 
Maturity Date: __________________
 
The issuance and sale of the Notes by National Rural to the Purchaser shall occur under the terms and conditions of the Note Purchase Agreement, dated as of February 5, 2009, among Farmer Mac, the Purchaser and National Rural (the “Note Purchase Agreement”).  All of the provisions contained in the Note Purchase Agreement are hereby incorporated by reference in their entirety and shall be deemed to be a part of this Pricing Agreement to the same extent as if such provisions had been set forth in full herein.  Capitalized terms used herein and not defined herein shall have the meanings given to those terms in the Note Purchase Agreement.  This Pricing Agreement may be executed in two or more counterparts.
 
In the event of any inconsistency between the terms of this Pricing Agreement and the Note Purchase Agreement, the terms of this Pricing Agreement shall apply.
 
 
4

 
 
Agreed to this __ day of _______, 20__.
 
 
Federal Agricultural Mortgage Corporation,
   
 
By:
   
 
Name:
   
 
Title:
   
   
 
Farmer Mac Mortgage Securities
Corporation,
   
 
By:
   
 
Name:
   
 
Title:
   
   
 
National Rural Utilities Cooperative
 
Finance Corporation,
   
 
By:
   
 
Name:
   
 
Title:
   
 
 
5

 

ANNEX A-1

[FORM OF FIXED RATE NOTE-5/1]
 
NATIONAL RURAL UTILITIES COOPERATIVE FINANCE CORPORATION
 
__% Fixed Rate 5/1 Senior Note due _______
 
Washington, D.C.
____________, 20__
 
FOR VALUE RECEIVED, the undersigned, NATIONAL RURAL UTILITIES COOPERATIVE FINANCE CORPORATION (“ National Rural ”), a District of Columbia cooperative association, hereby promises to pay to FARMER MAC MORTGAGE SECURITIES CORPORATION, a wholly owned subsidiary of Farmer Mac (as defined below) (“ the Purchaser ”), or registered assigns, the principal sum of _______________ MILLION DOLLARS ($___,000,000.00) on __________________, together with interest computed from the date hereof according to the terms of the Note Purchase Agreement (as defined below).
 
Payments of principal and interest on this Note are to be made in lawful money of the United States of America at such place as shall have been designated by written notice to National Rural from the registered holder of this Note as provided in the Note Purchase Agreement referred to below.
 
This Note is issued pursuant to a Note Purchase Agreement, dated as of February 5, 2009, as well as the Pricing Agreement for $__ Fixed Rate Notes dated as of ______ __, 20__ (together, as from time to time amended, the “ Note Purchase Agreement ”), among National Rural, the Purchaser and Federal Agricultural Mortgage Corporation (“ Farmer Mac ”), and is entitled to the benefits thereof.  This Note is also entitled to the benefits of the Pledge Agreement, dated as of February 5, 2009, among National Rural, the Purchaser, Farmer Mac and the Collateral Agent named therein.
 
Capitalized terms used herein and not defined herein shall have the meanings given to those terms in the Note Purchase Agreement.
 
This Note is a registered Note and, upon surrender of this Note for registration of transfer or exchange, accompanied by a written instrument of transfer duly executed by the registered holder hereof or such holder’s attorney duly authorized in writing, a new Note will be issued to, and registered in the name of, the transferee.  Prior to due presentment for registration of transfer, National Rural may treat the person in whose name this Note is registered as the owner hereof for the purpose of receiving payment and for all other purposes, and National Rural will not be affected by any notice to the contrary.
 
This Note may not be prepaid prior to __________ __, 20__ [one year from the date of issuance].  On or after _____________ __, 20__ this Note may be prepaid at any time, in whole [only] [or in part], at the option of National Rural, according to the terms of the Note Purchase Agreement and provided that, if such optional prepayment is made on a date other than an Interest Payment Date, accrued interest on the principal amount hereof that is being prepaid shall be payable through and excluding the date such optional prepayment is made.
 
 
 

 

If an Event of Default, as defined in the Note Purchase Agreement, occurs and is continuing, the principal of this Note may be declared due and payable in the manner, at the price and with the effect provided in the Note Purchase Agreement.
 
This Note shall be construed and enforced in accordance with, and the rights of National Rural and the holder hereof shall be governed by, the laws of the District of Columbia, excluding choice-of-law principles of the law of the District of Columbia that would require the application of the laws of another jurisdiction.
 
NATIONAL RURAL UTILITIES
COOPERATIVE FINANCE CORPORATION,
 
By
   
 
  Name:
 
  Title:
 
 
 

 

ANNEX A-2
 
[FORM OF FIXED RATE NOTE-5Y]
 
NATIONAL RURAL UTILITIES COOPERATIVE FINANCE CORPORATION
 
__% Fixed Rate 5-Year Senior Note due _______
 
Washington, D.C.
____________, 20__
 
FOR VALUE RECEIVED, the undersigned, NATIONAL RURAL UTILITIES COOPERATIVE FINANCE CORPORATION (“ National Rural ”), a District of Columbia cooperative association, hereby promises to pay to FARMER MAC MORTGAGE SECURITIES CORPORATION, a wholly owned subsidiary of Farmer Mac (as defined below)(the “ Purchaser ”), or registered assigns, the principal sum of _______________ MILLION DOLLARS ($___,000,000.00) on __________________, together with interest computed from the date hereof according to the terms of the Note Purchase Agreement (as defined below).
 
Payments of principal and interest on this Note are to be made in lawful money of the United States of America at such place as shall have been designated by written notice to National Rural from the registered holder of this Note as provided in the Note Purchase Agreement referred to below.
 
This Note is issued pursuant to a Note Purchase Agreement, dated as of February 5, 2009, as well as the Pricing Agreement for $__ Fixed Rate Notes dated as of _________ __, 20__ (together, as from time to time amended, the “ Note Purchase Agreement ”), among National Rural, the Purchaser and Federal Agricultural Mortgage Corporation (“ Farmer Mac ”) and is entitled to the benefits thereof.  This Note is also entitled to the benefits of the Pledge Agreement, dated as of February 5, 2009, among National Rural, Farmer Mac, the Purchaser and the Collateral Agent named therein.
 
Capitalized terms used herein and not defined herein shall have the meanings given to those terms in the Note Purchase Agreement.
 
This Note is a registered Note and, upon surrender of this Note for registration of transfer or exchange, accompanied by a written instrument of transfer duly executed by the registered holder hereof or such holder’s attorney duly authorized in writing, a new Note will be issued to, and registered in the name of, the transferee.  Prior to due presentment for registration of transfer, National Rural may treat the person in whose name this Note is registered as the owner hereof for the purpose of receiving payment and for all other purposes, and National Rural will not be affected by any notice to the contrary.
 
This Note may not be prepaid at any time.
 
If an Event of Default, as defined in the Note Purchase Agreement, occurs and is continuing, the principal of this Note may be declared due and payable in the manner, at the price and with the effect provided in the Note Purchase Agreement.
 
 
 

 

This Note shall be construed and enforced in accordance with, and the rights of National Rural and the holder hereof shall be governed by, the laws of the District of Columbia, excluding choice-of-law principles of the law of the District of Columbia that would require the application of the laws of another jurisdiction.
 
NATIONAL RURAL UTILITIES
COOPERATIVE FINANCE CORPORATION,
 
By
   
 
  Name:
 
  Title:
 
 
 

 

ANNEX A-3
 
[FORM OF FLOATING RATE NOTE]
 
NATIONAL RURAL UTILITIES COOPERATIVE FINANCE CORPORATION
 
Variable Rate 2-Year Senior Note due _______
 
Washington, D.C.
____________, 20__
 
FOR VALUE RECEIVED, the undersigned, NATIONAL RURAL UTILITIES COOPERATIVE FINANCE CORPORATION (“ National Rural ”), a District of Columbia cooperative association, hereby promises to pay to FARMER MAC MORTGAGE SECURITIES CORPORATION, a wholly owned subsidiary of Farmer Mac (as defined below)(the “ Purchaser ”), or registered assigns, the principal sum of _______________ MILLION DOLLARS ($___,000,000.00) on __________________, together with interest computed from the date hereof according to the terms of the Note Purchase Agreement (as defined below).
 
Payments of principal and interest on this Note are to be made in lawful money of the United States of America at such place as shall have been designated by written notice to National Rural from the registered holder of this Note as provided in the Note Purchase Agreement referred to below.
 
This Note is issued pursuant to a Note Purchase Agreement, dated as of February 5, 2009, as well as the Pricing Agreement for $__ Floating Rate Notes dated as of _________ __, 20__ (together, as from time to time amended, the “ Note Purchase Agreement ”), among National Rural, the Purchaser and Federal Agricultural Mortgage Corporation (“ Farmer Mac ”) and is entitled to the benefits thereof.  This Note is also entitled to the benefits of the Pledge Agreement, dated as of February 5, 2009, among National Rural, Farmer Mac, the Purchaser and the Collateral Agent named therein.
 
Capitalized terms used herein and not defined herein shall have the meanings given to those terms in the Note Purchase Agreement.
 
This Note is a registered Note and, upon surrender of this Note for registration of transfer or exchange, accompanied by a written instrument of transfer duly executed by the registered holder hereof or such holder’s attorney duly authorized in writing, a new Note will be issued to, and registered in the name of, the transferee.  Prior to due presentment for registration of transfer, National Rural may treat the person in whose name this Note is registered as the owner hereof for the purpose of receiving payment and for all other purposes, and National Rural will not be affected by any notice to the contrary.
 
This Note may not be prepaid at any time.
 
If an Event of Default, as defined in the Note Purchase Agreement, occurs and is continuing, the principal of this Note may be declared due and payable in the manner, at the price and with the effect provided in the Note Purchase Agreement.
 
 
 

 

This Note shall be construed and enforced in accordance with, and the rights of National Rural and the holder hereof shall be governed by, the laws of the District of Columbia, excluding choice-of-law principles of the law of the District of Columbia that would require the application of the laws of another jurisdiction.
 
NATIONAL RURAL UTILITIES
COOPERATIVE FINANCE CORPORATION,
 
By
   
 
  Name:
 
  Title:
 
 
 

 

ANNEX B
 
[FORM OF OPINION OF COUNSEL TO NATIONAL RURAL]
 
[•]

Federal Agricultural Mortgage Corporation
1133 Twenty-First Street, NW
Suite 600
Washington, DC 20036

Gentlemen:

I am delivering this opinion as general counsel (“Counsel”) of National Rural Utilities Cooperative Finance Corporation, a District of Columbia cooperative association (the “Borrower”), and am familiar with matters pertaining to the loan to Borrower in the principal amount of $500,000,000.00, provided for in the Note Purchase Agreement, dated as of February 5, 2009 (“Note Purchase Agreement”), among the Borrower, Farmer Mac Mortgage Securities Corporation (the “Purchaser”) and Federal Agricultural Mortgage Corporation (“Farmer Mac”).

I have examined such corporate records and proceedings of the Borrower, and such other documents as I have deemed necessary as a basis for the opinions hereinafter expressed.

I have also examined the following documents as executed and delivered: (a) the Note Purchase Agreement; (b) the Note dated as of ____________, in the principal amount of $____________ (“Note”), said Note payable to the Purchaser; (c) the Pricing Agreement for $__________ [Fixed] [Floating] Rate Notes dated as of ____________ among the Borrower, the Purchaser and Farmer Mac (the “Pricing Agreement”) and (d) the Pledge Agreement, dated as of February 5, 2009, among the Borrower, the Purchaser, Farmer Mac and U.S. Bank National Association (the “Pledge Agreement”).  The documents described in items (a) through (d) above are collectively referred to herein as the “Note Documents.”

Based on the foregoing, but subject to the assumptions, exceptions, qualifications and limitations hereinafter expressed, I am of the opinion that:

(1)           The Borrower has been duly incorporated and is validly existing as a cooperative association in good standing under the laws of the District of Columbia with corporate power and authority to execute and perform its obligations under the Note Documents.
 
 
 

 

(2)           The Note Documents have been duly authorized, executed and delivered by the Borrower, and such documents constitute the legal, valid and binding agreements of the Borrower, enforceable against the Borrower in accordance with their respective terms.

(3)           Neither the execution nor the delivery by the Borrower of any of the Note Documents nor the consummation by the Borrower of any of the transactions contemplated therein, including, without limitation, the pledge of the Pledged Securities (as such term is defined in the Pledge Agreement) to Farmer Mac, nor the fulfillment by the Borrower of the terms of any of the Note Documents will conflict with or violate, result in a breach of or constitute a default under any term or provision of the Articles of Incorporation or By-laws of the Borrower or any law or any regulation or any order known to Counsel currently applicable to the Borrower of any court, regulatory body, administrative agency or governmental body having jurisdiction over the Borrower or the terms of any indenture, deed of trust, note, note agreement or instrument to which the Borrower is a party or by which the Borrower or any of its properties is bound.

(4)           No approval, authorization, consent, order, registration, filing, qualification, license or permit of or with any state or Federal court or governmental agency or body having jurisdiction over the Borrower is required for any consummation by the Borrower of the transactions contemplated by the Note Documents; provided , however , no opinion is expressed as to the applicability of any Federal or state securities law to any sale, transfer or other disposition of the Note after the date hereof.

(5)           Except as set forth in writing and previously delivered to Farmer Mac or attached hereto as Exhibit A, there is no pending or, to Counsel’s knowledge, threatened action, suit or proceeding before any court or governmental agency, authority or body or any arbitrator with respect to the Borrower, or any of the Note Documents, which, if adversely determined, would have a material adverse effect on the Borrower’s financial condition or its ability to perform its obligations under any of the Note Documents.

(6)           With respect to the Pledged Securities in the Certificate of Pledged Collateral (as such term is defined in the Pledge Agreement), (x) all action with respect to the recording, registering or filing of financing statements in the jurisdiction of organization of National Rural has been taken as is necessary to perfect the security interest intended to be created in such items under the Uniform Commercial Code and (y) in the case of each Eligible Security (as such term is defined in the Pledge Agreement) constituting a certificated security or instrument under the Uniform Commercial Code, such Eligible Security has been delivered to the Collateral Agent such that the taking and retention of the possession by the Collateral Agent of such Eligible Security is sufficient to perfect the security interest to be created under the Uniform Commercial Code.  For purposes of the opinion set forth in this section (6), I have assumed that the Uniform Commercial Code of the District of Columbia is the same as that of the State of New York.
 
 
 

 

The foregoing opinions are subject to the following assumptions, exceptions, qualifications and limitations:
 
A.           I am a member of the Bar of the District of Columbia and render no opinion on the laws of any jurisdiction other than the laws of the District of Columbia, the federal laws of the United States of America and the General Corporation Law of the District of Columbia.

B.           My opinions are limited to the present laws and to the facts, as they presently exist.  I assume no obligation to revise or supplement this opinion should the present laws of the jurisdictions referred to in paragraph A above be changed by legislative action, judicial decision or otherwise.

C.           The opinions expressed in paragraph 2 above shall be understood to mean only that if there is a default in performance of an obligation, (i) if a failure to pay or other damage can be shown and (ii) if the defaulting party can be brought into a court which will hear the case and apply the governing law, then, subject to the availability of defenses, and to the exceptions set forth in the next paragraph, the court will provide a money damage (or perhaps injunctive or specific performance) remedy.

D.           My opinions are also subject to the effect of:  (1) bankruptcy, insolvency, reorganization, receivership, moratorium and other laws affecting creditors’ rights (including, without limitation, the effect of statutory and other law regarding fraudulent conveyances, fraudulent transfers and preferential transfers); and (2) the exercise of judicial discretion and the application of principles of equity, good faith, fair dealing, reasonableness, conscionability and materiality (regardless of whether the applicable agreements are considered in proceeding in equity or at law).

E.           This letter is rendered to you in connection with the Note Documents and the transactions related thereto, and may not be relied upon by any other person or by you in any other context or for any other purpose.

F.           I have assumed with your permission (i) the genuineness of all signatures by each party other than the Borrower, (ii) the authenticity of documents submitted to me as originals and the conformity to authentic original documents of all documents submitted to me as copies, and (iii) the due execution and delivery, pursuant to due authorization, of the Note Documents by each party other than the Borrower.

Yours sincerely,

John J. List
General Counsel
 
 
 

 

ANNEX C
 
[FORM OF OFFICERS’ CERTIFICATE]
 
Officers’ Certificate
 
TO: 
Federal Agricultural Mortgage Corporation.
 
We, _________________, _________________, and ________________, _____________________, of National Rural Utilities Cooperative Finance Corporation (“ National Rural ”), pursuant to the Note Purchase Agreement dated as of February 5, 2009, among National Rural, Farmer Mac Mortgage Securities Corporation, and Federal Agricultural Mortgage Corporation (the “ Note Purchase Agreement ”), hereby certify on behalf of National Rural that as at the date hereof:
 
(1)           National Rural is a lending institution organized as a private, not-for-profit, cooperative association with the appropriate expertise, experience and qualifications to make loans to its Members for rural electrification and related purposes;
 
(2)           no material adverse change has occurred in the financial condition of National Rural between the date of the end of National Rural’s most recently completed Fiscal Year for which Financial Statements have been made publicly available and the date hereof, which has not been set forth in documents, certificates, or financial information furnished to Farmer Mac or publicly filed;
 
(3)           all of the representations contained in Section 5.02 of the Note Purchase Agreement remain true and correct in all material respects on and as of the date hereof; and
 
(4)           no Event of Default exists.
 
Capitalized terms used in this certificate shall have the meanings given to those terms in the Note Purchase Agreement.
 
DATED as of this _____ day of ______________, _________.
 
NATIONAL RURAL UTILITIES
 
COOPERATIVE FINANCE
 
CORPORATION,
 
   
    
Name:
 
Title
 
   
     
Name:
 
Title:
 

 
 

 

ANNEX D
 
[FORM OF SERIES C PREFERRED STOCK PURCHASE AGREEMENT]
 
 
 

 

Schedule 5.02

For purposes of making the representations and warranties contained in Section 5.02(e) and (f) of the Agreement on the date of the Agreement and on any Closing Date up to the time the aggregate amount of Notes outstanding under the Agreement exceeds $100 million, note the following:

Certain credit agreements of the Borrower require consent of the lenders or amendment of the credit agreements in order for the Borrower to incur liens to secure amounts in excess of $100 million pursuant to the Agreement and the Pledge Agreement.
 
 
 

 
 

EXHIBIT 10.28.1

 
FARMER MAC MORTGAGE SECURITIES CORPORATION,
As Note Purchaser

NATIONAL RURAL UTILITIES
COOPERATIVE FINANCE CORPORATION,
As Borrower

FEDERAL AGRICULTURAL MORTGAGE CORPORATION,
As Guarantor
 


FIRST AMENDMENT TO NOTE PURCHASE AGREEMENT
 

 
Dated as of July 13, 2009
 

 
 
 

 

FIRST AMENDMENT TO NOTE PURCHASE AGREEMENT
 
FIRST AMENDMENT TO NOTE PURCHASE AGREEMENT, dated as of July 13, 2009 (“Amendment”), among FARMER MAC MORTGAGE SECURITIES CORPORATION (the “ Purchaser ”), a wholly owned subsidiary of FEDERAL AGRICULTURAL MORTGAGE CORPORATION, a federally-chartered instrumentality of the United States and an institution of the Farm Credit System (“ Farmer Mac ” or the “ Guarantor ”); NATIONAL RURAL UTILITIES COOPERATIVE FINANCE CORPORATION, a cooperative association existing under the laws of the District of Columbia (“ National Rural ”); and Farmer Mac, as Guarantor.
 
RECITALS
 
WHEREAS, the Purchaser, Farmer Mac, and National Rural are parties to a certain Note Purchase Agreement dated as of February 5, 2009 (“Note Purchase Agreement”); and

WHEREAS, the parties have agreed to modify the Note Purchase Agreement as set forth herein.

NOW, THEREFORE, in consideration of the mutual agreements herein contained, Farmer Mac, the Purchaser and National Rural agree as follows:

1.            Recitals .  The foregoing Recitals are hereby incorporated by reference into this Amendment.

2.            Definitions .  Capitalized terms used herein and not otherwise defined shall have the meanings assigned to them in the Note Purchase Agreement.

3.            Amendment .

(a)           The Note Purchase Agreement is hereby amended by deleting the existing definition of Closing Date and replacing it with the following definition in Section 1.01:

Closing Date ” means the date of the funding of each issuance of Notes hereunder, which date shall be set forth in the applicable Pricing Agreement.

(b)           The Note Purchase Agreement is hereby amended by adding the following definition of Final Maturity Date in Section 1.01:

Final Maturity Date ” means December 31, 2016, or such other date as agreed to by the parties.

(c)           The Note Purchase Agreement is hereby amended by deleting Section 2.01 in its entirety and replacing it with the following:

 
 

 

SECTION 2.01             Purchase of Notes; Minimum Denominations .  The Purchaser agrees to purchase Notes, at 100% of their principal amount, from time to time, on or before the Final Maturity Date, as requested by National Rural by written notice (each, a “ Notice of Borrowing ”) to Farmer Mac in an aggregate principal amount, for all Notes outstanding hereunder at any one time, not in excess of $500 million, subject to satisfaction of the conditions set forth herein.  National Rural may borrow, repay (subject to the terms of the applicable Notes being repaid) and reborrow funds at any time or from time to time up to, but not including the Final Maturity Date.  Each advance under this Agreement shall be disbursed in a minimum amount of $50 million and additional increments of $5 million in excess thereof or such other amounts as agreed to in the applicable Pricing Agreement.  Each advance shall price within 3 Business Days of National Rural providing a Notice of Borrowing to Farmer Mac and shall close and fund within 3 Business Days of pricing, subject to satisfaction of the conditions set forth herein and in accordance with the procedures set forth in Section 2.02(d) hereof, unless otherwise agreed by the parties hereto and set forth in the applicable Pricing Agreement.
 
(d)           The Note Purchase Agreement is hereby amended by deleting Section 2.02(d) in its entirety and replacing it with the following:

(d)            Notice of Borrowing; Determination of Applicable Margin; Procedure for Pricing .  (i)  Each Notice of Borrowing shall indicate the amount of the Note and the desired maturity date of such Note that National Rural requests to be advanced.  A Notice of Borrowing may request preliminary pricing indications for more than one type of Note, with the understanding that only one type of Note will be issued on any particular Closing Date, unless otherwise agreed by the parties hereto in a Pricing Agreement.  Each Notice of Borrowing shall also provide name, telephone and email contact information of an authorized representative of National Rural.
 
(ii) Upon receipt of a Notice of Borrowing from National Rural, Farmer Mac shall, within 2 Business Days, provide to National Rural a preliminary indication of the Applicable Margin (LIBOR) or Applicable Margin (Treasury), or both, as applicable to any Notice of Borrowing; provided that Farmer Mac shall not be obligated to provide an indication of pricing if Farmer Mac uses its best efforts to obtain and provide such preliminary indication, but determines in its sole discretion reasonably exercised after consultation with National Rural that market conditions are unfavorable for the issuance of debt to fund Notes with the terms set forth in the Notice of Borrowing.  Upon an acceptance of such preliminary indication of pricing by National Rural, the applicable Note will price within one Business Day (and may price on the day of the preliminary pricing if the parties so agree) thereafter, unless the parties otherwise agree to a longer period of time as set forth in the applicable Pricing Agreement.  Farmer Mac shall provide National Rural with written notice of the final Applicable Margin (LIBOR) or Applicable Margin (Treasury) no later than the time of pricing of each advance.  National Rural shall be deemed to approve of such pricing so long as the Applicable Margin (LIBOR) or Applicable Margin (Treasury) shall not exceed the preliminary indication by more than 5 basis points (0.05%).  If the final pricing does exceed the preliminary indication by more than 5 basis points (0.05%), an authorized representative of National Rural must agree via email confirmation prior to or simultaneously with the pricing to accept such margin.

 
 

 

(e)           The Note Purchase Agreement is hereby amended by deleting Section 2.03 in its entirety and replacing it with the following:

SECTION 2.03             Maturity .  Each Note shall mature on the maturity date set forth in the applicable Pricing Agreement and in any event no later than the Final Maturity Date.

(f)           The Note Purchase Agreement is hereby amended by deleting Section 4.01(d) in its entirety and replacing it with the following:

(d)           such other information concerning National Rural or the Pledged Collateral as is reasonably requested by Farmer Mac.

4.            GOVERNING LAW .    THIS AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, FEDERAL LAW.  TO THE EXTENT FEDERAL LAW INCORPORATES STATE LAW, THAT STATE LAW SHALL BE THE LAWS OF THE DISTRICT OF COLUMBIA APPLICABLE TO CONTRACTS MADE AND PERFORMED THEREIN.
 
5.            Inconsistency with Note Purchase Agreement .  Except as otherwise amended or modified herein, the terms, conditions and provisions of the Note Purchase Agreement remain in full force and effect.  In the event of any conflict or inconsistency between the terms of this Amendment and the Note Purchase Agreement, the terms of this Amendment shall control.

6.            Counterparts .  This Amendment may be executed in two or more counterparts, each of which shall be an original, but all of which together shall constitute one and the same instrument.
 
[SIGNATURE PAGE FOLLOWS]

 
 

 

IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed as of the day and year first above written.

 
FARMER MAC MORTGAGE
SECURITIES CORPORATION
     
 
By:
 
 
Name:
 
 
Title:
 
   
 
FEDERAL AGRICULTURAL
 
MORTGAGE CORPORATION
     
 
By:
 
 
Name:
 
 
Title:
 
   
 
NATIONAL RURAL UTILITIES
COOPERATIVE FINANCE
CORPORATION
     
 
By:
 
 
Name:
 
 
Title:
 

 
 

 
 
 
EXHIBIT 10.29
 
FARMER MAC MORTGAGE
SECURITIES CORPORATION,
As Note Purchaser

NATIONAL RURAL UTILITIES
COOPERATIVE FINANCE CORPORATION,
As Borrower

U.S. BANK NATIONAL ASSOCIATION,
As Collateral Agent

FEDERAL AGRICULTURAL
MORTGAGE CORPORATION,
As Guarantor
 

 
PLEDGE AGREEMENT
 

 
Dated as of February 5, 2009  
 
 
 

 
 
i
 
ARTICLE I
 
Definitions
     
Section 1.01.
Definitions
3
Section 1.02.
Principles of Construction
6
     
ARTICLE II
 
Provisions as to Pledged Collateral
 
Section 2.01.
Holding of Pledged Securities
7
Section 2.02.
UCC Filings
7
Section 2.03.
Withdrawal and Substitution of Pledged Collateral
8
Section 2.04.
[Reserved]
8
Section 2.05.
Addition of Pledged Collateral
8
Section 2.06.
Accompanying Documentation
8
Section 2.07.
Renewal; Extension; Substitution
9
Section 2.08.
Voting Rights; Interest and Principal
9
Section 2.09.
Protection of Title; Payment of Taxes; Liens, etc
10
Section 2.10.
Maintenance of Pledged Collateral
11
Section 2.11.
Representations, Warranties and Covenants
11
Section 2.12.
Further Assurances
12
     
ARTICLE III
 
[Reserved]
 
ARTICLE IV
 
Remedies
     
Section 4.01.
Events of Default
12
Section 4.02.
Remedies upon Default
13
Section 4.03.
Application of Proceeds
15
Section 4.04.
Securities Act
15
     
ARTICLE V
 
The Collateral Agent
     
Section 5.01.
Certain Duties and Responsibilities
16
Section 5.02.
Certain Rights of Collateral Agent
17
Section 5.03.
Money Held by Collateral Agent
18
Section 5.04.
Compensation and Reimbursement
19
 
 

 
 
ii
    
Section 5.05.
Corporate Collateral Agent Required; Eligibility
19
Section 5.06.
Resignation and Removal; Appointment of Successor
20
Section 5.07.
Acceptance of Appointment by Successor
20
Section 5.08.
Merger, Conversion, Consolidation or Succession to Business
21
     
ARTICLE VI
 
Miscellaneous
     
Section 6.01.
Notices
21
Section 6.02.
Waivers; Amendment
21
Section 6.03.
Successors and Assigns
22
Section 6.04.
Counterparts; Effectiveness
22
Section 6.05.
Severability
22
Section 6.06.
GOVERNING LAW
22
Section 6.07.
WAIVER OF JURY TRIAL
22
Section 6.08.
Headings
23
Section 6.09.
Security Interest Absolute
23
Section 6.10.
Termination or Release
23
Section 6.11.
Collateral Agent Appointed Attorney-in-Fact
23

Schedule I – Additional Criteria for Eligible Securities
Schedule II – Addresses for Notices

Annex A – Form of Certificate of Pledged Collateral
 
 

 

PLEDGE AGREEMENT, dated as of February 5, 2009, among NATIONAL RURAL UTILITIES COOPERATIVE FINANCE CORPORATION, a District of Columbia cooperative association and its successors and assigns (hereinafter called “ National Rural ”), FARMER MAC MORTGAGE SECURITIES CORPORATION, (the “Purchaser”), a wholly owned subsidiary of FEDERAL AGRICULTURAL MORTGAGE CORPORATION, a federally-chartered instrumentality of the United States and an institution of the Farm Credit System and its successors and assigns (“ Farmer Mac ”), U.S. BANK NATIONAL ASSOCIATION, a national banking association and its successors and assigns (hereinafter called the “ Collateral Agent ”), and Farmer Mac, as Guarantor.
 
RECITALS OF NATIONAL RURAL
 
WHEREAS, National Rural may from time to time issue one or more Notes to the Purchaser, and the Purchaser may purchase such Notes, all upon the terms and subject to the conditions set forth in the Note Purchase Agreement; and
 
WHEREAS, National Rural is required pursuant to the terms of the Note Purchase Agreement to pledge certain property to the Collateral Agent for the benefit of the Control Party to secure National Rural’s obligations on the Notes;
 
NOW, THEREFORE, THIS PLEDGE AGREEMENT WITNESSETH that, to secure the performance of the certain Obligations contained in the Notes, the Note Purchase Agreement and herein, National Rural hereby assigns and pledges to the Collateral Agent, its successors and assigns, for the benefit of the Control Party, and grants to the Collateral Agent, its successors and assigns, for the benefit of the Control Party, a security interest in the following (collectively referred to as the “ Pledged Collateral ”) as provided in Article II: (a)(i) the Pledged Securities and the certificates representing the Pledged Securities; (ii) subject to Section 2.08, all payments of principal or interest, cash, instruments and other property from time to time received, receivable or otherwise distributed in respect of, in exchange for, and all other Proceeds received in respect of, the Pledged Securities pledged hereunder; (iii) subject to Section 2.08, all rights and privileges of National Rural with respect to the Pledged Securities; (iv) all Proceeds of any of the foregoing above; that may, on the date hereof or from time to time hereafter, be subjected to the Lien hereof by National Rural by delivery, assignment or pledge thereof to the Collateral Agent hereunder and the Collateral Agent is authorized to receive the same as additional security hereunder (subject to any reservations, limitations or conditions agreed to in writing by National Rural and the Control Party respecting the scope or priority of such security or the use and disposition of such property or the Proceeds thereof).
 
 

 
 
3
 
TO HAVE AND TO HOLD the Pledged Collateral, together with all right, title, interest, powers, privileges and preferences pertaining or incidental thereto, unto the Collateral Agent, its successors and assigns, for the benefit of the Control Party, forever; subject , however , to the terms, covenants and conditions hereinafter set forth.
 
ARTICLE I
 
Definitions
 
SECTION 1.01.   Definitions.   As used in this Pledge Agreement, the following terms shall have the following meanings:
 
“Accounting Requirements” shall mean any system of accounts prescribed by a federal regulatory authority having jurisdiction over the Member or, in the absence thereof, the requirements of GAAP applicable to businesses similar to that of the Member.
 
Allowable Amount ” on any date, means with respect to Eligible Securities, the aggregate principal amount of such Eligible Securities theretofore advanced thereon which remains unpaid on such date.
 
Certificate of Pledged Collateral ” means a certificate delivered to the Collateral Agent and the Control Party substantially in the form of Annex A attached hereto.
 
Class A Member ” means any Class A Member of National Rural as described in National Rural’s Bylaws currently in effect.
 
Class B Member ” means any Class B Member of National Rural as described in National Rural’s Bylaws currently in effect.
 
Collateral Agent ” means the Person named as the “ Collateral Agent ” in the first paragraph of this instrument.
 
Control Party ” means (i) the Guarantor, so long as no Guarantor Default has occurred and is continuing, or (ii) the holders of the Notes for so long as a Guarantor Default has occurred and is continuing.
 
Control Party Notice ” and “ Control Party Order ” mean, respectively, a written notice or order signed by any Vice President of the Control Party and delivered to the Collateral Agent and National Rural.
 
Control Party Notice of Default ” has the meaning given to that term in Section 4.02.
 
Depreciation and Amortization Expense   shall mean an amount constituting the depreciation and amortization of the Member computed pursuant to Accounting Requirements.

 

 
 
4
 
Eligible Member ” means any Class A Member or Class B Member of National Rural as described in National Rural’s Bylaws currently in effect.

Eligible Security ” means a note or bond of any Eligible Member payable or registered to, or to the order of, National Rural, (A) in respect of which (i) the outstanding principal amount under such note or bond, together with the outstanding principal amount of any other notes or bonds of such Eligible Member pledged hereunder or pledged to secure any other notes or bonds issued by National Rural to Farmer Mac or any affiliate or sold by National Rural or any affiliate to any trust whose beneficial ownership is owned or controlled by Farmer Mac, does not aggregate more than $35 million, (ii) no default has occurred in the payment of principal or interest in accordance with the terms of such note or bond that is continuing beyond the contractual grace period (if any) provided in such note or bond for such payment and (iii) no “event of default” as defined in such note or bond (or in any instrument creating a security interest in favor of National Rural in respect of such note or bond), shall exist that has resulted in the exercise of any right or remedy described in such note or bond (or in any such instrument); (B) which is not classified by National Rural as a non-performing loan under generally accepted accounting principles in the United States; and (C) which otherwise satisfies the criteria set forth on Schedule I hereto.
 
Equity ” means the aggregate of the Member's equities and margins computed pursuant to Accounting Requirements.
 
Event of Default ” has the meaning set forth in Section 4.01.
 
Facility Rating ” means the facility rating assigned by National Rural to an Eligible Security from time to time in accordance with National Rural's internal risk rating system.
 
GAAP ” means generally accepted accounting principles in the United States as in effect from time to time.
 
Guarantor Default ” means a default by the Guarantor under its obligations pursuant to Article IX of the Note Purchase Agreement which is existing and continuing.
 
Interest Expense ” means an amount constituting the interest expense with respect to Long-Term Debt of the Member computed pursuant to Accounting Requirements.
 
Lien ” means any lien, pledge, charge, mortgage, encumbrance, debenture, hypothecation or other similar security interest attaching to any part of the Pledged Collateral.
 
Lien of this Pledge Agreement ” or “ Lien hereof ” means the Lien created by these presents.
 
 

 
 
5
 
Long-Term Debt ” is determined in accordance with the Uniform System of Accounts prescribed at the time by RUS or, if such Member is not required to maintain its accounts in accordance with said Uniform System of Accounts, otherwise determined in accordance with GAAP.
 
Member ” shall mean any Person who is member of National Rural.
 
Modified Debt Service Coverage Ratio—Distribution ” shall mean the definition of Coverage Ratio as defined in the Indenture dated October 25, 2007 by and between National Rural Utilities Cooperative Finance Corporation and U.S. Bank National Association for the Collateral Trust Bonds.
 
" Modified Debt Service Coverage Ratio—G&T " shall mean the ratio determined as follows: for any calendar year add (i) Operating Margins, (ii) Non-Operating Margins—Interest, (iii) Interest Expense, (iv) Depreciation and Amortization Expense, and (v) cash received in respect of generation and transmission and other capital credits, and divide the sum so obtained by the sum of all payments of Principal and Interest Expense required to be made during such calendar year; provided , however , that in the event that any amount of Long-Term Debt has been refinanced during such year, the payments of Principal and Interest Expense required to be made during such year on account of such refinanced amount of Long-Term Debt shall be based (in lieu of actual payments required to be made on such refinanced amount of Long-Term Debt) upon the larger of (i) an annualization of the payments required to be made with respect to the refinancing debt during the portion of such year such refinancing debt is outstanding or (ii) the payment of Principal and Interest Expense required to be made during the following year on account of such refinancing debt.

National Rural Notice ” and “ National Rural Order ” mean, respectively, a written notice or order signed in the name of National Rural by either its Chief Executive Officer or its Chief Financial Officer, and by any Vice President of National Rural, and delivered to the Collateral Agent and the Control Party.
 
Non-Operating Margins—Interest ” means the amount representing the interest component of non-operating margins of the Member computed pursuant to Accounting Requirements.
 
Note Purchase Agreement ” means the Note Purchase Agreement dated the date hereof between National Rural, the Purchaser and Farmer Mac, as the same may be amended from time to time in accordance with the terms thereof.
 
Notes ” means the note or notes issued by National Rural to the Purchaser under the Note Purchase Agreement.
 
Obligations ” means the due and punctual performance of the obligations of National Rural to make payments of principal, and interest on the Notes.
 
 

 
 
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Officers’ Certificate ” means a certificate signed by any Vice President of National Rural, and delivered to the Control Party and/or the Collateral Agent, as applicable.
 
Operating Margins ” means the amount of patronage capital and operating margins of the Member computed pursuant to Accounting Requirements.
 
Person ” means any individual, corporation, partnership, joint venture, association, joint-stock company, trust, unincorporated organization or government or any agency or political subdivision thereof.
 
Pledge Agreement ” means this Pledge Agreement, as originally executed and as it may from time to time be amended pursuant to the applicable provisions hereof.
 
Pledged Collateral ” has the meaning set forth in the Granting Clause.
 
Pledged Securities ” means at any time the Eligible Securities listed on Schedule A and/or Schedule B to the Certificate of Pledged Collateral most recently delivered.
 
Principal ” means the amount of principal billed on account of Long-Term Debt of the Member computed pursuant to Accounting Requirements.
 
Proceeds ” has the meaning specified in Section 9-102 of the Uniform Commercial Code.
 
RUS ” mean the Rural Utilities Service of the United States Department of Agriculture, acting by and through the Administrator of the Rural Utilities Service, and including any successor agencies or departments.
 
Total Assets Ratio ” means an amount constituting the total assets of the Member computed pursuant to Accounting Requirements.
 
Total Capitalization Ratio ” means the Total Margins and Equity as a percentage of the sum of ((1)Total Margins and Equity plus (2) Long Term Debt).
 
Total Margins and Equity ” means the Member’s total margins and equity computed pursuant to Accounting Requirements.
 
Uniform Commercial Code ” means the Uniform Commercial Code as from time to time in effect in the District of Columbia.
 
Vice President ” means any vice president of National Rural or Farmer Mac or the Purchaser, as applicable, whether or not designated by a number or a word or words added before or after the title “vice president”.
 
 

 
 
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SECTION 1.02.   Other Defined Terms; Principles of Construction .  Capitalized terms used but not defined in this Pledge Agreement shall have the meanings given to them in the Note Purchase Agreement.  Unless the context shall otherwise indicate, the terms defined in Section 1.01 hereof include the plural as well as the singular and the singular as well as the plural.  The words “hereafter”, “herein”, “hereof”, “hereto” and “hereunder”, and words of similar import, refer to this Agreement as a whole.  The descriptive headings of the various articles and sections of this Agreement were formulated and inserted for convenience only and shall not be deemed to affect the meaning or construction of the provisions hereof.
 
ARTICLE II
 
Provisions as to Pledged Collateral
 
SECTION 2.01.   Holding of Pledged Securities.
 
(a)  National Rural shall make available to the Control Party, within thirty (30) days of a pledge of the Pledged Securities in connection with an advance (or for a longer period as National Rural and the Control Party agree), such back-up information as is reasonably necessary in order to allow the Control Party to confirm compliance of such Pledged Securities to the requisite criteria as outlined herein.  Upon receipt of the back-up information, the Control Party shall have ninety (90) days to object in writing to the inclusion of any item of the Pledged Securities as part of the Pledged Collateral.  If the Control Party reasonably determines that any of the Pledged Securities do not meet the criteria for Eligible Securities, then National Rural shall have thirty (30) days in which to provide substitute collateral, and the timeline specified above for National Rural to make available back-up material and confirmation shall also apply as to the substituted collateral.
 
(b)  The Collateral Agent, on behalf of the Control Party, shall hold the Pledged Securities in the name of National Rural (or its nominee), endorsed or assigned in blank or in favor of the Collateral Agent.  Upon occurrence of an Event of Default, the Collateral Agent, on behalf of the Control Party, shall have the right (in its sole and absolute discretion), to the extent a register is maintained therefor, to register the Pledged Securities in the Collateral Agent’s own name as pledgee, or in the name of the Collateral Agent’s nominee (as pledgee or as sub-agent) or to continue to hold the Pledged Securities in the name of National Rural, endorsed or assigned in blank or in favor of the Collateral Agent.  Upon cessation of such Event of Default, the Collateral Agent shall take such action as is necessary to again cause the Pledged Securities to be registered in the name of National Rural (or its nominee).
 
SECTION 2.02.   UCC Filings.   National Rural shall prepare and file in the proper Uniform Commercial Code filing office in the District of Columbia (i) on or prior to the date of the first purchase of a Note under the Note Purchaser Agreement, a financing statement recording the Collateral Agent’s interest in the Pledged Collateral; and (ii) from time to time thereafter, continuation statements or such other filings as are necessary to maintain the perfection of the Lien hereof on the Pledged Collateral.
 
 

 
 
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SECTION 2.03.   Withdrawal and Substitution of Pledged Collateral.   (a)  Any part of the Pledged Collateral may be withdrawn by National Rural or substituted for other Eligible Securities by National Rural and shall be delivered to National Rural by the Collateral Agent upon National Rural Order at any time and from time to time, together with any other documents or instruments of transfer or assignment necessary to reassign to National Rural said Pledged Collateral and the interest of National Rural, provided the aggregate Allowable Amount of Pledged Collateral remaining after such withdrawal or substitution shall at least equal the aggregate principal amount of the Notes outstanding after such withdrawal or substitution, as shown by the Certificate of Pledged Collateral furnished to the Collateral Agent pursuant to Subsection (b)(i) of this Section.
 
(b)  Prior to any such withdrawal or substitution, the Collateral Agent shall be furnished with the following instruments:
 
(i) a Certificate of Pledged Collateral, dated as of the last day of the calendar month most recently ended at least 10 Business Days prior to such withdrawal or substitution (or a more recent date, at National Rural’s option), showing that immediately after such withdrawal or substitution the requirements of Subsection (a) of this Section will be satisfied; and
 
(ii) an Officers’ Certificate certifying that no Event of Default has occurred which has not been remedied.
 
Upon any such withdrawal or substitution, National Rural shall deliver any Eligible Securities to be substituted and the Collateral Agent shall execute any instruments of transfer or assignment specified in a National Rural Order as necessary to vest in National Rural any part of the Pledged Collateral withdrawn.
 
In case an Event of Default shall have occurred and be continuing, National Rural shall not withdraw or substitute any part of the Pledged Collateral.
 
SECTION 2.04.  [Reserved.]
 
SECTION 2.05.   Addition of Pledged Collateral.   At any time, National Rural may pledge additional Eligible Securities under this Pledge Agreement by delivering such Pledged Collateral to the Collateral Agent, accompanied by a Certificate of Pledged Collateral specifying such additional collateral and dated as of the last day of the calendar month most recently ended at least 10 Business Days prior thereto (or a more recent date at National Rural’s option).
 
SECTION 2.06.   Accompanying Documentation.   Where Eligible Securities are delivered to the Collateral Agent under Section 2.01, 2.03 or Section 2.05, such securities shall be accompanied by the appropriate instruments of transfer executed in blank and in a form satisfactory to the Collateral Agent and by such other instruments and documents as the Collateral Agent may reasonably request.  All other property delivered to the Collateral Agent under Section 2.01, 2.03 or Section 2.05 and comprising part of the Pledged Collateral shall be accompanied by proper instruments of assignment duly executed by National Rural and such other instruments or documents as the Collateral Agent may reasonably request.
 
 

 
 
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SECTION 2.07.   Renewal; Extension; Substitution.   Unless and until an Event of Default shall have occurred and be continuing, National Rural may at any time renew or extend, subject to the Lien of this Pledge Agreement, any Pledged Security upon any terms or may accept in place of and in substitution for any such Pledged  Security, another Eligible Security or Securities of the same issuer or of any successor thereto for at least the same unpaid principal amount, all as evidenced by a National Rural Order delivered to the Collateral Agent; provided , however , that in case of any substitution, Eligible Securities substituted as aforesaid shall be subject to the Lien of this Pledge Agreement as part of the Pledged Collateral and be held in the same manner as those for which they shall be substituted, and in the case of each substituted Eligible Security National Rural shall provide an Officers’ Certificate certifying to the Collateral Agent that such substituted security satisfies the requirements of this Section.  So long as no Event of Default shall have occurred and be continuing, the Collateral Agent, upon National Rural Order stating that no Event of Default shall have occurred and be continuing, shall execute any consent to any such renewal, extension or substitution as shall be specified in such National Rural Order.
 
SECTION 2.08.   Voting Rights; Interest and Principal .   (a)  Unless and until an Event of Default has occurred and is continuing, and the Control Party delivers to the Collateral Agent a Control Party Notice of Default suspending National Rural’s rights under this clause:
 
(i) National Rural shall be entitled to exercise any and all voting and/or other consensual rights and powers inuring to an owner of Pledged Securities or any part thereof provided that such rights and powers shall not be exercised in any manner inconsistent with the terms of the Note Purchase Agreement or this Pledge Agreement.
 
(ii) The Collateral Agent shall execute and deliver to National Rural, or cause to be executed and delivered to National Rural, all such proxies, powers of attorney and other instruments as National Rural may reasonably request for the purpose of enabling National Rural to exercise the voting and/or consensual rights and powers it is entitled to exercise pursuant to subparagraph (i) above.
 
(iii) National Rural shall be entitled to receive and retain any and all interest, principal and other distributions paid on or distributed in respect of the Pledged Securities; provided that any non-cash interest, principal or other distributions that would constitute Pledged Securities if pledged hereunder, and received in exchange for Pledged Securities or any part thereof pledged hereunder, or in redemption thereof, or as a result of any merger, consolidation, acquisition or other exchange of assets to which such issuer of Pledged Securities may be a party or otherwise, shall be and become part of the Pledged Collateral, and, if received by National Rural, shall not be commingled by National Rural with any of its other funds or property but shall be held separate and apart therefrom, shall be held in trust for the benefit of the Collateral Agent and shall be forthwith delivered to the Collateral Agent in the same form as so received (with any necessary endorsement).
 
 

 
 
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(b)  If an Event of Default shall have occurred and be continuing, then, to the extent such rights are suspended by the applicable Control Party Notice of Default, all rights of National Rural to interest, principal or other distributions that National Rural is authorized to receive pursuant to paragraph (a)(iii) of this Section 2.08 shall cease, and all such suspended rights shall thereupon become vested in the Collateral Agent, which shall have the sole and exclusive right and authority to receive and retain such interest, principal or other distributions.  All interest, principal or other distributions received by National Rural contrary to the provisions of this Section 2.08 shall be held in trust for the benefit of the Collateral Agent, shall be segregated from other property or funds of National Rural and shall be forthwith delivered to the Collateral Agent in the same form as so received (with any necessary endorsement).  Any and all money and other property paid over to or received by the Collateral Agent pursuant to the provisions of this paragraph (b) shall be retained by the Collateral Agent in an account to be established by the Collateral Agent upon receipt of such money or other property and shall be applied in accordance with the provisions of Section 4.03 to the fullest extent permitted by applicable law.  After all Events of Default have ceased, the Collateral Agent shall promptly repay to National Rural (without interest) all interest, principal or other distributions that National Rural would otherwise be permitted to retain pursuant to the terms of paragraph (a)(iii) of this Section 2.08 and that remain in such account.
 
(c)  If an Event of Default shall have occurred and be continuing, then, to the extent such rights are suspended by the applicable Control Party Notice of Default, all rights of National Rural to exercise the voting and consensual rights and powers it is entitled to exercise pursuant to paragraph (a)(i) of this Section 2.08, and the obligations of the Collateral Agent under paragraph (a)(ii) of this Section 2.08, shall cease, and all such rights shall thereupon become vested in the Collateral Agent, which shall have the sole and exclusive right and authority to exercise such voting and consensual rights and powers; provided that the Collateral Agent shall have the right from time to time during the existence of such Event of Default to permit National Rural to exercise such rights and powers.
 
SECTION 2.09.   Protection of Title; Payment of Taxes; Liens, etc.   National Rural will:
 
(i) duly and promptly pay and discharge, or cause to be paid and discharged, before they become delinquent, all taxes, assessments, governmental and other charges lawfully levied, assessed or imposed upon or against any of the Pledged Collateral, including the income or profits therefrom and the interests of the Collateral Agent in such Pledged Collateral;
 
 

 
 
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(ii) duly observe and conform to all valid requirements of any governmental authority imposed upon National Rural relative to any of the Pledged Collateral, and all covenants, terms and conditions under or upon which any part thereof is held;
 
(iii) cause to be paid and discharged all lawful claims (including, without limitation, income taxes) which, if unpaid, might become a lien or charge upon Pledged Collateral; and
 
(iv) do all things and take all actions necessary to keep the Lien of this Pledge Agreement a first and prior lien upon the Pledged Collateral and protect its title to the Pledged Collateral against loss by reason of any foreclosure or other proceeding to enforce any lien prior to or pari passu with the Lien of this Pledge Agreement.
 
Nothing contained in this Section shall require the payment of any such tax, assessment, claim, lien or charge or the compliance with any such requirement so long as the validity, application or amount thereof shall be contested in good faith; provided , however , that National Rural shall have set aside on its books such reserves (segregated to the extent required by generally accepted accounting principles) as shall be deemed adequate with respect thereto as determined by the Board of Directors of National Rural (or a committee thereof).
 
SECTION 2.10.   Maintenance of Pledged Collateral.   National Rural shall cause the Allowable Amount of Pledged Collateral held by the Collateral Agent at all times to be not less than 100% of the aggregate principal amount of the Notes outstanding.
 
SECTION 2.11.   Representations, Warranties and Covenants.   National Rural represents, warrants and covenants to the Collateral Agent, for the benefit of the Control Party, that from the time that Pledged Collateral is pledged hereunder, and for so long as such Pledged Collateral is required to remain pledged:
 
(a) except for the Lien hereof and any Lien consented to in writing by Farmer Mac or the Control Party, National Rural (i) is and will continue to be the direct owner, beneficially and of record, of the Pledged Securities from time to time pledged hereunder, (ii) holds and will continue to hold the same free and clear of all Liens, other than Liens created by this Pledge Agreement, (iii) will make no assignment, pledge, hypothecation or transfer of, or create or permit to exist any security interest in or other Lien on, the Pledged Collateral, other than Liens created by this Pledge Agreement and (iv) will defend its title or interest thereto or therein against any and all Liens (other than the Lien created by this Pledge Agreement), however arising, of all Persons whomsoever;
 
 

 
 
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(b) except for restrictions and limitations imposed by the Note Purchase Agreement or securities laws generally, the Pledged Securities are and will continue to be freely transferable and assignable, and none of the Pledged Securities are or will be subject to any restriction of any nature that might prohibit, impair, delay or otherwise affect the pledge of such Pledged Securities hereunder, the sale or disposition thereof pursuant hereto or the exercise by the Collateral Agent of rights and remedies hereunder;
 
(c) National Rural has the power and authority to pledge the Pledged Collateral pledged by it hereunder in the manner hereby done or contemplated;
 
(d) no consent or approval of any governmental authority, any securities exchange or any other Person was or is necessary to the validity of the pledge effected hereby (other than such as have been obtained and are in full force and effect); and
 
(e) by virtue of the execution and delivery by National Rural of this Pledge Agreement, when any Pledged Securities are delivered to the Collateral Agent in accordance with this Pledge Agreement, the Collateral Agent will obtain a legal and valid Lien upon and security interest in such Pledged Securities as security for the payment and performance of the Obligations.
 
SECTION 2.12.   Further Assurances.   National Rural will execute and deliver, or cause to be executed and delivered, all such additional instruments and do, or cause to be done, all such additional acts as (a) may be necessary or proper, consistent with the Granting Clause hereof, to carry out the purposes of this Pledge Agreement and to make subject to the Lien hereof any property intended so to be subject or (b) may be necessary or proper to transfer to any successor the estate, powers, instruments and funds held hereunder and to confirm the Lien of this Pledge Agreement.  National Rural will also cause to be filed, registered or recorded any instruments of conveyance, transfer, assignment or further assurance in all offices in which such filing, registering or recording is necessary to the validity thereof or to give notice thereof.
 
ARTICLE III
 
[Reserved]
 
ARTICLE IV
 
Remedies
 
SECTION 4.01.   Events of Default.   “ Event of Default ”, wherever used herein, means any “Event of Default” as defined in Section 7.01(a) of the Note Purchase Agreement, provided that, for the purposes of this Pledge Agreement:
 
(a) the Collateral Agent shall not be required to recognize that an Event of Default exists before such time as the Collateral Agent receives a Control Party Notice or National Rural Notice stating that an Event of Default exists and specifying the particulars of such default in reasonable detail; and
 
 

 
 
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(b) the Collateral Agent shall not be required to recognize that an Event of Default has ceased until (i) such time as the Collateral Agent receives a Control Party Notice stipulating that such event has ceased to exist; or (ii) 30 days after receipt by the Collateral Agent of a National Rural Notice stipulating that such event has ceased to exist, provided that the Collateral Agent does not receive a Control Party Notice within such timeframe disputing the cessation of such Event of Default, and further provided that no additional Control Party Notice of Default shall have been received in respect of any other subsisting Event(s) of Default.  Upon receipt of any National Rural Notice under subparagraph (ii) of this Subsection, the Collateral Agent shall provide a copy of such National Rural Notice to the Control Party.
 
SECTION 4.02.   Remedies upon Default.   If an Event of Default shall have occurred and be continuing, the Control Party may issue a notice (a “ Control Party Notice of Default ”), which may be combined with the notice provided under Section 4.01(b), suspending the rights of National Rural under Section 2.08 in part without suspending all such rights (as specified by the Control Party in its sole and absolute discretion) without waiving or otherwise affecting the Control Party’s rights to give additional Control Party Notices of Default from time to time suspending other rights under Section 2.08   so long as an Event of Default has occurred and is continuing.  Subject to paragraph (b) of this Section 4.02, upon cessation of an Event of Default, all rights of National Rural suspended under the applicable Control Party Notice of Default shall revest in National Rural.
 
(a)  Upon the occurrence of an Event of Default, the Collateral Agent shall, for the benefit and at the direction of the Control Party, have the right to exercise any and all rights afforded to a secured party under the Uniform Commercial Code or other applicable law.  Without limiting the generality of the foregoing, National Rural agrees that the Collateral Agent shall have the right, but only if so instructed by a the Control Party Order and subject to the requirements of applicable law and the Collateral Agent’s right (in its sole and absolute discretion) to receive indemnification or other reasonable assurances that its costs and expenses in connection therewith will be paid, to sell or otherwise dispose of all or any part of the Pledged Collateral at a public or private sale or at any broker’s board or on any securities exchange, for cash, upon credit or for future delivery as the Collateral Agent shall deem appropriate.  The Collateral Agent shall be authorized at any such sale of securities (if it deems it advisable to do so) to restrict the prospective bidders or purchasers to Persons who will represent and agree that they are purchasing the Pledged Collateral for their own account for investment and not with a view to the distribution or sale thereof, and upon consummation of any such sale the Collateral Agent shall have the right to assign, transfer and deliver to the purchaser or purchasers thereof the Pledged Collateral so sold.  Each such purchaser at any sale of Pledged Collateral shall hold the property sold absolutely, free from any claim or right on the part of National Rural, and National Rural hereby waives (to the extent permitted by law) all rights of redemption, stay and appraisal which National Rural now has or may at any time in the future have under any rule of law or statute now existing or hereafter enacted.
 
 

 
 
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(b)  The Collateral Agent shall give National Rural 10 days’ written notice (which National Rural agrees is reasonable notice within the meaning of Section 9-611 of the Uniform Commercial Code or its equivalent in other jurisdictions) of the Collateral Agent’s intention to make any sale of Pledged Collateral.  Such notice, in the case of a public sale, shall state the time and place for such sale and, in the case of a sale at a broker’s board or on a securities exchange, shall state the board or exchange at which such sale is to be made and the day on which the Collateral, or portion thereof, will first be offered for sale at such board or exchange.  Any such public sale shall be held at such time or times within ordinary business hours and at such place or places as the Collateral Agent may fix and state in the notice (if any) of such sale.  At any such sale, the Pledged Collateral, or portion thereof, to be sold may be sold in one lot as an entirety or in separate parcels, as the Collateral Agent may (in its sole and absolute discretion) determine.  The Collateral Agent shall not be obligated to make any sale of any Pledged Collateral if it shall determine not to do so, regardless of the fact that notice of sale of such Pledged Collateral shall have been given.  The Collateral Agent may, without notice or publication, adjourn any public or private sale or cause the same to be adjourned from time to time by announcement at the time and place fixed for sale, and such sale may, without further notice, be made at the time and place to which the same was so adjourned.  In case any sale of all or any part of the Pledged Collateral is made on credit or for future delivery, the Pledged Collateral so sold may be retained by the Collateral Agent until the sale price is paid by the purchaser or purchasers thereof, but the Collateral Agent shall not incur any liability in case any such purchaser or purchasers shall fail to take up and pay for the Pledged Collateral so sold and, in case of any such failure, such Pledged Collateral may be sold again upon like notice.  At any public (or, to the extent permitted by law, private) sale made pursuant to this Pledge Agreement, the Control Party may bid for or purchase, free (to the extent permitted by law) from any right of redemption, stay, valuation or appraisal on the part of National Rural (all said rights being also hereby waived and released to the extent permitted by law), the Pledged Collateral or any part thereof offered for sale and may make payment on account thereof by using any claim then due and payable to the Control Party from National Rural as a credit against the purchase price, and the Control Party may, upon compliance with the terms of sale, hold, retain and dispose of such property without further accountability to Pledged Collateral therefor.  For purposes hereof, a written agreement to purchase the Pledged Collateral or any portion thereof shall be treated as a sale thereof; the Collateral Agent shall be free to carry out such sale pursuant to such agreement and National Rural shall not be entitled to the return of the Pledged Collateral or any portion thereof subject thereto, notwithstanding the fact that after the Collateral Agent shall have entered into such an agreement all Events of Default shall have been remedied and the Obligations paid in full.  As an alternative to exercising the power of sale herein conferred upon it, the Collateral Agent may proceed by a suit or suits at law or in equity to foreclose this Pledge Agreement and to sell the Collateral or any portion thereof pursuant to a judgment or decree of a court or courts having competent jurisdiction or pursuant to a proceeding by a court-appointed receiver.  Any sale pursuant to the provisions of this Section 4.02 shall be deemed to conform to the commercially reasonable standards as provided in Section 9-610(b) of the Uniform Commercial Code or its equivalent in other jurisdictions.
 
 

 
 
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SECTION 4.03.   Application of Proceeds.   The Collateral Agent shall apply the proceeds of any collection or sale of Pledged Collateral, including any Pledged Collateral consisting of cash, as follows to the fullest extent permitted by applicable law:
 
FIRST, to the payment of all reasonable costs and expenses incurred by the Collateral Agent in connection with or reasonably related or reasonably incidental to such collection or sale or otherwise in connection with or related or incidental to this Pledge Agreement or any of the Obligations, including all court costs and the reasonable fees and expenses of its agents and legal counsel, the repayment of all advances made by the Collateral Agent (in its sole discretion) hereunder on behalf of National Rural and any other reasonable costs or expenses incurred in connection with the exercise of any right or remedy hereunder;
 
SECOND, to the payment to the Control Party in full of the Obligations ; such payment to be for an amount certified in a Control Party Notice delivered to the Collateral Agent as being the amount due and owing to the Control Party under the Obligations; and
 
THIRD, to National Rural, its successors or assigns, or as a court of competent jurisdiction may otherwise direct.
 
Upon any sale of the Pledged Collateral by the Collateral Agent (including pursuant to a power of sale granted by statute or under a judicial proceeding), the receipt of the Collateral Agent or of the officer making the sale shall be a sufficient discharge to the purchaser or purchasers of the Pledged Collateral so sold and such purchaser or purchasers shall not be obligated to see to the application of any part of the purchase money paid over to the Collateral Agent or such officer or be answerable in any way for the misapplication thereof.
 
SECTION 4.04.   Securities Act .   In view of the position of National Rural in relation to the Pledged Collateral, or because of other current or future circumstances, a question may arise under the Securities Act of 1933, as now or hereafter in effect, or any similar statute hereafter enacted analogous in purpose or effect (such Act and any such similar statute as from time to time in effect being called the “ Federal Securities Laws ”) with respect to any disposition of the Pledged Collateral permitted hereunder.  National Rural understands that compliance with the Federal Securities Laws might very strictly limit the course of conduct of the Collateral Agent if the Collateral Agent were to attempt to dispose of all or any part of the Pledged Collateral, and might also limit the extent to which or the manner in which any subsequent transferee of any Pledged Collateral could dispose of the same.  Similarly, there may be other legal restrictions or limitations affecting the Collateral Agent in any attempt to dispose of all or part of the Pledged Collateral under applicable Blue Sky or other state securities laws or similar laws analogous in purpose or effect.  National Rural recognizes that in light of such restrictions and limitations the Collateral Agent may, with respect to any sale of the Pledged Collateral, limit the purchasers to those who will agree, among other things, to acquire such Pledged Collateral for their own account, for investment, and not with a view to the distribution or resale thereof.  National Rural acknowledges and agrees that in light of such restrictions and limitations, the Collateral Agent, in its sole and absolute discretion (a) may proceed to make such a sale whether or not a registration statement for the purpose of registering such Pledged Collateral or part thereof shall have been filed under the Federal Securities Laws and (b) may approach and negotiate with a single potential purchaser to effect such sale.  National Rural acknowledges and agrees that any such sale might result in prices and other terms less favorable to the seller than if such sale were a public sale without such restrictions.  In the event of any such sale, the Collateral Agent shall incur no responsibility or liability for selling all or any part of the Pledged Collateral at a price that the Collateral Agent, in its sole and absolute discretion, may in good faith deem reasonable under the circumstances, notwithstanding the possibility that a substantially higher price might have been realized if the sale were deferred until after registration as aforesaid or if more than a single purchaser were approached.  The provisions of this Section 4.04 will apply notwithstanding the existence of a public or private market upon which the quotations or sales prices may exceed substantially the price at which the Collateral Agent sells.
 
 

 
 
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ARTICLE V
 
The Collateral Agent
 
SECTION 5.01.   Certain Duties and Responsibilities.   (a)  At all times under this Pledge Agreement:
 
(i) the Collateral Agent undertakes to perform such duties and only such duties as are specifically set forth in this Pledge Agreement, and no implied covenants or obligations shall be read into this Pledge Agreement against the Collateral Agent; and
 
(ii) in the absence of bad faith on its part, the Collateral Agent may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon certificates or opinions furnished to the Collateral Agent and substantially conforming to the requirements of this Pledge Agreement; but in the case of any such certificates or opinions which by any provision hereof are specifically required to be furnished to the Collateral Agent the Collateral Agent shall be under a duty to examine the same to determine whether or not they substantially conform to the requirements of this Pledge Agreement.
 
(b)  No provision of this Pledge Agreement shall be construed to relieve the Collateral Agent from liability for its own grossly negligent action, its own grossly negligent failure to act, or its own willful misconduct, except that:
 
(i) this Subsection shall not be construed to limit the effect of Subsection (a) of this Section;
 
 

 
 
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(ii) the Collateral Agent shall not be liable for any error of judgment made in good faith, unless it shall be proved that the Collateral Agent was grossly negligent in ascertaining the pertinent facts; and
 
(iii) no provision of this Pledge Agreement shall require the Collateral Agent to expend or risk its own funds or otherwise incur any financial liability in the performance of any of its duties hereunder, or in the exercise of any of its rights or powers, if it shall have reasonable grounds for believing that repayment of such funds or adequate indemnity against such risk or liability is not reasonably assured to it.
 
(c)  Whether or not therein expressly so provided, every provision of this Pledge Agreement relating to the conduct or affecting the liability of or affording protection to the Collateral Agent shall be subject to the provisions of this Section.
 
SECTION 5.02.   Certain Rights of Collateral Agent.   Except as otherwise provided in Section 5.01:
 
(a) the Collateral Agent may rely and shall be protected in acting or refraining from acting upon any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture or other paper or document believed by it to be genuine and to have been signed or presented by the proper party or parties;
 
(b) any request or direction of National Rural mentioned herein shall be sufficiently evidenced by a National Rural Notice or National Rural Order;
 
(c) any request or direction of the Control Party mentioned herein shall be sufficiently evidenced by a Control Party Notice or Control Party Order;
 
(d) whenever in the administration of this Pledge Agreement the Collateral Agent shall deem it desirable that a matter be proved or established prior to taking, suffering or omitting any action hereunder, the Collateral Agent (unless other evidence be herein specifically prescribed) may, in the absence of bad faith on its part, rely upon an Officers’ Certificate in the case of National Rural, and a certificate signed by any Vice President of the Control Party in the case of the Control Party;
 
(e) the Collateral Agent may consult with counsel and the advice of such counsel shall be full and complete authorization and protection in respect of any action taken, suffered or omitted by it hereunder in good faith and in reliance thereon;
 
(f) the Collateral Agent shall be under no obligation to exercise any of the rights or powers vested in it by this Pledge Agreement at the request or direction of either National Rural or the Control Party pursuant to this Pledge Agreement, unless such party shall have offered to the Collateral Agent reasonable security or indemnity against the costs, expenses and liabilities which might be incurred by it in compliance with such request or direction;
 
 

 
 
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(g) the Collateral Agent shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture or other paper or document, or to recompute, verify, reclassify or recalculate any information contained therein, but the Collateral Agent, in its sole and absolute discretion, may make such further inquiry or investigation into such facts or matters as it may see fit, and, if the Collateral Agent shall determine to make such further inquiry or investigation, it shall be entitled to examine the books, records and premises of National Rural, personally or by agent or attorney;
 
(h) the Collateral Agent may execute any of the powers hereunder or perform any duties hereunder either directly or by or through agents or attorneys and the Collateral Agent shall not be responsible for any misconduct or negligence on the part of any agent or attorney appointed with due care by it hereunder;
 
(i) unless explicitly stated herein to the contrary, the Collateral Agent shall have no duty to inquire as to the performance of National Rural’s covenants herein.  In addition, the Collateral Agent shall not be deemed to have knowledge of any Event of Default unless the Collateral Agent has received a Control Party Notice in accordance with Section 4.01(a), and shall not be deemed to have knowledge of the cessation of the same until such time as it receives a National Rural Notice in accordance with Section 4.01(b); and
 
(j) unless explicitly stated herein to the contrary, the Collateral Agent shall have no obligation to take any action with respect to any Event of Default until it has received a Control Party Notice applicable to such event in accordance with Section 4.01(a), and the Collateral Agent shall have no liability for any action or inaction taken, suffered or omitted in respect of any such event by it prior to such time as the applicable Control Party Notice is delivered.  Similarly, the Collateral Agent shall have no obligation to take any action with respect to the cessation of an Event of Default until it has received a National Rural Notice applicable to such event in accordance in accordance with Section 4.01(b), and the Collateral Agent shall have no liability for any action or inaction taken, suffered or omitted in respect of any such event by it prior to such time as the applicable National Rural Notice is delivered.
 
SECTION 5.03.   Money Held by Collateral Agent.   Money held by the Collateral Agent hereunder need not be segregated from other funds except to the extent required by law.  The Collateral Agent shall have no liability to pay interest on or (except as expressly provided herein) invest any such moneys.
 
 

 
 
19
 
SECTION 5.04.   Compensation and Reimbursement.   (a)   National Rural agrees:
 
(i) to pay to the Collateral Agent from time to time such reasonable compensation for all services rendered by it hereunder as shall have been set forth in an agreement signed by National Rural;
 
(ii) except as otherwise expressly provided herein, to reimburse the Collateral Agent upon its request for all reasonable expenses, out-of-pocket costs, disbursements and advances incurred or made by the Collateral Agent in accordance with any provision of this Pledge Agreement (including the reasonable compensation and the expenses and disbursements of its agents and counsel), except to the extent any such expense, disbursement or advance may be attributable to its gross negligence or bad faith; and
 
(iii) to indemnify the Collateral Agent for, and to defend and hold it harmless against, any loss, liability or expense incurred without gross negligence or bad faith on its part, arising out of or in connection with the acceptance or administration of this Pledge Agreement or the performance of its duties hereunder, 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 hereunder, except to the extent such loss, liability or expense may be attributable to its gross negligence or bad faith; provided , however , that National Rural shall have no liability under this clause for any settlement of any litigation or other dispute effected without the prior written consent of National Rural (such consent not to be unreasonably withheld).
 
(b)  Any such amounts payable as provided hereunder shall be additional Obligations secured by the Lien hereof.  The provisions of this Section 5.04 shall remain operative and in full force and effect regardless of the termination of this Pledge Agreement or the Note Purchase Agreement, the consummation of the transactions contemplated hereby, the repayment of any of the Obligations, the invalidity or unenforceability of any term or provision of this Pledge Agreement or the Note Purchase Agreement, or any investigation made by or on behalf of the Collateral Agent or the Control Party.  All amounts due under this Section 5.04 shall be payable on written demand therefor.
 
SECTION 5.05.   Corporate Collateral Agent Required; Eligibility.   There shall at all times be a Collateral Agent hereunder which shall be a corporation or association organized and doing business under the laws of the United States of America or of any State, authorized under such laws to exercise corporate trust powers, having a combined capital and surplus of at least $50,000,000, subject to supervision or examination by Federal or State authority.  If such corporation publishes reports of condition at least annually, pursuant to law or to the requirements of the aforesaid supervising or examining authority, then for the purposes of this Section, the combined capital and surplus of such corporation shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published.  Neither National Rural nor any Person directly or indirectly controlling, controlled by or under common control with National Rural shall serve as Collateral Agent hereunder.  If at any time the Collateral Agent shall cease to be eligible in accordance with the provisions of this Section, it shall resign immediately in the manner and with the effect hereinafter specified in this Article.
 
 

 
 
20
 
SECTION 5.06.   Resignation and Removal; Appointment of Successor.   (a)  No resignation or removal of the Collateral Agent and no appointment of a successor Collateral Agent pursuant to this Article shall become effective until the acceptance of appointment by the successor Collateral Agent under Section 5.07.
 
(b)  The Collateral Agent may resign at any time by giving written notice thereof to National Rural.  If an instrument of acceptance by a successor Collateral Agent shall not have been delivered to the Collateral Agent within 30 days after the giving of such notice of resignation, the resigning Collateral Agent may petition any court of competent jurisdiction for the appointment of a successor Collateral Agent.
 
(c)  If at any time:
 
(i) except if an Event of Default has occurred and is continuing, National Rural, in its sole and absolute discretion, elects to remove the Collateral Agent; or
 
(ii) the Collateral Agent shall cease to be eligible under Section 5.05 or shall become incapable of acting or shall be adjudged a bankrupt or insolvent or a receiver of the Collateral Agent or of its property shall be appointed or any public officer shall take charge or control of the Collateral Agent or of its property or affairs for the purpose of rehabilitation, conservation or liquidation,
 
then, in any such case, National Rural may remove the Collateral Agent by delivery of a National Rural Order to that effect.
 
(d)  If the Collateral Agent shall resign, be removed or become incapable of acting, or if a vacancy shall occur in the office of Collateral Agent for any cause, National Rural shall promptly appoint a successor Collateral Agent by delivering a National Rural Notice to the retiring Collateral Agent, the successor Collateral Agent and the Control Party to such effect.
 
SECTION 5.07.   Acceptance of Appointment by Successor.   Every successor Collateral Agent appointed hereunder shall execute, acknowledge and deliver to National Rural, the Control Party and to the retiring Collateral Agent an instrument accepting such appointment, and thereupon the resignation or removal of the retiring Collateral Agent shall become effective and such successor Collateral Agent, without any further act, deed or conveyance, shall become vested with all the rights, powers, trusts and duties of the retiring Collateral Agent; but, on request of National Rural, the Control Party or the successor Collateral Agent, such retiring Collateral Agent shall, upon payment of its charges, execute and deliver an instrument transferring to such successor Collateral Agent all the rights, powers and trusts of the retiring Collateral Agent, and shall duly assign, transfer and deliver to such successor Collateral Agent all property and money held by such retiring Collateral Agent hereunder, subject nevertheless to its Lien, if any, provided for in Section 5.04.  Upon request of any such successor Collateral Agent, National Rural shall execute any and all instruments for more fully and certainly vesting in and confirming to such successor Collateral Agent all such rights, powers and trusts.
 
 

 
 
21
 
No successor Collateral Agent shall accept its appointment unless at the time of such acceptance such successor Collateral Agent shall be eligible under Section 5.05 hereof.
 
SECTION 5.08.   Merger, Conversion, Consolidation or Succession to Business.   Any corporation into which the Collateral Agent may be merged or converted or with which it may be consolidated, or any corporation resulting from any merger, conversion or consolidation to which the Collateral Agent shall be a party, or any corporation succeeding to all or substantially all of the corporate trust business of the Collateral Agent, shall be the successor of the Collateral Agent hereunder, provided such corporation shall be eligible under Section 5.05 hereof without the execution or filing of any paper or any further act on the part of any of the parties hereto.
 
ARTICLE VI
 
Miscellaneous
 
SECTION 6.01.   Notices.   All notices and other communications hereunder to be made to any party shall be in writing and shall be addressed as specified in Schedule II attached hereto as appropriate.  The address, telephone number, or facsimile number for any party may be changed at any time and from time to time upon written notice given by such changing party to the other parties hereto. A properly addressed notice or other communication shall be deemed to have been delivered at the time it is sent by facsimile (fax) transmission to the party or parties to which it is given.
 
(a)  All National Rural Notices and National Rural Orders delivered to the Collateral Agent shall be contemporaneously copied to the Control Party by National Rural; all Control Party Notices and Control Party Orders delivered to the Collateral Agent shall be contemporaneously copied by Farmer Mac to National Rural; and all Collateral Agent notices delivered to either National Rural or Farmer Mac shall be contemporaneously copied to the other such party by the Collateral Agent.
 
SECTION 6.02.   Waivers; Amendment.   (a)  No failure or delay by a party in exercising any right or power hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such right or power, or any abandonment or discontinuance of steps to enforce such a right or power, preclude any other or further exercise thereof or the exercise of any other right or power.  The rights and remedies of each party hereunder are cumulative and are not exclusive of any rights or remedies that such party would otherwise have.  No waiver of any provision of this Pledge Agreement or consent to any departure by any party therefrom shall in any event be effective unless the same shall be permitted by paragraph (b) of this Section 6.02, and then such waiver or consent shall be effective only in the specific instance and for the purpose for which given.  No notice or demand on any party in any case shall entitle any party to any other or further notice or demand in similar or other circumstances.
 
 

 
 
22
 
(b)  Neither this Pledge Agreement nor any provision hereof may be waived, amended or modified except pursuant to an agreement or agreements in writing entered into by National Rural, the Collateral Agent, the Purchaser and Farmer Mac.
 
SECTION 6.03.   Successors and Assigns.   Whenever in this Pledge Agreement any of the parties hereto is referred to, such reference shall be deemed to include the successors and assigns of such party; and all covenants, promises and agreements by or on behalf of National Rural, the Collateral Agent, the Purchaser, the Control Party or Farmer Mac that are contained in this Pledge Agreement shall bind and inure to the benefit of their respective successors and assigns.
 
SECTION 6.04.   Counterparts; Effectiveness.   This Pledge Agreement may be executed in counterparts, each of which shall constitute an original but all of which when taken together shall constitute a single contract.  Delivery of an executed signature page to this Pledge Agreement by facsimile transmission shall be as effective as delivery of a manually signed counterpart of this Pledge Agreement.
 
SECTION 6.05.   Severability.   Any provision of this Pledge Agreement held to be invalid, illegal or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such invalidity, illegality or unenforceability without affecting the validity, legality and enforceability of the remaining provisions hereof; and the invalidity of a particular provision in a particular jurisdiction shall not invalidate such provision in any other jurisdiction.  The parties shall endeavor in good-faith negotiations to replace the invalid, illegal or unenforceable provisions with valid provisions the economic effect of which comes as close as possible to that of the invalid, illegal or unenforceable provisions.
 
SECTION 6.06.   GOVERNING LAW.   THIS PLEDGE AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE UNITED STATES OF AMERICA, TO THE EXTENT APPLICABLE, AND OTHERWISE THE LAWS OF THE STATE OF NEW YORK.
 
SECTION 6.07.   WAIVER OF JURY TRIAL.   EACH PARTY HERETO HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS PLEDGE AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY).  EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS PLEDGE AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 6.07.
 
 

 
 
23
 
SECTION 6.08.   Headings.   Article and Section headings and the Table of Contents used herein are for convenience of reference only, are not part of this Pledge Agreement and are not to affect the construction of, or to be taken into consideration in interpreting, this Pledge Agreement.
 
SECTION 6.09.   Security Interest Absolute.   All rights of the Collateral Agent and/or the Control Party hereunder, the grant of a security interest in the Pledged Collateral and all obligations of National Rural hereunder shall be absolute and unconditional irrespective of (a) any lack of validity or enforceability of the Note Purchase Agreement, any Note, any agreement with respect to any of the Obligations or any other agreement or instrument relating to any of the foregoing, (b) any change in the time, manner or place of payment of, or in any other term of, all or any of the Obligations, or any other amendment or waiver of or any consent to any departure from the Note Purchase Agreement, any Note or any other agreement or instrument, (c) any exchange, release or non-perfection of any Lien on other collateral, or any release or amendment or waiver of or consent under or departure from any guarantee, securing or guaranteeing all or any of the Obligations, or (d) any other circumstance that might otherwise constitute a defense available to, or a discharge of, National Rural in respect of the Obligations or this Pledge Agreement.
 
SECTION 6.10.   Termination or Release.   (a)  This Pledge Agreement shall terminate on the date when the Obligations have been indefeasibly paid in full, and at such time the Lien hereof shall be released.
 
(b)  Upon any withdrawal, substitution or other disposal by National Rural of any Pledged Collateral that is permitted by the terms of this Pledge Agreement, or upon the effectiveness of any written consent to the release of the security interest granted hereby in any Pledged Collateral, the Lien hereof securing such Pledged Collateral shall be automatically released.
 
(c)  In connection with any termination or release pursuant to paragraph (a) or (b) the Collateral Agent shall deliver to National Rural the Pledged Collateral and shall execute and deliver to National Rural, at National Rural’s expense, all documents that National Rural shall reasonably request to evidence such termination or release.  Any execution and delivery of documents pursuant to this Section 6.10 shall be without recourse to or warranty by the Collateral Agent.
 
 

 
 
24
 
SECTION 6.11.   Collateral Agent Appointed Attorney-in-Fact.   National Rural hereby appoints the Collateral Agent the attorney-in-fact of National Rural for the purpose of, upon the occurrence and during the continuance of an Event of Default, carrying out the provisions of this Pledge Agreement with respect to the Pledged Collateral and taking any action and executing any instrument that the Collateral Agent may deem necessary or advisable to accomplish the purposes hereof, which appointment is irrevocable and coupled with an interest but is subject nevertheless to the terms and conditions of this Pledge Agreement.  Without limiting the generality of the foregoing, the Collateral Agent shall have the right, upon the occurrence and during the continuance of an Event of Default, with full power of substitution either in the Collateral Agent’s name or in the name of National Rural (a) to receive, endorse, assign and/or deliver any and all notes, acceptances, checks, drafts, money orders or other evidences of payment relating to the Pledged Collateral or any part thereof; (b) to demand, collect, receive payment of, give receipt for and give discharges and releases of all or any of the Pledged Collateral; (c) to commence and prosecute any and all suits, actions or proceedings at law or in equity in any court of competent jurisdiction to collect or otherwise realize on all or any of the Pledged Collateral or to enforce any rights in respect of any Pledged Collateral; (d) to settle, compromise, compound, adjust or defend any actions, suits or proceedings relating to all or any of the Pledged Collateral; (e) to notify, or to require National Rural to notify, obligors under Pledged Securities to make payment directly to the Collateral Agent; and (f) subject to the second sentence of Section 4.02(a), to use, sell, assign, transfer, pledge, make any agreement with respect to or otherwise deal with all or any of the Pledged Collateral, and to do all other acts and things necessary to carry out the purposes of this Pledge Agreement, as fully and completely as though the Collateral Agent were the absolute owner of the Pledged Collateral for all purposes; provided that nothing herein contained shall be construed as requiring or obligating the Collateral Agent to make any commitment or to make any inquiry as to the nature or sufficiency of any payment received by the Collateral Agent, or to present or file any claim or notice, or to take any action with respect to the Pledged Collateral or any part thereof or the moneys due or to become due in respect thereof or any property covered thereby.  The Collateral Agent and the Control Party shall be accountable only for amounts actually received as a result of the exercise of the powers granted to them herein, and neither they nor their officers, directors, employees or agents shall be responsible to National Rural for any act or failure to act hereunder, except for their own gross negligence or willful misconduct.
 
[SIGNATURE PAGE FOLLOWS]
 
 

 
 
IN WITNESS WHEREOF, the parties hereto have caused this Pledge Agreement to be duly executed, all as of the day and year first above written.
 
FARMER MAC MORTGAGE
SECURITIES CORPORATION,
 
  by
   
 
Name:
 
Title:
 
FEDERAL AGRICULTURAL
MORTGAGE CORPORATION,
 
  by
   
 
Name:
 
Title:

 
NATIONAL RURAL UTILITIES
COOPERATIVE FINANCE CORPORATION,
 
  By
   
 
Name:
 
Title:

 
U.S. BANK NATIONAL ASSOCIATION,
 
  By
   
 
Name:
 
Title:
 
 

 

SCHEDULE I  
TO  
PLEDGE AGREEMENT
  
ADDITIONAL CRITERIA FOR ELIGIBLE SECURITIES 1
  
Criteria for Eligible Security of Class A Eligible Member :  Each Class A Eligible Member must satisfy the following criteria only on the date of the pledge of such Eligible Security:

 
·
Long-Term Debt to Net Utility Plant Ratio, as the average ratio of the most recent three full calendar years for which financial information is available, does not exceed 90%.

 
·
Modified Debt Service Coverage Ratio—Distribution, as the average ratio of the most recent three full calendar years for which financial information is available, is greater than or equal to 1.35.

 
·
Equity to Total Assets Ratio, as the average ratio of the most recent three full calendar years for which financial information is available, is greater than or equal to 20%.

 
·
The Eligible Security has a Facility Rating by National Rural of “4.9” or lower.

Criteria for Eligible Security of Class B Eligible Member :  Each Class B Eligible Member must satisfy the following criteria only on the date of the pledge of such Eligible Security:

 
·
Equity to Total Capitalization Ratio, as the average ratio of the most recent three full calendar years for which financial information is available, is greater than or equal to 25%.

 
·
Modified Debt Service Coverage Ratio—G&T, as the average ratio of the most recent three full calendar years for which financial information is available, is greater than or equal to 1.10.

 
·
Equity to Total Assets Ratio, as the average ratio of the most recent three full calendar years for which financial information is available, is greater than or equal to 10%.

 
·
The Eligible Security has a Facility Rating by National Rural of “4.9” or lower.
 

1 The criteria set forth on this Schedule I shall be required to be satisfied only as of the date of pledge of (1) any Pledged Securities that is being pledged for a new advance or (2) any Pledged Securities that is being pledged for an existing advance which is in substitution of, or in addition to, existing collateral, and such criteria shall not be required to be satisfied with respect to Eligible Securities after such date.
 
 

 

SCHEDULE II
TO
PLEDGE AGREEMENT
 
Addresses for Notices
 
 
The addresses referred to in Section 6.01 hereof, for purposes of delivering communications and notices, are as follows:
 
If to the Purchaser or Farmer Mac:
 
Federal Agricultural Mortgage Corporation
1133 21 st Street N.W., Suite 600
Washington, DC 20036
Fax:  202-872-7713
Attention: Timothy L. Buzby, Vice President/Controller
 
If to Farmer Mac:
 
Federal Agricultural Mortgage Corporation
1133 21st Street, N.W., Suite 600
Washington, DC 20036
Fax:  202-872-7713
Attention of: Timothy L. Buzby, Vice President/Controller
 
With a copy to:
 
Federal Agricultural Mortgage Corporation
1133 21st Street, N.W., Suite 600
Washington, DC 20036
Fax:  202-872-7713
Attention of: Jerome G. Oslick, Vice President - General Counsel
 
If to National Rural:
 
National Rural Utilities Cooperative Finance Corporation
2201 Cooperative Way
Herndon, VA 20171-3025
Telephone:  703-709-6718
Fax:  703-709-6779
Attention of: Steven L. Lilly, Senior Vice President &
Chief Financial Officer
 
 

 

SCHEDULE II
TO
PLEDGE AGREEMENT
  
With a copy to:

National Rural Utilities Cooperative Finance Corporation
2201 Cooperative Way
Herndon, VA 20171-3025
Telephone:  703-709-6712
Fax:  703-709-6811
Attention of: John J. List, Esq., Senior Vice President &
General Counsel
If to the Collateral Agent:
 
U.S. Bank National Association
100 Wall Street
Suite 1600
New York, NY 10005-3701
Telephone:  (212) 361-2893
Fax:  (212) 509-3384
Attention of: Beverly A. Freeney
 
 

 

ANNEX A
TO
PLEDGE AGREEMENT
 
NATIONAL RURAL UTILITIES
COOPERATIVE FINANCE CORPORATION
 
PLEDGE AGREEMENT DATED AS OF FEBRUARY 5, 2009
 
CERTIFICATE OF PLEDGED COLLATERAL FILED WITH
U.S. BANK NATIONAL ASSOCIATION, Collateral Agent
 
________________, Chief Executive Officer (or Chief Financial Officer) and ____________________, Vice-President, respectively, of National Rural Utilities Cooperative Finance Corporation, hereby certify to the Control Party and the Collateral Agent under the above-mentioned Pledge Agreement as amended to the date hereof (herein called the “Pledge Agreement”) as follows:
 
1.
The Allowable Amount of Pledged Collateral certified hereby, remaining on deposit with the Collateral Agent, as shown on Schedule A hereto, is
  $    
           
2.
The Allowable Amount of Pledged Collateral certified hereby, being deposited as shown on Schedule B hereto, is
  $    
           
3.
The aggregate principal amount of the Note(s) outstanding at the date hereof is
  $    
           
4.
The aggregate amount, if any, of the Note(s) to be issued on the basis of this Certificate is
  $    
           
5.
The sum of amounts in items 3 and 4 is
  $    
           
6.
The aggregate amount by which the Allowable Amount of Pledged Collateral exceeds the aggregate principal amount of the Note(s) outstanding (item 1 plus 2 and minus 5) is
  $    
           
7.
The Allowable Amount of Pledged Collateral which is included in items 1 and  2 above from Class B Eligible Members does not constitute more than 20% of the aggregate amount of any notes or bonds: (1) pledged hereunder; (2) pledged to secure any other notes or bonds issued by National Rural or any affiliate to Farmer Mac or any affiliate; (3) sold by National Rural or any affiliate to Farmer Mac or any affiliate; or (4) sold to any trust whose beneficial ownership is owned or controlled by Farmer Mac or an affiliate.
       
 
 

 

ANNEX A
TO
PLEDGE AGREEMENT
 
8.
To the knowledge of the undersigned, each Eligible Security from Class A Eligible Member the Allowable Amount of which is included in item 2 satisfies the following criteria on the date of this Certificate:  (1) Long-Term Debt to Net Utility Plant Ratio, as the average ratio of the most recent three full calendar years for which financial information is available, does not exceed 90%; (2) Modified Debt Service Coverage Ratio—Distribution, as the average ratio of the most recent three full calendar years for which financial information is available, is greater than or equal to 1.35; (3) Equity to Total Assets Ratio, as the average ratio of the most recent three full calendar years for which financial information is available, is greater than or equal to 20%; and (4) the Eligible Security has a Facility Rating by National Rural of “4.9” or lower.
       
           
9.
To the knowledge of the undersigned, each Eligible Security from Class B Eligible Member the Allowable Amount of which is included in item 2 satisfies the following criteria on the date of this Certificate:  (1) Equity to Total Capitalization Ratio, as the average ratio of the most recent three full calendar years for which financial information is available, is greater than or equal to 25%; (2) Modified Debt Service Coverage Ratio—G&T, as the average ratio of the most recent three full calendar years for which financial information is available, is greater than or equal to 1.10; (3) Equity to Total Assets Ratio, as the average ratio of the most recent three full calendar years for which financial information is available, is greater than or equal to 10%; and (4) the Eligible Security has a Facility Rating by National Rural of “4.9” or lower.
       
           
10.
So far as is known to the undersigned, no Event of Default exists.
        
 
 

 

ANNEX A
TO
PLEDGE AGREEMENT
  
All terms which are defined in the Pledge Agreement are used herein as so defined.
 
Dated:  _____________________
 
 
 
 
 
OF NATIONAL RURAL UTILITIES
COOPERATIVE FINANCE CORPORATION
 
 

 

ANNEX A
TO
PLEDGE AGREEMENT
  
PLEDGED SECURITIES ON DEPOSIT
 
SCHEDULE A TO OFFICERS’ CERTIFICATE
DATED
 
Eligible Securities
 
Name of Issuer
 
Allowable Amount (Item 1)
Pledged Securities
(Here List Securities)
  
 
  
 
 
 

 

ANNEX A
TO
PLEDGE AGREEMENT
  
PLEDGED SECURITIES BEING DEPOSITED
 
SCHEDULE B TO OFFICERS’ CERTIFICATE
DATED
  
Eligible Securities
 
Name of Issuer
 
Allowable Amount (Item 2)
Pledged Securities
(Here List Securities)
  
 
  
 
 
 

 
 
EXHIBIT 10.29.1
 
FARMER MAC MORTGAGE
SECURITIES CORPORATION,
As Note Purchaser

NATIONAL RURAL UTILITIES
COOPERATIVE FINANCE CORPORATION,
As Borrower

U.S. BANK NATIONAL ASSOCIATION,
As Collateral Agent

FEDERAL AGRICULTURAL
MORTGAGE CORPORATION,
As Guarantor
_______________________________
 
FIRST AMENDMENT TO PLEDGE AGREEMENT
 
_______________________________
 
Dated as of September 23, 2009
 
 
 
 

 

FIRST AMENDMENT TO PLEDGE AGREEMENT
 
FIRST AMENDMENT TO PLEDGE AGREEMENT, dated as of September 23, 2009, among NATIONAL RURAL UTILITIES COOPERATIVE FINANCE CORPORATION, a District of Columbia cooperative association and its successors and assigns (hereinafter called “ National Rural ”), FARMER MAC MORTGAGE SECURITIES CORPORATION, (the “Purchaser”), a wholly owned subsidiary of FEDERAL AGRICULTURAL MORTGAGE CORPORATION, a federally-chartered instrumentality of the United States and an institution of the Farm Credit System and its successors and assigns (“ Farmer Mac ”), U.S. BANK NATIONAL ASSOCIATION, a national banking association and its successors and assigns (hereinafter called the “ Collateral Agent ”), and Farmer Mac, as Guarantor.
 
RECITALS
 
WHEREAS, the Purchaser, National Rural, Farmer Mac, and the Collateral Agent are parties to a certain Pledge Agreement dated as of February 5, 2009 (“Pledge Agreement”); and
 
WHEREAS, the parties have agreed to modify the Pledge Agreement as set forth herein.
 
NOW, THEREFORE, in consideration of the mutual agreements herein contained, Farmer Mac, the Purchaser, National Rural and the Collateral Agent agree as follows:
 
1.            Recitals .  The foregoing Recitals are hereby incorporated by reference into this Amendment.

2.            Definitions .  Capitalized terms used herein and not otherwise defined shall have the meanings assigned to them in the Pledge Agreement.

3.            Amendment .

(a)           The Pledge Agreement is hereby amended by deleting the definition of Allowable Amount in Section 1.01 in its entirety and replacing it with the following:

Allowable Amount ” on any date means, with respect to Eligible Securities, the aggregate principal amount of such Eligible Securities theretofore advanced thereon which remains unpaid on such date, subject to any limitation on the Allowable Amount applicable through the definition of “Eligible Security.”
 
(b)           The Pledge Agreement is hereby amended by deleting the definition of Eligible Security in Section 1.01 in its entirety and replacing it with the following:

 
 

 
 
Eligible Security ” means a note or bond of any Eligible Member payable or registered to, or to the order of, National Rural, (A) in respect of which (i) the outstanding principal amount under such note or bond, together with the outstanding principal amount of any other notes or bonds of such Eligible Member pledged hereunder or pledged to secure any other notes or bonds issued by National Rural to Farmer Mac or any affiliate or sold by National Rural or any affiliate to any trust whose beneficial ownership is owned or controlled by Farmer Mac, does not aggregate more than $35 million; provided, however, that a note or bond in excess of $35 million may be pledged hereunder but up to $35 million principal amount of such note or bond (considered together with any other note or bond of such Eligible Member pledged hereunder or pledged to secure any other notes or bonds issued by National Rural to Farmer Mac or any affiliate or sold by National Rural or any affiliate to Farmer Mac, any affiliate or any trust whose beneficial ownership is owned or controlled by Farmer Mac) shall be counted in the Allowable Amount of such Eligible Security (with the amount of any such excess recorded in Item 7 of the Certificate of Pledged Collateral in the form of Annex A attached hereto), (ii) no default has occurred in the payment of principal or interest in accordance with the terms of such note or bond that is continuing beyond the contractual grace period (if any) provided in such note or bond for such payment and (iii) no “event of default” as defined in such note or bond (or in any instrument creating a security interest in favor of National Rural in respect of such note or bond), shall exist that has resulted in the exercise of any right or remedy described in such note or bond (or in any such instrument); (B) which is not classified by National Rural as a non-performing loan under generally accepted accounting principles in the United States; and (C) which otherwise satisfies the criteria set forth on Schedule I hereto, as such Schedule I may be amended from time to time as mutually agreed upon in writing by Farmer Mac and National Rural, with notice of any such amendment to the Collateral Agent prior to the pledge of such Eligible Security.
 
(c)          The Pledge Agreement is hereby amended by deleting Section 2.01(a) in its entirety and replacing it with the following:

(a)           National Rural shall make available to the Control Party, within forty-five (45) days of a pledge of the Pledged Securities in connection with an advance (or for a longer period as National Rural and the Control Party agree), such back-up information as is reasonably necessary in order to allow the Control Party to confirm compliance of such Pledged Securities to the requisite criteria as outlined herein.  Upon receipt of the back-up information, the Control Party shall have ninety (90) days to object in writing to the inclusion of any item of the Pledged Securities as part of the Pledged Collateral.  If the Control Party reasonably determines that any of the Pledged Securities do not meet the criteria for Eligible Securities, then National Rural shall have forty-five (45) days in which to provide substitute collateral, and the timeline specified above for National Rural to make available back-up material and confirmation shall also apply as to the substituted collateral.
 
(d)          The Pledge Agreement is hereby amended by adding new Section 2.11(f) as follows:

 
 

 
 
(f)           the Allowable Amount of Pledged Collateral from Class B Members does not constitute more than 20% of the aggregate amount of any notes or bonds: (1) pledged hereunder; (2) pledged to secure any other notes or bonds issued by National Rural or any affiliate to Farmer Mac or any affiliate; (3) sold by National Rural or any affiliate to Farmer Mac or any affiliate; or (4) sold to any trust whose beneficial ownership is owned or controlled by Farmer Mac or an affiliate.
 
(e)          The Pledge Agreement is hereby amended by deleting Annex A to the Pledge Agreement in its entirety and replacing it with Annex A attached to this Amendment.

4.            GOVERNING LAW .    THIS AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, FEDERAL LAW.  TO THE EXTENT FEDERAL LAW INCORPORATES STATE LAW, THAT STATE LAW SHALL BE THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS MADE AND PERFORMED THEREIN.
 
5.            Inconsistency with Pledge Agreement .  Except as otherwise amended or modified herein, the terms, conditions and provisions of the Pledge Agreement remain in full force and effect.  In the event of any conflict or inconsistency between the terms of this Amendment and the Pledge Agreement, the terms of this Amendment shall control.

6.            Counterparts .  This Amendment may be executed in two or more counterparts, each of which shall be an original, but all of which together shall constitute one and the same instrument.
 
[SIGNATURE PAGE FOLLOWS]
 
 
 

 

IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed as of the day and year first above written.
 
FARMER MAC MORTGAGE
SECURITIES CORPORATION
   
By:
 
Title: 
 
 
FEDERAL AGRICULTURAL
MORTGAGE CORPORATION
   
By:
 
Title: 
 
 
NATIONAL RURAL UTILITIES
COOPERATIVE FINANCE
CORPORATION
   
By:
 
Title: 
 
 
U.S. BANK NATIONAL ASSOCIATION
   
By:
 
Title: 
 
 
 
 

 

ANNEX A
TO
PLEDGE AGREEMENT
 
NATIONAL RURAL UTILITIES
COOPERATIVE FINANCE CORPORATION
 
PLEDGE AGREEMENT DATED AS OF FEBRUARY 5, 2009
 
CERTIFICATE OF PLEDGED COLLATERAL FILED WITH
U.S. BANK NATIONAL ASSOCIATION, Collateral Agent
 
________________, Chief Executive Officer (or Chief Financial Officer or Controller) and ____________________, Vice-President, respectively, of National Rural Utilities Cooperative Finance Corporation, hereby certify to the Control Party and the Collateral Agent under the above-mentioned Pledge Agreement as amended to the date hereof (herein called the “Pledge Agreement”) as follows:
 
1.
The Allowable Amount of Pledged Collateral certified hereby, remaining on deposit with the Collateral Agent, as shown on Schedule A hereto, is
  $    
           
2.
The Allowable Amount of Pledged Collateral certified hereby, being deposited as shown on Schedule B hereto, is
  $    
           
3.
The aggregate principal amount of the Note(s) outstanding at the date hereof is
  $    
           
4.
The aggregate amount, if any, of the Note(s) to be issued on the basis of this Certificate is
  $    
           
5.
The sum of amounts in items 3 and 4 is
  $    
           
6.
The aggregate amount by which the Allowable Amount of Pledged Collateral exceeds the aggregate principal amount of the Note(s) outstanding (the sum of items 1 and 2 minus item 5) is
  $    
           
7.
The cumulative amount by which each Eligible Security listed on Schedule A or Schedule B exceeds $35 million is
  $    
 
 
 

 

ANNEX A
TO
PLEDGE AGREEMENT
 
8.
The Allowable Amount of Pledged Collateral which is included in items 1 and 2 above from Class B Eligible Members does not constitute more than 20% of the aggregate amount of any notes or bonds: (1) pledged hereunder; (2) pledged to secure any other notes or bonds issued by National Rural or any affiliate to Farmer Mac or any affiliate; (3) sold by National Rural or any affiliate to Farmer Mac or any affiliate; or (4) sold to any trust whose beneficial ownership is owned or controlled by Farmer Mac or an affiliate.
       
           
9.
To the knowledge of the undersigned, each Eligible Security from a Class A Eligible Member the Allowable Amount of which is included in item 2 satisfies the following criteria on the date of this Certificate:  (1) Long-Term Debt to Net Utility Plant Ratio, as the average ratio of the most recent three full calendar years for which financial information is available, does not exceed 90%; (2) Modified Debt Service Coverage Ratio—Distribution, as the average ratio of the most recent three full calendar years for which financial information is available, is greater than or equal to 1.35; (3) Equity to Total Assets Ratio, as the average ratio of the most recent three full calendar years for which financial information is available, is greater than or equal to 20%; and (4) the Eligible Security has a Facility Rating by National Rural of “4.9” or lower.
       
           
10.
To the knowledge of the undersigned, each Eligible Security from a Class B Eligible Member the Allowable Amount of which is included in item 2 satisfies the following criteria on the date of this Certificate:  (1) Equity to Total Capitalization Ratio, as the average ratio of the most recent three full calendar years for which financial information is available, is greater than or equal to 25%; (2) Modified Debt Service Coverage Ratio—G&T, as the average ratio of the most recent three full calendar years for which financial information is available, is greater than or equal to 1.10; (3) Equity to Total Assets Ratio, as the average ratio of the most recent three full calendar years for which financial information is available, is greater than or equal to 10%; and (4) the Eligible Security has a Facility Rating by National Rural of “4.9” or lower.
       
 
 
 

 

ANNEX A
TO
PLEDGE AGREEMENT
 
11.
So far as is known to the undersigned, no Event of Default exists.
       
           
12.
To the extent an Eligible Security listed on Schedule A or Schedule B has an outstanding principal amount of more than $35 million, the Allowable Amount of Pledged Collateral set forth in items 1 and 2 above reflects only $35 million with respect to such Eligible Security (or a lesser amount representing the difference between $35 million and the aggregate amount of any notes or bonds of the same Eligible Member pledged or sold to Farmer Mac or any affiliate in any previous transaction), with any excess above $35 million (or the lesser amount) reflected in item 7 above.
       
           
13.
Each Eligible Member whose notes are Pledged Securities has received or is eligible to receive a loan or commitment for a loan from RUS or any successor agency.
        

All terms which are defined in the Pledge Agreement are used herein as so defined.
 
Dated:  _____________________
 
 
 
 
 
OF NATIONAL RURAL UTILITIES
COOPERATIVE FINANCE CORPORATION
 
 
 

 

ANNEX A
TO
PLEDGE AGREEMENT
 
PLEDGED SECURITIES ON DEPOSIT
 
SCHEDULE A TO OFFICERS’ CERTIFICATE
DATED
 
Eligible Securities
 
Name of Issuer
 
Allowable Amount (Item 1)
Pledged Securities
(Here List Securities)
  
 
  
 
 
 
 

 

ANNEX A
TO
PLEDGE AGREEMENT
 
PLEDGED SECURITIES BEING DEPOSITED
 
SCHEDULE B TO OFFICERS’ CERTIFICATE
DATED
 
Eligible Securities
 
Name of Issuer
 
Allowable Amount (Item 2)
Pledged Securities
(Here List Securities)
  
 
  
 
 
 
 

 

EXHIBIT 10.30

February 5, 2009

National Rural Utilities Cooperative Finance Corporation
2201 Cooperative Way
Herndon, Virginia  20171

Re:   Setoff Rights under Note Purchase Agreement

Ladies and Gentlemen:

In connection with that certain Note Purchase Agreement, dated as of the date hereof (the “ Agreement ”), by and among National Rural Utilities Cooperative Finance Corporation (“ National Rural ” or “ Borrower ”), Farmer Mac Mortgage Securities Corporation (“ Purchaser ”), and Federal Agricultural Mortgage Corporation (“ Guarantor ”), National Rural has agreed, in the event of a payment default by National Rural on the Notes, to grant the Control Party certain rights of setoff against amounts due and owing to National Rural on any Series C Preferred Stock, par value $1,000 per share (the “ Preferred Stock ”), of Guarantor.  Capitalized terms used but not otherwise defined herein shall have the meaning set forth in the Agreement.

Borrower, Guarantor and Purchaser hereby agree that in the event of, and only in the event of, a payment Event of Default by Borrower pursuant to Section 7.01(a) of the Agreement (“ Payment Default ”), the Control Party shall have the right, at the Control Party’s sole option and discretion, to setoff any amounts due to Borrower in respect of Guarantor’s Preferred Stock, whether in respect of dividends, redemption, liquidation or otherwise (the “ Preferred Payments ”), and to apply the Preferred Payments on a dollar-for-dollar basis against the amount of Borrower’s Payment Default.  Such setoff amount by the Control Party shall not exceed the amount of Borrower’s Payment Default, and under no circumstances shall Borrower be liable to Purchaser or the Guarantor in connection with the transactions described herein for any amount in excess of the principal amount of the Notes plus interest, as provided in the Agreement.  Borrower’s amount due under the Notes shall be satisfied and discharged to the extent of, but only to the extent of, the Control Party’s effective setoff.  If no Payment Default by Borrower has occurred, however, the Guarantor shall have no right to setoff or otherwise withhold the Preferred Payments from Borrower.  The Control Party shall provide Borrower with notice of, and reasonably detailed back up information with respect to, any setoff effected by the Control Party under this letter agreement.

The rights of the Control Party herein shall be in addition to, and not in substitution or limitation of, any other rights and remedies available to the Control Party, whether such rights or remedies arise pursuant to law, the Agreement or any other agreement between the parties.
 
[SIGNATURE PAGE FOLLOWS]

 
 

 

Please acknowledge your acceptance of the foregoing terms by executing this letter agreement in the space below, whereupon this agreement shall constitute a valid agreement binding upon Purchaser and Borrower.

 
Very truly yours,
   
 
FARMER MAC MORTGAGE SECURITIES CORPORATION
   
 
By:
 
   
Name:  Tom D. Stenson
   
Title:    Vice President
   
 
FEDERAL AGRICULTURAL MORTGAGE CORPORATION
   
 
By:
 
   
Name:  Michael A. Gerber
   
Title:    Acting President and CEO


   
ACKNOWLEDGED AND AGREED:
 
   
NATIONAL RURAL UTILITIES
 
COOPERATIVE FINANCE CORPORATION
 
   
By:
   
 
Name:
 
 
Title:
 
 
 
 

 
EXHIBIT 10.31
 

 
FARMER MAC MORTGAGE SECURITIES CORPORATION
as Note Purchaser
 
NATIONAL RURAL UTILITIES
COOPERATIVE FINANCE CORPORATION
as Borrower
 
FEDERAL AGRICULTURAL MORTGAGE CORPORATION
as Guarantor
 

 
NOTE PURCHASE AGREEMENT
 

 
Dated as of March 23, 2009
 


 

 

TABLE OF CONTENTS
 
 
Page
   
RECITALS
1
   
ARTICLE I DEFINITIONS
1
SECTION 1.01. Definitions
1
SECTION 1.02. Principles of Construction
4
   
ARTICLE II PURCHASE OF NOTES
4
SECTION 2.01. Purchase of Notes; Minimum Denominations
4
SECTION 2.02. Interest Rates and Payment
5
SECTION 2.03. Maturity
6
SECTION 2.04. Use of Proceeds
6
   
ARTICLE III CONDITIONS PRECEDENT
6
SECTION 3.01. Conditions Precedent to the Purchase of Each Note
6
SECTION 3.02. Certificate of Pledged Collateral
7
   
ARTICLE IV REPORTING REQUIREMENTS
7
SECTION 4.01. Annual Reporting Requirements
7
SECTION 4.02. Default Notices
7
   
ARTICLE V REPRESENTATIONS OF THE PARTIES
8
SECTION 5.01. Representations of Farmer Mac and the Purchaser
8
SECTION 5.02.  Representations of National Rural .
8
   
ARTICLE VI SECURITY AND COLLATERAL
10
SECTION 6.01. Security and Collateral
10
   
ARTICLE VII EVENTS OF DEFAULT
10
SECTION 7.01. Events of Default
10
SECTION 7.02. Acceleration
11
SECTION 7.03. Remedies Not Exclusive
11
   
ARTICLE VIII MISCELLANEOUS
12
SECTION 8.01. GOVERNING LAW
12
SECTION 8.02. WAIVER OF JURY TRIAL
12
SECTION 8.03. Notices
12
SECTION 8.04. Benefit of Agreement
12
SECTION 8.05. Entire Agreement
12
SECTION 8.06. Amendments and Waivers
12
SECTION 8.07. Counterparts
13
SECTION 8.08. Termination of Agreement
13
SECTION 8.09. Survival
13
SECTION 8.10. Severability
13
 
 

 

ARTICLE IX GUARANTEE
13
SECTION 9.01.  Guarantee .
13
SECTION 9.02.  Control by the Guarantor .
14
   
Schedule I – Addresses for Notices  
Schedule II – Form of Applicable Margin Notice  
Schedule III – Form of Pricing Agreement  
   
Annex A– Form of Floating Rate Note  
Annex B – Opinion of Counsel to National Rural  
Annex C – Officers’ Certificate
 
 
 

 

NOTE PURCHASE AGREEMENT
 
NOTE PURCHASE AGREEMENT, dated as of March 23, 2009, among FARMER MAC MORTGAGE SECURITIES CORPORATION (the “ Purchaser ”), a wholly owned subsidiary of FEDERAL AGRICULTURAL MORTGAGE CORPORATION, a federally-chartered instrumentality of the United States and an institution of the Farm Credit System (“ Farmer Mac ” or the “ Guarantor ”); NATIONAL RURAL UTILITIES COOPERATIVE FINANCE CORPORATION, a cooperative association existing under the laws of the District of Columbia (“ National Rural ”); and Farmer Mac, as Guarantor.
 
RECITALS
 
WHEREAS National Rural wishes from time to time to issue and sell Notes to the Purchaser, and the Purchaser wishes from time to time to purchase such Notes from National Rural, in order to refinance the notes issued pursuant to that certain Note Purchase Agreement between Farmer Mac and National Rural dated as of March 27, 2008 (the “ Original NPA ”), all on the terms and subject to the conditions herein provided; and
 
WHEREAS Farmer Mac is an instrumentality of the United States formed to provide for a secondary marketing arrangement for agricultural real estate mortgages; National Rural is a non-profit cooperative and Farmer Mac, the Purchaser and National Rural have agreed that the Notes will be secured by the pledge of notes for borrowings from National Rural by members of National Rural, as provided herein.
 
NOW, THEREFORE, in consideration of the mutual agreements herein contained, Farmer Mac, the Purchaser and National Rural agree as follows:
 
ARTICLE I
 
DEFINITIONS
 
SECTION 1.01.          Definitions  .  As used in this Agreement, the following terms shall have the following meanings:
 
Agreement ” means this Note Purchase Agreement, as the same may be amended from time to time.
 
Applicable Margin ” means the margin to be added to the LIBOR Rate to determine the rate of interest payable on the Floating Rate Notes from time to time.  The Applicable Margin shall be communicated in writing by Farmer Mac to National Rural in accordance with Section 2.02(d) hereof, in the form of Schedule II hereof, and calculated by Farmer Mac as follows: (i) Farmer Mac’s Cost of Funds (expressed in relation to the LIBOR Rate), plus 0.75%, minus (ii) the LIBOR Rate.  The Applicable Margin for any Floating Rate Note shall be set forth in the applicable Pricing Agreement.

 

 
 
 “ Business Day ” means any day other than a Saturday, a Sunday, or a day on which any of the Federal Reserve Bank of New York, Farmer Mac’s office in Washington, DC or National Rural’s office in Virginia is not open for business.
 
Certificate of Pledged Collateral ” has the meaning given to that term in the Pledge Agreement.
 
Closing Date ” means the date of the funding of each issuance of Notes hereunder, which date shall be set forth in the applicable Pricing Agreement.
 
Collateral Agent ” means U.S. Bank National Association, or its successor, as collateral agent under the Pledge Agreement.
 
Control Party ” means (i) the Guarantor, so long as no Guarantor Default has occurred and is continuing, or (ii) the holders of the Notes for so long as a Guarantor Default has occurred and is continuing.
 
Dollar ” or “ $ ” means the lawful money of the United States of America.
 
Eligible Member ” has the meaning given to that term in the Pledge Agreement.
 
Event of Default ” has the meaning given to that term in Section 7.01.
 
 “ Farmer Mac’s Cost of Funds ” means the cost of funds quoted by Farmer Mac to National Rural based on Farmer Mac’s estimate of the economic cost to obtain cash funds from the wholesale funding market by issuing unsecured medium-term notes to fully fund to maturity the Note or Notes purchased by Purchaser from National Rural.
 
Final Maturity Date ” means April 1, 2014.
 
Financial Statements ”, in respect of a Fiscal Year, means the consolidated financial statements (including footnotes) of National Rural for that Fiscal Year as audited by independent certified public accountants selected by National Rural.
 
Fiscal Year ” means the fiscal year of National Rural, as such may be changed from time to time, which at the date hereof commences on June 1 of each calendar year and ends on May 31 of the following calendar year.
 
 “ Guarantor Default ” means a default by the Guarantor under its obligations pursuant to Article IX which is existing and continuing.
 
Interest Payment Date ” means the first (1 st ) day of each January, April, July and October, unless other dates are agreed by the parties hereto; provided, however, that if any such date is not a Business Day, such Interest Payment Date that would otherwise be such date will be the next Business Day following such date.  The Interest Payment Dates will be set forth in the applicable Pricing Agreement.

 
2

 

Interest Period   means, until all outstanding principal amount of the Notes and interest accrued thereon have been paid in full, each 3-month period comprising a calendar quarter from and including the first day of a calendar quarter (i.e., January 1 st , April 1 st , July 1 st and October 1 st ) (unless another period is agreed by the parties hereto and set forth in the applicable Pricing Agreement) to and including the last day of the same calendar quarter (i.e., March 31 st , June 30 th , September 30 th and December 31 st ) (unless otherwise agreed by the parties hereto and set forth in a Pricing Agreement); provided , that the initial Interest Period means the period from and including the date of issuance to and excluding the first Interest Payment Date  following the date of issuance; provided, further , that if any Interest Period would end on a day other than a Business Day, then such Interest Period shall be extended to and include the next succeeding Business Day and the next Interest Period shall commence on the next succeeding day.
 
LIBOR Rate ” shall mean, for any Interest Period, the rate appearing on Reuters Page LIBOR01 (or on any successor or substitute page of such service, or if the Reuters service ceases to be available, any successor to or substitute for such service providing rate quotations comparable to those currently provided on such page of such service, as mutually agreed by National Rural and Farmer Mac from time to time for purposes of providing quotations of interest rates applicable to Dollar deposits in the London interbank market) as of 11:00 a.m., London time, on the day that is two London Banking Days prior to the commencement of such Interest Period, as the rate for the offering of Dollar deposits with a maturity of three months (unless another maturity is agreed by the parties hereto and set forth in the applicable Pricing Agreement).  Such rate shall apply for the initial Interest Period for any advance notwithstanding that such initial Interest Period for an advance may be shorter than three months.
 
London Banking Day ” shall mean any day on which commercial banks and foreign exchange markets settle payments and are open for general business (including dealings in foreign exchange and foreign currency deposits) in the Dollar, in London, England.
 
Member ” shall mean any Person who is member of National Rural.
 
National Rural Notice ” has the meaning given to that term in the Pledge Agreement.
 
Notes ” means one or more noncallable floating rate notes of National Rural payable to the Purchaser, having the terms provided for in Article II of this Agreement and otherwise in the form of Annex A attached hereto, except to the extent Farmer Mac and National Rural may have approved changes therein, or any other notes with terms determined by the parties pursuant to the terms of a Pricing Agreement.
 
Note Documents ” means the Notes, this Agreement, and the Pledge Agreement.
 
Notice of Borrowing ” has the meaning set forth in Section 2.01 hereof.
 
Original Note ” means the note in the original principal amount of $400 million issued to Farmer Mac pursuant to the Original NPA.
 
Original NPA ”  has the meaning set forth in the Recitals hereof.

 
3

 
 
Person ” means an individual, a corporation, a partnership, an association, a trust or any other entity or organization, including a government or political subdivision or an agency or instrumentality thereof.
 
Pledge Agreement ” means the Pledge Agreement dated as of the date hereof, among National Rural, the Purchaser, Farmer Mac and the Collateral Agent.
 
Pledged Collateral ” has the meaning given to that term in the Pledge Agreement.
 
Pledged Securities ” has the meaning given to that term in the Pledge Agreement.
 
Pricing Agreement ” means the Pricing Agreement for each issuance of Notes among Farmer Mac, the Purchaser and National Rural in the form of Schedule III attached hereto.
 
SECTION 1.02.          Principles of Construction .  Unless the context shall otherwise indicate, the terms defined in Section 1.01 hereof include the plural as well as the singular and the singular as well as the plural.  The words “hereafter”, “herein”, “hereof”, “hereto” and “hereunder”, and words of similar import, refer to this Agreement as a whole.  The descriptive headings of the various articles and sections of this Agreement were formulated and inserted for convenience only and shall not be deemed to affect the meaning or construction of the provisions hereof.
 
ARTICLE II
 
PURCHASE OF NOTES
 
SECTION 2.01.           Purchase of Notes; Minimum Denominations .  The Purchaser agrees to purchase Notes, at 100% of their principal amount, from time to time, on or before the Final Maturity Date, as requested by National Rural by written notice (each, a “ Notice of Borrowing ”) to Farmer Mac in an aggregate principal amount, for all Notes outstanding hereunder at any one time, not in excess of $400 million, subject to satisfaction of the conditions set forth herein.  National Rural may borrow, repay and reborrow funds at any time or from time to time up to, but not including, the Final Maturity Date.  Each advance under this Agreement shall be disbursed in a minimum amount of $50 million and additional increments of $5 million in excess thereof, or such other amounts as agreed to in the applicable Pricing Agreement.  Each advance shall price within 3 Business Days of National Rural providing a Notice of Borrowing to Farmer Mac and shall close and fund within 3 Business Days of pricing, subject to satisfaction of the conditions set forth herein and in accordance with the procedures set forth in Section 2.02(d) hereof, unless otherwise agreed by the parties hereto and set forth in the applicable Pricing Agreement.

 
4

 

SECTION 2.02.           Interest Rates and Payment .
 
(a)   Each Note shall bear interest, payable quarterly in arrears unless otherwise agreed by the parties hereto and set forth in the applicable Pricing Agreement, on the outstanding principal amount thereof (computed on the basis of a 360-day year and the actual number of days elapsed) from its date of issuance until final payment on the maturity date thereof or otherwise at a variable rate per annum equal to the LIBOR Rate for each Interest Period plus the Applicable Margin.  The LIBOR Rate shall reset as of the first day of each Interest Period.  The (i) initial LIBOR Rate and (ii) Applicable Margin for the term of each Note shall be specified in the applicable Pricing Agreement.  Interest only shall be payable on each Interest Payment Date.  The Interest Payment Dates shall be determined at the time of an advance and set forth in the applicable Pricing Agreement.  The principal amount of each Note, together with any accrued but unpaid interest, shall be due and payable on the maturity date for such Note.
 
(b)   Default Interest .  To the extent any payment of interest or principal is not paid when due, interest shall continue to accrue thereon at the applicable rate per annum determined as provided above plus one percent.
 
(c)   Notice of Borrowing; Determination of Applicable Margin; Procedure for Pricing (i)  Each Notice of Borrowing shall indicate the amount of the Note, the type of Note and the desired maturity date of such Note that National Rural requests to be advanced.  A Notice of Borrowing may request preliminary pricing indications for more than one type of Note, with the understanding that only one type of Note will be issued on any particular Closing Date, unless otherwise agreed by the parties hereto in a Pricing Agreement.  Each Notice of Borrowing shall also provide name, telephone and email contact information of an authorized representative of National Rural.
 
(ii) Upon receipt of a Notice of Borrowing from National Rural, Farmer Mac shall, within 2 Business Days, provide to National Rural a preliminary indication of the Applicable Margin applicable to any Notice of Borrowing.  Upon an acceptance of such preliminary indication of pricing by National Rural, the applicable Note will price within one Business Day (and may price on the day of the preliminary pricing if the parties so agree) thereafter, unless the parties otherwise agree to a longer period of time as set forth in the applicable Pricing Agreement.  Farmer Mac shall provide National Rural with written notice of the final Applicable Margin no later than the time of pricing of each advance.  National Rural shall be deemed to approve of such pricing so long as the Applicable Margin shall not exceed the preliminary indication by more than 5 basis points (0.05%).  If the final pricing does exceed the preliminary indication by more than 5 basis points (0.05%), an authorized representative of National Rural must agree via email confirmation prior to or simultaneously with the pricing to accept such margin.
 
(d)   Payments and Prepayments .  Each Note shall not be prepayable during the term of such Note, unless otherwise set forth in the Pricing Agreement.
 
(e)   Payment Notice .  Farmer Mac shall send to National Rural, not later than the fifth Business Day prior to an Interest Payment Date for any Note, a notice setting forth the amount of principal and interest, as applicable, due and owing on the next Interest Payment Date for such Note.

 
5

 
 
SECTION 2.03.           Maturity .  The Notes will mature on the date set forth in the applicable Pricing Agreement and in any event no later than the Final Maturity Date.
 
SECTION 2.04.           Use of Proceeds .  The proceeds of the Notes issued hereunder shall be used (i) to repay amounts outstanding under the Original NPA or (ii) for general corporate purposes; provided, however, that the aggregate principal amount outstanding under the Original Note and the Notes issued hereunder shall not exceed $400 million at any time. Notwithstanding anything contained in the Original NPA, Farmer Mac shall not require that interest on the Original Note be paid to the next interest payment date under the Original NPA so long as interest on such Original Note is paid to the Closing Date of the Note being purchased hereunder.
 
ARTICLE III
 
CONDITIONS PRECEDENT
 
SECTION 3.01.           Conditions Precedent to the Purchase of Each Note .  On each Closing Date, the Purchaser shall be under no obligation to purchase any Note unless and until the following conditions have been satisfied:
 
(a)   The Notes .  Farmer Mac shall have received the original of such Notes, duly executed on behalf of National Rural, in the applicable form attached as Annex A hereto, or otherwise in a form agreed by the parties.
 
(b)   The Pledge Agreement .  Farmer Mac shall have received an original of the Pledge Agreement duly executed on behalf of National Rural and the Collateral Agent.
 
(c)   Opinion of Counsel .  Farmer Mac shall have received an opinion of counsel to National Rural substantially in the form of Annex B, attached hereto.
 
(d)   Financial and Other Information .  National Rural shall have provided Farmer Mac with its most recent Financial Statements and such other information concerning National Rural as Farmer Mac shall have reasonably requested.
 
(e)   No Material Adverse Change .  National Rural shall have certified to Farmer Mac (in the manner specified in paragraph (i) of this Section 3.01), and Farmer Mac shall be satisfied, that no material adverse change shall have occurred in the financial condition or business of National Rural between the end of National Rural’s most recently completed Fiscal Year for which Financial Statements have been made publicly available and the date of the purchase of such Note, which has not been set forth in documents, certificates or financial information furnished to Farmer Mac or publicly filed.
 
(f)   UCC Filing .  National Rural shall have provided Farmer Mac with evidence that National Rural has filed the financing statement required pursuant to Section 2.02(i) of the Pledge Agreement.

 
6

 
 
(g)   No Event of Default .  National Rural shall have certified to Farmer Mac and Farmer Mac shall be satisfied that no Event of Default shall have occurred and be continuing.
 
(h)   Certification of Senior Management .  National Rural shall have provided Farmer Mac a certification by any vice president of National Rural, substantially in the form of Annex C attached hereto, as to the following: (i) that National Rural is a lending institution organized as a private, not-for-profit, cooperative association with the appropriate expertise, experience and qualifications to make loans to its Members for rural electrification and related purposes; (ii) the matters to be certified under paragraphs (e) and (g) of this Section 3.01; and (iii) the representations and warranties of National Rural.
 
SECTION 3.02.           Certificate of Pledged Collateral .  No later than three Business Days after each advance hereunder, National Rural shall provide Farmer Mac and the Collateral Agent a copy of a Certificate of Pledged Collateral, dated as of the last day of the calendar month most recently ended at least 10 Business Days prior to such authentication and delivery, or a more recent date, at National Rural’s option, in accordance with the terms of the Pledge Agreement.
 
ARTICLE IV
 
REPORTING REQUIREMENTS
 
SECTION 4.01.           Annual Reporting Requirements .  So long as any Notes remain outstanding, National Rural shall provide Farmer Mac with the following items within 90 days of the end of each Fiscal Year, in each case, in form and substance satisfactory to Farmer Mac:
 
(a)   the Financial Statements for such Fiscal Year;
 
(b)   a Certificate of Pledged Collateral;
 
(c)   a receipt from the Collateral Agent, or such other evidence as is satisfactory to Farmer Mac, as to the Pledged Collateral held by the Collateral Agent at the end of such Fiscal Year; and
 
(d)   such other information concerning National Rural as is reasonably requested by Farmer Mac.
 
SECTION 4.02.           Default Notices .  If an action, occurrence or event shall happen that is, or with notice and the passage of time would become, an Event of Default, National Rural shall deliver a National Rural Notice of such action, occurrence or event to Farmer Mac before 4:00 p.m. (District of Columbia time) on the Business Day following the date National Rural becomes aware of such action, occurrence or event, and, if such Event of Default should occur, shall submit to Farmer Mac, within five days thereafter, a report setting forth its views as to the reasons for the Event of Default, the anticipated duration of the Event of Default and what corrective actions National Rural is taking to cure such Event of Default.

 
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ARTICLE V
 
REPRESENTATIONS OF THE PARTIES
 
SECTION 5.01.           Representations of Farmer Mac and the Purchaser .  Each of Farmer Mac and the Purchaser jointly and severally represent to National Rural that on the date hereof and on each date on which the Purchaser purchases a Note from National Rural:
 
(a)   it has all necessary authority and has taken all necessary corporate action, and obtained all necessary approvals, in order for it to execute and deliver all Note Documents to which it is a party and for its obligations and agreements under the Note Documents to constitute valid and binding obligations of Farmer Mac and the Purchaser; and in particular the terms of the transaction, and the actions taken by Farmer Mac and the Purchaser, are in compliance with and in satisfaction of the requirements of the Farm Credit Administration, as amended or waived by the Farm Credit Administration; and
 
(b)   The Purchaser is purchasing the Notes for its own account and not with a view to the distribution thereof, provided that the disposition by Farmer Mac or the Purchaser of their property shall at all times be within their control.  Farmer Mac and the Purchaser each understands that the Notes have not been registered under the Act and may be resold only if an exemption from registration is available.
 
SECTION 5.02.           Representations of National Rural .   National Rural hereby represents to Farmer Mac and the Purchaser that on the date hereof and on each date on which the Purchaser purchases a Note from National Rural:
 
(a)   National Rural has been duly organized and is validly existing and in good standing as a cooperative association under the laws of the District of Columbia;
 
(b)   National Rural has the corporate power and authority to execute and deliver this Agreement, each of the other Note Documents and the applicable Pricing Agreement, to consummate the transactions contemplated hereby and thereby and to perform its obligations hereunder and thereunder;
 
(c)   National Rural has taken all necessary corporate and other action to authorize the execution and delivery of this Agreement, each of the other Note Documents and the applicable Pricing Agreement, the consummation by National Rural of the transactions contemplated hereby and thereby and the performance by National Rural of its obligations hereunder and thereunder;

 
8

 
 
(d)   this Agreement, each of the other Note Documents and the applicable Pricing Agreement have been duly authorized, executed and delivered by National Rural and constitute the legal, valid and binding obligations of National Rural, enforceable against National Rural in accordance with their respective terms, subject to: (i) applicable bankruptcy, reorganization, insolvency, moratorium and other laws of general applicability relating to or affecting creditors’ rights generally; and (ii) the application of general principles of equity regardless of whether such enforceability is considered in a proceeding in equity or at law;
 
(e)   no approval, consent, authorization, order, waiver, exemption, variance, registration, filing, notification, qualification, license, permit or other action is now, or under existing law in the future will be, required to be obtained, given, made or taken, as the case may be, with, from or by any regulatory body, administrative agency or governmental authority having jurisdiction over National Rural or any third party under any agreement to which National Rural is a party to authorize the execution and delivery by National Rural of this Agreement, any of the other Note Documents or the applicable Pricing Agreement, or the consummation by National Rural of the transactions contemplated hereby or thereby or the performance by National Rural of its obligations hereunder or thereunder;
 
(f)   neither the execution or delivery by National Rural of this Agreement, any of the other Note Documents or the applicable Pricing Agreement, nor the consummation by National Rural of any of the transactions contemplated hereby or thereby nor the performance by National Rural of its obligations hereunder or thereunder, including, without limitation, the pledge of the Pledged Securities (as such term is defined in the Pledge Agreement) to Farmer Mac, conflicts with or will conflict with, violates or will violate, results in or will result in a breach of, constitutes or will constitute a default under, or results in or will result in the imposition of any lien or encumbrance pursuant to any term or provision of the articles of incorporation or the bylaws of National Rural or any provision of any existing law or any rule or regulation currently applicable to National Rural or any judgment, order or decree of any court or any regulatory body, administrative agency or governmental authority having jurisdiction over National Rural or the terms of any mortgage, indenture, contract or other agreement to which National Rural is a party or by which National Rural or any of its properties is bound;
 
(g)   there is no action, suit, proceeding or investigation before or by any court or any regulatory body, administrative agency or governmental authority presently pending or, to the knowledge of National Rural, threatened with respect to National Rural, this Agreement, any of the other Note Documents or the applicable Pricing Agreement, challenging the validity or enforceability of this Agreement, any of the other Note Documents or the applicable Pricing Agreement, or seeking to restrain, enjoin or otherwise prevent National Rural from engaging in its business as currently conducted or the consummation by National Rural of the transactions contemplated by this Agreement, any of the other Note Documents or the applicable Pricing Agreement, or which, if adversely determined, would have a material adverse effect on National Rural’s financial condition or its ability to perform its obligations under this Agreement, any of the other Note Documents or the applicable Pricing Agreement;

 
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(h)   National Rural is a lending institution organized as a private, not-for-profit, cooperative association with the appropriate expertise, experience and qualifications to make loans to its Members for rural electrification purposes; and
 
(i)   no material adverse change has occurred in the financial condition or business of National Rural between the end of National Rural’s most recently completed Fiscal Year for which Financial Statements have been made publicly available and the date this representation is given which has not been set forth in documents, certificates or financial information furnished to Farmer Mac or publicly filed.
 
ARTICLE VI
 
SECURITY AND COLLATERAL
 
SECTION 6.01.           Security and Collateral .
 
(a)   National Rural shall cause the Allowable Amount of the Pledged Collateral (as such terms are defined in the Pledge Agreement) to be at all times not less than 100% of the aggregate outstanding principal amount of the Notes.
 
(b)   National Rural shall not create, or permit to exist, any pledge, lien, charge, mortgage, encumbrance, debenture, hypothecation or other similar security instrument that secures, or in any way attaches to, such Pledged Collateral, other than the lien of the Pledge Agreement, without the prior written consent of Farmer Mac.
 
(c)   The Pledged Securities will at all times be notes issued to National Rural by Eligible Members (as defined in the Pledge Agreement).
 
ARTICLE VII
 
EVENTS OF DEFAULT
 
SECTION 7.01.           Events of Default .  Each of the following actions, occurrences or events shall, but only (except in the case of subsections (a), (d) and (e) below) if National Rural does not cure such action, occurrence or event within 30 days of notice from Farmer Mac requesting that it be cured, constitute an “ Event of Default ” under the terms of this Agreement:
 
(a)   a failure by National Rural to make a payment of principal or interest on any Note for more than ten days after the same becomes due and payable;

 
10

 
 
(b)   a material representation by National Rural to Farmer Mac in connection with this Agreement, any Note or the Pledge Agreement, or any material information reported pursuant to Article V, shall prove to be incorrect or untrue in any material respect when made or deemed made;
 
(c)   a failure by National Rural to comply with any other material covenant or provision contained in this Agreement or any of the other Note Documents;
 
(d)   the entry of a decree or order by a court having jurisdiction in the premises adjudging National Rural a bankrupt or insolvent, or approving as properly filed a petition seeking reorganization, arrangement, adjustment or composition of or in respect of National Rural under the Federal Bankruptcy Act or any other applicable Federal or State law or law of the District of Columbia, or appointing a receiver, liquidator, assignee, trustee, sequestrator (or other similar official) of National Rural 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; or
 
(e)   the commencement by National Rural 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 petition or answer or consent seeking reorganization or relief under the Federal Bankruptcy Act 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 receiver, liquidator, assignee, trustee, sequestrator (or similar official) of National Rural 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 National Rural in furtherance of any such action.
 
SECTION 7.02.           Acceleration .  Upon the occurrence, and during the continuance, of an Event of Default, Farmer Mac may, upon notice to that effect to National Rural, declare the entire principal amount of, and accrued interest on, the Notes at the time outstanding to be immediately due and payable.
 
SECTION 7.03.           Remedies Not Exclusive .  Upon the occurrence, and during the continuance, of an Event of Default, Farmer Mac shall be entitled to take such other action as is provided for by law, in this Agreement, or in any of the other Note Documents, including injunctive or other equitable relief.

 
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ARTICLE VIII
 
MISCELLANEOUS
 
SECTION 8.01.           GOVERNING LAW .  EXCEPT AS SET FORTH IN SECTION 9.01 HEREOF, THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, FEDERAL LAW.  TO THE EXTENT FEDERAL LAW INCORPORATES STATE LAW, THAT STATE LAW SHALL BE THE LAWS OF THE DISTRICT OF COLUMBIA APPLICABLE TO CONTRACTS MADE AND PERFORMED THEREIN.
 
SECTION 8.02.           WAIVER OF JURY TRIAL .  EACH PARTY HERETO HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY).  EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 8.02.
 
SECTION 8.03.           Notices .  All notices and other communications hereunder to be made to any party shall be in writing and shall be addressed as specified in Schedule I attached hereto as appropriate except as otherwise provided herein.  The address, telephone number, or facsimile number for any party may be changed at any time and from time to time upon written notice given by such changing party to the other parties hereto.  A properly addressed notice or other communication shall be deemed to have been delivered at the time it is sent by facsimile (fax) transmission to the party or parties to which it is given.
 
SECTION 8.04.           Benefit of Agreement .  This Agreement shall become effective when it shall have been executed by Farmer Mac, the Purchaser and National Rural, and thereafter shall be binding upon and inure to the respective benefit of the parties and their permitted successors and assigns.
 
SECTION 8.05.           Entire Agreement .  This Agreement, including the Schedules and Annexes hereto, and the other Note Documents, constitute the entire agreement between the parties hereto concerning the matters contained herein and supersede all prior oral and written agreements and understandings between the parties.
 
SECTION 8.06.           Amendments and Waivers .
 
(a)   No provision of this Agreement may be amended or modified except pursuant to an agreement in writing entered into by Farmer Mac, the Purchaser and National Rural.  No provision of this Agreement may be waived except in writing by the party or parties receiving the benefit of and under such provision.

 
12

 

(b)   No failure or delay of Farmer Mac, the Purchaser or National Rural in exercising any power or right hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such right or power, or any abandonment or discontinuance of steps to enforce such a right or power, preclude any other or further exercise thereof or the exercise of any other right or power.  No waiver of any provision of this Agreement or consent to any departure by National Rural therefrom shall in any event be effective unless the same shall be authorized as provided in paragraph (a) of this Section 8.06, and then such waiver or consent shall be effective only in the specific instance and for the purpose for which given.  No notice or demand on National Rural in any case shall entitle National Rural to any other or further notice or demand in similar or other circumstances.
 
SECTION 8.07.           Counterparts .  This Agreement may be executed in two or more counterparts, each of which shall be an original, but all of which together shall constitute one and the same instrument.
 
SECTION 8.08.           Termination of Agreement .  This Agreement shall terminate upon the indefeasible payment in full of all amounts payable hereunder and under the Notes.
 
SECTION 8.09.           Survival .  The representations and warranties of each of the parties hereto contained in this Agreement and contained in each of the other Note Documents, and the parties’ obligations under any and all thereof, shall survive and shall continue in effect following the execution and delivery of this Agreement, any disposition of the Notes and the expiration or other termination of any of the other Note Documents, but, in the case of each Note Document, shall not survive the expiration or the earlier termination of such Note Document, except to the extent expressly set forth in such Note Document.
 
SECTION 8.10.           Severability .  If any term or provision of this Agreement or any Note Document or the application thereof to any circumstance shall, in any jurisdiction and to any extent, be invalid or unenforceable, such term or such provision shall be ineffective as to such jurisdiction to the extent of such invalidity or unenforceability without invalidating or rendering unenforceable any remaining terms or provisions of such Note Document or the application of such term or provision to circumstances other than those as to which it is held invalid or unenforceable.
 
ARTICLE IX
 
GUARANTEE
 
SECTION 9.01.           Guarantee .
 
(a)   The Guarantor agrees to pay in full to the holder of each Note, the principal of, and interest on, the Notes when due, whether at maturity, upon redemption or otherwise (the “ Guaranteed Obligations ”), on the applicable due date for such payment.

 
13

 

(b)   The Guarantor’s obligations hereunder shall inure to the benefit of and shall be enforceable by any holder of a Note if, for reason beyond the control of such holder, such holder shall have failed to receive the interest or principal, as applicable, payable to such holder any payment date, redemption date or stated maturity date.  The Guarantor hereby irrevocably agrees that its obligations hereunder shall be unconditional, irrespective of the validity, legality or enforceability of, or any change in or amendment to, this Agreement, the Pledge Agreement or any Note, the absence of any action to enforce the same, the waiver or consent by the holder of any Note or by the Collateral Agent with respect to any provisions of this Agreement or the Pledge Agreement, or any action to enforce the same or any other circumstance that might otherwise constitute a legal or equitable discharge or defense of a guarantor.  The Guarantor hereby waives diligence, presentment, demand of payment, protest or notice with respect to each Note or the interest represented thereby, and all demands whatsoever, and covenants that the guarantee will not be discharged except upon complete irrevocable payment of the principal and interest obligations represented by the Notes.
 
(c)   The Guarantor shall be subrogated to and is hereby assigned all rights of the holder of the Notes against National Rural and the proceeds of the Pledged Collateral, all in respect of any amounts paid by the Guarantor pursuant to the provisions of the guarantee contained in this Article IX.  Each holder shall execute and deliver to the Guarantor in each holder’s name such instruments and documents as the Guarantor may reasonably request in writing confirming or evidencing such subrogation and assignment.
 
(d)   No reference herein shall alter or impair the guarantee, which is absolute and unconditional, of the due and punctual payment of principal of, and interest on, the Notes, on the dates such payments are due.
 
(e)   The guarantee is not an obligation of, and is not a guarantee as to principal or interest by the Farm Credit Administration, the United States or any other agency or instrumentality of the United States (other than the Guarantor).
 
(f)   The guarantee shall be governed by, and construed in accordance with, Federal law.  To the extent Federal law incorporates state law, that state law shall be the laws of the District of Columbia applicable to contracts made and performed therein.
 
SECTION 9.02.           Control by the Guarantor . If the Guarantor is the Control Party, the Guarantor shall be considered the holder of all Notes outstanding for all purposes under the Pledge Agreement and shall be permitted to take any and all actions permitted to be taken by the holder thereunder.  The Control Party will have the sole right to direct the time, method and place of conducting any proceeding for any remedy available to the Collateral Agent or any holder with respect to the Notes or exercising any power conferred on the Collateral Agent with respect to the Notes provided that:
 
(i) such direction shall not be in conflict with any rule of law or with the Pledge Agreement;

 
14

 
 
(ii) the Collateral Agent shall have been provided with indemnity from the Control Party reasonably satisfactory to it; and
 
(iii) the Collateral Agent may take any other action deemed proper by such Collateral Agent that is not inconsistent with such direction, provided, however, that the Collateral Agent need not take any action which it determines might expose it to liability.

[SIGNATURE PAGE FOLLOWS]

 
15

 

IN WITNESS WHEREOF, each party hereto has caused this Agreement to be executed by an authorized officer as of the day and year first above written.
 
FARMER MAC MORTGAGE SECURITIES
CORPORATION,
   
By:
   
Title:
 
 
FEDERAL AGRICULTURAL
MORTGAGE CORPORATION,
   
By:
   
Title:
 
 
NATIONAL RURAL UTILITIES
COOPERATIVE FINANCE CORPORATION,
   
By:
   
Title:
 
 
 

 

SCHEDULE I
TO
NOTE PURCHASE AGREEMENT
 
Addresses for Notices
 
1.
The addresses referred to in Section 8.03 hereof, for purposes of delivering communications and notices, are as follows:
 
If to the Purchaser or Farmer Mac:
 
Federal Agricultural Mortgage Corporation
1133 21st Street, N.W., Suite 600
Washington, DC 20036
Fax:  202-872-7713
Attention of: Timothy L. Buzby, Vice President and Controller
 
With a copy to:
Federal Agricultural Mortgage Corporation
1133 21st Street, N.W., Suite 600
Washington, DC 20036
Fax:  202-872-7713
Attention of: Robert Owens/Jitin Singhal, Capital Markets Group
 
With a copy also to:
Federal Agricultural Mortgage Corporation
1133 21st Street, N.W., Suite 600
Washington, DC 20036
Fax:  202-872-7713
Attention of: Jerome G. Oslick, Vice President - General Counsel
 
If to National Rural:
 
National Rural Utilities Cooperative Finance Corporation
2201 Cooperative Way
Herndon, VA 20171-3025
Telephone:  703-709-6718
Fax:  703-709-6779
Attention of: Steven L. Lilly, Senior Vice President &
   Chief Financial Officer
With a copy to:
 
National Rural Utilities Cooperative Finance Corporation
2201 Cooperative Way
Herndon, VA 20171-3025
Telephone:  703-709-6748
Fax:  703-709-6779
Attention of: John Suter, Vice President, Capital Market Funding

 

 
 
With a copy also to:
 
National Rural Utilities Cooperative Finance Corporation
2201 Cooperative Way
Herndon, VA 20171-3025
Telephone:  703-709-6712
Fax:  703-709-6811
Attention of: John J. List, Esq., Senior Vice President &
General Counsel
 
 
2

 

SCHEDULE II
TO
NOTE PURCHASE AGREEMENT

 
FORM OF
APPLICABLE MARGIN NOTICE
 
Issuer Name: National Rural Utilities Cooperative Finance Corporation
 
Date of Note(s):  __________________________
 
Type of Note: ____________________________
 
Applicable Margin:  ________________________
 
Effective Date of Applicable Margin:  _________________________

This Applicable Margin Notice is delivered pursuant to the Note Purchase Agreement, dated as of March 23, 2009 among Federal Agricultural Mortgage Corporation, Farmer Mac Mortgage Securities Corporation and National Rural Utilities Cooperative Finance Corporation (the “Note Purchase Agreement”).  Capitalized terms used but not defined herein shall have the meanings given to them in the Note Purchase Agreement.

FEDERAL AGRICULTURAL MORTGAGE CORPORATION

By:

   
   
 
   
Signature
Date            
 
Title of Authorized Officer
 
Name:  _____________________
 
PLEASE FAX TO:
   
 
ATTN:
   

ACCEPTED BY:

NATIONAL RURAL UTILITIES COOPERATIVE FINANCE CORPORATION

By:

   
   
 
   
Signature
Date            
 
Title of Authorized Officer

Name:
   

 
3

 

SCHEDULE III
TO
NOTE PURCHASE AGREEMENT

FORM OF PRICING AGREEMENT

The Federal Agricultural Mortgage Corporation, a federally chartered instrumentality of the United States and an institution of the Farm Credit System (“Farmer Mac”), Farmer Mac Mortgage Securities Corporation, a wholly owned subsidiary of Farmer Mac (the “Purchaser”) and National Rural Utilities Cooperative Finance Corporation, a cooperative association existing under the laws of the District of Columbia (“National Rural”), agree that, on _______ __, 20__ (the “Closing Date”), the Purchaser will purchase from National Rural and National Rural will sell to the Purchaser $________________ aggregate principal amount of [Floating Rate Notes][specify other type of Notes] (the “Notes”) with the following terms:
 
[Initial LIBOR Rate: _______]
 
Applicable Margin:__________
 
Interest Payment Dates:___________
 
Interest Periods:_____________
 
[The Notes may not be prepaid at any time.]
 
Maturity Date: __________________
 
The issuance and sale of the Notes by National Rural to the Purchaser shall occur under the terms and conditions of the Note Purchase Agreement, dated as of March 23, 2009, among Farmer Mac, the Purchaser and National Rural (the “Note Purchase Agreement”).  All of the provisions contained in the Note Purchase Agreement are hereby incorporated by reference in their entirety and shall be deemed to be a part of this Pricing Agreement to the same extent as if such provisions had been set forth in full herein.  Capitalized terms used herein and not defined herein shall have the meanings given to those terms in the Note Purchase Agreement.  This Pricing Agreement may be executed in two or more counterparts.
 
In the event of any inconsistency between the terms of this Pricing Agreement and the Note Purchase Agreement, the terms of this Pricing Agreement shall apply.
 
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Agreed to this __ day of _______, 20__.
 
Federal Agricultural Mortgage Corporation,
 
By:
   
Name:
   
Title:
   
   
Farmer Mac Mortgage Securities Corporation,
   
By:
   
Name:
   
Title:
   
   
National Rural Utilities Cooperative
Finance Corporation,
 
By:
   
Name:
   
Title:
   

 
5

 
 
ANNEX A
[FORM OF NOTE]
 
NATIONAL RURAL UTILITIES COOPERATIVE FINANCE CORPORATION
 
Floating Rate [__-Year] Senior Note due _______
 
Washington, D.C.
____________, 20__
 
FOR VALUE RECEIVED, the undersigned, NATIONAL RURAL UTILITIES COOPERATIVE FINANCE CORPORATION (“ National Rural ”), a District of Columbia cooperative association, hereby promises to pay to FARMER MAC MORTGAGE SECURITIES CORPORATION, a wholly owned subsidiary of Farmer Mac (as defined below)(the “ Purchaser ”), or registered assigns, the principal sum of _______________ MILLION DOLLARS ($___,000,000.00) on __________________, together with interest computed from the date hereof according to the terms of the Note Purchase Agreement (as defined below).
 
Payments of principal and interest on this Note are to be made in lawful money of the United States of America at such place as shall have been designated by written notice to National Rural from the registered holder of this Note as provided in the Note Purchase Agreement referred to below.
 
This Note is issued pursuant to a Note Purchase Agreement, dated as of March 23, 2009, as well as the Pricing Agreement for $__ [Floating Rate] Notes dated as of _________ __, 20__ (together, as from time to time amended, the “ Note Purchase Agreement ”), among National Rural, the Purchaser and Federal Agricultural Mortgage Corporation (“ Farmer Mac ”) and is entitled to the benefits thereof.  This Note is also entitled to the benefits of the Pledge Agreement, dated as of March 23, 2009, among National Rural, Farmer Mac, the Purchaser and the Collateral Agent named therein.
 
Capitalized terms used herein and not defined herein shall have the meanings given to those terms in the Note Purchase Agreement.
 
This Note is a registered Note and, upon surrender of this Note for registration of transfer or exchange, accompanied by a written instrument of transfer duly executed by the registered holder hereof or such holder’s attorney duly authorized in writing, a new Note will be issued to, and registered in the name of, the transferee.  Prior to due presentment for registration of transfer, National Rural may treat the person in whose name this Note is registered as the owner hereof for the purpose of receiving payment and for all other purposes, and National Rural will not be affected by any notice to the contrary.
 
This Note may not be prepaid at any time.
 
If an Event of Default, as defined in the Note Purchase Agreement, occurs and is continuing, the principal of this Note may be declared due and payable in the manner, at the price and with the effect provided in the Note Purchase Agreement.

 

 
 
This Note shall be construed and enforced in accordance with, and the rights of National Rural and the holder hereof shall be governed by, the laws of the District of Columbia, excluding choice-of-law principles of the law of the District of Columbia that would require the application of the laws of another jurisdiction.
 
NATIONAL RURAL UTILITIES
COOPERATIVE FINANCE CORPORATION,
 
By
 
   
 
Name:
 
Title:
 
 
2

 

ANNEX B
 
[FORM OF OPINION OF COUNSEL TO NATIONAL RURAL]
 
[•]

Federal Agricultural Mortgage Corporation
1133 Twenty-First Street, NW
Suite 600
Washington, DC 20036

 
Gentlemen:

I am delivering this opinion as general counsel (“Counsel”) of National Rural Utilities Cooperative Finance Corporation, a District of Columbia cooperative association (the “Borrower”), and am familiar with matters pertaining to the loan to Borrower in the principal amount of $400,000,000.00, provided for in the Note Purchase Agreement, dated as of March 23, 2009 (“Note Purchase Agreement”), among the Borrower, Farmer Mac Mortgage Securities Corporation (the “Purchaser”) and Federal Agricultural Mortgage Corporation (“Farmer Mac”).

I have examined such corporate records and proceedings of the Borrower, and such other documents as I have deemed necessary as a basis for the opinions hereinafter expressed.

I have also examined the following documents as executed and delivered: (a) the Note Purchase Agreement; (b) the Note dated as of ____________, in the principal amount of $____________ (“Note”), said Note payable to the Purchaser; (c) the Pricing Agreement for $__________ Notes dated as of ____________ among the Borrower, the Purchaser and Farmer Mac (the “Pricing Agreement”) and (d) the Pledge Agreement, dated as of March 23, 2009, among the Borrower, the Purchaser, Farmer Mac and U.S. Bank National Association (the “Pledge Agreement”).  The documents described in items (a) through (d) above are collectively referred to herein as the “Note Documents.”

Based on the foregoing, but subject to the assumptions, exceptions, qualifications and limitations hereinafter expressed, I am of the opinion that:

(1)           The Borrower has been duly incorporated and is validly existing as a cooperative association in good standing under the laws of the District of Columbia with corporate power and authority to execute and perform its obligations under the Note Documents.

(2)           The Note Documents have been duly authorized, executed and delivered by the Borrower, and such documents constitute the legal, valid and binding agreements of the Borrower, enforceable against the Borrower in accordance with their respective terms.

 

 

(3)           Neither the execution nor the delivery by the Borrower of any of the Note Documents nor the consummation by the Borrower of any of the transactions contemplated therein, including, without limitation, the pledge of the Pledged Securities (as such term is defined in the Pledge Agreement) to Farmer Mac, nor the fulfillment by the Borrower of the terms of any of the Note Documents will conflict with or violate, result in a breach of or constitute a default under any term or provision of the Articles of Incorporation or By-laws of the Borrower or any law or any regulation or any order known to Counsel currently applicable to the Borrower of any court, regulatory body, administrative agency or governmental body having jurisdiction over the Borrower or the terms of any indenture, deed of trust, note, note agreement or instrument to which the Borrower is a party or by which the Borrower or any of its properties is bound.

(4)           No approval, authorization, consent, order, registration, filing, qualification, license or permit of or with any state or Federal court or governmental agency or body having jurisdiction over the Borrower is required for any consummation by the Borrower of the transactions contemplated by the Note Documents; provided , however , no opinion is expressed as to the applicability of any Federal or state securities law to any sale, transfer or other disposition of the Note after the date hereof.

(5)           Except as set forth in writing and previously delivered to Farmer Mac or attached hereto as Exhibit A, there is no pending or, to Counsel’s knowledge, threatened action, suit or proceeding before any court or governmental agency, authority or body or any arbitrator with respect to the Borrower, or any of the Note Documents, which, if adversely determined, would have a material adverse effect on the Borrower’s financial condition or its ability to perform its obligations under any of the Note Documents.

(6)           With respect to the Pledged Securities in the Certificate of Pledged Collateral (as such term is defined in the Pledge Agreement), (x) all action with respect to the recording, registering or filing of financing statements in the jurisdiction of organization of National Rural has been taken as is necessary to perfect the security interest intended to be created in such items under the Uniform Commercial Code and (y) in the case of each Eligible Security (as such term is defined in the Pledge Agreement) constituting a certificated security or instrument under the Uniform Commercial Code, such Eligible Security has been delivered to the Collateral Agent such that the taking and retention of the possession by the Collateral Agent of such Eligible Security is sufficient to perfect the security interest to be created under the Uniform Commercial Code.  For purposes of the opinion set forth in this section (6), I have assumed that the Uniform Commercial Code of the District of Columbia is the same as that of the State of New York.

The foregoing opinions are subject to the following assumptions, exceptions, qualifications and limitations:

 

 
 
A.           I am a member of the Bar of the District of Columbia and render no opinion on the laws of any jurisdiction other than the laws of the District of Columbia, the federal laws of the United States of America and the General Corporation Law of the District of Columbia.

B.           My opinions are limited to the present laws and to the facts, as they presently exist.  I assume no obligation to revise or supplement this opinion should the present laws of the jurisdictions referred to in paragraph A above be changed by legislative action, judicial decision or otherwise.

C.           The opinions expressed in paragraph 2 above shall be understood to mean only that if there is a default in performance of an obligation, (i) if a failure to pay or other damage can be shown and (ii) if the defaulting party can be brought into a court which will hear the case and apply the governing law, then, subject to the availability of defenses, and to the exceptions set forth in the next paragraph, the court will provide a money damage (or perhaps injunctive or specific performance) remedy.

D.           My opinions are also subject to the effect of:  (1) bankruptcy, insolvency, reorganization, receivership, moratorium and other laws affecting creditors’ rights (including, without limitation, the effect of statutory and other law regarding fraudulent conveyances, fraudulent transfers and preferential transfers); and (2) the exercise of judicial discretion and the application of principles of equity, good faith, fair dealing, reasonableness, conscionability and materiality (regardless of whether the applicable agreements are considered in proceeding in equity or at law).

E.           This letter is rendered to you in connection with the Note Documents and the transactions related thereto, and may not be relied upon by any other person or by you in any other context or for any other purpose.

F.           I have assumed with your permission (i) the genuineness of all signatures by each party other than the Borrower, (ii) the authenticity of documents submitted to me as originals and the conformity to authentic original documents of all documents submitted to me as copies, and (iii) the due execution and delivery, pursuant to due authorization, of the Note Documents by each party other than the Borrower.

Yours sincerely,

John J. List
General Counsel

 

 

ANNEX C
 
[FORM OF OFFICERS’ CERTIFICATE]
 
Officers’ Certificate
 
TO:                       Federal Agricultural Mortgage Corporation.
 
We, _________________, _________________, and ________________, _____________________, of National Rural Utilities Cooperative Finance Corporation (“ National Rural ”), pursuant to the Note Purchase Agreement dated as of March 23, 2009, among National Rural, Farmer Mac Mortgage Securities Corporation, and Federal Agricultural Mortgage Corporation (the “ Note Purchase Agreement ”), hereby certify on behalf of National Rural that as at the date hereof:
 
(1)           National Rural is a lending institution organized as a private, not-for-profit, cooperative association with the appropriate expertise, experience and qualifications to make loans to its Members for rural electrification and related purposes;
 
(2)           no material adverse change has occurred in the financial condition of National Rural between the date of the end of National Rural’s most recently completed Fiscal Year for which Financial Statements have been made publicly available and the date hereof, which has not been set forth in documents, certificates, or financial information furnished to Farmer Mac or publicly filed;
 
(3)           all of the representations contained in Section 5.02 of the Note Purchase Agreement remain true and correct in all material respects on and as of the date hereof; and
 
(4)           no Event of Default exists.
 
Capitalized terms used in this certificate shall have the meanings given to those terms in the Note Purchase Agreement.
 
DATED as of this _____ day of ______________, _________.
 
NATIONAL RURAL UTILITIES
COOPERATIVE FINANCE
CORPORATION,
 
   
Name:
Title
 
   
Name:
Title:
 
 

 
EXHIBIT 10.32
 
 
FARMER MAC MORTGAGE
SECURITIES CORPORATION,
As Note Purchaser

NATIONAL RURAL UTILITIES
COOPERATIVE FINANCE CORPORATION,
As Borrower

U.S. BANK NATIONAL ASSOCIATION,
As Collateral Agent

FEDERAL AGRICULTURAL
MORTGAGE CORPORATION,
As Guarantor
 

 
PLEDGE AGREEMENT
 

 
Dated as of March 23, 2009
 
 

 
ARTICLE I
       
Definitions
 
Section 1.01.
Definitions
 
2
       
Section 1.02.
Principles of Construction
 
6
       
ARTICLE II
 
Provisions as to Pledged Collateral
 
Section 2.01.
Holding of Pledged Securities
 
6
       
Section 2.02.
UCC Filings
 
6
       
Section 2.03.
Withdrawal and Substitution of Pledged Collateral
 
7
       
Section 2.04.
[Reserved]
 
7
       
Section 2.05.
Addition of Pledged Collateral
 
7
       
Section 2.06.
Accompanying Documentation
 
7
       
Section 2.07.
Renewal; Extension; Substitution
 
8
       
Section 2.08.
Voting Rights; Interest and Principal
 
8
       
Section 2.09.
Protection of Title; Payment of Taxes; Liens, etc
 
9
       
Section 2.10.
Maintenance of Pledged Collateral
 
10
       
Section 2.11.
Representations, Warranties and Covenants
 
10
       
Section 2.12.
Further Assurances
 
11
 
i

 
ARTICLE III
       
[Reserved]
 
ARTICLE IV
       
Remedies
 
Section 4.01.
Events of Default
 
11
       
Section 4.02.
Remedies upon Default
 
12
       
Section 4.03.
Application of Proceeds
 
14
       
Section 4.04.
Securities Act
 
14
       
ARTICLE V
       
The Collateral Agent
 
Section 5.01.
Certain Duties and Responsibilities
 
15
       
Section 5.02.
Certain Rights of Collateral Agent
 
16
       
Section 5.03.
Money Held by Collateral Agent
 
18
       
Section 5.04.
Compensation and Reimbursement
 
18
       
Section 5.05.
Corporate Collateral Agent Required; Eligibility
 
19
       
Section 5.06.
Resignation and Removal; Appointment of Successor
 
19
       
Section 5.07.
Acceptance of Appointment by Successor
 
20
       
Section 5.08.
Merger, Conversion, Consolidation or Succession to Business
 
20
 
ii

 
ARTICLE VI
       
Miscellaneous
 
Section 6.01.
Notices
 
20
       
Section 6.02.
Waivers; Amendment
 
21
       
Section 6.03.
Successors and Assigns
 
21
       
Section 6.04.
Counterparts; Effectiveness
 
21
       
Section 6.05.
Severability
 
21
       
Section 6.06.
GOVERNING LAW
 
21
       
Section 6.07.
WAIVER OF JURY TRIAL
 
22
       
Section 6.08.
Headings
 
22
       
Section 6.09.
Security Interest Absolute
 
22
       
Section 6.10.
Termination or Release
 
22
       
Section 6.11.
Collateral Agent Appointed Attorney-in-Fact
 
23
       
Schedule I – Additional Criteria for Eligible Securities
   
Schedule II – Addresses for Notices
   
       
Annex A – Form of Certificate of Pledged Collateral
   
 
iii

 
PLEDGE AGREEMENT, dated as of March 23, 2009, among NATIONAL RURAL UTILITIES COOPERATIVE FINANCE CORPORATION, a District of Columbia cooperative association and its successors and assigns (hereinafter called “ National Rural ”), FARMER MAC MORTGAGE SECURITIES CORPORATION, (the “Purchaser”), a wholly owned subsidiary of FEDERAL AGRICULTURAL MORTGAGE CORPORATION, a federally-chartered instrumentality of the United States and an institution of the Farm Credit System and its successors and assigns (“ Farmer Mac ”), U.S. BANK NATIONAL ASSOCIATION, a national banking association and its successors and assigns (hereinafter called the “ Collateral Agent ”), and Farmer Mac, as Guarantor.
 
RECITALS OF NATIONAL RURAL
 
WHEREAS, National Rural may from time to time issue one or more Notes to the Purchaser, and the Purchaser may purchase such Notes, all upon the terms and subject to the conditions set forth in the Note Purchase Agreement; and
 
WHEREAS, National Rural is required pursuant to the terms of the Note Purchase Agreement to pledge certain property to the Collateral Agent for the benefit of the Control Party to secure National Rural’s obligations on the Notes;
 
NOW, THEREFORE, THIS PLEDGE AGREEMENT WITNESSETH that, to secure the performance of the certain Obligations contained in the Notes, the Note Purchase Agreement and herein, National Rural hereby assigns and pledges to the Collateral Agent, its successors and assigns, for the benefit of the Control Party, and grants to the Collateral Agent, its successors and assigns, for the benefit of the Control Party, a security interest in the following (collectively referred to as the “ Pledged Collateral ”) as provided in Article II: (a)(i) the Pledged Securities and the certificates representing the Pledged Securities; (ii) subject to Section 2.08, all payments of principal or interest, cash, instruments and other property from time to time received, receivable or otherwise distributed in respect of, in exchange for, and all other Proceeds received in respect of, the Pledged Securities pledged hereunder; (iii) subject to Section 2.08, all rights and privileges of National Rural with respect to the Pledged Securities; (iv) all Proceeds of any of the foregoing above; that may, on the date hereof or from time to time hereafter, be subjected to the Lien hereof by National Rural by delivery, assignment or pledge thereof to the Collateral Agent hereunder and the Collateral Agent is authorized to receive the same as additional security hereunder (subject to any reservations, limitations or conditions agreed to in writing by National Rural and the Control Party respecting the scope or priority of such security or the use and disposition of such property or the Proceeds thereof).
 

 
TO HAVE AND TO HOLD the Pledged Collateral, together with all right, title, interest, powers, privileges and preferences pertaining or incidental thereto, unto the Collateral Agent, its successors and assigns, for the benefit of the Control Party, forever; subject , however , to the terms, covenants and conditions hereinafter set forth.
 
ARTICLE I
 
Definitions
 
SECTION 1.01.   Definitions.   As used in this Pledge Agreement, the following terms shall have the following meanings:
 
“Accounting Requirements” shall mean any system of accounts prescribed by a federal regulatory authority having jurisdiction over the Member or, in the absence thereof, the requirements of GAAP applicable to businesses similar to that of the Member.
 
Allowable Amount ” on any date, means with respect to Eligible Securities, the aggregate principal amount of such Eligible Securities theretofore advanced thereon which remains unpaid on such date.
 
Certificate of Pledged Collateral ” means a certificate delivered to the Collateral Agent and the Control Party substantially in the form of Annex A attached hereto.
 
Class A Member ” means any Class A Member of National Rural as described in National Rural’s Bylaws currently in effect.
 
Class B Member ” means any Class B Member of National Rural as described in National Rural’s Bylaws currently in effect.
 
Collateral Agent ” means the Person named as the “ Collateral Agent ” in the first paragraph of this instrument.
 
Control Party ” means (i) the Guarantor, so long as no Guarantor Default has occurred and is continuing, or (ii) the holders of the Notes for so long as a Guarantor Default has occurred and is continuing.
 
Control Party Notice ” and “ Control Party Order ” mean, respectively, a written notice or order signed by any Vice President of the Control Party and delivered to the Collateral Agent and National Rural.
 
Control Party Notice of Default ” has the meaning given to that term in Section 4.02.
 
Depreciation and Amortization Expense   shall mean an amount constituting the depreciation and amortization of the Member computed pursuant to Accounting Requirements.
 
2

 
Eligible Member ” means any Class A Member or Class B Member of National Rural as described in National Rural’s Bylaws currently in effect.

Eligible Security ” means a note or bond of any Eligible Member payable or registered to, or to the order of, National Rural, (A) in respect of which (i) the outstanding principal amount under such note or bond, together with the outstanding principal amount of any other notes or bonds of such Eligible Member pledged hereunder or pledged to secure any other notes or bonds issued by National Rural to Farmer Mac or any affiliate or sold by National Rural or any affiliate to any trust whose beneficial ownership is owned or controlled by Farmer Mac, does not aggregate more than $35 million, (ii) no default has occurred in the payment of principal or interest in accordance with the terms of such note or bond that is continuing beyond the contractual grace period (if any) provided in such note or bond for such payment and (iii) no “event of default” as defined in such note or bond (or in any instrument creating a security interest in favor of National Rural in respect of such note or bond), shall exist that has resulted in the exercise of any right or remedy described in such note or bond (or in any such instrument); (B) which is not classified by National Rural as a non-performing loan under generally accepted accounting principles in the United States; and (C) which otherwise satisfies the criteria set forth on Schedule I hereto.
 
Equity ” means the aggregate of the Member's equities and margins computed pursuant to Accounting Requirements.
 
Event of Default ” has the meaning set forth in Section 4.01.
 
Facility Rating ” means the facility rating assigned by National Rural to an Eligible Security from time to time in accordance with National Rural's internal risk rating system.
 
GAAP ” means generally accepted accounting principles in the United States as in effect from time to time.
 
Guarantor Default ” means a default by the Guarantor under its obligations pursuant to Article IX of the Note Purchase Agreement which is existing and continuing.
 
Interest Expense ” means an amount constituting the interest expense with respect to Long-Term Debt of the Member computed pursuant to Accounting Requirements.
 
Lien ” means any lien, pledge, charge, mortgage, encumbrance, debenture, hypothecation or other similar security interest attaching to any part of the Pledged Collateral.
 
Lien of this Pledge Agreement ” or “ Lien hereof ” means the Lien created by these presents.
 
3

 
Long-Term Debt ” is determined in accordance with the Uniform System of Accounts prescribed at the time by RUS or, if such Member is not required to maintain its accounts in accordance with said Uniform System of Accounts, otherwise determined in accordance with GAAP.
 
Member ” shall mean any Person who is member of National Rural.
 
Modified Debt Service Coverage Ratio--Distribution ” shall mean the definition of Coverage Ratio as defined in the Indenture dated October 25, 2007 by and between National Rural Utilities Cooperative Finance Corporation and U.S. Bank National Association for the Collateral Trust Bonds.
 
" Modified Debt Service Coverage Ratio--G&T " shall mean the ratio determined as follows: for any calendar year add (i) Operating Margins, (ii) Non-Operating Margins--Interest, (iii) Interest Expense, (iv) Depreciation and Amortization Expense, and (v) cash received in respect of generation and transmission and other capital credits, and divide the sum so obtained by the sum of all payments of Principal and Interest Expense required to be made during such calendar year; provided , however , that in the event that any amount of Long-Term Debt has been refinanced during such year, the payments of Principal and Interest Expense required to be made during such year on account of such refinanced amount of Long-Term Debt shall be based (in lieu of actual payments required to be made on such refinanced amount of Long-Term Debt) upon the larger of (i) an annualization of the payments required to be made with respect to the refinancing debt during the portion of such year such refinancing debt is outstanding or (ii) the payment of Principal and Interest Expense required to be made during the following year on account of such refinancing debt.

National Rural Notice ” and “ National Rural Order ” mean, respectively, a written notice or order signed in the name of National Rural by either its Chief Executive Officer or its Chief Financial Officer, and by any Vice President of National Rural, and delivered to the Collateral Agent and the Control Party.
 
Non-Operating Margins—Interest ” means the amount representing the interest component of non-operating margins of the Member computed pursuant to Accounting Requirements.
 
Note Purchase Agreement ” means the Note Purchase Agreement dated the date hereof between National Rural, the Purchaser and Farmer Mac, as the same may be amended from time to time in accordance with the terms thereof.
 
Notes ” means the note or notes issued by National Rural to the Purchaser under the Note Purchase Agreement.
 
Obligations ” means the due and punctual performance of the obligations of National Rural to make payments of principal, and interest on the Notes.
 
4

 
Officers’ Certificate ” means a certificate signed by any Vice President of National Rural, and delivered to the Control Party and/or the Collateral Agent, as applicable.
 
Operating Margins ” means the amount of patronage capital and operating margins of the Member computed pursuant to Accounting Requirements.
 
Person ” means any individual, corporation, partnership, joint venture, association, joint-stock company, trust, unincorporated organization or government or any agency or political subdivision thereof.
 
Pledge Agreement ” means this Pledge Agreement, as originally executed and as it may from time to time be amended pursuant to the applicable provisions hereof.
 
Pledged Collateral ” has the meaning set forth in the Granting Clause.
 
Pledged Securities ” means at any time the Eligible Securities listed on Schedule A and/or Schedule B to the Certificate of Pledged Collateral most recently delivered.
 
Principal ” means the amount of principal billed on account of Long-Term Debt of the Member computed pursuant to Accounting Requirements.
 
Proceeds ” has the meaning specified in Section 9-102 of the Uniform Commercial Code.
 
RUS ” mean the Rural Utilities Service of the United States Department of Agriculture, acting by and through the Administrator of the Rural Utilities Service, and including any successor agencies or departments.
 
Total Assets Ratio ” means an amount constituting the total assets of the Member computed pursuant to Accounting Requirements.
 
Total Capitalization Ratio ” means the Total Margins and Equity as a percentage of the sum of ((1)Total Margins and Equity plus (2) Long Term Debt).
 
Total Margins and Equity ” means the Member’s total margins and equity computed pursuant to Accounting Requirements.
 
Uniform Commercial Code ” means the Uniform Commercial Code as from time to time in effect in the District of Columbia.
 
Vice President ” means any vice president of National Rural or Farmer Mac or the Purchaser, as applicable, whether or not designated by a number or a word or words added before or after the title “vice president”.
 
5

 
SECTION 1.02.   Other Defined Terms; Principles of Construction .  Capitalized terms used but not defined in this Pledge Agreement shall have the meanings given to them in the Note Purchase Agreement.  Unless the context shall otherwise indicate, the terms defined in Section 1.01 hereof include the plural as well as the singular and the singular as well as the plural.  The words “hereafter”, “herein”, “hereof”, “hereto” and “hereunder”, and words of similar import, refer to this Agreement as a whole.  The descriptive headings of the various articles and sections of this Agreement were formulated and inserted for convenience only and shall not be deemed to affect the meaning or construction of the provisions hereof.
 
ARTICLE II
 
Provisions as to Pledged Collateral
 
SECTION 2.01.   Holding of Pledged Securities.
 
(a)  National Rural shall make available to the Control Party, within forty-five (45) days of a pledge of the Pledged Securities in connection with an advance (or for a longer period as National Rural and the Control Party agree), such back-up information as is reasonably necessary in order to allow the Control Party to confirm compliance of such Pledged Securities to the requisite criteria as outlined herein.  Upon receipt of the back-up information, the Control Party shall have ninety (90) days to object in writing to the inclusion of any item of the Pledged Securities as part of the Pledged Collateral.  If the Control Party reasonably determines that any of the Pledged Securities do not meet the criteria for Eligible Securities, then National Rural shall have forty-five (45) days in which to provide substitute collateral, and the timeline specified above for National Rural to make available back-up material and confirmation shall also apply as to the substituted collateral.
 
(b)  The Collateral Agent, on behalf of the Control Party, shall hold the Pledged Securities in the name of National Rural (or its nominee), endorsed or assigned in blank or in favor of the Collateral Agent.  Upon occurrence of an Event of Default, the Collateral Agent, on behalf of the Control Party, shall have the right (in its sole and absolute discretion), to the extent a register is maintained therefor, to register the Pledged Securities in the Collateral Agent’s own name as pledgee, or in the name of the Collateral Agent’s nominee (as pledgee or as sub-agent) or to continue to hold the Pledged Securities in the name of National Rural, endorsed or assigned in blank or in favor of the Collateral Agent.  Upon cessation of such Event of Default, the Collateral Agent shall take such action as is necessary to again cause the Pledged Securities to be registered in the name of National Rural (or its nominee).
 
SECTION 2.02.   UCC Filings.   National Rural shall prepare and file in the proper Uniform Commercial Code filing office in the District of Columbia (i) on or prior to the date of the first purchase of a Note under the Note Purchaser Agreement, a financing statement recording the Collateral Agent’s interest in the Pledged Collateral; and (ii) from time to time thereafter, continuation statements or such other filings as are necessary to maintain the perfection of the Lien hereof on the Pledged Collateral.
 
6

 
SECTION 2.03.   Withdrawal and Substitution of Pledged Collateral.   (a)  Any part of the Pledged Collateral may be withdrawn by National Rural or substituted for other Eligible Securities by National Rural and shall be delivered to National Rural by the Collateral Agent upon National Rural Order at any time and from time to time, together with any other documents or instruments of transfer or assignment necessary to reassign to National Rural said Pledged Collateral and the interest of National Rural, provided the aggregate Allowable Amount of Pledged Collateral remaining after such withdrawal or substitution shall at least equal the aggregate principal amount of the Notes outstanding after such withdrawal or substitution, as shown by the Certificate of Pledged Collateral furnished to the Collateral Agent pursuant to Subsection (b)(i) of this Section.
 
(b)  Prior to any such withdrawal or substitution, the Collateral Agent shall be furnished with the following instruments:
 
(i) a Certificate of Pledged Collateral, dated as of the last day of the calendar month most recently ended at least 10 Business Days prior to such withdrawal or substitution (or a more recent date, at National Rural’s option), showing that immediately after such withdrawal or substitution the requirements of Subsection (a) of this Section will be satisfied; and
 
(ii) an Officers’ Certificate certifying that no Event of Default has occurred which has not been remedied.
 
Upon any such withdrawal or substitution, National Rural shall deliver any Eligible Securities to be substituted and the Collateral Agent shall execute any instruments of transfer or assignment specified in a National Rural Order as necessary to vest in National Rural any part of the Pledged Collateral withdrawn.
 
In case an Event of Default shall have occurred and be continuing, National Rural shall not withdraw or substitute any part of the Pledged Collateral.
 
SECTION 2.04.  [Reserved.]
 
SECTION 2.05.   Addition of Pledged Collateral.   At any time, National Rural may pledge additional Eligible Securities under this Pledge Agreement by delivering such Pledged Collateral to the Collateral Agent, accompanied by a Certificate of Pledged Collateral specifying such additional collateral and dated as of the last day of the calendar month most recently ended at least 10 Business Days prior thereto (or a more recent date at National Rural’s option).
 
SECTION 2.06.   Accompanying Documentation.   Where Eligible Securities are delivered to the Collateral Agent under Section 2.01, 2.03 or Section 2.05, such securities shall be accompanied by the appropriate instruments of transfer executed in blank and in a form satisfactory to the Collateral Agent and by such other instruments and documents as the Collateral Agent may reasonably request.  All other property delivered to the Collateral Agent under Section 2.01, 2.03 or Section 2.05 and comprising part of the Pledged Collateral shall be accompanied by proper instruments of assignment duly executed by National Rural and such other instruments or documents as the Collateral Agent may reasonably request.
 
7

 
SECTION 2.07.   Renewal; Extension; Substitution.   Unless and until an Event of Default shall have occurred and be continuing, National Rural may at any time renew or extend, subject to the Lien of this Pledge Agreement, any Pledged Security upon any terms or may accept in place of and in substitution for any such Pledged  Security, another Eligible Security or Securities of the same issuer or of any successor thereto for at least the same unpaid principal amount, all as evidenced by a National Rural Order delivered to the Collateral Agent; provided , however , that in case of any substitution, Eligible Securities substituted as aforesaid shall be subject to the Lien of this Pledge Agreement as part of the Pledged Collateral and be held in the same manner as those for which they shall be substituted, and in the case of each substituted Eligible Security National Rural shall provide an Officers’ Certificate certifying to the Collateral Agent that such substituted security satisfies the requirements of this Section.  So long as no Event of Default shall have occurred and be continuing, the Collateral Agent, upon National Rural Order stating that no Event of Default shall have occurred and be continuing, shall execute any consent to any such renewal, extension or substitution as shall be specified in such National Rural Order.
 
SECTION 2.08.   Voting Rights; Interest and Principal .   (a)  Unless and until an Event of Default has occurred and is continuing, and the Control Party delivers to the Collateral Agent a Control Party Notice of Default suspending National Rural’s rights under this clause:
 
(i) National Rural shall be entitled to exercise any and all voting and/or other consensual rights and powers inuring to an owner of Pledged Securities or any part thereof provided that such rights and powers shall not be exercised in any manner inconsistent with the terms of the Note Purchase Agreement or this Pledge Agreement.
 
(ii) The Collateral Agent shall execute and deliver to National Rural, or cause to be executed and delivered to National Rural, all such proxies, powers of attorney and other instruments as National Rural may reasonably request for the purpose of enabling National Rural to exercise the voting and/or consensual rights and powers it is entitled to exercise pursuant to subparagraph (i) above.
 
(iii) National Rural shall be entitled to receive and retain any and all interest, principal and other distributions paid on or distributed in respect of the Pledged Securities; provided that any non-cash interest, principal or other distributions that would constitute Pledged Securities if pledged hereunder, and received in exchange for Pledged Securities or any part thereof pledged hereunder, or in redemption thereof, or as a result of any merger, consolidation, acquisition or other exchange of assets to which such issuer of Pledged Securities may be a party or otherwise, shall be and become part of the Pledged Collateral, and, if received by National Rural, shall not be commingled by National Rural with any of its other funds or property but shall be held separate and apart therefrom, shall be held in trust for the benefit of the Collateral Agent and shall be forthwith delivered to the Collateral Agent in the same form as so received (with any necessary endorsement).
 
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(b)  If an Event of Default shall have occurred and be continuing, then, to the extent such rights are suspended by the applicable Control Party Notice of Default, all rights of National Rural to interest, principal or other distributions that National Rural is authorized to receive pursuant to paragraph (a)(iii) of this Section 2.08 shall cease, and all such suspended rights shall thereupon become vested in the Collateral Agent, which shall have the sole and exclusive right and authority to receive and retain such interest, principal or other distributions.  All interest, principal or other distributions received by National Rural contrary to the provisions of this Section 2.08 shall be held in trust for the benefit of the Collateral Agent, shall be segregated from other property or funds of National Rural and shall be forthwith delivered to the Collateral Agent in the same form as so received (with any necessary endorsement).  Any and all money and other property paid over to or received by the Collateral Agent pursuant to the provisions of this paragraph (b) shall be retained by the Collateral Agent in an account to be established by the Collateral Agent upon receipt of such money or other property and shall be applied in accordance with the provisions of Section 4.03 to the fullest extent permitted by applicable law.  After all Events of Default have ceased, the Collateral Agent shall promptly repay to National Rural (without interest) all interest, principal or other distributions that National Rural would otherwise be permitted to retain pursuant to the terms of paragraph (a)(iii) of this Section 2.08 and that remain in such account.
 
(c)  If an Event of Default shall have occurred and be continuing, then, to the extent such rights are suspended by the applicable Control Party Notice of Default, all rights of National Rural to exercise the voting and consensual rights and powers it is entitled to exercise pursuant to paragraph (a)(i) of this Section 2.08, and the obligations of the Collateral Agent under paragraph (a)(ii) of this Section 2.08, shall cease, and all such rights shall thereupon become vested in the Collateral Agent, which shall have the sole and exclusive right and authority to exercise such voting and consensual rights and powers; provided that the Collateral Agent shall have the right from time to time during the existence of such Event of Default to permit National Rural to exercise such rights and powers.
 
SECTION 2.09.   Protection of Title; Payment of Taxes; Liens, etc.   National Rural will:
 
(i) duly and promptly pay and discharge, or cause to be paid and discharged, before they become delinquent, all taxes, assessments, governmental and other charges lawfully levied, assessed or imposed upon or against any of the Pledged Collateral, including the income or profits therefrom and the interests of the Collateral Agent in such Pledged Collateral;
 
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(ii) duly observe and conform to all valid requirements of any governmental authority imposed upon National Rural relative to any of the Pledged Collateral, and all covenants, terms and conditions under or upon which any part thereof is held;
 
(iii) cause to be paid and discharged all lawful claims (including, without limitation, income taxes) which, if unpaid, might become a lien or charge upon Pledged Collateral; and
 
(iv) do all things and take all actions necessary to keep the Lien of this Pledge Agreement a first and prior lien upon the Pledged Collateral and protect its title to the Pledged Collateral against loss by reason of any foreclosure or other proceeding to enforce any lien prior to or pari passu with the Lien of this Pledge Agreement.
 
Nothing contained in this Section shall require the payment of any such tax, assessment, claim, lien or charge or the compliance with any such requirement so long as the validity, application or amount thereof shall be contested in good faith; provided , however , that National Rural shall have set aside on its books such reserves (segregated to the extent required by generally accepted accounting principles) as shall be deemed adequate with respect thereto as determined by the Board of Directors of National Rural (or a committee thereof).
 
SECTION 2.10.   Maintenance of Pledged Collateral.   National Rural shall cause the Allowable Amount of Pledged Collateral held by the Collateral Agent at all times to be not less than 100% of the aggregate principal amount of the Notes outstanding.
 
SECTION 2.11.   Representations, Warranties and Covenants.   National Rural represents, warrants and covenants to the Collateral Agent, for the benefit of the Control Party, that from the time that Pledged Collateral is pledged hereunder, and for so long as such Pledged Collateral is required to remain pledged:
 
(a) except for the Lien hereof and any Lien consented to in writing by Farmer Mac or the Control Party, National Rural (i) is and will continue to be the direct owner, beneficially and of record, of the Pledged Securities from time to time pledged hereunder, (ii) holds and will continue to hold the same free and clear of all Liens, other than Liens created by this Pledge Agreement, (iii) will make no assignment, pledge, hypothecation or transfer of, or create or permit to exist any security interest in or other Lien on, the Pledged Collateral, other than Liens created by this Pledge Agreement and (iv) will defend its title or interest thereto or therein against any and all Liens (other than the Lien created by this Pledge Agreement), however arising, of all Persons whomsoever;
 
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(b) except for restrictions and limitations imposed by the Note Purchase Agreement or securities laws generally, the Pledged Securities are and will continue to be freely transferable and assignable, and none of the Pledged Securities are or will be subject to any restriction of any nature that might prohibit, impair, delay or otherwise affect the pledge of such Pledged Securities hereunder, the sale or disposition thereof pursuant hereto or the exercise by the Collateral Agent of rights and remedies hereunder;
 
(c) National Rural has the power and authority to pledge the Pledged Collateral pledged by it hereunder in the manner hereby done or contemplated;
 
(d) no consent or approval of any governmental authority, any securities exchange or any other Person was or is necessary to the validity of the pledge effected hereby (other than such as have been obtained and are in full force and effect);
 
(e) by virtue of the execution and delivery by National Rural of this Pledge Agreement, when any Pledged Securities are delivered to the Collateral Agent in accordance with this Pledge Agreement, the Collateral Agent will obtain a legal and valid Lien upon and security interest in such Pledged Securities as security for the payment and performance of the Obligations; and
 
(f) the Allowable Amount of Pledged Collateral from Class B Members does not constitute more than 20% of the aggregate amount of any notes or bonds: (1) pledged hereunder; (2) pledged to secure any other notes or bonds issued by National Rural or any affiliate to Farmer Mac or any affiliate; (3) sold by National Rural or any affiliate to Farmer Mac or any affiliate; or (4) sold to any trust whose beneficial ownership is owned or controlled by Farmer Mac or an affiliate.
 
SECTION 2.12.   Further Assurances.   National Rural will execute and deliver, or cause to be executed and delivered, all such additional instruments and do, or cause to be done, all such additional acts as (a) may be necessary or proper, consistent with the Granting Clause hereof, to carry out the purposes of this Pledge Agreement and to make subject to the Lien hereof any property intended so to be subject or (b) may be necessary or proper to transfer to any successor the estate, powers, instruments and funds held hereunder and to confirm the Lien of this Pledge Agreement.  National Rural will also cause to be filed, registered or recorded any instruments of conveyance, transfer, assignment or further assurance in all offices in which such filing, registering or recording is necessary to the validity thereof or to give notice thereof.
 
ARTICLE III
 
[Reserved]
 
ARTICLE IV
 
Remedies
 
SECTION 4.01.   Events of Default.   “ Event of Default ”, wherever used herein, means any “Event of Default” as defined in Section 7.01(a) of the Note Purchase Agreement, provided that, for the purposes of this Pledge Agreement:
 
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(a) the Collateral Agent shall not be required to recognize that an Event of Default exists before such time as the Collateral Agent receives a Control Party Notice or National Rural Notice stating that an Event of Default exists and specifying the particulars of such default in reasonable detail; and
 
(b) the Collateral Agent shall not be required to recognize that an Event of Default has ceased until (i) such time as the Collateral Agent receives a Control Party Notice stipulating that such event has ceased to exist; or (ii) 30 days after receipt by the Collateral Agent of a National Rural Notice stipulating that such event has ceased to exist, provided that the Collateral Agent does not receive a Control Party Notice within such timeframe disputing the cessation of such Event of Default, and further provided that no additional Control Party Notice of Default shall have been received in respect of any other subsisting Event(s) of Default.  Upon receipt of any National Rural Notice under subparagraph (ii) of this Subsection, the Collateral Agent shall provide a copy of such National Rural Notice to the Control Party.
 
SECTION 4.02.   Remedies upon Default.   If an Event of Default shall have occurred and be continuing, the Control Party may issue a notice (a “ Control Party Notice of Default ”), which may be combined with the notice provided under Section 4.01(b), suspending the rights of National Rural under Section 2.08 in part without suspending all such rights (as specified by the Control Party in its sole and absolute discretion) without waiving or otherwise affecting the Control Party’s rights to give additional Control Party Notices of Default from time to time suspending other rights under Section 2.08   so long as an Event of Default has occurred and is continuing.  Subject to paragraph (b) of this Section 4.02, upon cessation of an Event of Default, all rights of National Rural suspended under the applicable Control Party Notice of Default shall revest in National Rural.
 
(a)  Upon the occurrence of an Event of Default, the Collateral Agent shall, for the benefit and at the direction of the Control Party, have the right to exercise any and all rights afforded to a secured party under the Uniform Commercial Code or other applicable law.  Without limiting the generality of the foregoing, National Rural agrees that the Collateral Agent shall have the right, but only if so instructed by a the Control Party Order and subject to the requirements of applicable law and the Collateral Agent’s right (in its sole and absolute discretion) to receive indemnification or other reasonable assurances that its costs and expenses in connection therewith will be paid, to sell or otherwise dispose of all or any part of the Pledged Collateral at a public or private sale or at any broker’s board or on any securities exchange, for cash, upon credit or for future delivery as the Collateral Agent shall deem appropriate.  The Collateral Agent shall be authorized at any such sale of securities (if it deems it advisable to do so) to restrict the prospective bidders or purchasers to Persons who will represent and agree that they are purchasing the Pledged Collateral for their own account for investment and not with a view to the distribution or sale thereof, and upon consummation of any such sale the Collateral Agent shall have the right to assign, transfer and deliver to the purchaser or purchasers thereof the Pledged Collateral so sold.  Each such purchaser at any sale of Pledged Collateral shall hold the property sold absolutely, free from any claim or right on the part of National Rural, and National Rural hereby waives (to the extent permitted by law) all rights of redemption, stay and appraisal which National Rural now has or may at any time in the future have under any rule of law or statute now existing or hereafter enacted.
 
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(b)  The Collateral Agent shall give National Rural 10 days’ written notice (which National Rural agrees is reasonable notice within the meaning of Section 9-611 of the Uniform Commercial Code or its equivalent in other jurisdictions) of the Collateral Agent’s intention to make any sale of Pledged Collateral.  Such notice, in the case of a public sale, shall state the time and place for such sale and, in the case of a sale at a broker’s board or on a securities exchange, shall state the board or exchange at which such sale is to be made and the day on which the Collateral, or portion thereof, will first be offered for sale at such board or exchange.  Any such public sale shall be held at such time or times within ordinary business hours and at such place or places as the Collateral Agent may fix and state in the notice (if any) of such sale.  At any such sale, the Pledged Collateral, or portion thereof, to be sold may be sold in one lot as an entirety or in separate parcels, as the Collateral Agent may (in its sole and absolute discretion) determine.  The Collateral Agent shall not be obligated to make any sale of any Pledged Collateral if it shall determine not to do so, regardless of the fact that notice of sale of such Pledged Collateral shall have been given.  The Collateral Agent may, without notice or publication, adjourn any public or private sale or cause the same to be adjourned from time to time by announcement at the time and place fixed for sale, and such sale may, without further notice, be made at the time and place to which the same was so adjourned.  In case any sale of all or any part of the Pledged Collateral is made on credit or for future delivery, the Pledged Collateral so sold may be retained by the Collateral Agent until the sale price is paid by the purchaser or purchasers thereof, but the Collateral Agent shall not incur any liability in case any such purchaser or purchasers shall fail to take up and pay for the Pledged Collateral so sold and, in case of any such failure, such Pledged Collateral may be sold again upon like notice.  At any public (or, to the extent permitted by law, private) sale made pursuant to this Pledge Agreement, the Control Party may bid for or purchase, free (to the extent permitted by law) from any right of redemption, stay, valuation or appraisal on the part of National Rural (all said rights being also hereby waived and released to the extent permitted by law), the Pledged Collateral or any part thereof offered for sale and may make payment on account thereof by using any claim then due and payable to the Control Party from National Rural as a credit against the purchase price, and the Control Party may, upon compliance with the terms of sale, hold, retain and dispose of such property without further accountability to Pledged Collateral therefor.  For purposes hereof, a written agreement to purchase the Pledged Collateral or any portion thereof shall be treated as a sale thereof; the Collateral Agent shall be free to carry out such sale pursuant to such agreement and National Rural shall not be entitled to the return of the Pledged Collateral or any portion thereof subject thereto, notwithstanding the fact that after the Collateral Agent shall have entered into such an agreement all Events of Default shall have been remedied and the Obligations paid in full.  As an alternative to exercising the power of sale herein conferred upon it, the Collateral Agent may proceed by a suit or suits at law or in equity to foreclose this Pledge Agreement and to sell the Collateral or any portion thereof pursuant to a judgment or decree of a court or courts having competent jurisdiction or pursuant to a proceeding by a court-appointed receiver.  Any sale pursuant to the provisions of this Section 4.02 shall be deemed to conform to the commercially reasonable standards as provided in Section 9-610(b) of the Uniform Commercial Code or its equivalent in other jurisdictions.
 
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SECTION 4.03.   Application of Proceeds.   The Collateral Agent shall apply the proceeds of any collection or sale of Pledged Collateral, including any Pledged Collateral consisting of cash, as follows to the fullest extent permitted by applicable law:
 
FIRST, to the payment of all reasonable costs and expenses incurred by the Collateral Agent in connection with or reasonably related or reasonably incidental to such collection or sale or otherwise in connection with or related or incidental to this Pledge Agreement or any of the Obligations, including all court costs and the reasonable fees and expenses of its agents and legal counsel, the repayment of all advances made by the Collateral Agent (in its sole discretion) hereunder on behalf of National Rural and any other reasonable costs or expenses incurred in connection with the exercise of any right or remedy hereunder;
 
SECOND, to the payment to the Control Party in full of the Obligations ; such payment to be for an amount certified in a Control Party Notice delivered to the Collateral Agent as being the amount due and owing to the Control Party under the Obligations; and
 
THIRD, to National Rural, its successors or assigns, or as a court of competent jurisdiction may otherwise direct.
 
Upon any sale of the Pledged Collateral by the Collateral Agent (including pursuant to a power of sale granted by statute or under a judicial proceeding), the receipt of the Collateral Agent or of the officer making the sale shall be a sufficient discharge to the purchaser or purchasers of the Pledged Collateral so sold and such purchaser or purchasers shall not be obligated to see to the application of any part of the purchase money paid over to the Collateral Agent or such officer or be answerable in any way for the misapplication thereof.
 
SECTION 4.04.   Securities Act .   In view of the position of National Rural in relation to the Pledged Collateral, or because of other current or future circumstances, a question may arise under the Securities Act of 1933, as now or hereafter in effect, or any similar statute hereafter enacted analogous in purpose or effect (such Act and any such similar statute as from time to time in effect being called the “ Federal Securities Laws ”) with respect to any disposition of the Pledged Collateral permitted hereunder.  National Rural understands that compliance with the Federal Securities Laws might very strictly limit the course of conduct of the Collateral Agent if the Collateral Agent were to attempt to dispose of all or any part of the Pledged Collateral, and might also limit the extent to which or the manner in which any subsequent transferee of any Pledged Collateral could dispose of the same.  Similarly, there may be other legal restrictions or limitations affecting the Collateral Agent in any attempt to dispose of all or part of the Pledged Collateral under applicable Blue Sky or other state securities laws or similar laws analogous in purpose or effect.  National Rural recognizes that in light of such restrictions and limitations the Collateral Agent may, with respect to any sale of the Pledged Collateral, limit the purchasers to those who will agree, among other things, to acquire such Pledged Collateral for their own account, for investment, and not with a view to the distribution or resale thereof.  National Rural acknowledges and agrees that in light of such restrictions and limitations, the Collateral Agent, in its sole and absolute discretion (a) may proceed to make such a sale whether or not a registration statement for the purpose of registering such Pledged Collateral or part thereof shall have been filed under the Federal Securities Laws and (b) may approach and negotiate with a single potential purchaser to effect such sale.  National Rural acknowledges and agrees that any such sale might result in prices and other terms less favorable to the seller than if such sale were a public sale without such restrictions.  In the event of any such sale, the Collateral Agent shall incur no responsibility or liability for selling all or any part of the Pledged Collateral at a price that the Collateral Agent, in its sole and absolute discretion, may in good faith deem reasonable under the circumstances, notwithstanding the possibility that a substantially higher price might have been realized if the sale were deferred until after registration as aforesaid or if more than a single purchaser were approached.  The provisions of this Section 4.04 will apply notwithstanding the existence of a public or private market upon which the quotations or sales prices may exceed substantially the price at which the Collateral Agent sells.
 
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ARTICLE V
 
The Collateral Agent
 
SECTION 5.01.   Certain Duties and Responsibilities.   (a)  At all times under this Pledge Agreement:
 
(i) the Collateral Agent undertakes to perform such duties and only such duties as are specifically set forth in this Pledge Agreement, and no implied covenants or obligations shall be read into this Pledge Agreement against the Collateral Agent; and
 
(ii) in the absence of bad faith on its part, the Collateral Agent may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon certificates or opinions furnished to the Collateral Agent and substantially conforming to the requirements of this Pledge Agreement; but in the case of any such certificates or opinions which by any provision hereof are specifically required to be furnished to the Collateral Agent the Collateral Agent shall be under a duty to examine the same to determine whether or not they substantially conform to the requirements of this Pledge Agreement.
 
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(b)  No provision of this Pledge Agreement shall be construed to relieve the Collateral Agent from liability for its own grossly negligent action, its own grossly negligent failure to act, or its own willful misconduct, except that:
 
(i) this Subsection shall not be construed to limit the effect of Subsection (a) of this Section;
 
(ii) the Collateral Agent shall not be liable for any error of judgment made in good faith, unless it shall be proved that the Collateral Agent was grossly negligent in ascertaining the pertinent facts; and
 
(iii) no provision of this Pledge Agreement shall require the Collateral Agent to expend or risk its own funds or otherwise incur any financial liability in the performance of any of its duties hereunder, or in the exercise of any of its rights or powers, if it shall have reasonable grounds for believing that repayment of such funds or adequate indemnity against such risk or liability is not reasonably assured to it.
 
(c)  Whether or not therein expressly so provided, every provision of this Pledge Agreement relating to the conduct or affecting the liability of or affording protection to the Collateral Agent shall be subject to the provisions of this Section.
 
SECTION 5.02.   Certain Rights of Collateral Agent.   Except as otherwise provided in Section 5.01:
 
(a) the Collateral Agent may rely and shall be protected in acting or refraining from acting upon any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture or other paper or document believed by it to be genuine and to have been signed or presented by the proper party or parties;
 
(b) any request or direction of National Rural mentioned herein shall be sufficiently evidenced by a National Rural Notice or National Rural Order;
 
(c) any request or direction of the Control Party mentioned herein shall be sufficiently evidenced by a Control Party Notice or Control Party Order;
 
(d) whenever in the administration of this Pledge Agreement the Collateral Agent shall deem it desirable that a matter be proved or established prior to taking, suffering or omitting any action hereunder, the Collateral Agent (unless other evidence be herein specifically prescribed) may, in the absence of bad faith on its part, rely upon an Officers’ Certificate in the case of National Rural, and a certificate signed by any Vice President of the Control Party in the case of the Control Party;
 
(e) the Collateral Agent may consult with counsel and the advice of such counsel shall be full and complete authorization and protection in respect of any action taken, suffered or omitted by it hereunder in good faith and in reliance thereon;
 
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(f) the Collateral Agent shall be under no obligation to exercise any of the rights or powers vested in it by this Pledge Agreement at the request or direction of either National Rural or the Control Party pursuant to this Pledge Agreement, unless such party shall have offered to the Collateral Agent reasonable security or indemnity against the costs, expenses and liabilities which might be incurred by it in compliance with such request or direction;
 
(g) the Collateral Agent shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture or other paper or document, or to recompute, verify, reclassify or recalculate any information contained therein, but the Collateral Agent, in its sole and absolute discretion, may make such further inquiry or investigation into such facts or matters as it may see fit, and, if the Collateral Agent shall determine to make such further inquiry or investigation, it shall be entitled to examine the books, records and premises of National Rural, personally or by agent or attorney;
 
(h) the Collateral Agent may execute any of the powers hereunder or perform any duties hereunder either directly or by or through agents or attorneys and the Collateral Agent shall not be responsible for any misconduct or negligence on the part of any agent or attorney appointed with due care by it hereunder;
 
(i) unless explicitly stated herein to the contrary, the Collateral Agent shall have no duty to inquire as to the performance of National Rural’s covenants herein.  In addition, the Collateral Agent shall not be deemed to have knowledge of any Event of Default unless the Collateral Agent has received a Control Party Notice in accordance with Section 4.01(a), and shall not be deemed to have knowledge of the cessation of the same until such time as it receives a National Rural Notice in accordance with Section 4.01(b); and
 
(j) unless explicitly stated herein to the contrary, the Collateral Agent shall have no obligation to take any action with respect to any Event of Default until it has received a Control Party Notice applicable to such event in accordance with Section 4.01(a), and the Collateral Agent shall have no liability for any action or inaction taken, suffered or omitted in respect of any such event by it prior to such time as the applicable Control Party Notice is delivered.  Similarly, the Collateral Agent shall have no obligation to take any action with respect to the cessation of an Event of Default until it has received a National Rural Notice applicable to such event in accordance in accordance with Section 4.01(b), and the Collateral Agent shall have no liability for any action or inaction taken, suffered or omitted in respect of any such event by it prior to such time as the applicable National Rural Notice is delivered.
 
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SECTION 5.03.   Money Held by Collateral Agent.   Money held by the Collateral Agent hereunder need not be segregated from other funds except to the extent required by law.  The Collateral Agent shall have no liability to pay interest on or (except as expressly provided herein) invest any such moneys.
 
SECTION 5.04.   Compensation and Reimbursement.   (a)   National Rural agrees:
 
(i) to pay to the Collateral Agent from time to time such reasonable compensation for all services rendered by it hereunder as shall have been set forth in an agreement signed by National Rural;
 
(ii) except as otherwise expressly provided herein, to reimburse the Collateral Agent upon its request for all reasonable expenses, out-of-pocket costs, disbursements and advances incurred or made by the Collateral Agent in accordance with any provision of this Pledge Agreement (including the reasonable compensation and the expenses and disbursements of its agents and counsel), except to the extent any such expense, disbursement or advance may be attributable to its gross negligence or bad faith; and
 
(iii) to indemnify the Collateral Agent for, and to defend and hold it harmless against, any loss, liability or expense incurred without gross negligence or bad faith on its part, arising out of or in connection with the acceptance or administration of this Pledge Agreement or the performance of its duties hereunder, 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 hereunder, except to the extent such loss, liability or expense may be attributable to its gross negligence or bad faith; provided , however , that National Rural shall have no liability under this clause for any settlement of any litigation or other dispute effected without the prior written consent of National Rural (such consent not to be unreasonably withheld).
 
(b)  Any such amounts payable as provided hereunder shall be additional Obligations secured by the Lien hereof.  The provisions of this Section 5.04 shall remain operative and in full force and effect regardless of the termination of this Pledge Agreement or the Note Purchase Agreement, the consummation of the transactions contemplated hereby, the repayment of any of the Obligations, the invalidity or unenforceability of any term or provision of this Pledge Agreement or the Note Purchase Agreement, or any investigation made by or on behalf of the Collateral Agent or the Control Party.  All amounts due under this Section 5.04 shall be payable on written demand therefor.
 
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SECTION 5.05.   Corporate Collateral Agent Required; Eligibility.   There shall at all times be a Collateral Agent hereunder which shall be a corporation or association organized and doing business under the laws of the United States of America or of any State, authorized under such laws to exercise corporate trust powers, having a combined capital and surplus of at least $50,000,000, subject to supervision or examination by Federal or State authority.  If such corporation publishes reports of condition at least annually, pursuant to law or to the requirements of the aforesaid supervising or examining authority, then for the purposes of this Section, the combined capital and surplus of such corporation shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published.  Neither National Rural nor any Person directly or indirectly controlling, controlled by or under common control with National Rural shall serve as Collateral Agent hereunder.  If at any time the Collateral Agent shall cease to be eligible in accordance with the provisions of this Section, it shall resign immediately in the manner and with the effect hereinafter specified in this Article.
 
SECTION 5.06.   Resignation and Removal; Appointment of Successor.   (a)  No resignation or removal of the Collateral Agent and no appointment of a successor Collateral Agent pursuant to this Article shall become effective until the acceptance of appointment by the successor Collateral Agent under Section 5.07.
 
(b)  The Collateral Agent may resign at any time by giving written notice thereof to National Rural.  If an instrument of acceptance by a successor Collateral Agent shall not have been delivered to the Collateral Agent within 30 days after the giving of such notice of resignation, the resigning Collateral Agent may petition any court of competent jurisdiction for the appointment of a successor Collateral Agent.
 
(c)  If at any time:
 
(i) except if an Event of Default has occurred and is continuing, National Rural, in its sole and absolute discretion, elects to remove the Collateral Agent; or
 
(ii) the Collateral Agent shall cease to be eligible under Section 5.05 or shall become incapable of acting or shall be adjudged a bankrupt or insolvent or a receiver of the Collateral Agent or of its property shall be appointed or any public officer shall take charge or control of the Collateral Agent or of its property or affairs for the purpose of rehabilitation, conservation or liquidation,
 
then, in any such case, National Rural may remove the Collateral Agent by delivery of a National Rural Order to that effect.
 
(d)  If the Collateral Agent shall resign, be removed or become incapable of acting, or if a vacancy shall occur in the office of Collateral Agent for any cause, National Rural shall promptly appoint a successor Collateral Agent by delivering a National Rural Notice to the retiring Collateral Agent, the successor Collateral Agent and the Control Party to such effect.
 
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SECTION 5.07.   Acceptance of Appointment by Successor.   Every successor Collateral Agent appointed hereunder shall execute, acknowledge and deliver to National Rural, the Control Party and to the retiring Collateral Agent an instrument accepting such appointment, and thereupon the resignation or removal of the retiring Collateral Agent shall become effective and such successor Collateral Agent, without any further act, deed or conveyance, shall become vested with all the rights, powers, trusts and duties of the retiring Collateral Agent; but, on request of National Rural, the Control Party or the successor Collateral Agent, such retiring Collateral Agent shall, upon payment of its charges, execute and deliver an instrument transferring to such successor Collateral Agent all the rights, powers and trusts of the retiring Collateral Agent, and shall duly assign, transfer and deliver to such successor Collateral Agent all property and money held by such retiring Collateral Agent hereunder, subject nevertheless to its Lien, if any, provided for in Section 5.04.  Upon request of any such successor Collateral Agent, National Rural shall execute any and all instruments for more fully and certainly vesting in and confirming to such successor Collateral Agent all such rights, powers and trusts.
 
No successor Collateral Agent shall accept its appointment unless at the time of such acceptance such successor Collateral Agent shall be eligible under Section 5.05 hereof.
 
SECTION 5.08.   Merger, Conversion, Consolidation or Succession to Business.   Any corporation into which the Collateral Agent may be merged or converted or with which it may be consolidated, or any corporation resulting from any merger, conversion or consolidation to which the Collateral Agent shall be a party, or any corporation succeeding to all or substantially all of the corporate trust business of the Collateral Agent, shall be the successor of the Collateral Agent hereunder, provided such corporation shall be eligible under Section 5.05 hereof without the execution or filing of any paper or any further act on the part of any of the parties hereto.
 
ARTICLE VI
 
Miscellaneous
 
SECTION 6.01.   Notices.   All notices and other communications hereunder to be made to any party shall be in writing and shall be addressed as specified in Schedule II attached hereto as appropriate.  The address, telephone number, or facsimile number for any party may be changed at any time and from time to time upon written notice given by such changing party to the other parties hereto. A properly addressed notice or other communication shall be deemed to have been delivered at the time it is sent by facsimile (fax) transmission to the party or parties to which it is given.
 
(a)  All National Rural Notices and National Rural Orders delivered to the Collateral Agent shall be contemporaneously copied to the Control Party by National Rural; all Control Party Notices and Control Party Orders delivered to the Collateral Agent shall be contemporaneously copied by Farmer Mac to National Rural; and all Collateral Agent notices delivered to either National Rural or Farmer Mac shall be contemporaneously copied to the other such party by the Collateral Agent.
 
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SECTION 6.02.   Waivers; Amendment.   (a)  No failure or delay by a party in exercising any right or power hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such right or power, or any abandonment or discontinuance of steps to enforce such a right or power, preclude any other or further exercise thereof or the exercise of any other right or power.  The rights and remedies of each party hereunder are cumulative and are not exclusive of any rights or remedies that such party would otherwise have.  No waiver of any provision of this Pledge Agreement or consent to any departure by any party therefrom shall in any event be effective unless the same shall be permitted by paragraph (b) of this Section 6.02, and then such waiver or consent shall be effective only in the specific instance and for the purpose for which given.  No notice or demand on any party in any case shall entitle any party to any other or further notice or demand in similar or other circumstances.
 
(b)  Neither this Pledge Agreement nor any provision hereof may be waived, amended or modified except pursuant to an agreement or agreements in writing entered into by National Rural, the Collateral Agent, the Purchaser and Farmer Mac.
 
SECTION 6.03.   Successors and Assigns.   Whenever in this Pledge Agreement any of the parties hereto is referred to, such reference shall be deemed to include the successors and assigns of such party; and all covenants, promises and agreements by or on behalf of National Rural, the Collateral Agent, the Purchaser, the Control Party or Farmer Mac that are contained in this Pledge Agreement shall bind and inure to the benefit of their respective successors and assigns.
 
SECTION 6.04.   Counterparts; Effectiveness.   This Pledge Agreement may be executed in counterparts, each of which shall constitute an original but all of which when taken together shall constitute a single contract.  Delivery of an executed signature page to this Pledge Agreement by facsimile transmission shall be as effective as delivery of a manually signed counterpart of this Pledge Agreement.
 
SECTION 6.05.   Severability.   Any provision of this Pledge Agreement held to be invalid, illegal or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such invalidity, illegality or unenforceability without affecting the validity, legality and enforceability of the remaining provisions hereof; and the invalidity of a particular provision in a particular jurisdiction shall not invalidate such provision in any other jurisdiction.  The parties shall endeavor in good-faith negotiations to replace the invalid, illegal or unenforceable provisions with valid provisions the economic effect of which comes as close as possible to that of the invalid, illegal or unenforceable provisions.
 
SECTION 6.06.   GOVERNING LAW.   THIS PLEDGE AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE UNITED STATES OF AMERICA, TO THE EXTENT APPLICABLE, AND OTHERWISE THE LAWS OF THE STATE OF NEW YORK.
 
21

 
SECTION 6.07.   WAIVER OF JURY TRIAL.   EACH PARTY HERETO HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS PLEDGE AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY).  EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS PLEDGE AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 6.07.
 
SECTION 6.08.   Headings.   Article and Section headings and the Table of Contents used herein are for convenience of reference only, are not part of this Pledge Agreement and are not to affect the construction of, or to be taken into consideration in interpreting, this Pledge Agreement.
 
SECTION 6.09.   Security Interest Absolute.   All rights of the Collateral Agent and/or the Control Party hereunder, the grant of a security interest in the Pledged Collateral and all obligations of National Rural hereunder shall be absolute and unconditional irrespective of (a) any lack of validity or enforceability of the Note Purchase Agreement, any Note, any agreement with respect to any of the Obligations or any other agreement or instrument relating to any of the foregoing, (b) any change in the time, manner or place of payment of, or in any other term of, all or any of the Obligations, or any other amendment or waiver of or any consent to any departure from the Note Purchase Agreement, any Note or any other agreement or instrument, (c) any exchange, release or non-perfection of any Lien on other collateral, or any release or amendment or waiver of or consent under or departure from any guarantee, securing or guaranteeing all or any of the Obligations, or (d) any other circumstance that might otherwise constitute a defense available to, or a discharge of, National Rural in respect of the Obligations or this Pledge Agreement.
 
SECTION 6.10.   Termination or Release.   (a)  This Pledge Agreement shall terminate on the date when the Obligations have been indefeasibly paid in full, and at such time the Lien hereof shall be released.
 
(b)  Upon any withdrawal, substitution or other disposal by National Rural of any Pledged Collateral that is permitted by the terms of this Pledge Agreement, or upon the effectiveness of any written consent to the release of the security interest granted hereby in any Pledged Collateral, the Lien hereof securing such Pledged Collateral shall be automatically released.
 
(c)  In connection with any termination or release pursuant to paragraph (a) or (b) the Collateral Agent shall deliver to National Rural the Pledged Collateral and shall execute and deliver to National Rural, at National Rural’s expense, all documents that National Rural shall reasonably request to evidence such termination or release.  Any execution and delivery of documents pursuant to this Section 6.10 shall be without recourse to or warranty by the Collateral Agent.
 
22

 
SECTION 6.11.   Collateral Agent Appointed Attorney-in-Fact.   National Rural hereby appoints the Collateral Agent the attorney-in-fact of National Rural for the purpose of, upon the occurrence and during the continuance of an Event of Default, carrying out the provisions of this Pledge Agreement with respect to the Pledged Collateral and taking any action and executing any instrument that the Collateral Agent may deem necessary or advisable to accomplish the purposes hereof, which appointment is irrevocable and coupled with an interest but is subject nevertheless to the terms and conditions of this Pledge Agreement.  Without limiting the generality of the foregoing, the Collateral Agent shall have the right, upon the occurrence and during the continuance of an Event of Default, with full power of substitution either in the Collateral Agent’s name or in the name of National Rural (a) to receive, endorse, assign and/or deliver any and all notes, acceptances, checks, drafts, money orders or other evidences of payment relating to the Pledged Collateral or any part thereof; (b) to demand, collect, receive payment of, give receipt for and give discharges and releases of all or any of the Pledged Collateral; (c) to commence and prosecute any and all suits, actions or proceedings at law or in equity in any court of competent jurisdiction to collect or otherwise realize on all or any of the Pledged Collateral or to enforce any rights in respect of any Pledged Collateral; (d) to settle, compromise, compound, adjust or defend any actions, suits or proceedings relating to all or any of the Pledged Collateral; (e) to notify, or to require National Rural to notify, obligors under Pledged Securities to make payment directly to the Collateral Agent; and (f) subject to the second sentence of Section 4.02(a), to use, sell, assign, transfer, pledge, make any agreement with respect to or otherwise deal with all or any of the Pledged Collateral, and to do all other acts and things necessary to carry out the purposes of this Pledge Agreement, as fully and completely as though the Collateral Agent were the absolute owner of the Pledged Collateral for all purposes; provided that nothing herein contained shall be construed as requiring or obligating the Collateral Agent to make any commitment or to make any inquiry as to the nature or sufficiency of any payment received by the Collateral Agent, or to present or file any claim or notice, or to take any action with respect to the Pledged Collateral or any part thereof or the moneys due or to become due in respect thereof or any property covered thereby.  The Collateral Agent and the Control Party shall be accountable only for amounts actually received as a result of the exercise of the powers granted to them herein, and neither they nor their officers, directors, employees or agents shall be responsible to National Rural for any act or failure to act hereunder, except for their own gross negligence or willful misconduct.
 
[SIGNATURE PAGE FOLLOWS]
 
23

 
IN WITNESS WHEREOF, the parties hereto have caused this Pledge Agreement to be duly executed, all as of the day and year first above written.
 
FARMER MAC MORTGAGE
SECURITIES CORPORATION,
 
   
by
 
     
 
Name:
 
 
Title:
 
 
FEDERAL AGRICULTURAL
MORTGAGE CORPORATION,
 
   
by
 
     
 
Name:
 
 
Title:
 
 
NATIONAL RURAL UTILITIES
COOPERATIVE FINANCE CORPORATION,
 
   
By
 
     
 
Name:
 
 
Title:
 
 
U.S. BANK NATIONAL ASSOCIATION,
 
   
By
 
     
 
Name:                        
 
   
 

 
SCHEDULE I
TO
PLEDGE AGREEMENT
 
ADDITIONAL CRITERIA FOR ELIGIBLE SECURITIES 1

Criteria for Eligible Security of Class A Eligible Member :  Each Class A Eligible Member must satisfy the following criteria only on the date of the pledge of such Eligible Security:

 
·
Long-Term Debt to Net Utility Plant Ratio, as the average ratio of the most recent three full calendar years for which financial information is available, does not exceed 90%.

 
·
Modified Debt Service Coverage Ratio--Distribution, as the average ratio of the most recent three full calendar years for which financial information is available, is greater than or equal to 1.35.

 
·
Equity to Total Assets Ratio, as the average ratio of the most recent three full calendar years for which financial information is available, is greater than or equal to 20%.

 
·
The Eligible Security has a Facility Rating by National Rural of “4.9” or lower.

Criteria for Eligible Security of Class B Eligible Member :  Each Class B Eligible Member must satisfy the following criteria only on the date of the pledge of such Eligible Security:

 
·
Equity to Total Capitalization Ratio, as the average ratio of the most recent three full calendar years for which financial information is available, is greater than or equal to 25%.

 
·
Modified Debt Service Coverage Ratio--G&T, as the average ratio of the most recent three full calendar years for which financial information is available, is greater than or equal to 1.10.

 
·
Equity to Total Assets Ratio, as the average ratio of the most recent three full calendar years for which financial information is available, is greater than or equal to 10%.

 
·
The Eligible Security has a Facility Rating by National Rural of “4.9” or lower.
 

1 The criteria set forth on this Schedule I shall be required to be satisfied only as of the date of pledge of (1) any Pledged Securities that is being pledged for a new advance or (2) any Pledged Securities that is being pledged for an existing advance which is in substitution of, or in addition to, existing collateral, and such criteria shall not be required to be satisfied with respect to Eligible Securities after such date.
 

 
SCHEDULE II
TO
PLEDGE AGREEMENT
 
Addresses for Notices
 
The addresses referred to in Section 6.01 hereof, for purposes of delivering communications and notices, are as follows:
 
If to the Purchaser or Farmer Mac:
 
Federal Agricultural Mortgage Corporation
1133 21 st Street N.W., Suite 600
Washington, DC 20036
Fax:  202-872-7713
Attention: Timothy L. Buzby, Vice President/Controller

If to Farmer Mac:
 
Federal Agricultural Mortgage Corporation
1133 21st Street, N.W., Suite 600
Washington, DC 20036
Fax:  202-872-7713
Attention of: Timothy L. Buzby, Vice President/Controller
 
With a copy to:
 
Federal Agricultural Mortgage Corporation
1133 21st Street, N.W., Suite 600
Washington, DC 20036
Fax:  202-872-7713
Attention of: Jerome G. Oslick, Vice President - General Counsel
 
If to National Rural:
 
National Rural Utilities Cooperative Finance Corporation
2201 Cooperative Way
Herndon, VA 20171-3025
Telephone:  703-709-6718
Fax:  703-709-6779
Attention of: Steven L. Lilly, Senior Vice President &
                                               Chief Financial Officer
 

 
SCHEDULE II
TO
PLEDGE AGREEMENT
 
With a copy to:

National Rural Utilities Cooperative Finance Corporation
2201 Cooperative Way
Herndon, VA 20171-3025
Telephone:  703-709-6712
Fax:  703-709-6811
Attention of: John J. List, Esq., Senior Vice President &
                                               General Counsel
If to the Collateral Agent:
 
U.S. Bank National Association
100 Wall Street
Suite 1600
New York, NY 10005-3701
Telephone:  (212) 361-2893
Fax:  (212) 509-3384
Attention of: Beverly A. Freeney
 
2

 
ANNEX A
TO
PLEDGE AGREEMENT
 
NATIONAL RURAL UTILITIES
COOPERATIVE FINANCE CORPORATION
 
PLEDGE AGREEMENT DATED AS OF MARCH 23, 2009
 
CERTIFICATE OF PLEDGED COLLATERAL FILED WITH
U.S. BANK NATIONAL ASSOCIATION, Collateral Agent
 
________________, Chief Executive Officer (or Chief Financial Officer or Controller) and ____________________, Vice-President, respectively, of National Rural Utilities Cooperative Finance Corporation, hereby certify to the Control Party and the Collateral Agent under the above-mentioned Pledge Agreement as amended to the date hereof (herein called the “Pledge Agreement”) as follows:
 
1.
 
The Allowable Amount of Pledged Collateral certified hereby, remaining on deposit with the Collateral Agent, as shown on Schedule A hereto, is
  $    
             
2.
 
The Allowable Amount of Pledged Collateral certified hereby, being deposited as shown on Schedule B hereto, is
  $    
             
3.
 
The aggregate principal amount of the Note(s) outstanding at the date hereof is
  $    
             
4.
 
The aggregate amount, if any, of the Note(s) to be issued on the basis of this Certificate is
  $    
             
5.
 
The sum of amounts in items 3 and 4 is
  $    
             
6.
 
The aggregate amount by which the Allowable Amount of Pledged Collateral exceeds the aggregate principal amount of the Note(s) outstanding (item 1 plus 2 and minus 5) is
  $    
             
7.   The Allowable Amount of Pledged Collateral which is included in items 1 and  2 above from Class B Eligible Members does not constitute more than 20% of the aggregate amount of any notes or bonds: (1) pledged hereunder; (2) pledged to secure any other notes or bonds issued by National Rural or any affiliate to Farmer Mac or any affiliate; (3) sold by National Rural or any affiliate to Farmer Mac or any affiliate; or (4) sold to any trust whose beneficial ownership is owned or controlled by Farmer Mac or an affiliate.        
 

 
ANNEX A
TO
PLEDGE AGREEMENT

8.
 
To the knowledge of the undersigned, each Eligible Security from Class A Eligible Member the Allowable Amount of which is included in item 2 satisfies the following criteria on the date of this Certificate:  (1) Long-Term Debt to Net Utility Plant Ratio, as the average ratio of the most recent three full calendar years for which financial information is available, does not exceed 90%; (2) Modified Debt Service Coverage Ratio--Distribution, as the average ratio of the most recent three full calendar years for which financial information is available, is greater than or equal to 1.35; (3) Equity to Total Assets Ratio, as the average ratio of the most recent three full calendar years for which financial information is available, is greater than or equal to 20%; and (4) the Eligible Security has a Facility Rating by National Rural of “4.9” or lower.
       
             
9.
 
To the knowledge of the undersigned, each Eligible Security from Class B Eligible Member the Allowable Amount of which is included in item 2 satisfies the following criteria on the date of this Certificate:  (1) Equity to Total Capitalization Ratio, as the average ratio of the most recent three full calendar years for which financial information is available, is greater than or equal to 25%; (2) Modified Debt Service Coverage Ratio--G&T, as the average ratio of the most recent three full calendar years for which financial information is available, is greater than or equal to 1.10; (3) Equity to Total Assets Ratio, as the average ratio of the most recent three full calendar years for which financial information is available, is greater than or equal to 10%; and (4) the Eligible Security has a Facility Rating by National Rural of “4.9” or lower.
       
             
10.
 
So far as is known to the undersigned, no Event of Default exists.
       
 

 
ANNEX A
TO
PLEDGE AGREEMENT

All terms which are defined in the Pledge Agreement are used herein as so defined.
 
Dated:  _____________________
 
_______________________________________ 
 
_______________________________________ 
 
OF NATIONAL RURAL UTILITIES
COOPERATIVE FINANCE CORPORATION
 

 
ANNEX A
TO
PLEDGE AGREEMENT
 
PLEDGED SECURITIES ON DEPOSIT
 
SCHEDULE A TO OFFICERS’ CERTIFICATE
DATED

Eligible Securities
 
Name of Issuer
 
Allowable Amount (Item 1)
Pledged Securities
(Here List Securities)
       
 

 
ANNEX A
TO
PLEDGE AGREEMENT
 
PLEDGED SECURITIES BEING DEPOSITED
 
SCHEDULE B TO OFFICERS’ CERTIFICATE
DATED

Eligible Securities
 
Name of Issuer
 
Allowable Amount (Item 2)
Pledged Securities
(Here List Securities)
       


 
  
EXHIBIT 10.32.1
 
FARMER MAC MORTGAGE
SECURITIES CORPORATION,
As Note Purchaser
 
NATIONAL RURAL UTILITIES
COOPERATIVE FINANCE CORPORATION,
As Borrower
 
U.S. BANK NATIONAL ASSOCIATION,
As Collateral Agent
 
FEDERAL AGRICULTURAL
MORTGAGE CORPORATION,
As Guarantor
_______________________________
 
FIRST AMENDMENT TO PLEDGE AGREEMENT
 
_______________________________
 
Dated as of September 23, 2009
 
  
 
 

 

FIRST AMENDMENT TO PLEDGE AGREEMENT

FIRST AMENDMENT TO PLEDGE AGREEMENT, dated as of September 23, 2009, among NATIONAL RURAL UTILITIES COOPERATIVE FINANCE CORPORATION, a District of Columbia cooperative association and its successors and assigns (hereinafter called “ National Rural ”), FARMER MAC MORTGAGE SECURITIES CORPORATION, (the “Purchaser”), a wholly owned subsidiary of FEDERAL AGRICULTURAL MORTGAGE CORPORATION, a federally-chartered instrumentality of the United States and an institution of the Farm Credit System and its successors and assigns (“ Farmer Mac ”), U.S. BANK NATIONAL ASSOCIATION, a national banking association and its successors and assigns (hereinafter called the “ Collateral Agent ”), and Farmer Mac, as Guarantor.

RECITALS
WHEREAS, the Purchaser, National Rural, Farmer Mac, and the Collateral Agent are parties to a certain Pledge Agreement dated as of  March 23, 2009 (“Pledge Agreement”); and
 
WHEREAS, the parties have agreed to modify the Pledge Agreement as set forth herein.
 
NOW, THEREFORE, in consideration of the mutual agreements herein contained, Farmer Mac, the Purchaser, National Rural and the Collateral Agent agree as follows:
 
1.            Recitals .  The foregoing Recitals are hereby incorporated by reference into this Amendment.

2.            Definitions .  Capitalized terms used herein and not otherwise defined shall have the meanings assigned to them in the Pledge Agreement.

3.            Amendment .

(a)           The Pledge Agreement is hereby amended by deleting the definition of Allowable Amount in Section 1.01 in its entirety and replacing it with the following:

Allowable Amount ” on any date means, with respect to Eligible Securities, the aggregate principal amount of such Eligible Securities theretofore advanced thereon which remains unpaid on such date, subject to any limitation on the Allowable Amount applicable through the definition of “Eligible Security.”
 
(b)           The Pledge Agreement is hereby amended by deleting the definition of Eligible Security in Section 1.01 in its entirety and replacing it with the following:
 
 
 

 

Eligible Security ” means a note or bond of any Eligible Member payable or registered to, or to the order of, National Rural, (A) in respect of which (i) the outstanding principal amount under such note or bond, together with the outstanding principal amount of any other notes or bonds of such Eligible Member pledged hereunder or pledged to secure any other notes or bonds issued by National Rural to Farmer Mac or any affiliate or sold by National Rural or any affiliate to any trust whose beneficial ownership is owned or controlled by Farmer Mac, does not aggregate more than $35 million; provided, however, that a note or bond in excess of $35 million may be pledged hereunder but up to $35 million principal amount of such note or bond (considered together with any other note or bond of such Eligible Member pledged hereunder or pledged to secure any other notes or bonds issued by National Rural to Farmer Mac or any affiliate or sold by National Rural or any affiliate to Farmer Mac, any affiliate or any trust whose beneficial ownership is owned or controlled by Farmer Mac) shall be counted in the Allowable Amount of such Eligible Security (with the amount of any such excess recorded in Item 7 of the Certificate of Pledged Collateral in the form of Annex A attached hereto), (ii) no default has occurred in the payment of principal or interest in accordance with the terms of such note or bond that is continuing beyond the contractual grace period (if any) provided in such note or bond for such payment and (iii) no “event of default” as defined in such note or bond (or in any instrument creating a security interest in favor of National Rural in respect of such note or bond), shall exist that has resulted in the exercise of any right or remedy described in such note or bond (or in any such instrument); (B) which is not classified by National Rural as a non-performing loan under generally accepted accounting principles in the United States; and (C) which otherwise satisfies the criteria set forth on Schedule I hereto, as such Schedule I may be amended from time to time as mutually agreed upon in writing by Farmer Mac and National Rural, with notice of any such amendment to the Collateral Agent prior to the pledge of such Eligible Security.
 
(c)           The Pledge Agreement is hereby amended by deleting Annex A to the Pledge Agreement in its entirety and replacing it with Annex A attached to this Amendment.

4.            GOVERNING LAW .    THIS AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, FEDERAL LAW.  TO THE EXTENT FEDERAL LAW INCORPORATES STATE LAW, THAT STATE LAW SHALL BE THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS MADE AND PERFORMED THEREIN.
 
5.            Inconsistency with Pledge Agreement .  Except as otherwise amended or modified herein, the terms, conditions and provisions of the Pledge Agreement remain in full force and effect.  In the event of any conflict or inconsistency between the terms of this Amendment and the Pledge Agreement, the terms of this Amendment shall control.

6.            Counterparts .  This Amendment may be executed in two or more counterparts, each of which shall be an original, but all of which together shall constitute one and the same instrument.
 
[SIGNATURE PAGE FOLLOWS]
 
 
 

 
 
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed as of the day and year first above written.
 
FARMER MAC MORTGAGE
SECURITIES CORPORATION
   
By:
 
Title: 
 
 
FEDERAL AGRICULTURAL
MORTGAGE CORPORATION
   
By:
 
Title: 
 
 
NATIONAL RURAL UTILITIES
COOPERATIVE FINANCE
CORPORATION
   
By:
 
Title: 
 
 
U.S. BANK NATIONAL ASSOCIATION
   
By:
 
Title: 
 
 
 
 

 

ANNEX A
TO
PLEDGE AGREEMENT
 
NATIONAL RURAL UTILITIES
COOPERATIVE FINANCE CORPORATION
 
PLEDGE AGREEMENT DATED AS OF MARCH 23, 2009
 
CERTIFICATE OF PLEDGED COLLATERAL FILED WITH
U.S. BANK NATIONAL ASSOCIATION, Collateral Agent
 
________________, Chief Executive Officer (or Chief Financial Officer or Controller) and ____________________, Vice-President, respectively, of National Rural Utilities Cooperative Finance Corporation, hereby certify to the Control Party and the Collateral Agent under the above-mentioned Pledge Agreement as amended to the date hereof (herein called the “Pledge Agreement”) as follows:
 
1.
The Allowable Amount of Pledged Collateral certified hereby, remaining on deposit with the Collateral Agent, as shown on Schedule A hereto, is
  $    
           
2.
The Allowable Amount of Pledged Collateral certified hereby, being deposited as shown on Schedule B hereto, is
  $    
           
3.
The aggregate principal amount of the Note(s) outstanding at the date hereof is
  $    
           
4.
The aggregate amount, if any, of the Note(s) to be issued on the basis of this Certificate is
  $    
           
5.
The sum of amounts in items 3 and 4 is
  $    
           
6.
The aggregate amount by which the Allowable Amount of Pledged Collateral exceeds the aggregate principal amount of the Note(s) outstanding (the sum of items 1 and 2 minus item 5) is
  $    
           
7.
The cumulative amount by which each Eligible Security listed on Schedule A or Schedule B exceeds $35 million is
  $    
 
 
 

 

ANNEX A
TO
PLEDGE AGREEMENT
 
8.
The Allowable Amount of Pledged Collateral which is included in items 1 and 2 above from Class B Eligible Members does not constitute more than 20% of the aggregate amount of any notes or bonds: (1) pledged hereunder; (2) pledged to secure any other notes or bonds issued by National Rural or any affiliate to Farmer Mac or any affiliate; (3) sold by National Rural or any affiliate to Farmer Mac or any affiliate; or (4) sold to any trust whose beneficial ownership is owned or controlled by Farmer Mac or an affiliate.
       
           
9.
To the knowledge of the undersigned, each Eligible Security from a Class A Eligible Member the Allowable Amount of which is included in item 2 satisfies the following criteria on the date of this Certificate:  (1) Long-Term Debt to Net Utility Plant Ratio, as the average ratio of the most recent three full calendar years for which financial information is available, does not exceed 90%; (2) Modified Debt Service Coverage Ratio—Distribution, as the average ratio of the most recent three full calendar years for which financial information is available, is greater than or equal to 1.35; (3) Equity to Total Assets Ratio, as the average ratio of the most recent three full calendar years for which financial information is available, is greater than or equal to 20%; and (4) the Eligible Security has a Facility Rating by National Rural of “4.9” or lower.
        
           
10.
To the knowledge of the undersigned, each Eligible Security from a Class B Eligible Member the Allowable Amount of which is included in item 2 satisfies the following criteria on the date of this Certificate:  (1) Equity to Total Capitalization Ratio, as the average ratio of the most recent three full calendar years for which financial information is available, is greater than or equal to 25%; (2) Modified Debt Service Coverage Ratio—G&T, as the average ratio of the most recent three full calendar years for which financial information is available, is greater than or equal to 1.10; (3) Equity to Total Assets Ratio, as the average ratio of the most recent three full calendar years for which financial information is available, is greater than or equal to 10%; and (4) the Eligible Security has a Facility Rating by National Rural of “4.9” or lower.
        
 
 
 

 

ANNEX A
TO
PLEDGE AGREEMENT
 
11.
So far as is known to the undersigned, no Event of Default exists.
       
           
12.
To the extent an Eligible Security listed on Schedule A or Schedule B has an outstanding principal amount of more than $35 million, the Allowable Amount of Pledged Collateral set forth in items 1 and 2 above reflects only $35 million with respect to such Eligible Security (or a lesser amount representing the difference between $35 million and the aggregate amount of any notes or bonds of the same Eligible Member pledged or sold to Farmer Mac or any affiliate in any previous transaction), with any excess above $35 million (or the lesser amount) reflected in item 7 above.
        
           
13.
Each Eligible Member whose notes are Pledged Securities has received or is eligible to receive a loan or commitment for a loan from RUS or any successor agency.
        

All terms which are defined in the Pledge Agreement are used herein as so defined.
 
Dated:  _____________________
 
 
 
 
 
OF NATIONAL RURAL UTILITIES
COOPERATIVE FINANCE CORPORATION
 
 
 

 

ANNEX A
TO
PLEDGE AGREEMENT
 
PLEDGED SECURITIES ON DEPOSIT
 
SCHEDULE A TO OFFICERS’ CERTIFICATE
DATED
 
Eligible Securities
 
Name of Issuer
 
Allowable Amount (Item 1)
Pledged Securities
(Here List Securities)
  
 
  
 
 
 
 

 

ANNEX A
TO
PLEDGE AGREEMENT
 
PLEDGED SECURITIES BEING DEPOSITED
 
SCHEDULE B TO OFFICERS’ CERTIFICATE
DATED
 
Eligible Securities
 
Name of Issuer
 
Allowable Amount (Item 2)
Pledged Securities
(Here List Securities)
  
 
  
 
 
 
 

 

EXHIBIT 10.33

March 23, 2009

National Rural Utilities Cooperative Finance Corporation
2201 Cooperative Way
Herndon, Virginia  20171

Re:   Setoff Rights under Note Purchase Agreement

Ladies and Gentlemen:

In connection with that certain Note Purchase Agreement, dated as of the date hereof (the “ Agreement ”), by and among National Rural Utilities Cooperative Finance Corporation (“ National Rural ” or “ Borrower ”), Farmer Mac Mortgage Securities Corporation (“ Purchaser ”), and Federal Agricultural Mortgage Corporation (“ Guarantor ”), National Rural has agreed, in the event of a payment default by National Rural on the Notes, to grant the Control Party certain rights of setoff against amounts due and owing to National Rural on any Series C Preferred Stock, par value $1,000 per share (the “ Preferred Stock ”), of Guarantor.  Capitalized terms used but not otherwise defined herein shall have the meaning set forth in the Agreement.

Borrower, Guarantor and Purchaser hereby agree that in the event of, and only in the event of, a payment Event of Default by Borrower pursuant to Section 7.01(a) of the Agreement (“ Payment Default ”), the Control Party shall have the right, at the Control Party’s sole option and discretion, to setoff any amounts due to Borrower in respect of Guarantor’s Preferred Stock, whether in respect of dividends, redemption, liquidation or otherwise (the “ Preferred Payments ”), and to apply the Preferred Payments on a dollar-for-dollar basis against the amount of Borrower’s Payment Default.  Such setoff amount by the Control Party shall not exceed the amount of Borrower’s Payment Default, and under no circumstances shall Borrower be liable to Purchaser or the Guarantor in connection with the transactions described herein for any amount in excess of the principal amount of the Notes plus interest, as provided in the Agreement.  Borrower’s amount due under the Notes shall be satisfied and discharged to the extent of, but only to the extent of, the Control Party’s effective setoff.  If no Payment Default by Borrower has occurred, however, the Guarantor shall have no right to setoff or otherwise withhold the Preferred Payments from Borrower.  The Control Party shall provide Borrower with notice of, and reasonably detailed back up information with respect to, any setoff effected by the Control Party under this letter agreement.

The rights of the Control Party herein shall be in addition to, and not in substitution or limitation of, any other rights and remedies available to the Control Party, whether such rights or remedies arise pursuant to law, the Agreement or any other agreement between the parties.
 
[SIGNATURE PAGE FOLLOWS]

 
 

 

Please acknowledge your acceptance of the foregoing terms by executing this letter agreement in the space below, whereupon this agreement shall constitute a valid agreement binding upon Purchaser and Borrower.

 
Very truly yours,
   
 
FARMER MAC MORTGAGE SECURITIES CORPORATION
   
 
By:
 
   
Name:
   
Title:
   
 
FEDERAL AGRICULTURAL MORTGAGE CORPORATION
   
 
By:
 
   
Name:
   
Title:
   
ACKNOWLEDGED AND AGREED:
 
   
NATIONAL RURAL UTILITIES
 
COOPERATIVE FINANCE CORPORATION
 
   
By:
   
 
Name:
 
 
Title:
 
 
 
 

 

EXHIBIT 10.34

 
FARMER MAC MORTGAGE SECURITIES CORPORATION
as Note Purchaser
 
NATIONAL RURAL UTILITIES
COOPERATIVE FINANCE CORPORATION
as Borrower
 
FEDERAL AGRICULTURAL MORTGAGE CORPORATION
as Guarantor
 

 
NOTE PURCHASE AGREEMENT
 

 
Dated as of May 22, 2009
 


 
 
 

 
 
TABLE OF CONTENTS
 
   
Page
     
RECITALS
 
1
     
ARTICLE I DEFINITIONS
 
1
SECTION 1.01. Definitions
 
1
SECTION 1.02. Principles of Construction
 
4
     
ARTICLE II PURCHASE OF NOTES
 
5
SECTION 2.01. Purchase of Notes; Minimum Denominations
 
5
SECTION 2.02. Interest Rates and Payment
 
5
SECTION 2.03. Maturity
 
7
     
ARTICLE III CONDITIONS PRECEDENT
 
7
SECTION 3.01. Conditions Precedent to the Purchase of Each Note
 
7
SECTION 3.02. Certificate of Pledged Collateral
 
8
     
ARTICLE IV REPORTING REQUIREMENTS
 
8
SECTION 4.01. Annual Reporting Requirements
 
8
SECTION 4.02. Default Notices
 
9
     
ARTICLE V REPRESENTATIONS OF THE PARTIES
 
9
SECTION 5.01. Representations of Farmer Mac and the Purchaser
 
9
SECTION 5.02. Representations of National Rural
 
9
     
ARTICLE VI SECURITY AND COLLATERAL
 
11
SECTION 6.01. Security and Collateral
 
11
     
ARTICLE VII EVENTS OF DEFAULT
 
12
SECTION 7.01. Events of Default
 
12
SECTION 7.02. Acceleration
 
13
SECTION 7.03. Remedies Not Exclusive
 
13
     
ARTICLE VIII MISCELLANEOUS
 
13
SECTION 8.01. GOVERNING LAW
 
13
SECTION 8.02. WAIVER OF JURY TRIAL
 
13
SECTION 8.03. Notices
 
13
SECTION 8.04. Benefit of Agreement
 
13
SECTION 8.05. Entire Agreement
 
14
SECTION 8.06. Amendments and Waivers
 
14
SECTION 8.07. Counterparts
 
14
SECTION 8.08. Termination of Agreement
 
14
SECTION 8.09. Survival
 
14
SECTION 8.10. Severability
 
14
     
ARTICLE IX GUARANTEE
 
15

 
 

 

SECTION 9.01. Guarantee .
 
15
SECTION 9.02. Control by the Guarantor .
 
16

Schedule I – Addresses for Notices
Schedule II – Form of Applicable Margin Notice
Schedule III – Form of Pricing Agreement

Annex A-1 – Form of Fixed Rate Note
Annex A-2 – Form of Floating Rate Note
Annex B – Opinion of Counsel to National Rural
Annex C – Officers’ Certificate
Annex D – Form of Securities Purchase Agreement

 
 

 

NOTE PURCHASE AGREEMENT
 
NOTE PURCHASE AGREEMENT, dated as of May 22, 2009, among FARMER MAC MORTGAGE SECURITIES CORPORATION (the “ Purchaser ”), a wholly owned subsidiary of FEDERAL AGRICULTURAL MORTGAGE CORPORATION, a federally-chartered instrumentality of the United States and an institution of the Farm Credit System (“ Farmer Mac ” or the “ Guarantor ”); NATIONAL RURAL UTILITIES COOPERATIVE FINANCE CORPORATION, a cooperative association existing under the laws of the District of Columbia (“ National Rural ”); and Farmer Mac, as Guarantor.
 
RECITALS
 
WHEREAS National Rural wishes from time to time to issue and sell Notes to the Purchaser, and the Purchaser wishes from time to time to purchase such Notes from National Rural, all on the terms and subject to the conditions herein provided; and
 
WHEREAS Farmer Mac is an instrumentality of the United States formed to provide for a secondary market for agricultural real estate mortgages and rural utilities loans; National Rural is a non-profit cooperative and Farmer Mac, the Purchaser and National Rural have agreed that the Notes will be secured by the pledge of notes for borrowings from National Rural by members of National Rural, as provided herein.
 
NOW, THEREFORE, in consideration of the mutual agreements herein contained, Farmer Mac, the Purchaser and National Rural agree as follows:
 
ARTICLE I
 
DEFINITIONS
 
SECTION 1.01.          Definitions .  As used in this Agreement, the following terms shall have the following meanings:
 
Agreement ” means this Note Purchase Agreement, as the same may be amended from time to time.
 
Applicable Margin ” means the Applicable Margin (LIBOR) or the Applicable Margin (Treasury), as the context may require.
 
Applicable Margin (LIBOR) ” means the margin to be added to the LIBOR Rate to determine the rate of interest payable on the Floating Rate Notes from time to time.  The Applicable Margin (LIBOR) shall be communicated in writing by Farmer Mac to National Rural in accordance with Section 2.02(d) hereof, in the form of Schedule II hereof, and calculated by Farmer Mac as follows: (i) Farmer Mac’s Cost of Funds (expressed in relation to the LIBOR Rate), plus 0.75%, minus (ii) the LIBOR Rate.  The Applicable Margin (LIBOR) for any Floating Rate Note shall be set forth in the applicable Pricing Agreement.

 
 

 

Applicable Margin (Treasury) ” means the margin to be added to the Treasury Rate to determine the rate of interest payable on the Fixed Rate Notes.  The Applicable Margin (Treasury) shall be communicated in writing by Farmer Mac to National Rural in accordance with Section 2.02(d) hereof, in the form of Schedule II hereof, and calculated by Farmer Mac as follows: (i) Farmer Mac’s Cost of Funds (expressed in relation to the Treasury Rate), plus 0.75%, minus (ii) the Treasury Rate.  The Applicable Margin (Treasury) for any Fixed Rate Note shall be set forth in the applicable Pricing Agreement.
 
Business Day ” means any day other than a Saturday, a Sunday, or a day on which any of the Federal Reserve Bank of New York, Farmer Mac’s office in Washington, DC or National Rural’s office in Virginia is not open for business.
 
Certificate of Pledged Collateral ” has the meaning given to that term in the Pledge Agreement.
 
Closing Date ” means the date of the funding of each issuance of Notes hereunder, which date shall be set forth in the applicable Pricing Agreement.
 
Collateral Agent ” means U.S. Bank National Association, or its successor, as collateral agent under the Pledge Agreement.
 
Control Party ” means (i) the Guarantor, so long as no Guarantor Default has occurred and is continuing, or (ii) the holders of the Notes for so long as a Guarantor Default has occurred and is continuing.
 
Dollar ” or “ $ ” means the lawful money of the United States of America.
 
Eligible Member ” has the meaning given to that term in the Pledge Agreement.
 
Event of Default ” has the meaning given to that term in Section 7.01.
 
Farmer Mac’s Cost of Funds ” means the cost of funds quoted by Farmer Mac to National Rural based on Farmer Mac’s estimate of the economic cost to obtain cash funds from the wholesale funding market by issuing unsecured medium-term notes to fully fund to maturity the Note or Notes purchased by Purchaser from National Rural.
 
Farmer Mac Series C Preferred Stock ” means shares of Non-Voting Cumulative Preferred Stock, Series C issued by Farmer Mac.
 
Final Maturity Date ” means December 31, 2016, or such other date as agreed to by the parties.
 
Financial Statements ”, in respect of a Fiscal Year, means the consolidated financial statements (including footnotes) of National Rural for that Fiscal Year as audited by independent certified public accountants selected by National Rural.
 
Fiscal Year ” means the fiscal year of National Rural, as such may be changed from time to time, which at the date hereof commences on June 1 of each calendar year and ends on May 31 of the following calendar year.

 
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Fixed Rate Notes ” means one or more fixed rate notes of National Rural payable to the Purchaser, having the terms provided for in Article II of this Agreement and otherwise in the form of Annex A-1 attached hereto, except to the extent the parties may have approved changes therein in the applicable Pricing Agreement.
 
 “ Floating Rate Notes ” means one or more floating rate notes of National Rural payable to the Purchaser, having the terms provided for in Article II of this Agreement and otherwise in the form of Annex A-2 attached hereto, except to the extent the parties may have approved changes therein in the applicable Pricing Agreement.
 
Guarantor Default ” means a default by the Guarantor under its obligations pursuant to Article IX which is existing and continuing.
 
Interest Payment Date ” means the dates set forth in the Pricing Agreement for notes as the interest payment dates therefor; provided, however, that if any such date is not a Business Day, such Interest Payment Date that would otherwise be such date will be the next Business Day following such date.
 
Interest Period   means, with respect to Floating Rate Notes, until all outstanding principal amount of the Floating Rate Notes and interest accrued thereon have been paid in full, each 3-month period determined as set forth in the applicable Pricing Agreement unless a different period is agreed by the parties hereto and set forth in such Pricing Agreement; provided , that the initial Interest Period means the period from and including the date of issuance to and excluding the first Interest Payment Date following the date of issuance; provided, further , that if any Interest Period would end on a day other than a Business Day, then such Interest Period shall be extended to and include the next succeeding Business Day and the next Interest Period shall commence on the next succeeding day.
 
LIBOR Rate ” shall mean, for any Interest Period, the rate appearing on Reuters Page LIBOR01 (or on any successor or substitute page of such service, or if the Reuters service ceases to be available, any successor to or substitute for such service providing rate quotations comparable to those currently provided on such page of such service, as mutually agreed by National Rural and Farmer Mac from time to time for purposes of providing quotations of interest rates applicable to Dollar deposits in the London interbank market) as of 11:00 a.m., London time, on the day that is two London Banking Days prior to the commencement of such Interest Period, as the rate for the offering of Dollar deposits with a maturity of three months (unless another maturity is agreed by the parties hereto and set forth in the applicable Pricing Agreement).  Unless otherwise agreed by the parties hereto and set forth in the applicable Pricing Agreement, such rate shall apply for the initial Interest Period for any advance notwithstanding that such initial Interest Period for an advance may be shorter than three months.
 
London Banking Day ” shall mean any day on which commercial banks and foreign exchange markets settle payments and are open for general business (including dealings in foreign exchange and foreign currency deposits) in the Dollar, in London, England.
 
Member ” shall mean any Person who is member of National Rural.

 
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National Rural Notice ” has the meaning given to that term in the Pledge Agreement.
 
Notes ” means the Fixed Rate Notes and the Floating Rate Notes, or any one or more of them as the context may require.
 
Note Documents ” means the Notes, this Agreement, and the Pledge Agreement.
 
Notice of Borrowing ” has the meaning set forth in Section 2.01 hereof.
 
Person ” means an individual, a corporation, a partnership, an association, a trust or any other entity or organization, including a government or political subdivision or an agency or instrumentality thereof.
 
Pledge Agreement ” means the Pledge Agreement dated as of the date hereof, among National Rural, the Purchaser, Farmer Mac and the Collateral Agent.
 
Pledged Collateral ” has the meaning given to that term in the Pledge Agreement.
 
Pledged Securities ” has the meaning given to that term in the Pledge Agreement.
 
Pricing Agreement ” means the Pricing Agreement for each issuance of Notes among Farmer Mac, the Purchaser and National Rural in the form of Schedule III attached hereto.
 
Securities Purchase Agreement ” means the Series C Preferred Stock Purchase Agreement, a form of which is attached hereto as Annex D .
 
Treasury Rate ” means the applicable benchmark United States Treasury rate agreed at the time of pricing a Note and set forth in the applicable Pricing Agreement.
 
SECTION 1.02.          Principles of Construction .  Unless the context shall otherwise indicate, the terms defined in Section 1.01 hereof include the plural as well as the singular and the singular as well as the plural.  The words “hereafter”, “herein”, “hereof”, “hereto” and “hereunder”, and words of similar import, refer to this Agreement as a whole.  The descriptive headings of the various articles and sections of this Agreement were formulated and inserted for convenience only and shall not be deemed to affect the meaning or construction of the provisions hereof.

 
4

 
 
ARTICLE II
 
PURCHASE OF NOTES
 
SECTION 2.01.          Purchase of Notes; Minimum Denominations .  The Purchaser agrees to purchase Notes, at 100% of their principal amount, from time to time before the Final Maturity Date, as requested by National Rural by written notice (each, a “ Notice of Borrowing ”) to Farmer Mac in an aggregate principal amount, for all Notes outstanding hereunder at any one time, not in excess of $1 billion, subject to satisfaction of the conditions set forth herein.  National Rural may borrow, repay (subject to the terms of the applicable Notes being repaid) and reborrow funds at any time or from time to time up to, but not including, the Final Maturity Date.  Each advance under this Agreement shall be disbursed in a minimum amount of $50 million and additional increments of $5 million in excess thereof or such other amounts as agreed to in the applicable Pricing Agreement.  Each advance shall price within 3 Business Days of National Rural providing a Notice of Borrowing to Farmer Mac and shall close and fund within 3 Business Days of pricing, subject to satisfaction of the conditions set forth herein and in accordance with the procedures set forth in Section 2.02(d) hereof, unless otherwise agreed by the parties hereto and set forth in the applicable Pricing Agreement.
 
SECTION 2.02.          Interest Rates and Payment .  
 
(a)   Floating Rate Notes .  Each Floating Rate Note shall bear interest, payable quarterly in arrears unless otherwise agreed by the parties hereto and set forth in the applicable Pricing Agreement, on the outstanding principal amount thereof (computed on the basis of a 360-day year and the actual number of days elapsed) from its date of issuance until final payment on the maturity date thereof or otherwise at a variable rate per annum equal to the LIBOR Rate for each Interest Period plus the Applicable Margin (LIBOR).  The LIBOR Rate shall reset as of the first day of each Interest Period.  The (i) initial LIBOR Rate and (ii) Applicable Margin (LIBOR) for the term of each Floating Rate Note shall be specified in the applicable Pricing Agreement.  Interest only shall be payable on each Interest Payment Date.  The Interest Payment Dates shall be determined at the time of an advance and set forth in the applicable Pricing Agreement.  The principal amount of each Floating Rate Note, together with any accrued but unpaid interest, shall be due and payable on the maturity date for such Note.
 
(b)   Fixed Rate Notes .  Each Fixed Rate Note shall bear interest, payable semi-annually in arrears unless otherwise agreed by the parties hereto and set forth in the applicable Pricing Agreement on the outstanding principal amount thereof (computed on the basis of a 30-day month and a 360-day year) from its date of issuance until final payment on the maturity date thereof or otherwise at a fixed rate per annum equal to the Treasury Rate plus the Applicable Margin (Treasury), in each case as specified for the term of each Fixed Rate Note in the applicable Pricing Agreement.  Interest only shall be payable on each Interest Payment Date.  The Interest Payment Dates shall be determined at the time of an advance and set forth in the applicable Pricing Agreement.  The principal amount of each Fixed Rate Note, together with any accrued but unpaid interest, shall be due and payable on the applicable maturity date for such Note.
 
(c)   Default Interest .  To the extent any payment of interest or principal is not paid when due, interest shall continue to accrue thereon at the applicable rate per annum determined as provided above plus one percent.

 
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(d)   Notice of Borrowing; Determination of Applicable Margin; Procedure for Pricing .     (i)  Each Notice of Borrowing shall indicate the amount of the Note and the desired maturity date of such Note that National Rural requests to be advanced.  A Notice of Borrowing may request preliminary pricing indications for more than one type of Note, with the understanding that only one type of Note will be issued on any particular Closing Date, unless otherwise agreed by the parties hereto in a Pricing Agreement.  Each Notice of Borrowing shall also provide name, telephone and email contact information of an authorized representative of National Rural.
 
(ii) Upon receipt of a Notice of Borrowing from National Rural, Farmer Mac shall, within 2 Business Days, provide to National Rural a preliminary indication of the Applicable Margin (LIBOR) or Applicable Margin (Treasury), or both, as applicable to any Notice of Borrowing; provided that Farmer Mac shall not be obligated to provide an indication of pricing if Farmer Mac uses its best efforts to obtain and provide such preliminary indication, but determines in its sole discretion reasonably exercised after consultation with National Rural that market conditions are unfavorable for the issuance of debt to fund Notes with the terms set forth in the Notice of Borrowing.  Upon an acceptance of such preliminary indication of pricing by National Rural, the applicable Note will price within one Business Day (and may price on the day of the preliminary pricing if the parties so agree) thereafter, unless the parties otherwise agree to a longer period of time as set forth in the applicable Pricing Agreement.  Farmer Mac shall provide National Rural with written notice of the final Applicable Margin (LIBOR) or Applicable Margin (Treasury) no later than the time of pricing of each advance.  National Rural shall be deemed to approve of such pricing so long as the Applicable Margin (LIBOR) or Applicable Margin (Treasury) shall not exceed the preliminary indication by more than 5 basis points (0.05%).  If the final pricing does exceed the preliminary indication by more than 5 basis points (0.05%), an authorized representative of National Rural must agree via email confirmation prior to or simultaneously with the pricing to accept such margin.
 
(e)   Payments and Prepayments.
 
(i) Each Floating Rate Note shall not be prepayable during the term of such Note.
 
(ii) Each Fixed Rate Note shall not be prepayable during the term of such Note unless otherwise agreed by Farmer Mac and National Rural and set forth in the applicable Pricing Agreement.  If the parties agree that an issuance of Fixed Rate Notes may be prepayable prior to the maturity date of such Notes, then (A) the applicable Pricing Agreement shall set forth the scheduled call dates, and (B) unless otherwise agreed by the parties and set forth in the applicable Pricing Agreement, National Rural may prepay such Note upon at least nine (9) Business Days prior written notice to Farmer Mac, which notice shall be received by Farmer Mac on a day that is on or before the ninth Business Day prior to the related call date, but in any event, no later than noon eastern time on the ninth Business Day prior to the related call date.  In the event that any such repayment or prepayment of the principal amount of any Note is made on a day other than an Interest Payment Date, accrued interest on the principal amount thereof shall be payable through and excluding the call date on which such repayment or prepayment is made.

 
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(iii) The prepayment terms of any other type of Fixed Rate Note or Floating Rate Note shall be set forth in the applicable Pricing Agreement.
 
(f)   Payment Notice .  Farmer Mac shall send to National Rural, not later than the fifth Business Day prior to an Interest Payment Date for any Note, a notice setting forth the amount of principal and interest, as applicable, due and owing on the next Interest Payment Date for such Note.
 
SECTION 2.03.          Maturity .  Each Note shall mature on the maturity date set forth in the applicable Pricing Agreement and in any event no later than the Final Maturity Date.
 
ARTICLE III
 
CONDITIONS PRECEDENT
 
SECTION 3.01.          Conditions Precedent to the Purchase of Each Note .  On each Closing Date, the Purchaser shall be under no obligation to purchase any Note unless and until the following conditions have been satisfied:
 
(a)   The Notes .  Farmer Mac shall have received the original of such Notes, duly executed on behalf of National Rural, in the applicable form attached as Annex A-1 or A-2 hereto, or otherwise in a form agreed by the parties.
 
(b)   The Pledge Agreement .  Farmer Mac shall have received an original of the Pledge Agreement duly executed on behalf of National Rural and the Collateral Agent.
 
(c)   Opinion of Counsel .  Farmer Mac shall have received an opinion of counsel to National Rural substantially in the form of Annex B, attached hereto.
 
(d)   Financial and Other Information .  National Rural shall have provided Farmer Mac with its most recent Financial Statements and such other information concerning National Rural as Farmer Mac shall have reasonably requested.
 
(e)   No Material Adverse Change .  National Rural shall have certified to Farmer Mac (in the manner specified in paragraph (i) of this Section 3.01), and Farmer Mac shall be satisfied, that no material adverse change shall have occurred in the financial condition or business of National Rural between the end of National Rural’s most recently completed Fiscal Year for which Financial Statements have been made publicly available and the date of the purchase of such Note, which has not been set forth in documents, certificates or financial information furnished to Farmer Mac or publicly filed.

 
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(f)   UCC Filing .  National Rural shall have provided Farmer Mac with evidence that National Rural has filed the financing statement required pursuant to Section 2.02(i) of the Pledge Agreement.
 
(g)   No Event of Default .  National Rural shall have certified to Farmer Mac and Farmer Mac shall be satisfied that no Event of Default shall have occurred and be continuing.
 
(h)   Invest to Participate .  National Rural shall have entered into a Securities Purchase Agreement to purchase Farmer Mac Series C Preferred Stock such that National Rural shall own or have agreed to purchase at least 4% of the sum of (1) the aggregate principal amount of the Notes outstanding hereunder and (2) the aggregate principal amount of the notes outstanding under both of the Note Purchase Agreement among the parties dated as of December 15, 2008 and the Note Purchase Agreement among the parties dated as of February 5, 2009, taking into account the advance made hereunder on the Closing Date.
 
(i)   Certification of Senior Management .  National Rural shall have provided Farmer Mac a certification by any vice president of National Rural, substantially in the form of Annex C attached hereto, as to the following: (i) that National Rural is a lending institution organized as a private, not-for-profit, cooperative association with the appropriate expertise, experience and qualifications to make loans to its Members for rural electrification and related purposes; (ii) the matters to be certified under paragraphs (e) and (g) of this Section 3.01; and (iii) the representations and warranties of National Rural.
 
SECTION 3.02.          Certificate of Pledged Collateral .  No later than three Business Days after each advance hereunder, National Rural shall provide Farmer Mac and the Collateral Agent a copy of a Certificate of Pledged Collateral, dated as of the last day of the calendar month most recently ended at least 10 Business Days prior to such authentication and delivery, or a more recent date, at National Rural’s option, in accordance with the terms of the Pledge Agreement.
 
ARTICLE IV
 
REPORTING REQUIREMENTS
 
SECTION 4.01.          Annual Reporting Requirements .  So long as any Notes remain outstanding, National Rural shall provide Farmer Mac with the following items within 90 days of the end of each Fiscal Year, in each case, in form and substance satisfactory to Farmer Mac:
 
(a)   the Financial Statements for such Fiscal Year;
 
(b)   a Certificate of Pledged Collateral;

 
8

 

(c)   a receipt from the Collateral Agent, or such other evidence as is satisfactory to Farmer Mac, as to the Pledged Collateral held by the Collateral Agent at the end of such Fiscal Year; and
 
(d)   such other information concerning National Rural or the Pledged Collateral as is reasonably requested by Farmer Mac.
 
SECTION 4.02.          Default Notices .  If an action, occurrence or event shall happen that is, or with notice and the passage of time would become, an Event of Default, National Rural shall deliver a National Rural Notice of such action, occurrence or event to Farmer Mac before 4:00 p.m. (District of Columbia time) on the Business Day following the date National Rural becomes aware of such action, occurrence or event, and, if such Event of Default should occur, shall submit to Farmer Mac, within five days thereafter, a report setting forth its views as to the reasons for the Event of Default, the anticipated duration of the Event of Default and what corrective actions National Rural is taking to cure such Event of Default.
 
ARTICLE V
 
REPRESENTATIONS OF THE PARTIES
 
SECTION 5.01.          Representations of Farmer Mac and the Purchaser .  Each of Farmer Mac and the Purchaser jointly and severally represent to National Rural that on the date hereof and on each date on which the Purchaser purchases a Note from National Rural:
 
(a)   it has all necessary authority and has taken all necessary corporate action, and obtained all necessary approvals, in order for it to execute and deliver all Note Documents to which it is a party and for its obligations and agreements under the Note Documents to constitute valid and binding obligations of Farmer Mac and the Purchaser; and in particular the terms of the transaction, and the actions taken by Farmer Mac and the Purchaser, are in compliance with and in satisfaction of the requirements of the Farm Credit Administration, as amended or waived by the Farm Credit Administration; and
 
(b)   The Purchaser is purchasing the Notes for its own account and not with a view to the distribution thereof, provided that the disposition by Farmer Mac or the Purchaser of their property shall at all times be within their control.  Farmer Mac and the Purchaser each understands that the Notes have not been registered under the Securities Act of 1933, as amended, and may be resold only if an exemption from registration is available.
 
SECTION 5.02.          Representations of National Rural .   National Rural hereby represents to Farmer Mac and the Purchaser that on the date hereof and on each date on which the Purchaser purchases a Note from National Rural:
 
(a)   National Rural has been duly organized and is validly existing and in good standing as a cooperative association under the laws of the District of Columbia;

 
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(b)   National Rural has the corporate power and authority to execute and deliver this Agreement, each of the other Note Documents and the applicable Pricing Agreement and Securities Purchase Agreement, if any, to consummate the transactions contemplated hereby and thereby and to perform its obligations hereunder and thereunder;
 
(c)   National Rural has taken all necessary corporate and other action to authorize the execution and delivery of this Agreement, each of the other Note Documents and the applicable Pricing Agreement and Securities Purchase Agreement, if any, the consummation by National Rural of the transactions contemplated hereby and thereby and the performance by National Rural of its obligations hereunder and thereunder;
 
(d)   this Agreement, each of the other Note Documents and the applicable Pricing Agreement and Securities Purchase Agreement, if any, have been duly authorized, executed and delivered by National Rural and constitute the legal, valid and binding obligations of National Rural, enforceable against National Rural in accordance with their respective terms, subject to: (i) applicable bankruptcy, reorganization, insolvency, moratorium and other laws of general applicability relating to or affecting creditors’ rights generally; and (ii) the application of general principles of equity regardless of whether such enforceability is considered in a proceeding in equity or at law;
 
(e)   no approval, consent, authorization, order, waiver, exemption, variance, registration, filing, notification, qualification, license, permit or other action is now, or under existing law in the future will be, required to be obtained, given, made or taken, as the case may be, with, from or by any regulatory body, administrative agency or governmental authority having jurisdiction over National Rural or any third party under any agreement to which National Rural is a party to authorize the execution and delivery by National Rural of this Agreement, any of the other Note Documents or the applicable Pricing Agreement and Securities Purchase Agreement, if any, or the consummation by National Rural of the transactions contemplated hereby or thereby or the performance by National Rural of its obligations hereunder or thereunder;
 
(f)   neither the execution or delivery by National Rural of this Agreement, any of the other Note Documents or the applicable Pricing Agreement and Securities Purchase Agreement, if any, nor the consummation by National Rural of any of the transactions contemplated hereby or thereby nor the performance by National Rural of its obligations hereunder or thereunder, including, without limitation, the pledge of the Pledged Securities (as such term is defined in the Pledge Agreement) to Farmer Mac, conflicts with or will conflict with, violates or will violate, results in or will result in a breach of, constitutes or will constitute a default under, or results in or will result in the imposition of any lien or encumbrance pursuant to any term or provision of the articles of incorporation or the bylaws of National Rural or any provision of any existing law or any rule or regulation currently applicable to National Rural or any judgment, order or decree of any court or any regulatory body, administrative agency or governmental authority having jurisdiction over National Rural or the terms of any mortgage, indenture, contract or other agreement to which National Rural is a party or by which National Rural or any of its properties is bound;

 
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(g)   there is no action, suit, proceeding or investigation before or by any court or any regulatory body, administrative agency or governmental authority presently pending or, to the knowledge of National Rural, threatened with respect to National Rural, this Agreement, any of the other Note Documents or the applicable Pricing Agreement and Securities Purchase Agreement, if any, challenging the validity or enforceability of this Agreement, any of the other Note Documents or the applicable Pricing Agreement and Securities Purchase Agreement, if any, or seeking to restrain, enjoin or otherwise prevent National Rural from engaging in its business as currently conducted or the consummation by National Rural of the transactions contemplated by this Agreement, any of the other Note Documents or the applicable Pricing Agreement and Securities Purchase Agreement, if any, or which, if adversely determined, would have a material adverse effect on National Rural’s financial condition or its ability to perform its obligations under this Agreement, any of the other Note Documents or the applicable Pricing Agreement and Securities Purchase Agreement, if any;
 
(h)   National Rural is a lending institution organized as a private, not-for-profit, cooperative association with the appropriate expertise, experience and qualifications to make loans to its Members for rural electrification purposes; and
 
(i)   no material adverse change has occurred in the financial condition or business of National Rural between the end of National Rural’s most recently completed Fiscal Year for which Financial Statements have been made publicly available and the date this representation is given which has not been set forth in documents, certificates or financial information furnished to Farmer Mac or publicly filed.
 
ARTICLE VI
 
SECURITY AND COLLATERAL
 
SECTION 6.01.          Security and Collateral .
 
(a)   National Rural shall cause the Allowable Amount of the Pledged Collateral (as such terms are defined in the Pledge Agreement) to be at all times not less than 100% of the aggregate outstanding principal amount of the Notes.
 
(b)   National Rural shall not create, or permit to exist, any pledge, lien, charge, mortgage, encumbrance, debenture, hypothecation or other similar security instrument that secures, or in any way attaches to, such Pledged Collateral, other than the lien of the Pledge Agreement, without the prior written consent of Farmer Mac.

 
11

 

(c)   The Pledged Securities will at all times be notes issued to National Rural by Eligible Members (as defined in the Pledge Agreement).
 
ARTICLE VII
 
EVENTS OF DEFAULT
 
SECTION 7.01.          Events of Default .  Each of the following actions, occurrences or events shall, but only (except in the case of subsections (a), (d) and (e) below) if National Rural does not cure such action, occurrence or event within 30 days of notice from Farmer Mac requesting that it be cured, constitute an “ Event of Default ” under the terms of this Agreement:
 
(a)   a failure by National Rural to make a payment of principal or interest on any Note for more than ten days after the same becomes due and payable;
 
(b)   a material representation by National Rural to Farmer Mac in connection with this Agreement, any Note or the Pledge Agreement, or any material information reported pursuant to Article V, shall prove to be incorrect or untrue in any material respect when made or deemed made;
 
(c)   a failure by National Rural to comply with any other material covenant or provision contained in this Agreement or any of the other Note Documents;
 
(d)   the entry of a decree or order by a court having jurisdiction in the premises adjudging National Rural a bankrupt or insolvent, or approving as properly filed a petition seeking reorganization, arrangement, adjustment or composition of or in respect of National Rural under the Federal Bankruptcy Act or any other applicable Federal or State law or law of the District of Columbia, or appointing a receiver, liquidator, assignee, trustee, sequestrator (or other similar official) of National Rural 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; or
 
(e)   the commencement by National Rural 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 petition or answer or consent seeking reorganization or relief under the Federal Bankruptcy Act 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 receiver, liquidator, assignee, trustee, sequestrator (or similar official) of National Rural 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 National Rural in furtherance of any such action.

 
12

 

SECTION 7.02.          Acceleration .  Upon the occurrence, and during the continuance, of an Event of Default, Farmer Mac may, upon notice to that effect to National Rural, declare the entire principal amount of, and accrued interest on, the Notes at the time outstanding to be immediately due and payable.
 
SECTION 7.03.          Remedies Not Exclusive .  Upon the occurrence, and during the continuance, of an Event of Default, Farmer Mac shall be entitled to take such other action as is provided for by law, in this Agreement, or in any of the other Note Documents, including injunctive or other equitable relief.
 
ARTICLE VIII
 
MISCELLANEOUS
 
SECTION 8.01.          GOVERNING LAW .  EXCEPT AS SET FORTH IN SECTION 9.01 HEREOF, THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, FEDERAL LAW.  TO THE EXTENT FEDERAL LAW INCORPORATES STATE LAW, THAT STATE LAW SHALL BE THE LAWS OF THE DISTRICT OF COLUMBIA APPLICABLE TO CONTRACTS MADE AND PERFORMED THEREIN.
 
SECTION 8.02.          WAIVER OF JURY TRIAL .  EACH PARTY HERETO HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY).  EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 8.02.
 
SECTION 8.03.          Notices .  All notices and other communications hereunder to be made to any party shall be in writing and shall be addressed as specified in Schedule I attached hereto as appropriate except as otherwise provided herein.  The address, telephone number, or facsimile number for any party may be changed at any time and from time to time upon written notice given by such changing party to the other parties hereto.  A properly addressed notice or other communication shall be deemed to have been delivered at the time it is sent by facsimile (fax) transmission to the party or parties to which it is given.
 
SECTION 8.04.          Benefit of Agreement .  This Agreement shall become effective when it shall have been executed by Farmer Mac, the Purchaser and National Rural, and thereafter shall be binding upon and inure to the respective benefit of the parties and their permitted successors and assigns.

 
13

 

SECTION 8.05.          Entire Agreement .  This Agreement, including the Schedules and Annexes hereto, and the other Note Documents, constitute the entire agreement between the parties hereto concerning the matters contained herein and supersede all prior oral and written agreements and understandings between the parties.
 
SECTION 8.06.          Amendments and Waivers .
 
(a)   No provision of this Agreement may be amended or modified except pursuant to an agreement in writing entered into by Farmer Mac, the Purchaser and National Rural.  No provision of this Agreement may be waived except in writing by the party or parties receiving the benefit of and under such provision.
 
(b)   No failure or delay of Farmer Mac, the Purchaser or National Rural in exercising any power or right hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such right or power, or any abandonment or discontinuance of steps to enforce such a right or power, preclude any other or further exercise thereof or the exercise of any other right or power.  No waiver of any provision of this Agreement or consent to any departure by National Rural therefrom shall in any event be effective unless the same shall be authorized as provided in paragraph (a) of this Section 8.06, and then such waiver or consent shall be effective only in the specific instance and for the purpose for which given.  No notice or demand on National Rural in any case shall entitle National Rural to any other or further notice or demand in similar or other circumstances.
 
SECTION 8.07.          Counterparts .  This Agreement may be executed in two or more counterparts, each of which shall be an original, but all of which together shall constitute one and the same instrument.
 
SECTION 8.08.          Termination of Agreement .  This Agreement shall terminate upon the indefeasible payment in full of all amounts payable hereunder and under the Notes.
 
SECTION 8.09.          Survival .  The representations and warranties of each of the parties hereto contained in this Agreement and contained in each of the other Note Documents, and the parties’ obligations under any and all thereof, shall survive and shall continue in effect following the execution and delivery of this Agreement, any disposition of the Notes and the expiration or other termination of any of the other Note Documents, but, in the case of each Note Document, shall not survive the expiration or the earlier termination of such Note Document, except to the extent expressly set forth in such Note Document.
 
SECTION 8.10.          Severability .  If any term or provision of this Agreement or any Note Document or the application thereof to any circumstance shall, in any jurisdiction and to any extent, be invalid or unenforceable, such term or such provision shall be ineffective as to such jurisdiction to the extent of such invalidity or unenforceability without invalidating or rendering unenforceable any remaining terms or provisions of such Note Document or the application of such term or provision to circumstances other than those as to which it is held invalid or unenforceable.

 
14

 
 
ARTICLE IX
 
GUARANTEE
 
SECTION 9.01.          Guarantee .
 
(a)   The Guarantor agrees to pay in full to the holder of each Note, the principal of, and interest on, the Notes when due, whether at maturity, upon redemption or otherwise (the “ Guaranteed Obligations ”), on the applicable due date for such payment.
 
(b)   The Guarantor’s obligations hereunder shall inure to the benefit of and shall be enforceable by any holder of a Note if, for reason beyond the control of such holder, such holder shall have failed to receive the interest or principal, as applicable, payable to such holder any payment date, redemption date or stated maturity date.  The Guarantor hereby irrevocably agrees that its obligations hereunder shall be unconditional, irrespective of the validity, legality or enforceability of, or any change in or amendment to, this Agreement, the Pledge Agreement or any Note, the absence of any action to enforce the same, the waiver or consent by the holder of any Note or by the Collateral Agent with respect to any provisions of this Agreement or the Pledge Agreement, or any action to enforce the same or any other circumstance that might otherwise constitute a legal or equitable discharge or defense of a guarantor.  The Guarantor hereby waives diligence, presentment, demand of payment, protest or notice with respect to each Note or the interest represented thereby, and all demands whatsoever, and covenants that the guarantee will not be discharged except upon complete irrevocable payment of the principal and interest obligations represented by the Notes.
 
(c)   The Guarantor shall be subrogated to and is hereby assigned all rights of the holder of the Notes against National Rural and the proceeds of the Pledged Collateral, all in respect of any amounts paid by the Guarantor pursuant to the provisions of the guarantee contained in this Article IX.  Each holder shall execute and deliver to the Guarantor in each holder’s name such instruments and documents as the Guarantor may reasonably request in writing confirming or evidencing such subrogation and assignment.
 
(d)   No reference herein shall alter or impair the guarantee, which is absolute and unconditional, of the due and punctual payment of principal of, and interest on, the Notes, on the dates such payments are due.
 
(e)   The guarantee is not an obligation of, and is not a guarantee as to principal or interest by the Farm Credit Administration, the United States or any other agency or instrumentality of the United States (other than the Guarantor).
 
(f)   The guarantee shall be governed by, and construed in accordance with, Federal law.  To the extent Federal law incorporates state law, that state law shall be the laws of the District of Columbia applicable to contracts made and performed therein.

 
15

 

SECTION 9.02.          Control by the Guarantor If the Guarantor is the Control Party, the Guarantor shall be considered the holder of all Notes outstanding for all purposes under the Pledge Agreement and shall be permitted to take any and all actions permitted to be taken by the holder thereunder.  The Control Party will have the sole right to direct the time, method and place of conducting any proceeding for any remedy available to the Collateral Agent or any holder with respect to the Notes or exercising any power conferred on the Collateral Agent with respect to the Notes provided that:
 
(i) such direction shall not be in conflict with any rule of law or with the Pledge Agreement;
 
(ii) the Collateral Agent shall have been provided with indemnity from the Control Party reasonably satisfactory to it; and
 
(iii) the Collateral Agent may take any other action deemed proper by such Collateral Agent that is not inconsistent with such direction, provided, however, that the Collateral Agent need not take any action which it determines might expose it to liability.

[SIGNATURE PAGE FOLLOWS]

 
16

 

IN WITNESS WHEREOF, each party hereto has caused this Agreement to be executed by an authorized officer as of the day and year first above written.
 
FARMER MAC MORTGAGE SECURITIES
CORPORATION
   
By:
 
Name:
Title:
 
 
FEDERAL AGRICULTURAL
MORTGAGE CORPORATION
   
By:
 
Name:
Title:
 
 
NATIONAL RURAL UTILITIES
COOPERATIVE FINANCE CORPORATION
   
By:
 
Name:
Title:
 

 
 

 

SCHEDULE I
TO
NOTE PURCHASE AGREEMENT
 
Addresses for Notices
 
1.
The addresses referred to in Section 8.03 hereof, for purposes of delivering communications and notices, are as follows:
 
If to the Purchaser or Farmer Mac:
 
Federal Agricultural Mortgage Corporation
1133 21st Street, N.W., Suite 600
Washington, DC 20036
Fax:  202-872-7713
Attention of: Timothy L. Buzby, Vice President – Chief Financial Officer
 
With a copy to:
Federal Agricultural Mortgage Corporation
1133 21st Street, N.W., Suite 600
Washington, DC 20036
Fax:  202-872-7713
Attention of: Robert Owens/Jitin Singhal, Capital Markets Group
 
With a copy also to:
Federal Agricultural Mortgage Corporation
1133 21st Street, N.W., Suite 600
Washington, DC 20036
Fax:  202-872-7713
Attention of: Stephen P. Mullery, Assistant General Counsel
 
If to National Rural:
 
National Rural Utilities Cooperative Finance Corporation
2201 Cooperative Way
Herndon, VA 20171-3025
Telephone:  703-709-6718
Fax:  703-709-6779
Attention of: Steven L. Lilly, Senior Vice President &
 Chief Financial Officer
With a copy to:
 
National Rural Utilities Cooperative Finance Corporation
2201 Cooperative Way
Herndon, VA 20171-3025
Telephone:  703-709-6748

 
 

 

Fax:  703-709-6779
Attention of: John Suter, Vice President, Capital Market Funding

With a copy also to:
 
National Rural Utilities Cooperative Finance Corporation
2201 Cooperative Way
Herndon, VA 20171-3025
Telephone:  703-709-6712
Fax:  703-709-6811
Attention of: John J. List, Esq., Senior Vice President &
   General Counsel

 
2

 

SCHEDULE II
TO
NOTE PURCHASE AGREEMENT

FORM OF
APPLICABLE MARGIN NOTICE

Issuer Name: National Rural Utilities Cooperative Finance Corporation
 
Date of Note(s):  __________________________
 
Type of Note: ____________________________
 
Applicable Margin:  ________________________
 
Effective Date of Applicable Margin:  _________________________

This Applicable Margin Notice is delivered pursuant to the Note Purchase Agreement, dated as of May 22, 2009 among Federal Agricultural Mortgage Corporation, Farmer Mac Mortgage Securities Corporation and National Rural Utilities Cooperative Finance Corporation (the “Note Purchase Agreement”).  Capitalized terms used but not defined herein shall have the meanings given to them in the Note Purchase Agreement.

FEDERAL AGRICULTURAL MORTGAGE CORPORATION

By:

       
Signature
Date
 
Title of Authorized Officer
Name:  _____________________
PLEASE FAX TO:  ______________________   ATTN:  ________________________

ACCEPTED BY:

NATIONAL RURAL UTILITIES COOPERATIVE FINANCE CORPORATION

By:

       
Signature
Date
 
Title of Authorized Officer
Name:  _____________________

 
3

 

SCHEDULE III
TO
NOTE PURCHASE AGREEMENT

FORM OF PRICING AGREEMENT

The Federal Agricultural Mortgage Corporation, a federally chartered instrumentality of the United States and an institution of the Farm Credit System (“Farmer Mac”), Farmer Mac Mortgage Securities Corporation, a wholly owned subsidiary of Farmer Mac (the “Purchaser”) and National Rural Utilities Cooperative Finance Corporation, a cooperative association existing under the laws of the District of Columbia (“National Rural”), agree that, on _______ __, 20__ (the “Closing Date”), the Purchaser will purchase from National Rural and National Rural will sell to the Purchaser $________________ aggregate principal amount of [Fixed Rate Notes] [Floating Rate Notes] (the “Notes”) with the following terms:
 
[Initial LIBOR Rate: _______]
 
[Treasury Rate:______]
 
Applicable Margin (LIBOR or Treasury):__________
 
Interest Payment Dates:___________
 
Interest Periods:_____________
 
[The Notes may not be prepaid at any time.]
 
[The Notes may not be prepaid prior to __________ __, 20__.  On or after _____________ __, 20__ the Notes may be prepaid on the scheduled call dates set forth herein, in whole [only] [or in part], at the option of National Rural, according to the terms of the Note Purchase Agreement (as defined below).][The Notes may be prepaid in whole [only] [or in part] at any time.]
 
[Scheduled call dates: __________________]
 
Maturity Date: __________________
 
The issuance and sale of the Notes by National Rural to the Purchaser shall occur under the terms and conditions of the Note Purchase Agreement, dated as of May 22, 2009, among Farmer Mac, the Purchaser and National Rural (the “Note Purchase Agreement”).  All of the provisions contained in the Note Purchase Agreement are hereby incorporated by reference in their entirety and shall be deemed to be a part of this Pricing Agreement to the same extent as if such provisions had been set forth in full herein.  Capitalized terms used herein and not defined herein shall have the meanings given to those terms in the Note Purchase Agreement.  This Pricing Agreement may be executed in two or more counterparts.
 
In the event of any inconsistency between the terms of this Pricing Agreement and the Note Purchase Agreement, the terms of this Pricing Agreement shall apply.

 
4

 

Agreed to this __ day of _______, 20__.
 
 
Federal Agricultural Mortgage Corporation,
   
 
By: ______________________
 
Name: ____________________
 
Title: _____________________
   
 
 Farmer Mac Mortgage Securities
Corporation,
   
 
By: ______________________
 
Name: ____________________
 
Title: _____________________
   
 
National Rural Utilities Cooperative
 
Finance Corporation,
   
 
By:  ____________________
 
Name:  __________________
 
Title:  ___________________

 
5

 

ANNEX A-1
 
 [FORM OF FIXED RATE NOTE]
 
NATIONAL RURAL UTILITIES COOPERATIVE FINANCE CORPORATION
 
__% Fixed Rate Senior Note due _______
 
Washington, D.C.
____________, 20__
 
FOR VALUE RECEIVED, the undersigned, NATIONAL RURAL UTILITIES COOPERATIVE FINANCE CORPORATION (“ National Rural ”), a District of Columbia cooperative association, hereby promises to pay to FARMER MAC MORTGAGE SECURITIES CORPORATION, a wholly owned subsidiary of Farmer Mac (as defined below) (“ the Purchaser ”), or registered assigns, the principal sum of _______________ MILLION DOLLARS ($___,000,000.00) on __________________, together with interest computed from the date hereof according to the terms of the Note Purchase Agreement (as defined below).
 
Payments of principal and interest on this Note are to be made in lawful money of the United States of America at such place as shall have been designated by written notice to National Rural from the registered holder of this Note as provided in the Note Purchase Agreement referred to below.
 
This Note is issued pursuant to a Note Purchase Agreement, dated as of May 22, 2009, as well as the Pricing Agreement for $__ Fixed Rate Notes dated as of ______ __, 20__ (together, as from time to time amended, the “ Note Purchase Agreement ”), among National Rural, the Purchaser and Federal Agricultural Mortgage Corporation (“ Farmer Mac ”), and is entitled to the benefits thereof.  This Note is also entitled to the benefits of the Pledge Agreement, dated as of May 22, 2009, among National Rural, the Purchaser, Farmer Mac and the Collateral Agent named therein.
 
Capitalized terms used herein and not defined herein shall have the meanings given to those terms in the Note Purchase Agreement.
 
This Note is a registered Note and, upon surrender of this Note for registration of transfer or exchange, accompanied by a written instrument of transfer duly executed by the registered holder hereof or such holder’s attorney duly authorized in writing, a new Note will be issued to, and registered in the name of, the transferee.  Prior to due presentment for registration of transfer, National Rural may treat the person in whose name this Note is registered as the owner hereof for the purpose of receiving payment and for all other purposes, and National Rural will not be affected by any notice to the contrary.

 
 

 

[This Note may not be prepaid at any time.][This Note may not be prepaid prior to __________ __, 20__.  On or after _____________ __, 20__ this Note may be prepaid at any time, in whole [only] [or in part], at the option of National Rural, according to the terms of the Note Purchase Agreement and provided that, if such optional prepayment is made on a date other than an Interest Payment Date, accrued interest on the principal amount hereof that is being prepaid shall be payable through and excluding the date such optional prepayment is made.][This Note is prepayable at any time by National Rural, in whole [only] [or in part] at the option of National Rural on the terms set forth in the Note Purchase Agreement.]
 
If an Event of Default, as defined in the Note Purchase Agreement, occurs and is continuing, the principal of this Note may be declared due and payable in the manner, at the price and with the effect provided in the Note Purchase Agreement.
 
This Note shall be construed and enforced in accordance with, and the rights of National Rural and the holder hereof shall be governed by, the laws of the District of Columbia, excluding choice-of-law principles of the law of the District of Columbia that would require the application of the laws of another jurisdiction.
 
NATIONAL RURAL UTILITIES
COOPERATIVE FINANCE CORPORATION,
 
By
   
 
Name:
 
Title:

 
 

 

ANNEX A-2

[FORM OF FLOATING RATE NOTE]
 
NATIONAL RURAL UTILITIES COOPERATIVE FINANCE CORPORATION
 
Floating Rate Senior Note due _______
 
Washington, D.C.
____________, 20__
 
FOR VALUE RECEIVED, the undersigned, NATIONAL RURAL UTILITIES COOPERATIVE FINANCE CORPORATION (“ National Rural ”), a District of Columbia cooperative association, hereby promises to pay to FARMER MAC MORTGAGE SECURITIES CORPORATION, a wholly owned subsidiary of Farmer Mac (as defined below)(the “ Purchaser ”), or registered assigns, the principal sum of _______________ MILLION DOLLARS ($___,000,000.00) on __________________, together with interest computed from the date hereof according to the terms of the Note Purchase Agreement (as defined below).
 
Payments of principal and interest on this Note are to be made in lawful money of the United States of America at such place as shall have been designated by written notice to National Rural from the registered holder of this Note as provided in the Note Purchase Agreement referred to below.
 
This Note is issued pursuant to a Note Purchase Agreement, dated as of May 22, 2009, as well as the Pricing Agreement for $__ Floating Rate Notes dated as of _________ __, 20__ (together, as from time to time amended, the “ Note Purchase Agreement ”), among National Rural, the Purchaser and Federal Agricultural Mortgage Corporation (“ Farmer Mac ”) and is entitled to the benefits thereof.  This Note is also entitled to the benefits of the Pledge Agreement, dated as of May 22, 2009, among National Rural, Farmer Mac, the Purchaser and the Collateral Agent named therein.
 
Capitalized terms used herein and not defined herein shall have the meanings given to those terms in the Note Purchase Agreement.
 
This Note is a registered Note and, upon surrender of this Note for registration of transfer or exchange, accompanied by a written instrument of transfer duly executed by the registered holder hereof or such holder’s attorney duly authorized in writing, a new Note will be issued to, and registered in the name of, the transferee.  Prior to due presentment for registration of transfer, National Rural may treat the person in whose name this Note is registered as the owner hereof for the purpose of receiving payment and for all other purposes, and National Rural will not be affected by any notice to the contrary.
 
This Note may not be prepaid at any time.

 
 

 

If an Event of Default, as defined in the Note Purchase Agreement, occurs and is continuing, the principal of this Note may be declared due and payable in the manner, at the price and with the effect provided in the Note Purchase Agreement.
 
This Note shall be construed and enforced in accordance with, and the rights of National Rural and the holder hereof shall be governed by, the laws of the District of Columbia, excluding choice-of-law principles of the law of the District of Columbia that would require the application of the laws of another jurisdiction.
 
NATIONAL RURAL UTILITIES
COOPERATIVE FINANCE CORPORATION,
 
By
   
 
Name:                      
 
Title:

 
 

 

ANNEX B
 
[FORM OF OPINION OF COUNSEL TO NATIONAL RURAL]

[•]

Federal Agricultural Mortgage Corporation
1133 Twenty-First Street, NW
Suite 600
Washington, DC 20036

Gentlemen:

I am delivering this opinion as general counsel (“Counsel”) of National Rural Utilities Cooperative Finance Corporation, a District of Columbia cooperative association (the “Borrower”), and am familiar with matters pertaining to the loan to Borrower in the principal amount of $1,000,000,000.00, provided for in the Note Purchase Agreement, dated as of May 22, 2009 (“Note Purchase Agreement”), among the Borrower, Farmer Mac Mortgage Securities Corporation (the “Purchaser”) and Federal Agricultural Mortgage Corporation (“Farmer Mac”).

I have examined such corporate records and proceedings of the Borrower, and such other documents as I have deemed necessary as a basis for the opinions hereinafter expressed.

I have also examined the following documents as executed and delivered: (a) the Note Purchase Agreement; (b) the Note dated as of ____________, in the principal amount of $____________ (“Note”), said Note payable to the Purchaser; (c) the Pricing Agreement for $__________ [Fixed] [Floating] Rate Notes dated as of ____________ among the Borrower, the Purchaser and Farmer Mac (the “Pricing Agreement”) and (d) the Pledge Agreement, dated as of May 22, 2009, among the Borrower, the Purchaser, Farmer Mac and U.S. Bank National Association (the “Pledge Agreement”).  The documents described in items (a) through (d) above are collectively referred to herein as the “Note Documents.”

Based on the foregoing, but subject to the assumptions, exceptions, qualifications and limitations hereinafter expressed, I am of the opinion that:

(1)           The Borrower has been duly incorporated and is validly existing as a cooperative association in good standing under the laws of the District of Columbia with corporate power and authority to execute and perform its obligations under the Note Documents.

 
 

 

(2)           The Note Documents have been duly authorized, executed and delivered by the Borrower, and such documents constitute the legal, valid and binding agreements of the Borrower, enforceable against the Borrower in accordance with their respective terms.

(3)           Neither the execution nor the delivery by the Borrower of any of the Note Documents nor the consummation by the Borrower of any of the transactions contemplated therein, including, without limitation, the pledge of the Pledged Securities (as such term is defined in the Pledge Agreement) to Farmer Mac, nor the fulfillment by the Borrower of the terms of any of the Note Documents will conflict with or violate, result in a breach of or constitute a default under any term or provision of the Articles of Incorporation or By-laws of the Borrower or any law or any regulation or any order known to Counsel currently applicable to the Borrower of any court, regulatory body, administrative agency or governmental body having jurisdiction over the Borrower or the terms of any indenture, deed of trust, note, note agreement or instrument to which the Borrower is a party or by which the Borrower or any of its properties is bound.

(4)           No approval, authorization, consent, order, registration, filing, qualification, license or permit of or with any state or Federal court or governmental agency or body having jurisdiction over the Borrower is required for any consummation by the Borrower of the transactions contemplated by the Note Documents; provided , however , no opinion is expressed as to the applicability of any Federal or state securities law to any sale, transfer or other disposition of the Note after the date hereof.

(5)           Except as set forth in writing and previously delivered to Farmer Mac or attached hereto as Exhibit A, there is no pending or, to Counsel’s knowledge, threatened action, suit or proceeding before any court or governmental agency, authority or body or any arbitrator with respect to the Borrower, or any of the Note Documents, which, if adversely determined, would have a material adverse effect on the Borrower’s financial condition or its ability to perform its obligations under any of the Note Documents.

(6)           With respect to the Pledged Securities in the Certificate of Pledged Collateral (as such term is defined in the Pledge Agreement), (x) all action with respect to the recording, registering or filing of financing statements in the jurisdiction of organization of National Rural has been taken as is necessary to perfect the security interest intended to be created in such items under the Uniform Commercial Code and (y) in the case of each Eligible Security (as such term is defined in the Pledge Agreement) constituting a certificated security or instrument under the Uniform Commercial Code, such Eligible Security has been delivered to the Collateral Agent such that the taking and retention of the possession by the Collateral Agent of such Eligible Security is sufficient to perfect the security interest to be created under the Uniform Commercial Code.  For purposes of the opinion set forth in this section (6), I have assumed that the Uniform Commercial Code of the District of Columbia is the same as that of the State of New York.

 
 

 

The foregoing opinions are subject to the following assumptions, exceptions, qualifications and limitations:
 
A.           I am a member of the Bar of the District of Columbia and render no opinion on the laws of any jurisdiction other than the laws of the District of Columbia, the federal laws of the United States of America and the General Corporation Law of the District of Columbia.

B.           My opinions are limited to the present laws and to the facts, as they presently exist.  I assume no obligation to revise or supplement this opinion should the present laws of the jurisdictions referred to in paragraph A above be changed by legislative action, judicial decision or otherwise.

C.           The opinions expressed in paragraph 2 above shall be understood to mean only that if there is a default in performance of an obligation, (i) if a failure to pay or other damage can be shown and (ii) if the defaulting party can be brought into a court which will hear the case and apply the governing law, then, subject to the availability of defenses, and to the exceptions set forth in the next paragraph, the court will provide a money damage (or perhaps injunctive or specific performance) remedy.

D.           My opinions are also subject to the effect of:  (1) bankruptcy, insolvency, reorganization, receivership, moratorium and other laws affecting creditors’ rights (including, without limitation, the effect of statutory and other law regarding fraudulent conveyances, fraudulent transfers and preferential transfers); and (2) the exercise of judicial discretion and the application of principles of equity, good faith, fair dealing, reasonableness, conscionability and materiality (regardless of whether the applicable agreements are considered in proceeding in equity or at law).

E.           This letter is rendered to you in connection with the Note Documents and the transactions related thereto, and may not be relied upon by any other person or by you in any other context or for any other purpose.

F.           I have assumed with your permission (i) the genuineness of all signatures by each party other than the Borrower, (ii) the authenticity of documents submitted to me as originals and the conformity to authentic original documents of all documents submitted to me as copies, and (iii) the due execution and delivery, pursuant to due authorization, of the Note Documents by each party other than the Borrower.

Yours sincerely,

John J. List
General Counsel

 
 

 

ANNEX C
 
[FORM OF OFFICERS’ CERTIFICATE]
 
Officers’ Certificate
 
TO:                       Federal Agricultural Mortgage Corporation.
 
We, _________________, _________________, and ________________, _____________________, of National Rural Utilities Cooperative Finance Corporation (“ National Rural ”), pursuant to the Note Purchase Agreement dated as of May 22, 2009, among National Rural, Farmer Mac Mortgage Securities Corporation, and Federal Agricultural Mortgage Corporation (the “ Note Purchase Agreement ”), hereby certify on behalf of National Rural that as at the date hereof:
 
(1)           National Rural is a lending institution organized as a private, not-for-profit, cooperative association with the appropriate expertise, experience and qualifications to make loans to its Members for rural electrification and related purposes;
 
(2)           no material adverse change has occurred in the financial condition of National Rural between the date of the end of National Rural’s most recently completed Fiscal Year for which Financial Statements have been made publicly available and the date hereof, which has not been set forth in documents, certificates, or financial information furnished to Farmer Mac or publicly filed;
 
(3)           all of the representations contained in Section 5.02 of the Note Purchase Agreement remain true and correct in all material respects on and as of the date hereof; and
 
(4)           no Event of Default exists.
 
Capitalized terms used in this certificate shall have the meanings given to those terms in the Note Purchase Agreement.
 
DATED as of this _____ day of ______________, _________.
 
 
NATIONAL RURAL UTILITIES
 
COOPERATIVE FINANCE
 
CORPORATION,
   
 
______________________________
 
Name:
 
Title
   
 
______________________________
 
Name:
 
Title:

 
 

 

ANNEX D
 
[FORM OF SERIES C PREFERRED STOCK PURCHASE AGREEMENT]

 
 

 


EXHIBIT 10.35
 

FARMER MAC MORTGAGE
SECURITIES CORPORATION,
As Note Purchaser

NATIONAL RURAL UTILITIES
COOPERATIVE FINANCE CORPORATION,
As Borrower

U.S. BANK NATIONAL ASSOCIATION,
As Collateral Agent

FEDERAL AGRICULTURAL
MORTGAGE CORPORATION,
As Guarantor
 

 
PLEDGE AGREEMENT
 

 
Dated as of May 22, 2009
 

 
 

 

ARTICLE I
 
   
Definitions
 
Section 1.01.
 
Definitions
3
       
Section 1.02.
 
Principles of Construction
7
       
ARTICLE II
 
   
Provisions as to Pledged Collateral
 
   
Section 2.01.
 
Holding of Pledged Securities
7
       
Section 2.02.
 
UCC Filings
8
       
Section 2.03.
 
Withdrawal and Substitution of Pledged Collateral
8
       
Section 2.04.
 
[Reserved]
9
       
Section 2.05.
 
Addition of Pledged Collateral
9
       
Section 2.06.
 
Accompanying Documentation
9
       
Section 2.07.
 
Renewal; Extension; Substitution
9
       
Section 2.08.
 
Voting Rights; Interest and Principal
9
       
Section 2.09.
 
Protection of Title; Payment of Taxes; Liens, etc
11
       
Section 2.10.
 
Maintenance of Pledged Collateral
11
       
Section 2.11.
 
Representations, Warranties and Covenants
11
       
Section 2.12.
 
Further Assurances
13

 
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ARTICLE III
 
   
[Reserved]
 
   
ARTICLE IV
 
   
Remedies
 
   
Section 4.01.
 
Events of Default
13
       
Section 4.02.
 
Remedies upon Default
13
       
Section 4.03.
 
Application of Proceeds
15
       
Section 4.04.
 
Securities Act
16
       
ARTICLE V
 
   
The Collateral Agent
 
   
Section 5.01.
 
Certain Duties and Responsibilities
17
       
Section 5.02.
 
Certain Rights of Collateral Agent
18
       
Section 5.03.
 
Money Held by Collateral Agent
19
       
Section 5.04.
 
Compensation and Reimbursement
19
       
Section 5.05.
 
Corporate Collateral Agent Required; Eligibility
20
       
Section 5.06.
 
Resignation and Removal; Appointment of Successor
20
       
Section 5.07.
 
Acceptance of Appointment by Successor
21
       
Section 5.08.
 
Merger, Conversion, Consolidation or Succession to Business
21

 
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ARTICLE VI
 
   
Miscellaneous
 
   
Section 6.01.
 
Notices
22
       
Section 6.02.
 
Waivers; Amendment
22
       
Section 6.03.
 
Successors and Assigns
22
       
Section 6.04.
 
Counterparts; Effectiveness
23
       
Section 6.05.
 
Severability
23
       
Section 6.06.
 
GOVERNING LAW
23
       
Section 6.07.
 
WAIVER OF JURY TRIAL
23
       
Section 6.08.
 
Headings
23
       
Section 6.09.
 
Security Interest Absolute
24
       
Section 6.10.
 
Termination or Release
24
       
Section 6.11.
 
Collateral Agent Appointed Attorney-in-Fact
24
       
Schedule I – Additional Criteria for Eligible Securities
 
Schedule II – Addresses for Notices
 
   
Annex A – Form of Certificate of Pledged Collateral
 
 
 
iii

 
 
PLEDGE AGREEMENT, dated as of May 22, 2009, among NATIONAL RURAL UTILITIES COOPERATIVE FINANCE CORPORATION, a District of Columbia cooperative association and its successors and assigns (hereinafter called “ National Rural ”), FARMER MAC MORTGAGE SECURITIES CORPORATION, (the “Purchaser”), a wholly owned subsidiary of FEDERAL AGRICULTURAL MORTGAGE CORPORATION, a federally-chartered instrumentality of the United States and an institution of the Farm Credit System and its successors and assigns (“ Farmer Mac ”), U.S. BANK NATIONAL ASSOCIATION, a national banking association and its successors and assigns (hereinafter called the “ Collateral Agent ”), and Farmer Mac, as Guarantor.
 
RECITALS OF NATIONAL RURAL
 
WHEREAS, National Rural may from time to time issue one or more Notes to the Purchaser, and the Purchaser may purchase such Notes, all upon the terms and subject to the conditions set forth in the Note Purchase Agreement; and
 
WHEREAS, National Rural is required pursuant to the terms of the Note Purchase Agreement to pledge certain property to the Collateral Agent for the benefit of the Control Party to secure National Rural’s obligations on the Notes;
 
NOW, THEREFORE, THIS PLEDGE AGREEMENT WITNESSETH that, to secure the performance of the certain Obligations contained in the Notes, the Note Purchase Agreement and herein, National Rural hereby assigns and pledges to the Collateral Agent, its successors and assigns, for the benefit of the Control Party, and grants to the Collateral Agent, its successors and assigns, for the benefit of the Control Party, a security interest in the following (collectively referred to as the “ Pledged Collateral ”) as provided in Article II: (a)(i) the Pledged Securities and the certificates representing the Pledged Securities; (ii) subject to Section 2.08, all payments of principal or interest, cash, instruments and other property from time to time received, receivable or otherwise distributed in respect of, in exchange for, and all other Proceeds received in respect of, the Pledged Securities pledged hereunder; (iii) subject to Section 2.08, all rights and privileges of National Rural with respect to the Pledged Securities; (iv) all Proceeds of any of the foregoing above; that may, on the date hereof or from time to time hereafter, be subjected to the Lien hereof by National Rural by delivery, assignment or pledge thereof to the Collateral Agent hereunder and the Collateral Agent is authorized to receive the same as additional security hereunder (subject to any reservations, limitations or conditions agreed to in writing by National Rural and the Control Party respecting the scope or priority of such security or the use and disposition of such property or the Proceeds thereof).

 
 

 
 
TO HAVE AND TO HOLD the Pledged Collateral, together with all right, title, interest, powers, privileges and preferences pertaining or incidental thereto, unto the Collateral Agent, its successors and assigns, for the benefit of the Control Party, forever; subject , however , to the terms, covenants and conditions hereinafter set forth.
 
ARTICLE I
 
Definitions
 
SECTION 1.01.  Definitions.   As used in this Pledge Agreement, the following terms shall have the following meanings:
 
“Accounting Requirements ” shall mean any system of accounts prescribed by a federal regulatory authority having jurisdiction over the Member or, in the absence thereof, the requirements of GAAP applicable to businesses similar to that of the Member.
 
Allowable Amount ” on any date, means with respect to Eligible Securities, the aggregate principal amount of such Eligible Securities theretofore advanced thereon which remains unpaid on such date, subject to any limitation on the Allowable Amount applicable through the definition of “Eligible Security”.
 
Certificate of Pledged Collateral ” means a certificate delivered to the Collateral Agent and the Control Party substantially in the form of Annex A attached hereto.
 
Class A Member ” means any Class A Member of National Rural as described in National Rural’s Bylaws currently in effect.
 
Class B Member ” means any Class B Member of National Rural as described in National Rural’s Bylaws currently in effect.
 
Collateral Agent ” means the Person named as the “ Collateral Agent ” in the first paragraph of this instrument.
 
Control Party ” means (i) the Guarantor, so long as no Guarantor Default has occurred and is continuing, or (ii) the holders of the Notes for so long as a Guarantor Default has occurred and is continuing.
 
Control Party Notice ” and “ Control Party Order ” mean, respectively, a written notice or order signed by any Vice President of the Control Party and delivered to the Collateral Agent and National Rural.
 
Control Party Notice of Default ” has the meaning given to that term in Section 4.02.

 
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Depreciation and Amortization Expense   shall mean an amount constituting the depreciation and amortization of the Member computed pursuant to Accounting Requirements.

Eligible Member ” means any Class A Member or Class B Member of National Rural as described in National Rural’s Bylaws currently in effect.

Eligible Security ” means a note or bond of any Eligible Member payable or registered to, or to the order of, National Rural, (A) in respect of which (i) the outstanding principal amount under such note or bond, together with the outstanding principal amount of any other notes or bonds of such Eligible Member pledged hereunder or pledged to secure any other notes or bonds issued by National Rural to Farmer Mac or any affiliate or sold by National Rural or any affiliate to any trust whose beneficial ownership is owned or controlled by Farmer Mac, does not aggregate more than $35 million; provided, however, that a note or bond in excess of $35 million (considered together with any other note or bond of such Eligible Member pledged hereunder or pledged to secure any other notes or bonds issued by National Rural to Farmer Mac or any affiliate or sold by National Rural or any affiliate to Farmer Mac, any affiliate or any trust whose beneficial ownership is owned or controlled by Farmer Mac) may be pledged hereunder but only $35 million principal amount of such note or bond shall be counted in the Allowable Amount of such Eligible Security (with the amount of any such excess recorded in Item 7 of the Certificate of Pledged Collateral in the form of Annex A attached hereto), (ii) no default has occurred in the payment of principal or interest in accordance with the terms of such note or bond that is continuing beyond the contractual grace period (if any) provided in such note or bond for such payment and (iii) no “event of default” as defined in such note or bond (or in any instrument creating a security interest in favor of National Rural in respect of such note or bond), shall exist that has resulted in the exercise of any right or remedy described in such note or bond (or in any such instrument); (B) which is not classified by National Rural as a non-performing loan under generally accepted accounting principles in the United States; and (C) which otherwise satisfies the criteria set forth on Schedule I hereto, as such Schedule I may be amended from time to time as mutually agreed upon in writing by Farmer Mac and National Rural, with notice of any such amendment to the Collateral Agent prior to the pledge of such Eligible Security.
 
Equity ” means the aggregate of the Member's equities and margins computed pursuant to Accounting Requirements.
 
Event of Default ” has the meaning set forth in Section 4.01.
 
Facility Rating ” means the facility rating assigned by National Rural to an Eligible Security from time to time in accordance with National Rural's internal risk rating system.
 
GAAP ” means generally accepted accounting principles in the United States as in effect from time to time.

 
4

 
 
Guarantor Default ” means a default by the Guarantor under its obligations pursuant to Article IX of the Note Purchase Agreement which is existing and continuing.
 
Interest Expense ” means an amount constituting the interest expense with respect to Long-Term Debt of the Member computed pursuant to Accounting Requirements.
 
Lien ” means any lien, pledge, charge, mortgage, encumbrance, debenture, hypothecation or other similar security interest attaching to any part of the Pledged Collateral.
 
Lien of this Pledge Agreement ” or “ Lien hereof ” means the Lien created by these presents.
 
Long-Term Debt ” is determined in accordance with the Uniform System of Accounts prescribed at the time by RUS or, if such Member is not required to maintain its accounts in accordance with said Uniform System of Accounts, otherwise determined in accordance with GAAP.
 
Member ” shall mean any Person who is member of National Rural.
 
Modified Debt Service Coverage Ratio—Distribution ” shall mean the definition of Coverage Ratio as defined in the Indenture dated October 25, 2007 by and between National Rural Utilities Cooperative Finance Corporation and U.S. Bank National Association for the Collateral Trust Bonds.
 
Modified Debt Service Coverage Ratio—G&T ” shall mean the ratio determined as follows: for any calendar year add (i) Operating Margins, (ii) Non-Operating Margins—Interest, (iii) Interest Expense, (iv) Depreciation and Amortization Expense, and (v) cash received in respect of generation and transmission and other capital credits, and divide the sum so obtained by the sum of all payments of Principal and Interest Expense required to be made during such calendar year; provided , however , that in the event that any amount of Long-Term Debt has been refinanced during such year, the payments of Principal and Interest Expense required to be made during such year on account of such refinanced amount of Long-Term Debt shall be based (in lieu of actual payments required to be made on such refinanced amount of Long-Term Debt) upon the larger of (i) an annualization of the payments required to be made with respect to the refinancing debt during the portion of such year such refinancing debt is outstanding or (ii) the payment of Principal and Interest Expense required to be made during the following year on account of such refinancing debt.

National Rural Notice ” and “ National Rural Order ” mean, respectively, a written notice or order signed in the name of National Rural by either its Chief Executive Officer or its Chief Financial Officer, and by any Vice President of National Rural, and delivered to the Collateral Agent and the Control Party.

 
5

 
 
Non-Operating Margins—Interest ” means the amount representing the interest component of non-operating margins of the Member computed pursuant to Accounting Requirements.
 
Note Purchase Agreement ” means the Note Purchase Agreement dated the date hereof between National Rural, the Purchaser and Farmer Mac, as the same may be amended from time to time in accordance with the terms thereof.
 
Notes ” means the note or notes issued by National Rural to the Purchaser under the Note Purchase Agreement.
 
Obligations ” means the due and punctual performance of the obligations of National Rural to make payments of principal, and interest on the Notes.
 
Officers’ Certificate ” means a certificate signed by any Vice President of National Rural, and delivered to the Control Party and/or the Collateral Agent, as applicable.
 
Operating Margins ” means the amount of patronage capital and operating margins of the Member computed pursuant to Accounting Requirements.
 
Person ” means any individual, corporation, partnership, joint venture, association, joint-stock company, trust, unincorporated organization or government or any agency or political subdivision thereof.
 
Pledge Agreement ” means this Pledge Agreement, as originally executed and as it may from time to time be amended pursuant to the applicable provisions hereof.
 
Pledged Collateral ” has the meaning set forth in the Granting Clause.
 
Pledged Securities ” means at any time the Eligible Securities listed on Schedule A and/or Schedule B to the Certificate of Pledged Collateral most recently delivered.
 
Principal ” means the amount of principal billed on account of Long-Term Debt of the Member computed pursuant to Accounting Requirements.
 
Proceeds ” has the meaning specified in Section 9-102 of the Uniform Commercial Code.
 
RUS ” mean the Rural Utilities Service of the United States Department of Agriculture, acting by and through the Administrator of the Rural Utilities Service, and including any successor agencies or departments.
 
Total Assets Ratio ” means an amount constituting the total assets of the Member computed pursuant to Accounting Requirements.

 
6

 
 
Total Capitalization Ratio ” means the Total Margins and Equity as a percentage of the sum of (1) Total Margins and Equity plus (2) Long-Term Debt.
 
Total Margins and Equity ” means the Member’s total margins and equity computed pursuant to Accounting Requirements.
 
Uniform Commercial Code ” means the Uniform Commercial Code as from time to time in effect in the District of Columbia.
 
Vice President ” means any vice president of National Rural or Farmer Mac or the Purchaser, as applicable, whether or not designated by a number or a word or words added before or after the title “vice president”.
 
SECTION 1.02.  Other Defined Terms; Principles of Construction .  Capitalized terms used but not defined in this Pledge Agreement shall have the meanings given to them in the Note Purchase Agreement.  Unless the context shall otherwise indicate, the terms defined in Section 1.01 hereof include the plural as well as the singular and the singular as well as the plural.  The words “hereafter”, “herein”, “hereof”, “hereto” and “hereunder”, and words of similar import, refer to this Agreement as a whole.  The descriptive headings of the various articles and sections of this Agreement were formulated and inserted for convenience only and shall not be deemed to affect the meaning or construction of the provisions hereof.
 
ARTICLE II
 
Provisions as to Pledged Collateral
 
SECTION 2.01.  Holding of Pledged Securities.
 
(a)  National Rural shall make available to the Control Party, within forty-five (45) days of a pledge of the Pledged Securities in connection with an advance (or for a longer period as National Rural and the Control Party agree), such back-up information as is reasonably necessary in order to allow the Control Party to confirm compliance of such Pledged Securities to the requisite criteria as outlined herein.  Upon receipt of the back-up information, the Control Party shall have ninety (90) days to object in writing to the inclusion of any item of the Pledged Securities as part of the Pledged Collateral.  If the Control Party reasonably determines that any of the Pledged Securities do not meet the criteria for Eligible Securities, then National Rural shall have forty-five (45) days in which to provide substitute collateral, and the timeline specified above for National Rural to make available back-up material and confirmation shall also apply as to the substituted collateral.

 
7

 

(b)  The Collateral Agent, on behalf of the Control Party, shall hold the Pledged Securities in the name of National Rural (or its nominee), endorsed or assigned in blank or in favor of the Collateral Agent.  Upon occurrence of an Event of Default, the Collateral Agent, on behalf of the Control Party, shall have the right (in its sole and absolute discretion), to the extent a register is maintained therefor, to register the Pledged Securities in the Collateral Agent’s own name as pledgee, or in the name of the Collateral Agent’s nominee (as pledgee or as sub-agent) or to continue to hold the Pledged Securities in the name of National Rural, endorsed or assigned in blank or in favor of the Collateral Agent.  Upon cessation of such Event of Default, the Collateral Agent shall take such action as is necessary to again cause the Pledged Securities to be registered in the name of National Rural (or its nominee).
 
SECTION 2.02.  UCC Filings.   National Rural shall prepare and file in the proper Uniform Commercial Code filing office in the District of Columbia (i) on or prior to the date of the first purchase of a Note under the Note Purchaser Agreement, a financing statement recording the Collateral Agent’s interest in the Pledged Collateral; and (ii) from time to time thereafter, continuation statements or such other filings as are necessary to maintain the perfection of the Lien hereof on the Pledged Collateral.
 
SECTION 2.03.  Withdrawal and Substitution of Pledged Collateral.  (a)  Any part of the Pledged Collateral may be withdrawn by National Rural or substituted for other Eligible Securities by National Rural and shall be delivered to National Rural by the Collateral Agent upon National Rural Order at any time and from time to time, together with any other documents or instruments of transfer or assignment necessary to reassign to National Rural said Pledged Collateral and the interest of National Rural, provided the aggregate Allowable Amount of Pledged Collateral remaining after such withdrawal or substitution shall at least equal the aggregate principal amount of the Notes outstanding after such withdrawal or substitution, as shown by the Certificate of Pledged Collateral furnished to the Collateral Agent pursuant to Subsection (b)(i) of this Section.
 
(b)  Prior to any such withdrawal or substitution, the Collateral Agent shall be furnished with the following instruments:
 
(i) a Certificate of Pledged Collateral, dated as of the last day of the calendar month most recently ended at least 10 Business Days prior to such withdrawal or substitution (or a more recent date, at National Rural’s option), showing that immediately after such withdrawal or substitution the requirements of Subsection (a) of this Section will be satisfied; and
 
(ii) an Officers’ Certificate certifying that no Event of Default has occurred which has not been remedied.
 
Upon any such withdrawal or substitution, National Rural shall deliver any Eligible Securities to be substituted and the Collateral Agent shall execute any instruments of transfer or assignment specified in a National Rural Order as necessary to vest in National Rural any part of the Pledged Collateral withdrawn.
 
In case an Event of Default shall have occurred and be continuing, National Rural shall not withdraw or substitute any part of the Pledged Collateral.

 
8

 
 
SECTION 2.04.  [Reserved.]
 
SECTION 2.05.  Addition of Pledged Collateral.   At any time, National Rural may pledge additional Eligible Securities under this Pledge Agreement by delivering such Pledged Collateral to the Collateral Agent, accompanied by a Certificate of Pledged Collateral specifying such additional collateral and dated as of the last day of the calendar month most recently ended at least 10 Business Days prior thereto (or a more recent date at National Rural’s option).
 
SECTION 2.06.  Accompanying Documentation.   Where Eligible Securities are delivered to the Collateral Agent under Section 2.01, 2.03 or Section 2.05, such securities shall be accompanied by the appropriate instruments of transfer executed in blank and in a form satisfactory to the Collateral Agent and by such other instruments and documents as the Collateral Agent may reasonably request.  All other property delivered to the Collateral Agent under Section 2.01, 2.03 or Section 2.05 and comprising part of the Pledged Collateral shall be accompanied by proper instruments of assignment duly executed by National Rural and such other instruments or documents as the Collateral Agent may reasonably request.
 
SECTION 2.07.  Renewal; Extension; Substitution.   Unless and until an Event of Default shall have occurred and be continuing, National Rural may at any time renew or extend, subject to the Lien of this Pledge Agreement, any Pledged Security upon any terms or may accept in place of and in substitution for any such Pledged  Security, another Eligible Security or Securities of the same issuer or of any successor thereto for at least the same unpaid principal amount, all as evidenced by a National Rural Order delivered to the Collateral Agent; provided , however , that in case of any substitution, Eligible Securities substituted as aforesaid shall be subject to the Lien of this Pledge Agreement as part of the Pledged Collateral and be held in the same manner as those for which they shall be substituted, and in the case of each substituted Eligible Security National Rural shall provide an Officers’ Certificate certifying to the Collateral Agent that such substituted security satisfies the requirements of this Section.  So long as no Event of Default shall have occurred and be continuing, the Collateral Agent, upon National Rural Order stating that no Event of Default shall have occurred and be continuing, shall execute any consent to any such renewal, extension or substitution as shall be specified in such National Rural Order.
 
SECTION 2.08.  Voting Rights; Interest and Principal .   (a)  Unless and until an Event of Default has occurred and is continuing, and the Control Party delivers to the Collateral Agent a Control Party Notice of Default suspending National Rural’s rights under this clause:
 
(i) National Rural shall be entitled to exercise any and all voting and/or other consensual rights and powers inuring to an owner of Pledged Securities or any part thereof provided that such rights and powers shall not be exercised in any manner inconsistent with the terms of the Note Purchase Agreement or this Pledge Agreement.

 
9

 
 
(ii) The Collateral Agent shall execute and deliver to National Rural, or cause to be executed and delivered to National Rural, all such proxies, powers of attorney and other instruments as National Rural may reasonably request for the purpose of enabling National Rural to exercise the voting and/or consensual rights and powers it is entitled to exercise pursuant to subparagraph (i) above.
 
(iii) National Rural shall be entitled to receive and retain any and all interest, principal and other distributions paid on or distributed in respect of the Pledged Securities; provided that any non-cash interest, principal or other distributions that would constitute Pledged Securities if pledged hereunder, and received in exchange for Pledged Securities or any part thereof pledged hereunder, or in redemption thereof, or as a result of any merger, consolidation, acquisition or other exchange of assets to which such issuer of Pledged Securities may be a party or otherwise, shall be and become part of the Pledged Collateral, and, if received by National Rural, shall not be commingled by National Rural with any of its other funds or property but shall be held separate and apart therefrom, shall be held in trust for the benefit of the Collateral Agent and shall be forthwith delivered to the Collateral Agent in the same form as so received (with any necessary endorsement).
 
(b)  If an Event of Default shall have occurred and be continuing, then, to the extent such rights are suspended by the applicable Control Party Notice of Default, all rights of National Rural to interest, principal or other distributions that National Rural is authorized to receive pursuant to paragraph (a)(iii) of this Section 2.08 shall cease, and all such suspended rights shall thereupon become vested in the Collateral Agent, which shall have the sole and exclusive right and authority to receive and retain such interest, principal or other distributions.  All interest, principal or other distributions received by National Rural contrary to the provisions of this Section 2.08 shall be held in trust for the benefit of the Collateral Agent, shall be segregated from other property or funds of National Rural and shall be forthwith delivered to the Collateral Agent in the same form as so received (with any necessary endorsement).  Any and all money and other property paid over to or received by the Collateral Agent pursuant to the provisions of this paragraph (b) shall be retained by the Collateral Agent in an account to be established by the Collateral Agent upon receipt of such money or other property and shall be applied in accordance with the provisions of Section 4.03 to the fullest extent permitted by applicable law.  After all Events of Default have ceased, the Collateral Agent shall promptly repay to National Rural (without interest) all interest, principal or other distributions that National Rural would otherwise be permitted to retain pursuant to the terms of paragraph (a)(iii) of this Section 2.08 and that remain in such account.

 
10

 

(c)  If an Event of Default shall have occurred and be continuing, then, to the extent such rights are suspended by the applicable Control Party Notice of Default, all rights of National Rural to exercise the voting and consensual rights and powers it is entitled to exercise pursuant to paragraph (a)(i) of this Section 2.08, and the obligations of the Collateral Agent under paragraph (a)(ii) of this Section 2.08, shall cease, and all such rights shall thereupon become vested in the Collateral Agent, which shall have the sole and exclusive right and authority to exercise such voting and consensual rights and powers; provided that the Collateral Agent shall have the right from time to time during the existence of such Event of Default to permit National Rural to exercise such rights and powers.
 
SECTION 2.09.  Protection of Title; Payment of Taxes; Liens, etc.   National Rural will:
 
(i) duly and promptly pay and discharge, or cause to be paid and discharged, before they become delinquent, all taxes, assessments, governmental and other charges lawfully levied, assessed or imposed upon or against any of the Pledged Collateral, including the income or profits therefrom and the interests of the Collateral Agent in such Pledged Collateral;
 
(ii) duly observe and conform to all valid requirements of any governmental authority imposed upon National Rural relative to any of the Pledged Collateral, and all covenants, terms and conditions under or upon which any part thereof is held;
 
(iii) cause to be paid and discharged all lawful claims (including, without limitation, income taxes) which, if unpaid, might become a lien or charge upon Pledged Collateral; and
 
(iv) do all things and take all actions necessary to keep the Lien of this Pledge Agreement a first and prior lien upon the Pledged Collateral and protect its title to the Pledged Collateral against loss by reason of any foreclosure or other proceeding to enforce any lien prior to or pari passu with the Lien of this Pledge Agreement.
 
Nothing contained in this Section shall require the payment of any such tax, assessment, claim, lien or charge or the compliance with any such requirement so long as the validity, application or amount thereof shall be contested in good faith; provided , however , that National Rural shall have set aside on its books such reserves (segregated to the extent required by generally accepted accounting principles) as shall be deemed adequate with respect thereto as determined by the Board of Directors of National Rural (or a committee thereof).
 
SECTION 2.10.  Maintenance of Pledged Collateral.   National Rural shall cause the Allowable Amount of Pledged Collateral held by the Collateral Agent at all times to be not less than 100% of the aggregate principal amount of the Notes outstanding.
 
SECTION 2.11.  Representations, Warranties and Covenants.   National Rural represents, warrants and covenants to the Collateral Agent, for the benefit of the Control Party, that from the time that Pledged Collateral is pledged hereunder, and for so long as such Pledged Collateral is required to remain pledged:

 
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(a) except for the Lien hereof and any Lien consented to in writing by Farmer Mac or the Control Party, National Rural (i) is and will continue to be the direct owner, beneficially and of record, of the Pledged Securities from time to time pledged hereunder, (ii) holds and will continue to hold the same free and clear of all Liens, other than Liens created by this Pledge Agreement, (iii) will make no assignment, pledge, hypothecation or transfer of, or create or permit to exist any security interest in or other Lien on, the Pledged Collateral, other than Liens created by this Pledge Agreement and (iv) will defend its title or interest thereto or therein against any and all Liens (other than the Lien created by this Pledge Agreement), however arising, of all Persons whomsoever;
 
(b) except for restrictions and limitations imposed by the Note Purchase Agreement or securities laws generally, the Pledged Securities are and will continue to be freely transferable and assignable, and none of the Pledged Securities are or will be subject to any restriction of any nature that might prohibit, impair, delay or otherwise affect the pledge of such Pledged Securities hereunder, the sale or disposition thereof pursuant hereto or the exercise by the Collateral Agent of rights and remedies hereunder;
 
(c) National Rural has the power and authority to pledge the Pledged Collateral pledged by it hereunder in the manner hereby done or contemplated;
 
(d) no consent or approval of any governmental authority, any securities exchange or any other Person was or is necessary to the validity of the pledge effected hereby (other than such as have been obtained and are in full force and effect).
 
(e) by virtue of the execution and delivery by National Rural of this Pledge Agreement, when any Pledged Securities are delivered to the Collateral Agent in accordance with this Pledge Agreement, the Collateral Agent will obtain a legal and valid Lien upon and security interest in such Pledged Securities as security for the payment and performance of the Obligations; and
 
(f) the Allowable Amount of Pledged Collateral from Class B Members does not constitute more than 20% of the aggregate amount of any notes or bonds: (1) pledged hereunder; (2) pledged to secure any other notes or bonds issued by National Rural or any affiliate to Farmer Mac or any affiliate; (3) sold by National Rural or any affiliate to Farmer Mac or any affiliate; or (4) sold to any trust whose beneficial ownership is owned or controlled by Farmer Mac or an affiliate.

 
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SECTION 2.12.  Further Assurances.   National Rural will execute and deliver, or cause to be executed and delivered, all such additional instruments and do, or cause to be done, all such additional acts as (a) may be necessary or proper, consistent with the Granting Clause hereof, to carry out the purposes of this Pledge Agreement and to make subject to the Lien hereof any property intended so to be subject or (b) may be necessary or proper to transfer to any successor the estate, powers, instruments and funds held hereunder and to confirm the Lien of this Pledge Agreement.  National Rural will also cause to be filed, registered or recorded any instruments of conveyance, transfer, assignment or further assurance in all offices in which such filing, registering or recording is necessary to the validity thereof or to give notice thereof.
 
ARTICLE III
 
[Reserved]
 
ARTICLE IV
 
Remedies
 
SECTION 4.01.  Events of Default.   “ Event of Default ”, wherever used herein, means any “Event of Default” as defined in Section 7.01(a) of the Note Purchase Agreement, provided that, for the purposes of this Pledge Agreement:
 
(a) the Collateral Agent shall not be required to recognize that an Event of Default exists before such time as the Collateral Agent receives a Control Party Notice or National Rural Notice stating that an Event of Default exists and specifying the particulars of such default in reasonable detail; and
 
(b) the Collateral Agent shall not be required to recognize that an Event of Default has ceased until (i) such time as the Collateral Agent receives a Control Party Notice stipulating that such event has ceased to exist; or (ii) 30 days after receipt by the Collateral Agent of a National Rural Notice stipulating that such event has ceased to exist, provided that the Collateral Agent does not receive a Control Party Notice within such timeframe disputing the cessation of such Event of Default, and further provided that no additional Control Party Notice of Default shall have been received in respect of any other subsisting Event(s) of Default.  Upon receipt of any National Rural Notice under subparagraph (ii) of this Subsection, the Collateral Agent shall provide a copy of such National Rural Notice to the Control Party.
 
SECTION 4.02.  Remedies upon Default.   If an Event of Default shall have occurred and be continuing, the Control Party may issue a notice (a “ Control Party Notice of Default ”), which may be combined with the notice provided under Section 4.01(b), suspending the rights of National Rural under Section 2.08 in part without suspending all such rights (as specified by the Control Party in its sole and absolute discretion) without waiving or otherwise affecting the Control Party’s rights to give additional Control Party Notices of Default from time to time suspending other rights under Section 2.08   so long as an Event of Default has occurred and is continuing.  Subject to paragraph (b) of this Section 4.02, upon cessation of an Event of Default, all rights of National Rural suspended under the applicable Control Party Notice of Default shall revest in National Rural.

 
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(a)  Upon the occurrence of an Event of Default, the Collateral Agent shall, for the benefit and at the direction of the Control Party, have the right to exercise any and all rights afforded to a secured party under the Uniform Commercial Code or other applicable law.  Without limiting the generality of the foregoing, National Rural agrees that the Collateral Agent shall have the right, but only if so instructed by a the Control Party Order and subject to the requirements of applicable law and the Collateral Agent’s right (in its sole and absolute discretion) to receive indemnification or other reasonable assurances that its costs and expenses in connection therewith will be paid, to sell or otherwise dispose of all or any part of the Pledged Collateral at a public or private sale or at any broker’s board or on any securities exchange, for cash, upon credit or for future delivery as the Collateral Agent shall deem appropriate.  The Collateral Agent shall be authorized at any such sale of securities (if it deems it advisable to do so) to restrict the prospective bidders or purchasers to Persons who will represent and agree that they are purchasing the Pledged Collateral for their own account for investment and not with a view to the distribution or sale thereof, and upon consummation of any such sale the Collateral Agent shall have the right to assign, transfer and deliver to the purchaser or purchasers thereof the Pledged Collateral so sold.  Each such purchaser at any sale of Pledged Collateral shall hold the property sold absolutely, free from any claim or right on the part of National Rural, and National Rural hereby waives (to the extent permitted by law) all rights of redemption, stay and appraisal which National Rural now has or may at any time in the future have under any rule of law or statute now existing or hereafter enacted.
 
(b)  The Collateral Agent shall give National Rural 10 days’ written notice (which National Rural agrees is reasonable notice within the meaning of Section 9-611 of the Uniform Commercial Code or its equivalent in other jurisdictions) of the Collateral Agent’s intention to make any sale of Pledged Collateral.  Such notice, in the case of a public sale, shall state the time and place for such sale and, in the case of a sale at a broker’s board or on a securities exchange, shall state the board or exchange at which such sale is to be made and the day on which the Collateral, or portion thereof, will first be offered for sale at such board or exchange.  Any such public sale shall be held at such time or times within ordinary business hours and at such place or places as the Collateral Agent may fix and state in the notice (if any) of such sale.  At any such sale, the Pledged Collateral, or portion thereof, to be sold may be sold in one lot as an entirety or in separate parcels, as the Collateral Agent may (in its sole and absolute discretion) determine.  The Collateral Agent shall not be obligated to make any sale of any Pledged Collateral if it shall determine not to do so, regardless of the fact that notice of sale of such Pledged Collateral shall have been given.  The Collateral Agent may, without notice or publication, adjourn any public or private sale or cause the same to be adjourned from time to time by announcement at the time and place fixed for sale, and such sale may, without further notice, be made at the time and place to which the same was so adjourned.  In case any sale of all or any part of the Pledged Collateral is made on credit or for future delivery, the Pledged Collateral so sold may be retained by the Collateral Agent until the sale price is paid by the purchaser or purchasers thereof, but the Collateral Agent shall not incur any liability in case any such purchaser or purchasers shall fail to take up and pay for the Pledged Collateral so sold and, in case of any such failure, such Pledged Collateral may be sold again upon like notice.  At any public (or, to the extent permitted by law, private) sale made pursuant to this Pledge Agreement, the Control Party may bid for or purchase, free (to the extent permitted by law) from any right of redemption, stay, valuation or appraisal on the part of National Rural (all said rights being also hereby waived and released to the extent permitted by law), the Pledged Collateral or any part thereof offered for sale and may make payment on account thereof by using any claim then due and payable to the Control Party from National Rural as a credit against the purchase price, and the Control Party may, upon compliance with the terms of sale, hold, retain and dispose of such property without further accountability to Pledged Collateral therefor.  For purposes hereof, a written agreement to purchase the Pledged Collateral or any portion thereof shall be treated as a sale thereof; the Collateral Agent shall be free to carry out such sale pursuant to such agreement and National Rural shall not be entitled to the return of the Pledged Collateral or any portion thereof subject thereto, notwithstanding the fact that after the Collateral Agent shall have entered into such an agreement all Events of Default shall have been remedied and the Obligations paid in full.  As an alternative to exercising the power of sale herein conferred upon it, the Collateral Agent may proceed by a suit or suits at law or in equity to foreclose this Pledge Agreement and to sell the Collateral or any portion thereof pursuant to a judgment or decree of a court or courts having competent jurisdiction or pursuant to a proceeding by a court-appointed receiver.  Any sale pursuant to the provisions of this Section 4.02 shall be deemed to conform to the commercially reasonable standards as provided in Section 9-610(b) of the Uniform Commercial Code or its equivalent in other jurisdictions.

 
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SECTION 4.03.  Application of Proceeds.   The Collateral Agent shall apply the proceeds of any collection or sale of Pledged Collateral, including any Pledged Collateral consisting of cash, as follows to the fullest extent permitted by applicable law:
 
FIRST, to the payment of all reasonable costs and expenses incurred by the Collateral Agent in connection with or reasonably related or reasonably incidental to such collection or sale or otherwise in connection with or related or incidental to this Pledge Agreement or any of the Obligations, including all court costs and the reasonable fees and expenses of its agents and legal counsel, the repayment of all advances made by the Collateral Agent (in its sole discretion) hereunder on behalf of National Rural and any other reasonable costs or expenses incurred in connection with the exercise of any right or remedy hereunder;
 
SECOND, to the payment to the Control Party in full of the Obligations; such payment to be for an amount certified in a Control Party Notice delivered to the Collateral Agent as being the amount due and owing to the Control Party under the Obligations; and
 
THIRD, to National Rural, its successors or assigns, or as a court of competent jurisdiction may otherwise direct.

 
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Upon any sale of the Pledged Collateral by the Collateral Agent (including pursuant to a power of sale granted by statute or under a judicial proceeding), the receipt of the Collateral Agent or of the officer making the sale shall be a sufficient discharge to the purchaser or purchasers of the Pledged Collateral so sold and such purchaser or purchasers shall not be obligated to see to the application of any part of the purchase money paid over to the Collateral Agent or such officer or be answerable in any way for the misapplication thereof.
 
SECTION 4.04.  Securities Act .   In view of the position of National Rural in relation to the Pledged Collateral, or because of other current or future circumstances, a question may arise under the Securities Act of 1933, as now or hereafter in effect, or any similar statute hereafter enacted analogous in purpose or effect (such Act and any such similar statute as from time to time in effect being called the “ Federal Securities Laws ”) with respect to any disposition of the Pledged Collateral permitted hereunder.  National Rural understands that compliance with the Federal Securities Laws might very strictly limit the course of conduct of the Collateral Agent if the Collateral Agent were to attempt to dispose of all or any part of the Pledged Collateral, and might also limit the extent to which or the manner in which any subsequent transferee of any Pledged Collateral could dispose of the same.  Similarly, there may be other legal restrictions or limitations affecting the Collateral Agent in any attempt to dispose of all or part of the Pledged Collateral under applicable Blue Sky or other state securities laws or similar laws analogous in purpose or effect.  National Rural recognizes that in light of such restrictions and limitations the Collateral Agent may, with respect to any sale of the Pledged Collateral, limit the purchasers to those who will agree, among other things, to acquire such Pledged Collateral for their own account, for investment, and not with a view to the distribution or resale thereof.  National Rural acknowledges and agrees that in light of such restrictions and limitations, the Collateral Agent, in its sole and absolute discretion (a) may proceed to make such a sale whether or not a registration statement for the purpose of registering such Pledged Collateral or part thereof shall have been filed under the Federal Securities Laws and (b) may approach and negotiate with a single potential purchaser to effect such sale.  National Rural acknowledges and agrees that any such sale might result in prices and other terms less favorable to the seller than if such sale were a public sale without such restrictions.  In the event of any such sale, the Collateral Agent shall incur no responsibility or liability for selling all or any part of the Pledged Collateral at a price that the Collateral Agent, in its sole and absolute discretion, may in good faith deem reasonable under the circumstances, notwithstanding the possibility that a substantially higher price might have been realized if the sale were deferred until after registration as aforesaid or if more than a single purchaser were approached.  The provisions of this Section 4.04 will apply notwithstanding the existence of a public or private market upon which the quotations or sales prices may exceed substantially the price at which the Collateral Agent sells.

 
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ARTICLE V
 
The Collateral Agent
 
SECTION 5.01.  Certain Duties and Responsibilities.   (a)  At all times under this Pledge Agreement:
 
(i) the Collateral Agent undertakes to perform such duties and only such duties as are specifically set forth in this Pledge Agreement, and no implied covenants or obligations shall be read into this Pledge Agreement against the Collateral Agent; and
 
(ii) in the absence of bad faith on its part, the Collateral Agent may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon certificates or opinions furnished to the Collateral Agent and substantially conforming to the requirements of this Pledge Agreement; but in the case of any such certificates or opinions which by any provision hereof are specifically required to be furnished to the Collateral Agent the Collateral Agent shall be under a duty to examine the same to determine whether or not they substantially conform to the requirements of this Pledge Agreement.
 
(b)  No provision of this Pledge Agreement shall be construed to relieve the Collateral Agent from liability for its own grossly negligent action, its own grossly negligent failure to act, or its own willful misconduct, except that:
 
(i) this Subsection shall not be construed to limit the effect of Subsection (a) of this Section;
 
(ii) the Collateral Agent shall not be liable for any error of judgment made in good faith, unless it shall be proved that the Collateral Agent was grossly negligent in ascertaining the pertinent facts; and
 
(iii) no provision of this Pledge Agreement shall require the Collateral Agent to expend or risk its own funds or otherwise incur any financial liability in the performance of any of its duties hereunder, or in the exercise of any of its rights or powers, if it shall have reasonable grounds for believing that repayment of such funds or adequate indemnity against such risk or liability is not reasonably assured to it.
 
(c)  Whether or not therein expressly so provided, every provision of this Pledge Agreement relating to the conduct or affecting the liability of or affording protection to the Collateral Agent shall be subject to the provisions of this Section.

 
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SECTION 5.02.  Certain Rights of Collateral Agent.   Except as otherwise provided in Section 5.01:
 
(a) the Collateral Agent may rely and shall be protected in acting or refraining from acting upon any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture or other paper or document believed by it to be genuine and to have been signed or presented by the proper party or parties;
 
(b) any request or direction of National Rural mentioned herein shall be sufficiently evidenced by a National Rural Notice or National Rural Order;
 
(c) any request or direction of the Control Party mentioned herein shall be sufficiently evidenced by a Control Party Notice or Control Party Order;
 
(d) whenever in the administration of this Pledge Agreement the Collateral Agent shall deem it desirable that a matter be proved or established prior to taking, suffering or omitting any action hereunder, the Collateral Agent (unless other evidence be herein specifically prescribed) may, in the absence of bad faith on its part, rely upon an Officers’ Certificate in the case of National Rural, and a certificate signed by any Vice President of the Control Party in the case of the Control Party;
 
(e) the Collateral Agent may consult with counsel and the advice of such counsel shall be full and complete authorization and protection in respect of any action taken, suffered or omitted by it hereunder in good faith and in reliance thereon;
 
(f) the Collateral Agent shall be under no obligation to exercise any of the rights or powers vested in it by this Pledge Agreement at the request or direction of either National Rural or the Control Party pursuant to this Pledge Agreement, unless such party shall have offered to the Collateral Agent reasonable security or indemnity against the costs, expenses and liabilities which might be incurred by it in compliance with such request or direction;
 
(g) the Collateral Agent shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture or other paper or document, or to recompute, verify, reclassify or recalculate any information contained therein, but the Collateral Agent, in its sole and absolute discretion, may make such further inquiry or investigation into such facts or matters as it may see fit, and, if the Collateral Agent shall determine to make such further inquiry or investigation, it shall be entitled to examine the books, records and premises of National Rural, personally or by agent or attorney;

 
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(h) the Collateral Agent may execute any of the powers hereunder or perform any duties hereunder either directly or by or through agents or attorneys and the Collateral Agent shall not be responsible for any misconduct or negligence on the part of any agent or attorney appointed with due care by it hereunder;
 
(i) unless explicitly stated herein to the contrary, the Collateral Agent shall have no duty to inquire as to the performance of National Rural’s covenants herein.  In addition, the Collateral Agent shall not be deemed to have knowledge of any Event of Default unless the Collateral Agent has received a Control Party Notice in accordance with Section 4.01(a), and shall not be deemed to have knowledge of the cessation of the same until such time as it receives a National Rural Notice in accordance with Section 4.01(b); and
 
(j) unless explicitly stated herein to the contrary, the Collateral Agent shall have no obligation to take any action with respect to any Event of Default until it has received a Control Party Notice applicable to such event in accordance with Section 4.01(a), and the Collateral Agent shall have no liability for any action or inaction taken, suffered or omitted in respect of any such event by it prior to such time as the applicable Control Party Notice is delivered.  Similarly, the Collateral Agent shall have no obligation to take any action with respect to the cessation of an Event of Default until it has received a National Rural Notice applicable to such event in accordance in accordance with Section 4.01(b), and the Collateral Agent shall have no liability for any action or inaction taken, suffered or omitted in respect of any such event by it prior to such time as the applicable National Rural Notice is delivered.
 
SECTION 5.03.  Money Held by Collateral Agent.   Money held by the Collateral Agent hereunder need not be segregated from other funds except to the extent required by law.  The Collateral Agent shall have no liability to pay interest on or (except as expressly provided herein) invest any such moneys.
 
SECTION 5.04.  Compensation and Reimbursement.   (a)   National Rural agrees:
 
(i) to pay to the Collateral Agent from time to time such reasonable compensation for all services rendered by it hereunder as shall have been set forth in an agreement signed by National Rural;
 
(ii) except as otherwise expressly provided herein, to reimburse the Collateral Agent upon its request for all reasonable expenses, out-of-pocket costs, disbursements and advances incurred or made by the Collateral Agent in accordance with any provision of this Pledge Agreement (including the reasonable compensation and the expenses and disbursements of its agents and counsel), except to the extent any such expense, disbursement or advance may be attributable to its gross negligence or bad faith; and

 
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(iii) to indemnify the Collateral Agent for, and to defend and hold it harmless against, any loss, liability or expense incurred without gross negligence or bad faith on its part, arising out of or in connection with the acceptance or administration of this Pledge Agreement or the performance of its duties hereunder, 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 hereunder, except to the extent such loss, liability or expense may be attributable to its gross negligence or bad faith; provided , however , that National Rural shall have no liability under this clause for any settlement of any litigation or other dispute effected without the prior written consent of National Rural (such consent not to be unreasonably withheld).
 
(b)  Any such amounts payable as provided hereunder shall be additional Obligations secured by the Lien hereof.  The provisions of this Section 5.04 shall remain operative and in full force and effect regardless of the termination of this Pledge Agreement or the Note Purchase Agreement, the consummation of the transactions contemplated hereby, the repayment of any of the Obligations, the invalidity or unenforceability of any term or provision of this Pledge Agreement or the Note Purchase Agreement, or any investigation made by or on behalf of the Collateral Agent or the Control Party.  All amounts due under this Section 5.04 shall be payable on written demand therefor.
 
SECTION 5.05.  Corporate Collateral Agent Required; Eligibility.   There shall at all times be a Collateral Agent hereunder which shall be a corporation or association organized and doing business under the laws of the United States of America or of any State, authorized under such laws to exercise corporate trust powers, having a combined capital and surplus of at least $50,000,000, subject to supervision or examination by Federal or State authority.  If such corporation publishes reports of condition at least annually, pursuant to law or to the requirements of the aforesaid supervising or examining authority, then for the purposes of this Section, the combined capital and surplus of such corporation shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published.  Neither National Rural nor any Person directly or indirectly controlling, controlled by or under common control with National Rural shall serve as Collateral Agent hereunder.  If at any time the Collateral Agent shall cease to be eligible in accordance with the provisions of this Section, it shall resign immediately in the manner and with the effect hereinafter specified in this Article.
 
SECTION 5.06.  Resignation and Removal; Appointment of Successor.   (a)  No resignation or removal of the Collateral Agent and no appointment of a successor Collateral Agent pursuant to this Article shall become effective until the acceptance of appointment by the successor Collateral Agent under Section 5.07.
 
(b)  The Collateral Agent may resign at any time by giving written notice thereof to National Rural.  If an instrument of acceptance by a successor Collateral Agent shall not have been delivered to the Collateral Agent within 30 days after the giving of such notice of resignation, the resigning Collateral Agent may petition any court of competent jurisdiction for the appointment of a successor Collateral Agent.

 
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(c)  If at any time:
 
(i) except if an Event of Default has occurred and is continuing, National Rural, in its sole and absolute discretion, elects to remove the Collateral Agent; or
 
(ii) the Collateral Agent shall cease to be eligible under Section 5.05 or shall become incapable of acting or shall be adjudged a bankrupt or insolvent or a receiver of the Collateral Agent or of its property shall be appointed or any public officer shall take charge or control of the Collateral Agent or of its property or affairs for the purpose of rehabilitation, conservation or liquidation,
 
then, in any such case, National Rural may remove the Collateral Agent by delivery of a National Rural Order to that effect.
 
(d)  If the Collateral Agent shall resign, be removed or become incapable of acting, or if a vacancy shall occur in the office of Collateral Agent for any cause, National Rural shall promptly appoint a successor Collateral Agent by delivering a National Rural Notice to the retiring Collateral Agent, the successor Collateral Agent and the Control Party to such effect.
 
SECTION 5.07.  Acceptance of Appointment by Successor.   Every successor Collateral Agent appointed hereunder shall execute, acknowledge and deliver to National Rural, the Control Party and to the retiring Collateral Agent an instrument accepting such appointment, and thereupon the resignation or removal of the retiring Collateral Agent shall become effective and such successor Collateral Agent, without any further act, deed or conveyance, shall become vested with all the rights, powers, trusts and duties of the retiring Collateral Agent; but, on request of National Rural, the Control Party or the successor Collateral Agent, such retiring Collateral Agent shall, upon payment of its charges, execute and deliver an instrument transferring to such successor Collateral Agent all the rights, powers and trusts of the retiring Collateral Agent, and shall duly assign, transfer and deliver to such successor Collateral Agent all property and money held by such retiring Collateral Agent hereunder, subject nevertheless to its Lien, if any, provided for in Section 5.04.  Upon request of any such successor Collateral Agent, National Rural shall execute any and all instruments for more fully and certainly vesting in and confirming to such successor Collateral Agent all such rights, powers and trusts.
 
No successor Collateral Agent shall accept its appointment unless at the time of such acceptance such successor Collateral Agent shall be eligible under Section 5.05 hereof.
 
SECTION 5.08.  Merger, Conversion, Consolidation or Succession to Business.   Any corporation into which the Collateral Agent may be merged or converted or with which it may be consolidated, or any corporation resulting from any merger, conversion or consolidation to which the Collateral Agent shall be a party, or any corporation succeeding to all or substantially all of the corporate trust business of the Collateral Agent, shall be the successor of the Collateral Agent hereunder, provided such corporation shall be eligible under Section 5.05 hereof without the execution or filing of any paper or any further act on the part of any of the parties hereto.

 
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ARTICLE VI
 
Miscellaneous
 
SECTION 6.01.  Notices.   All notices and other communications hereunder to be made to any party shall be in writing and shall be addressed as specified in Schedule II attached hereto as appropriate.  The address, telephone number, or facsimile number for any party may be changed at any time and from time to time upon written notice given by such changing party to the other parties hereto. A properly addressed notice or other communication shall be deemed to have been delivered at the time it is sent by facsimile (fax) transmission to the party or parties to which it is given.
 
(a)  All National Rural Notices and National Rural Orders delivered to the Collateral Agent shall be contemporaneously copied to the Control Party by National Rural; all Control Party Notices and Control Party Orders delivered to the Collateral Agent shall be contemporaneously copied by Farmer Mac to National Rural; and all Collateral Agent notices delivered to either National Rural or Farmer Mac shall be contemporaneously copied to the other such party by the Collateral Agent.
 
SECTION 6.02.  Waivers; Amendment.   (a)  No failure or delay by a party in exercising any right or power hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such right or power, or any abandonment or discontinuance of steps to enforce such a right or power, preclude any other or further exercise thereof or the exercise of any other right or power.  The rights and remedies of each party hereunder are cumulative and are not exclusive of any rights or remedies that such party would otherwise have.  No waiver of any provision of this Pledge Agreement or consent to any departure by any party therefrom shall in any event be effective unless the same shall be permitted by paragraph (b) of this Section 6.02, and then such waiver or consent shall be effective only in the specific instance and for the purpose for which given.  No notice or demand on any party in any case shall entitle any party to any other or further notice or demand in similar or other circumstances.
 
(b)  Neither this Pledge Agreement nor any provision hereof may be waived, amended or modified except pursuant to an agreement or agreements in writing entered into by National Rural, the Collateral Agent, the Purchaser and Farmer Mac.
 
SECTION 6.03.  Successors and Assigns.   Whenever in this Pledge Agreement any of the parties hereto is referred to, such reference shall be deemed to include the successors and assigns of such party; and all covenants, promises and agreements by or on behalf of National Rural, the Collateral Agent, the Purchaser, the Control Party or Farmer Mac that are contained in this Pledge Agreement shall bind and inure to the benefit of their respective successors and assigns.

 
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SECTION 6.04.  Counterparts; Effectiveness.   This Pledge Agreement may be executed in counterparts, each of which shall constitute an original but all of which when taken together shall constitute a single contract.  Delivery of an executed signature page to this Pledge Agreement by facsimile transmission shall be as effective as delivery of a manually signed counterpart of this Pledge Agreement.
 
SECTION 6.05.  Severability.   Any provision of this Pledge Agreement held to be invalid, illegal or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such invalidity, illegality or unenforceability without affecting the validity, legality and enforceability of the remaining provisions hereof; and the invalidity of a particular provision in a particular jurisdiction shall not invalidate such provision in any other jurisdiction.  The parties shall endeavor in good-faith negotiations to replace the invalid, illegal or unenforceable provisions with valid provisions the economic effect of which comes as close as possible to that of the invalid, illegal or unenforceable provisions.
 
SECTION 6.06.  GOVERNING LAW.   THIS PLEDGE AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE UNITED STATES OF AMERICA, TO THE EXTENT APPLICABLE, AND OTHERWISE THE LAWS OF THE STATE OF NEW YORK.
 
SECTION 6.07.  WAIVER OF JURY TRIAL.   EACH PARTY HERETO HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS PLEDGE AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY).  EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS PLEDGE AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 6.07.
 
SECTION 6.08.  Headings.   Article and Section headings and the Table of Contents used herein are for convenience of reference only, are not part of this Pledge Agreement and are not to affect the construction of, or to be taken into consideration in interpreting, this Pledge Agreement.

 
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SECTION 6.09.  Security Interest Absolute.   All rights of the Collateral Agent and/or the Control Party hereunder, the grant of a security interest in the Pledged Collateral and all obligations of National Rural hereunder shall be absolute and unconditional irrespective of (a) any lack of validity or enforceability of the Note Purchase Agreement, any Note, any agreement with respect to any of the Obligations or any other agreement or instrument relating to any of the foregoing, (b) any change in the time, manner or place of payment of, or in any other term of, all or any of the Obligations, or any other amendment or waiver of or any consent to any departure from the Note Purchase Agreement, any Note or any other agreement or instrument, (c) any exchange, release or non-perfection of any Lien on other collateral, or any release or amendment or waiver of or consent under or departure from any guarantee, securing or guaranteeing all or any of the Obligations, or (d) any other circumstance that might otherwise constitute a defense available to, or a discharge of, National Rural in respect of the Obligations or this Pledge Agreement.
 
SECTION 6.10.  Termination or Release.   (a)  This Pledge Agreement shall terminate on the date when the Obligations have been indefeasibly paid in full, and at such time the Lien hereof shall be released.
 
(b)  Upon any withdrawal, substitution or other disposal by National Rural of any Pledged Collateral that is permitted by the terms of this Pledge Agreement, or upon the effectiveness of any written consent to the release of the security interest granted hereby in any Pledged Collateral, the Lien hereof securing such Pledged Collateral shall be automatically released.
 
(c)  In connection with any termination or release pursuant to paragraph (a) or (b) the Collateral Agent shall deliver to National Rural the Pledged Collateral and shall execute and deliver to National Rural, at National Rural’s expense, all documents that National Rural shall reasonably request to evidence such termination or release.  Any execution and delivery of documents pursuant to this Section 6.10 shall be without recourse to or warranty by the Collateral Agent.
 
SECTION 6.11.  Collateral Agent Appointed Attorney-in-Fact.   National Rural hereby appoints the Collateral Agent the attorney-in-fact of National Rural for the purpose of, upon the occurrence and during the continuance of an Event of Default, carrying out the provisions of this Pledge Agreement with respect to the Pledged Collateral and taking any action and executing any instrument that the Collateral Agent may deem necessary or advisable to accomplish the purposes hereof, which appointment is irrevocable and coupled with an interest but is subject nevertheless to the terms and conditions of this Pledge Agreement.  Without limiting the generality of the foregoing, the Collateral Agent shall have the right, upon the occurrence and during the continuance of an Event of Default, with full power of substitution either in the Collateral Agent’s name or in the name of National Rural (a) to receive, endorse, assign and/or deliver any and all notes, acceptances, checks, drafts, money orders or other evidences of payment relating to the Pledged Collateral or any part thereof; (b) to demand, collect, receive payment of, give receipt for and give discharges and releases of all or any of the Pledged Collateral; (c) to commence and prosecute any and all suits, actions or proceedings at law or in equity in any court of competent jurisdiction to collect or otherwise realize on all or any of the Pledged Collateral or to enforce any rights in respect of any Pledged Collateral; (d) to settle, compromise, compound, adjust or defend any actions, suits or proceedings relating to all or any of the Pledged Collateral; (e) to notify, or to require National Rural to notify, obligors under Pledged Securities to make payment directly to the Collateral Agent; and (f) subject to the second sentence of Section 4.02(a), to use, sell, assign, transfer, pledge, make any agreement with respect to or otherwise deal with all or any of the Pledged Collateral, and to do all other acts and things necessary to carry out the purposes of this Pledge Agreement, as fully and completely as though the Collateral Agent were the absolute owner of the Pledged Collateral for all purposes; provided that nothing herein contained shall be construed as requiring or obligating the Collateral Agent to make any commitment or to make any inquiry as to the nature or sufficiency of any payment received by the Collateral Agent, or to present or file any claim or notice, or to take any action with respect to the Pledged Collateral or any part thereof or the moneys due or to become due in respect thereof or any property covered thereby.  The Collateral Agent and the Control Party shall be accountable only for amounts actually received as a result of the exercise of the powers granted to them herein, and neither they nor their officers, directors, employees or agents shall be responsible to National Rural for any act or failure to act hereunder, except for their own gross negligence or willful misconduct.
 
[SIGNATURE PAGE FOLLOWS]

 
24

 
 
IN WITNESS WHEREOF, the parties hereto have caused this Pledge Agreement to be duly executed, all as of the day and year first above written.
 
FARMER MAC MORTGAGE
SECURITIES CORPORATION,
 
   
By
 
     
 
Name:
 
 
Title:
 
 
FEDERAL AGRICULTURAL
MORTGAGE CORPORATION,
 
   
By
 
     
 
Name:
 
 
Title:
 

NATIONAL RURAL UTILITIES
COOPERATIVE FINANCE CORPORATION,
 
   
By
 
     
 
Name:
 
 
Title:Title:
 

U.S. BANK NATIONAL ASSOCIATION,
 
   
By
 
     
 
Name:
 
 
Title:Title:
 

 

 

SCHEDULE I
TO
PLEDGE AGREEMENT
 
ADDITIONAL CRITERIA FOR ELIGIBLE SECURITIES 1

Criteria for Eligible Security of Class A Eligible Member :  Each Class A Eligible Member must satisfy the following criteria only on the date of the pledge of such Eligible Security:

 
·
Long-Term Debt to Net Utility Plant Ratio, as the average ratio of the most recent three full calendar years for which financial information is available, does not exceed 90%.

 
·
Modified Debt Service Coverage Ratio—Distribution, as the average ratio of the most recent three full calendar years for which financial information is available, is greater than or equal to 1.35.

 
·
Equity to Total Assets Ratio, as the average ratio of the most recent three full calendar years for which financial information is available, is greater than or equal to 20%.

 
·
The Eligible Security has a Facility Rating by National Rural of “4.9” or lower.

Criteria for Eligible Security of Class B Eligible Member :  Each Class B Eligible Member must satisfy the following criteria only on the date of the pledge of such Eligible Security:

 
·
Equity to Total Capitalization Ratio, as the average ratio of the most recent three full calendar years for which financial information is available, is greater than or equal to 25%.

 
·
Modified Debt Service Coverage Ratio—G&T, as the average ratio of the most recent three full calendar years for which financial information is available, is greater than or equal to 1.10.

 
·
Equity to Total Assets Ratio, as the average ratio of the most recent three full calendar years for which financial information is available, is greater than or equal to 10%.

 
·
The Eligible Security has a Facility Rating by National Rural of “4.9” or lower.

1 Upon notice to the Collateral Agent, the criteria set forth on this Schedule 1 may be modified as mutually agreed upon in writing by Farmer Mac and National Rural.  The criteria set forth on this Schedule I shall be required to be satisfied only as of the date of pledge of (1) any Pledged Securities that is being pledged for a new advance or (2) any Pledged Securities that is being pledged for an existing advance which is in substitution of, or in addition to, existing collateral, and such criteria shall not be required to be satisfied with respect to Eligible Securities after such date.

 

 

SCHEDULE II
TO
PLEDGE AGREEMENT
 
Addresses for Notices
 
 
The addresses referred to in Section 6.01 hereof, for purposes of delivering communications and notices, are as follows:
 
If to the Purchaser:
 
Federal Agricultural Mortgage Corporation
1133 21 st Street N.W., Suite 600
Washington, DC 20036
Fax:  202-872-7713
Attention: Jerome G. Oslick, Vice President

If to Farmer Mac:
 
Federal Agricultural Mortgage Corporation
1133 21st Street, N.W., Suite 600
Washington, DC 20036
Fax:  202-872-7713
Attention of: Timothy L. Buzby, Vice President – CFO
 
With a copy to:
 
Federal Agricultural Mortgage Corporation
1133 21st Street, N.W., Suite 600
Washington, DC 20036
Fax:  202-872-7713
Attention of: Stephen P. Mullery, Assistant General Counsel
 
If to National Rural:
 
National Rural Utilities Cooperative Finance Corporation
2201 Cooperative Way
Herndon, VA 20171-3025
Telephone:  703-709-6718
Fax:  703-709-6779
Attention of: Steven L. Lilly, Senior Vice President &
Chief Financial Officer

 

 

SCHEDULE II
TO
PLEDGE AGREEMENT

With a copy to:

National Rural Utilities Cooperative Finance Corporation
2201 Cooperative Way
Herndon, VA 20171-3025
Telephone:  703-709-6712
Fax:  703-709-6811
Attention of: John J. List, Esq., Senior Vice President &
   General Counsel
If to the Collateral Agent:
 
U.S. Bank National Association
100 Wall Street
Suite 1600
New York, NY 10005-3701
Telephone:  (212) 361-2893
Fax:  (212) 509-3384
Attention of: Beverly A. Freeney

 

 

ANNEX A
TO
PLEDGE AGREEMENT
 
NATIONAL RURAL UTILITIES
COOPERATIVE FINANCE CORPORATION
 
PLEDGE AGREEMENT DATED AS OF MAY 22, 2009
 
CERTIFICATE OF PLEDGED COLLATERAL FILED WITH
U.S. BANK NATIONAL ASSOCIATION, Collateral Agent
 
________________, Chief Executive Officer (or Chief Financial Officer or Controller) and ____________________, Vice-President, respectively, of National Rural Utilities Cooperative Finance Corporation, hereby certify to the Control Party and the Collateral Agent under the above-mentioned Pledge Agreement as amended to the date hereof (herein called the “Pledge Agreement”) as follows:
 
1.
The Allowable Amount of Pledged Collateral certified hereby, remaining on deposit with the Collateral Agent, as shown on Schedule A hereto, is
  $    
           
2.
The Allowable Amount of Pledged Collateral certified hereby, being deposited as shown on Schedule B hereto, is
  $    
           
3.
The aggregate principal amount of the Note(s) outstanding at the date hereof is
  $    
           
4.
The aggregate amount, if any, of the Note(s) to be issued on the basis of this Certificate is
  $    
           
5.
The sum of amounts in items 3 and 4 is
  $    
           
6.
The aggregate amount by which the Allowable Amount of Pledged Collateral exceeds the aggregate principal amount of the Note(s) outstanding (the sum of items 1 and 2 minus item 5) is
  $    

 

 

ANNEX A
TO
PLEDGE AGREEMENT

7.
The cumulative amount by which each Eligible Security listed on Schedule A or Schedule B exceeds $35 million is
  $    
           
8.
The Allowable Amount of Pledged Collateral which is included in items 1 and 2 above from Class B Eligible Members does not constitute more than 20% of the aggregate amount of any notes or bonds: (1) pledged hereunder; (2) pledged to secure any other notes or bonds issued by National Rural or any affiliate to Farmer Mac or any affiliate; (3) sold by National Rural or any affiliate to Farmer Mac or any affiliate; or (4) sold to any trust whose beneficial ownership is owned or controlled by Farmer Mac or an affiliate.
       
           
9.
To the knowledge of the undersigned, each Eligible Security from a Class A Eligible Member the Allowable Amount of which is included in item 2 satisfies the following criteria on the date of this Certificate:  (1) Long-Term Debt to Net Utility Plant Ratio, as the average ratio of the most recent three full calendar years for which financial information is available, does not exceed 90%; (2) Modified Debt Service Coverage Ratio—Distribution, as the average ratio of the most recent three full calendar years for which financial information is available, is greater than or equal to 1.35; (3) Equity to Total Assets Ratio, as the average ratio of the most recent three full calendar years for which financial information is available, is greater than or equal to 20%; and (4) the Eligible Security has a Facility Rating by National Rural of “4.9” or lower.
       

 

 

ANNEX A
TO
PLEDGE AGREEMENT

10.
To the knowledge of the undersigned, each Eligible Security from a Class B Eligible Member the Allowable Amount of which is included in item 2 satisfies the following criteria on the date of this Certificate:  (1) Equity to Total Capitalization Ratio, as the average ratio of the most recent three full calendar years for which financial information is available, is greater than or equal to 25%; (2) Modified Debt Service Coverage Ratio—G&T, as the average ratio of the most recent three full calendar years for which financial information is available, is greater than or equal to 1.10; (3) Equity to Total Assets Ratio, as the average ratio of the most recent three full calendar years for which financial information is available, is greater than or equal to 10%; and (4) the Eligible Security has a Facility Rating by National Rural of “4.9” or lower.
       
           
11.
So far as is known to the undersigned, no Event of Default exists.
       
           
12.
To the extent an Eligible Security listed on Schedule A or Schedule B has an outstanding principal amount of more than $35 million, the Allowable Amount of Pledged Collateral set forth in items 1 and 2 above reflects only $35 million with respect to such Eligible Security (or a lesser amount representing the difference between $35 million and the aggregate amount of any notes or bonds of the same Eligible Member pledged or sold to Farmer Mac or any affiliate in any previous transaction), with any excess above $35 million (or the lesser amount) reflected in item 7 above.
       
           
13.
Each Eligible Member whose notes are Pledged Securities has received or is eligible to receive a loan or commitment for a loan from RUS or any successor agency.
       

 

 

ANNEX A
TO
PLEDGE AGREEMENT

All terms which are defined in the Pledge Agreement are used herein as so defined.
 
Dated:  _____________________
 
   
   
   
OF NATIONAL RURAL UTILITIES
COOPERATIVE FINANCE CORPORATION
 

 

 

ANNEX A
TO
PLEDGE AGREEMENT
 
PLEDGED SECURITIES ON DEPOSIT
 
SCHEDULE A TO OFFICERS’ CERTIFICATE
DATED

Eligible Securities
 
Name of Issuer
   
Allowable Amount (Item 1)
 
             
Pledged Securities
(Here List Securities)
           
                 
 

 
 
ANNEX A
TO
PLEDGE AGREEMENT
 
PLEDGED SECURITIES BEING DEPOSITED
 
SCHEDULE B TO OFFICERS’ CERTIFICATE
DATED

Eligible Securities
 
Name of Issuer
   
Allowable Amount (Item 2)
 
                 
Pledged Securities
(Here List Securities)
               

 

 

EXHIBIT 10.36

May 22, 2009

National Rural Utilities Cooperative Finance Corporation
2201 Cooperative Way
Herndon, Virginia  20171

Re:   Setoff Rights under Note Purchase Agreement

Ladies and Gentlemen:

In connection with that certain Note Purchase Agreement, dated as of the date hereof (the “ Agreement ”), by and among National Rural Utilities Cooperative Finance Corporation (“ National Rural ” or “ Borrower ”), Farmer Mac Mortgage Securities Corporation (“ Purchaser ”), and Federal Agricultural Mortgage Corporation (“ Guarantor ”), National Rural has agreed, in the event of a payment default by National Rural on the Notes, to grant the Control Party certain rights of setoff against amounts due and owing to National Rural on any Series C Preferred Stock, par value $1,000 per share (the “ Preferred Stock ”), of Guarantor.  Capitalized terms used but not otherwise defined herein shall have the meaning set forth in the Agreement.

Borrower, Guarantor and Purchaser hereby agree that in the event of, and only in the event of, a payment Event of Default by Borrower pursuant to Section 7.01(a) of the Agreement (“ Payment Default ”), the Control Party shall have the right, at the Control Party’s sole option and discretion, to setoff any amounts due to Borrower in respect of Guarantor’s Preferred Stock, whether in respect of dividends, redemption, liquidation or otherwise (the “ Preferred Payments ”), and to apply the Preferred Payments on a dollar-for-dollar basis against the amount of Borrower’s Payment Default.  Such setoff amount by the Control Party shall not exceed the amount of Borrower’s Payment Default, and under no circumstances shall Borrower be liable to Purchaser or the Guarantor in connection with the transactions described herein for any amount in excess of the principal amount of the Notes plus interest, as provided in the Agreement.  Borrower’s amount due under the Notes shall be satisfied and discharged to the extent of, but only to the extent of, the Control Party’s effective setoff.  If no Payment Default by Borrower has occurred, however, the Guarantor shall have no right to setoff or otherwise withhold the Preferred Payments from Borrower.  The Control Party shall provide Borrower with notice of, and reasonably detailed back up information with respect to, any setoff effected by the Control Party under this letter agreement.

The rights of the Control Party herein shall be in addition to, and not in substitution or limitation of, any other rights and remedies available to the Control Party, whether such rights or remedies arise pursuant to law, the Agreement or any other agreement between the parties.
 
[SIGNATURE PAGE FOLLOWS]

 
 

 

Please acknowledge your acceptance of the foregoing terms by executing this letter agreement in the space below, whereupon this agreement shall constitute a valid agreement binding upon Purchaser and Borrower.

 
Very truly yours,
   
 
FARMER MAC MORTGAGE SECURITIES CORPORATION
   
 
By:
 
   
Name:  Jerome G. Oslick
   
Title:    Vice President
   
 
FEDERAL AGRICULTURAL MORTGAGE CORPORATION
   
 
By:
 
   
Name:  Jerome G. Oslick
   
Title:    Vice President – General Counsel
   
ACKNOWLEDGED AND AGREED:
 
   
NATIONAL RURAL UTILITIES
 
COOPERATIVE FINANCE CORPORATION
 
   
By:
   
 
Name:
 
 
Title:
 
 
 
 

 
 
EXHIBIT 10.37
 

 
NATIONAL RURAL UTILITIES
COOPERATIVE FINANCE CORPORATION,
as Seller and Master Servicer
 
and
 
FEDERAL AGRICULTURAL MORTGAGE CORPORATION,
as Purchaser
 
MASTER SALE AND SERVICING AGREEMENT
 
Dated as of July 24, 2009
 


 
 

 

MASTER SALE AND SERVICING AGREEMENT (this " Master Agreement ") made and entered into as of July 24, 2009 by and between NATIONAL RURAL UTILITIES COOPERATIVE FINANCE CORPORATION, a cooperative association organized and existing under the laws of the District of Columbia (referred to herein as " CFC ," " Master Servicer " or the " Seller "), and FEDERAL AGRICULTURAL MORTGAGE CORPORATION, a federally chartered instrumentality of the United States (referred to herein as " Farmer Mac " or the " Purchaser ").
 
WHEREAS, Seller desires from time to time to sell to Purchaser, and Purchaser desires from time to time to purchase from Seller, certain loans pursuant to the terms, conditions and provisions of this Master Agreement and each related Commitment Letter (as defined herein).
 
NOW, THEREFORE, the parties to this Master Agreement, in the capacities hereinabove set forth, in consideration of the mutual agreements and other good and valuable consideration, the receipt and sufficiency of which are acknowledged, do hereby undertake and otherwise agree as follows:
 
ARTICLE I
Defined Terms
 
Section 1.01.   General Definitions .  Whenever used in this Master Agreement, the following words and phrases shall have the following meanings:
 
10 Business Day Notice :  The notice specified in Section 5.01(d).
 
Accounting Requirements:   Any system of accounts prescribed by a federal regulatory authority having jurisdiction over the Member or, in the absence thereof, the requirements of GAAP applicable to businesses similar to that of the Member.
 
Additional Collateral Documents:   With respect to any Qualified Loan, any security documents (including any UCC-1, UCC-2 or UCC-3 financing statement), other than those listed in clauses (i) through (iv) of Section 2.03(b), that evidence the creation or perfection of a security interest in the related Mortgaged Property and are in the possession of or within the control of the Purchaser.
 
Advance:   With respect to any Qualified Loan, as defined in the applicable Loan Agreement.
 
Affiliate:   With respect to any particular Person, (a) any Person that, directly or indirectly, is in control of, is controlled by, or is under common control with, such Person or (b) any person who is a director or officer or general partner (i) of such Person, (ii) of any subsidiary of such Person, or (iii) of any Person described in clause (a) above.  For purposes of this definition, control of a Person shall mean the power, direct or indirect, (i) to vote 5% or more of the securities having ordinary voting power to elect the directors of such Person, or (ii) to direct or cause the direction of the management and policies of such Person whether by contract or otherwise.
 
Amortization Expense :  Determined in accordance with Accounting Requirements.

 
 

 
 
Amount Held for Future Distribution:   As to any Distribution Date, the total of all amounts held in either the Collection Account or the Investment Account on that Distribution Date on account of (i) Installment Payments due after the preceding Due Date and (ii) Principal Prepayments received after the preceding Due Date.
 
Assignment :  With respect to the Qualified Loans sold hereunder on each Sale Date, an assignment by the Seller substantially in the form of Exhibit 1 hereto.
 
Authorized Officer:   The Chairman of the Board, the President, any Executive Vice President, any Senior Vice President or any Vice President.
 
Average Equity to Total Assets Ratio:   The average of a Borrower’s Equity to Total Assets Ratio for the most recent three (3) full calendar years for which financial information is available.
 
Average Equity to Total Capitalization Ratio:   The average of a Borrower’s Equity to Total Capitalization Ratio for the most recent three (3) full calendar years for which financial information is available.
 
Average Long-Term Debt to Net Utility Plant Ratio:   The average of a Borrower’s Long-Term Debt to Net Utility Plant Ratio for the most recent three (3) full calendar years for which financial information is available.
 
Average Modified Debt Service Coverage Ratio—Distribution:   The average of a Borrower’s Modified Debt Service Coverage Ratio—Distribution for the most recent three (3) full calendar years for which financial information is available.
 
Average Modified Debt Service Coverage Ratio—G&T:   The average of a Borrower’s Modified Debt Service Coverage Ratio—G&T for the most recent three (3) full calendar years for which financial information is available.
 
Borrower:   The obligor or obligors under a Qualified Loan.
 
Borrower Rating:   The borrower rating assigned by the Seller to a Qualified Loan from time to time in accordance with the Seller’s internal risk rating system.
 
Business Day:   Any day other than (i) a Saturday or a Sunday, (ii) a day on which the Federal Reserve Bank of New York authorizes banking institutions in the Second Federal Reserve District to be closed, (iii) a day on which banking institutions in the District of Columbia or the State of New York are required or authorized by law to be closed, or (iv) a day on which the principal offices of the Purchaser or the Master Servicer are closed.
 
Cash Liquidation Proceeds:   All cash proceeds recovered by the Master Servicer with respect to the termination of any Defaulted Loan, including all Other Insurance Proceeds, Condemnation Proceeds and other payments or recoveries whether made at one time or over a period of time, in connection with the sale or assignment of such Defaulted Loan, trustee's sale, foreclosure sale or otherwise.
 
 
2

 
 
Change in Control:   Either (i) the consummation of a reorganization, merger, or consolidation unless immediately after such reorganization, merger, or consolidation the Master Servicer remains a cooperative organization and more than 75 percent of its members are rural electric or rural telephone cooperatives; or (ii) the sale or other disposition of all or substantially all of the assets of the Master Servicer.
 
CFC:   The meaning set forth in the preamble hereto.
 
Class A Member:   Any Class A Member of CFC as described in CFC's Bylaws currently in effect.
 
Class B Member:   Any Class B Member of CFC as described in CFC's Bylaws currently in effect.
 
Code:   The Internal Revenue Code of 1986, as amended, and the rules and regulations promulgated thereunder.
 
Collection Account:   The Eligible Account or Accounts created and maintained pursuant to Section 5.02(b).  Funds required to be deposited in the Collection Account shall be held in trust for Farmer Mac.
 
Collection Period:   With respect to any Distribution Date, the period from and including the second Business Day of the month immediately preceding such Distribution Date through and including the first Business Day of the month of the Distribution Date.
 
Commitment Letter :  A commitment letter, substantially in the form of Exhibit 2 , between the Seller and the Purchaser relating to the Qualified Loans to be conveyed on the related Sale Date.  If a Commitment Letter relates to more than one Qualified Loan, the Commitment Letter may have attached one or more schedules that collectively set forth all of the requisite information with respect to each Qualified Loan.
 
Compliance Certification:   The annual certification by a Borrower to CFC under the related Loan Agreement.
 
Condemnation Proceeds: All awards or settlements in respect of a taking of an entire Mortgaged Property by exercise of the power of eminent domain or condemnation.
 
Custodial Agreement:   The Custodial Agreement by and between the Purchaser and the Custodian, as the same may be amended, modified or supplemented from time to time in accordance with the terms thereof.
 
Custodian:   U.S. Bank National Association, in its capacity as Custodian under the Custodial Agreement.
 
Customary Servicing Procedures:   With respect to the Master Servicer, the customary and usual standards of practice employed by the Master Servicer when servicing and administering loans in the Master Servicer's portfolio of a type comparable to the Qualified Loans sold pursuant to this Master Agreement.
 
 
3

 
 
Defaulted And Qualified Loan Exception Report:   The report provided on an Exception Basis to Farmer Mac by the Master Servicer pursuant to Section 5.01(g), providing information with respect to all Defaulted Loans and Qualified Loans identified by Farmer Mac as “watch-listed” loans.  The Defaulted And Qualified Loan Exception Report shall be provided in an electronic format agreed upon between the parties, substantially in the form of Exhibit 3 .
 
Defaulted Loan:   Any Qualified Loan as to which (i) any payment or part thereof, remains unpaid for thirty (30) days or more after the original due date for such payment, (ii) the related Borrower is subject to any bankruptcy or insolvency proceeding, (iii) the lien of the related Mortgage has been foreclosed, the related Mortgaged Property has been sold pursuant to a power of sale or trustee's sale or repossessed, or proceedings for foreclosure, sale or repossession have been commenced, or (iv) the Master Servicer has determined, consistent with Customary Servicing Procedures, that such Qualified Loan is not collectible.
 
Defective Loan:   Any loan which is required to be cured or repurchased pursuant to Section 2.03(c) or Section 4.03(j).
 
Depreciation and Amortization Expense:   The amount constituting the depreciation and amortization of the applicable Member computed in accordance with Accounting Requirements.
 
Distribution Account:   The account or accounts established by Farmer Mac into which the Master Servicer will make deposits on each Distribution Date pursuant to Section 5.05.
 
Distribution Date:   The 15th day (or if such 15th day is not a Business Day, the next succeeding Business Day) of each month.
 
Due Date:   With respect to any Qualified Loan, any date upon which any Installment Payment is due in accordance with the terms of the related Mortgage Note or Loan Agreement.  Unless otherwise specified in the applicable Commitment Letter, the Due Date for a Qualified Loan shall be on the first calendar day of a month, provided, however , that if not a Business Day, then such Due Date shall be the next succeeding Business Day.  The Due Date for a Qualified Loan is sometimes referred to as the “Payment Date” in the applicable Loan Agreement.
 
Eligible Account:   An account that is a segregated account (including a securities account) with an Eligible Depository that is either (i) maintained with a depository institution the obligations of which would qualify as Permitted Investments pursuant to clause (iii) of the definition thereof, (ii) an account or accounts the deposits in which are insured by the Federal Deposit Insurance Corporation, or (iii) an account or accounts in a depository institution acting in its fiduciary capacity in which the deposits in such accounts are held in trust and are invested in an account as described in (i) or (ii) above or in Permitted Investments.  Funds deposited in each Eligible Account shall be held in trust pending application in accordance with the provisions of this Master Agreement.
 
Eligible Class A Member:   Each Class A Member that satisfies the following criteria on the Sale Date of such Member's Qualified Loan:
 
(i) Such Member’s Average Long-Term Debt to Net Utility Plant Ratio does not exceed 90%;
 
 
4

 
 
(ii)  Such Member’s Average Modified Debt Service Coverage Ratio—Distribution is at least 1.35;
 
(iii) Such Member’s Average Equity to Total Assets Ratio is at least 20%; and
 
(iv) Such Member’s Qualified Loan has a Facility Rating of "4.9" or lower.
 
Eligible Class B Member:   Each Class B Member that satisfies the following criteria on the Sale Date of such Member's Qualified Loan:
 
(i) Such Member’s Average Equity to Total Capitalization Ratio at least 25%;
 
(ii) Such Member’s Average Modified Debt Service Coverage Ratio—G&T is at least 1.10;
 
(iii) Such Member’s Average Equity to Total Assets Ratio is at least 10%; and
 
(iv) Such Member’s Qualified Loan has a Facility Rating of "4.9" or lower.
 
Eligible Depository:   Any Reserve Bank or any other depository institution or trust company incorporated under the laws of the United States of America or any state thereof and subject to supervision and examination by federal or state banking authorities, which institution or company is approved in writing by an Authorized Officer of the Purchaser.
 
Equities and Margins :  Determined in accordance with Accounting Requirements.
 
Equity:   With respect to any Member, the aggregate of such Member's equities and margins computed pursuant to Accounting Requirements.
 
Equity to Total Assets Ratio : Determined in accordance with Accounting Requirements.
 
Equity to Total Capitalization Ratio :  Determined in accordance with Accounting Requirements.
 
Exception Basis:   With respect to the Defaulted And Qualified Loan Exception Report provided by the Servicer hereunder, a report that is required only in the event that information or data exists for the reporting period to which such report relates.
 
Facility Rating:   The facility rating assigned by the Seller to a Qualified Loan from time to time in accordance with the Seller’s internal risk rating system.
 
Farmer Mac:   The Federal Agricultural Mortgage Corporation, a federally chartered instrumentality of the United States, together with its successors and assigns.
 
Form 7:   The reporting form designated as such by RUS, or in the event a Borrower does not borrow from RUS, the reporting form designated as such by CFC for its Class A Members.
 
GAAP:   Generally accepted accounting principles in the United States as in effect from time to time.
 
 
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Governmental Authority:   Any nation or government, any state or other political subdivision thereof and any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government.
 
Insolvency Event :  With respect to any Person, such Person (a) generally is not paying their debts as such debts become due or (b) admits in writing their inability to pay their debts generally, (c) makes a general assignment for the benefit of creditors, (d) files a voluntary petition in bankruptcy, (e) is adjudged as bankrupt or insolvent, or has had entered against such Person an order for relief in any bankruptcy or insolvency proceeding, (f) files a petition or answer seeking reorganization, arrangement, composition, readjustment, liquidation, dissolution or similar relief under any statute, law or regulation, (g) files an answer or other pleading admitting or failing to contest the material allegations of a petition filed against such Person in any proceeding specified in clause (i) below, (h) seeks, consents to or acquiesces in the appointment of a trustee, receiver or liquidator of such Person or of all or any substantial part of the assets of such Person or (i) fails to obtain dismissal within sixty (60) days of the commencement of any proceeding against such Person seeking reorganization, arrangement, composition, readjustment, liquidation, dissolution or similar relief under any statute, law or regulation, or the entry of any order appointing a trustee, liquidator or receiver of such Person or of such Person's assets or any substantial portion thereof.
 
Installment Payment :  With respect to any Qualified Loan and any Due Date, any payment of principal and/or interest thereon in accordance with the amortization schedule of such Qualified Loan (after adjustment for any curtailments occurring prior to the Due Date but before adjustment to such amortization schedule by reason of any bankruptcy or similar proceeding or any moratorium or similar waiver or grace period).
 
Interest Expense :  Determined in accordance with Accounting Requirements.
 
Investment Account:   The Eligible Account or Accounts created and maintained pursuant to Section 5.02(c).  Funds required to be deposited in the Investment Account shall be held in trust for Farmer Mac.
 
Key Ratio Trend Analysis :   An annual report generated by the Seller containing key financial and operating ratios and other growth indicators for each Borrower.
 
Loan Agreement:   An original loan agreement to which the applicable Borrower is a party and providing for the Qualified Loan which is evidenced by the related Mortgage Note and secured by the related Mortgage.
 
Loan Interest Rate:   With respect to any Qualified Loan, the per annum rate of interest borne thereby as specified in the Mortgage Note or the Loan Agreement relating to such Qualified Loan.
 
Loan Setup File:   The information about each Qualified Loan serviced by the Master Servicer, as provided to Farmer Mac by the Master Servicer pursuant to Section 5.01(g).  The Loan Setup File shall be provided in an electronic format agreed upon between the parties, substantially in the form of Exhibit 4 .
 
 
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Long-Term Debt: With respect to any Qualified Loan and any Member, is determined in accordance with the Uniform System of Accounts prescribed at the time by RUS or, if such Member is not required to maintain its accounts in accordance with said Uniform System of Accounts, otherwise determined in accordance with GAAP.
 
Long-Term Debt to Net Utility Plant Ratio :  With respect to a Borrower, means the ratio obtained by dividing the amount of such Borrower’s Long-Term Debt by its Net Utility Plant, and expressing the quotient as a percentage.
 
Master Agreement:   This Master Sale and Servicing Agreement, as it may be modified, amended or supplemented in accordance with the applicable provisions hereof.
 
Master Servicer:   National Rural Utilities Cooperative Finance Corporation.
 
Master Servicer's Loans :  As defined in Section 5.01(b).
 
Master Servicer’s Report:   The report regarding activity with respect to each Qualified Loan, as provided monthly to Farmer Mac by the Master Servicer pursuant to Section 5.01(g).  The Master Servicer’s Report shall be provided in an electronic format agreed upon between the parties, substantially in the form of Exhibit 5 .
 
Member:   Any Person who is member of Seller.
 
Modified Debt Service Coverage Ratio—Distribution:   With respect to each Class A Member, the ratio determined as follows: for any calendar year the sum of (i) Operating Margins, (ii) Non-Operating Margins—Interest, (iii) Interest Expense, (iv) Depreciation and Amortization Expense, and (v) cash received in respect of generation and transmission and other capital credits, and divide the sum so obtained by the sum of all payments of Principal and Interest Expense required to be made during such calendar year; provided , however , that in the event that any amount of Long-Term Debt has been refinanced during such year, the payments of Principal and Interest Expense required to be made during such year on account of such refinanced amount of Long-Term Debt shall be based (in lieu of actual payments required to be made on such refinanced amount of Long-Term Debt) upon the larger of (i) an annualization of the payments required to be made with respect to the refinancing debt during the portion of such year such refinancing debt is outstanding or (ii) the payment of Principal and Interest Expense required to be made during the following year on account of such refinancing debt.
 
Modified Debt Service Coverage Ratio—G&T:   With respect to each Class B Member, the ratio determined as follows: for any calendar year the sum of (i) Operating Margins, (ii) Non-Operating Margins—Interest, (iii) Interest Expense, (iv) Depreciation and Amortization Expense, and (v) cash received in respect of generation and transmission and other capital credits, and divide the sum so obtained by the sum of all payments of Principal and Interest Expense required to be made during such calendar year; provided , however , that in the event that any amount of Long-Term Debt has been refinanced during such year, the payments of Principal and Interest Expense required to be made during such year on account of such refinanced amount of Long-Term Debt shall be based (in lieu of actual payments required to be made on such refinanced amount of Long-Term Debt) upon the larger of (i) an annualization of the payments required to be made with respect to the refinancing debt during the portion of such year such refinancing debt is outstanding or (ii) the payment of Principal and Interest Expense required to be made during the following year on account of such refinancing debt.
 
 
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Mortgage:   An original mortgage, deed of trust or other instrument that constitutes a first lien on an interest in real property securing a Mortgage Note.  Such Mortgage may be an RUS form of mortgage, a CFC form of mortgage or the form specified by another lender and agreed to by CFC.  It is understood that the Mortgages provide that one or more promissory notes may be secured by such Mortgage without being specifically identified in such Mortgage and without such Mortgage being amended to reflect such fact.
 
Mortgage File:   The mortgage documents listed in Section 2.03(b) pertaining to the applicable Qualified Loan.
 
Mortgage Note:   The originally executed secured promissory note or other evidence of indebtedness of a Borrower under a Qualified Loan, together with all riders thereto and amendments thereof.
 
Mortgaged Property:   The underlying real property, improvements, fixtures and personal property, as more particularly described in each Mortgage, that constitutes the collateral securing the related Qualified Loan.
 
Net Loan Interest Rate:   With respect to any Qualified Loan, the Loan Interest Rate applicable to such Qualified Loan, net of the Servicing Fee Rate applicable to such Qualified Loan.
 
Net Utility Plant:   The amount constituting the total utility plant of the Borrower, less depreciation computed in accordance with Accounting Requirements.
 
Non-Operating Margins—Interest:   The amount representing the interest component of Non-Operating Margins of the applicable Member computed in accordance with Accounting Requirements.
 
Officer's Certificate:   With respect to any Person, a certificate signed by the Governor, the Chairman of the Board, the Vice Chairman of the Board, the President, any Executive Vice President, Senior Vice President, Vice President or Second Vice President, and any of the Treasurer, the Secretary, or any of the Assistant Treasurers or Assistant Secretaries of such Person delivered pursuant to this Master Agreement.
 
Operating Margins :  Determined in accordance with Accounting Requirements.
 
Opinion of Counsel:   A written opinion of counsel of a law firm reasonably acceptable to the recipient thereof.  Any Opinion of Counsel may be provided by in-house counsel of a Person if reasonably acceptable to the addressee thereof.
 
Other Insurance Proceeds:   Proceeds of any hazard policy or other insurance policy covering a Mortgaged Property, to the extent such proceeds are not to be applied to the restoration of such Mortgaged Property or released to the Borrower in accordance with the procedures that the Master Servicer would follow in servicing Qualified Loans held for its own account.
 
 
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Other Pledged Obligations:   With respect to any Borrower, any notes or bonds of such Borrower payable to the Seller which are pledged to secure any other notes or bonds issued by the Seller to Farmer Mac or any Affiliate thereof.
 
Other Sold Obligations:   With respect to any Borrower, any notes or bonds of such Borrower payable to the Seller which are sold by the Seller or any Affiliate thereof to Farmer Mac or any Affiliate thereof or to any trust whose beneficial ownership is owned or controlled by Farmer Mac or an Affiliate thereof.
 
Permitted Investments:   One or more of the following, but only to the extent permitted by applicable regulations:

(i)           obligations of, or guaranteed as to principal and interest by, Farmer Mac or the United States or any agency or instrumentality thereof;

(ii)          repurchase agreements on obligations specified in clause (i), which repurchase agreements will mature not later than the day preceding the immediately following Remittance Date, provided that (a) the unsecured short-term obligations of the party agreeing to repurchase such obligations are at the time rated not less than A-1 by Standard & Poor’s and not less than Prime-1 by Moody’s, (b) such repurchase agreements are effected with a primary dealer recognized by a Federal Reserve Bank or (c) such repurchase agreements are secured by obligations specified in clause (i) above at not less than 102% of market value determined on a daily basis;

(iii)         demand and time deposits in, certificates of deposit of, or bankers’ acceptances maturing in not more than 60 days and issued by, any depository institution or trust company incorporated under the laws of the United States of America or any state thereof and subject to supervision and examination by federal and/or state banking authorities, so long as at the time of such investment or contractual commitment providing for such investment the commercial paper or other short-term debt obligations of such depository institution or trust company (or, in the case of a depository institution that is the principal subsidiary of a holding company, the commercial paper or other short-term obligations of such holding company) have a rating of not less than A-1 from Standard & Poor’s and a rating of not less than Prime-1 from Moody’s;

(iv)        commercial paper (having remaining maturities of not more than 60 days) of any corporation incorporated under the laws of the United States or any state thereof, which on the date of acquisition has been rated not less than A-1 from Standard & Poor’s and not less than Prime-1 by Moody’s; and
 
 
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(v)         securities bearing interest or sold at a discount issued by any corporation incorporated under the laws of the United States of America or any state thereof if such securities are rated in the highest long-term unsecured rating categories at the time of investment or the contractual commitment providing for such investment by Standard & Poor’s and Moody’s; provided , however , that securities issued by any particular corporation will not be Permitted Investments to the extent that investment therein will cause the then outstanding principal amount of securities issued by such corporation and held as part of the Collection Account to exceed 10% of  the outstanding principal balance of the Qualified Loans being serviced under this Master Agreement (it being understood that the entity directing the investment shall be responsible for compliance with the foregoing restriction on investments);

(vi)        units of a taxable money-market portfolio rated “P-1” by Moody’s and “AAAm” by Standard & Poor’s and restricted to investments in obligations issued or guaranteed by the United States of America or entities whose obligations are backed by the full faith and credit of the United States of America and repurchase agreements collateralized by such obligations;

(vii)        units of a taxable money-market portfolio restricted to investments which would be “Permitted Investments” under paragraphs (i) through (vi) of this definition of “Permitted Investments”; and

(viii)       any other obligation or security that is acceptable to (and specified in writing by) Farmer Mac and that is an eligible non-program investment for Farmer Mac under applicable investment management regulations promulgated by the Farm Credit Administration (currently 12 C.F.R. § 652.35).

The foregoing is qualified to the extent that no instrument described above shall be a Permitted Investment if such instrument evidences either (x) a right to receive only interest payments with respect to the obligations underlying such instrument or (y) both principal and interest payments derived from obligations underlying such instrument and the interest and principal payments with respect to such instrument provide a yield to maturity of greater than 120% of the yield to maturity at par of such underlying obligations.
 
Person:   Any legal person, including any individual, corporation, partnership, joint venture, association, joint stock company, trust, unincorporated organization or Governmental Authority.
 
Prepayment Premium:   With respect to any Qualified Loan, any premium or yield maintenance payment paid or payable, as the context requires, by the related Borrower in connection with any Principal Prepayment, as specified in the related Commitment Letter and Loan Agreement.
 
Principal and Interest Expense :  Determined in accordance with Accounting Requirements.
 
Principal Prepayment:   Any payment or other recovery of principal on a Qualified Loan which is received in advance of its scheduled Due Date, which is not accompanied by an amount of interest representing scheduled interest due on any date or dates in any month or months subsequent to the month of prepayment.
 
 
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Purchase Price :   The amount required to be paid by the Purchaser to the Seller for the purchase of Qualified Loans, as set forth in the related Commitment Letter for such Qualified Loans.
 
Purchaser:   Farmer Mac.
 
Qualified Loan:   A loan, or an interest in a loan, for an electric or telephone facility that satisfies the following criteria:
 
 
i.
The Borrower is either an Eligible Class A Member or an Eligible Class B Member that has received, or is eligible to receive, a loan from RUS under the Rural Electrification Act of 1936.
 
 
ii.
Such loan is a fixed or variable rate term loan that was closed by the Seller.  At the time of sale, such loan has an outstanding principal amount of up to $15 million (or any higher amount permitted by Farmer Mac and specified as the Purchase Price for a Qualified Loan in the applicable Commitment Letter) and a remaining period until maturity in the range of one (1) to thirty-five (35) years, provided that if such loan provides for an interest rate reset, the resets shall occur no more frequently than once every month.  Such loan is secured by substantially all of the assets of the Borrower.  Such assets may also secure one or more prior or future loans made by the Seller, RUS or another party to the same Borrower.
 
 
iii.
Such loan is payable in full upon maturity or amortizes on a level principal or level debt service basis.
 
 
iv.
Interest is payable on such loan monthly, semi-annually or annually, as specified in the applicable Commitment Letter.  Unless otherwise specified in the related Commitment Letter, interest due under the loan shall be calculated on the basis of a 360-day year consisting of twelve 30-day months.
 
 
v.
The documentation for such loan provides that in the event of prepayment of a fixed rate loan on any date other than an interest reset date, the Borrower must pay a Prepayment Premium.
 
 
vi.
The full amount of such loan is advanced by the time of sale and no further draws are permitted.
 
 
vii.
At the time of the sale, the Seller will have at least one other loan to the same Borrower in the Seller's portfolio.  In addition, at the time of sale, it will be the intention of the Seller to maintain a credit relationship with such Borrower until such time as the loan to such Borrower purchased by the Purchaser pursuant to this Master Agreement is repaid in full.
 
 
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viii.
No event of default with respect to such loan shall have been declared by the Seller and be continuing at the time of sale.
 
 
ix.
Such loan shall have been documented in accordance with the Seller's existing practices and procedures at the time such loan was closed, provided that prior to its sale hereunder to the Purchaser, the Mortgage Note and related Loan Agreement will be prepared and will include all of the provisions of a Qualified Loan contemplated by this Master Agreement.
 
 
x.
The principal balance of such loan, when aggregated with (x) the aggregate principal balance of all loans to the same Borrower previously sold hereunder, (y) the aggregate principal balance of all Other Pledged Obligations with respect to the same Borrower and (z) the aggregate principal balance of all Other Sold Obligations with respect to the same Borrower, will not exceed $35,000,000 (or any higher amount permitted by Farmer Mac and communicated to CFC in writing).
 
 
xi.
The principal balance of such loan, when aggregated with (x) the aggregate principal balance of all loans to the same Borrower previously sold hereunder and (y) the aggregate principal balance of all Other Sold Obligations with respect to the same Borrower, will not exceed $15,000,000 (or any higher amount permitted by Farmer Mac and communicated to CFC in writing).
 
 
xii.
With respect to any loan, the Borrower of which is a Class B Member, the principal balance of such loan, when aggregated with (x) the aggregate principal balance of all other loans to Class B Members previously sold hereunder, (y) the aggregate principal balance of all Other Sold Obligations with respect to Class B Members and (z) the aggregate principal balance of all Other Pledged Obligations with respect to Class B Members, will not exceed 20% (or any higher percentage permitted by Farmer Mac and communicated to CFC in writing) of the sum of (a) the aggregate principal balance of all loans sold hereunder, (b) the aggregate principal balance of all Other Pledged Obligations and (c) the aggregate principal balance of all Other Sold Obligations.
 
 
xiii.
With respect to any loan, the Borrower of which is a Class B Member, the principal balance of such loan, when aggregated with (x) the aggregate principal balance of all other loans to Class B Members previously sold hereunder and (y) the aggregate principal balance of all Other Sold Obligations with respect to Class B Members, will not exceed 10% (or any higher percentage permitted by Farmer Mac and communicated to CFC in writing) of the sum of (a) the aggregate principal balance of all loans sold hereunder, (b) the aggregate principal balance of all Other Pledged Obligations and (c) the aggregate principal balance of all Other Sold Obligations.
 
 
xiv.
Unless otherwise specified in the related Commitment Letter, the repayment terms of such Qualified Loan shall not provide a conversion option exercisable by the Borrower to convert to a different loan product.
 
 
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Qualified Loan Receipts:   The sum of (i) all amounts paid by Borrowers on account of Qualified Loans that is on deposit in the Collection Account or the Investment Account on the Distribution Date, including Borrower Payments, Cash Liquidation Proceeds, and Other Insurance Proceeds, and (ii) any amount in respect of Defective Loans purchased by the Seller pursuant to Section 2.03(c) or Section 4.03(j), less the sum of (i) any Amount Held for Future Distribution and (ii) all amounts permitted to be retained or withdrawn by the Master Servicer pursuant to Section 5.04.
 
REO Property:   A Mortgaged Property acquired on behalf of the Purchaser through foreclosure or deed-in-lieu of foreclosure in connection with a Defaulted Loan.
 
Repurchase Price:   With respect to any Qualified Loan, the unpaid principal balance thereof together with accrued and unpaid interest thereon at the Loan Interest Rate to the date of repurchase.
 
Reserve Bank:   Any U.S. Federal Reserve Bank, including its branches.
 
Responsible Officer:   When used with respect to the Purchaser or the Master Servicer, any officer of such Person, including any Governor, Chairman or any President, any Executive Vice President, any Senior Vice President, Vice President, any Assistant Vice President, any Assistant Treasurer, any Assistant Secretary or any other officer of such party customarily performing functions similar to those performed by the persons who at the time shall be such officers.
 
RUS:   The Rural Utilities Service of the United States Department of Agriculture, acting by and through the Administrator of the Rural Utilities Service, and including any successor agencies or departments.
 
Sale Date:   Each closing date upon which the sale of one or more Qualified Loans is sold to Purchaser.  Each Sale Date shall occur on the first Business Day of a month unless otherwise specified in the related Commitment Letter.
 
SEC:   The United States Securities and Exchange Commission.
 
Securities Offering:   Any transaction in which Farmer Mac guarantees the payment of principal and interest on securities that represent interests in, or obligations fully backed by, any pool of loans that includes any Qualified Loan sold to the Purchaser hereunder and such securities are offered pursuant to a registration statement under the Securities Act of 1933, as amended.

Seller:   National Rural Utilities Cooperative Finance Corporation.
 
Servicer Default:   An event described in Section 5.11.
 
Servicing Advance Account:   The account established on the Master Servicer’s books and records by the Master Servicer in which it shall record all funds paid through advances of the Master Servicer in connection with the Qualified Loans.  All recoveries of such advances from the Borrower or reimbursements of such advances by Farmer Mac shall also be recorded to this account.  The account may be located in the same account as the Collection Account, but for which separate records (or entries) shall be maintained.
 
 
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Servicing Advances :  With respect to each Qualified Loan, all customary and reasonable costs and expenses (including the reasonable fees and disbursements of counsel to the Master Servicer) incurred in accordance with the Customary Servicing Procedures of the Master Servicer in the performance by the Master Servicer of its servicing obligations consisting of or relating to (i) the preservation, restoration and protection of the related Mortgaged Property, (ii) any enforcement or remedial activities or judicial proceedings, including foreclosures and (iii) the amendment, modification, restructuring or work-out of such Qualified Loan.
 
Servicing Certificate:   A certificate completed and executed by a Servicing Officer on behalf of the Master Servicer in accordance with Section 5.15.  Each Servicing Certificate shall be substantially in the form of Exhibit 6 hereto (with such changes and modifications as the Master Servicer and the Purchaser shall agree).
 
Servicing Fee:   With respect to each Qualified Loan, the product of (i) the Servicing Fee Rate with respect to such Qualified Loan, and (ii) the outstanding principal amount of such Qualified Loan, as determined in the following sentence.  The Servicing Fee shall be payable on the Distribution Date corresponding to the Due Date that interest on such Qualified Loan is payable and computed on the basis of the same time period with respect to which interest on such Qualified Loan is computed, without giving effect to any principal amount of such Qualified Loan paid or payable on the applicable Due Date.
 
Servicing Fee Rate:   With respect to each Qualified Loan, a rate per annum as specified in the related Commitment Letter.
 
Servicing File :   The comprehensive set of files maintained in an organized format by the Master Servicer to properly document all current and pertinent information related to a Qualified Loan.  These files may consist of documents maintained in hard copy form or easily accessible electronic data and shall include at a minimum the following documents pertaining to each Qualified Loan:
 
 
i.
a copy of the most recent Compliance Certification by an officer of the related Borrower;
 
 
ii.
the most recent fiscal year-end certified audit of such Borrower;
 
 
iii.
a copy of the most recent unaudited annual financial statements of such Borrower (which may be set forth on a Seller form or Form 7);
 
 
iv.
copies of the Form 7 of such Borrower for each of the three most recent years;
 
 
v.
the most recent Key Ratio Trend Analysis, as available;
 
 
vi.
the most recent narrative with respect to such Borrower, as prepared by the Seller;
 
 
vii.
the most recent Borrower Rating of such Borrower;
 
 
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viii.
all correspondence between the Master Servicer and such Borrower that pertains to the Qualified Loan sold under this Master Agreement, or to the collateral by which it is secured, from origination of the Qualified Loan until payoff or foreclosure; and
 
 
ix.
documentation of any loan servicing actions taken with respect to the Qualified Loan.
 
Servicing Officer :  Any officer of the Master Servicer involved in, or responsible for, the administration and servicing of the Qualified Loans whose name and specimen signature appears on a list of Servicing Officers furnished to the Purchaser by the Master Servicer from time to time.
 
Total Assets Ratio:   With respect to any Member, an amount constituting the total assets of such Member computed pursuant to Accounting Requirements.
 
Total Capitalization Ratio: With respect to any Member, the Total Margins and Equity as a percentage of the sum of (1) Total Margins and Equity plus (2) Long-Term Debt.
 
Total Margins and Equity: With respect to any Member, such Member's total margins and equity computed pursuant to Accounting Requirements.
 
Transaction Documents :  This Master Agreement, each Assignment and each Commitment Letter.
 
Section 1.02  Other Definitional Provisions .
 
(a)           All terms defined in this Master Agreement shall have the defined meanings when used in any certificate or other document made or delivered pursuant hereto unless otherwise defined therein.
 
(b)            As used in this Master Agreement or other document made or delivered pursuant hereto or thereto, accounting terms not defined in this Master Agreement or in any certificate or other document, and accounting terms partly defined in this Master Agreement or in any such certificate or other document to the extent not defined, shall have the respective meanings given to them under GAAP.  To the extent that the definitions of accounting terms in this Master Agreement or in any certificate or other document are inconsistent with the meanings of such terms under GAAP in effect on the date hereof, the definitions contained in this Master Agreement or in any certificate or other document shall control.
 
(c)            The words "hereof," "herein," "hereunder," and words of similar import when used in this Master Agreement shall refer to this Master Agreement as a whole and not to any particular provision of this Master Agreement; Section and Exhibit references contained in this Master Agreement are references to Sections and Exhibits in or to this Master Agreement unless otherwise specified; and the term "including" shall mean "including without limitation."
 
 
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(d)           The definitions contained in this Master Agreement are applicable to the singular as well as the plural forms of such terms and to the masculine as well as to the feminine and neuter genders of such terms.
 
ARTICLE II
Applicable Documentation; Sale of Qualifying Qualified Loans
 
 
Section 2.01.   Commitment to Purchase .
 
(a)           From time to time, the Seller may present one or more loans for sale to the Purchaser.  If the Purchaser determines that such loans meet its eligibility criteria, then the Purchaser and the Seller may execute a Commitment Letter, in the form of Exhibit 2 hereto, setting forth the terms of the sale and delivery of such Qualified Loans.
 
(b)           The execution of a Commitment Letter by the Seller and the Purchaser with respect to a Qualified Loan shall obligate the Seller to deliver, and shall obligate the Purchaser to pay for, the related Qualified Loan.  In the event the Seller does not deliver a Qualified Loan on the related Sale Date, or in the event the Purchaser does not pay for a Qualified Loan on the related Sale Date, then the defaulting party shall be liable to the non-defaulting party for proven monetary damages (if any) available to it under applicable law.
 
(c)           Upon execution of a Commitment Letter as set forth in Section 2.01(b), the Seller shall sell, and the Purchaser shall purchase, on the terms and conditions stated herein and in the related Commitment Letter, without recourse, except as specifically set forth herein, all of the Seller's right, title and interest in, to and under Qualified Loans, as set forth in such Commitment Letter.
 
(d)           The terms and conditions set forth in the Commitment Letter with respect to each Qualified Loan and Sale Date shall be incorporated herein.  In the event of any conflict between the terms of this Master Agreement and the related Commitment Letter, the Commitment Letter shall control.
 
 
Section 2.02.   Confirmation, Timing, Delivery
 
(a)             Seller Notification and Offer by Purchaser .  The Seller shall notify Farmer Mac of the desired Sale Date with respect to one or more Qualified Loans by delivering a Loan Setup File not later than seven (7) Business Days prior to the desired Sale Date.  Upon receipt of a Loan Setup File, if Farmer Mac determines that one or more Qualified Loans meet its eligibility criteria, Farmer Mac shall prepare a Commitment Letter and deliver to the Seller a copy of such Commitment Letter signed by Farmer Mac no later than five (5) Business Days prior to the desired Sale Date.  Farmer Mac shall deliver the signed Commitment Letter to the Seller via facsimile transmission to Director, Strategic Project Management at 703-709-6776.  Such notification evidences the Purchaser’s offer to purchase the Qualified Loans referenced therein under the terms and conditions set forth in such Commitment Letter and this Master Agreement, which offer shall expire at the close of business on the Commitment Expiration Date specified in the Commitment Letter if not accepted by the Seller before that date.
 
 
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(b)             Acceptance by Seller .  If the Seller accepts the offer set forth in the Commitment Letter, then the Seller shall notify Farmer Mac of its acceptance by executing and returning a copy of the Commitment Letter to Farmer Mac no later than five (5) Business Days prior to the Sale Date referenced therein.  The Seller shall deliver the signed Commitment Letter to Farmer Mac via e-mail to capitalmarkets@farmermac.com and AccountingOps@farmermac.com or by any other method or to any other person specified in writing to the Seller by Farmer Mac from time to time.  Such notification evidences the Seller’s irrevocable commitment to sell and deliver to Farmer Mac the Qualified Loans referenced therein under the terms and conditions set forth in such Commitment Letter and this Master Agreement.
 
(c)             Funds Transfer by Purchaser .  Farmer Mac will purchase all Qualified Loans sold under this Master Agreement via a wire transfer of funds on the related Sale Date.  Farmer Mac will prepare a loan settlement report confirming the Loan Interest Rate and other applicable information for each Qualified Loan referenced in a signed Commitment Letter and deliver such report to the Seller via e-mail to MSG-Strategic.Projects@nrucfc.coop and Josh.Silverman@nrucfc.coop by 9:00 a.m. eastern time on the related Sale Date.  The Seller shall confirm, via return e-mail to AccountingOps@farmermac.com no later than 10:00 a.m. eastern time on the related Sale Date, the accuracy of the information set forth in the loan settlement report and the Master Servicer’s expectation to receive funds for the sale of the applicable Qualified Loans on the related Sale Date.  The wire transfer of funds will normally be scheduled for transmission by 12:00 p.m. eastern time, but in no event later than 5:00 p.m. eastern time.  The Seller shall provide Farmer Mac with written wire transfer instructions in the Commitment Letter, which shall include the name and phone number of the person requesting the wire, the wire instructions of the bank where the funds are to be wired, and the calculation of the dollar amount of the funds to be wired.
 
(d)             Delivery by Seller .
 
(i)            Assignment .  The Seller, simultaneously with the payment of the Purchase Price, shall execute and deliver to the Purchaser an Assignment with respect to the related Qualified Loans substantially in the form attached hereto as Exhibit 1 , or in such other form as the Purchaser may reasonably require, provided, however, that no such form shall contain any provision indicating or referencing that the Seller retains any rights, obligations or liabilities with respect to the Qualified Loan, or any recourse by the Purchaser to the Seller in connection therewith, except as otherwise explicitly set forth in this Master Agreement.
 
(ii)           Mortgage File .  On each Sale Date, the Seller shall transmit for delivery to the Custodian, on behalf of the Purchaser, all of the documents referred to in Section 2.03(b) with respect to the applicable Qualified Loans, with the Purchaser entitled to all interest and principal received on or with respect to the applicable Qualified Loans from and after the Sale Date (other than payments due on such Qualified Loans on or before the Sale Date and other than that portion of any payment of interest received after the Sale Date that represents interest accruing on or prior to the Sale Date).  Such delivery shall be made against payment by the Purchaser to the Seller of the Purchase Price.
 
 
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(iii)           Other Transfer Documentation .  The Seller shall execute, acknowledge and deliver all other documents furnished to the Seller by the Purchaser as may be necessary to effectuate the transfer contemplated by this Section 2.02 to the Purchaser of all right, title and interest of the Seller in and to the Qualified Loans and the related Mortgages.
 
(e)             Interest Payments on Qualified Loans .  Unless otherwise specified in the related Commitment Letter, interest due under each Qualified Loan shall be calculated on the basis of a 360-day year consisting of twelve 30-day months.  For illustration purposes, if the first calendar day of the month is a Saturday and the following Monday is a holiday, the first Business Day of that month would be the following Tuesday.  Assuming that the month in this example is a 30-day month, a Qualified Loan purchased by Farmer Mac on that Tuesday would have 27 days of interest accrual for that month.  Farmer Mac also acknowledges and agrees that, unless otherwise specified in the applicable Commitment Letter, the first required Installment Payment for each Qualified Loan shall be for the payment of interest only and all subsequent Installment Payments shall be for the payment of interest and principal.
 
 
Section 2.03.   Servicing File and Mortgage File .
 
(a)             Servicing File .  The Seller, in its capacity as Master Servicer, shall retain the Servicing File on behalf of the Purchaser with respect to each Qualified Loan sold to the Purchaser pursuant to this Master Agreement.  The Seller acknowledges and understands that ownership of each document in a Servicing File is vested in the Purchaser.  The Master Servicer shall not take any action inconsistent with such ownership.  The Master Servicer (as the originator of the Qualified Loans) agrees to indicate on its books and records at each Sale Date that the Qualified Loans sold pursuant to Section 2.02 on such Sale Date have been sold to the Purchaser, and to advise all inquiring parties that such Qualified Loans have been sold to the Purchaser.  The Seller shall, upon three (3) Business Days' prior written request provide Purchaser or its designee with reasonable access, during normal business hours and at the office of the Seller, to the Servicing File regarding any and all Qualified Loans sold to the Purchaser pursuant to this Master Agreement.  The Master Servicer shall maintain the Servicing File for a Qualified Loan for three years from either (i) the date that all principal and interest due on the Qualified Loan is paid in full or (ii) in the case of REO Property, the date of the sale of the collateral securing the Qualified Loan.
 
(b)            Mortgage File .  In connection with such sale, transfer, assignment, setting over and conveyance described in clause (a) above, the Seller will deliver to the Custodian the following documents or instruments with respect to each loan so sold, transferred, assigned, set over and otherwise conveyed:
 
(i)           the Mortgage Note, endorsed without recourse to the Purchaser (or to such other Person as directed by the Purchaser), with all necessary intervening endorsements showing a complete chain of endorsement from the originator to the Seller, if applicable;
 
(ii)           a copy of the applicable Mortgage;

 
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(iii)          an original of each amendment to the Mortgage Note and a copy of each amendment to the Mortgage in Seller's possession;
 
(iv)          the original Loan Agreement;
 
(v)           the original Opinion of Counsel of Borrower's counsel; and
 
(vi)          copies of any Additional Collateral Documents.
 
(c)             Document Deficiencies .  If within sixty (60) days of the applicable Sale Date, the Custodian finds any document or documents constituting a part of a Mortgage File to be missing, mutilated, torn, damaged or defective on its face, the Custodian shall notify the Seller and the Purchaser of such fact in writing.  The Seller shall then correct or cure the subject matter of such notice within one hundred eighty (180) days from the date of such notice.  If (x) the Seller does not correct or cure the subject matter of such notice within such one hundred eighty day period and (y) such omission or defect relates to any document identified in Section 2.03(b)(i) - (iv), the Seller shall repurchase the related Defective Loan at the Repurchase Price.  Upon receipt of the Repurchase Price, the Purchaser promptly shall release, or cause the Custodian to release, to the Seller the related Mortgage File, and shall also execute and deliver such instruments of transfer or assignment prepared by the Seller, in each case without recourse, as may be necessary to effectuate the transfer to the Seller of all right, title and interest of the Purchaser in and to each applicable Defective Loan.
 
Section 2.04.   Treatment of Sale .  It is the express and specific intent of the parties hereto that the sale of the loans from the Seller to the Purchaser as provided in Section 2.02 (the " Purchase ") is and shall be construed for all purposes as a true and absolute sale of such loans, shall be absolute and irrevocable and provide the Purchaser with the full benefits of ownership of the loans.
 
Section 2.05.   No recourse .  Each of the Seller and the Purchaser hereby agree and acknowledge that, following payment of the Purchase Price for the Qualified Loans identified in the related Commitment Letter:
 
(a)            the Seller will not have any obligation to repay any of the consideration received by it from the Purchaser hereunder;
 
(b)            the Seller will not have any obligation to repurchase such Qualified Loans, or to reimburse or otherwise compensate the Purchaser for any losses attributable to payment defaults under such loans or, except as set forth in Section 2.03(c) and Section 4.03(j), for any other losses arising from investment in and ownership of such loans; and
 
(c)            the Purchaser will not have or claim to have any recourse to the Seller for any losses attributable to payment defaults under the loans or, except as set forth in Section 2.03(c) and Section 4.03(j), for any other losses arising from investment in and ownership of the loans.
 
Section 2.06.   Notice of Sale of Qualified Loans .  Promptly following each Sale Date, CFC shall notify the Borrower under each Qualified Loan identified on the related Commitment Letter that such Qualified Loan has been conveyed to the Purchaser.
 
 
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ARTICLE III
Conditions Precedent
 
Section 3.01.   Conditions to Sale of Loans .  The following shall be conditions precedent to the effectiveness of each purchase and sale of a Qualified Loan made hereunder:
 
(a)            the Seller shall have received the related Purchase Price from the Purchaser;
 
(b)            the Custodian shall have received the Mortgage File from the Seller; and
 
 
(c)
as of the date(s) that the conditions set forth in (a) and (b) above have been met, an Insolvency Event shall not have occurred and be continuing with respect to the Seller or the Purchaser.
 
ARTICLE IV
Representations and Warranties
 
Section 4.01.   Representations and Warranties of the Master Servicer .  The Master Servicer hereby represents and warrants as of the date of this Master Agreement and each Sale Date as follows:
 
(a)            The Master Servicer is a cooperative association duly organized, validly existing and in good standing under the laws governing its creation and existence and with the requisite power and authority to conduct its business as it is currently being conducted; the Master Servicer holds all licenses, certificates and permits necessary for the conduct of its business as it is currently being conducted and is or will be in compliance with the laws of each state in which any Mortgaged Property is located to the extent necessary to ensure the enforceability of each Qualified Loan.
 
(b)            The Master Servicer has the requisite power and authority to execute and deliver this Master Agreement, to service and administer all the Qualified Loans identified on each applicable Commitment Letter in accordance with the terms of this Master Agreement, and to take all other actions and execute and deliver all other documents which are requisite or pertinent to the transactions described in this Master Agreement and the Transaction Documents.  The persons signing such documents and taking such actions on its behalf have been duly authorized to do so and such documents and actions are valid, legally binding and enforceable against the Master Servicer in accordance with their respective terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium and other laws affecting the enforcement of creditors' rights and to general principles of equity (regardless of whether such enforcement is considered in a proceeding in equity or at law).
 
(c)            The Master Servicer is not required to obtain the consent of any other Person or any consents, licenses, approvals or authorizations from, or registrations or declarations with, any governmental authority, bureau or agency in connection with the execution, delivery, performance, validity or enforceability of this Master Agreement or any of the other Transaction Documents, except for such consents, licenses, approvals or authorizations, or registrations or declarations, as shall have been obtained or filed, as the case may be.

 
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(d)            No action, suit or proceeding is pending or, to the best of the Master Servicer's knowledge, threatened against it that would prohibit it from entering into this Master Agreement or the Transaction Documents or performing its obligations under this Master Agreement or the Transaction Documents or, in the reasonable opinion of the Master Servicer has a reasonable likelihood of resulting in a material adverse effect on the transactions contemplated by this Master Agreement or the Transaction Documents.
 
(e)            The Master Servicer is not in default with respect to any order or decree of any court or any order, regulation or demand of any federal, state, municipal or governmental agency, which default would reasonably be expected to have consequences that would materially and adversely affect the condition (financial or otherwise) or operations of the Master Servicer or its respective properties or would reasonably be expected to have consequences that would materially adversely affect the performance of the Master Servicer hereunder.
 
(f)            The execution and delivery of this Master Agreement and the Transaction Documents by the Master Servicer and the performance and compliance with the terms of this Master Agreement and the Transaction Documents by the Master Servicer will not violate the Articles of Incorporation or Bylaws of the Master Servicer, or constitute a material default (or an event which, with notice or lapse of time, or both, would constitute a material default) under, or result in the material breach of, any material contract, agreement or other instrument to which the Master Servicer is a party or which may be applicable to the Master Servicer, or any of its assets.
 
(g)            No Servicer Default has occurred and is continuing and no event or circumstance has occurred or exists which, with notice or lapse of time or both, would constitute a Servicer Default.
 
(h)            Following payment in full for a Qualified Loan identified on a Commitment Letter, the Seller will have no right, title or interest in, to or under such Qualified Loan, or the assets and properties thereof.
 
(i)           Upon discovery by any party hereto of a breach of any of the representations and warranties set forth in this Section 4.01, such discovering party shall give prompt written notice to the other party.  It is understood and agreed by the parties hereto that the representations and warranties set forth in this Section 4.01 shall survive delivery of the respective Mortgage Files to the Custodian.
 
Section 4.02.   Representations and Warranties of the Purchaser   The Purchaser hereby represents and warrants as of the date of this Master Agreement and each Sale Date as follows:
 
(a)           The Purchaser is a corporation duly organized, validly existing and in good standing under the laws governing its creation and existence and with the requisite power and authority to conduct its business as it is currently being conducted; the Purchaser holds all licenses, certificates and permits necessary for the conduct of its business as it is currently being conducted and is or will be in compliance with the laws of each state in which any Mortgaged Property is located to the extent necessary to ensure the enforceability of each Qualified Loan.
 
 
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(b)           The Purchaser has the requisite power and authority to execute and deliver this Master Agreement and the other Transaction Documents and to take all other actions and execute and deliver all other documents which are requisite or pertinent to the transactions described in this Master Agreement and the Transaction Documents.  The persons signing such documents and taking such actions on its behalf have been duly authorized to do so and such documents and actions are valid, legally binding and enforceable against the Purchaser in accordance with their respective terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium and other laws affecting the enforcement of creditors' rights and to general principles of equity (regardless of whether such enforcement is considered in a proceeding in equity or at law).
 
(c)           The Purchaser is not required to obtain the consent of any other Person or any consents, licenses, approvals or authorizations from, or registrations or declarations with, any governmental authority, bureau or agency in connection with the execution, delivery, performance, validity or enforceability of this Master Agreement or any of the other Transaction Documents, except for such consents, licenses, approvals or authorizations, or registrations or declarations, as shall have been obtained or filed, as the case may be.
 
(d)           No action, suit or proceeding is pending or, to the best of the Purchaser's knowledge, threatened against it that would prohibit it from entering into this Master Agreement or any Assignment or performing its obligations under this Master Agreement or the Transaction Documents or, in the reasonable opinion of the Purchaser has a reasonable likelihood of resulting in a material adverse effect on the transactions contemplated by this Master Agreement or the Transaction Documents.
 
(e)           The Purchaser is not in default with respect to any order or decree of any court or any order, regulation or demand of any federal, state, municipal or governmental agency, which default would reasonably be expected to have consequences that would materially and adversely affect the condition (financial or otherwise) or operations of the Purchaser or its respective properties or would reasonably be expected to have consequences that would materially adversely affect the performance of the Purchaser hereunder or under any Assignment.
 
(f)           The execution and delivery of this Master Agreement and the Transaction Documents by the Purchaser and the performance and compliance with the terms of this Master Agreement and the Transaction Documents by the Purchaser does not violate the organizational and operational documents of the Purchaser, or constitute a material default (or an event which, with notice or lapse of time, or both, would constitute a material default) under, or result in the material breach of, any material contract, agreement or other instrument to which the Purchaser is a party or which may be applicable to the Purchaser, or any of its assets.
 
(g)           Upon discovery by any party hereto of a breach of any of the representations and warranties set forth in this Section 4.02, such discovering party shall give prompt written notice to the other party.  It is understood and agreed by the parties hereto that the representations and warranties set forth in this Section 4.02 shall survive delivery of the respective Mortgage Files to the Custodian.
 
 
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Section 4.03.   Representations and Warranties of the Seller .  The Seller hereby represents and warrants, with respect to paragraphs (a) through (h) as of the date of this Master Agreement and each Sale Date, and with respect to paragraph (i) as of the applicable Sale Date, as follows:
 
(a)           The Seller is a cooperative association duly organized, validly existing and in good standing under the laws governing its creation and existence and with the requisite power and authority to conduct its business as it is currently being conducted; the Seller holds all licenses, certificates and permits necessary for the conduct of its business as it is currently being conducted and is or will be in compliance with the laws of each state in which any Mortgaged Property is located to the extent necessary to ensure the enforceability of each Qualified Loan.
 
(b)           The Seller has the requisite power and authority to execute and deliver this Master Agreement and the Transaction Documents, to transfer, assign and deliver all of the Qualified Loans identified on each applicable Commitment Letter to the Purchaser and to take all other actions and execute and deliver all other documents which are requisite or pertinent to the transactions described in this Master Agreement and the Transaction Documents.  The persons signing such documents and taking such actions on its behalf have been duly authorized to do so and such documents and actions are valid, legally binding and enforceable against the Seller in accordance with their respective terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium and other laws affecting the enforcement of creditors' rights and to general principles of equity (regardless of whether such enforcement is considered in a proceeding in equity or at law).
 
(c)           The Seller is not required to obtain the consent of any other Person or any consents, licenses, approvals or authorizations from, or registrations or declarations with, any governmental authority, bureau or agency in connection with the execution, delivery, performance, validity or enforceability of this Master Agreement or the Transaction Documents except for such consents, licenses, approvals or authorizations, or registrations or declarations, as shall have been obtained or filed, as the case may be.
 
(d)           No action, suit or proceeding is pending or, to the best of the Seller's knowledge, threatened against it that would prohibit it from entering into this Master Agreement or the Transaction Documents or performing its obligations under this Master Agreement and the Transaction Documents or, in the reasonable opinion of the Seller has a reasonable likelihood of resulting in a material adverse effect on the transactions contemplated by this Master Agreement or the Transaction Documents.
 
(e)           The Seller is not in default with respect to any order or decree of any court or any order, regulation or demand of any federal, state, municipal or governmental agency, which default would reasonably be expected to have consequences that would materially and adversely affect the condition (financial or otherwise) or operations of the Seller or its properties or would reasonably be expected to have consequences that would materially adversely affect its performance hereunder or under any Assignment.
 
(f)           This Master Agreement and each Assignment constitutes a valid transfer and assignment to the Purchaser of all right, title and interest of the Seller in and to the Qualified Loans, and the other property conveyed pursuant to this Master Agreement and each Assignment.
 
 
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(g)           The execution and delivery of this Master Agreement and the Transaction Documents by the Seller and the performance and compliance with the terms of this Master Agreement the Transaction Documents by the Seller does not violate the Articles of Incorporation or Bylaws of the Seller, or constitute a material default (or an event which, with notice or lapse of time, or both, would constitute a material default) under, or result in the material breach of, any material contract, agreement or other instrument to which the Seller is a party or which may be applicable to the Seller, or any of its assets.
 
(h)          Following payment of the Purchase Price for a Qualified Loan identified on a Commitment Letter:
 
(i)           the Seller will have no right, title or interest in, to or under any such Qualified Loans;
 
(ii)           the Seller will not retain any rights of ownership or control with respect to any of such Qualified Loans; and
 
(iii)          the Seller will not have or purport to have any right to sell, pledge or otherwise dispose of, or control the disposition of, any of such Qualified Loans or their proceeds.
 
(i)           With respect to each Qualified Loan being sold to the Purchaser on the related Sale Date:
 
(i)           The information set forth in the related Commitment Letter is true and correct in all material respects.
 
(ii)           The related Mortgage File contains the documents required by Section 2.03(b).
 
(iii)          The Qualified Loan conforms in all respects to the criteria specified in the definition of "Qualified Loan" in this Master Agreement.
 
(iv)          The terms of the Loan Agreement, Mortgage Note and the Mortgage have not been amended in any respect by the Seller nor have the terms thereof been waived by the Seller, except in accordance with the Customary Servicing Procedures and by written instrument which is included in the Mortgage File.  No Borrower has been released from its obligations under the applicable Loan Agreement, Mortgage Note and Mortgage except in connection with an assumption agreement, which assumption agreement is included in the Mortgage File.
 
(v)           The Mortgage Note and the Loan Agreement are not subject to any right of rescission, set-off, counterclaim or defense, including the defense of usury, and no such right of rescission, set-off, counterclaim or defense has been asserted with respect thereto.
 
 
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(vi)          The Mortgage obligates the related Borrower to take out and maintain the classes and amounts of insurance coverages which conform to generally accepted utility industry standards for such classes and amounts of coverages of utilities of the size and character of such Borrower and the Borrower is in compliance with such obligations.  The Mortgage obligates the Borrower thereunder to maintain all such insurance at the Borrower's cost and expense, and on the Borrower's failure to do so, authorizes the holder of the Mortgage to maintain such insurance at Borrower's cost and expense and to seek reimbursement therefor from the Borrower.
 
(vii)         As of the date the Qualified Loan was made to the applicable Borrower, any and all material requirements of any federal, state or local law including, without limitation, usury, real estate settlement procedures or disclosure laws applicable to the origination of such Qualified Loan were complied with.
 
(viii)        Each Mortgage has not been satisfied, rescinded or canceled, and the related Mortgaged Property has not been released from the lien of the Mortgage, except for partial releases of the Mortgaged Property done in accordance with Customary Servicing Procedures.
 
(ix)           The Mortgage creates a validly recorded, filed and perfected mortgage lien shared pari passu and pro rata by the lenders that are parties to the Mortgage on the Borrower's real property included in the Mortgaged Property.  The Mortgage is a valid, existing and enforceable (subject to the effect of laws relating to creditors rights and principles of equity) first lien on the Mortgaged Property subject only to (A) the lien of current real property taxes and assessments not yet due and payable, (B) covenants, conditions and restrictions, rights of way, easements and other matters of the public record as of the date of recording which do not materially adversely affect the value of the Mortgaged Property, (C) other matters to which like properties are commonly subject which do not materially interfere with the benefits of the security intended to be provided by the Mortgage or the use, enjoyment, value or marketability of the related Mortgaged Property and (D) encumbrances customarily permitted by utility industry mortgages.
 
(x)           Each Loan Agreement, the Mortgage Note and the related Mortgage are valid and binding obligations of the applicable Borrower, enforceable against such Borrower in accordance with their respective terms, except as enforceability may be limited by (A) bankruptcy, insolvency, liquidation, receivership, moratorium, reorganization or other similar laws affecting the enforcement of the rights of creditors and (B) general principles of equity, whether enforcement is sought in a proceeding in equity or at law.
 
(xi)           The proceeds of the Qualified Loan have been fully disbursed to or for the account of the Borrower and there is no obligation for the Mortgagee to advance additional funds thereunder.  All costs, fees and expenses incurred in making or closing the Qualified Loan and the recording of the Mortgage have been paid, and the Borrower is not entitled to any refund of any amounts paid to the Mortgagee pursuant to the Mortgage Note or Mortgage.
 
 
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(xii)         No Event of Default has occurred and is continuing under the Mortgage or the Mortgage Note and no event has occurred which, with the passage of time or with the giving of notice and the expiration of any grace or cure period, would constitute such an Event of Default.  For purposes of this clause (xii), "Event of Default" is defined in each of the Mortgages in a manner consistent with the definition of such phrase customarily utilized in utility industry mortgages.
 
(xiii)        There is no proceeding pending or to the Seller's knowledge threatened for the condemnation of all or any material portion of the Mortgaged Property and such Mortgaged Property has not been damaged by waste, fire or other casualty to such an extent as to materially adversely affect the value of the Mortgaged Property.
 
(xiv)        To the Seller's knowledge, there is nothing relating to or involving the Qualified Loan, the Mortgage, the Mortgaged Property, the Borrower or the Borrower's credit standing that can reasonably be expected to (a) cause the Qualified Loan to become delinquent, or (b) adversely affect the Qualified Loan's value or marketability.
 
(xv)         The Loan Agreement, Mortgage and Mortgage Note permit–and such documents and instrument were not originated under and are not subject to laws which would prohibit or restrict–the sale, transfer or assignment of the Qualified Loan, the Loan Agreement, the Mortgage and the Mortgage Note as contemplated by this Master Agreement and the Transaction Documents or the enforcement thereof by the Purchaser or its assignee.
 
(xvi)        The Mortgaged Property is not subject to any bankruptcy proceeding or foreclosure proceeding and the Borrower has not filed for protection under applicable bankruptcy laws.
 
(xvii)       No fraud or misrepresentation of a material fact was committed or made by the Seller in connection with the Qualified Loan made to the applicable Borrower.
 
(xviii)      As of the related Sale Date, the Qualified Loan is not a loan as to which any payment, or part thereof, remains unpaid for more than thirty (30) days after the original due date for such payment.
 
(xix)         The Seller has delivered to the Custodian a complete Mortgage File for the Qualified Loan.
 
(xx)          Immediately prior to the transfer and assignment contemplated herein, the Seller was the sole owner and holder of the Qualified Loan, the Seller had good and marketable title thereto, and the Seller had full right and authority to transfer and sell the Qualified Loan to the Purchaser free and clear of any encumbrance, lien, pledge or security interest.
 
(xxi)         The Qualified Loan is denominated and payable only in United States dollars and the related Borrower is a corporation or other legal entity organized under the laws of the United States or any state thereof or the District of Columbia or a territory of the United States.
 
 
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(xxii)        To the Seller's knowledge, the Mortgaged Property is in material compliance with all applicable zoning laws and environmental laws pertaining to environmental hazards, and the related Borrower has not received any notice of any violation or potential violation of such laws.
 
(xxiii)       The Qualified Loan is represented by only one executed Mortgage Note.
 
(xxiv)      The Mortgage Note is a "promissory note" within the meaning of Article 9 of the New York UCC.
 
(xxv)       The loan narrative for a Qualified Loan submitted by the Seller to Farmer Mac in advance of the related Sale Date was prepared or updated no more than one year prior to the Sale Date, and the Seller is not aware of any material adverse change regarding the Borrower or the Qualified Loan that is not reflected in such loan narrative, or as previously communicated to Farmer Mac in writing.
 
(j)           Upon discovery by any party hereto of a breach of any of the representations and warranties set forth in this Section 4.03, such discovering party shall give prompt written notice to the other party and, if such breach is of any representation or warranty set forth in Section 4.01(i) that materially and adversely affects the interests of the Purchaser in the related Qualified Loan, then the Seller shall either (i) cure such breach in all material respects or (ii) repurchase the Defective Loan in question from the Purchaser by remitting the Repurchase Price to an account designated by the Purchaser.
 
(k)           It is understood and agreed by the parties hereto that the representations and warranties set forth in this Section 4.03 shall survive delivery of the respective Mortgage Files to the Custodian and will continue in full force and effect for the remaining life of the related Qualified Loan, notwithstanding termination of this Master Agreement for any reason.
 
ARTICLE V
Administration and Servicing of Qualified Loans
 
Section 5.01.   Servicing of the Qualified Loans .
 
 
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(a)            General Servicing Provision .  The Master Servicer hereby agrees to service and administer the Qualified Loans sold pursuant to this Master Agreement in accordance with the terms of this Master Agreement, applicable law and the terms of the Qualified Loans.  In connection with such servicing and administration, the Master Servicer shall, consistent with and subject to all other servicing-related provisions in this Master Agreement, have full power and authority, acting alone and/or through sub-servicers, to do or cause to be done any and all things, in connection with such servicing and administration, that the Master Servicer may deem necessary or desirable and consistent with the terms of this Master Agreement including, but not limited to, the power and authority, subject to the terms hereof, (a) to execute and deliver, on behalf of the Purchaser, customary consents or waivers and other instruments and documents, (b) to consent to transfers of any Mortgaged Property and assumptions of the Mortgage Notes and related Mortgages (but only in the manner provided in this Master Agreement), (c) to collect any Other Insurance Proceeds and other Cash Liquidation amounts, and (d) with Farmer Mac’s prior consent, to effectuate foreclosure or other conversion of the ownership of the Mortgaged Property securing any Qualified Loan.  In servicing and administering the Qualified Loans, the Master Servicer shall employ procedures in accordance with the Customary Servicing Procedures of the Master Servicer.  The Master Servicer will exercise the same care in servicing the Qualified Loans that it exercises in servicing Qualified Loans to the same Borrower held in the Master Servicer's portfolio.  The Master Servicer will act in the best interest of the Purchaser in servicing Qualified Loans.  Without limiting the generality of the foregoing, the Master Servicer, in its own name or in the name of the Purchaser, is hereby authorized and empowered by the Purchaser, when the Master Servicer believes it appropriate in its reasonable judgment, to execute and deliver on behalf of the Purchaser any and all instruments of satisfaction or cancellation, or of partial or full release or discharge, and all other comparable instruments, with respect to the Qualified Loans and with respect to the related Mortgaged Properties.  The Master Servicer shall prepare and deliver to the Purchaser such documents requiring execution and delivery by it as is necessary or appropriate to enable the Master Servicer to service and administer the Qualified Loans to the extent that the Master Servicer is not permitted to execute and deliver such documents pursuant to the preceding sentence.  In addition to the foregoing, the Purchaser shall provide a power of attorney or other appropriate authorization as shall be necessary or desirable, in the Master Servicer's judgment, to enable the Master Servicer to act as the agent of the Purchaser as the mortgagee under each Mortgage and as the secured party under each Additional Collateral Document.  Upon receipt of such documents, the Purchaser, upon the direction of the Master Servicer, shall promptly execute such documents and deliver them to the Master Servicer.
 
(b)            Reserved .
 
(c)            Agency Relationship Only .  The relationship of the Master Servicer (and of any successor to the Master Servicer as servicer under this Master Agreement) to the Purchaser under this Master Agreement is intended by the parties to be that of an independent contractor and not that of a joint venture, partner or agent.
 
 
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(d)            Modifications, Waivers, Consents .  In accordance with the terms of this Master Agreement, the Master Servicer may waive, modify, amend or vary any term of any Qualified Loan or consent to the postponement of strict compliance with any such term or in any manner grant indulgence to any Borrower if, in the Master Servicer’s judgment and consistent with Customary Servicing Procedures, such waiver, modification, consent, postponement or indulgence will make it more likely that such Borrower will be able to successfully repay the Qualified Loan in question; provided, however , that the Master Servicer shall not take any of the following actions without, in each such case, giving the Purchaser at least 10 Business Day's prior written notice of its intention to do so (each such notice, a "10 Business Day Notice"):  (i) waive any event of default (as such term is defined in the documentation for the applicable Qualified Loan), (ii) reduce the Loan Interest Rate applicable to such Qualified Loan (iii) forgive any principal of a Qualified Loan, (iv) postpone any date for the payment of principal or interest on account of such Qualified Loan, (v) extend the maturity date of such Qualified Loan, (vi) change the amortization method or amortization term of such Qualified Loan, or (vii) implement a workout plan, commence a foreclosure proceeding, accept a deed in lieu of foreclosure, conduct a pre-foreclosure sale, seek a deficiency judgment or exercise any other remedy available under the documentation for the applicable Qualified Loan.  To the extent the terms of any Qualified Loan is modified or amended, the Master Servicer shall notify Farmer Mac with respect to such Qualified Loan and provide Farmer Mac a modified Loan Setup File no later than the fifth Business Day following the effective date of such modification or amendment.  In addition to the foregoing, if one or more Qualified Loans in the Master Servicer's own portfolio present the same issue or issues as the Qualified Loan which is the subject of a 10 Business Day Notice but the Master Servicer does not propose to handle such issues under such Master Servicer's Loans in a manner similar to the proposal submitted to the Purchaser, the Master Servicer will so state in the 10 Business Day Notice and include a description of how such issues will be handled in such Master Servicer's Loans.  If by the end of the applicable 10 Business Day Notice period, the Master Servicer has not received written notice from the Purchaser disapproving of the proposal set forth in the applicable 10 Business Day Notice, the Master Servicer may proceed to implement such proposal.  If the Purchaser notifies the Master Servicer within the applicable 10 Business Day Notice period that it disapproves of any such proposal with respect to a Qualified Loan, the Master Servicer and the Purchaser will consult with one another as to the best way to proceed and the Purchaser's decision with respect to such Qualified Loan will be binding on the Master Servicer; provided, however, that the Master Servicer shall have the right to handle such issues under the Qualified Loans in its own portfolio in such manner as the Master Servicer deems appropriate or desirable.  In addition to the foregoing, and regardless of whether any action is proposed to be taken by the Master Servicer with respect to a Qualified Loan, the Master Servicer shall notify the Purchaser promptly after becoming aware of: (i) each event of default (as such term is defined in the documentation for the applicable Qualified Loan) that has occurred and is continuing under the documentation for any Qualified Loan, (ii) any receipt of a notice of a Borrower’s or Mortgage Property’s violation or potential violation of applicable zoning laws or environmental laws pertaining to environmental hazards, (iii) any proposed material change in the control or ownership of a Borrower, and (iv) any material pending lawsuit involving a Borrower or Mortgaged Property which in the opinion of the Master Servicer would materially and adversely affect such Borrower's ability to perform its obligations under the Loan Agreement.
 
(e)            Powers of Attorney .  Without limiting the generality of the foregoing, the Master Servicer is hereby authorized and empowered to execute and deliver on behalf of itself and the Purchaser, all agreements and instruments as may be necessary or desirable in connection with the performance of its rights and obligations pursuant to this Section 5.01.  If reasonably required by the Master Servicer, the Purchaser shall furnish the Master Servicer with any powers of attorney and other documents necessary or appropriate to enable the Master Servicer to carry out its servicing and administrative duties under this Master Agreement, the Mortgages and the other documentation pertaining to the Qualified Loans.
 
(f)            Delegation .  In the ordinary course of business, the Master Servicer at any time may delegate any of its duties hereunder to any Person, including any of its Affiliates, who agrees to conduct such duties in accordance with this Master Agreement including those standards set forth in this Section 5.01.  Any such delegation may include entering into subservicing agreements with any Person or Persons, for the servicing and administration of the Qualified Loans or a portion thereof. Such delegation shall not relieve the Master Servicer of its liabilities and responsibilities with respect to such duties and shall not constitute a resignation.  Notwithstanding anything to the contrary contained herein, or in any agreement relating to any such delegation, the Master Servicer shall remain obligated and liable to the Purchaser for the servicing and administration of the Qualified Loans in accordance with the provisions of this Master Agreement to the same extent and under the same terms and conditions as if it alone were servicing and administering the Qualified Loans.  The Master Servicer shall provide the Purchaser with written notice of delegation of any of its duties to any Person other than any of the Master Servicer's Affiliates or their respective successors and assigns on the later of the respective Sale Date or sixty (60) days prior to such delegation.
 
 
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(g)            Reporting .  The Master Servicer will provide the following reports to the Purchaser, which reports may be transmitted via e-mail to Famcloanadministration@farmermac.com or in such other form as may be agreed between the Purchaser and the Master Servicer:

(i)            Not later than seven (7) Business Days prior to a desired Sale Date for a Qualified Loan, the Master Servicer shall provide a Loan Setup File to Farmer Mac with respect to each Qualified Loan contemplated to be sold pursuant to this Master Agreement.
 
(ii)           After the Sale Date and until the Qualified Loan is no longer serviced under the Master Agreement, the Master Servicer shall deliver to Farmer Mac (1) an Invoice Register Report (a form of which is attached to this Master Agreement as Exhibit 7 ) five Business Days prior to each Payment Date and (2) a Master Servicer’s Report (a form of which is attached to this Master Agreement as Exhibit 5 ) and a Remittance Reconciliation Report (a form of which is attached to this Master Agreement as Exhibit 8 ) not later than the related Distribution Date.
 
(iii)          If there are any Principal Prepayments with respect to any Qualified Loan or Qualified Loan becomes a Defaulted Loan during the immediately preceding Collection Period, then the Master Servicer will provide to Farmer Mac and its designee a Defaulted And Qualified Loan Exception Report (a form of which is attached to this Master Agreement as Exhibit 3 ) on or before the fifteenth day of each calendar month (or if such fifteenth day is not a Business Day, the next succeeding Business Day).
 
Section 5.02.   Collection of Qualified Loan Payments; Establishment of Collection Account .
 
(a)             Payment; Collection . Continuously from the date hereof until the principal and interest on all Qualified Loans is paid in full, the Master Servicer will proceed diligently, in accordance with this Master Agreement, to (i) collect all payments due under each of the Qualified Loans it services when the same shall become due and payable, (ii) apply payments to Qualified Loans in accordance with the terms of the related Mortgage Notes, and (iii) determine and accept the amount required to pay a Qualified Loan in full, including interest to the next scheduled Due Date.
 
 
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(b)             Collection Account .  The Master Servicer shall establish and maintain a Collection Account, which shall be an Eligible Account.  The Master Servicer shall deposit or cause to be deposited into the Collection Account all Qualified Loan Receipts plus any Amount Held for Future Distribution plus all amounts permitted to be retained or withdrawn by the Master Servicer pursuant to Section 5.04 within two (2) Business Days of receipt thereof.  Except as otherwise provided in Section 5.02(c), all funds required to be deposited in the Collection Account shall be held for the benefit of the Purchaser until withdrawn in accordance with Section 5.04 or remitted to the Purchaser. The Master Servicer shall give notice to the Purchaser of the initial location of the Collection Account and of any proposed change of the location of the Collection Account maintained by the Master Servicer not later than two (2) Business Days and not more than forty-five (45) days prior to any change thereof.
 
(c)             Investment Account .  The Master Servicer shall establish and maintain an Investment Account, which shall be an Eligible Account.  The Master Servicer shall deposit or cause to be deposited into the Investment Account all Qualified Loan Receipts plus any Amount Held for Future Distribution from the Collection Account within two (2) Business Days of being deposited into the Collection Account.  Except as otherwise directed by the Purchaser in writing, the Master Servicer shall cause the institution with which the Investment Account is maintained to invest the funds in the Investment Account attributable to the Qualified Loans in those Permitted Investments specified in writing by Farmer Mac, which shall mature in immediately available funds not later than the day preceding the next Distribution Date and shall not be sold or disposed of prior to maturity unless otherwise directed in writing by Farmer Mac.  All earnings and gains realized from any such investments in the Investment Account shall be for the benefit of Farmer Mac and shall be deposited in the Distribution Account, along with all Qualified Loan Receipts, on each Distribution Date.  The amount of any losses or expenses incurred in connection with the investment of amounts in, withdrawals from, and the maintenance of, the Collection Account and the Investment Account shall be deducted from the amount to be distributed to Farmer Mac; except that, such expenses may be so deducted only to the extent Farmer Mac has concurred in the selection of such institution and form of Investment Account.
 
Section 5.03.   Realization Upon Defaulted Loans .
 
(a)           The Master Servicer shall use reasonable efforts to realize upon Defaulted Loans in such manner as in the Master Servicer's judgment will maximize the receipt of principal and interest by the Purchaser.  The Master Servicer is obligated to make every effort it deems reasonable to work out a troubled Qualified Loan before proposing foreclosure, a deed in lieu of foreclosure, a pre-foreclosure sale or other remedial action.  The Master Servicer shall use reasonable efforts to foreclose upon or otherwise comparably convert the ownership of Mortgaged Properties securing such of the Qualified Loans as come into and continue in default and as to which no satisfactory arrangements can be made for collection of delinquent payments.  The foregoing is subject to the provisions that, in any case in which Mortgaged Property shall have suffered damage, the Master Servicer shall not be required to expend its own funds toward the restoration of such Mortgaged Property.  The Master Servicer shall promptly notify Farmer Mac when a Mortgaged Property suffers material damage to allow Farmer Mac the opportunity to expend funds toward restoration only to the extent that:  (1) the Master Servicer has notice of such damage; and (2) in the opinion of the Master Servicer there are insufficient funds or no reasonable likelihood that there will be sufficient funds received in the future from insurance proceeds, any federal or state governmental agency or any other sources.
 
 
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(b)           The decision of the Master Servicer to foreclose on a Defaulted Loan shall be subject to the written consent of Farmer Mac.
 
(c)           Any proceeds to which the Purchaser is entitled as a mortgagee under a Mortgage securing any Qualified Loan will be paid, subject to the following order of priority:  first, to the Master Servicer to reimburse the Master Servicer for any related unreimbursed Servicing Advances and Servicing Fees with respect to the related Qualified Loan; and second, to the Purchaser as a recovery of principal of such Qualified Loan.
 
(d)           In the event that, as a result of or in connection with the exercise of remedies with respect to a Qualified Loan, Farmer Mac becomes the owner of real estate or other property, the Master Servicer will immediately commence appropriate procedures to liquidate such real estate or other property if so requested by Farmer Mac.
 
Section 5.04.   Permitted Withdrawals From the Collection Account . The Master Servicer shall maintain adequate records with respect to all withdrawals made pursuant to this Section 5.04.  The Master Servicer may from time to time, and with respect to clause (i) below shall, withdraw funds from the Collection Account or the Investment Account for the following purposes:
 
(i)            to pay to the Master Servicer (to the extent not previously retained) the servicing compensation to which it is entitled pursuant to Section 5.08;
 
(ii)            to reimburse the Master Servicer for unreimbursed Servicing Advances made by it in connection with the Qualified Loans, only from amounts received with respect to the Qualified Loans in respect of which any such Servicing Advance was made;
 
(iii)           to withdraw any amount deposited in the Collection Account or the Investment Account and not required to be deposited therein;
 
(iv)           to reimburse the Master Servicer for costs and expenses incurred by it and reimbursable pursuant hereto; and
 
(v)            to remit all remaining amounts to the Purchaser on each Distribution Date.
 
Section 5.05.   Distribution Account .  On or before the first Sale Date, Farmer Mac shall establish the Distribution Account and provide the Master Servicer with wire instructions and all other information required for the Master Servicer to wire funds into such account.  On each Distribution Date, the Master Servicer shall wire to the Distribution Account in same day funds an amount equal to the Qualified Loan Receipts for the preceding Collection Period.  The wire transfer of funds will normally be scheduled for transmission by 12:00 p.m. eastern time, but in no event later than 5:00 p.m. eastern time.
 
 
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Section 5.06.   Fidelity Bond, Insurance .  The Master Servicer shall maintain insurance coverage and financial institution bond protection consistent with that maintained by the Master Servicer as of the date of this Master Agreement.  Such insurance coverage shall include coverage in the amount of $4,000,000 insuring the Master Servicer against losses on account of employee dishonesty, loss inside the premises coverage, loss outside the premises coverage, money orders and counterfeit paper currency coverage and depositors forgery coverage.  Such financial institution bond protection shall include $6,000,000 single loss limit of liability coverage on account of forgery or alteration, securities, computer systems fraud, telefacsimile transfer fraud and voice initiated transfer fraud.
 
Section 5.07.   Satisfaction of Mortgages and Release of Mortgage Files .
 
(a)           Upon the payment in full of any Qualified Loan, or the receipt by the Master Servicer of a notification that payment in full will be escrowed in a manner customary for such purposes, the Master Servicer shall immediately notify the Purchaser and the Custodian.  Such notice shall include a statement to the effect that all amounts received or to be received in connection with such payment that are required to be deposited in the related Collection Account pursuant to Section 5.02 have been or will be so deposited, and shall request delivery to the Master Servicer of the related Mortgage File.  Upon receipt of such notice and request, the Purchaser shall, within five (5) Business Days, deliver, or cause the Custodian to deliver, to the Master Servicer the related Mortgage File and the Master Servicer shall prepare and process any satisfaction or release that may be necessary.  In the event that the Purchase fails to deliver or cause to be delivered to the Master Servicer the related Mortgage File within five (5) Business Days of the Master Servicer's request therefor, the Purchaser shall be liable to the Master Servicer for any additional expenses or costs, including, but not limited to, outsourcing fees and penalties, incurred by the Master Servicer resulting from such failure.
 
(b)           From time to time and as appropriate for the servicing or foreclosure of a Qualified Loan, the Purchaser shall, within five (5) Business Days of the Master Servicer's request and delivery to the Purchaser of a servicing receipt signed by a Servicing Officer, deliver or cause the Custodian to deliver to the Master Servicer the related Mortgage File.  Pursuant to the servicing receipt, the Master Servicer shall be obligated to return to the Custodian the related Mortgage File when the Master Servicer no longer needs such file, unless the Qualified Loan has been liquidated and the Cash Liquidation Proceeds relating to such Qualified Loan have been deposited in the Collection Account or the Mortgage File or a portion thereof has been delivered to an attorney, or to a public trustee or other public official as required by law, for purposes of initiating or pursuing legal action or other proceedings for the foreclosure of the Mortgaged Property either judicially or non-judicially.  In the event that the Purchaser fails to deliver or cause the Custodian to deliver to the Master Servicer the applicable Mortgage File within five (5) Business Days of the Master Servicer's request therefor, the Purchaser shall be liable to the Master Servicer for any additional expenses or costs, including, but not limited to, outsourcing fees and penalties, incurred by the Master Servicer resulting from such failure.  Upon receipt of notice from the Master Servicer stating that such Qualified Loan was liquidated, the Purchaser shall release the Master Servicer from its obligations under the related servicing receipt.
 
Section 5.08.   Servicing Compensation and Reimbursement .
 
(a)           With respect to each Distribution Date, the Master Servicer shall be entitled to retain or withdraw from the Collection Account an amount equal to the accrued and unpaid Servicing Fee with respect to each Qualified Loan only out of the interest portion of amounts collected by the Master Servicer with respect to such Qualified Loan.
 
 
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(b)           Additional servicing compensation in the form of assumption fees, and all other customary and ancillary income and fees shall be retained by the Master Servicer to the extent not required to be deposited in the Collection Account pursuant to Section 5.02.  The Master Servicer shall be required to pay all expenses incurred by it in connection with its servicing activities hereunder and shall not be entitled to reimbursement therefor except that the Master Servicer is entitled to reimbursement for all Servicing Advances and as otherwise provided in this Master Agreement, including but not limited to Section 5.14(a).
 
Section 5.09.   RUS .  The rights and obligations of the Master Servicer, and any other Persons with respect to the administration and servicing of the Qualified Loans are subject in all respects to applicable law and to the rights of RUS and all other Persons secured by any Mortgage.
 
Section 5.10.   Documents, Records and Funds in Possession of the Master Servicer .  The Master Servicer shall account fully to the Purchaser for any funds received by the Master Servicer or which otherwise are collected by the Master Servicer, including any Cash Liquidation Proceeds, in respect of any Qualified Loan.  All Servicing Files and Mortgage Files and funds collected or held by, or under the control of, the Master Servicer in respect of any Qualified Loans, whether from the collection of principal and interest payments or from Cash Liquidation Proceeds, including but not limited to any funds on deposit in the Collection Account, shall be held by the Master Servicer for and on behalf of the Purchaser and shall be and remain the sole and exclusive property of the Purchaser, subject to the applicable provisions of this Master Agreement.  The Master Servicer also agrees that it shall not knowingly create, incur or subject any Servicing File, Mortgage File or any funds that are deposited in the Collection Account, or any funds that otherwise are or may become due or payable to the Purchaser, to any claim, lien, security interest, judgment, levy, writ of attachment or other encumbrance created by the Master Servicer, or assert by legal action or otherwise any claim or right of setoff against any Servicing File, Mortgage File or any funds collected on, or in connection with, a Qualified Loan, except, however, that the Master Servicer shall be entitled to set off against and deduct from any such funds any amounts that are properly due and payable to the Master Servicer under this Master Agreement.
 
Section 5.11.   Servicer Default .  Each of the following events shall constitute a servicer default (each, a " Servicer Default "):
 
(a)            any failure by the Master Servicer to make any payment, deposit or transfer required to be made under the terms of this Master Agreement which continues unremedied for a period of two (2) Business Day after the date upon which written notice of such failure, requiring the same to be remedied, shall have been received by the Master Servicer from the Purchaser; or
 
(b)            failure on the part of the Master Servicer duly to observe or perform in any material respect any other of the covenants or agreements on the part of the Master Servicer in this Master Agreement which continues unremedied for a period of forty-five (45) days after the date on which written notice of such failure, requiring the same to be remedied, shall have been received by the Master Servicer from the Purchaser; or
 
 
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(c)            a decree or order of a court or agency or supervisory authority having jurisdiction in the premises for the appointment of a conservator, receiver or liquidator in any insolvency, readjustment of debt, marshalling of assets and liabilities or similar proceedings, or for the winding-up or liquidation of its affairs, shall have been entered against the Master Servicer and such decree or order shall have remained in force undischarged or unstayed for a period of sixty (60) days; or
 
(d)           consent by the Master Servicer to the appointment of a conservator, receiver or liquidator in any insolvency, readjustment of debt, marshalling of assets and liabilities or similar proceedings relating to the Master Servicer or to all or substantially all of its property; or
 
(e)            the Master Servicer's admission in writing of its inability to pay its debts generally as they become due, filing of a petition to invoke any applicable insolvency or reorganization statute, making of an assignment for the benefit of its creditors, or voluntarily suspending payment of its obligations; or
 
(f)            a court of competent jurisdiction shall have found that the Master Servicer or any of its senior executive officers has committed an act of civil fraud; or
 
(g)            the Master Servicer or any of its principal officers shall have been convicted of a felony, or shall have been convicted of any criminal act related to the Master Servicer’s lending or mortgage selling or servicing activities.
 
(h)            the Master Servicer consummates a transaction that results in a Change of Control; or
 
(i)             the Master Servicer ceases to be a cooperative association in good standing under the laws of the District of Columbia or any state of the United States for a period of thirty (30) days following notice thereof by any governmental authority having jurisdiction over such determination.
 
Section 5.12.   Resignation and Termination of Master Servicer .
 
(a)            The Master Servicer may at any time resign and terminate its obligations under this Master Agreement upon at least one hundred eighty (180) days' prior written notice to the Purchaser; provided, however, that no such resignation or termination shall be effective until a successor Master Servicer is appointed (and accepts such appointment) pursuant to the terms of this Section 5.12.  Promptly after receipt of notice of the Master Servicer's intended resignation, the Purchaser shall appoint, by written instrument, a successor master servicer.  If the Purchaser fails to appoint a successor master servicer pursuant to the terms hereof within thirty (30) days after receipt of the Master Servicer's notice of resignation, Master Servicer may petition a court of competent jurisdiction to appoint a successor master servicer.  One original counterpart of any aforementioned instrument of appointment shall be delivered to each of the Purchaser and the successor master servicer.
 
 
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(b)            Upon the occurrence of a Servicer Default, and so long as such Servicer Default shall not have been remedied, the Purchaser may (a) terminate all obligations and duties imposed upon the Master Servicer under this Master Agreement, and (b) name and appoint a successor or successors to succeed to and assume all of such obligations and duties of the Master Servicer.  Such actions shall be effected by notice in writing to the Master Servicer and shall become effective upon receipt of such notice by the Master Servicer and the acceptance of such appointment by such successor or successors.
 
(c)            On and after the receipt by the Master Servicer of written notice of termination, if applicable, and the acceptance by the successor or successors to the Master Servicer, all obligations and duties imposed upon the Master Servicer under this Master Agreement shall pass to and vest in the successor or successors named in the notice, and such successor or successors shall be authorized, and hereby are authorized, to take all such action and execute and deliver all such instruments and documents on behalf of the Master Servicer, as attorney in fact or otherwise, as may be necessary and appropriate to effect the purposes of such written notice.  The Master Servicer shall pay the reasonable costs and expenses relating to a transition to a successor Master Servicer.
 
(d)            This Section 5.12 shall survive any termination of this Master Agreement and any termination of this Master Agreement shall not prejudice the rights of the Master Servicer to recover any amounts due to the Master Servicer under this Master Agreement.
 
Section 5.13.   Inspection Rights .  The Master Servicer shall, upon three (3) Business Days' prior written request from the Purchaser, during normal business hours, permit the Purchaser to examine the Servicing Files which relate to Qualified Loans.  These inspection rights shall extend to representatives of the Farm Credit Administration (as the Governmental Authority that regulates Farmer Mac).
 
Section 5.14.   Limitation on Liability of the Master Servicer and Others .
 
(a)           Neither the Master Servicer nor any of the directors, officers, employees or agents of the Master Servicer shall be under any liability to the Purchaser for any action taken or for refraining from the taking of any action in good faith and without gross negligence pursuant to this Master Agreement or for errors in judgment; provided, however, that this provision shall not protect the Master Servicer or any such Person against any breach of warranties or representations made herein or any liability which would otherwise be imposed by reason of willful misfeasance, bad faith or gross negligence in the performance of duties hereunder.  The Master Servicer and any director, officer, employee or agent of the Master Servicer may rely in good faith on any document of any kind prima facie properly executed and submitted by any Person respecting any matters arising hereunder.  The Master Servicer and any director, officer, employee or agent of the Master Servicer shall be indemnified by the Purchaser and held harmless by the Purchaser against any loss, liability or expense incurred in connection with any legal action relating to this Master Agreement, the transactions contemplated hereby or thereby, the Master Servicer's duties in connection therewith, other than any unrecovered Servicing Fee or Servicing Advance related to any specific Qualified Loan or Qualified Loans and any loss, liability or expense incurred by reason of willful misfeasance, bad faith or gross negligence in the performance of duties hereunder.
 
 
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(b)           The Master Servicer shall not be under any obligation to appear in, prosecute or defend any legal action that is not incidental to its respective duties under this Master Agreement and for which it will not be reimbursed or indemnified hereunder; provided, however , that the Master Servicer may in its discretion undertake any such action it may deem necessary or desirable in respect to this Master Agreement and the rights and duties of the parties hereto and the interests of the Purchaser hereunder.  In such event, the legal expenses and costs of such action and any liability resulting therefrom shall be expenses, costs and liabilities of the Master Servicer entitled to be reimbursed therefore out of amounts attributable to the Qualified Loans on deposit in the Collection Account as provided by Section 5.04 and otherwise pursuant to Section 5.14(a).
 
(c)           The Master Servicer and its directors, officers, employees and agents shall be deemed to have exercised the degree of skill and care appropriate hereunder if such Person has acted in accordance with Customary Servicing Procedures and in good faith in (i) managing, administering, servicing, making collections, foreclosing, counseling with respect to, and supervising the Qualified Loans; (ii) administering, interpreting, and enforcing the Mortgages, Mortgage Notes and all forms, documents and certificates required thereunder; (iii) fulfilling all obligations hereunder; and (iv) all duties, obligations and actions taken in respect of the Mortgaged Property.
 
Section 5.15.   Statements and Certificates to Purchaser .
 
(a)           Within sixty (60) days after the close of each calendar year, beginning with the calendar year ending December 31, 2009, the Master Servicer shall deliver to Farmer Mac a Servicing Certificate.  If the aggregate outstanding principal balance of all the Qualified Loans purchased by Farmer Mac under this Master Agreement exceeds $500 million in the future, the Master Servicer shall also provide such assertion letters and attestation reports as Farmer Mac may require to reasonably comply with applicable laws and regulations, the form of which letters and reports shall be agreed upon between Farmer Mac and the Master Servicer.
 
(b)           Within one hundred and twenty (120) days after the close of each fiscal year of the Master Servicer, beginning with the fiscal year ending in 2009, the Master Servicer shall deliver to Farmer Mac a copy of the report of independent accountants respecting the Master Servicer’s, or the Master Servicer’s parent corporation’s, consolidated financial statements for the preceding fiscal year.
 
(c)           The Master Servicer agrees to indemnify and hold harmless each of Farmer Mac, each person or entity, if any, who “controls” Farmer Mac within the meaning of the Securities Act of 1933, as amended, and their respective officers and directors (collectively, the “Indemnitees”) against any and all losses, damages, penalties, fines, forfeitures, legal fees and related costs, judgments and any other costs, fees and expenses that any Indemnitee may sustain arising out of third party claims (including any criminal or civil action brought by a government agency or department) based on the failure of the Master Servicer to deliver or cause to be delivered when required the reports required under this Section 5.15 or any material misstatement or material omission therein.  If the indemnification provided for herein is unavailable or insufficient to hold harmless any Indemnitee, then the Master Servicer agrees that it shall contribute to the amount paid or payable by the Indemnitee as a result of the losses, claims, damages or liabilities of the Indemnitee in such proportion as is appropriate to reflect the relative fault of the Indemnitee on the one hand and the Master Servicer on the other.
 
 
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(d)           In approving CFC as the Master Servicer, a major consideration is the information the CFC has provided about CFC’s servicing qualifications and financial status.  Consequently, CFC shall notify Farmer Mac promptly of:  (1) any event resulting in the filing by CFC of a Current Report on Form 8-K with the SEC; (2) a material adverse change in the financial condition of CFC or any Affiliate that could materially and adversely affect Farmer Mac’s interests in the Qualified Loans; or (3) a loss of any license, qualification to transact business or exemption therefrom in any state where such loss would materially and adversely impact CFC’s authority or ability to perform its obligations under this Master Agreement.
 
Section 5.16. Annual Independent Public Accountants’ Servicing Statement; Financial Statements .

Farmer Mac shall provide at least sixty (60) days written notice to Master Servicer prior to the filing of a registration statement with respect to any Securities Offering.  Farmer Mac shall pay the following fees and costs to the extent incurred in connection with the offering of securities pursuant to a registration statement under the Securities Act of 1933, as amended:  (i) the fees and costs associated with the filing of a registration statement or other offering document with any Governmental Authority, (ii) the fees and expenses of Farmer Mac’s counsel, (iii) any fees and expenses associated with having the securities rated, (iv) underwriting commissions and discounts of Farmer Mac’s underwriters for the sale of the securities, (v) the reasonable fees and expenses of CFC’s counsel, (vi) the reasonable fees and expenses of CFC’s auditors, and (vii) printing costs of the prospectus or other offering documents.
 
The Master Servicer shall, at its own expense, on or before seventy-five (75) days after the end of each calendar year, commencing with the calendar year, if any, during which Purchaser has consummated a Securities Offering, and each calendar year thereafter during which such Securities Offering is subject to a reporting obligation under Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, cause a firm of independent public accountants (who may also render other services to the Master Servicer or any affiliate thereof) which is a member of the American Institute of Certified Public Accountants to furnish a statement to the Purchaser to the effect that such firm has, with respect to the Master Servicer’s servicing operations under this Master Agreement with respect to such Securities Offering, examined such operations in accordance with the requirements of Item 1122 of Regulation AB, stating such firm’s conclusions relating thereto.  The Master Servicer shall also provide (i) a servicer compliance statement as contemplated by Item 1123 of Regulation AB, and (ii) such information as may be necessary or appropriate in order to fulfill the requirements set forth in Item 1108 of Regulation AB.
 
ARTICLE VI
Miscellaneous
 
Section 6.01.   Governing Law .  The terms of this Master Agreement shall be governed by, and construed in accordance with, federal law.  To the extent federal law incorporates state law, that state law shall be the laws of the State of New York.
 
 
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Section 6.02.   Demands, Notices, Communications .  All formal demands, notices and communications by and between the Master Servicer, and Purchaser shall be in writing and delivered in person or by an overnight delivery service, in each case with proof of delivery:
 
If to the Purchaser or Farmer Mac:
 
Federal Agricultural Mortgage Corporation
1133 21st Street, N.W., Suite 600
Washington, DC 20036
Fax:  202-872-7713
Attention of: Chief Financial Officer
 
With a copy also to:
Federal Agricultural Mortgage Corporation
1133 21st Street, N.W., Suite 600
Washington, DC 20036
Fax:  202-872-7713
Attention of: General Counsel
 
With a copy also to:
Federal Agricultural Mortgage Corporation
1133 21st Street, N.W., Suite 600
Washington, DC 20036
Fax:  202-872-7713
Attention of: Chief Operating Officer
 
If to Master Servicer:
 
National Rural Utilities Cooperative Finance Corporation
2201 Cooperative Way
Herndon, VA 20171-3025
Telephone:  703-709-6718
Fax:  703-709-6779
Attention of: Steven L. Lilly, Senior Vice President & Chief Financial Officer
 
With a copy to:
 
National Rural Utilities Cooperative Finance Corporation
2201 Cooperative Way
Herndon, VA 20171-3025
Telephone:  703-709-6716
Fax:  703-709-6779
Attention of: Robert Geier, Vice President and Controller

 
39

 

With a copy also to:
 
National Rural Utilities Cooperative Finance Corporation
2201 Cooperative Way
Herndon, VA 20171-3025
Telephone:  703-709-6712
Fax:  703-709-6811
Attention of: John J. List, Esq., Senior Vice President &  General Counsel
 
With a copy also to:
 
National Rural Utilities Cooperative Finance Corporation
2201 Cooperative Way
Herndon, VA 20171-3025
Telephone:  703-709-6751
Fax:  703-709-6776
Attention of: Leslie Ebert, Director, Strategic Project Management

Any notice so delivered within the time prescribed in this Master Agreement shall be conclusively presumed to have been duly given whether or not the intended recipient receives such notice, provided that the party giving such notice has received proof of delivery.
 
Section 6.03.   Severability of Provisions .  If any one or more of the covenants, agreements, provisions or terms of this Master Agreement shall be for any reason whatsoever held invalid, then such covenants, agreements, provisions or terms shall be deemed severable from the remaining covenants, agreements, provisions or terms of this Master Agreement and shall in no way affect the validity or enforceability of the other provisions of this Master Agreement.
 
Section 6.04.   Amendment .  This Master Agreement may be amended from time to time or the provisions hereof may be waived or otherwise modified by the parties hereto only by written agreement signed by the parties hereto.
 
Section 6.05.   Counterparts .  This Master Agreement may be executed in any number of counterparts, each of which counterparts shall be deemed to be an original, and such counterparts shall constitute but one and the same instrument.
 
Section 6.06.   Authorized Officers .  The manual or facsimile signature of any individual appearing on this Master Agreement, or any document or certificate issued pursuant to this Master Agreement, and which is designated as the signature of a Responsible Officer of any Person, shall constitute conclusive evidence that such individual is, in fact, authorized to execute such document, notwithstanding that such authorization may have lapsed prior to the effective date of such document.
 
 
40

 

Section 6.07.   Assignability .  Except as provided in Section 5.12, this Master Agreement shall not be assigned by either of the parties hereto without the prior written consent of the other party ; provided, however , that Farmer Mac may, without the prior consent of the Master Servicer, assign this Agreement to any subsidiary of Farmer Mac or any Trust or any special purpose entity formed to hold the Qualified Loans.  Farmer Mac shall promptly notify the Master Servicer of any such assignment.  For purposes of this Section 6.08 only, it is agreed that delegation by the Master Servicer permitted pursuant to Section 5.01(f) shall not be deemed an attempted assignment or transfer of servicing prohibited by this Master Agreement, but a Change in Control of the Master Servicer shall be deemed an attempted assignment or transfer of servicing prohibited by this Master Agreement without the prior written consent of Farmer Mac.  Any attempted assignment or transfer contrary to the provisions of this Section 6.08 shall be null, void, and of no force or effect.
 
[SIGNATURES FOLLOW ON NEXT PAGE]

 
41

 

IN WITNESS WHEREOF, the parties hereto hereby execute this Master Agreement as of the day and year first above written.
 
 
FEDERAL AGRICULTURAL MORTGAGE CORPORATION , as Purchaser
   
 
By:
 
 
Name:
 
Title:
   
 
NATIONAL RURAL UTILITIES COOPERATIVE FINANCE CORPORATION , as Seller and Master Servicer
   
 
By:
 
 
Name:
 
Title:

 
42

 

EXHIBIT 1
 
FORM OF ASSIGNMENT
 
On this _______ day of ________, 200_, National Rural Utilities Cooperative Finance Corporation (the " Seller "), as Seller under that certain Master Sale and Servicing Agreement, dated as of July 24, 2009 (the " Master Agreement "), does hereby sell, transfer, assign, set over and convey to Federal Agricultural Mortgage Corporation (the " Purchaser "), as Purchaser under the Master Agreement, without recourse, but subject to the terms of the Master Agreement, all right, title and interest of the Seller in and to the Qualified Loans listed on the schedule attached hereto as Schedule 1 , together with the related documents  and all rights and obligations arising thereunder.  The ownership of each Qualified Loan and the related documents is vested in the Purchaser and the ownership of all records and documents with respect to the related Qualified Loan prepared by or which come into the possession of the Seller shall immediately vest in the Purchaser and shall be retained and maintained, in trust, by the Seller at the will of the Purchaser in such custodial capacity only.
 
Capitalized terms used herein and not otherwise defined shall have the meanings set forth in the Master Agreement.

 
NATIONAL RURAL UTILITIES COOPERATIVE FINANCE CORPORATION , as Seller and Master Servicer
   
 
By:
 
 
Name:
 
Title:

 

 

EXHIBIT 2
 
FORM OF COMMITMENT LETTER
 
[Date]
 
Federal Agricultural Mortgage Corporation
1133 Twenty-First Street, N.W.
Suite 600
Washington, DC 20036
 
Re: [Loan ID]
 
Ladies and Gentlemen:

National Rural Utilities Cooperative Finance Corporation (the " Seller ") agrees to sell and Federal Agricultural Mortgage Corporation (the " Purchaser ") agrees to purchase certain Qualified Loans, as described herein, pursuant to the terms and conditions of that certain Master Sale and Servicing Agreement, dated as of July 24, 2009 (the " Master Agreement ").

Capitalized terms used and not defined herein shall have the meaning(s) ascribed thereto in the Agreement.

[Note:  The following information may be included on an attached schedule/spreadsheet.  Bracketed terms in italics reflect terms of the initial series of Qualified Loans that Seller intends to originate and sell pursuant to this Master Agreement.]

1.  Sale Date (same as Commitment Expiration Date):   [First Business Day of Month]

2.  Mortgage Loans: [#] [$]

3.  Purchase Price: [100% of Principal Balance]

4.  Mortgage Loan Interest Rate:

Rate Index                              [One-Month Libor]

Reset Margin            ____ basis points

Servicing Fee Rate              _____ basis points [35]

4.  Scheduled Installment Payment Dates: [February 1 & August 1]

 

 

5.  First Principal Payment Date: [First Payment Date after First Billing Cycle]

6.  First Interest Payment Date: [First Payment Date]

7.  Interest Rate Reset Date: [first day of each month]

8.  Amortization Term:   [15  Years or 25 Years]

9. Amortization Method: [Level Debt Service]

10.  Maturity Date: [15 Years]

11.  Wire Instructions:

12.  Delivery:   The sale and purchase of Qualified Loans under this letter agreement is mandatory no later than the Sale Date.  All Mortgage Files shall be delivered to Purchaser or Purchaser's custodian, in accordance with the terms and conditions of the Master Agreement.

14.  Additional Terms:
 
(Signature Page to Follow)

 

 

This letter agreement and the Master Agreement together contain the entire agreement relating to the subject matter hereof between us and supersedes any prior oral or written agreement between us.  This letter agreement may only be amended by a written document signed by both Seller and Purchaser.  This letter agreement shall be kept confidential unless otherwise agreed to in writing by Seller and Purchaser or otherwise required by law.

Please confirm that the foregoing specifies the terms of our agreement by signing and returning this letter via e-mail to capitalmarkets@farmermac.com and AccountingOps@farmermac.com [or facsimile to [__________]] no later than __________, 200__.

This letter may be executed by facsimile and in any number of counterparts, each of which shall be deemed an original, and shall be governed by the laws of the State of New York.
 
Very truly yours,

FEDERAL AGRICULTURAL MORTGAGE CORPORATION , as Purchaser
 
   
By:
   
 
Name:
 
Title:
 
   
Accepted and Agreed:
 
   
NATIONAL RURAL UTILITIES COOPERATIVE FINANCE CORPORATION , as Seller and Master Servicer
 
   
By:
    
 
Name:
 
Title:
 
 
 

 

EXHIBIT 3
 
FORM OF DEFAULTED AND QUALIFIED LOAN EXCEPTION REPORT
 
QUALIFIED REPORT :
 
Coop ID
 
Loan
Number
 
Date of
Payment
 
Total
Payment
Amount
 
Principal
Payment
Amount
 
Interest
Payment
Amount
 
Servicing
Fee
Amount
 
Net
Interest
Payment
Amount
                             
                             
                             
 
Date:  __________________
 
DEFAULT REPORT :
 
Borrower Name
 
Coop ID
 
Payment Due
Date
 
Servicer’s
Comments
             
             
 
  
 
  
 
  
 
 
Date: __________________

 

 
 
EXHIBIT 4
 
FORM OF LOAN SETUP FILE
 
Coop
ID
 
Borrower
 
Loan
Number
 
Loan
Amount
 
Sale
Date
 
Maturity
Date
 
Servicing
Fee
 
Payment
Frequency
                             
                             
                             
 
 

 

EXHIBIT 5
FORM OF MASTER SERVICER’S REPORT
 
Coop
ID
 
Loan
Number
 
Beginning
Principal
Balance
 
Ending
Principal
Balance
 
Loan
Interest
Rate
(Base
Rate)
 
Gross
Monthly
Interest
Accrual
 
Delinquency Code
                         
                         
                         
 
Delinquency Codes:
 
Delinquency Code
 
Delinquency Code Description
     
1
 
Current
     
2
 
30-60 Days
     
3
 
60-90 Days
     
4
 
90-180 Days
     
5
 
180+ Days
     
6
 
Foreclosure
     
7
 
Bankruptcy
     
8
  
REO
 
 

 

EXHIBIT 6
 
FORM OF SERVICING CERTIFICATE
 
I, [name of certifying individual], a duly elected and acting officer of National Rural Utilities Cooperative Finance Corporation (the “Master Servicer”), certify pursuant to Section 5.15(a) of the Master Sale and Servicing Agreement dated as of July 24, 2009 (as it may be amended from time to time, the “Servicing Agreement”) between the Master Servicer and Federal Agricultural Mortgage Corporation (“Farmer Mac”) to Farmer Mac and each person or entity, if any, who “controls” Farmer Mac within the meaning of the Securities Act of 1933, as amended, and their respective officers and directors, with respect to the calendar year immediately preceding the date of this Certificate (the “Relevant Year”), as follows:
 
1.            I am responsible for reviewing the activities performed by the Master Servicer under the Servicing Agreement during the Relevant Year.
 
2.            Based upon the review required by the Servicing Agreement and except as disclosed in this Officer’s Certificate or in any accountants’ statement provided pursuant to Section 5.15(a) or Section 5.16 of the Servicing Agreement, to the best of my knowledge, the Master Servicer has fulfilled all of its obligations under the Servicing Agreement throughout the Relevant Year.
 
3.            The Master Servicer has a comprehensive disaster recovery and business continuity plan that includes the following elements:
 
(a)           duplication of the Servicer’s production information systems at an off-site facility coupled with an extensive business recovery plan to utilize those remote systems;

(b)           replication of the Master Servicer’s production data in real time to the recovery site;

(c)           processes for each of the Master Servicer’s operating groups to conduct business with a view to minimizing disruption for customers;

(d)           periodic disaster recovery exercises that include both the information technology group and business areas;

(e)           contracts with an external vendor for facilities to house the Master Servicer’s backup systems as well as office space and related office equipment; and

(f)           backup tapes stored at an off-site storage location managed by an external vendor.

4.            With respect to each Mortgaged Property, except as identified in writing to Farmer Mac, the Master Servicer has received no notification of a delinquency in the payment of  all insurance premiums, assessments, taxes and other charges that may become liens having precedence over the related Mortgage.
 
 

 
 
5.            For purposes of this Officer’s Certificate, “Relevant Information” means the information included herein for the Relevant Year and the information in all Master Servicer’s Reports provided by the Master Servicer pursuant to Section 5.15(a) of the Servicing Agreement during the Relevant Year.  To the best of my knowledge, the Relevant Information, taken as a whole, does not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein which is necessary to make the statements made therein, in light of the circumstances under which such statements were made, not misleading as of the last day of the Relevant Year.
 
DATED as of _______________.
 
   
 
   
Name:
    
 
   
Title:
    
 
 
 

 

EXHIBIT 7

FORM OF INVOICE REGISTER REPORT
 
   
Coop ID
 
Loan Number
 
Interest
 
Principal
 
Total
                     
Billing Period:
                   
                     
                     
 
 

 

EXHIBIT 8

FORM OF REMITTANCE RECONCILIATION REPORT
 
 
To:
     
         
 
From:
     
         
 
Date:
     
         
 
Re:
Month/Year Remittance Amount
   
         
         
 
The amount to be transferred on the Month/Year Distribution Date is as follows:
         
   
Interest
$
 
   
Principal
   
   
Principal Prepayments
   
   
Prepayment Premiums
   
   
Investment Account Earnings
   
   
Late Charges
   
   
Total Remittance
$
 
 
 

 

EXHIBIT 10.37.1

AMENDMENT NO. 1
TO
MASTER SALE AND SERVICING AGREEMENT

AMENDMENT NO. 1 TO MASTER SALE AND SERVICING AGREEMENT (this “ Amendment ”) is made and entered into as of February 1, 2010 by and between NATIONAL RURAL UTILITIES COOPERATIVE FINANCE CORPORATION, a cooperative association organized and existing under the laws of the District of Columbia (referred to herein as “ CFC ,” “ Master Servicer ” or the “ Seller ”), and FEDERAL AGRICULTURAL MORTGAGE CORPORATION, a federally chartered instrumentality of the United States (referred to herein as “ Farmer Mac ” or the “ Purchaser ”).
 
WHEREAS, CFC and Farmer Mac are parties to that certain MASTER SALE AND SERVICING AGREEMENT (the “ Master Agreement ”) made and entered into as of July 24, 2009; and
 
WHEREAS, the parties desire to amend the Master Agreement as set forth herein in order to, among other things, enable the purchase and sale of loans made to certain power supply borrowers to CFC; and
 
WHEREAS, the parties have executed this Amendment as a written agreement intended to modify the Master Agreement pursuant to Section 6.04 thereof.
 
NOW, THEREFORE, the parties to this Amendment, in the capacities hereinabove set forth, in consideration of the mutual agreements and other good and valuable consideration, the receipt and sufficiency of which are acknowledged, do hereby undertake and otherwise agree as follows:
 
ARTICLE I
Amendments
 
Section 1.01.   Additional Definitions .  The following defined terms and their definitions are hereby added to Section 1.01 of the Master Agreement and placed in alphabetical order together with the existing defined terms:
 
Debt to EBITDA Ratio:   with respect to any Member, the ratio obtained by dividing the amount of such Member’s Long-Term Debt by its EBITDA, with the quotient expressed as a numerical value.
 
EBITDA:   with respect to any Member, an amount equal to the sum of:  (i) net margins, (ii) Interest Expense on Long-Term Debt, (iii) income taxes, and (iv) Depreciation and Amortization Expense, all as calculated in accordance with Accounting Requirements.

 

 
    
2
    
Federal Energy Regulatory Commission (“FERC”): an independent regulatory agency whose function is to regulate the electric, natural gas, hydroelectric and oil pipeline industries in the United States.

FERC Form 1:   the annual reporting form designated as such by FERC that is required to be filed under the Federal Power Act by electric utilities subject to FERC jurisdiction.

Form 12:   the reporting form designated as such by RUS, or in the event a Borrower does not borrow from RUS, the reporting form designated as such by CFC for its Class B Members, including any secondary forms carrying designations such as “Form 12a”, “Form12b”, and the like.

G&T Trend Analysis:   an annual report generated by the Seller containing key financial and operating ratios and other growth indicators for each Class B Member.

Indenture Borrower: any Eligible Class A Member or Eligible Class B Member that has issued Mortgage Notes secured by a Mortgage in the form of an indenture of trust that permits the issuance of additional Mortgage Notes under the terms and conditions set forth therein, but without the consent of existing noteholders.
 
Section 1.02.   Amended Defined Terms and Definitions .  The defined terms “Compliance Certification,” “Eligible Class B Member,” “Mortgage,” “Qualified Loan” and “Servicing File,” and their respective definitions set forth in Section 1.01 of the Master Agreement, are hereby deleted and replaced in their entirety with the following defined terms and definitions:
 
Compliance Certification:   The annual certification by a Borrower to CFC under the related Loan Agreement or, in the case of Indenture Borrowers, a comparable annual certification submitted under the terms of the indenture.
 
Eligible Class B Member:   Each Class B Member that satisfies the following criteria on the Sale Date of such Member's Qualified Loan:
 
(i)           Such Member’s Average Equity to Total Capitalization Ratio is at least 25%;
 
 
(ii)
Such Member’s Average Modified Debt Service Coverage Ratio—G&T is at least 1.15;
 
 
(iii)
Such Member’s Average Equity to Total Assets Ratio is at least 10%;
 
 
(iv)
Such Member’s Debt to EBITDA Ratio is no greater than 12; and
 
 
(v)
Such Member’s Qualified Loan has a Facility Rating of “4.9” or lower.
 
Mortgage:   An original mortgage, deed of trust or other instrument that constitutes a first lien on an interest in real property securing a Mortgage Note.  Such Mortgage may be an RUS form of mortgage, a CFC form of mortgage, the form specified by another lender and agreed to by CFC, or an indenture of trust substantially in the form as is usual and customary for rural electric utility borrowers.  It is understood that some of the Mortgages provide that one or more promissory notes may be secured by such Mortgage without being specifically identified in such Mortgage and without such Mortgage being amended to reflect such fact.

 

 
   
3
    
Qualified Loan:   A loan, or an interest in a loan, for an electric or telephone facility that satisfies the following criteria:
 
 
i.
The Borrower is either an Eligible Class A Member or an Eligible Class B Member that has received, or is eligible to receive, a loan from RUS under the Rural Electrification Act of 1936.
 
 
ii.
Such loan is a fixed or variable rate term loan that was closed by the Seller.  At the time of sale, such loan has an outstanding principal amount of up to $15 million (or any higher amount permitted by Farmer Mac and specified as the Purchase Price for a Qualified Loan in the applicable Commitment Letter) and a remaining period until maturity in the range of one (1) to thirty-five (35) years, provided that if such loan provides for an interest rate reset, the resets shall occur no more frequently than once every month.  Such loan is secured by substantially all of the assets of the Borrower.  Such assets may also secure one or more prior or future loans made by the Seller, RUS or another party to the same Borrower.
 
 
iii.
Such loan is payable in full upon maturity or amortizes on a level principal or level debt service basis.
 
 
iv.
Interest is payable on such loan monthly, semi-annually or annually, as specified in the applicable Commitment Letter.  Unless otherwise specified in the related Commitment Letter, interest due under the loan shall be calculated on the basis of a 360-day year consisting of twelve 30-day months.
 
 
v.
The documentation for such loan provides that in the event of prepayment of a fixed rate loan on any date other than an interest reset date, the Borrower must pay a Prepayment Premium.
 
 
vi.
The full amount of such loan is advanced by the time of sale and no further draws are permitted.
 
 
vii.
At the time of the sale, the Seller will have at least one other loan to the same Borrower in the Seller's portfolio.  In addition, at the time of sale, it will be the intention of the Seller to maintain a credit relationship with such Borrower until such time as the loan to such Borrower purchased by the Purchaser pursuant to this Master Agreement is repaid in full.
 
 
viii.
No event of default with respect to such loan shall have been declared by the Seller and be continuing at the time of sale.
 
 
ix.
Such loan is a performing loan and is not more than thirty (30) days delinquent in payment.
 
 

 
  
4
  
 
x.
Such loan shall have been documented in accordance with the Seller's existing practices and procedures at the time, and in form and substance that are substantially similar to the documentation used by Seller for loans of similar character in the Seller’s own loan portfolio as of the Sale Date, provided that prior to its sale hereunder to the Purchaser, the Mortgage Note and related Loan Agreement will be prepared and will include all of the provisions of a Qualified Loan contemplated by this Master Agreement.
 
 
xi.
The principal balance of such loan, when aggregated with (x) the aggregate principal balance of all loans to the same Borrower previously sold hereunder, (y) the aggregate principal balance of all Other Pledged Obligations with respect to the same Borrower and (z) the aggregate principal balance of all Other Sold Obligations with respect to the same Borrower, will not exceed $35,000,000 (or any higher amount permitted by Farmer Mac and communicated to CFC in writing).
 
 
xii.
The principal balance of such loan, when aggregated with (x) the aggregate principal balance of all loans to the same Borrower previously sold hereunder and (y) the aggregate principal balance of all Other Sold Obligations with respect to the same Borrower, will not exceed $15,000,000 (or any higher amount permitted by Farmer Mac and communicated to CFC in writing).
 
 
xiii.
With respect to any loan, the Borrower of which is a Class B Member, the principal balance of such loan, when aggregated with (x) the aggregate principal balance of all other loans to Class B Members previously sold hereunder, (y) the aggregate principal balance of all Other Sold Obligations with respect to Class B Members and (z) the aggregate principal balance of all Other Pledged Obligations with respect to Class B Members, will not exceed 20% (or any higher percentage permitted by Farmer Mac and communicated to CFC in writing) of the sum of (a) the aggregate principal balance of all loans sold hereunder, (b) the aggregate principal balance of all Other Pledged Obligations and (c) the aggregate principal balance of all Other Sold Obligations.
 
 
xiv.
With respect to any loan, the Borrower of which is a Class B Member, the principal balance of such loan, when aggregated with (x) the aggregate principal balance of all other loans to Class B Members previously sold hereunder and (y) the aggregate principal balance of all Other Sold Obligations with respect to Class B Members, will not exceed 10% (or any higher percentage permitted by Farmer Mac and communicated to CFC in writing) of the sum of (a) the aggregate principal balance of all loans sold hereunder, (b) the aggregate principal balance of all Other Pledged Obligations and (c) the aggregate principal balance of all Other Sold Obligations.
 
 
xv.
With respect to any loan, the Borrower of which is a Class B Member, the documentation for such loan contains a representation and warranty from the Borrower as of the Sale Date that the Borrower has not acquired, or committed to acquire, an ownership interest in any nuclear energy generating facility built or planned to be built after January 1, 2010.
 
 

 
  
5
   
 
xvi.
Unless otherwise specified in the related Commitment Letter, the repayment terms of such Qualified Loan shall not provide a conversion option exercisable by the Borrower to convert to a different loan product.
 
Servicing File :   The comprehensive set of files maintained in an organized format by the Master Servicer to properly document all current and pertinent information related to a Qualified Loan.  These files may consist of documents maintained in hard copy form or easily accessible electronic data and shall include at a minimum the following documents pertaining to each Qualified Loan:
 
 
i.
a copy of the most recent Compliance Certification by an officer of the related Borrower;
 
 
ii.
the most recent fiscal year-end certified audit of such Borrower;
 
 
iii.
with respect to Class A Members, a copy of the most recent unaudited annual financial statements of such Borrower (which may be set forth on a Seller form or Form 7);
 
 
iv.
with respect to Class A Members, copies of the Form 7 of such Borrower for each of the three most recent years;
 
 
v.
with respect to Class A Members, the most recent Key Ratio Trend Analysis, as available;
 
 
vi.
with respect to Class B Members, a copy of the most recent unaudited annual financial statements of such Borrower (which may be set forth on a Seller form, Form 12, or FERC Form 1, as applicable);
 
 
vii.
with respect to Class B Members, copies of the Form 12, or FERC Form 1, as applicable,  of such Borrower for each of the three most recent years;
 
 
viii.
with respect to Class B Members, the most recent G&T Trend Analysis, as available;
 
 
ix.
the most recent narrative with respect to such Borrower, as prepared by the Seller;
 
 
x.
the most recent Borrower Rating of such Borrower;
 
 
xi.
all correspondence between the Master Servicer and such Borrower that pertains to the Qualified Loan sold under this Master Agreement, or to the collateral by which it is secured, from origination of the Qualified Loan until payoff or foreclosure; and
 
 

 
  
6
   
 
xii.
documentation of any loan servicing actions taken with respect to the Qualified Loan.
 
Section 1.03.   Amended Defined Term .  The defined term “Total Assets Ratio” in Section 1.01 of the Master Agreement (but not the definition associated therewith), is hereby amended to read “Total Assets.”
 
Section 1.04.   Other Conforming Amendments .
 
A.           Section 4.03(i)(vi) of the Master Agreement is hereby deleted in its entirety and replaced with the following:
 
(vi) The Mortgage obligates the related Borrower to take out and maintain the classes and amounts of insurance coverages which conform to generally accepted utility industry standards for such classes and amounts of coverages of utilities of the size and character of such Borrower and the Borrower is in compliance with such obligations.  The Mortgage obligates the Borrower thereunder to maintain all such insurance at the Borrower's cost and expense, and on the Borrower's failure to do so, authorizes the holder of the Mortgage (or, in the case of an Indenture Borrower, the trustee thereunder) to advance or to procure from others all sums required to maintain such insurance at Borrower's cost and expense and to seek reimbursement therefor from the Borrower.
 
B.           Section 5.01(d) of the Master Agreement is hereby amended by adding the following to the end thereof:
 
Notwithstanding the foregoing, the Purchaser acknowledges and agrees that, with respect to a Mortgage Note for a Qualified Loan made to an Indenture Borrower, the noteholder’s ability to waive, modify, amend or vary any term of the related indenture, and its ability to exercise remedies thereunder, is governed and may be limited by the terms contained in such indenture as applicable to all noteholders.  However, no provision of any indenture or any other document related to a Qualified Loan to an Indenture Borrower shall prevent, restrict or otherwise encumber the Master Servicer’s ability to fulfill its obligations with respect to the 10 Business Day Notice requirement set forth above, or the Master Servicer’s obligation to notify the Purchaser of the events specified in this Section 5.01(d), except to the extent that noteholders under an indenture have the ability to waive an event of default under such indenture (but not an event of default under the Loan Agreement or Mortgage Note associated with such Qualified Loan) in accordance with the terms thereof.

 

 
   
7
   
ARTICLE II
Miscellaneous
 
Section 2.01.   Defined Terms .  Capitalized terms used herein and not otherwise defined have the meanings assigned to them in the Master Agreement.
 
Section 2.02.   Authorized Officers .  The manual or facsimile signature of any individual appearing on this Amendment, or any document or certificate issued pursuant to this Amendment, and which is designated as the signature of a Responsible Officer of any Person, shall constitute conclusive evidence that such individual is, in fact, authorized to execute such document, notwithstanding that such authorization may have lapsed prior to the effective date of such document.
 
Section 2.03.   Entire Agreement .  This Amendment contains the entire agreement between the parties regarding the modifications made to the Master Agreement.  Except as explicitly modified by this Amendment, each and every term, condition, exhibit, and provision of the Master Agreement shall remain in full force and effect.
 
Section 2.04.   Governing Law .  The terms of this Amendment shall be governed by, and construed in accordance with, federal law.  To the extent federal law incorporates state law, that state law shall be the laws of the State of New York.
 
Section 2.05.   Counterparts .  This Amendment may be executed in any number of counterparts, each of which counterparts shall be deemed to be an original, and such counterparts shall constitute but one and the same instrument.
 
IN WITNESS WHEREOF, the parties hereto hereby execute this Amendment as of the day and year first above written.
 
[signatures on following page]

 

 
  
8
   
FEDERAL AGRICULTURAL MORTGAGE CORPORATION , as Purchaser
 
By:  
  
Name:  
Title:
 
NATIONAL RURAL UTILITIES COOPERATIVE FINANCE CORPORATION , as Seller and Master Servicer
 
By:
  
 
John J. List
 
Senior Vice President - Member Services
General Counsel

 

 

EXHIBIT 10.38
 

 
$28,908,000
CLEAN RENEWABLE ENERGY BONDS
SECURED TAX CREDIT SERIES 2009A

NATIONAL RURAL UTILITIES
COOPERATIVE FINANCE CORPORATION
as Issuer

FEDERAL AGRICULTURAL MORTGAGE CORPORATION
as Guarantor
 


CREDIT SUPPORT AGREEMENT
 

 
Dated as of September 1, 2009
 


 
 

 

CREDIT SUPPORT AGREEMENT, dated as of September 1, 2009, between FEDERAL AGRICULTURAL MORTGAGE CORPORATION, a federally-chartered instrumentality of the United States and an institution of the Farm Credit System, as guarantor, (“ Farmer Mac ” or the “ Guarantor ”) and NATIONAL RURAL UTILITIES COOPERATIVE FINANCE CORPORATION, a cooperative association existing under the laws of the District of Columbia, as issuer (“ National Rural ”).
 
RECITALS
 
WHEREAS National Rural is a non-profit cooperative association whose primary business is making rural utilities loans; and
 
WHEREAS National Rural wishes to fund certain rural utilities loans for clean renewable energy projects by issuing $28,908,000 of Clean Renewable Energy Bonds, Secured Tax Credit Series 2009A (the “2009A Bonds”); and
 
WHEREAS Farmer Mac is an instrumentality of the United States formed to provide for a secondary market for agricultural real estate and rural housing mortgage loans,  rural utilities loans, and USDA-guaranteed farm program and rural development loans; and
 
WHEREAS at National Rural’s request, Farmer Mac has agreed to issue its guarantee of the timely payment of interest (if any) on the Series 2009A Bonds and, in the case of principal, an amount equal to the amount of outstanding principal of the Series 2009A Bonds less any amounts in the Series 2009A Project Account (the “Guarantee”), subject to the limitations set forth herein and in the Indenture; and
 
WHEREAS, Farmer Mac’s agreement to provide its guarantee on the 2009A Bonds is subject to the condition that National Rural pledge Eligible Loans to the Trustee such that the sum of (i) the aggregate outstanding principal balance of the Eligible Loans and (ii) any amounts in the Borrower Repayments Fund or the Bond Fund shall at all times be at least equal to the amount of the Guarantee.
 
NOW, THEREFORE, in consideration of the mutual agreements herein contained, Farmer Mac and National Rural agree as follows:
 
ARTICLE I
 
DEFINITIONS
 
SECTION 1.01.             Definitions .  As used in this Agreement, the following terms shall have the following meanings:
 
Agreement ” means this Credit Support Agreement, as the same may be amended from time to time.
 
Bond Fund ” has the meaning given to that term in the Indenture.

 
 

 

Borrower Repayments Fund ” has the meaning given to that term in the Indenture.
 
Business Day ” has the meaning given to that term in the Indenture.
 
Certificate of Pledged Collateral ” has the meaning given to that term in the Pledge Agreement.
 
Closing Date ” means the issuance date of the 2009A Bonds.
 
Eligible Loan ” is defined in Annex F hereto.
 
Event of Default ” has the meaning given to that term in Section 7.01.
 
Farmer Mac Series C Preferred Stock ” means shares of Non-Voting Cumulative Preferred Stock, Series C issued by Farmer Mac.
 
Financial Statements ”, in respect of a Fiscal Year, means the consolidated financial statements (including footnotes) of National Rural for that Fiscal Year as audited by an independent registered public accounting firm selected by National Rural.
 
Fiscal Year ” means the fiscal year of National Rural, as such may be changed from time to time, which at the date hereof commences on June 1 of each calendar year and ends on May 31 of the following calendar year.
 
Guarantor Default ” has the meaning given to that term in the Indenture.
 
 “ Indenture ” means that certain indenture dated as of September 1, 2009 between National Rural, U.S. Bank National Association, a national banking association, as Trustee, and Farmer Mac, as guarantor.
 
Indenture Event of Default ” means an “Event of Default” as such term is defined in the Indenture.
 
Member ” shall mean any Person who is member of National Rural.
 
National Rural Notice ” has the meaning given to that term in the Pledge Agreement.
 
Payment Date ” means any date upon which the payment of principal and, if applicable, interest on the Series 2009A Bonds is due to the holders thereof.
 
Person ” means an individual, a corporation, a partnership, an association, a trust or any other entity or organization, including a government or political subdivision or an agency or instrumentality thereof.
 
Pledge Agreement ” means the Pledge and Security Agreement dated as of the date hereof between National Rural and the Trustee for the benefit and security of the holders of the 2009A Bonds and Farmer Mac, as guarantor, to the extent Farmer Mac is subrogated to the rights of the holders of the 2009A Bonds.

 
 

 

Pledged Collateral ” has the meaning given to that term in the Pledge Agreement.
 
Purchase Agreement ” means the Securities Purchase Agreement between National Rural and Farmer Mac, substantially in the form of Annex C hereto, pursuant to which National Rural agrees to purchase Farmer Mac Series C Preferred Stock in an amount equal to 2% of the outstanding principal amount of the Series 2009A Bonds as of the Closing Date.
 
Series 2009A Project Account ” has the meaning given to that term in the Indenture.
 
Transaction Documents ” means this Agreement, the Indenture, the Pledge Agreement, and the Purchase Agreement.
 
Trustee ” means U.S. Bank National Association, or its successor, as Trustee under the Indenture.
 
SECTION 1.02.             Principles of Construction .  As used in this Agreement, the terms defined in Section 1.01 include the plural as well as the singular and the singular as well as the plural.  The words “hereafter”, “herein”, “hereof”, “hereto” and “hereunder”, and words of similar import, refer to this Agreement as a whole.  The descriptive headings of the various articles and sections of this Agreement were formulated and inserted for convenience only and shall not be deemed to affect the meaning or construction of the provisions hereof.  Capitalized terms used herein and not otherwise defined shall have the meanings assigned to them in the Indenture, as supplemented by the First Supplemental Indenture.
 
ARTICLE II
 
GUARANTEE
 
SECTION 2.01. Guarantee .  Farmer Mac shall issue the Guarantee in accordance with the terms, conditions and provisions of the Indenture and this Agreement.  No reference herein shall alter or impair the Guarantee.

 
 

 

SECTION 2.02. Payment of Guarantee and Administrative Fee .
 
(a)   In consideration of the Guarantee and subject to the terms and conditions of this Agreement, National Rural shall pay to Farmer Mac a nonrefundable guarantee fee quarterly in arrears in an amount equal to the product of (i) the outstanding principal balance of the Series 2009A Bonds less any amounts in the Series 2009A Project Account as of the last calendar day of each February, May, August and November through and including the final maturity date of the Series 2009A Bonds, and (ii) a rate equal to one fourth of the per annum fee of [CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH SECURITIES AND EXCHANGE COMMISSION], computed on the basis of a 360-day year comprised of twelve 30-day months (the “Guarantee Fee”).  National Rural shall also pay to Farmer Mac a nonrefundable administrative fee quarterly in arrears in an amount equal to the product of (i) the outstanding principal balance of the Series 2009A Bonds less any amounts in the Series 2009A Project Account as of the last calendar day of each February, May, August and November through and including the final maturity date of the Series 2009A Bonds, and (ii) a rate equal to one fourth of the per annum fee of [CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH SECURITIES AND EXCHANGE COMMISSION], computed on the basis of a 360-day year comprised of twelve 30-day months (the “Administrative Fee”).  Upon the occurrence, and during the continuance, of an Event of Default by National Rural set forth in Section 7.01(d), the rate used to calculate the quarterly Administrative Fee shall be one fourth of the per annum fee of [CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH SECURITIES AND EXCHANGE COMMISSION].  Payments of the Guarantee Fee and the Administrative Fee will be rounded to the nearest cent.
 
(b)   The first quarterly Guarantee Fee and the Administrative Fee shall be paid on the first Farmer Mac Payment Date (as defined below) occurring after the Closing Date and then subsequently on each succeeding Farmer Mac Payment Date (as defined below) through and including the final maturity date of the Series 2009A Bonds.  National Rural shall pay the Guarantee Fee and the Administrative Fee to Farmer Mac by 11 a.m. New York City time on the 20 th day of each March, June, September and December (each, a “Farmer Mac Payment Date”), in United States dollars, by wire transfer of immediately available funds to such account as Farmer Mac shall specify to National Rural.  If a specified Farmer Mac Payment Date is not a Business Day, the Guarantee Fee and the Administrative Fee will be paid on the next Business Day with the same force and effect as if made on the applicable Farmer Mac Payment Date.
 
(c)   Payment of the Guarantee Fee and the Administrative Fee by National Rural shall be suspended during any period in which a Guarantor Default shall have occurred and be continuing; provided that at the time the Guarantor Default is cured all accrued and unpaid Guarantee Fees and Administrative Fees shall then become due and payable.
 
(d)   All payments in respect of the Guarantee Fee and the Administrative Fee will be made without any withholding or deduction for or on account of any present or future taxes, duties, levies, assessments or other governmental charges of whatever nature imposed or levied on behalf of any governmental authority in the United States having the power to tax, unless National Rural, based on an opinion of counsel acceptable to the Guarantor, determines that it is required by law to make such withholding or deduction.
 
(e)   Payment of the Guarantee Fee and the Administrative Fee will not be subject to counterclaim or setoff for any claim or dispute of National Rural.

 
 

 

SECTION 2.03. Invest to Participate .  In further consideration of the Guarantee, National Rural shall enter into the Purchase Agreement and purchase Farmer Mac Series C Preferred Stock in an amount equal to 2% of the outstanding principal amount of the Series 2009A Bonds as of the Closing Date.
 
SECTION 2.04. Payment on the Series 2009A Bonds .  In accordance with the Indenture, at least two (2) Business Days prior to each Payment Date, National Rural shall remit to the Trustee, in immediately available funds, an amount sufficient to make a full payment of all principal and interest (if any) on the Series 2009A Bonds due on such Payment Date.  Beginning with the day that Farmer Mac makes an advance under the Guarantee, National Rural agrees to pay to the Guarantor all amounts necessary to reimburse Farmer Mac for any payments made to holders of Series 2009A Bonds under the Guarantee to the extent to which the Guarantor has not already been reimbursed through the liquidation of Pledged Collateral.
 
ARTICLE III
 
CONDITIONS PRECEDENT
 
SECTION 3.01.             Conditions Precedent to Famer Mac’s Obligation .  Farmer Mac’s obligation to issue its Guarantee on the Closing Date is subject to the following conditions precedent:
 
(a)   Bond Issuance .  The Series 2009A Bonds shall have been issued pursuant to and in accordance with the terms, conditions and provisions of the Indenture.
 
(b)   Opinion of Counsel .  Farmer Mac shall have received an opinion of counsel to National Rural substantially in the form of Annex A attached hereto, and such other opinions as provided for in the Indenture.
 
(c)   Financial and Other Information .  National Rural shall have provided Farmer Mac with its most recent Financial Statements and such other information concerning National Rural as Farmer Mac shall have reasonably requested.
 
(d)   No Material Adverse Change .  National Rural shall have certified to Farmer Mac (in the manner specified in paragraph (g) of this Section 3.01), and Farmer Mac shall be satisfied, that no material adverse change shall have occurred in the financial condition or business of National Rural between the end of National Rural’s most recently completed Fiscal Year for which Financial Statements have been made publicly available and the Closing Date, which has not been set forth in documents, certificates or financial information furnished to Farmer Mac or publicly filed.
 
(e)   No Event of Default .  National Rural shall have certified to Farmer Mac and Farmer Mac shall be satisfied that no Event of Default or Indenture Event of Default shall have occurred and be continuing.

 
 

 

(f)   Securities Purchase .  National Rural shall have entered into the Purchase Agreement pursuant to Section 2.03.
 
(g)   Certification of Senior Management .  National Rural shall have provided Farmer Mac a certification by any vice president of National Rural, substantially in the form of Annex B attached hereto, as to the following: (i) that National Rural is a lending institution organized as a private, not-for-profit, cooperative association with the appropriate expertise, experience and qualifications to make loans to its Members for rural electrification and related purposes; (ii) the matters to be certified under paragraphs (d) and (e) of this Section 3.01; and (iii) the representations and warranties of National Rural.
 
ARTICLE IV
 
REPORTING REQUIREMENTS
 
SECTION 4.01.             Annual Reporting Requirements .  So long as any 2009A Bond remains outstanding, National Rural shall provide Farmer Mac with the following items within 90 days of the end of each Fiscal Year, in each case, in form and substance satisfactory to Farmer Mac:
 
(a)   the Financial Statements for such Fiscal Year;
 
(b)   a Certificate of Pledged Collateral; and
 
(c)   a receipt from the Trustee, or such other evidence as is satisfactory to Farmer Mac, as to the Pledged Collateral held by the Trustee at the end of such Fiscal Year.
 
SECTION 4.02.             Other Reporting Requirements .  So long as any Series 2009A Bond remains outstanding, National Rural shall provide Farmer Mac with the following items, which items may be included on a consolidated report of other loans serviced by National Rural on behalf of Farmer Mac:
 
(a)   within 30 days of the end of each calendar quarter ending March 31 st , June 30 th , September 30 th , and December 31 st , a report substantially in the form of Annex D hereto that identifies each Eligible Loan that constitutes Pledged Collateral, which report shall include the outstanding principal balance of such Eligible Loan, the related facility rating assigned by National Rural and the related borrower rating assigned by National Rural, in each case as of the end of such quarter;
 
(b)   within 30 days following the end of the calendar quarter ending December 31 st , a report substantially in the form of Annex E hereto that identifies each Eligible Loan that constitutes Pledged Collateral, which report shall include the appropriate financial data (as described in Annex E) from the most recent year end unaudited financial statements, which may be on a Form 7 (the financial and statistical report used by National Rural for a distribution system Member) or Form 12 (the financial and statistical report used by National Rural for a power supply Member); and

 
 

 

(c)   National Rural shall provide written notice to Farmer Mac within 30 days after the occurrence of any of the following material changes to National Rural’s current internal risk rating methodology for determining facility ratings or borrower ratings:  (1) any material change to the weighting of the risk rating criteria; and (2) any material change in the criteria in the risk rating; and
 
(d)   such other information concerning National Rural or the Eligible Loans that constitute Pledged Collateral as is reasonably requested by Farmer Mac.
 
SECTION 4.03.             Default Notices .  If an action, occurrence or event shall happen that is, or with notice and the passage of time would become, an Event of Default or an Indenture Event of Default, National Rural shall deliver a National Rural Notice of such action, occurrence or event to Farmer Mac before 4:00 p.m. (District of Columbia time) on the Business Day following the date National Rural becomes aware of such action, occurrence or event, and, if such Event of Default or Indenture Event of Default should occur, shall promptly submit to Farmer Mac, within five days of such occurrence, a report setting forth its views as to the reasons for the Event of Default or Indenture Event of Default (as applicable), the anticipated duration of the Event of Default or Indenture Event of Default and what corrective actions National Rural is taking to cure such Event of Default or Indenture Event of Default.
 
SECTION 4.04.             Access to Information by Farmer Mac .  Upon 30 days prior written request and identification of specific Eligible Loans by Farmer Mac, which shall not exceed 40% of the total amount of Eligible Loans that constitute Pledged Collateral (“Identified Loans”), National Rural shall provide to representatives of Farmer Mac access to the following documentation related to each Identified Loan: (1) credit recommendation associated with the Eligible Loan; (2) three most recent calendar year end unaudited financial statements of the Member, which may be on a Form 7 or Form 12; (3) most recent borrower rating by National Rural; (4) most recent facility rating by National rural; (5) most recent key ratio trend analysis (the annual report generated by National Rural containing key financial and operating ratios and other growth indicators for each Class A Member); (6) most recent annual certification by an officer of a Member to National Rural under the applicable loan agreement; (7) most recent fiscal year-end certified independent audit of the Member; (8) most recent mortgage of the Member, if applicable; (9) loan agreement associated with the Eligible Loan; (10) opinion of counsel associated with the Eligible Loan, if applicable; and (11) most recent rating on the Member issued by a nationally recognized statistical rating organization, if applicable.  All such access shall occur during normal business hours at the offices of National Rural, and the information disclosed shall be treated by the representatives of Farmer Mac as confidential and proprietary to National Rural for so long as National Rural is the owner of the Eligible Loans and to the extent that such information has not otherwise been made public by National Rural.

 
 

 

ARTICLE V
 
REPRESENTATIONS OF THE PARTIES
 
SECTION 5.01.             Representations of Farmer Mac . Farmer Mac represents to National Rural as of the Closing Date that it has all necessary authority and has taken all necessary corporate action, and obtained all necessary approvals, in order for it to guarantee the 2009A Bonds, to execute and deliver this Agreement and all other documents executed or to be executed by Farmer Mac in connection with the issuance of the 2009A Bonds, and that such documents constitute valid and binding obligations of Farmer Mac; and the actions taken by Farmer Mac in connection with the issuance of the 2009A Bonds are in compliance with and in satisfaction of the requirements of the Farm Credit Administration, as amended or waived by the Farm Credit Administration,
 
SECTION 5.02.             Representations of National Rural .  National Rural hereby represents to Farmer Mac that as of the Closing Date:
 
(a)   National Rural has been duly organized and is validly existing and in good standing as a cooperative association under the laws of the District of Columbia;
 
(b)   National Rural has the corporate power and authority, and has taken all necessary corporate and other action to (i) issue the 2009A Bonds, (ii) execute and deliver this Agreement, (iii) consummate the transactions contemplated hereby and in the other Transaction Documents, and (iv) perform its obligations hereunder and under the other Transaction Documents;
 
(c)   this Agreement, the other Transaction Documents, and each other document to National Rural has executed in connection with the issuance of the 2009A Bonds have been duly authorized, executed and delivered by National Rural and constitute the legal, valid and binding obligations of National Rural, enforceable against National Rural in accordance with their respective terms, subject to: (i) applicable bankruptcy, reorganization, insolvency, moratorium and other laws of general applicability relating to or affecting creditors’ rights generally; and (ii) the application of general principles of equity regardless of whether such enforceability is considered in a proceeding in equity or at law;
 
(d)   no approval, consent, authorization, order, waiver, exemption, variance, registration, filing, notification, qualification, license, permit or other action is now, or under existing law in the future will be, required to be obtained, given, made or taken, as the case may be, with, from or by any regulatory body, administrative agency or governmental authority having jurisdiction over National Rural or any third party under any agreement to which National Rural is a party to authorize the execution and delivery by National Rural of this Agreement, the other Transaction Documents, and each other document National Rural has executed in connection with the issuance of the 2009A Bonds, or the consummation by National Rural of the transactions contemplated hereby or by the other Transaction Documents;

 
 

 

(e)   neither the execution nor delivery by National Rural of this Agreement, the other Transaction Documents, and each other document National Rural has executed in connection with the issuance of the 2009A Bonds, nor the consummation by National Rural of the transactions contemplated hereby or by the other Transaction Documents, conflicts with or will conflict with, violates or will violate, results in or will result in a breach of, constitutes or will constitute a default under, or results in or will result in the imposition of any lien or encumbrance (other than the lien on the Pledged Collateral as contemplated by the Indenture) prohibited by, any term or provision of the articles of incorporation or the bylaws of National Rural or any provision of any existing law or any rule or regulation currently applicable to National Rural or any judgment, order or decree of any court or any regulatory body, administrative agency or governmental authority having jurisdiction over National Rural or the terms of any mortgage, indenture, contract or other agreement to which National Rural is a party or by which National Rural or any of its properties is bound;
 
(f)   there is no action, suit, proceeding or investigation before or by any court or any regulatory body, administrative agency or governmental authority presently pending or, to the knowledge of National Rural, threatened with respect to National Rural, this Agreement or any other Transaction Documents, or challenging the validity or enforceability of this Agreement or any other Transaction Documents, or seeking to restrain, enjoin or otherwise prevent National Rural from engaging in its business as currently conducted or the consummation by National Rural of the transactions contemplated by this Agreement or any other Transaction Documents, if any, or which, if adversely determined, would have a material adverse effect on National Rural’s financial condition or its ability to perform its obligations under this Agreement or any other Transaction Documents;
 
(g)   National Rural is a lending institution organized as a private, not-for-profit, cooperative association with the appropriate expertise, experience and qualifications to make loans to its Members for rural electrification purposes;
 
(h)   no material adverse change has occurred in the financial condition or business of National Rural between the end of National Rural’s most recently completed Fiscal Year for which Financial Statements have been made publicly available and the date this representation is given which has not been set forth in documents, certificates or financial information furnished to Farmer Mac or publicly filed; and
 
(i)   Each Member whose notes are Eligible Loans that constitute Pledged Collateral has received, or is eligible to receive, a loan or commitment for a loan from the Rural Utilities Service of the United States Department of Agriculture or any successor agency.

 
 

 

ARTICLE VI
 
SECURITY AND COLLATERAL
 
SECTION 6.01.             Security and Collateral .
 
(a)   National Rural shall cause the amount of Eligible Loans that constitute Pledged Collateral to be maintained such that the sum of (i) the aggregate outstanding principal balance of the Eligible Loans and (ii) any amounts in the Borrower Repayments Fund or the Bond Fund shall at all times be at least equal to the amount of the Guarantee.
 
(b)   National Rural shall not create, or permit to exist, any pledge, lien, charge, mortgage, encumbrance, debenture, hypothecation or other similar security instrument that secures, or in any way attaches to, such Pledged Collateral, other than the lien of the Pledge Agreement and the Indenture, without the prior written consent of Farmer Mac and the Trustee.
 
ARTICLE VII
 
EVENTS OF DEFAULT
 
SECTION 7.01.             Events of Default .  Each of the following actions, occurrences or events shall constitute an “ Event of Default ” under the terms of this Agreement:
 
(a)   a failure by National Rural to make any payment required to be made under Section 2.04;
 
(b)   the Trustee has declared the 2009A Bonds immediately due and payable;
 
(c)   an Insolvency Event, as defined in the Indenture, shall have occurred and be continuing with respect to National Rural; or
 
(d)   a failure of National Rural to observe or perform the covenant set forth in Section 6.01(a) hereof, which shall remain unremedied for five (5) Business Days after National Rural Shall have become aware of such failure or shall have been given notice thereof, whichever occurs earlier.
 
SECTION 7.02.             Exercise of Remedies .
 
(a)   Any remedies provided to Farmer Mac under this Agreement shall be in addition to its remedies under the Indenture, Pledge Agreement and Securities Purchase Agreement.
 
(b)   In addition to the provisions regarding an increase in the fee payable to Farmer Mac under Section 2.02, upon the occurrence, and during the continuance, of an Event of Default set forth in Section 7.01(d), Farmer Mac may institute one or more legal proceedings against National Rural seeking, individually or in the aggregate, (i) recovery of actual monetary damages, and (ii) injunctive relief or specific performance, in each case without proof of actual damages.

 
 

 

ARTICLE VIII
 
MISCELLANEOUS
 
SECTION 8.01.             GOVERNING LAW .  THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, FEDERAL LAW.  TO THE EXTENT FEDERAL LAW INCORPORATES STATE LAW, THAT STATE LAW SHALL BE THE LAWS OF THE DISTRICT OF COLUMBIA APPLICABLE TO CONTRACTS MADE AND PERFORMED THEREIN.
 
SECTION 8.02.             WAIVER OF JURY TRIAL .  EACH PARTY HERETO HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY).  EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 8.02.
 
SECTION 8.03.             Notices .  All notices and other communications hereunder to be made to any party shall be in writing and shall be addressed as specified in Schedule I attached hereto as appropriate except as otherwise provided herein.  The address, telephone number, or facsimile number for any party may be changed at any time and from time to time upon written notice given by such changing party to the other parties hereto.  A properly addressed notice or other communication shall be deemed to have been delivered at the time it is sent by facsimile (fax) transmission to the party or parties to which it is given.
 
SECTION 8.04.             Benefit of Agreement .  This Agreement shall become effective when it shall have been executed by Farmer Mac and National Rural, and thereafter shall be binding upon and inure to the respective benefit of the parties and their permitted successors and assigns.
 
SECTION 8.05.             Entire Agreement .  This Agreement, including the Schedules and Annexes hereto, constitute the entire agreement between the parties hereto concerning the matters contained herein and supersede all prior oral and written agreements and understandings between the parties.

 
 

 

SECTION 8.06.             Amendments and Waivers; Assignment .
 
(a)   No provision of this Agreement may be amended or modified except pursuant to an agreement in writing entered into by Farmer Mac and National Rural.  No provision of this Agreement may be waived except in writing by the party or parties receiving the benefit of and under such provision.
 
(b)   Neither party may assign this Agreement without the prior consent of the other party.
 
(c)   No failure or delay of Farmer Mac or National Rural in exercising any power or right hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such right or power, or any abandonment or discontinuance of steps to enforce such a right or power, preclude any other or further exercise thereof or the exercise of any other right or power.  No waiver of any provision of this Agreement or consent to any departure by National Rural therefrom shall in any event be effective unless the same shall be authorized as provided in paragraph (a) of this Section 8.06, and then such waiver or consent shall be effective only in the specific instance and for the purpose for which given.  No notice or demand on National Rural in any case shall entitle National Rural to any other or further notice or demand in similar or other circumstances.
 
SECTION 8.07.             Counterparts .  This Agreement may be executed in two or more counterparts, each of which shall be an original, but all of which together shall constitute one and the same instrument.
 
SECTION 8.08.             Termination of Agreement .  This Agreement shall terminate upon the indefeasible payment in full of all amounts payable on the 2009A Bonds.
 
SECTION 8.09.             Survival .  The representations and warranties of each of the parties hereto contained in this Agreement and the parties’ obligations hereunder shall survive and shall continue in effect following the execution and delivery of this Agreement.
 
SECTION 8.10.             Severability .  If any term or provision of this Agreement or the application thereof to any circumstance shall, in any jurisdiction and to any extent, be invalid or unenforceable, such term or such provision shall be ineffective as to such jurisdiction to the extent of such invalidity or unenforceability without invalidating or rendering unenforceable any remaining terms or provisions hereof or the application of such term or provision to circumstances other than those as to which it is held invalid or unenforceable.

 
 

 

IN WITNESS WHEREOF, each party hereto has caused this Agreement to be executed by an authorized officer as of the day and year first above written.
 
FEDERAL AGRICULTURAL
MORTGAGE CORPORATION
   
By:
  
 
     
Name:
  
 
     
Title:
  
 
   
NATIONAL RURAL UTILITIES COOPERATIVE FINANCE CORPORATION
   
By:
  
 
     
Name:
  
 
     
Title:
  
 
 
 
 

 

SCHEDULE I
TO
CREDIT SUPPORT AGREEMENT
 
Addresses for Notices
 
1.
The addresses referred to in Section 8.03 hereof, for purposes of delivering communications and notices, are as follows:
 
If to Farmer Mac:
 
Federal Agricultural Mortgage Corporation
1133 21st Street, N.W., Suite 600
Washington, DC 20036
Fax:  202-872-7713
Attention of: Chief Financial Officer
 
With a copy to:
Federal Agricultural Mortgage Corporation
1133 21st Street, N.W., Suite 600
Washington, DC 20036
Fax:  202-872-7713
Attention of: Chief Operating Officer
 
With a copy also to:
Federal Agricultural Mortgage Corporation
1133 21st Street, N.W., Suite 600
Washington, DC 20036
Fax:  202-872-7713
Attention of: General Counsel

If to National Rural:
 
National Rural Utilities Cooperative Finance Corporation
2201 Cooperative Way
Herndon, VA 20171-3025
Telephone:  703-709-6718
Fax:  703-709-6779
Attention of: Steven L. Lilly, Senior Vice President &
Chief Financial Officer

 
 

 

With a copy to:
 
National Rural Utilities Cooperative Finance Corporation
2201 Cooperative Way
Herndon, VA 20171-3025
Telephone:  703-709-6748
Fax:  703-709-6779
Attention of: John Suter, Vice President, Capital Market Funding

With a copy also to:
 
National Rural Utilities Cooperative Finance Corporation
2201 Cooperative Way
Herndon, VA 20171-3025
Telephone:  703-709-6712
Fax:  703-709-6811
Attention of: John J. List, Esq., Senior Vice President &
General Counsel

 
 

 

ANNEX A
[FORM OF OPINION OF COUNSEL TO NATIONAL RURAL]
 
__________________, 2009

Federal Agricultural Mortgage Corporation
1133 Twenty-First Street, NW
Suite 600
Washington, DC 20036

Gentlemen:

I am delivering this opinion as general counsel of National Rural Utilities Cooperative Finance Corporation, a District of Columbia cooperative association (“National Rural”).

I am familiar with matters pertaining to the issuance of $28,908,000 of Clean Renewable Energy Bonds, Secured Tax Credit Series 2009A (the “2009A Bonds”).  I, or attorneys under my supervision, have examined such corporate records and proceedings of National Rural, and such other documents as I have deemed necessary as a basis for the opinions hereinafter expressed.

I, or attorneys under my supervision, have also examined the Credit Support Agreement dated as of September 1 (“Credit Support Agreement"), between National Rural and Federal Agricultural Mortgage Corporation (“Farmer Mac”).

Based on the foregoing, but subject to the assumptions, exceptions, qualifications and limitations hereinafter expressed, I am of the opinion that:

(1)           National Rural has been duly incorporated and is validly existing as a cooperative association in good standing under the laws of the District of Columbia with corporate power and authority to execute and perform its obligations under the Credit Support Agreement.

(2)           The Credit Support Agreement has been duly authorized, executed and delivered by National Rural, and constitutes the legal, valid and binding agreement of National Rural, enforceable against National Rural in accordance with its terms.

(3)           Neither the execution nor the delivery by National Rural of any of the Credit Support Agreement nor the consummation by National Rural of any of the transactions contemplated therein, including, without limitation, the pledge of the Pledged Securities (as such term is defined in the Pledge Agreement) to Farmer Mac, nor the fulfillment by National Rural of the terms of any of the Credit Support Agreement will conflict with or violate, result in a breach of or constitute a default under any term or provision of the Articles of Incorporation or By-laws of National Rural or any law or any regulation or any order known to me currently applicable to National Rural of any court, regulatory body, administrative agency or governmental body having jurisdiction over National Rural or the terms of any indenture, deed of trust, note, note agreement or instrument to which National Rural is a party or by which National Rural or any of its properties is bound.

 
 

 

(4)           No approval, authorization, consent, order, registration, filing, qualification, license or permit of or with any state or Federal court or governmental agency or body having jurisdiction over National Rural is required for any consummation by National Rural of the transactions contemplated by the Credit Support Agreement; provided , however , no opinion is expressed as to the applicability of any Federal or state securities law to any sale, transfer or other disposition of the Bonds after the date hereof.

(5)           Except as set forth in writing and previously delivered to Farmer Mac, there is no pending or, to my knowledge, threatened action, suit or proceeding before any court or governmental agency, authority or body or any arbitrator with respect to National Rural, or the Credit Support Agreement, which, if adversely determined, would have a material adverse effect on National Rural’s financial condition or its ability to perform its obligations under any of the Credit Support Agreement.

The foregoing opinions are subject to the following assumptions, exceptions, qualifications and limitations:
 
A.           I am a member of the Bar of the District of Columbia and render no opinion on the laws of any jurisdiction other than the laws of the District of Columbia, the federal laws of the United States of America and the General Corporation Law of the District of Columbia.

B.           My opinions are limited to the present laws and to the facts, as they presently exist.  I assume no obligation to revise or supplement this opinion should the present laws of the jurisdictions referred to in paragraph A above be changed by legislative action, judicial decision or otherwise.

C.           The opinions expressed in paragraph 2 above shall be understood to mean only that if there is a default in performance of an obligation, (i) if a failure to pay or other damage can be shown and (ii) if the defaulting party can be brought into a court which will hear the case and apply the governing law, then, subject to the availability of defenses, and to the exceptions set forth in the next paragraph, the court will provide a money damage (or perhaps injunctive or specific performance) remedy.

D.           My opinions are also subject to the effect of:  (1) bankruptcy, insolvency, reorganization, receivership, moratorium and other laws affecting creditors’ rights (including, without limitation, the effect of statutory and other law regarding fraudulent conveyances, fraudulent transfers and preferential transfers); and (2) the exercise of judicial discretion and the application of principles of equity, good faith, fair dealing, reasonableness, conscionability and materiality (regardless of whether the applicable agreements are considered in proceeding in equity or at law).

 
 

 

E.           This letter is rendered to you in connection with the Credit Support Agreement, and may not be relied upon by any other person or by you in any other context or for any other purpose.

F.           I have assumed with your permission (i) the genuineness of all signatures by each party other than National Rural, (ii) the authenticity of documents submitted to me as originals and the conformity to authentic original documents of all documents submitted to me as copies, and (iii) the due execution and delivery, pursuant to due authorization, of the Credit Support Agreement by each party other than National Rural.

Yours sincerely,

John J. List
General Counsel

 
 

 

ANNEX B
 
[FORM OF OFFICERS’ CERTIFICATE]
 
Officers’ Certificate
 
TO:                      Federal Agricultural Mortgage Corporation.
 
The undersigned, _________________, _____________________, of National Rural Utilities Cooperative Finance Corporation (“ National Rural ”), pursuant to the Credit Support Agreement dated as of September 1, 2009, among National Rural and Federal Agricultural Mortgage Corporation (the “ Credit Support Agreement ”), hereby certifies on behalf of National Rural that as at the date hereof:
 
(1)           National Rural is a lending institution organized as a private, not-for-profit, cooperative association with the appropriate expertise, experience and qualifications to make loans to its Members for rural electrification and related purposes;
 
(2)           no material adverse change has occurred in the financial condition of National Rural between the date of the end of National Rural’s most recently completed Fiscal Year for which Financial Statements have been made publicly available and the date hereof, which has not been set forth in documents, certificates, or financial information furnished to Farmer Mac or publicly filed;
 
(3)          all of the representations contained in Section 5.02 of the Credit Support Agreement remain true and correct in all material respects on and as of the date hereof; and
 
(4)           no Event of Default or Indenture Event of Default exists.
 
Capitalized terms used in this certificate shall have the meanings given to those terms in the Credit Support Agreement.
 
DATED as of this _____ day of ______________, _________.

NATIONAL RURAL UTILITIES COOPERATIVE FINANCE CORPORATION

By:
  
 
     
Name:
  
 
     
Title:
  
 

 
 

 

ANNEX C
 
[FORM OF SERIES C PREFERRED STOCK PURCHASE AGREEMENT]
 
SERIES C PREFERRED STOCK PURCHASE AGREEMENT
 
BETWEEN
 
[●]
 
AND
 
FEDERAL AGRICULTURAL MORTGAGE CORPORATION
 
DATED AS OF [●]

 
 

 

TABLE OF CONTENTS
 
   
Page
   
Article I DEFINITIONS
2
1.1
Certain Terms
2
1.2
Additional Terms
4
1.3
Terms Generally
5
   
Article II SALE AND PURCHASE OF THE SECURITIES; CLOSING
5
2.1
Authorization of Securities
5
2.2
Closing
6
   
Article III REPRESENTATIONS AND WARRANTIES OF THE COMPANY
6
3.1
Organization and Standing
6
3.2
Corporate Power; Authorization
6
3.3
Issuance of Preferred Stock
7
3.4
Consents; No Conflicts
7
3.5
Compliance with Laws; Permits
7
3.6
Exempt Securities
8
   
Article IV ADDITIONAL AGREEMENTS
8
4.1
Further Assurances
8
4.2
Tax Treatment
8
   
Article V MISCELLANEOUS
8
5.1
Notices
8
5.2
Severability
9
5.3
Entire Agreement; Assignment
9
5.4
Specific Performance
9
5.5
Burden and Benefit
10
5.6
Governing Law; Forum
10
5.7
Waiver of Jury Trial
10
5.8
Headings
11
5.9
Counterparts
11
5.10
Waiver
11

 
 

 

SERIES C PREFERRED STOCK SECURITIES PURCHASE AGREEMENT
THIS SERIES C PREFERRED STOCK SECURITIES PURCHASE AGREEMENT (this “ Agreement ”) is made as of [●], between [●], a [●] (the “ Purchaser ”), and Federal Agricultural Mortgage Corporation, a federally chartered instrumentality of the United States of America (the “ Company ”).
 
RECITALS
WHEREAS, the Company has authorized the issuance and sale of up to 100,000 shares of Preferred Stock (as defined herein) to be sold from time to time; and
 
WHEREAS, the Company and the Purchaser desire to set forth herein the terms and conditions of such issuance and sale of shares of Preferred Stock by the Company to the Purchaser.
 
NOW, THEREFORE, in consideration of the foregoing recitals and the mutual promises, representations, warranties and covenants hereinafter set forth and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:
 
ARTICLE IX
 
DEFINITIONS
 
SECTION 9.01. Certain Terms.  Whenever used in this Agreement, the following terms shall have the respective meanings given to them below:
 
Act ” means the Farm Credit Act of 1971, as amended.
 
Affiliate ” means any Person that, directly or indirectly, controls, is controlled by or is under common control with another Person.  As used in this definition, “control” (including its correlative meanings, “controlled by” and “under common control with”) shall mean the possession, directly or indirectly, of power to direct or cause the direction of management or policies (whether through ownership of securities or partnership or other ownership interests, by contract or otherwise).  To the extent that any such term is used in relation to, or in connection with, any statute, and the definition of such term in such statute is broader or different, then, in such context, such term shall have the meaning set forth in such statute.
 
Board ” means the Board of Directors of the Company.
 
Bylaws ” means the By-Laws of the Company.
 
Charter ” means Title VIII of the Act.
 
Company Reports ” means all registration statements, prospectuses, forms, reports, schedules, statements and other documents filed by the Company and the Subsidiary with the SEC.

 
 

 

Contract ” means, whether written or oral, any note, bond, mortgage, indenture, contract, agreement, permit, license, lease, purchase order, sales order, arrangement or other commitment, obligation or understanding (including any understanding with respect to pricing) to which a Person is a party or by which a Person or its assets or properties are bound.
 
Encumbrance ” means any liens, pledges, hypothecations, mortgages, deeds of trust, charges, claims, security interests, options, restrictions, encumbrances, rights, warrants, licenses, burdens, Title defects, Title retention agreements, voting trust agreements, proxy or other similar interests, restrictions or limitations.
 
FCA ” means the Farm Credit Administration.
 
Governmental Entity ” means any court or tribunal or administrative, governmental or regulatory body, agency, commission, board, legislature, instrumentality, division, department, public body or other authority of any nation or government or any political subdivision thereof, whether foreign or domestic and whether national, supranational, state or local and any industry self-regulatory organization.
 
Law ” means any foreign, national, state, provincial, municipal or local statute, law, ordinance, regulation, treaty, rule, code, injunction, decree, judgment, writ, order, determination, award or decree, other order or applicable regulations.
 
Material Adverse Effect ” means any fact, circumstance, event, change, violation, development, effect, condition or occurrence, either individually or in the aggregate with any other fact, circumstance, event, change, violation, development, effect, condition or occurrence, that is, or would reasonably be expected to be, materially adverse to the business, operations (including results of operations), assets, liabilities, properties or condition (financial or otherwise) of the Company and the Subsidiary, taken as a whole, excluding any such fact, circumstance, event, change, violation, development, effect, condition or occurrence arising out of, in connection with or resulting from, in whole or in part (a) general economic conditions or changes therein, (b) changes in or events affecting the industries in which the Company or the Subsidiary participate generally, (c) any effect arising out of a change in U.S. GAAP or applicable Law, (d) national or international political conditions, including any engagement in hostilities, whether or not pursuant to the declaration of a national emergency or war, or the occurrence of any military or terrorist attack, (e) any change in the market price or trading volume of the Company’s outstanding securities, in and of itself, (f) announcement of the transactions contemplated by this Agreement or (g) actions or omissions by the Company or the Subsidiary pursuant to this Agreement or with the prior written consent of the Purchaser, to the extent that any such fact, circumstance, event, change, violation, development, effect, condition or occurrence described in the foregoing clauses (a) through (e) does not have a disproportionate impact on the Company or the Subsidiary as compared to other Persons participating in businesses or industries in which the Company or the Subsidiary operates.
 
NYSE ” means the New York Stock Exchange.

 
 

 

Per Share Purchase Price ” means $1,000 per share of Preferred Stock.
 
Person ” means any individual, corporation (including not-for-profit), general or limited partnership, limited liability company, joint venture, estate, trust, association, organization, Governmental Entity or other entity of any kind or nature.
 
SEC ” means the United States Securities and Exchange Commission.
 
Securities Act ” means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.
 
Tax ” or “ Taxes ” means all federal, state, local, foreign and other taxes, charges, fees, duties, imposts, levies, penalties or other assessments or other similar charges imposed by any Taxing Authority, including, but not limited to, income, excise, property, sales and use, franchise, payroll, withholding, social security profits, capital gains, capital stock, transfer, gross receipts, production, customs, goods and services, service, state guarantee fund assessment, occupation, ad valorem, excise, severance, windfall profits, premium, stamp, license, employment, workers compensation, unemployment, disability, alternative minimum, add-on, value-added, capital, or other taxes, duties or assessments including any interest, penalties or additions attributable thereto.  For purposes of this Agreement, “Taxes” also includes any liability pursuant to section 1.1502-6 of the Treasury Regulations or comparable provisions of state, local or foreign Law, any obligations under any Contract with any Person with respect to the liability for, or sharing of, Taxes (including pursuant to section 1.1502-6 of the Treasury Regulations or comparable provisions of state, local or foreign Tax Law) and any liability for Taxes as a transferee or successor, by contract or otherwise.
 
Taxing Authority ” shall mean any federal, national, provincial, foreign, state or local government, or any subdivision, agency, commission or authority thereof exercising Tax regulatory, enforcement, collection or other authority.
 
SECTION 9.02. Additional Terms.  The following terms are defined in the corresponding Sections of this Agreement:
 
Term
 
Section
     
Agreement
 
Preamble
Certificate of Designation
 
Section 2.1
Closing
 
Section 5.1
Closing Date
 
Section 2.2
Company
 
Preamble
Issue Date
 
Section 2.1
Letter Agreement
 
Recitals
New York Courts
 
Section 7.6(b)
Observers
 
Section 5.3
Order
 
Section 3.5
Preferred Stock
 
Section 2.1
Purchaser
 
Preamble
Subsidiary
 
Section 3.1
 
 
 

 

SECTION 9.03. Terms Generally.  For the purposes of this Agreement, (a) words (including capitalized terms defined herein) in the singular shall be held to include the plural and vice versa and words (including capitalized terms defined herein) of one gender shall be held to include the other gender as the context requires; (b) the terms “hereof,” “herein” and “herewith” and words of similar import shall, unless otherwise stated, be construed to refer to this Agreement as a whole (including all of the Exhibits) and not to any particular provision of this Agreement, and Article, Section, paragraph and Exhibit references are to the Articles, Sections, paragraphs and Exhibits to this Agreement, unless otherwise specified; (c) the word “including” and words of similar import when used in this Agreement shall mean “including, without limitation”; (d) the phrase “ordinary course of business” and phrases of similar import when used in this Agreement shall mean “ordinary course of business consistent with past practice”; (e) the word “liability” and words of similar import when used in this Agreement shall be deemed to include any liabilities, whether known or unknown, whether asserted or unasserted, whether absolute or contingent, whether accrued or unaccrued, whether liquidated or unliquidated and whether due or to become due; (f) all references to any period of days shall be deemed to be to the relevant number of calendar days unless otherwise specified; (g) references to any statute, rule or regulation are to the statute, rule or regulation as amended, modified, supplemented or replaced from time to time (and, in the case of statutes, include any rules and regulations promulgated under said statutes) and to any section of any statute, rule or regulation include any successor to said section; (h) the word “or” shall not be interpreted to be exclusive or disjunctive; and (i) all references herein to “$” or dollars shall refer to United States dollars, unless otherwise specified.
 
ARTICLE X
 
SALE AND PURCHASE OF THE SECURITIES; CLOSING
 
SECTION 10.01. Authorization of Securities.
 
The Company hereby agrees to issue and sell to the Purchaser, and the Purchaser agrees to purchase from the Company, [●] shares of the Company’s Non-Voting Cumulative Preferred Stock, Series C, par value $1,000 per share (“ Preferred Stock ”), free and clear of all Encumbrances, each of which shares of Preferred Stock will have the designations, powers, preferences, rights, privileges, qualifications, limitations, restrictions, terms and conditions set forth in the Amended and Restated Certificate of Designation of Terms and Conditions of Non-Voting Cumulative Preferred Stock, Series C previously provided to the Purchaser (the “ Certificate of Designation ”), for a purchase price per share of Preferred Stock equal to the Per Share Purchase Price.  The Company and the Purchaser hereby agree that, for the purposes of the Certificate of Designation, the “ Issue Date ” with respect to the shares of Preferred Stock being purchased by the Purchaser pursuant to this Agreement shall be [●].

 
 

 

SECTION 10.02. Closing.  On [●] (the “ Closing Date ”), (a) the Company will deliver to the Purchaser a certificate representing [●] shares of Preferred Stock, registered in the name of the Purchaser, (b) the Purchaser, in full payment for the Preferred Stock being purchased by it, will deliver to the Company by wire transfer of immediately available funds to such account as the Company shall specify, an amount equal to $[●] and (c) each party shall take or cause to happen such other actions, and shall execute and deliver such other instruments or documents, as shall be required pursuant to this Agreement.
 
ARTICLE XI
 
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
 
Except as set forth in the Company Reports filed prior to the date of this Agreement (excluding any disclosures set forth in any section of any such Company Report entitled “Risk Factors” or “Forward-Looking Statements”), the Company hereby represents and warrants to the Purchaser as follows:
 
SECTION 11.01. Organization and Standing.  The Company is a federally chartered instrumentality of the United States, duly organized, validly existing and in good standing under the Act.  The Company’s wholly-owned subsidiary, Farmer Mac Mortgage Securities Corporation, a Delaware corporation (the “ Subsidiary ”), is duly organized, validly existing and in good standing under the laws of the State of Delaware.  Each of the Company and the Subsidiary has full corporate power and authority to own, lease, use and operate its properties and to carry on its business as currently conducted where now owned, leased, used, operated and conducted.  Each of the Company and the Subsidiary is duly qualified to do business in all jurisdictions in which the character of the business conducted by it or the property it owns, leases or operates requires it to so qualify, except where the failure to be so qualified or in good standing in such jurisdiction would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect.  The Company is not in default in the performance, observance or fulfillment of any provision of the Charter or Bylaws.  The Subsidiary is not in default in the performance, observance or fulfillment of any provision of its organizational or corporate governance Contracts (including any federal statutes similar to the Charter).
 
SECTION 11.02. Corporate Power; Authorization.  The Company has all requisite corporate power and has taken all necessary corporate action required for the due authorization, execution, delivery and performance by the Company of this Agreement, the execution and filing (if necessary) of the Certificate of Designation and the consummation of the transactions contemplated hereby and thereby.  The issuance and delivery of Preferred Stock have been duly authorized by all necessary corporate action on the part of the Company, and no further corporate proceedings are required by the Company, the Board or the Company’s stockholders.  This Agreement has been duly executed and delivered by the Company and constitutes the valid and binding obligation of the Company enforceable against it in accordance with its terms, subject to bankruptcy, insolvency, fraudulent conveyance or other similar laws affecting creditors’ rights generally and to general equitable principles.

 
 

 

SECTION 11.03. Issuance of Preferred Stock.  The Preferred Stock being purchased by the Purchaser pursuant to this Agreement, upon payment of the Per Share Purchase Price therefore, will be (a) duly authorized, validly issued, fully paid and nonassessable, (b) will not be subject to any preemptive or similar rights of any other Person and (c) will be delivered to the Purchaser (or the Purchaser’s transferee) free and clear of all Encumbrances.  When issued, the Purchaser will be the sole record and beneficial owner of each share of Preferred Stock.
 
SECTION 11.04. Consents; No Conflicts.
 
(a)   The Company has obtained all consents and approvals, and has taken all actions necessary, in connection with the execution and delivery of this Agreement and the consummation of the transactions contemplated hereby (including the issuance of Preferred Stock in connection therewith) such that the execution and delivery of this Agreement and the consummation of such transactions do not and will not:
 
(i) conflict, or result in a breach or violation of any provision of, or constitute a default under, the Charter or the Bylaws;
 
(ii) conflict with, or result in a breach or violation of any provision of, or constitute a default (or an event that, with the giving of notice, the passage of time or otherwise, would constitute a default) under, or entitle any Person (with the giving of notice, the passage of time or otherwise) to terminate, accelerate, modify or call a default under, or result in the creation of any Encumbrances upon any of the properties or assets of the Company or the Subsidiary under, any of the terms, conditions or provisions of any Contract to which the Company or the Subsidiary is a party or to which any of their respective properties or assets are bound;
 
(iii) materially violate any Law applicable to the Company or the Subsidiary or any of their respective properties or assets; or
 
(iv) require any further action or consent or approval of, or review by, or any registration or filing by the Company or any of its Affiliates with, any third party or any Governmental Entity, including (A) approval of this Agreement and the other transactions contemplated hereby by the FCA, (B) registrations or other actions required under United States federal and state securities laws and (C) compliance with any applicable requirements of the NYSE,
 
except, in the case of clause (ii) above, as would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect.  Without limiting the generality of the foregoing, the Company has obtained from the FCA and any other regulatory Governmental Entity written assurances that the proceeds from the sale of shares of Preferred Stock pursuant to this Agreement will be treated as capital for minimum capital purposes under the Charter.

 
 

 

SECTION 11.05. Compliance with Laws; Permits.  Neither the Company nor the Subsidiary, nor the conduct of their respective businesses, is in material violation of or material default under any judicial or administrative judgment, decision, decree, order, settlement, injunction, writ, stipulation, determination, award or permit (each, an “ Order ”) or any Law (including the Sarbanes-Oxley Act).  No investigation or review by any Governmental Entity with respect to the Company or the Subsidiary is pending or, to the knowledge of the Company, threatened, nor has any Governmental Entity indicated in writing an intention to conduct any such investigation or review.
 
SECTION 11.06. Exempt Securities.  The shares of Preferred Stock are being issued and are properly exempt under Section 3(a)(2) of the Securities Act from the registration and prospectus delivery requirements of the Securities Act and such registration or prospectus delivery is not required in connection with the issuance, sale, resale or delivery of such securities as contemplated herein.
 
ARTICLE XII
 
ADDITIONAL AGREEMENTS
 
SECTION 12.01. Further Assurances.  Following the closing of the transactions contemplated by this Agreement (the “ Closing ”), the Purchaser, on the one hand, and the Company, on the other hand, shall execute all such further certificates, agreements, instruments and other documents and take all such other actions as are reasonably required in order to more effectively consummate or implement the transactions contemplated by this Agreement or the Certificate of Designation or otherwise carry out, and comply with its obligations under, the terms and conditions of this Agreement and the Certificate of Designation.
 
SECTION 12.02. Tax Treatment.  The parties agree to treat the Preferred Stock as equity for all Tax purposes.
 
ARTICLE XIII
 
MISCELLANEOUS
 
SECTION 13.01. Notices.  All notices, requests, claims, demands and other communications hereunder shall be in writing and shall be given (and shall be deemed to have been duly given upon receipt) by delivery in person, by prepaid overnight courier (providing proof of delivery), by facsimile or by registered or certified mail (postage prepaid, return receipt requested) to the respective parties at the following addresses or facsimile numbers (or at such other address for a party as shall be specified in a notice given in accordance with this Section 5.1 ):

 
 

 

if to the Purchaser:
 
[●]
 
if to the Company:
 
Federal Agricultural Mortgage Corporation
1133 Twenty-First Street, N.W.
Suite 600
Washington, D.C. 20036
Telecopier No:  (202) 872-7713
Attention:  General Counsel
 
with a copy to:
 
Shearman & Sterling LLP
801 Pennsylvania Avenue, N.W.
Suite 900
Washington, D.C. 20004
Telecopier No:  (202) 508-8100
Attention:  Abigail Arms, Esq.
 
SECTION 13.02. Severability.  If any term or other provision of this Agreement is invalid, illegal or incapable of being enforced by any rule of law or public policy or the application of this Agreement to any person or circumstance is invalid or incapable of being enforced by any rule of law or public policy, all other conditions and provisions of this Agreement shall nevertheless remain in full force and effect so long as the economic or legal substance of the transactions contemplated by this Agreement is not affected in any manner materially adverse to any party.  To such end, the provisions of this Agreement are agreed to be severable.  Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the parties hereto shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible in a mutually acceptable manner in order that the transactions contemplated by this Agreement be consummated as originally contemplated to the fullest extent possible.
 
SECTION 13.03. Entire Agreement; Assignment.  This Agreement, including any Exhibits hereto and the other documents delivered pursuant hereto constitute the full and entire understanding and agreement among the parties with respect to the subject matter hereof, and supersede and preempt all prior agreements and undertakings, both written and oral, among the parties, or any of them, with respect to the subject matter hereof.  Neither this Agreement nor any of the rights or obligations hereunder may be assigned by any party without the prior written consent of the other parties; provided , that in the event of any such assignment, such assignee shall be required to execute a joinder to and agree to be bound by this Agreement.  No such assignment shall release the assignor from any of its obligations hereunder.
 
SECTION 13.04. Specific Performance.  The parties hereto agree that irreparable damage would occur in the event any provision of this Agreement were not performed in accordance with the terms hereof and that money damages would not be a sufficient remedy for any breach of this Agreement, and accordingly, the parties hereto shall be entitled to specific performance of the terms hereof, in addition to any other remedy at law or equity.

 
 

 

SECTION 13.05. Burden and Benefit.  This Agreement shall be binding upon, and shall inure to the benefit of, the parties hereto and their respective successors and permitted assigns.  This Agreement and all of its conditions and provisions are for the sole and exclusive benefit of the parties hereto and their respective successors and permitted assigns, and nothing in this Agreement, express or implied, is intended to confer upon any Person other than the parties hereto any rights or remedies of any nature whatsoever under or by reason of this Agreement or any provision hereof.
 
SECTION 13.06. Governing Law; Forum.
 
(a)   All disputes, claims or controversies arising out of or relating to this Agreement, or the negotiation, validity or performance of this Agreement or the transactions contemplated by this Agreement shall be governed by and construed in accordance with the laws of the State of New York without regard to its rules of conflict of laws.
 
(b)   Except as set out below, the Company and the Purchaser hereby irrevocably and unconditionally consent to submit to the sole and exclusive jurisdiction of the United States District Court for the Southern District of New York (the “ New York Courts ”) for any litigation arising out of or relating to this Agreement, or the negotiation, validity or performance of this Agreement or the transactions contemplated by this Agreement (and agree not to commence any litigation relating thereto except in such courts), waive any objection to the laying of venue of any such litigation in the New York Courts and agree not to plead or claim in any New York Court that such litigation brought therein has been brought in any inconvenient forum.  Each of the parties hereto agrees (i) to the extent such party is not otherwise subject to service of process in the State of New York, to appoint and maintain an agent in the State of New York as such party’s agent for acceptance of legal process and (ii) that service of process may also be made on such party by prepaid certified mail with a proof of mailing receipt validated by the United States Postal Service constituting evidence of valid service.  Service made pursuant to (i) or (ii) above shall have the same legal force and effect as if served upon such party personally within the State of New York.
 
SECTION 13.07. Waiver of Jury Trial.  Each of the parties hereto hereby waives to the fullest extent permitted by applicable Law any right it may have to a trial by jury with respect to any litigation directly or indirectly arising out of, under or in connection with this Agreement or the transactions contemplated by this Agreement.  Each of the parties hereto (a) certifies that no representative, agent or attorney of any other party has represented, expressly or otherwise, that such other party would not, in the event of litigation, seek to enforce that foregoing waiver and (b) acknowledges that it and the other hereto have been induced to enter into this Agreement and the transactions contemplated by this Agreement, as applicable, by, among other things, the mutual waivers and certifications in this Section 5.7 .

 
 

 

SECTION 13.08. Headings.  The descriptive headings contained in this Agreement are included for convenience of reference only and shall not affect in any way the meaning or interpretation of this Agreement.
 
SECTION 13.09. Counterparts.  This Agreement may be executed and delivered, including by facsimile transmission, in two or more counterparts, and by the different parties hereto in separate counterparts, each of which when executed shall be deemed to be an original but all of which taken together shall constitute one and the same agreement.
 
SECTION 13.10. Waiver.  Except as provided in this Agreement, no action taken pursuant to this Agreement, including, without limitation, any investigation by or on behalf of any party, shall be deemed to constitute a waiver by the party taking such action of compliance with any representations, warranties, covenants or agreements contained in this Agreement.  The waiver by any party hereto of a breach of any provision hereunder shall not operate or be construed as a waiver of any prior or subsequent breach of the same or any other provision hereunder.
 
IN WITNESS WHEREOF, each party has caused this Agreement to be duly executed on its behalf by an authorized officer as of the date first above written.
 
 
FEDERAL AGRICULTURAL
 
MORTGAGE CORPORATION
 
By:
   
 
Name:
 
 
Title:
 
     
 
[COUNTERPARTY NAME]
 
By:
   
 
Name:
 
 
Title:
 
 
 
 

 

ANNEX D
 
SAMPLE

Coopid
 
Facilityid
 
Indenture
 
Name
 
Class
   
Facility Risk Rating
   
Coop Risk Rating
   
Facility O/s Balance
 
AK002
    9033  
FMCT
 
Matanuska Electric Association, Inc.
 
A
      2.5       3     $ 3,250,000.00  
AK002
    9034  
FMCT
 
Matanuska Electric Association, Inc.
 
A
      2.5       3     $ 3,350,000.00  
AK002
    9035  
FMCT
 
Matanuska Electric Association, Inc.
 
A
      2.5       3     $ 3,470,000.00  

NOTE:  The “Indenture” designation may not be changed in subsequent reporting periods once established with respect to an Eligible Loan.

 
 

 

ANNEX E
 
SAMPLE

COOP IDS
 
year
   
dep_amort_exp
   
interest_ltd_exp
   
patcap_op_margins
   
non_op_margins_interest
   
g_and_t_capital_credits
   
other_capital_credits_pat_div
   
net_utility_plant
 
MN048
 
2008
     
8417985
     
6310184
     
-3177921
     
174637
     
6333697
     
993039
     
192833241
 
                                                               
tot_assets_other_debits
 
tot_margins_equities
   
tot_ltd
   
long_term_lease_rental_tot
   
tot_pmt_ltd_bc
   
tot_pmt_ltd_ffb
   
tot_pmt_ltd_rus_edl
   
tot_pmt_ltd_other1
   
tot_pmt_ltd_other2
 
311655261
   
127968457
     
112263396
                                                 
                                                                 
payee_ltd_other4
 
payee_ltd_other5
   
tot_pmt_ltd_other6
   
tot_pmt_ltd_other7
   
tot_pmt_ltd_other8
   
tot_pmt_ltd_other9
   
tot_pmt_ltd_other10
   
cfc_bill_debt_service_tot
   
rus_bill_debt_service_tot
 
                                                     
11079647
         

 
 

 

ANNEX F
 
Eligible Loan Criteria

Eligible Member ” means any Class A Member or Class B Member of Nat Rural as described in Nat Rural’s Bylaws currently in effect.

Eligible Loan ” means a note or bond of any Eligible Member payable or registered to, or to the order of, Nat Rural, (A) in respect of which (i) the outstanding principal amount under such note or bond, together with the outstanding principal amount of any other notes or bonds of such Eligible Member pledged hereunder or pledged to secure any other notes or bonds issued by Nat Rural to Farmer Mac or any affiliate or sold by Nat Rural or any affiliate to any trust whose beneficial ownership is owned or controlled by Farmer Mac, does not aggregate more than $35 million; (ii) no default has occurred in the payment of principal or interest in accordance with the terms of such note or bond that is continuing beyond the contractual grace period (if any) provided in such note or bond for such payment and (iii) no “event of default” as defined in such note or bond (or in any instrument creating a security interest in favor of Nat Rural in respect of such note or bond), shall exist that has resulted in the exercise of any right or remedy described in such note or bond (or in any such instrument); (B) which is not classified by Nat Rural as a non-performing loan under generally accepted accounting principles in the United States; and (C) which otherwise satisfies the additional criteria set forth below.
 
Additional Criteria for Eligible Loan of Class A Eligible Member :  Each Class A Eligible Member must satisfy the following criteria only on the date of the pledge of such Eligible Loan:
 
·
Long-Term Debt to Net Utility Plant Ratio, as the average ratio of the most recent three full calendar years for which financial information is available, does not exceed 90%.

 
·
Modified Debt Service Coverage Ratio—Distribution, as the average ratio of the most recent three full calendar years for which financial information is available, is greater than or equal to 1.35.

 
·
Equity to Total Assets Ratio, as the average ratio of the most recent three full calendar years for which financial information is available, is greater than or equal to 20%.

 
·
The Eligible Loan has a Facility Rating by Nat Rural of “4.9” or lower.

Additional Criteria for Eligible Loan of Class B Eligible Member :  Each Class B Eligible Member must satisfy the following criteria only on the date of the pledge of such Eligible Loan:

 
 

 

 
·
Equity to Total Capitalization Ratio, as the average ratio of the most recent three full calendar years for which financial information is available, is greater than or equal to 25%.

 
·
Modified Debt Service Coverage Ratio—G&T, as the average ratio of the most recent three full calendar years for which financial information is available, is greater than or equal to 1.10.

 
·
Equity to Total Assets Ratio, as the average ratio of the most recent three full calendar years for which financial information is available, is greater than or equal to 10%.

The Eligible Loan has a Facility Rating by Nat Rural of “4.9” or lower
 
 
 

 
 
 
EXHIBIT 10.39
 
National Rural Utilities
Cooperative Finance Corporation
Company

U.S. Bank National Association
Trustee

and

Federal Agricultural Mortgage Corporation
Guarantor
 
Indenture
 
Dated as of September 1, 2009
 
National Rural Utilities Cooperative Finance Corporation
Clean Renewable Energy Bonds, Secured Tax Credit Series 2009A

 
 

 

Table of Contents
 
Section
 
Heading
 
Page
         
Granting Clauses
     
2
         
Article One
 
Definitions and Other Provisions of General Application
 
3
         
Section 101.
 
Definitions
 
3
Section 102.
 
Compliance Certificates and Opinions
 
13
Section 103.
 
Form of Documents Delivered to Trustee
 
14
Section 104.
 
Acts of Holders
 
15
Section 105.
 
Notices, Etc., to Trustee and Company
 
16
Section 106.
 
Notice to Holders of Securities; Waiver
 
16
Section 107.
 
Language of Notices, Etc.
 
16
Section 108.
 
Effect of Headings and Table of Contents
 
17
Section 109.
 
Successors and Assigns
 
17
Section 110.
 
Separability Clause
 
17
Section 111.
 
Benefits of Indenture
 
17
Section 112.
 
Governing Law
 
17
Section 113.
 
Legal Holidays
 
17
         
Article Two
 
Security Forms
 
17
         
Section 201.
 
Forms Generally
 
17
Section 202.
 
Form of Trustee’s Certificate of Authentication
 
18
Section 203.
 
Securities in Global Form
 
18
         
Article Three
 
The Securities
 
19
         
Section 301.
 
Issuance of the Series 2009A Bonds
 
19
Section 302.
 
Denominations
 
19
Section 303.
 
Execution, Authentication, Delivery and Dating
 
20
Section 304.
 
Temporary Securities; Exchange of Temporary Securities
 
21
Section 305.
 
Registration, Registration of Transfer and Exchange
 
21
Section 306.
 
Mutilated, Destroyed, Lost and Stolen Securities
 
23
Section 307.
 
Payment of Interest; Interest Rights Preserved
 
24
Section 308.
 
Persons Deemed Owners
 
25
Section 309.
 
Cancellation
 
25
Section 310.
 
Computation of Interest
 
26
Section 311.
 
CUSIP Numbers
 
26
         
Article Four
 
Application of Proceeds; Project Fund; Bond Fund; Borrower Repayments Fund
 
26
         
Section 401.
 
Deposit of Funds
 
26
Section 402.
 
Project Fund
 
26
 
-i-

 
Section 403.
 
Bond Fund
 
30
Section 404.
 
Borrower Repayments Fund
 
31
         
Article Five
 
Guarantee; Action by the Trustee
 
33
         
Section 501.
 
Guarantee of the Series 2009A Bonds
 
33
Section 502.
 
Action by the Trustee
 
34
         
Article Six
 
Events of Default; Remedies
 
36
         
Section 601.
 
Events of Default; Remedies
 
36
Section 602.
 
Acceleration of Maturity, Rescission and Annulment
 
37
Section 603.
 
Collection of Indebtedness
 
37
Section 604.
 
Trustee May Enforce Claims Without Possession of Securities
 
38
Section 605.
 
Application of Proceeds
 
38
Section 606.
 
Suits for Enforcement
 
40
Section 607.
 
Restoration of Rights on Abandonment of Proceedings
 
40
Section 608.
 
Limitations on Suits by Holders
 
40
Section 609.
 
Powers and Remedies Cumulative; Delay or Omission Not Waiver of Default
 
40
Section 610.
 
Control by the Holders
 
41
Section 611.
 
Waiver of Past Defaults
 
41
Section 612.
 
Costs of Litigation
 
41
Section 613.
 
Unconditional Right of Holders to Receive Principal, Premium and Interest
 
41
Section 614.
 
Undertaking for Costs
 
42
Section 615.
 
Waiver of Stay, Extension or Usury Laws
 
42
         
Article Seven
 
Control By the Guarantor; Additional Rights of the Guarantor
 
42
         
Section 701.
 
Control by the Guarantor
 
42
Section 702.
 
Rights of the Guarantor to Direct Actions of the Trustee
 
43
Section 703.
 
Additional Rights of the Guarantor
 
43
         
Article Eight
 
The Trustee
 
45
         
Section 801.
 
Certain Duties and Responsibilities.
 
45
Section 802.
 
Notice of Defaults
 
46
Section 803.
 
Certain Rights of Trustee
 
46
Section 804.
 
Not Responsible for Recitals or Issuance of Securities
 
48
Section 805.
 
May Hold Securities
 
48
Section 806.
 
Money Held in Trust
 
48
Section 807.
 
Compensation and Reimbursement
 
48
Section 808.
 
Disqualification; Conflicting Interests
 
49
Section 809.
 
Corporate Trustee Required; Eligibility
 
54
Section 810.
 
Resignation and Removal; Appointment of Successor
 
54
 
-ii-

 
Section 811.
 
Acceptance of Appointment by Successor
 
56
Section 812.
 
Merger, Conversion, Consolidation or Succession to Business
 
57
Section 813.
 
Preferential Collection of Claims Against Company
 
57
Section 814.
 
Appointment of Authenticating Agent
 
61
         
Article Nine
 
Holders’ Lists and Reports by Trustee and Company
 
62
         
Section 901.
 
Holder Lists; Communications to Holders
 
62
Section 902.
 
Reports by Trustee
 
63
Section 903.
 
Reports by Company
 
64
         
Article Ten
 
Consolidation, Merger, Conveyance or Transfer
 
66
         
Section 1001.
 
Company May Consolidate, Etc., Only on Certain Terms.
 
66
Section 1002.
 
Successor Substituted.
 
66
         
Article Eleven
 
Supplemental Indentures
 
67
         
Section 1101.
 
Supplemental Indentures Without Consent of Holders.
 
67
Section 1102.
 
Supplemental Indentures with Consent of Holders.
 
68
Section 1103.
 
Execution of Supplemental Indentures
 
69
Section 1104.
 
Effect of Supplemental Indentures
 
69
Section 1105.
 
Reference in Securities to Supplemental Indentures
 
69
         
Article Twelve
 
Covenants
 
69
         
Section 1201.
 
Payment of Principal, Premium and Interest
 
69
Section 1202.
 
Maintenance of Office or Agency
 
69
Section 1203.
 
Money for Securities Payments to Be Held in Trust
 
70
Section 1204.
 
Officers’ Certificate
 
71
         
Article Thirteen
 
Redemption of Securities
 
72
         
Section 1301.
 
Applicability of Article.
 
72
Section 1302.
 
Election to Redeem; Notice to Trustee
 
72
Section 1303.
 
Extraordinary Mandatory Redemption
 
72
Section 1304.
 
Mandatory Sinking Fund Redemption
 
73
Section 1305.
 
Selection by Trustee of Securities to Be Redeemed
 
73
Section 1306.
 
Notice of Redemption
 
73
Section 1307.
 
Deposit of Redemption Price
 
74
Section 1308.
 
Securities Payable on Redemption Date
 
74
Section 1309.
 
Securities Redeemed in Part
 
75
         
Article  Fourteen
 
Meetings of Holders of Securities
 
75
         
Section 1401.
 
Purposes for Which Meetings May Be Called
 
75
Section 1402.
 
Call, Notice and Place of Meetings
 
75
Section 1403.
 
Persons Entitled to Vote at Meetings
 
75
 
-iii-

 
Section 1404.
 
Quorum; Action
 
76
Section 1405.
 
Determination of Voting Rights; Conduct and Adjournment of Meetings
 
77
Section 1406.
 
Counting Votes and Recording Action of Meetings
 
77
         
Article Fifteen
 
Sinking Funds
 
78
         
Section 1501.
 
Applicability of Article
 
78
Section 1502.
 
Satisfaction of Sinking Fund Payments with Securities
 
78
Section 1503.
 
Redemption of Securities for Sinking Fund
 
78
         
Article Sixteen
 
Satisfaction and Discharge
 
78
         
Section 1601.
 
Satisfaction and Discharge of Indenture
 
78
Section 1602.
 
Application of Trust Money
 
80
Section 1603.
 
Satisfaction, Discharge and Defeasance of Securities
 
80
Section 1604.
 
Reinstatement
 
82
         
Article Seventeen
 
Grant of Security Interest in Pledged Collateral
 
83
         
Section 1701.
 
Security Interest
 
83
         
Article Eighteen
 
Immunity of Incorporators, Stockholders, Officers and Directors
 
83
         
Section 1801.
 
Exemption from Individual Liability
 
83
 
Exhibit A     Form of Security
Exhibit B     Form of Expense Requisition Statement
Exhibit C     Form of Demand Letter
Exhibit D     Form of Control Party Instructions
Exhibit E     Form of Funds Direction Statement

 
-iv-

 
 
Indenture , dated as of September 1, 2009, among National Rural Utilities Cooperative Finance Corporation , a District of Columbia cooperative association (herein called the “Company” ), having its principal executive office and mailing address at 2201 Cooperative Way, Herndon, Virginia 20171-3025, U.S. Bank National Association , a national banking association, as Trustee (herein called the “Trustee” ) and the Federal Agricultural Mortgage Corporation , a federally chartered instrumentality of the United States, as guarantor (herein called the “Guarantor” ) having its principal executive office and mailing address at 1133 21st Street, N.W., Suite 600, Washington, D.C.
 
Recitals of the Company
 
Whereas , the Company has duly authorized the execution and delivery of this Indenture to provide for the issuance of its clean renewable energy bonds, to be issued as in this Indenture provided.
 
Whereas , the Company desires to provide for the creation of a series of clean renewable energy bonds to be known as the National Rural Utilities Cooperative Finance Corporation Clean Renewable Energy Bonds, Secured Tax Credit Series 2009A (herein called the “Series 2009A Bonds” or the “Securities” ).
 
Whereas , the Company intends to lend the proceeds of the Securities to one or more members of the Company, as borrowers, to finance the cost of certain clean renewable energy facilities.
 
Whereas , the Guarantor has agreed to fully and unconditionally guarantee to the Trustee for the benefit of the Holders of the Series 2009A Bonds and the Company, the timely payment of the interest on the Series 2009A Bonds and, in the case of principal, an amount equal to the amount of outstanding principal of the Series 2009A Bonds less any amounts in the Series 2009A Project Account (as defined below), as set forth in this Indenture (the “Guarantee” ).
 
Whereas , all things necessary to make this Indenture a valid and legally binding agreement of the Company, enforceable in accordance with its terms, have been done and the Company proposes to do all things necessary to make the Bonds, when issued by the Company, valid and legally binding obligations of the Company as hereinafter provided;
 
Whereas , all Securities will be secured by an assignment to the Trustee of the Company’s interest in the Pledged Collateral (as defined herein) and all moneys and securities from time to time held by the Trustee under the terms of this Indenture (except for moneys or securities in the Series 2009A Expense Account) and any and all other property conveyed as and for additional security hereunder by the Company.

 
 

 
 
Granting Clauses
 
Now, Therefore, This Indenture of Trust Witnesseth :
 
That the Company in consideration of the premises and the acceptance by the Trustee of the trusts hereby created and of the purchase and acceptance of the Securities by the Holders thereof, and of the sum of one dollar, lawful money of the United States of America, to it duly paid by the Trustee at or before the execution and delivery hereof, and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, in order to secure the payment of the principal and interest on the Securities according to their tenor and effect, to secure the performance and observance by the Company of the Obligations (as hereinafter defined) and of all the covenants expressed or implied herein and in the Securities, does hereby grant, bargain, sell, convey, assign and pledge to the Trustee, and its successors in trust and assigns forever, to the extent provided in this Indenture, a security interest in the following, whether now owned, existing or held or hereafter acquired, and wherever located (the “Trust Estate” ):
 
Granting Clause First
 
All rights, title and interest of the Company in, to and under the Pledged Collateral assigned pursuant to Article Seventeen hereof; and the proceeds of all thereof in accordance with the Pledge and Security Agreement.
 
Granting Clause Second
 
All rights, title and interest of the Company in, to and under all moneys and securities from time to time held directly or indirectly by the Trustee under the terms of this Indenture, including, without limitation, moneys and securities held in the Bond Fund and the Series 2009A Project Account, but not moneys or securities in the Series 2009A Expense Account, and any and all other real and personal property of every name and nature from time to time hereafter by delivery or by writing of any kind conveyed, mortgaged, pledged, assigned or transferred, as and for additional security hereunder by the Company or by anyone on its behalf or with its written consent, to the Trustee which is hereby authorized to receive any and all such property at any and all times and to hold and apply the same subject to the terms hereof;
 
To Have and To Hold all and singular the Trust Estate, whether now owned or hereafter acquired, unto the Trustee and its respective successors in said trust and assigns forever;
 
In Trust Nevertheless , upon the terms and trusts herein set forth for the equal and proportionate benefit, security and protection of all present and future owners of Securities, without privilege, priority or distinction as to the lien or otherwise of any of the Securities over any of the other bonds, except as expressly provided herein;

 
-2-

 

 
Provided , however, that if the Company, its successors or assigns, shall well and truly pay, or cause to be paid, the principal of and interest on all of the Securities due or to become due thereon, at the times and in the manner mentioned in the Securities according to the true intent and meaning thereof, and shall cause all payments to be made on the Securities as required herein, or shall provide, as permitted hereby, for the payment thereof by depositing with the Trustee the entire amount due or to become due thereon (or United States Treasury Securities sufficient for the purpose as provided in Article Sixteen hereof), and shall well and truly keep, perform and observe all the covenants and conditions pursuant to the terms of this Indenture to be kept, performed and observed by it, and shall pay or cause to be paid to the Trustee all sums of money due or to become due to it in accordance with the terms and provisions hereof, then upon the final payment thereof this Indenture and the rights hereby granted shall cease, determine and be void except as otherwise provided herein; otherwise this Indenture to be and remain in full force and effect.
 
This Indenture Further Witnesseth and it is expressly declared that all Securities issued and secured hereunder are to be issued, authenticated and delivered and all said property, rights and interests, including, without limitation, the amounts hereby assigned and pledged, are to be dealt with and disposed of under, upon and subject to the terms, conditions, stipulations, covenants, agreements, trusts, uses and purposes as hereinafter expressed, and the Company has agreed and covenanted, and does hereby agree and covenant, with the Trustee and with the respective Holders of Securities as follows:
 
Article One
 
Definitions and Other Provisions of General Application
 
Section 101.          Definitions. For all purposes of this Indenture, except as otherwise expressly provided or unless the context otherwise requires:
 
(1)           the terms defined in this Article have the meanings assigned to them in this Article and include the plural as well as the singular;
 
(2)           all accounting terms not otherwise defined herein have the meanings assigned to them in accordance with generally accepted accounting principles in the United States of America, and, except as otherwise herein expressly provided, the term “generally accepted accounting principles” with respect to any computation required or permitted hereunder shall mean such accounting principles as are generally accepted in the United States of America at the date of such computation;
 
(3)           the words “herein”, “hereof” and “hereunder” and other words of similar import refer to this Indenture as a whole and not to any particular Article, Section or other subdivision; and
 
(4)           certain terms, used principally in Article Eight, are defined in that Article.

 
-3-

 

 
“Act” , when used with respect to any Holder of a Security, has the meaning specified in Section 104.
 
“Affiliate” of any specified Person means any other Person directly or indirectly controlling or 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.
 
“Authenticating Agent” means any Person authorized by the Trustee pursuant to Section 814 to act on behalf of the Trustee to authenticate Securities.
 
“Authorized Newspaper” means a newspaper, in the English language or in an official language of the country of publication, customarily published on each Business Day, whether or not published on Saturdays, Sundays or holidays, and of general circulation in the place in connection with which the term is used or in the financial community of such place.  Where successive publications are required to be made in Authorized Newspapers, the successive publications may be made in the same or in different newspapers in the same city meeting the foregoing requirements and in each case on any Business Day.
 
“Authorized Officer of the Borrower” means the Chairman, General Manager or Chief Financial Officer of the Borrower or any other person authorized by the Board of the Borrower so to act or any other person performing a function similar to the function performed by any such officer or authorized person.
 
“Authorized Officer of the Company” means one or more of the following officers of the Company: its Chief Executive Officer, President, Chief Financial Officer, one of its Vice Presidents, its Secretary-Treasurer, Secretary, or one of its Assistant Secretary-Treasurers, or any other person authorized by the Board of the Company so to act or any other person performing a function similar to the function performed by any such officer or authorized person.
 
“Board of Directors” means the board of directors of the Company, the executive committee or any other committee of such board duly authorized to act hereunder.
 
“Board Resolution” means a copy of a resolution certified by the Secretary or an Assistant Secretary of the Company to have been duly adopted by the Board of Directors and to be in full force and effect on the date of such certification, and delivered to the Trustee.
 
“Bond Counsel” means an attorney at law or a firm of attorneys (designated by the Company and acceptable to the Trustee) of nationally recognized standing in matters pertaining to the tax-exempt nature of interest or tax credits on bonds issued by states and their political subdivisions, duly admitted to the practice of law before the highest court of any state of the United States of America.
 
“Bond Fund” means the Bond Fund created in Section 403.

 
-4-

 
 
“Borrower” means a member of the Company that has entered into a Loan Agreement with the Company for a loan of proceeds from the Securities.
 
“Borrower Repayments Fund” means the Borrower Repayments Fund created in Section 404.
 
“Business Day” means, any day, other than a (i) Saturday, (ii) Sunday, (iii) a day on which banking institutions are authorized or required by law, regulation or executive order to close in the City of New York or the City of Chicago, (iv) a day that the Company is not open for business, or, (v) for any place when used with respect to any Place of Payment or any other particular location referred to in this Indenture or in the Securities, means any day that is not a day on which banking institutions in that Place of Payment or other location, as the case may be, are authorized or required by law, regulation or executive order to close.
 
“Code” means Internal Revenue Code of 1986, as supplemented and amended, including any successor statutes and any applicable rules, regulations, notices or orders promulgated thereunder.
 
“Company” means the Person named as the “Company” in the first paragraph of this instrument until a successor Person shall have become such pursuant to the applicable provisions of this Indenture, and thereafter “Company” shall mean such successor Person.
 
“Company Request” and “Company Order” mean, respectively, a written request or order signed in the name of the Company by its Chief Executive Officer, President, Chief Financial Officer or one of its Vice Presidents, and by its Secretary-Treasurer, or one of its Assistant Secretary-Treasurers, and delivered to the Trustee.  Such request may be incorporated into any Officers’ Certificate delivered hereunder.
 
“Control Party” means (i) the Guarantor, so long as no Guarantor Default is existing and continuing or (ii) the Holders of a majority of the aggregate principal amount of the Series 2009A Bonds Outstanding, or the Trustee acting on their behalf, in accordance with the provisions of this Indenture, for so long as a Guarantor Default is existing and continuing.
 
“Corporate Trust Office” means the designated office of the Trustee, at which at any particular time corporate trust business of the Trustee shall be administered, which office at the date of original execution of this Indenture is located at 100 Wall Street, Suite 1600, New York, New York 10005, Attention: Corporate Trust Services, or at any other time at such other address as the Trustee may designate from time to time by notice to the Holders.
 
“corporation” shall include any cooperative association, voluntary association, company, corporation, joint-stock company, business trust or similar organization.
 
“Credit Support Agreement” means the credit support agreement between the Company and the Guarantor dated as of September 1, 2009.

 
-5-

 
 
“Determination of Potential Tax Credit Ineligibility” shall mean a determination by the Company that the Securities may cease to be eligible for a tax credit for the owner thereof under Section 54 of the Code in the absence of some corrective action to be taken on the part of the Company, which determination may be supported by a written opinion of Bond Counsel to that effect.
 
“Determination of Tax Credit Ineligibility” shall mean a determination that the Securities does not qualify for a tax credit for the owner thereof under Section 54 of the Code, which determination shall be deemed to have been made upon the occurrence of the first to occur of the following:
 
(a)           the date on which the Company determines that there is a significant likelihood that the Securities may not qualify for a tax credit, if such determination is supported by a written opinion of Bond Counsel to that effect; or
 
(b)           the date on which the Company shall receive notice in writing that the Trustee has been advised by the owner of any Security that the Securities does not qualify for a tax credit for the owner thereof, based upon a final determination made either by: (A) the Internal Revenue Service in a published or private ruling or technical advice memorandum or (B) any court of competent jurisdiction in the United States of America, as a result of a failure by the Company or any borrower to observe any agreement or representation in the Tax Compliance Agreement or a Loan Agreement or Project Agreement relating to the proceeds of the Securities.  Any such determination will not be considered final for this purpose unless the Owner of the Securities involved in the proceeding or action resulting in the determination (i) gives the Company and the Trustee prompt written notice of the commencement thereof and (ii) if the Company agrees to pay all expenses in connection therewith and to indemnify such Owner of the Securities against all liabilities in connection therewith, offers the Company an opportunity to contest the determination, either directly or in the name of the Owner of the Securities, and until conclusion of any review, if sought.
 
“Discharged” means that the Company will be deemed to have paid and discharged the entire indebtedness represented by, and obligations under, the Securities and all provisions of this Indenture relating to the Securities shall no longer be deemed in effect (and the Trustee, at the expense of the Company, will execute proper instruments acknowledging the same), except as to (A) the rights of Holders thereof to receive, from the trust fund described in clause 1603(q)(1) above, payment of the principal of and the interest on the Securities when such payments are due, (B) the Company’s obligations with respect to the Securities under Sections 305, 306, 1202, 1203 (last paragraph only) and 1602 and the Company’s obligations to the Trustee under Sections 807 and 810, (C) the rights of Holders of the Securities with respect to the payments which they are to receive of principal, premium and interest and (D) the rights, powers, trusts, duties and immunities of the Trustee hereunder, will survive such discharge.  The Company will reimburse the trust fund for any loss suffered by it as a result of any tax, fee or other charge imposed on or assessed against deposited U.S. Government Obligations, or any principal or interest paid on such obligations, and, subject to the provisions of Section 807, will indemnify the Trustee against any claims made against the Trustee in connection with any such loss.

 
-6-

 

 
“Dollar” or “$” means a dollar or other equivalent unit in such coin or currency of the United States of America as at the time shall be legal tender for the payment of public and private debts.
 
“Equivalent Principal Terms” has the meaning specified in Section 1302.
 
“Event of Default” has the meaning specified in Section 601.
 
“Expense Requisition Statement” means the written direction of the Company as described in Section 402(c).
 
“FCA” means the Farm Credit Administration, or any successor agency having oversight authority over the Guarantor.
 
“Funds Direction Statement” means the certificate of the Company as described in Section 404(c).
 
“Funds Requisition Statement” means the certificate of a Borrower as described in Section 402(b).
 
“Guarantee” shall mean the full and unconditional guarantee by the Guarantor to the Trustee for the benefit of the Holders of the Series 2009A Bonds and the Company of the timely payment of interest on the Series 2009A Bonds and, in the case of principal, an amount equal to the amount of outstanding principal of the Series 2009A Bonds less any amounts in the Series 2009A Project Account, as set forth in this Indenture.
 
“Guarantee Event” shall mean with respect to the Series 2009A Bonds the occurrence and continuation (for whatever the reason) of a failure by the Company to make or cause to be made the required payment into the Bond Fund at the Trustee of any amounts needed to pay interest on or principal of the Series 2009A Bonds by the close of business two (2) Business Days prior to when such amount becomes due for a Payment Date with respect to the Series 2009A Bonds.
 
“Guarantor” means the Person named as the “Guarantor” in the first paragraph of this instrument until a successor Person shall have become such pursuant to the applicable provisions of this Indenture, and thereafter “Guarantor” shall mean such successor Person.
 
“Guarantor Default” means (1) a default by the Guarantor under its obligations pursuant to Section 501 which is existing and continuing; or (2) the appointment of a receiver, voluntary liquidation and involuntary liquidation pursuant to 12 U.S.C. § 2279cc; provided, however, the appointment of a conservator (or other similar official) by a regulator having jurisdiction over the Guarantor, whether or not the Guarantor consents to that appointment, will not constitute a Guarantor Default hereunder.

 
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“Holder” , when used with respect to any Security means the Person in whose name the Security is registered in the Security Register.
 
“Indenture” means this instrument as originally executed or as it may from time to time be supplemented or amended by one or more indentures supplemental hereto entered into pursuant to the applicable provisions hereof.
 
“Initial Purchaser” means Merrill Lynch, Pierce Fenner & Smith, Incorporated and its successor or assigns.
 
“Insolvency Event” means, for a specified Person, other than the Guarantor, (a) the filing of a decree or order for relief by a court or administrative or governmental body having jurisdiction in the premises in respect of such Person in an involuntary case under any applicable federal or state bankruptcy, insolvency or other similar law now or hereafter in effect, or appointing a receiver, liquidator, assignee, custodian, trustee, sequestrate or similar official for such Person, or ordering the winding-up or liquidation of such Person’s affairs, and such decree or order shall remain unstayed and in effect for a period of sixty (60) consecutive days; or (b) the commencement by such Person of a voluntary case under any applicable federal or state bankruptcy, insolvency or other similar law now or hereafter in effect, or the consent by such Person to the appointment of or taking possession by a receiver, liquidator, assignee, custodian, trustee, sequestrator or similar official for such Person, or the making by such Person of any general assignment for the benefit of creditors, or the failure by such Person generally to pay its debts as such debts become due, or the taking of action by such Person in furtherance of any of the foregoing; and for the Guarantor, as specified in 12 U.S. C. §2279cc and the rules and regulations thereunder.
 
“Insolvency Law” means any United States federal or state bankruptcy, insolvency or similar law for relief of debtors, now or thereafter in effect or any amendment thereto or the Federal Deposit Insurance Act, as amended by the Financial Institutions Reform, Recovery and Enforcement Act of 1989, and any subsequent amendments.
 
“Interest” , when used with respect to the Securities, means interest payable to the owner thereof including any Supplemental Interest thereon.
 
“Interest Payment Date” , when used with respect to any Security, means the Stated Maturity of an installment of interest on such Security, payable semi-annually on June 15 and December 15, commencing December 15, 2009.
 
“Loan Agreement” means a loan agreement between the Company and a Borrower relating to all or a portion of proceeds of an issue of Securities, as amended from time to time.
 
“Maturity” , when used with respect to any Security, means the date on which the principal of such Security or an installment of principal becomes due and payable as therein or herein provided, whether at the Stated Maturity or by declaration of acceleration, call for redemption, exercise of option for repayment or otherwise.

 
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“Mortgage” means the mortgage and security agreement applicable to substantially all of the property of a Borrower.
 
“Note” means a secured promissory note, payable to the order of the Company, executed by a Borrower, pursuant to a Loan Agreement.
 
“Obligations” means the obligations of the Company under this Indenture and the Series 2009A Bonds including, without limitation, (i) all principal of, interest and Unpaid Interest (including, without limitation, any interest that accrues after the commencement of any case, proceeding or other action relating to the bankruptcy, insolvency or reorganization of the Company, whether or not allowed or allowable as a claim in any such proceeding) on such Series 2009A Bonds or pursuant to this Indenture, (ii) all other amounts payable by the Company hereunder, under the Series 2009A Bonds, including (A) all costs and expenses (including reasonable attorneys’ fees) incurred by the Trustee or any Holder thereof in realizing on the Pledged Accounts or Pledged Collateral to satisfy such obligations and (B) all costs and expenses of, including reasonable compensation to, the Trustee (or its agents, as applicable) payable in accordance with the provisions of this Indenture and (iii) any renewals or extensions of the foregoing.
 
“Officers’ Certificate” means a certificate signed by the Chief Executive Officer, the President, the Chief Financial Officer or a Vice President, and by the Secretary-Treasurer, or one of the Assistant Secretary-Treasurers of the Company, and delivered to the Trustee.  Each such Officers’ Certificate shall contain the statements set forth in Section 102.
 
“Opinion of Counsel” means a written opinion of counsel, who may (except as otherwise expressly provided in this Indenture) be counsel for the Company.  Each such Opinion of Counsel shall contain the statements set forth in Section 102.
 
“Original Issue Discount Security” means any Security which provides for an amount less than the principal amount thereof to be due and payable at the Maturity thereof.
 
“Outstanding” , when used with respect to Securities, means, as of the date of determination, all Securities theretofore authenticated and delivered under this Indenture, except:
 
(i)           Securities theretofore cancelled by the Trustee or delivered to the Trustee for cancellation;
 
(ii)         Securities for whose payment or redemption money in the necessary amount has been theretofore deposited with the Trustee or any Paying Agent (other than the Company) in trust or set aside and segregated in trust by the Company (if the Company shall act as its own Paying Agent) for the Holders of such Securities; provided that, if such Securities are to be redeemed, notice of such redemption has been duly given pursuant to this Indenture or provision therefor satisfactory to the Trustee has been made; and

 
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(iii)         Securities which have been paid pursuant to Section 306 or in exchange for or in lieu of which other Securities have been authenticated and delivered pursuant to this Indenture, other than any such Securities in respect of which there shall have been presented to the Trustee proof satisfactory to it that such Securities are held by a bona fide purchaser in whose hands such Securities are valid obligations of the Company;
 
provided, however, that in determining whether the Holders of the requisite principal amount of the Outstanding Securities have given any request, demand, authorization, direction, notice, consent or waiver hereunder or whether a quorum is present at a meeting of Holders of Securities (i) the principal amount of an Original Issue Discount Security that shall be deemed to be Outstanding shall be the amount of the principal thereof that would be due and payable as of the date of such determination upon the Maturity thereof, and (ii) Securities owned by the Company or any other obligor upon the Securities or any Affiliate of the Company or of such other obligor shall be disregarded and deemed not to be Outstanding, except that, in determining whether the Trustee shall be protected in relying upon any such request, demand, authorization, direction, notice, consent or waiver or upon any such determination as to the presence of a quorum, only Securities which a Responsible Officer in the Corporate Trust Office of the Trustee knows to be so owned shall be so disregarded.  Securities so owned which have been pledged in good faith may be regarded as Outstanding if the pledgee establishes to the satisfaction of the Trustee the pledgee’s right so to act with respect to such Securities and that the pledgee is not the Company or any other obligor upon the Securities or any Affiliate of the Company or of such other obligor.
 
“Payment Date” means, any Interest Payment Date, Stated Maturity or Maturity of the principal of or interest on the Securities.
 
“Paying Agent” means any Person authorized by the Company to pay the principal of and premium or interest on any Securities on behalf of the Company.
 
“Person” means any individual, corporation, partnership, joint venture, association, joint stock company, trust, unincorporated organization, limited liability company or other entity, or government or any agency, instrumentality or political subdivision thereof.
 
“Place of Payment” , when used with respect to the Securities, means the place or places where, subject to the provisions of Section 1202, the principal of and premium or interest on the Securities are payable as specified as contemplated by Section 301.
 
“Pledge and Security Agreement” means the pledge and security agreement, dated as of the date hereof, between the Company and the Trustee for the benefit of the Secured Parties.
 
“Pledged Collateral” shall have the meaning set forth in the Granting Clause of the Pledge and Security Agreement.
 
“Predecessor Security” of any particular Security means every previous Security evidencing all or a portion of the same debt as that evidenced by such particular Security; and, for the purposes of this definition, any Security authenticated and delivered under Section 306 in exchange for or in lieu of a mutilated, lost, destroyed or stolen Security shall be deemed to evidence the same debt as the mutilated, lost, destroyed or stolen Security.

 
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“Proceeds” means:  (i) all “proceeds” as defined in Article 9 of the UCC as in effect from time to time in the State of New York; (ii) all interest, dividends, payments or distributions made with respect to any of the Pledged Collateral; and (iii) whatever is receivable or received when the Pledged Collateral or proceeds are sold, exchanged, collected, converted or otherwise disposed of, whether such disposition is voluntary or involuntary.
 
“Project” shall mean a project being financed under a Loan Agreement, as described in Schedule 1 to such Loan Agreement.
 
“Project Agreement” shall mean the Project Agreement between the Company and a Borrower, with respect to the Borrower’s Project and the Series 2009A Bonds.
 
“Project Fund” means the Project Fund created in Section 402.
 
“Qualified Investments” shall mean, subject to the applicable provisions of the Tax Compliance Agreement, any obligations having a maturity date not later than the final maturity date of the Securities in which the Company is authorized to invest, including, without limitation, certificates of deposit, money market funds, revenue obligations of state or local governments or their agencies or instrumentalities, the interest on which is excludable from gross income of the owner thereof for Federal income tax purposes, guaranteed investment contracts or other liquid investments.
 
“Redemption Date” , when used with respect to any Security to be redeemed, means the date fixed for such redemption by or pursuant to this Indenture.
 
“Redemption Price” , when used with respect to any Security to be redeemed, means the price at which it is to be redeemed pursuant to this Indenture.
 
“Regular Record Date” for the interest payable on any Interest Payment Date on the Securities means the 15th day immediately preceding such Interest Payment Date.
 
“Required Collateralization Level” shall have the meaning set forth in the Pledge Agreement.
 
“Responsible Officer” , when used with respect to the Trustee, shall mean any officer within the Corporate Trust Office having direct responsibility for the administration of this Indenture.
 
“Secured Parties” shall have the meaning set forth in Section 1701 of this Indenture.
 
“Security Register” has the meaning specified in Section 305.

 
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“Security Registrar” means the Person appointed by the Company to register Securities and transfers of Securities as provided in Section 305 and Section 1202.
 
“Series 2009A Bonds” or the “Securities” has the meaning stated in the first recital of this Indenture and more particularly means any Securities authenticated and delivered under this Indenture.
 
“Series 2009A Expense Account” has the meaning specified in Section 402.
 
“Series 2009A Project Account” has the meaning specified in Section 402.
 
“Special Record Date” for the payment of any Unpaid Interest on the Securities means a date fixed by the Company pursuant to Section 307.
 
“Stated Maturity” , when used with respect to any Security or any installment of principal thereof or interest thereon, means the date specified in such Security as the fixed date on which the principal of such Security or such installment of principal or interest is due and payable.
 
“Supplemental Indenture” means a supplemental indenture amending this Indenture signed by the Chief Executive Officer, the President, the Chief Financial Officer or a Vice President, and by the Secretary-Treasurer, or one of the Assistant Secretary-Treasurer, of the Company, and an authorized officer of the Trustee.
 
“Supplemental Interest” means the amount of interest to be payable on the Securities.
 
“Tax Compliance Agreement” means the tax compliance certificate and agreement of the Company, with respect to the Securities, accepted by the Trustee, as amended.
 
“Tax Credit Rate” means the tax credit rate for each maturity of the Securities, as set forth in the Indenture and  the Tax Compliance Agreement relating to the Securities.
 
“Trustee” means the Person named as the “Trustee” in the first paragraph of this instrument until a successor Trustee shall have become such with respect to the Securities pursuant to the applicable provisions of this Indenture, and thereafter “Trustee” shall mean or include each Person who is then a Trustee hereunder, and if at any time there is more than one such Person, “Trustee” shall mean the Trustee with respect to the Securities.
 
“United States” means the United States of America (including the States and the District of Columbia) and its possessions.
 
“United States Alien” means any Person who, for United States federal income tax purposes, is a foreign corporation, a nonresident alien individual, a non-resident alien fiduciary of a foreign estate or trust, or a foreign partnership one or more of the members of which is, for United States federal income tax purposes, a foreign corporation, a non-resident alien individual or a non-resident alien fiduciary of a foreign estate or trust.

 
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“United States Person” means a citizen or resident of the United States, a corporation, partnership or other entity created or organized in or under the laws of the United States and an estate or trust the income of which is subject to United States federal income taxation regardless of its source.
 
“Unpaid Interest” has the meaning set forth in Section 307 hereof.
 
“U.S. Government Obligations” means securities which are (i) direct obligations of the United States of America for the payment of which its full faith and credit is pledged or (ii) obligations of a Person controlled or supervised by and acting as an agency or instrumentality of the United States of America the payment of which is unconditionally guaranteed as a full faith and credit obligation by the United States of America, which, in either case are not callable or redeemable at the option of the issuer thereof, and shall also include a depository receipt issued by a bank or trust company as custodian with respect to any such U.S. Government Obligation or a specific payment of interest on or principal of any such U.S. Government Obligation held by such custodian for the account of the holder of a depository receipt, provided, that (except as required by law) such custodian is not authorized to make any deduction from the amount payable to the holder of such depository receipt from any amount received by the custodian in respect of the U.S. Government Obligation or the specific payment of interest on or principal of the U.S. Government Obligation evidenced by such depository receipt.
 
“Vice President” , when used with respect to the Trustee, means any vice president, whether or not designated by a number or a word or words added before or after the title “vice president.”
 
“Voting Stock” means, with respect to any Person, any and all shares, interests, participations or other equivalents (however designated) in the equity interests of such Person, including, without limitation, capital stock, partnership interests and limited liability company interests, in each case having voting power for the election of, or to appoint or approve the appointment of, the directors, trustees or other persons holding similar positions or other governing body of such Person, whether at all times or only so long as no senior class of stock or other equity interests has such voting power because of default in dividends or other default.
 
Section 102.          Compliance Certificates and Opinions.   Except as otherwise expressly provided by this Indenture, upon any application or request by the Company to the Trustee to take any action or refrain from taking any action under any provision of this Indenture, the Company shall furnish to the Trustee an Officers’ Certificate stating that all conditions precedent or covenants, if any, provided for in this Indenture relating to the proposed action have been complied with and an Opinion of Counsel stating that in the opinion of such counsel all such conditions precedent or covenants, if any, have been complied with, except that in the case of any such application or request as to which the furnishing of such documents is specifically required by any provision of this Indenture relating to such particular application or request, no additional certificate or opinion need be furnished.

 
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Every certificate or opinion with respect to compliance with a condition or covenant provided for in this Indenture shall include:
 
(1)           a statement that each individual signing such certificate or opinion has read such covenant or condition and the definitions herein relating thereto;
 
(2)           a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based;
 
(3)           a statement that, in the opinion of each such individual, he has made such examination or investigation as is necessary to enable him to express an informed opinion as to whether or not such covenant or condition has been complied with; and
 
(4)           a statement as to whether, in the opinion of each such individual, such condition or covenant has been complied with.
 
Section 103.          Form of Documents Delivered to Trustee.   In any case where several matters are required to be certified by, or covered by an opinion of, any specified Person, it is not necessary that all such matters be certified by, or covered by the opinion of, only one such Person, or that they be so certified or covered by only one document, but one such Person may certify or give an opinion with respect to some matters and one or more other such Persons as to other matters, and any such Person may certify or give an opinion as to such matters in one or several documents.
 
Any certificate or opinion of an officer of the Company may be based, insofar as it relates to legal matters, upon a certificate or opinion of, or representations by, counsel, unless such officer knows that the certificate or opinion or representations with respect to the matters upon which his certificate or opinion is based are erroneous.  Any such certificate or Opinion of Counsel may be based, insofar as it relates to factual matters, upon a certificate or opinion of, or representations by, an officer or officers of the Company stating that the information with respect to such factual matters is in the possession of the Company, unless such counsel knows that the certificate or opinion or representations with respect to such matters are erroneous.  An officer of the Company who signs any certificate or opinion shall be identified by the position(s) he or she holds at the Company that are relevant to such certificate or opinion, and the certificate or opinion may, but need not, identify every position such officer holds at the Company.
 
Where any Person is required to make, give or execute two or more applications, requests, consents, certificates, statements, opinions or other instruments under this Indenture, they may, but need not, be consolidated and form one instrument.  Each party agrees to accept a consolidated instrument produced by the other party, as long as the consolidated instrument gives the recipient substantively the same assurances the recipient would have obtained if individual instruments were used.

 
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Section 104.          Acts of Holders.   (a) Any request, demand, authorization, direction, notice, consent, waiver or other action provided by this Indenture to be given or taken by Holders may be embodied in and evidenced by one or more instruments of substantially similar tenor and terms signed by such Holders in person or by agent duly appointed in writing.  Except as herein otherwise expressly provided, such action shall become effective when such instrument or instruments or record or both are delivered to the Trustee and, where it is hereby expressly required, to the Company.  Such instrument or instruments and any such record (and the action embodied therein and evidenced thereby) are herein sometimes referred to as the “Act” of the Holders signing such instrument or instruments and so voting at any such meeting.  Proof of execution of any such instrument or of a writing appointing any such agent, or of the holding by any Person of a Security, shall be sufficient for any purpose of this Indenture and (subject to Section 801) conclusive in favor of the Trustee and the Company, if made in the manner provided in this Section.  The record of any meeting of Holders of Securities shall be proved in the manner provided in Section 1406.
 
Without limiting the generality of this Section 104, unless otherwise provided in or pursuant to this Indenture, a Holder, including a depositary that is (or whose nominee is) a Holder of a global Security, may make, give or take, by a proxy or proxies, duly appointed in writing, any request, demand, authorization, direction, notice, consent, waiver or other Act provided in or pursuant to this Indenture or the Securities to be made, given or taken by Holders, and a depositary that is (or whose nominee is) a Holder of a global Security may provide its proxy or proxies to the beneficial owners of interests in any such global Security through such depositary’s standing instructions and customary practices.
 
(b)           The fact and date of the execution by any Person of any such instrument or writing may be proved by the affidavit of a witness of such execution or by a certificate of a notary public or other officer authorized by law to take acknowledgments of deeds, certifying that the individual signing such instrument or writing acknowledged to him the execution thereof.  Where such execution is by a signer acting in a capacity other than his individual capacity, such certificate or affidavit shall also constitute sufficient proof of his authority.  The fact and date of the execution of any such instrument or writing, or the authority of the Person executing the same, may also be proved in any other manner which the Trustee deems sufficient.
 
(c)           The ownership of Securities shall be proved by the Security Register.
 
(d)           Any request, demand, authorization, direction, notice, consent, waiver or other Act of the Holder of any Security shall bind every future Holder of the same Security and the Holder of every Security issued upon the registration of transfer thereof or in exchange therefor or in lieu thereof in respect of anything done, omitted or suffered to be done by the Trustee or the Company in reliance thereon, whether or not notation of such action is made upon such Security.
 
(e)           The Company may set a record date for purposes of determining the identity of Holders of Securities entitled to vote or consent to any action by vote or consent authorized or permitted by Sections 610, 611 or 1102.  Such record date shall be the later of 30 days prior to the first solicitation of such consent or the date of the most recent list of Holders of such Securities furnished to the Trustee pursuant to Section 901 prior to such solicitation.

 
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Section 105.          Notices, Etc., to Trustee and Company.   Any request, demand, authorization, direction, notice, consent, waiver or Act of Holders or other document provided or permitted by this Indenture to be made upon, given or furnished to, or filed with,
 
(1)          the Trustee by any Holder or by the Company or the  Guarantor shall be sufficient for every purpose hereunder if made, given, furnished or filed in writing to or with the Trustee at its Corporate Trust Office, Attention:   Corporate Trust Services, or such other address provided in writing by the Trustee, or
 
(2)          the Company by the Trustee or the  Guarantor or by any Holder shall be sufficient for every purpose hereunder (unless otherwise herein expressly provided) if in writing and mailed, first-class postage prepaid (or by overnight delivery), to the Company addressed to it at the address of its principal office specified in the first paragraph of this instrument, Attention:  Chief Financial Officer, or at any other address previously furnished in writing to the Trustee by the Company for such purpose, or
 
(3)          the Guarantor by the Company or the Trustee or by any Holder shall be sufficient for every purpose hereunder (unless otherwise herein expressly provided) if in writing and mailed, first-class postage prepaid (or by overnight delivery), to the  Guarantor addressed to it at the address of its principal office specified in the first paragraph of this instrument, Attention:  Vice President-Finance, or at any other address previously furnished in writing to the Trustee by the  Guarantor for such purpose.
 
Section 106.          Notice to Holders of Securities; Waiver.   Where this Indenture provides for notice to Holders of any event, such notice shall be sufficiently given (unless otherwise herein expressly provided) if in writing and mailed, first-class postage prepaid, to each Holder affected by such event, at his address as it appears in the Security Register, not later than the latest date (if any), and not earlier than the earliest date (if any), prescribed for the giving of such notice.  In any case where notice to Holders is given by mail, neither the failure to mail such notice, nor any defect in any notice so mailed, to any particular Holder shall affect the sufficiency of such notice with respect to other Holders.  Where this Indenture provides for notice in any manner, such notice may be waived in writing by the person entitled to receive such notice, either before or after the event, and such waiver shall be the equivalent of such notice.  Waivers of notice by Holders shall be filed with the Trustee, but such filing shall not be a condition precedent to the validity of any action taken in reliance upon such waiver.  In case by reason of the suspension of regular mail service or by reason of any other cause it shall be impracticable to give such notice by mail, then such notification as shall be made with the approval of the Trustee shall constitute a sufficient notification for every purpose hereunder.
 
Section 107.          Language of Notices, Etc.   Any request, demand, authorization, direction, notice, consent or waiver required or permitted under this Indenture shall be in the English language, except that any published notice may be in an official language of the country of publication.

 
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Section 108.          Effect of Headings and Table of Contents.   The Article and Section headings herein and the Table of Contents are for convenience only and shall not affect the construction hereof.
 
Section 109.         Successors and Assigns .  All covenants and agreements in this Indenture by the Company shall bind its successors and assigns, whether so expressed or not, and all covenants and agreements in this Indenture by the Guarantor shall bind its successors and assigns, whether so expressed or not.
 
Section 110.          Separability Clause.   In case any provision in this Indenture or the Securities shall be invalid, illegal or unenforceable, then, to the extent permitted by law, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby.
 
Section 111.          Benefits of Indenture.   Nothing in this Indenture or the Securities, express or implied, shall give to any Person, other than the parties hereto, their successors hereunder and the Holders of Securities, any benefit or any legal or equitable right, remedy or claim under this Indenture.
 
Section 112.          Governing Law.   This Indenture and the Securities shall be governed by and construed in accordance with the laws of the State of New York, except to the extent set forth in Section 501(g) with respect to the Guarantee.  The Guarantee shall be governed by federal law as specified in Section 501(g).
 
Section 113.          Legal Holidays. In any case where any Interest Payment Date, Redemption Date or Stated Maturity of any Security shall not be a Business Day at any Place of Payment for that Security, then payment of principal or interest and premium, if any, need not be made at such Place of Payment on such date, but may be made on the next succeeding Business Day at such Place of Payment with the same force and effect as if made on the Interest Payment Date or Redemption Date, or at the Stated Maturity, provided that no interest shall accrue on the amount so payable for the period from and after such Interest Payment Date, Redemption Date or Stated Maturity, as the case may be.
 
Article Two
 
Security Forms
 
Section 201.          Forms Generally.   The Securities shall be substantially in the form set forth in Exhibit A hereto, with such variations from such form (including temporary or permanent global form) as shall be established by or pursuant to a Board Resolution or a Supplemental Indenture and set forth in, or determined in the manner provided in, an Officers’ Certificate or established in one or more Supplemental Indentures, in each case with such appropriate insertions, omissions, substitutions and other variations as are required or permitted by this Indenture, and may have such letters, numbers or other marks of identification and such legends or endorsements placed thereon as may be required to comply with the rules of any securities exchange or as may, consistently herewith, be determined by the officers executing such Securities, as evidenced by their execution of the Securities.  Any such legends or endorsements placed on such Securities by the Company after the execution of the Securities shall be delivered in writing to the Trustee by the Company.  If temporary Securities are issued in global form as permitted by Section 304, the form thereof shall be established as provided in the second preceding sentence.  If the forms of Securities are established by action taken pursuant to a Board Resolution, a copy of an appropriate record of such action shall be certified by the Secretary-Treasurer or an Assistant Secretary-Treasurer of the Company and delivered to the Trustee at or prior to the delivery of the Company Order contemplated by Section 303 for the authentication and delivery of such Securities (or any such temporary global Security); provided, however, that if the Secretary-Treasurer or Assistant Secretary-Treasurer of the Company is a signatory to an Officers’ Certificate delivered pursuant to this Section 201, then a separate certification by the Secretary-Treasurer or Assistant Secretary-Treasurer of the Company shall not be required.

 
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The definitive Securities shall be typed, printed, lithographed or engraved on steel engraved borders or may be produced in any other manner, all as determined by the officers executing such Securities, as evidenced by their execution of such Securities.
 
Section 202.          Form of Trustee’s Certificate of Authentication.   The Trustee’s certificate of authentication shall be in substantially the following form:
 
This is one of the Securities of the series designated herein referred to in the within-mentioned Indenture.

 
U.S. Bank National Association , as Trustee
   
 
By
 
 
Authorized Signatory
 
Section 203.          Securities in Global Form.   If the Securities are issuable in global form, any such Security shall represent such of the Outstanding Securities as shall be specified therein and may provide that it shall represent the aggregate amount of Outstanding Securities from time to time endorsed thereon and that the aggregate amount of Outstanding Securities represented thereby may from time to time be reduced or increased to reflect exchanges.  Any endorsement of a Security in global form to reflect the amount, or any increase or decrease in the amount, of Outstanding Securities represented thereby shall be made by the Trustee in such manner and upon written instructions given by such Person or Persons as shall be specified therein, or in the Company Order to be delivered to the Trustee pursuant to Section 303 or Section 304.  Subject to the provisions of Section 303 and, if applicable, Section 304, the Trustee shall deliver and redeliver any Security in global form in the manner and upon written instructions given by the Person or Persons specified therein or in the applicable Company Order.  If a Company Order pursuant to Section 303 or Section 304 has been, or simultaneously is, delivered, any instructions by the Company with respect to endorsement or delivery or redelivery of a Security in global form shall be in writing but need not comply with Section 102 and need not be accompanied by an Opinion of Counsel.

 
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The provisions of the last sentence of Section 303 shall apply to any Security represented by a Security in global form if such Security was never issued and sold by the Company and the Company delivers to the Trustee the Security in global form together with written instructions (which need not comply with Section 102 and need not be accompanied by an Opinion of Counsel) with regard to the reduction in the principal amount of Securities represented thereby, together with the written statement contemplated by the last sentence of Section 303.
 
Article Three
 
The Securities
 
Section 301.          Issuance of the Series 2009A Bonds.   There shall be a series of Securities entitled “National Rural Utilities Cooperative Finance Corporation Clean Renewable Energy Bonds, Tax Credit Series 2009A” and the form thereof shall be substantially as set forth as Exhibit A hereto.  The aggregate principal amount of the Series 2009A Bonds at any one time outstanding shall be limited to $28,908,000, exclusive of substitution or replacement Series 2009A Bonds authenticated and delivered under this Indenture.  The Series 2009A Bonds are issuable only in registered form without coupons.  The Series 2009A Bonds shall bear the tax credit rates, bear interest per annum at the rates and mature on December 15 of the years and in the amounts set forth below:

Maturity
Date
(December 15)
 
Principal
Amount
   
Tax
Credit
Rate
   
 
Interest
Rate
 
Maturity
Date
(December 15)
 
Principal
Amount
   
Tax
Credit
Rate
   
 
Interest
Rate
 
                                       
2009
  $ 1,807,000       2.12 %     3.19 %
2017
  $ 1,807,000       5.37 %     3.29 %
2010
    1,807,000       2.82 %     3.20 %
2018
    1,807,000       5.62 %     3.04 %
2011
    1,807,000       3.59 %     3.25 %
2019
    1,807,000       5.73 %     2.93 %
2012
    1,806,000       4.24 %     3.30 %
2020
    1,806,000       5.84 %     2.82 %
2013
    1,807,000       4.47 %     3.33 %
2021
    1,807,000       5.95 %     2.71 %
2014
    1,807,000       4.85 %     3.23 %
2022
    1,807,000       6.04 %     2.62 %
2015
    1,807,000       5.07 %     3.30 %
2023
    1,807,000       6.10 %     2.56 %
2016
    1,806,000       5.15 %     3.31 %
2024
    1,806,000       6.18 %     2.48 %
 
Interest on the Bonds will be computed as provided in Section 310 hereof and will be paid semi-annually on June 15 and December 15 of each year, commencing December 15, 2009.
 
Section 302.          Denominations.   The Securities shall be issuable in denominations of $100,000 and any integral multiple of $1,000 over $100,000.

 
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Section 303.          Execution, Authentication, Delivery and Dating.   The Securities shall be executed on behalf of the Company by its Chief Executive Officer, the President, the Chief Financial Officer or a Vice President, and by the Secretary-Treasurer or one of the Assistant Secretary-Treasurers of the Company.  The signature of any of these officers on the Securities may be manual or facsimile.
 
Securities bearing the manual or facsimile signatures of individuals who were at any time the proper officers of the Company shall bind the Company, notwithstanding that such individuals or any of them have ceased to hold such offices prior to the authentication and delivery of such Securities or did not hold such offices at the date of such Securities.
 
At any time and from time to time after the execution and delivery of this Indenture, the Company may deliver the Securities executed by the Company to the Trustee for authentication, together with a Company Order for the authentication and delivery of such Securities, and the Trustee in accordance with the Company Order shall authenticate and deliver such Securities.
 
In connection with the issuance of the Securities, in authenticating such Securities, and accepting the responsibilities under this Indenture in relation to such Securities, the Trustee shall be entitled to receive, and (subject to Section 803(a)) shall be fully protected in relying upon, an Opinion of Counsel substantially to the effect that such Securities, when executed by the Company, authenticated and delivered by the Trustee and issued in accordance with this Indenture, will constitute legal, valid and binding obligations of the Company, enforceable in accordance with their terms and the terms of the Indenture, subject to such matters as shall be specified therein.
 
In giving such Opinion of Counsel, (i) such Counsel may rely as to matters governed by the law of any particular jurisdiction upon opinions of counsel in any such jurisdiction upon whom they believe they and the Trustee are justified in relying, and, in such event, they shall deliver copies of such opinions to the Trustee, (ii) such Counsel may include in any such Opinions customary qualifications and assumptions, including without limitation qualifications to the effect that (x) any sale or transfer by the Trustee of any of the Pledged Collateral (other than a transfer into the name of the Trustee or a nominee thereof) may be subject to the provisions of the Securities Act of 1933, other applicable securities laws and regulations promulgated thereunder, and (y) the enforceability of certain of the remedies under the Indenture are subject to equitable requirements of good faith which may render ineffective any consent by the Company to the sale of Pledged Collateral at private sale, and (iii) that the enforceability thereof may be limited by bankruptcy, insolvency or other laws of general application relating to or affecting the enforcement of creditors’ rights and that the enforceability thereof may be limited by laws with respect to or affecting the remedies provided for in said agreement or instrument ( provided that such laws do not in the opinion of such Counsel make inadequate the remedies afforded thereby for the realization of the benefits provided for in such agreement or instrument).
 
The Trustee shall not be required to authenticate such Securities if the issue of such Securities pursuant to this Indenture will affect the Trustee’s own rights, duties or immunities under the Securities and this Indenture or otherwise in a manner which is not reasonably acceptable to the Trustee.

 
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Each Security shall be dated the date of its authentication.
 
No Security shall be entitled to any benefit under this Indenture or be valid or obligatory for any purpose unless there appears on such Security a certificate of authentication substantially in the form provided for herein executed by the Trustee by manual signature, and such certificate upon any Security shall be conclusive evidence, and the only evidence, that such Security has been duly authenticated and delivered hereunder.  Notwithstanding the foregoing, if any Security shall have been duly authenticated and delivered hereunder but never issued and sold by the Company, and the Company shall deliver such Security to the Trustee for cancellation as provided in Section 309 together with a written statement (which need not comply with Section 102 and need not be accompanied by an Opinion of Counsel) stating that such Security has never been issued and sold by the Company, for all purposes of this Indenture such Security shall be deemed never to have been authenticated and delivered hereunder and shall never be entitled to the benefits of this Indenture.
 
Section 304.          Temporary Securities; Exchange of Temporary Securities.   Pending the preparation of definitive Securities, the Company may execute, and upon Company Order the Trustee shall authenticate and deliver, temporary Securities which are printed, lithographed, typewritten, mimeographed or otherwise produced, in any authorized denomination, substantially of the tenor and terms of the definitive Securities in lieu of which they are issued, in registered form or, if authorized, in bearer form with one or more coupons or without coupons, and with such appropriate insertions, omissions, substitutions and other variations as the officers executing such Securities may determine, as evidenced by their execution of such Securities.
 
If temporary Securities are issued, the Company will cause definitive Securities to be prepared without unreasonable delay.  After the preparation of definitive Securities, the temporary Securities shall be exchangeable for definitive Securities upon surrender of the temporary Securities at the office or agency of the Company in a Place of Payment for the Securities, without charge to the Holder.  Upon surrender for cancellation of any one or more temporary Securities the Company shall execute and the Trustee shall authenticate and deliver in exchange therefor one or more definitive Securities, of any authorized denominations and of like tenor and aggregate principal amount.
 
Until so exchanged, the temporary Securities shall in all respects be entitled to the same benefits under this Indenture as definitive Securities of such tenor.
 
Section 305.          Registration, Registration of Transfer and Exchange. The Company shall cause to be kept at an office or agency to be maintained in accordance with Section 1202 a register (being the combined register of the Security Registrar and all transfer agents designated pursuant to Section 1202 for the purpose of registration of transfer of Securities and sometimes collectively referred to as the “Security Register” ) in which, subject to such reasonable regulations as may be prescribed, the Company shall cause to be provided the registration of Securities and the registration of transfers of Securities.

 
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Upon surrender for registration of transfer of any Security at the office or agency of the Security Register maintained pursuant to Section 1202 for such purpose in a Place of Payment for such Securities, the Company shall execute, and the Trustee shall authenticate and deliver, in the name of the designated transferee or transferees, one or more new Securities of any authorized denominations and of a like aggregate principal amount and tenor and terms.
 
At the option of the Holder, the Securities may be exchanged for other Securities in any authorized denominations and of a like aggregate principal amount and tenor and terms, upon surrender of the Securities to be exchanged at any such office or agency.
 
Whenever any Securities are so surrendered for exchange, the Company shall execute, and the Trustee shall authenticate and deliver, the Securities which the Holder making the exchange is entitled to receive.
 
The global Securities shall be exchangeable for definitive certificated Securities if (i) the depositary for such global Securities notifies the Company that it is unwilling or unable to continue as depositary for such global Securities or at any time such depositary ceases to be a clearing agency registered as such under the Securities Exchange Act of 1934, as amended (or any successor thereto), if so required by applicable law or regulation, and the Company shall not have appointed a successor depositary for such Securities within 90 days of such notification or of the Company becoming aware of the depositary’s ceasing to be so registered, as the case may be or (ii) the Company, in its sole discretion, determines that the global Securities shall be exchangeable for definitive certificated Securities and executes and delivers to the Trustee a Company Order to the effect that such global Securities shall be so exchangeable.  If the Holders of, or beneficial owners of interests in, a global Security are entitled to exchange such interests for definitive Securities as a result of an event described in the preceding sentence, such exchanges shall be effected in accordance with the provisions set forth in the immediately preceding paragraph.  Any global Security that is exchangeable for definitive certificated Securities pursuant to this paragraph will be exchangeable for definitive certificated Securities registered in such name or names as the depositary for such global Security shall instruct the Trustee in writing.
 
All Securities issued upon any registration of transfer or in exchange for Securities shall be the valid obligations of the Company, evidencing the same debt, and entitled to the same benefits under this Indenture, as the Securities surrendered upon such registration of transfer or exchange.
 
Every Security presented or surrendered for registration of transfer or for exchange shall (if so required by the Company or the Trustee or any transfer agent) be duly endorsed, or be accompanied by a written instrument of transfer in form satisfactory to the Company and the Security Registrar or any transfer agent duly executed, by the Holder thereof or his attorney duly authorized in writing.
 
No service charge shall be made for any registration of transfer or exchange of Securities, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in connection with any registration of transfer or exchange of Securities, other than exchanges pursuant to Section 304, 1105 or 1308 not involving any transfer.

 
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If the Securities are to be redeemed in part, neither the Trustee nor the Company shall be required, pursuant to the provisions of this Section 305, (A) to issue, register the transfer of or exchange any Securities (of any specified tenor) during a period beginning at the opening of business 15 days before the day of the mailing of a notice of redemption of any such Securities selected for redemption under Section 1305 and ending at the close of business on the day of such mailing, or (B) to register the transfer of or exchange any Security so selected for redemption, in whole or in part, except, in the case of any Security to be redeemed in part, any portion not to be redeemed.
 
Section 306.          Mutilated, Destroyed, Lost and Stolen Securities .  If any mutilated Security is surrendered to the Trustee, the Company shall execute and the Trustee shall authenticate and deliver in exchange therefor a new Security and of like tenor and terms and principal amount and bearing a number not contemporaneously outstanding and shall cancel and dispose of such mutilated Security in accordance with customary procedures.
 
If there shall be delivered to the Company and the Trustee (i) evidence to their satisfaction of the destruction, loss or theft of any Security and (ii) such security or indemnity as may be required by them to save each of them and any agent of either of them harmless, then, in the absence of notice of the Company or the Trustee that such Security has been acquired by a bona fide purchaser, the Company shall execute and upon its written request the Trustee shall authenticate and deliver, in lieu of any such destroyed, lost or stolen Security, a new Security of like tenor and terms and principal amount and bearing a number not contemporaneously outstanding.
 
In case any such mutilated, destroyed, lost or stolen Security has become or is about to become due and payable, the Company in its discretion may, instead of issuing a new Security, pay such Security.
 
Upon the issuance of any new Security under this Section, the Company may require payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto and any other expenses (including the reasonable fees and expenses of the Trustee) connected therewith.
 
Every new Security issued pursuant to this Section in lieu of any destroyed, lost or stolen Security, shall constitute an original additional contractual obligation of the Company, whether or not the destroyed, lost or stolen Security shall be at any time enforceable by anyone, and any such new Security shall be entitled to all the benefits of this Indenture equally and proportionately with any and all other Securities and of like tenor and terms duly issued hereunder.
 
The provisions of this Section are (to the extent lawful) exclusive and shall preclude (to the extent lawful) all other rights and remedies with respect to the replacement or payment of mutilated, destroyed, lost or stolen Securities.

 
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Section 307.          Payment of Interest; Interest Rights Preserved. Interest, if any, on any Security which is payable, and is punctually paid or duly provided for, on any Interest Payment Date shall be paid to the Person in whose name that Security (or one or more Predecessor Securities) is registered at the close of business on the Regular Record Date with respect to such Interest Payment Date. At the option of the Company, payment of interest on any Security may be made by check mailed to the address of the Person entitled thereto as such address shall appear in the Security Register or by wire transfer to an account designated by such Person pursuant to an arrangement that is satisfactory to the Trustee and the Company.  In the event that payments shall be made by wire transfer, the Company shall arrange by 10:00 a.m. New York time on the Interest Payment Date for the wire transfer of money in immediately available funds to the Trustee or Paying Agent.  The Trustee shall not be responsible or held liable for any loss resulting from a failure of the federal funds wire system or any other occurrence beyond its control in connection with wire transfers made pursuant to this Section.
 
Any interest on any Security which is payable, but is not punctually paid or duly provided for, on any Interest Payment Date (herein called “Unpaid Interest” ) shall forthwith cease to be payable to the Holder on the relevant Regular Record Date by virtue of having been such Holder, and such Unpaid Interest may be paid by the Company, at its election in each case, as provided in Clause (1) or (2) below:
 
(1)           The Company may elect to make payment of any Unpaid Interest to the Persons in whose names the Securities (or their respective Predecessor Securities) are registered at the close of business on a Special Record Date for the payment of such Unpaid Interest, which shall be fixed in the following manner.  The Company shall notify the Trustee in writing of the amount of Unpaid Interest proposed to be paid on each Security and the date of the proposed payment, and at the same time the Company shall deposit with the Trustee an amount of money equal to the aggregate amount proposed to be paid in respect of such Unpaid Interest or shall make arrangements satisfactory to the Trustee for such deposit prior to the date of the proposed payment, such money when deposited to be held in trust for the benefit of the Persons entitled to such Unpaid Interest as in this Clause provided.  At the same time the Company shall fix a Special Record Date for the payment of such Unpaid Interest which shall be not more than 15 days and not less than 10 days prior to the date of the proposed payment and not less than 10 days after the receipt by the Trustee of the notice of the proposed payment.  Upon receipt of written notice of such Special Record Date from the Company the Trustee, in the name and at the expense of the Company, shall cause notice of the proposed payment of such Unpaid Interest and the Special Record Date therefor to be mailed, first-class postage prepaid, to each Holder of Securities at the address of such Holder as it appears in the Security Register, not less than 10 days prior to such Special Record Date.  Notice of the proposed payment of such Unpaid Interest and the Special Record Date therefor having been so mailed, such Unpaid Interest shall be paid to the Persons in whose names the Securities (or their respective Predecessor Securities) are registered at the close of business on such Special Record Date and shall no longer be payable pursuant to the following Clause (2).
 
(2)           The Company may make payment of any Unpaid Interest on the Securities in any other lawful manner not inconsistent with the requirements of any securities exchange on which such Securities may be listed, and upon such notice as may be required by such exchange, if, after written notice given by the Company to the Trustee of the proposed payment pursuant to this Clause, such manner of payment shall be deemed practicable by the Trustee.

 
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Subject to the foregoing provisions of this Section and Section 305, each Security delivered under this Indenture upon registration of transfer of or in exchange for or in lieu of any other Security shall carry the rights to interest accrued and unpaid, and to accrue, which were carried by such other Security.
 
Section 308.          Persons Deemed Owners.   Prior to due presentment of a Security for registration of transfer, the Company, the Trustee and any agent of the Company or the Trustee may treat the Person in whose name such Security is registered as the owner of such Security for the purpose of receiving payment of principal of and premium, if any, and (subject to Sections 305 and 307) interest on such Security and for all other purposes whatsoever, whether or not such Security be overdue, and neither the Company, the Trustee nor any agent of the Company or the Trustee shall be affected by notice to the contrary.
 
No owner of any beneficial interest in any global Security held on its behalf by a depositary (or its nominee) shall have any rights under this Indenture with respect to such global Security, and such depositary may be treated by the Company, the Trustee, and any agent of the Company or the Trustee as the owner of such global Security for all purposes whatsoever.  None of the Company, the Trustee, any Paying Agent or the Security Registrar will have any responsibility or liability for any aspect of the records relating to or payments made on account of beneficial ownership interests of a Security issued in global form or for maintaining, supervising or reviewing any records relating to such beneficial ownership interests.
 
Notwithstanding the foregoing, nothing herein shall prevent the Company, the Trustee, any Paying Agent or the Security Registrar from giving effect to any written certification, proxy or other authorization furnished by the applicable depositary or its nominee, as a Holder, with respect to a global Security or impair, as between such depositary and the owners of beneficial interests in such global Security, the operation of customary practices governing the exercise of the rights of such depositary (or its nominees) as the Holder of such global Security.
 
Section 309.          Cancellation. All Securities surrendered for payment, redemption, repayment, registration of transfer or exchange or for credit against any sinking fund payment shall, if surrendered to any Person other than the Trustee, be delivered to the Trustee.  All Securities so delivered shall be promptly cancelled by the Trustee.  The Company may at any time deliver to the Trustee for cancellation any Securities previously authenticated and delivered hereunder which the Company may have acquired in any manner whatsoever and may deliver to the Trustee (or to any Person for delivery to the Trustee) for cancellation any Securities previously authenticated hereunder which the Company has not issued and sold, and all Securities so delivered shall be promptly cancelled by the Trustee.  No Securities shall be authenticated in lieu of or in exchange for any Securities cancelled as provided in this Section, except as expressly permitted by this Indenture.  All cancelled Securities held by the Trustee shall be disposed of by the Trustee in accordance with its customary practices.

 
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Section 310.          Computation of Interest.   Interest on the Securities, if any, shall be computed on the basis of a 360-day year of twelve 30-day months.  If any principal of or premium, if any, or interest on the Securities is not paid when due then, to the extent permitted by law, interest will accrue and be payable by the Company on such overdue principal, premium, if any, and interest at the rate or rates prescribed therefor in such Securities.  Accrual of the Tax Credit Rate shall be computed on the basis provided by the Internal Revenue Service.
 
Section 311.          CUSIP Numbers.   The Company in issuing the Securities may use “CUSIP” numbers (if then generally in use), and, if so, the Trustee shall use “CUSIP” numbers in notices of redemption as a convenience to Holders; provided that any such notice may state that no representation is made as to the correctness of such numbers either as printed on the Securities or as contained in any notice of a redemption and that reliance may be placed only on the other identification numbers printed on the Securities, and any such redemption shall not be affected by any defect in or omission of such numbers.  The Company will promptly notify the Trustee in writing of any change in the “CUSIP” numbers.
 
Article Four
 
Application of Proceeds; Project Fund; Bond Fund; Borrower Repayments Fund
 
Section 401.          Deposit of Funds.   The Company shall apply the proceeds from the sale of the Securities (less Initial Purchaser’s discount, original issue discount or accrued interest, if any) to make loans to the Borrowers for whose benefit, and at whose request, such Securities are issued, and to pay related expenses, and shall deposit with the Trustee all such sale proceeds.  The Trustee shall deposit proceeds from the sale of the Securities into the Project Fund created below in order that such proceeds may be used (i) to reimburse Borrowers for the costs of acquiring, constructing, or equipping Projects and (ii) to pay costs relating to the issuance of the Securities hereunder, all as more fully described in Section 402 hereof.
 
Section 402.          Project Fund .
 
(a)           General .  The Trustee shall establish and maintain so long as any Securities are outstanding a separate Fund to be known as the “Project Fund—CREBs Program” (the “Project Fund” ) and within the Project Fund the Trustee shall establish two separate Accounts to be known as the “Series 2009A Project Account” of the Project Fund and the “Series 2009A Expense Account” of the Project Fund.
 
In accordance with the specific direction provided in the Company Request, the Trustee shall divide the proceeds from the sale of the Securities into the portion to be deposited into the Series 2009A Project Account and the portion to be deposited into the Series 2009A Expense Account.
 
(b)           Disbursements from Series 2009A Project Account of the Project Fund.

 
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(i)           Withdrawals.   Except for withdrawals made in accordance with the Tax Compliance Agreements, moneys deposited in the Series 2009A Project Fund shall be paid out from time to time by the Trustee to the Company in order to reimburse a Borrower for payments made, for costs of a Borrower’s Project (including any capital expenditure for planning, financing or other services constituting a cost of the Project), in each case only upon receipt by the Trustee from the Company of the following:
 
A copy of the Funds Requisition Statement of such Borrower, which must be approved by signature of an Authorized Officer of the Company, in substantially the form attached as Exhibit A to the Loan Agreement with such Borrower, which Exhibit A shall include, among other things, representations:
 
(1)     stating the number of such Funds Requisition Statement, the issue of Securities to which such Funds Requisition Statement relates, the name of the Borrower to whom each such payment is due, each amount to be reimbursed and the general classification of the costs for which each obligation to be paid was incurred;
 
(2)     stating that such costs have been incurred by the Borrower and have been paid by the Borrower in connection with the Project and are reimbursable under the Loan Agreement and each item thereof is a capital expenditure and has not been previously reimbursed from the Series 2009A Project Fund;
 
(3)      stating that the representations and warranties contained in such Borrower’s Loan Agreement and Project Agreement are true and will continue to be true upon use of the funds as requested herein; and
 
(4)      stating that no event of default has occurred and is continuing under such Borrower’s Loan Agreement or its Mortgage.
 
(ii)         Completion Certificate .  A Borrower with respect to its Project is required by its related Loan Agreement to submit to the Company within 30 days after the completion of such Project, a Completion Certificate signed by an Authorized Officer of the Borrower, which shall promptly be submitted by the Company to the Trustee:
 
A.           stating that all portions of such Project have been fully completed substantially in accordance with any plans and specifications therefor, as then amended, and the date of completion; and
 
B.           stating that the amounts advanced on the Loan and the use of the property financed, refinanced or reimbursed therefrom will not cause any of the representations or certifications contained in such Borrower’s Project Agreement to be untrue or result in a violation of any covenant in such Borrower’s Project Agreement.
 
(iii)          Termination Certificate .  If a Borrower determines that its Project will not be completed as described in Section 402(b)(ii) above, the Borrower is required by its related Loan Agreement to submit to the Company within 30 days of such determination, a Termination Certificate signed by an Authorized Officer of the Borrower, which shall promptly be submitted by the Company to the Trustee:

 
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A.           stating that no more acquisition, construction or installation will occur with respect to the Project; and
 
B.           stating that the Borrower does not intend to request any further Advances on the Loan.
 
(iv)          Disposition of Moneys after Completion, Termination Borrower Default or Draw Period Expiry; Financing Additional Project Costs .  When (y) the Company shall have received a Completion Certificate as described in subparagraph (b)(ii) of this Section 402 or a Termination Certificate as described in subparagraph (b)(iii) of this Section 402 with respect to any Project of a Borrower and shall have submitted such Completion Certificate or Termination Certificate to the Trustee or determined that it will cease making Advances to a Borrower under a Loan Agreement following an Event of Default (as defined therein) thereunder or (z) the Draw Period (as defined in the Loan Agreement) has ended, and the Company has paid all Funds Requisition Statements theretofore tendered by such Borrower to the Company under the provisions of subparagraph (b)(i) of this Section 402 with respect to such Project, the Company shall calculate what portion the proceeds of the Securities which were expected to be loaned to such Borrower will thus be unused by the Borrower for such Project.  Likewise, if a Borrower has defaulted on the terms and conditions of the related Loan Agreement, the Company may require the Borrower to prepay the Loan under the terms of the Loan Agreement.  The Company shall then determine how to allocate such unused proceeds remaining in the Series 2009A Project Account or such prepaid amounts following a default among one or more of following purposes:
 
A.           to the extent permitted by law (expressed in an Opinion of Bond Counsel), except in the case of a Draw Period expiration referred to in (z) above, to be applied to pay additional unreimbursed costs of other “qualifying projects” (as such term is defined in the Section 54 of the Code) of borrowers (including such Borrower) which have received loans of the proceeds of Securities, provided that each such project has obtained an allocation of clean renewable energy bond cap from the Internal Revenue Service;
 
 B.          if the Company makes a Determination of Potential Tax Credit Ineligibility, to be withdrawn by the Trustee from the Series 2009A Project Account and deposited into the Bond Fund to redeem Securities pursuant to Section 1303 hereof; and/or
 
C.           to be held or applied in any other lawful manner, provided that there shall be delivered to the Trustee and the Company an Opinion of Bond Counsel to the effect that such application will not adversely affect the validity of the Securities or any tax credit to which the owners of the Securities would otherwise be entitled.

 
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(c)           Disbursement from Series 2009A Expense Account of the Project Fund .  Moneys deposited in the Expense Account of the Project Fund shall be paid out from time to time by the Trustee to the Company, upon receipt by the Trustee of an Expense Requisition Statement of the Company, in substantially the form attached as Exhibit B , which Exhibit B shall state that such amount is due and owing, has not been previously paid with moneys disbursed from such Account and is a proper cost of issuing the Securities, and shall be used to pay the fees, costs and expenses of issuing Securities, including, without limitation, all printing expenses in connection with this Indenture, Borrower Loan Agreements, Project Agreements and Series 2009A Bonds, Rating Agency fees, legal fees, administrative charges of the Company and the initial fees and expenses of the Trustee.  Any moneys that remain on deposit in the Series 2009A Expense Account on the earlier of (i) the date on which the Company notifies the Trustee that all such fees and expenses to be paid by the Company have been paid, or (ii) six months following the issuance date of the Securities shall be transferred by the Trustee and deposited in the Series 2009A Project Account, as directed by the Company.
 
(d)           Investment of Project Fund Moneys .  Subject to the provisions of Section 403(h) of this Indenture, moneys at any time on deposit in the Project Fund shall be invested or reinvested by the Trustee at the written direction of the Company in Qualified Investments maturing, redeemable or marketable at such time or times so that funds will be available from time to time for the purposes set forth in this Section 402, provided, however, that moneys in the Project Fund may only be invested in money market funds or short-term federal securities direct obligations of (including obligations issued or held in book entry form on the books of) or obligations the principal of and interest on which are guaranteed by, the United States of America and having a maturity date of less than 12 months.  The Trustee and the Company shall be entitled to rely upon a schedule of anticipated payments of construction and equipment costs approved by a Borrower, in scheduling such investments.  Any interest or profit on such investments shall be credited to, and any losses on such investments shall be charged against, the Account in which such investments are held.  The Company may direct the sale or present for redemption any obligations so purchased whenever it shall be necessary in order to provide moneys to meet any payment pursuant to this Section 402 and neither the Trustee nor the Company shall be liable or responsible for any loss resulting from such investments.  Notwithstanding any other provisions of this Section 402, all investment earnings shall be subject to the provisions of the Tax Compliance Agreement(s).
 
(e)           Disposition of Excess Moneys in the Series 2009A Project Account; Financing Additional Project Costs .  When the Company determines that excess proceeds exist in the Series 2009A Project Account due to a return of unused monies from the related Expense Account pursuant to subsection (c) of this Section 402 or because of investment earnings on such account pursuant to subsection (d) of this Section 402, the Company shall calculate the amount of such excess.  The Company shall then determine how to allocate such unused proceeds remaining in the Project Fund among one or more of following purposes:
 
A.         to the extent permitted by law (expressed in an Opinion of Bond Counsel), to be applied to pay additional unreimbursed costs of other “qualifying projects” (as such term is defined in the Section 54 of the Code) of borrowers which have received loans of the proceeds of Securities, provided that each such project has obtained an allocation of clean renewable energy bond cap from the Internal Revenue Service;

 
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 B.           if the Company makes a Determination of Potential Tax Credit Ineligibility, to be withdrawn by the Trustee from the Series 2009A Project Account and deposited into the  Bond Fund to redeem Securities  pursuant to Section 1303 hereof; and/or
 
C.           to be held or applied in any other lawful manner, provided that there shall be delivered to the Trustee and the Company an Opinion of Bond Counsel to the effect that such application will not adversely affect the validity of the Securities or any tax credit to which the owners of the Securities would otherwise be entitled.
 
Section 403.          Bond Fund .
 
(a)           General .  The Trustee shall establish and maintain so long as any Securities are outstanding a separate Fund to be known as the “Bond Fund—CREBs Program” (the “Bond Fund” ).
 
(b)           Payments into Bond Fund; Excess Amount.   There shall be deposited in the Bond Fund, as and when received (a) any amount in the Project Fund directed by the Company to be deposited in the Bond Fund under Section 402 hereof; (b) all repayments and revenues from a Borrower or the Company under a Loan Agreement or a Note intended to pay principal and premium and interest on the Securities; (c) all income or other gain realized from the investment of moneys in the Bond Fund; (d) any amount deposited by the Company in the Bond Fund; and (e) all other moneys received by the Trustee under and pursuant to any of the provisions of any Loan Agreement, any Note or a Tax Compliance Agreement that is specifically directed to be deposited in the Bond Fund.  So long as no acceleration of principal or any interest on the Securities has occurred, the amounts due to be deposited in the Bond Fund shall be reduced by any “Excess Amount” in the Bond Fund.  The term “Excess Amount” as of a payment date shall mean the amount of cash in the Bond Fund on such date already on hand and available for payment of the principal or interest on the Securities.
 
(c)           Use of Moneys in Bond Fund.   Except as provided in Section 403(h) hereof, moneys in the Bond Fund shall be used solely for the payment of the principal of and premium and interest on the Securities, including for the redemption of Securities prior to maturity.  As provided in the Tax Compliance Agreement, other than any amounts being held to pay principal on matured Securities that have not been presented for payment, any moneys deposited in the Bond Fund shall be spent within the 12-month period beginning on the date of deposit therein.
 
(d)           Custody of Bond Fund.   Moneys held in the Bond Fund shall be in the custody of the Trustee.  The Company hereby authorizes and directs the Trustee to withdraw sufficient funds from the Bond Fund to pay the principal of and premium and interest on the Securities as the same become due and payable, including for the redemption of Series 2009A Bonds prior to maturity, which authorization and direction the Trustee hereby accepts.
 
(e)           Moneys to Be Held in Trust.   All moneys deposited under any provision of this Indenture in the Bond Fund, the Project Fund or the Borrower Repayments Fund created below shall be held by the Trustee in trust and, except for moneys deposited with or paid to the Trustee for the payment of Series 2009A Bonds or for the redemption of Series 2009A Bonds notice of the redemption of which has been duly given, shall, while held in the Bond Fund, the Series 2009A Project Account or the Borrowers Repayment Fund by the Trustee, constitute part of the Trust Estate as defined herein and be subject to the lien or security interest created hereby.

 
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(f)           Investment of Bond Fund Moneys.   Subject to the provisions of Section 403(h) of this Indenture, moneys at any time on deposit in the Bond Fund shall be invested or reinvested by the Trustee at the written direction of the Company in Qualified Investments maturing, redeemable or marketable at such time or times in order to pay principal, premium, if any, and interest on the Securities when due.  During the period that the Project Fund is actively being used to provide loans to Borrowers from the Securities and prior to the completion or termination of such Borrower projects, any interest or profit on the investments in the Bond Fund shall be credited to, and any losses on such investments shall be charged against, the Project Fund. Thereafter, any interest or profit on the investments in the Bond Fund shall be credited to, and any losses on such investments shall be charged against, the Bond Fund in which such investments are held. Notwithstanding any other provisions of this Section 403, all investment earnings shall be subject to the provisions of the Tax Compliance Agreement.
 
(g)           Repayment to the Company from Bond Fund.   After payment in full of (i) the Securities (or provision for payment thereof having been made in accordance with the provisions of Article Sixteen hereof), (ii) the related fees, charges and expenses of the Trustee and any Paying Agent in accordance with this Indenture, (iii) all other amounts required to be paid under this Indenture and the Loan Agreements relating to such Securities, and (iv) all amounts relating to the Guarantee required to be paid under this Indenture, any amounts remaining in the Bond Fund, shall belong to, and upon written order of an Officer of the Company shall be paid by the Trustee to, the Company.  The Trustee shall be entitled to rely upon a certificate of an Officer of the Company as to any amount payable to the Company under the provisions of this Section.
 
(h)           Compliance with Tax Compliance Agreement.   Notwithstanding anything herein to the contrary with respect to the funds discussed in Article Four hereof, moneys held under the provisions of this Indenture shall be used in accordance with the applicable provisions of the Tax Compliance Agreement.
 
Section 404.          Borrower Repayments Fund .
 
(a)           General .  The Trustee shall establish and maintain so long as any Securities are outstanding a separate Fund to be known as the “Borrower Repayments Fund—Series 2009A CREBs Program” (the “Borrower Repayments Fund” ).
 
(b)           Payments into Borrower Repayments Fund.   The Company will collect all repayments and revenues from Borrowers on their Notes pursuant to a Loan Agreement and, after making certain deductions, will deliver such monies intended to pay principal and interest on the Securities to the Trustee for deposit into the Borrower Repayments Fund.

 
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(c)           Use of Moneys in Borrower Repayments Fund.   Except as provided in Sections 404(d) and (f) hereof, moneys in the Borrower Repayments Fund may be used, without limitation, (i) for transfer to the Bond Fund, pursuant to a Funds Direction Statement from the Company to the Trustee in the form attached as Exhibit E, for the payment of the principal of and premium and interest on the Securities, including for the redemption of such Securities prior to maturity; (ii) to the extent not needed for (i) above, as determined by the Company, to be withdrawn by the Company, pursuant to a Funds Direction Statement from the Company to the Trustee, on each payment date with respect to the Securities, to pay the Company for the costs of operating the Securities program.  As provided in the Tax Compliance Agreement, any moneys deposited in the Borrower Repayments Fund shall be used as provided in (i) or (ii) above within the 12-month period beginning on the date of deposit therein or in the related Bond Fund.
 
The Company agrees to direct the Trustee to transfer to the Bond Fund from the Borrower Repayments Fund, or otherwise remit, at least two (2) business days prior to a Payment Date on the Series 2009A Bonds sufficient amounts to make full payment of any principal and/or interest on the Series 2009A Bonds to be due on such Payment Date.
 
(d)           Investment of Borrower Repayments Fund Moneys.   Subject to the provisions of Section 404(f) of this Indenture, moneys at any time on deposit in the Borrower Repayments Fund shall be invested or reinvested by the Trustee at the written direction of the Company in Qualified Investments maturing, redeemable or marketable at such time or times in order to pay principal, premium, if any, and interest on the Securities when due.  Any interest or profit on such investments shall be credited to, and any losses on such investments shall be charged against, the Company, and need not be used for the purpose specified in subsection (c) above. Notwithstanding any other provisions of this Section 404, all investment earnings shall be subject to the provisions of the Tax Compliance Agreement(s).
 
(e)           Repayment to the Company from Borrower Repayments Fund.   After payment in full of (i) the Securities (or provision for payment thereof having been made in accordance with the provisions of Article Sixteen hereof), (ii) the fees, charges and expenses of the Trustee and any Paying Agent relating to the Securities in accordance with this Indenture, and (iii) all other amounts relating to such Securities required to be paid under this Indenture and the related Loan Agreements, any amounts remaining in the account within the Borrower Repayments Fund shall belong to, and upon written order of an Officer of the Company shall be paid by the Trustee to, the Company.  The Trustee shall be entitled to rely upon a certificate of an Officer of the Company as to any amount payable to the Company under the provisions of this Section.
 
(f)           Compliance with Tax Compliance Agreement.   Notwithstanding anything herein to the contrary with respect to the funds discussed in Article Four hereof, moneys held under the provisions of this Indenture shall be used in accordance with the applicable provisions of the Tax Compliance Agreement.

 
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Article Five
 
Guarantee; Action by the Trustee
 
Section 501.          Guarantee of the Series 2009A Bonds .  In addition to the provisions of the Indenture regarding the Securities generally:
 
(a)           If a Guaranty Event shall occur, the Guarantor agrees to pay in full to the Trustee, for deposit into the Bond Fund, for the benefit of the Holders of the Series 2009A Bonds, an amount equal to the interest on the Series 2009A Bonds and principal of the Series 2009A Bonds then due, as set forth in Section 301 of this Indenture, whether at maturity, by acceleration or otherwise, not later than 2:30 p.m. New York City time on the applicable due date, subject to the Company’s right to pay as set forth in Section 502(b); provided, however, that the amount of principal paid hereunder shall not exceed an amount equal to the outstanding principal of the Series 2009A Bonds less any amounts in the Series 2009A Project Account.
 
(b)           The Guarantor’s obligations hereunder shall inure to the benefit of and shall be enforceable by any Holder of a Series 2009A Bond through the Trustee (or individually by any such Holder in the event the Trustee shall have failed to make prompt demand upon the Guarantor after due notification from any such Holder) if, for any reason beyond the control of such Holder, such Holder shall have failed to receive on any Payment Date of the interest or principal, as applicable, payable to such Holder on such date.
 
The Guarantor hereby irrevocably agrees that its obligations hereunder shall be unconditional, irrespective of the validity, legality or enforceability of, or any change in or amendment to, the Indenture or any Series 2009A Bond, or any breach of any obligation of the Company to the Guarantor in consideration of its Guarantee, the absence of any action to enforce the same, the waiver or consent by the Holder of any Series 2009A Bond or by the Trustee with respect to any provisions of the Indenture, or any action to enforce the same or any other circumstance that might otherwise constitute a legal or equitable discharge or defense of a guarantor. The Guarantor hereby waives diligence, presentment, demand of payment, protest or notice with respect to each Series 2009A Bond or the interest represented thereby, and all demands whatsoever, and covenants that the Guarantee will not be discharged except upon complete irrevocable payment of the principal and interest obligations represented by the Series 2009A Bonds.
 
(c)           To the fullest extent permitted by applicable law, the Guarantor hereby waives and agrees not to assert, solely for the benefit of Holders of the Series 2009A Bonds, all defenses, set-offs and counterclaims of any kind (including, without limitation, the defense of fraud in inducement or fact, any defense based on any duty claimed to arise from the doctrine of “utmost good faith” or any similar or related doctrine or any other circumstances that would have the effect of discharging a surety, guarantor or any other person in law or in equity) that the Guarantor otherwise might have asserted as a defense to its obligation to pay in full any amounts that have become due and payable in accordance with the terms and conditions of the Indenture. Nothing in this paragraph, however, shall be deemed to constitute a waiver of any rights, remedies, claims or counterclaims that the Guarantor may have with respect to the Company.

 
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(d)           No reference herein shall alter or impair the Guarantee, which is absolute and unconditional, of the due and punctual payment of principal of, and interest on, the Series 2009A Bonds, on the dates specified in (a) above.
 
(e)           The Guarantee is not an obligation of, and is not a guarantee as to principal or interest by the Farm Credit Administration, the United States or any other agency or instrumentality of the United States (other than the Guarantor). The Guarantor’s obligations under the Guarantee will not be backed by the full faith and credit of the United States.
 
(f)           The Guarantee shall not be valid or become obligatory for any purpose with respect to any Series 2009A Bond until the certificate of authentication on such Series 2009A Bond shall have been signed by the Trustee under the Indenture.
 
(g)           The Guarantee and this Article V shall be governed by, and construed in accordance with, federal law. To the extent federal law incorporates state law, that state law shall be the laws of the State of New York applicable to contracts made and performed therein.
 
Section 502.          Action by the Trustee .
 
(a)           If a Guaranty Event occurs, the Trustee shall promptly (but in no event later than 10:00 a.m. on the Payment Date) make a written demand for payment to the Guarantor, substantially in the form attached hereto as Exhibit C, delivering to the Company at the same time a copy of such demand.
 
(b)           If the Company remits to the Trustee the required amount on the next Business Day following a Guarantee Event, the Trustee shall promptly notify the Guarantor that the Guarantee Event is no longer continuing, cancelling the request for a payment by the Guarantor.
 
(c)           If any Guaranty Event shall have occurred and be continuing, then, not later than 2:30 p.m. New York City time on the Payment Date, the Guarantor will pay to the Trustee for the benefit of the Holders of the Series 2009A Bonds, immediately upon demand by the Trustee, such of the principal or interest amounts then due and payable and any other amounts payable with respect to, the Series 2009A Bonds as set forth in Section 501(a) hereof.

 
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(d)           If the Guarantor shall fail to pay to the Trustee such amounts described in (c) above following a Guaranty Event, the Trustee, in its own name and as trustee of an express trust, shall be entitled and empowered to institute any action or proceedings at law or in equity for the collection of the sums so due and unpaid, and may prosecute any such action or proceedings to judgment or final decree, and may enforce any such judgment or final decree against the Company, the Guarantor or other obligor upon the Series 2009A Bonds, as applicable, and collect in the manner provided by law out of the property of the Company, the Guarantor or other obligor upon the Series 2009A Bonds, as applicable, wherever the funds adjudged or decreed to be payable are situated. If there shall be pending proceedings relative to the Company, the Guarantor or any other obligor upon the Series 2009A Bonds, as applicable, under Insolvency Law, or if a receiver, assignee or trustee in bankruptcy or reorganization, liquidator, sequestrator or similar official shall have been appointed for or taken possession of the Company, the Guarantor, such other obligor, or any such party’s property or in case of any other comparable judicial proceedings relative to the Company, the Guarantor or other obligor upon the Series 2009A Bonds, as applicable, or to the creditors or property of the Company, the Guarantor or such other obligor, the Trustee, irrespective of whether the principal of the Series 2009A Bonds shall then be due and payable as therein expressed or by declaration or otherwise and irrespective of whether the Trustee shall have made any demand pursuant to the provisions of this Section, shall be entitled and empowered, by intervention in such proceedings or otherwise:
 
(i)           to file such proofs of a claim or claims and to file such other papers or documents as may be necessary or advisable in order to have the claims of the Trustee (including any claim for reasonable compensation to the Trustee and each predecessor Trustee, and their respective agents, attorneys and counsel, and for reimbursement of all expenses and liabilities incurred, by the Trustee and each predecessor Trustee, except as those adjudicated in a court of competent jurisdiction to be the result of any such Trustee’s negligence or bad faith) and of the Holders of the Series 2009A Bonds and the Guarantor allowed in any judicial proceedings relative to the Company, the Guarantor or other obligor upon the Series 2009A Bonds, or to the creditors or property of the Company, the Guarantor or such other obligor, as applicable;
 
(ii)          unless prohibited by applicable law and regulations, to vote on behalf of the Holders of the Series 2009A Bonds in any election of a receiver, liquidator or trustee or a standby receiver, liquidator or trustee in arrangement, reorganization, liquidation or other bankruptcy or insolvency proceedings or Person performing similar functions in comparable proceedings; and
 
(iii)         to collect and receive any funds or other property payable or deliverable on any such claims, and to distribute all amounts received with respect to the claims of each Holder, the Guarantor and of the Trustee on each Holder’s behalf; and any trustee, receiver, or liquidator, custodian or other similar official is authorized by each Holder and the Guarantor to make payments to the Trustee, and, in the event that the Trustee shall consent to the making of payments directly to any Holder and to pay to the Trustee such amounts as shall be sufficient to cover reasonable compensation to the Trustee, each predecessor Trustee and their respective agents, attorneys and counsel, and all other expenses and liabilities incurred, and all advances made, by the Trustee and each predecessor Trustee except as those adjudicated in a court of competent jurisdiction to be the result of any such Trustee’s negligence or bad faith.

 
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(e)           Nothing contained herein shall be deemed to authorize the Trustee to authorize or consent to or vote for or accept or adopt on behalf of any Holder any plan or reorganization, arrangement, adjustment or composition affecting the Series 2009A Bonds or the rights of any Holder thereof, or to authorize the Trustee to vote in respect of the claim of any Holder in any such proceeding except, as aforesaid, to vote for the election of a trustee in bankruptcy or similar Person.
 
(f)           All rights of action and of asserting claims under this Indenture and the Series 2009A Bonds may be enforced by the Trustee without any possession of any of the Series 2009A Bonds or the production thereof at trial or any other proceeding relative thereto, and any such action or proceedings instituted by the Trustee shall be brought in its own name as trustee of an express trust, and any recovery of judgment shall be distributed in accordance with the terms of the Indenture.
 
(g)           In any proceedings brought by the Trustee (and also any proceedings involving the interpretation of any provision of this Indenture) the Trustee shall be held to represent every Holder of the Series 2009A Bonds, and it shall not be necessary to make any Holder of the Series 2009A Bonds party to any such proceedings.
 
Article Six
 
 Events of Default; Remedies
 
Section 601.          Events of Default; Remedies. “Event of Default”, wherever used herein with respect to the Securities means any one of the following events (whatever the reason for such Event of Default and whether it shall be voluntary or involuntary or be effected by operation of law or pursuant to any judgment, decree or order of any court or any order, rule or regulation of any administrative or governmental body):
 
(1)           default in the payment of any interest on any Security when it becomes due and payable; or
 
(2)           default in the payment of any principal of or any premium on any Security at its Maturity; or
 
(3)           default in the performance, or breach, of any covenant or warranty of the Company in this Indenture or in the Securities, and continuance of such default or breach for a period of 60 days after there has been given, by registered or certified mail, to the Company by the Trustee or to the Company and the Trustee by the Holders of not less than 25% in principal amount of the Outstanding Securities a written notice specifying such default or breach and requiring it to be remedied and stating that such notice is a “Notice of Default” hereunder; or
 
(4)           an Insolvency Event relating to the Company shall have occurred and be continuing; or

 
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(5)           a failure by the Company to maintain the Required Collateralization Level and a continuation of such default for a period of five (5) Business Days after the Company becomes aware of such default.
 
Section 602.          Acceleration of Maturity, Rescission and Annulment .
 
(a)           Subject to the provisions of Section 701, if an Event of Default occurs and is continuing, the Control Party may, or the Trustee acting at the direction of the Control Party shall (subject to Section 803) or, if the Guarantor is not the Control Party, the Trustee acting at the direction of the Holders of at least 50% of the aggregate principal amount of the Series 2009A Bonds Outstanding shall (subject to Section 803), in each case, by written notice to each of the Guarantor and the Company, accelerate the maturity of the Bonds by declaring the principal and all accrued and unpaid interest, if any, of such Bonds due and owing and any other amounts payable with respect thereto to be due and payable immediately.
 
(b)           Notwithstanding Section 602 (a), if at any time after the principal of the Bonds, any interest due and owing and any other amounts payable with respect thereto shall have been so declared due and payable and before any judgment or decree for the payment of the funds due shall have been obtained or entered as hereinafter provided, the Company shall pay or shall deposit with the Trustee a sum sufficient to pay all due and payable interest on, and any other amounts payable with respect to, the Series 2009A Bonds and the principal of the Series 2009A Bonds which shall have become due and payable otherwise than by acceleration pursuant to Section 602(a) (in each case, with interest (including post-petition interest in any proceeding under any Insolvency Law, to the extent lawful) on such principal at the same rate as the rate of interest applicable to the Series 2009A Bonds to the date of such payment or deposit) and such amount as shall be sufficient to cover reasonable compensation to the Trustee and each predecessor Trustee, their respective agents, attorneys and counsel, and all other expenses and liabilities incurred, and all advances made, by the Trustee and each predecessor Trustee except as a result of negligence or bad faith, and if any and all Events of Default, other than the non-payment of the principal of or interest on the Series 2009A Bonds which shall have become due by acceleration, shall have been cured, waived or otherwise remedied as provided herein, then and in every such case the Control Party or, if the Guarantor is not the Control Party, the holders of at least 50% of the aggregate principal amount of the Series 2009A Bonds Outstanding by written notice to the Guarantor, the Company and the Trustee, may waive all defaults and rescind and annul such declaration and its consequences, but no such waiver or rescission and annulment shall extend to or shall affect any subsequent default or shall impair any right consequent thereon.
 
Section 603.          Collection of Indebtedness.   If an Event of Default under Section 601(1) or (2) occurs and is continuing, the Company covenants that the Company will, upon demand of the Trustee upon Act of the Control Party, or if Farmer Mac is not the Control Party, not less than 50% in principal amount of the Securities, pay to it, for the benefit of the Holders of such Securities, the whole amount then due and payable on such Securities for principal and any premium, sinking fund installment and interest, and, to the extent that payment of such interest shall be legally enforceable, interest on any overdue principal and premium, sinking fund installment and on any overdue interest, computed from the date of default in the payment of such interest, at the rate or rates prescribed therefor in such Securities and, in addition thereto, such further amount as shall be sufficient to cover the costs and expenses of collection, including the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel.

 
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If the Company fails to pay such amounts and the Guarantor fails to pay the amounts required pursuant to Section 501(a) hereof, the Company shall pay, to the extent that payment of such interest shall be legally enforceable, interest on any overdue principal and premium, sinking fund installment and on any overdue interest, computed from the date of default in the payment of such interest, at the rate equivalent to the Tax Credit Rate prescribed therefor for such Securities pursuant to Section 301.
 
If the Company fails to pay such amounts, the Trustee, in its own name and as trustee of an express trust, may upon Act of the Control Party, or if Farmer Mac is not the Control Party,   the Holders of not less than 50% in principal amount of the Securities institute a judicial proceeding for the collection of the sums so due and unpaid, may prosecute such proceeding to judgment or final decree and may enforce the same against the Company or any other obligor upon such Securities and collect the moneys adjudged or decreed to be payable in the manner provided by law out of the property of the Company or any other obligor upon such Securities, wherever situated.
 
Section 604.          Trustee May Enforce Claims Without Possession of Securities.   All rights of action and claims under this Indenture or the Securities may be prosecuted and enforced by the Trustee without the possession of any of the Securities or the production thereof in any proceeding relating thereto, and any such proceeding instituted by the Trustee shall be brought in its own name as trustee of an express trust, and any recovery of judgment shall, after provision for the payment of the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, be for the ratable benefit of the Holders of the Securities in respect of which such judgment has been recovered.
 
Section 605.          Application of Proceeds .  (a) So long as there is no Guarantor Default, funds collected by the Trustee (i) following the occurrence and during the continuance of an Event of Default, from the Company or the Guarantor for the payment of the principal of, and interest (including Unpaid Interest) on, the Series 2009A Bonds and (ii) under Section 3.02 of the Pledge and Security Agreement shall be applied in the following order:
 
(i)           first, to the payment in full of all accrued and unpaid interest on the Series 2009A Bonds that is then due and payable, ratably, according to the aggregate principal amounts due and payable on such Series 2009A Bonds (including, to reimburse the Guarantor for any such amounts paid to Holders pursuant to the Guarantee), which shall be paid to the Trustee or to the Guarantor;
 
(ii)          second, to the payment in full of all principal on Outstanding Series 2009A Bonds then due (including, to reimburse the Guarantor for any such amounts paid to holders of Series 2009A Bonds pursuant to the Guarantee), which shall be paid to the Trustee or to the Guarantor;

 
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(iii)          third, to the payment of costs, expenses and liabilities of the Trustee, if any, to the extent not paid directly to the Trustee by the Company;
 
(iv)         fourth, to the payment of all other obligations then due and owing with respect to such Series 2009A Bonds, ratably, without preference or priority of any kind, which shall be paid to the Trustee; and
 
(v)          fifth, to the payment of any remaining balance to the Company in the case of Proceeds from the sale of Pledged Collateral under Section 3.02 of the Pledge and Security Agreement, only after the payment in full of all principal on Outstanding Series 2009A Bonds at maturity.
 
(b)     If a Guarantor Default has occurred and is continuing, funds collected by the Trustee (i) following the occurrence and during the continuance of an Event of Default from the Company or the Guarantor for the payment of the principal of, and interest (including Unpaid Interest) on, the Series 2009A Bonds and (ii) under Section 3.02 of the Pledge and Security Agreement shall be applied in the following order:
 
(i)           first, to the payment in full of all accrued and unpaid interest on the Series 2009A Bonds that is then due and payable, ratably, according to the aggregate principal amounts due and payable on such Series 2009A Bonds, which shall be paid to the Trustee;
 
(ii)          second, to the payment in full of all principal on Outstanding Series 2009A Bonds then due, which shall be paid to the Trustee;
 
(iii)         third, to the payment of costs, expenses and liability of the Trustee, if any, to the extent not paid directly to the Trustee by the Company;
 
(iv)        fourth, to the payment of all other obligations then due and owing with respect to such Series 2009A Bonds, ratably, without preference or priority of any kind, which shall be paid to the Trustee; and
 
(v)          fifth, to the payment of any remaining balance to the Company in the case of Proceeds from the sale of Pledged Collateral under Section 3.02 of the Pledge and Security Agreement only after the payment in full of all principal on Outstanding Series 2009A Bonds at maturity.
 
The Trustee shall, in applying funds pursuant to this Section 605, follow the written instructions of the Control Party at the time of such application, as transmitted in a form substantially similar to Exhibit D hereof.  Funds drawn under the Guarantee shall be applied solely to the payment of interest on and principal of the Series 2009A Bonds (including any Series 2009A Bonds held by the Guarantor) and shall not be paid to the Guarantor for payments it is due as subrogee as described in Section 703 until the Holders of the Series 2009A Bonds (including any Series 2009A Bonds held by the Guarantor) have been paid all amounts owed under the Series 2009A Bonds.

 
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Section 606.          Suits for Enforcement .  If an Event of Default has occurred, has not been waived and is continuing, with respect to the Series 2009A Bonds, the Trustee may in its discretion proceed to protect and enforce the rights vested in it by this Indenture by such appropriate judicial proceedings as the Trustee shall deem most effectual to protect and enforce any of such rights, either at law or in equity or in bankruptcy or otherwise, whether for the specific enforcement of any covenant or agreement contained in this Indenture or in aid of the exercise of any power granted in this Indenture or to enforce any other legal or equitable right vested in the Trustee by this Indenture or by law.
 
Section 607.          Restoration of Rights on Abandonment of Proceedings .  If the Trustee, the Guarantor or any Holder shall have proceeded to enforce any right under this Indenture, and such proceedings shall have been discontinued or abandoned for any reason, or shall have been determined adversely to the Trustee, the Guarantor or such Holder, then and in every such case, the Company, the Trustee, the Guarantor and such Holder shall be restored respectively to their former positions and rights hereunder, and all rights, remedies and powers of the Company, the Trustee, the Guarantor and such Holder shall continue as though no such proceedings had been taken.
 
Section 608.          Limitations on Suits by Holders .  Except as provided in Sections 501(b) and 601, neither the Control Party nor any Holder has the right under this Indenture to institute any action or proceeding at law or in equity or in bankruptcy or otherwise, or for the appointment of a receiver or trustee, or for any other remedy, unless:
 
(a)           the Control Party or, if the Guarantor is not the Control Party, the Holders of at least 50% of the aggregate principal amount of the Series 2009A Bonds Outstanding previously has given each of the Guarantor and the Company written notice of an Event of Default and its continuance; and
 
(b)           the Event of Default continues unremedied for forty-five (45) days following the date written notice of such Event of Default by the Control Party or, if the Guarantor is not the Control Party, the Holders of at least 50% of the aggregate principal amount of the Series 2009A Bonds Outstanding has been given to each of the Guarantor and the Company; it being understood and intended that no Holder or Holders of Series 2009A Bonds shall have any right in any manner whatever by virtue of, or by availing of any provision of this Indenture to affect, disturb or prejudice the rights of any other Holder, or to obtain or to seek to obtain priority or preference over any other Holder of any Note or to enforce any right under this Indenture, except in the manner provided in this Indenture and for the equal and ratable benefit of all of the Holders.  For the protection and enforcement of the provisions of this Section 608, each Holder and the Trustee shall be entitled to such relief as can be given either at law or in equity.
 
Section 609.          Powers and Remedies Cumulative; Delay or Omission Not Waiver of Default .  (a) No right or remedy herein conferred upon or reserved to the Trustee, the Control Party or to any Holder is intended to be exclusive of any other right or remedy, and every right and remedy shall, to the extent permitted by law, be cumulative and in addition to every other right and remedy given hereunder or now or hereafter existing at law or in equity or otherwise.  The assertion or employment of any right or remedy hereunder, or otherwise, shall not prevent the concurrent assertion or employment of any other appropriate right or remedy.

 
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(b)           No delay or omission of the Trustee, the Control Party, or of any Holder to exercise any right or power accruing upon any Event of Default occurring and continuing as aforesaid shall impair any such right or power or shall be construed to be a waiver of any such Event of Default or an acquiescence therein; and, subject to Section 608, every power and remedy given by this Indenture or by law to the Trustee, the Control Party or to any Holder may be exercised from time to time, and as often as shall be deemed expedient, by the Trustee, the Control Party or by such Holder.
 
Section 610.          Control by the Holders .  Subject to Article Seven hereof, Holders of a majority of the aggregate principal amount of the Series 2009A Bonds Outstanding shall have the right to direct the time, method, and place of conducting any proceeding for any remedy available to the Trustee, or exercising any trust or power conferred on the Trustee by this Indenture.
 
Section 611.          Waiver of Past Defaults .  (a) Prior to the declaration of the maturity of the Bonds as provided in Section 601, the Control Party or, if the Guarantor is not the Control Party, the Holders of at least 50% of the aggregate principal amount of the Series 2009A Bonds Outstanding may on behalf of the Holders of all Series 2009A Bonds waive any past default or Event of Default hereunder and its consequences.
 
(b)           Upon any such waiver, such default shall cease to exist and be deemed to have been cured and not to have occurred, and any Event of Default arising therefrom shall be deemed to have been cured, and not to have occurred for every purpose of this Indenture; but no such waiver shall extend to any subsequent or other default or Event of Default or impair any right consequent thereon.
 
Section 612.          Costs of Litigation .  In any suit for the enforcement of any right or remedy under this Indenture or in any suit against the Trustee for any action taken or omitted by it as an Trustee, a court in its discretion may require the filing by any party litigant in the suit of an undertaking to pay the costs of the suit, and the court in its discretion may assess reasonable costs, including reasonable attorney’s fees and expenses, against any party litigant in the suit, having due regard to the merits and good faith of the claims or defenses made by the party litigant.  This Section 612 does not apply to a suit by the Trustee, a suit by a Holder for right to payment or pursuant to Section 606 hereof, a suit by Holders of more than 10% of the aggregate principal amount of the then Outstanding Series 2009A Bonds or a suit by the Guarantor as subrogee or assignee in connection with the Guarantee.
 
Section 613.          Unconditional Right of Holders to Receive Principal, Premium and Interest.   Notwithstanding any other provision in this Indenture, the Holder of any Security shall have the right, which is absolute and unconditional, to receive payment of the principal of and any premium and (subject to Sections 305 and 307) any interest on such Security or payment on the Stated Maturity or Maturities expressed in such Security (or, in the case of redemption or repayment, on the Redemption Date) and to institute suit for the enforcement of any such payment, and such rights shall not be impaired without the consent of such Holder.

 
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Section 614.          Undertaking for Costs.   All parties to this Indenture agree, and each Holder of any Security by his acceptance thereof shall be deemed to have agreed, that any court may in its discretion require, in any suit for the enforcement of any right or remedy under this Indenture, or in any suit against the Trustee for any action taken, suffered or omitted by it as Trustee, the filing by any party litigant in such suit of an undertaking to pay the costs of such suit, and that such court may in its discretion assess reasonable costs, including reasonable attorneys’ fees and expenses, against any party litigant in such suit, having due regard to the merits and good faith of the claims or defenses made by such party litigant; but the provisions of this Section shall not apply to any suit instituted by the Trustee, to any suit instituted by any Holder or group of Holders holding in the aggregate more than 10% in principal amount of the Outstanding Securities, or to any suit instituted by any Holder of any Security for the enforcement of the payment of the principal of or any premium or interest on any Security on or after the Stated Maturity or Maturities expressed in such Security (or, in the case of redemption or repayment, on or after the Redemption Date or Repayment Date, as the case may be).
 
Section 615.          Waiver of Stay, Extension or Usury Laws.   The Company covenants (to the extent that it may lawfully do so) that it will not at any time insist upon, or plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay, extension or usury law wherever enacted, now or at any time hereafter in force, that may affect the covenants or the performance of this Indenture or the Securities or that would prohibit or forgive the Company from paying all or any portion of the principal of or premium or interest on any Securities as contemplated herein and therein; and the Company (to the extent that it may lawfully do so) hereby expressly waives all benefit or advantage of any such law and covenants that it will not hinder, delay or impede the execution of any power herein granted to the Trustee, but will suffer and permit the execution of every such power as though no such law had been enacted.
 
Article Seven
 
Control By the Guarantor; Additional Rights of the Guarantor
 
Section 701.          Control by the Guarantor .  (a) If the Guarantor is the Control Party, the Guarantor shall be considered the Holder of all Series 2009A Bonds Outstanding for all purposes under this Indenture and shall be permitted to take any and all actions permitted to be taken by the Holders or a specified percentage of Holders hereunder, provided, however, the Guarantor shall not be entitled to receive payments of principal of and interest on the Series 2009A Bonds other than (i) pursuant to the Guarantor’s subrogation rights provided in Section 703 or (ii) to the extent that the Guarantor is a Holder of the Series 2009A Bonds.  The Control Party will have the sole right to direct the time, method and place of conducting any proceeding for any remedy available to the Trustee with respect to the Series 2009A Bonds or exercising any trust or power conferred on the Trustee with respect to the Series 2009A Bonds provided that:
 
(i)           such direction shall not be in conflict with any rule of law or with this Indenture;

 
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(ii)          the Trustee shall have been provided with indemnity from the Control Party reasonably satisfactory to it;
 
(iii)         the Trustee may take any other action deemed proper by such trustee that is not inconsistent with such direction, provided, however, that the Trustee need not take any action which it determines might expose it to liability; and
 
(iv)          the Guarantor shall not be permitted to declare all of the Series 2009A Bonds to be immediately due and payable unless it simultaneously delivers to the Trustee, for deposit into the Bond Fund, an amount equal to the full amount guaranteed by the Guarantor under Section 501(a) hereof.
 
Section 702.          Rights of the Guarantor to Direct Actions of the Trustee .   (a) The Trustee agrees that so long as the Guarantor is the Control Party, following the written request of a Responsible Party of the Guarantor with a copy to the Company, the Trustee will take or refrain from taking any action and exercise or refrain from exercising any rights of the Trustee hereunder in the manner described in the Guarantor’s written request; provided, however, that the obligation of the Trustee to take or refrain from taking, or to exercise or refrain from exercising, any such action or rights shall be limited to those actions and rights that can be exercised or taken (or not exercised or taken, as the case may be) in full compliance with the provisions hereof and applicable law.
 
(b)     The Trustee hereby irrevocably makes, designates, constitutes and appoints the Guarantor for so long as the Guarantor is still the Control Party as its attorney-in-fact, with power in the name of the Trustee, subject to the conditions and limitations set forth herein, to:
 
(i)           enforce, foreclose upon or repossess any Pledged Collateral; and
 
(ii)          exercise or direct the Trustee in writing to exercise (in which case the Trustee agrees to exercise) any and all rights of the Trustee pursuant to this Indenture.
 
Section 703.          Additional Rights of the Guarantor .  (a) The Trustee shall receive as attorney-in-fact of each Holder any amount paid by the Guarantor.  Any and all amounts disbursed by the Trustee from amounts received under the Guarantee shall not be considered payment by the Company with respect to the Series 2009A Bonds and shall not discharge the obligations of the Company with respect thereto.  The Guarantor shall, to the extent it makes any payment of any amount with respect to the Series 2009A Bonds, become subrogated to the rights of the recipient of such payments to the extent of such payments.  Subject to and conditioned upon any payment with respect to the Series 2009A Bonds by or on behalf of the Guarantor, the Trustee hereby assigns to the Guarantor all rights to the payment of interest or principal with respect to the Series 2009A Bonds which are then due for payment to the extent of all payments made by the Guarantor, and the Guarantor may exercise any option, vote, right, power or the like with respect to the Series 2009A Bonds to the extent that it has made a payment on the Series 2009A Bonds pursuant to the Guarantee.  To evidence such subrogation, the Trustee shall note the Guarantor’s rights as subrogee in the Bond Register upon receipt from the Guarantor of payment by the Guarantor of any amount with respect to the Series 2009A Bonds.  The foregoing subrogation shall in all cases not impair the rights of the Holders of the Series 2009A Bonds to receive all amounts payable by the Guarantor in respect of the Series 2009A Bonds pursuant to the Guarantee.  Each Holder of Series 2009A Bonds is hereby deemed to acknowledge and agree to the rights of subrogation of the Guarantor hereunder, under the Guarantee and otherwise under applicable law.

 
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(b)           In furtherance and not in limitation of the Guarantor’s equitable right of subrogation and the Guarantor’s rights under the Guarantee, each Holder of the Series 2009A Bonds acknowledges that the Guarantor shall be fully subrogated to, and shall be vested with, all of the options, rights, powers and remedies of the Trustee and the Holders of the Series 2009A Bonds under the Transaction Documents to which any such Person is a party or under which any of the Trustee or the Holders of the Series 2009A Bonds has any options, rights, powers or remedies in respect of such amounts and, to the extent of such payment only, shall be fully subrogated to each such Person’s rights against any and all parties in connection with the Series 2009A Bonds until such nonpayment has been cured by or on behalf of the Company, and the Guarantor shall have been reimbursed in full by or on behalf of the Company, for amounts paid by the Guarantor to the Holders of the Series 2009A Bonds as a result of the nonpayment by or on behalf of the Company, plus Unpaid Interest accrued on the amount of such nonpayment.  Each Holder of Series 2009A Bonds hereby acknowledges that the Guarantor shall have the absolute right and discretion, without notice to any of the Trustee, the Holders of the Series 2009A Bonds or any other Person, to exercise or fail to exercise any right, power or remedy that the Guarantor may have under the Guarantee or this Indenture or under any assignment required hereby or thereby.  Each Holder of Series 2009A Bonds hereby acknowledges that the Guarantor shall have no liability to any of the Trustee, the Holders of Series 2009A Bonds or any other Person for any loss, damage or injury resulting from the Guarantor’s exercise or failure to exercise any right, power or remedy that the Guarantor may have under the Guarantee or this Indenture or under any assignment required hereby or thereby, so long as such exercise or failure to exercise is in accordance with the Transaction Documents and applicable law.
 
(c)           Each Holder of Series 2009A Bonds agrees that it will, at the Company’s expense, execute and deliver such documents, instruments, and assurances and to take, or cause to be taken, all actions reasonably required by the Guarantor to evidence, preserve, enforce, perfect, or maintain the perfection in the Guarantor’s favor of such interests, rights, and remedies and such equitable rights of subrogation.  Each Holder of Series 2009A Bonds agrees that it shall not without the prior written consent of the Guarantor, settle or compromise or consent to the entry of any judgment in any pending or threatened claim, action, suit or proceeding relating to the preservation, enforcement, perfection or maintenance of the Guarantor’s rights of subrogation or assignment with respect to the Series 2009A Bonds, to the extent of any payment made by the Guarantor that has not been reimbursed by or on behalf of the Company.

 
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Article Eight
 
The Trustee
 
Section 801.          Certain Duties and Responsibilities.   (a) Except during the continuance of an Event of Default,
 
(1)          the Trustee undertakes to perform such duties and only such duties as are specifically set forth in this Indenture, and no implied covenants or obligations shall be read into this Indenture against the Trustee; and
 
(2)           in the absence of bad faith on its part, the Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon certificates or opinions furnished to the Trustee and substantially conforming to the requirements of this Indenture; but in the case of any such certificates or opinions which by any provision hereof are specifically required to be furnished to the Trustee, the Trustee shall be under a duty to examine the same to determine whether or not they substantially conform to the requirements of this Indenture but need not confirm the accuracy of the information contained therein.
 
(b)     In case an Event of Default has occurred and is continuing, the Trustee shall exercise such of the rights and powers vested in it by this Indenture, 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 his own affairs.
 
(c)      No provision of this Indenture shall be construed to relieve the Trustee from liability for its own negligent action, its own negligent failure to act, or its own willful misconduct, except that
 
(1)          this Subsection shall not be construed to limit the effect of Subsection (a) of this Section;
 
(2)          the Trustee shall not be liable for any error of judgment made by it in good faith, unless it shall be conclusively determined by a court of competent jurisdiction that the Trustee was negligent in ascertaining the pertinent facts;
 
(3)          the Trustee shall not be liable with respect to any action taken or omitted to be taken by it in good faith in accordance with the direction of the Holders of a majority in principal amount of the Outstanding Securities relating to the time, method and place of conducting any proceeding for any remedy available to the Trustee, or exercising any trust or power conferred upon the Trustee under this Indenture with respect to such Securities; and
 
(4)          no provision of this Indenture shall require the Trustee to expend or risk its own funds or otherwise incur any financial liability in the performance of any of its duties hereunder, or in the exercise of any of its rights or powers, if it shall have reasonable grounds for believing that repayment of such funds or adequate indemnity against such risk or liability is not reasonably assured to it.

 
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(d)      Whether or not therein expressly so provided, every provision of this Indenture relating to the conduct or affecting the liability of or affording protection to the Trustee shall be subject to the provisions of this Section.
 
Section 802.          Notice of Defaults.   Within 90 days after the occurrence of any default hereunder with respect to the Securities the Trustee shall transmit to all Holders of the Securities in the manner and to the extent provided in Section 106, notice of all such defaults hereunder known to the Trustee, except for such defaults as shall have been cured or waived; provided, however, that, except in the case of a default in the payment of the principal of or premium or interest on any Security or in the payment of any sinking fund installment with respect to the Securities, the Trustee shall be protected in withholding such notice if and so long as the board of directors, the executive committee or a trust committee of directors or officers of the Trustee in good faith determines that the withholding of such notice is in the interest of the Holders of the Securities.  For the purpose of this Section, the term “default” means any event which is, or after notice or lapse of time or both would become, an Event of Default with respect to the Securities.
 
The Trustee shall not be charged with knowledge of any default unless either (1) a Responsible Officer of the Trustee shall have actual knowledge or (2) the Trustee shall have received written notice thereof from the Company or a Holder.
 
Section 803.          Certain Rights of Trustee.   Subject to the provisions of Section 801:
 
(a)          the Trustee may conclusively rely and shall be fully protected in acting or refraining from acting upon any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, note, other evidence of indebtedness or other paper or document believed by it to be genuine and to have been signed or presented by the proper party or parties;
 
(b)         any request or direction of the Company mentioned herein shall be sufficiently evidenced by a Company Request or Company Order and any resolution of the Board of Directors may be sufficiently evidenced by a Board Resolution;
 
(c)          whenever in the administration of this Indenture the Trustee shall deem it desirable that a matter be proved or established prior to taking, suffering or omitting any action hereunder, the Trustee (unless other evidence be herein specifically prescribed) may, in the absence of bad faith on its part, conclusively rely upon an Officers’ Certificate;
 
(d)          before the Trustee acts or refrains from acting, the Trustee may consult with counsel of its selection and the advice of such counsel, or any Opinion of Counsel shall be full and complete authorization and protection in respect of any action taken, suffered or omitted by it hereunder in good faith and in reliance thereon;

 
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(e)           the Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Indenture at the request or direction of any of the Holders of any Securities or of any related Coupons pursuant to this Indenture, unless such Holders shall have offered to the Trustee security or indemnity satisfactory to it against the costs, expenses and liabilities which might be incurred by it in compliance with such request or direction;
 
(f)           the Trustee shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, note, other evidence of indebtedness or other paper or document, but the Trustee, in its discretion, may make such further inquiry or investigation into such facts or matters as it may see fit, and, if the Trustee shall determine to make such further inquiry or investigation, it shall be entitled to examine the books, records and premises of the Company, personally or by agent or attorney;
 
(g)           the Trustee may execute any of the trusts or powers hereunder or perform any duties hereunder either directly or by or through agents, attorneys, custodians or nominees and the Trustee shall not be responsible for any misconduct or negligence on the part of any agent, attorney, custodian or nominee appointed with due care by it hereunder;
 
(h)           the Trustee shall not be liable for any action taken or omitted to be taken by it in good faith and reasonably believed by it to be authorized or within the discretion or rights or powers conferred upon it by this Indenture;
 
(i)           in no event shall the Trustee be liable for the selection of investments or for investment losses incurred thereon; the Trustee shall have no liability in respect of losses incurred as a result of the liquidation of any such investment prior to its stated maturity or the failure of the party directing such investment to provide timely written investment directions; the Trustee shall have no obligation to invest or reinvest any amounts held hereunder in the absence of such written investment directions;
 
(j)           in no event shall the Trustee be responsible or liable for special, indirect, punitive or consequential loss or damage of any kind whatsoever (including, but not limited to, loss of profit) irrespective of whether the Trustee has been advised of the likelihood of such loss or damage and regardless of the form of action; and
 
(k)           the Trustee shall not be deemed to have notice of any default or Event of Default unless a Responsible Officer of the Trustee has actual knowledge thereof or unless written notice of any event which is in fact such a default is received by the Trustee at the Corporate Trust Office of the Trustee, and such notice references the Securities and this Indenture.

 
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In the event that the Trustee is also acting as Paying Agent, Security Registrar or transfer agent hereunder, the rights and protections afforded to the Trustee pursuant to this Article Eight shall also be afforded to such Paying Agent, Security Registrar or transfer agent.
 
The parties hereto acknowledge that, in order to comply with the United States Patriot Act, U.S. Bank National Association, like all financial institutions, is required to obtain, verify and record certain information and documentation from the other parties hereto.  Each of the parties hereby agree that they will provide U.S. Bank National Association with such information as it may reasonably request in order for it to satisfy the requirements of the USA Patriot Act.
 
Section 804.          Not Responsible for Recitals or Issuance of Securities. The recitals contained herein and in the Securities (except the Trustee’s certificates of authentication) shall be taken as the statements of the Company, and the Trustee or any Authenticating Agent assumes no responsibility for their correctness.  The Trustee makes no representations as to the validity or sufficiency of this Indenture or of the Securities.  The Trustee or any Authenticating Agent shall not be (i) accountable for the use or application by the Company of Securities or the proceeds thereof, (ii) accountable for any money paid to the Company, or upon the Company’s direction, if made under and in accordance with any provision of this Indenture or (iii) responsible for the use or application of any money received by any Paying Agent other than the Trustee.
 
Section 805.          May Hold Securities. The Trustee, any Authenticating Agent, any Paying Agent, any Security Registrar or any other agent of the Company, in its individual or any other capacity, may become the owner or pledgee of Securities and, subject to Sections 808 and 813, may otherwise deal with the Company with the same rights it would have if it were not Trustee, Authenticating Agent, Paying Agent, Security Registrar or such other agent.
 
Section 806.          Money Held in Trust .  Money held by the Trustee in trust hereunder need not be segregated from other funds except to the extent required by law or by this Indenture.  The Trustee or any Paying Agent shall be under no liability for interest on any money received by it hereunder except as otherwise agreed in writing with the Company.
 
Section 807.          Compensation and Reimbursement. The Company agrees
 
(1)           to pay to the Trustee from time to time such compensation for all services rendered by it hereunder as may be agreed upon by the Company and the Trustee in writing (which compensation shall not be limited by any provision of law in regard to the compensation of a trustee of an express trust);
 
(2)           to reimburse the Trustee upon its request for all reasonable expenses, disbursements and advances incurred or made by the Trustee in accordance with any provision of this Indenture (including the reasonable compensation and the expenses and disbursements of its agents and counsel), except any such expense, disbursement or advance as may be attributable to its negligence or bad faith; and

 
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(3)      to indemnify the Trustee in its individual capacity and as Trustee, and each of its officers, directors, attorneys-in-fact, employees and agents for, and to hold it harmless against, any loss, claim, liability, obligation, damage, injury, penalty, action, suit, judgment, cost or expense (including attorneys’ fees and expenses) incurred without negligence or bad faith on its part, arising out of or in connection with the acceptance or administration of the trust or trusts hereunder, 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 hereunder.
 
The foregoing provisions shall survive the termination of this Indenture or any resignation or removal of the Trustee.
 
As security for the performance of the obligations of the Company under this Section the Trustee shall have a lien prior to the Securities upon all property and funds held or collected by the Trustee as such.  Such lien shall survive the satisfaction and discharge of this Indenture and, to the extent permitted by law, any rejection or termination of this Indenture under any federal or state bankruptcy law.
 
To the fullest extent permitted by law, when the Trustee incurs reasonable expenses or renders services in connection with an Event of Default specified in Section 601(4), the Holders of the Securities, by their acceptance of such Securities, agree that such reasonable expenses and the compensation for such services are intended to constitute expenses of administration under any applicable bankruptcy law.
 
Section 808.     Disqualification; Conflicting Interests.   (a) If the Trustee has or shall acquire any conflicting interest, as defined in this Section, with respect to the Securities then, within 90 days after ascertaining that it has such conflicting interest, and if the Event of Default, but exclusive of any period of grace or requirement of notice, to which such conflicting interest relates has not been cured or duly waived or otherwise eliminated before the end of such 90-day period, the Trustee shall either eliminate such conflicting interest or, except as otherwise provided below in this Section, resign in the manner and with the effect hereinafter specified in this Article and the Company shall take prompt steps to have a successor appointed in the manner provided herein.
 
(b)    (1) If the Trustee shall fail to comply with the provisions of Subsection (a) of this Section with respect to the Securities, the Trustee shall, within 10 days after the expiration of such 90-day period, transmit, in the manner and to the extent provided in Section 106, to all Holders of Securities notice of such failure.
 
(2)    Subject to the provisions of Section 614, unless the Trustee’s duty to resign is stayed as provided in Subsection (f) of this Section, any Holder who has been a bona fide Holder of Securities referred to in Subsection (a) of this Section for at least six months may, on behalf of himself and all others similarly situated, petition any court of competent jurisdiction for the removal of such Trustee, and the appointment of a successor, if such Trustee fails, after written request thereof by such Holder to comply with the provisions of Subsection (a) of this Section.
 
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(c)     For the purposes of this Section, the Trustee shall be deemed to have a conflicting interest with respect to the Securities if a default (defined as an Event of Default hereunder, but exclusive of any period of grace or requirement of notice) has occurred with respect to the Securities and;
 
(1)      the Trustee is trustee under another indenture under which any other securities, or certificates of interest or participation in any other securities, of the Company are outstanding, unless such other indenture is a collateral trust indenture under which the only collateral consists of the Securities issued under this Indenture, provided that there shall be excluded from the operation of this paragraph any indenture or indentures under which other securities, or certificates of interest or participation in other securities, of the Company are outstanding and this Indenture and such other indenture or indentures (and all securities issuable thereunder) are wholly unsecured and rank equally with such other indenture or indentures of the Company;
 
(2)       the Trustee or any of its directors or executive officers is an underwriter for the Company;
 
(3)       the Trustee directly or indirectly controls or is directly or indirectly controlled by or is under direct or indirect common control with an underwriter for the Company;
 
(4)      the Trustee or any of its directors or executive officers is a director, officer, partner, employee, appointee or representative of the Company, or of an underwriter (other than the Trustee itself) for the Company who is currently engaged in the business of underwriting, except that (i) one individual may be a director or an executive officer, or both, of the Trustee and a director or an  executive officer, or both, of the Company but may not be at the same time an executive officer of both the Trustee and the Company; (ii) if and so long as the number of directors of the Trustee in office is more than nine, one additional individual may be a director or an executive officer, or both, of the Trustee and a director of the Company; and (iii) the Trustee may be designated by the Company or by any underwriter for the Company to act in the capacity of transfer agent, registrar, custodian, paying agent, fiscal agent, escrow agent or depositary, or in any other similar capacity, or, subject to the provisions of paragraph (1) of this Subsection, to act as trustee, whether under an indenture or otherwise;
 
(5)      10% or more of the voting securities of the Trustee is beneficially owned either by the Company or by any director, partner or executive officer thereof, or 20% or more of such voting securities is beneficially owned, collectively, by any two or more of such persons; or 10% or more of the voting securities of the Trustee is beneficially owned either by an underwriter for the Company or by any director, partner or executive officer thereof, or is beneficially owned, collectively, by any two or more such persons;
 
(6)      the Trustee is the beneficial owner of, or holds as collateral security for an obligation which is in default (as hereinafter in this Subsection defined), (i) 5% or more of the voting securities, or 10% or more of any other class of security, of the Company not including the Securities issued under this Indenture and securities issued under any other indenture under which the Trustee is also trustee, or (ii) 10% or more of any class of security of an underwriter for the Company;
 
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(7)      the Trustee is the beneficial owner of, or holds as collateral security for an obligation which is in default (as hereinafter in this Subsection defined), 5% or more of the voting securities of any person who, to the knowledge of the Trustee, owns 10% or more of the voting securities of, or controls directly or indirectly or is under direct or indirect common control with, the Company;
 
(8)      the Trustee is the beneficial owner of, or holds as collateral security for an obligation which is in default (as hereinafter in this Subsection defined), 10% or more of any class of security of any person who, to the knowledge of the Trustee, owns 50% or more of the voting securities of the Company;
 
(9)      the Trustee owns, on the date any default (defined as an Event of Default hereunder, but exclusive of any period of grace or requirement of notice) has occurred upon the Securities or any anniversary of such default while such default upon such Securities remains outstanding, in the capacity of executor, administrator, testamentary or inter vivos trustee, guardian, committee or conservator, or in any other similar capacity, an aggregate of 25% or more of the voting securities, or of any class of security, of any person, the beneficial ownership of a specified percentage of which would have constituted a conflicting interest under paragraph (6), (7) or (8) of this Subsection.  As to any such securities of which the Trustee acquired ownership through becoming executor, administrator or testamentary trustee of an estate which included them, the provisions of the preceding sentence shall not apply, for a period of not more than two years from the date of such acquisition, to the extent that such securities included in such estate do not exceed 25% of such voting securities or 25% of any such class of security.  Promptly after the dates of any such default upon the Securities and annually in each succeeding year that such default upon such Securities continues, the Trustee shall make a check of its holdings of such securities in any of the above-mentioned capacities as of such dates.  If the Company fails to make payment in full of the principal of or any premium or interest on any of the Securities when and as the same becomes due and payable, and such failure continues for 30 days thereafter, the Trustee shall make a prompt check of its holdings of such securities in any of the above-mentioned capacities as of the date of the expiration of such 30-day period, and after such date, notwithstanding the foregoing provisions of this paragraph, all such securities so held by the Trustee, with sole or joint control over such securities vested in it, shall, but only so long as such failure shall continue, be considered as though beneficially owned by the Trustee for the purposes of paragraphs (6), (7) and (8) of this Subsection; or
 
(10)     except under the circumstances described in paragraphs (1), (3), (4), (5) or (6) of Section 813(b), the Trustee shall be or shall become a creditor of the Company.
 
The specification of percentages in paragraphs (5) to (9), inclusive, of this Subsection shall not be construed as indicating that the ownership of such percentages of the securities of a person is or is not necessary or sufficient to constitute direct or indirect control for the purposes of paragraph (3) or (7) of this Subsection.
 
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For the purposes of paragraphs (6), (7), (8) and (9) of this Subsection only, (i) the terms “security” and “securities” shall include only such securities as are generally known as corporate securities, but shall not include any note or other evidence of indebtedness issued to evidence an obligation to repay moneys lent to a person by one or more banks, trust companies or banking firms, or any certificate of interest or participation in any such note or evidence of indebtedness; (ii) an obligation shall be deemed to be “in default” when a default in payment of principal shall have continued for 30 days or more and shall not have been cured; and (iii) the Trustee shall not be deemed to be the owner or holder of (A) any security which it holds as collateral security, as trustee or otherwise, for an obligation which is not in default as defined in clause (ii) above, or (B) any security which it holds as collateral security under this Indenture, irrespective of any default hereunder, or (C) any security which it holds as agent for collection, or as custodian, escrow agent or depositary, or in any similar representative capacity.
 
(d)     For the purposes of this Section:
 
(1)      The term “underwriter,” when used with reference to the Company, means every person who, within one year prior to the time as of which the determination is made, has purchased from the Company with a view to, or has offered or sold for the Company in connection with, the distribution of any security of the Company outstanding at such time, or has participated or has had a direct or indirect participation in any such undertaking, or has participated or has had a participation in the direct or indirect underwriting of any such undertaking, but such term shall not include a person whose interest was limited to a commission from an underwriter or dealer not in excess of the usual and customary distributors’ or sellers’ commission.
 
(2)       The term “director” means any director of a corporation or any individual performing similar functions with respect to any organization, whether incorporated or unincorporated.
 
(3)       The term “person” means an individual, a corporation, a partnership, an association, a joint-stock company, a trust, an unincorporated organization or a government or political subdivision thereof.  As used in this paragraph, the term “trust” shall include only a trust where the interest or interests of the beneficiary or beneficiaries are evidenced by a security.
 
(4)       The term “voting security” means any security presently entitling the owner or holder thereof to vote in the direction or management of the affairs of a person, or any security issued under or pursuant to any trust, agreement or arrangement whereby a trustee or trustees or agent or agents for the owner or holder of such security are presently entitled to vote in the direction or management of the affairs of a person.
 
(5)       The term “Company” means any obligor upon the Securities.
 
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(6)       The term “executive officer” means the president, every vice president, every trust officer, the cashier, the secretary and the treasurer of a corporation, and any individual customarily performing similar functions with respect to any organization whether incorporated or unincorporated, but shall not include the chairman of the board of directors.
 
(e)     The percentages of voting securities and other securities specified in this Section shall be calculated in accordance with the following provisions:
 
(1)      A specified percentage of the voting securities of the Trustee, the Company or any other person referred to in this Section (each of whom is referred to as a “person” in this paragraph) means such amount of the outstanding voting securities of such person as entitles the holder or holders thereof to cast such specified percentage of the aggregate votes which the holders of all the outstanding voting securities of such person are entitled to cast in the direction or management of the affairs of such person.
 
(2)       A specified percentage of a class of securities of a person means such percentage of the aggregate amount of securities of the class outstanding.
 
(3)       The term “amount,” when used in regard to securities, means the principal amount if relating to evidences of indebtedness, the number of shares if relating to capital shares and the number of units if relating to any other kind of security.
 
(4)       The term “outstanding” means issued and not held by or for the account of the issuer.  The following securities shall not be deemed outstanding within the meaning of this definition:
 
(i)     securities of an issuer held in a sinking fund relating to securities of the issuer of the same class;
 
(ii)    securities of an issuer held in a sinking fund relating to another class of securities of the issuer, if the obligation evidenced by such other class of securities is not in default as to principal or interest or otherwise;
 
(iii)   securities pledged by the issuer thereof as security for an obligation of the issuer not in default as to principal or interest or otherwise; and
 
(iv)   securities held in escrow if placed in escrow by the issuer thereof;
 
provided, however, that any voting securities of an issuer shall be deemed outstanding if any person other than the issuer is entitled to exercise the voting rights thereof.
 
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(5)      A security shall be deemed to be of the same class as another security if both securities confer upon the holder or holders thereof substantially the same rights and privileges; provided, however, that, in the case of secured evidences of indebtedness, all of which are issued under a single indenture, differences in the interest rates or maturity dates of various series thereof shall not be deemed sufficient to constitute such series different classes and provided, further, that, in the case of unsecured evidences of indebtedness, differences in the interest rates or maturity dates thereof shall not be deemed sufficient to constitute them securities of different classes, whether or not they are issued under a single indenture.
 
(f)      Except in the case of a default in the payment of the principal of or interest on any Securities, or in the payment of any sinking or purchase fund installment, the Trustee shall not be required to resign as provided by this Section if the Trustee shall have sustained the burden of proving that (i) the Event of Default may be cured or waived during a reasonable period and under the procedures described in such application, and (ii) a stay of the Trustee’s duty to resign will not be inconsistent with the interests of Holders of such Securities.
 
Section 809.    Corporate Trustee Required; Eligibility.   There shall at all times be a Trustee hereunder which shall be a corporation or national banking association organized and doing business under the laws of the United States of America, any State thereof or the District of Columbia, authorized under such laws to exercise corporate trust powers, having a combined capital and surplus of at least $5,000,000 and subject to supervision or examination by Federal or State authority.  If such corporation publishes reports of condition at least annually, pursuant to law or to the requirements of said supervising or examining authority, then for the purposes of this Section, the combined capital and surplus of such corporation shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published.  Neither the Company nor any person directly or indirectly controlling, controlled by or under common control with the Company may serve as Trustee.  If at any time the Trustee shall cease to be eligible in accordance with the provisions of this Section, it shall resign immediately in the manner and with the effect hereinafter specified in this Article.
 
Section 810.     Resignation and Removal; Appointment of Successor.   (a) No resignation or removal of the Trustee and no appointment of a successor Trustee pursuant to this Article shall become effective until the acceptance of appointment by the successor Trustee in accordance with the applicable requirements of Section 811.
 
(b)     The Trustee may resign at any time with respect to the Securities by giving written notice thereof to the Company.  If the instrument of acceptance by a successor Trustee required by Section 811 shall not have been delivered to the Trustee within 30 days after the giving of such notice of resignation, the resigning Trustee may, at the expense of the Company, petition any court of competent jurisdiction for the appointment of a successor Trustee with respect to the Securities.
 
(c)      The Trustee may be removed at any time by Act of the Holders of two-thirds in principal amount of the Outstanding Securities delivered to the Trustee and to the Company if at any time:
 
(1)      the Trustee shall fail to comply with Section 808 with respect to the Securities after written request therefor by the Company or by any Holder of a Security who has been a bona fide Holder of a Security for at least six months, unless the Trustee’s duty to resign has been stayed as provided in Section 808(f), or
 
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(2)       the Trustee shall cease to be eligible under Section 809 and shall fail to resign after written request therefor by the Company or by any Holder, or
 
(3)      the Trustee shall become incapable of acting with respect to the Securities or a decree or order for relief by a court having jurisdiction in the premises shall have been entered in respect of the Trustee in an involuntary case under the Federal bankruptcy laws, as now or hereafter constituted, or any other applicable federal or state bankruptcy, insolvency or similar law, or a decree or order by a court having jurisdiction in the premises shall have been entered for the appointment of a receiver, custodian, liquidator, assignee, trustee, sequestrator or other similar official of the Trustee or its  property or affairs, or any public officer shall take charge or control of the Trustee or of its property or affairs for the purpose of rehabilitation, conservation, winding up or liquidation, or
 
(4)       the Trustee shall commence a voluntary case under the federal bankruptcy laws, as now or hereafter constituted, or any other applicable federal or state bankruptcy, insolvency or similar law or shall consent to the appointment of or taking possession by a receiver, custodian, liquidator, assignee, trustee, sequestrator (or other similar official) of the Trustee or its property or affairs, or shall make an assignment for the benefit of creditors, or shall admit in writing its inability to pay its debts generally as they become due, or shall take corporate action in furtherance of any such action, then, in any such case, (i) the Company by a Board Resolution may remove the Trustee, or (ii) subject to Section 614, any Holder of a Security who has been a bona fide Holder of a Security for at least six months may, on behalf of himself and all others similarly situated (including those who have been Holders for less than six months), petition any court of competent jurisdiction for the removal of the Trustee and the appointment of a successor Trustee or Trustees.
 
(d)      In addition to (c) above, the Trustee may be removed at any time by an instrument in writing delivered to the Trustee and the Holders of the Securities, and signed by an Officer of the Company, provided that the Company is not in default under the Indenture, and such removal shall take effect at the appointment of a successor Trustee pursuant to the provisions of Section 810(e) hereof and acceptance by the successor  Trustee of such trusts.
 
(e)      If the Trustee shall resign, be removed or become incapable of acting, or if a vacancy shall occur in the office of Trustee for any cause, the Company, by a Company Order, shall promptly appoint a successor Trustee or Trustees and shall comply with the applicable requirements of Section 811.  If, within one year after such resignation, removal or incapability, or the occurrence of such vacancy, a successor Trustee shall be appointed by Act of the Holders of two-thirds in principal amount of the Outstanding Securities delivered to the Company and the retiring Trustee, the successor Trustee so appointed shall, forthwith upon its acceptance of such appointment in accordance with the applicable requirements of Section 811, become the successor Trustee and to that extent supersede the successor Trustee appointed by the Company, provided that such successor shall be acceptable to the Company.  If no successor Trustee shall have been so appointed by the Company or the Holders of Securities and accepted appointment in the manner required by Section 811, any Holder of a Security who has been a bona fide Holder of a Security for at least six months may, on behalf of himself and all others similarly situated (including those who have been Holders for less than six months), or the Trustee may, petition any court of competent jurisdiction for the appointment of a successor Trustee with respect to the Securities.

 
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(f)       The Company shall give notice of each resignation and each removal of the Trustee and each appointment of a successor Trustee in the manner provided in Section 106.  Each notice shall include the name of the successor Trustee and the address of its Corporate Trust Office.
 
Section 811.     Acceptance of Appointment by Successor.   (a) In case of the appointment hereunder of a successor Trustee, every such successor Trustee so appointed shall execute, acknowledge and deliver to the Company and to the retiring Trustee an instrument accepting such appointment, and thereupon the resignation or removal of the retiring Trustee shall become effective and such successor Trustee, without any further act, deed or conveyance, shall become vested with all the rights, powers, trusts and duties of the retiring Trustee; but, on the request of the Company or the successor Trustee, such retiring Trustee shall, upon payment of its charges, execute and deliver an instrument transferring to such successor Trustee all the rights, powers and trusts of the retiring Trustee and shall duly assign, transfer and deliver to such successor Trustee all property and money held by such retiring Trustee hereunder, subject nevertheless to its liens, if any, provided for in Section 807.
 
(b)     In case of the appointment hereunder of a successor Trustee, the Company, the retiring Trustee and each successor Trustee shall execute and deliver an indenture supplemental hereto wherein each successor Trustee shall accept such appointment and which (1) shall contain such provisions as shall be necessary or desirable to transfer and confirm to, and to vest in, each successor Trustee all the rights, powers, trusts and duties of the retiring Trustee, and (2) shall add to or change any of the provisions of this Indenture as shall be necessary to provide for or facilitate the administration of the trusts hereunder by more than one Trustee, it being understood that nothing herein or in such supplemental indenture shall constitute such Trustees as co-trustees of the same trust and that each such Trustee shall be trustee of a trust or trusts hereunder separate and apart from any trust or trusts hereunder administered by any other such Trustee; and upon the execution and delivery of such supplemental indenture the resignation or removal of the retiring Trustee shall become effective to the extent provided therein and each such successor Trustee, without any further act, deed or conveyance, shall become vested with all the rights, powers, trusts and duties of the retiring Trustee; but, on request of the Company or any successor Trustee, such retiring Trustee shall duly assign, transfer and deliver to such successor Trustee all property and money held by such retiring Trustee hereunder.
 
(c)      Upon request of any such successor Trustee, the Company shall execute any and all instruments for more fully and certainly vesting in and confirming to such successor Trustee all such rights, powers and trusts referred to in paragraph (a) or (b) of this Section, as the case may be.
 
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(d)     No successor Trustee shall accept its appointment unless at the time of such acceptance such successor Trustee shall be qualified and eligible under this Article.
 
Section 812.      Merger, Conversion, Consolidation or Succession to Business.   Any corporation into which the Trustee may be merged or converted or with which it may be consolidated, or any corporation resulting from any merger, conversion or consolidation to which the Trustee shall be a party, or any corporation succeeding to all or substantially all the corporate trust business of the Trustee, shall be the successor of the Trustee hereunder, provided such corporation shall be otherwise qualified and eligible under this Article, without the execution or filing of any paper or any further act on the part of any of the parties hereto.  In case any Securities shall have been authenticated, but not delivered, by the Trustee then in office, any successor by merger, conversion or consolidation to such authenticating Trustee may adopt such authentication and deliver the Securities so authenticated with the same effect as if such successor Trustee had itself authenticated such Securities.
 
Section 813.     Preferential Collection of Claims Against Company.     (a) Subject to Subsection (b) of this Section, if the Trustee shall be or shall become a creditor, directly or indirectly, secured or unsecured, of the Company within three months prior to a default, as defined in Subsection (c) of this Section, or subsequent to such a default, then, unless and until such default shall be cured, the Trustee shall set apart and hold in a special account for the benefit of the Trustee individually, the Holders of the Securities and the holders of other indenture securities, as defined in Subsection (c) of this Section:
 
(1)      an amount equal to any and all reductions in the amount due and owing upon any claim as such creditor in respect of principal or interest, effected after the beginning of such three-month period and valid as against the Company and its other creditors, except any such reduction resulting from the receipt or disposition of any property described in paragraph (2) of this Subsection, or from the exercise of any right of set-off which the Trustee could have exercised if a voluntary or involuntary case had been commenced in respect of the Company under the federal bankruptcy laws, as now or hereafter constituted, or any other applicable federal or state bankruptcy, insolvency or other similar law upon the date of such default; and
 
(2)      all property received by the Trustee in respect of any claims as such creditor, either as security therefor, or in satisfaction or composition thereof, or otherwise, after the beginning of such three months’ period, or an amount equal to the proceeds of any such property, if disposed of, subject, however, to the rights, if any, of the Company and its other creditors in such property or such proceeds.
 
Nothing herein contained, however, shall affect the right of the Trustee:
 
(A)     to retain for its own account (i) payments made on account of any such claim by any Person (other than the Company) who is liable thereon, and (ii) the proceeds of the bona fide sale of any such claim by the Trustee to a third Person, and (iii) distributions made in cash, securities or other property in respect of claims filed against the Company in bankruptcy or receivership or in proceedings for reorganization pursuant to federal bankruptcy laws, as now or hereafter constituted, or any other applicable federal or state bankruptcy, insolvency or other similar law;

 
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(B)      to realize, for its own account, upon any property held by it as security for any such claim, if such property was so held prior to the beginning of such three-month period;
 
(C)      to realize, for its own account, but only to the extent of the claim hereinafter mentioned, upon any property held by it as security for any such claim, if such claim was created after the beginning of such three-month period and such property was received as security therefor simultaneously with the creation thereof, and if the Trustee shall sustain the burden of proving that at the time such property was so received the Trustee had no reasonable cause to believe that a default, as defined in Subsection (c) of this Section, would occur within three months; or
 
(D)     to receive payment on any claim referred to in paragraph (B) or (C), against the release of any property held as security for such claim as provided in paragraph (B) or (C), as the case may be, to the extent of the fair value of such property.
 
For the purposes of paragraphs (B), (C) and (D), property substituted after the beginning of such three-month period for property held as security at the time of such substitution shall, to the extent of the fair value of the property released, have the same status as the property released, and, to the extent that any claim referred to in any of such paragraphs is created in renewal of or in substitution for or for the purpose of repaying or refunding any pre-existing claim of the Trustee as such creditor, such claim shall have the same status as such pre-existing claim.
 
If the Trustee shall be required to account, the funds and property held in such special account and the proceeds thereof shall be apportioned among the Trustee, the Holders of Securities and the holders of other indenture securities in such manner that the Trustee, the Holders of Securities and the holders of other indenture securities realize, as a result of payments from such special account and payments of dividends on claims filed against the Company in bankruptcy or receivership or in proceedings for reorganization pursuant to the federal bankruptcy laws, as now or hereafter constituted, or any other applicable federal or state bankruptcy, insolvency or other similar law, the same percentage of their respective claims, figured before crediting to the claim of the Trustee anything on account of the receipt by it from the Company of the funds and property in such special account and before crediting to the respective claims of the Trustee and the Holders of Securities and the holders of other indenture securities dividends on claims filed against the Company in bankruptcy or receivership or in proceedings for reorganization pursuant to the federal bankruptcy laws, as now or hereafter constituted, or any other applicable federal or state bankruptcy, insolvency or other similar law, but after crediting thereon receipts on account of the indebtedness represented by their respective claims from all sources other than from such dividends and from the funds and property so held in such special account.  As used in this paragraph, with respect to any claim, the term “dividends” shall include any distribution with respect to such claim, in bankruptcy or receivership or proceedings for reorganization pursuant to the federal bankruptcy laws, as now or hereafter constituted, or any other applicable federal or state bankruptcy, insolvency or other similar law, whether such distribution is made in cash, securities or other property, but shall not include any such distribution with respect to the secured portion, if any, of such claim.  The court in which such bankruptcy, receivership or proceedings for reorganization is pending shall have jurisdiction (i) to apportion among the Trustee, the Holders of Securities and the holders of other indenture securities, in accordance with the provisions of this paragraph, the funds and property held in such special account and proceeds thereof, or (ii) in lieu of such apportionment, in whole or in part, to give to the provisions of this paragraph due consideration in determining the fairness of the distributions to be made to the Trustee and the Holders of Securities and the holders of other indenture securities with respect to their respective claims, in which event it shall not be necessary to liquidate or to appraise the value of any securities or other property held in such special account or as security for any such claim, or to make a specific allocation of such distributions as between the secured and unsecured portions of such claims, or otherwise to apply the provisions of this paragraph as a mathematical formula.

 
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Any Trustee which has resigned or been removed after the beginning of such three-month period shall be subject to the provisions of this Subsection as though such resignation or removal had not occurred.  If any Trustee has resigned or been removed prior to the beginning of such three-month period, it shall be subject to the provisions of this Subsection if and only if the following conditions exist:
 
(i)        the receipt of property or reduction of claim, which would have given rise to the obligation to account, if such Trustee had continued as Trustee, occurred after the beginning of such three-month period; and
 
(ii)       such receipt of property or reduction of claim occurred within three months after such resignation or removal.
 
(b)      There shall be excluded from the operation of Subsection (a) of this Section a creditor relationship arising from:
 
(1)       the ownership or acquisition of securities issued under any indenture, or any security or securities having a maturity of one year or more at the time of acquisition by the Trustee;
 
(2)      advances authorized by a receivership or bankruptcy court of competent jurisdiction or by this Indenture, for the purpose of preserving any property which shall at any time be subject to the lien of this Indenture or of discharging tax liens or other prior liens or encumbrances thereon, if notice of such advances and of the circumstances surrounding the making thereof is given to the Holders of Securities at the time and in the manner provided in this Indenture;
 
(3)      disbursements made in the ordinary course of business in the capacity of trustee under an indenture, transfer agent, registrar, custodian, paying agent, fiscal agent or depositary, or other similar capacity;

 
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(4)       an indebtedness created as a result of services rendered or premises rented; or an indebtedness created as a result of goods or securities sold in a cash transaction, as defined in Subsection (c) of this Section;
 
(5)       the ownership of stock or of other securities of a corporation organized under the provisions of Section 25(a) of the Federal Reserve Act, as amended, which is directly or indirectly a creditor of the Company; or
 
(6)       the acquisition, ownership, acceptance or negotiation of any drafts, bills of exchange, acceptances or obligations which fall within the classification of self-liquidating paper, as defined in Subsection (c) of this Section.
 
(c)      For the purposes of this Section only:
 
(1)      the term “default” means any failure to make payments in full of the principal of or interest on any of the Securities or upon the other indenture securities when and as such principal or interest becomes due and payable;
 
(2)      the term “other indenture securities” means securities upon which the Company is an obligor outstanding under any other indenture (i) under which the Trustee is also trustee, (ii) which contains provisions substantially similar to the provisions of this Section, and (iii) under which a default exists at the time of the apportionment of the funds and property held in such special account;
 
(3)      the term “cash transaction” means any transaction in which full payment for goods or securities sold is made within seven days after delivery of the goods or securities in currency or in checks or other orders drawn upon banks or bankers and payable upon demand;
 
(4)      the term “self-liquidating paper” means any draft, bill of exchange, acceptance or obligation which is made, drawn, negotiated or incurred by the Company for the purpose of financing the purchase, processing, manufacturing, shipment, storage or sale of goods, wares or merchandise and which is secured by documents evidencing title to, possession of, or a lien upon, the goods, wares or merchandise or the receivables or proceeds arising from the sale of the goods, wares or merchandise previously constituting the security, provided the security is received by the Trustee simultaneously with the creation of the creditor relationship with the Company arising from the making, drawing, negotiating or incurring of the draft, bill of exchange, acceptance or obligation; and
 
(5)       the term “Company” means any obligor upon the Securities.

 
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Section 814.     Appointment of Authenticating Agent.   The Trustee may appoint an Authenticating Agent or Agents with respect to the Securities which shall be authorized to act on behalf of the Trustee to authenticate the Securities issued upon original issue or upon exchange, registration of transfer or partial redemption thereof or pursuant to Section 306, and if the Trustee is required to appoint one or more Authenticating Agents with respect to the Securities, to authenticate the Securities  upon original issuance and to take such other actions as are specified in Sections 303, 304, 305, 309, 905, 1305 and 1603, and Securities so authenticated shall be entitled to the benefits of this Indenture and shall be valid and obligatory for all purposes as if authenticated by the Trustee hereunder.  Wherever reference is made in this Indenture to the authentication and delivery of Securities by the Trustee or the Trustee’s certificate of authentication, such reference shall be deemed to include authentication and delivery on behalf of the Trustee by an Authenticating Agent and a certificate of authentication executed on behalf of the Trustee by an Authenticating Agent.  Each Authenticating Agent shall be acceptable to the Company and shall at all times be a corporation organized and doing business under the laws of the United States of America, any State thereof or the District of Columbia, authorized under such laws to act as Authenticating Agent, having a combined capital and surplus of not less than $5,000,000 and subject to supervision or examination by Federal or State authority or authority of such country.  If such Authenticating Agent publishes reports of condition at least annually, pursuant to law or to the requirements of said supervising or examining authority, then for the purposes of this Section, the combined capital and surplus of such Authenticating Agent shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published.  If at any time an Authenticating Agent shall cease to be eligible in accordance with the provisions of this Section, such Authenticating Agent shall resign immediately in the manner and with the effect specified in this Section.
 
Any corporation into which an Authenticating Agent may be merged or converted or with which it may be consolidated, or any corporation resulting from any merger, conversion or consolidation to which such Authenticating Agent shall be a party, or any corporation succeeding to all or substantially all the corporate agency or corporate trust business of such Authenticating Agent, shall continue to be an Authenticating Agent, provided such corporation shall be otherwise eligible under this Section, without the execution or filing of any paper or any further act on the part of the Trustee or such Authenticating Agent.
 
An Authenticating Agent may resign at any time by giving written notice thereof to the Trustee and to the Company.  The Trustee may at any time terminate the agency of an Authenticating Agent by giving written notice thereof to such Authenticating Agent and to the Company.  Upon receiving such a notice of resignation or upon such a termination, or in case at any time such Authenticating Agent shall cease to be eligible in accordance with the provisions of this Section, the Trustee may appoint a successor Authenticating Agent which shall be acceptable to the Company and shall provide notice to the Holders as provided in Section 106.  Any successor Authenticating Agent upon acceptance of its appointment hereunder shall become vested with all the rights, powers and duties of its predecessor hereunder, with like effect as if originally named as an Authenticating Agent.  No successor Authenticating Agent shall be appointed unless eligible under the provisions of this Section.
 
The Trustee agrees to pay to each Authenticating Agent from time to time reasonable compensation for its services under this Section, and the Trustee shall be entitled to be reimbursed for such payments, subject to the provisions of Section 807.

 
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If an appointment is made pursuant to this Section, the Securities may have endorsed thereon, in addition to the Trustee’s certificate of authentication, an alternative certificate of authentication in the following form:
 
This is one of the Securities of the series designated herein referred to in the within-mentioned Indenture.
   
U.S. Bank National Association,
  as Trustee
 
By
 
 
Authorized Signatory
 
By
 
 
As Authenticating Agent
 
 If all of the Securities may not be originally issued at one time, and if the Trustee does not have an office capable of authenticating Securities upon original issuance located in a Place of Payment where the Company wishes to have Securities authenticated upon original issuance, the Trustee, if so requested by the Company in writing (which writing need not comply with Section 102 and need not be accompanied by an Opinion of Counsel), shall appoint in accordance with this Section an Authenticating Agent having an office in a Place of Payment designated by the Company with respect to such Securities.
 
Article Nine
 
Holders’ Lists and Reports by Trustee and Company
 
Section 901.      Holder Lists; Communications to Holders .  (a) Trustee shall preserve, in as current a form as is reasonably practicable, the names and addresses of Holders received by the Trustee in its capacity as Security Registrar or Paying Agent.
 
(b)     If 3 or more Holders of Securities (hereinafter referred to as “applicants” ) apply in writing to the Trustee, and furnish to the Trustee reasonable proof that each such applicant has owned a Security for a period of at least 6 months preceding the date of such application, and such application states that the applicants desire to communicate with other Holders of Securities with respect of their rights under this Indenture or under the Securities and is accompanied by a copy of the form of proxy or other communication which such applicants propose to transmit, then the Trustee shall, within 5 business days after the receipt of such application, at its election, either

 
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(i)        afford such applicants access to the information preserved at the time by the Trustee in accordance with Section 901(a), or
 
(ii)       inform such applicants as to the approximate number of Holders of Securities whose names and addresses appear in the information preserved at the time by the Trustee in accordance with Section 901(a), and as to the approximate cost of mailing to such Securityholders the form of proxy or other communication, if any, specified in such application.
 
If the Trustee shall elect not to afford such applicants access to such information, the Trustee shall, upon the written request of such applicants, mail to each Securityholder whose name and address appear in the information preserved a the time by the Trustee in accordance with Section 901(a), a copy of the form of proxy or other communication which is specified in such request, with reasonable promptness after a tender to the Trustee of the material to be mailed and of payment, or provision for the payment, of the reasonable expenses of mailing, unless within 5 days after such tender, the Trustee shall mail to such applicants a written statement to the effect that, in the opinion of the Trustee, such mailing would be contrary to the best interest of the Holders of Securities or would be in violation of applicable law.  Such written statement shall specify the basis of such opinion.
 
(c)     Every Holder of Securities, by receiving and holding the same, agrees with the Company and the Trustee that neither the Company nor the Trustee shall be held accountable by reason of the disclosure of any such information as to the names and addresses of the Holders of Securities in accordance with Section 901(b), regardless of the source from which such information was derived, and that the Trustee shall not be held accountable by reason of mailing any material pursuant to a request made under Section 901(b).
 
Section 902.     Reports by Trustee.   (a) The term “reporting date,” as used in this Section, means the date specified in Article Seven.  Within 60 days after the reporting date in each year, the Trustee shall transmit by mail to all Securityholders, as their names and addresses appear in the Security Register, a brief report dated as of such reporting date with respect to:
 
(1)       its eligibility under Section 809 and its qualifications under Section 808, or in lieu thereof, if to the best of its knowledge it has continued to be eligible and qualified under said Sections, a written statement to such effect;
 
(2)       the character and amount of any advances (and if the Trustee elects so to state, the circumstances surrounding the making thereof) made by the Trustee (as such) which remain unpaid on the date of such report, and for the reimbursement of which it claims or may claim a lien or charge, prior to that of the Securities, on any property or funds held or collected by it as Trustee, except that the Trustee shall not be required (but may elect) to report such advances if such advances so remaining unpaid aggregate not more than 1/2 of 1% of the principal amount of the Securities Outstanding on the date of such report;

 
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(3)       the amount, interest rate and maturity date of all other indebtedness owing by the Company (or by any other obligor on the Securities) to the Trustee in its individual capacity, on the date of such report, with a brief description of any property held as collateral security therefor, except an indebtedness based upon a creditor relationship arising in any manner described in Section 813(b)(2), (3), (4) or (6);
 
(4)       the property and funds, if any, physically in the possession of the Trustee as such on the date of such report;
 
(5)       any additional Securities which the Trustee has not previously reported; and
 
(6)       any action taken by the Trustee in the performance of its duties hereunder which it has not previously reported and which in its opinion materially affects the Securities, except action in respect of a default, notice of which has been or is to be withheld by the Trustee in accordance with Section 802.
 
(b)      The Trustee shall transmit by mail to all Securityholders, as their names and addresses appear in the Security Register, a brief report with respect to the character and amount of any advances (and if the Trustee elects so to state, the circumstances surrounding the making thereof) made by the Trustee (as such) since the date of the last report transmitted pursuant to Subsection (a) of this Section (or if no such report has yet been so transmitted, since the date of execution of this instrument) for the reimbursement of which it claims or may claim a lien or charge, prior to that of the Securities, on property or funds held or collected by it as Trustee, and which it has not previously reported pursuant to this Subsection, except that the Trustee shall not be required (but may elect) to report such advances if such advances remaining unpaid at any time aggregate 10% or less of the principal amount of the Securities Outstanding at such time, such report to be transmitted within 90 days after such time.
 
(c)      A copy of each such report shall, at the time of such transmission to Securityholders, be filed by the Trustee with each stock exchange upon which the Securities are listed, and also with the Commission.
 
Section 903.     Reports by Company .  The Company will
 
(a)       file with the Trustee, within 15 days after the Company files the same with the Commission, copies of the annual reports and of the information, documents and other reports (or copies of such portions of any of the foregoing as the Commission may from time to time by rules and regulations prescribe) which the Company may be required to file with the Commission pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of 1934; or, if the Company is not required to file information, documents or reports pursuant to either of said Sections, then it will file with the Trustee and the Commission, in accordance with rules and regulations prescribed from time to time by the Commission, such of the supplementary and periodic information, documents and reports which may be required pursuant to Section 13 of the Securities Exchange Act of 1934 in respect of a security listed and registered on a National Securities Exchange as may be prescribed from time to time in such rules and regulations;

 
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(b)      file with the Trustee and the Commission, in accordance with rules and regulations prescribed from time to time by the Commission, such additional information, documents and reports with respect to compliance by the Company with the conditions and covenants of this Indenture as may be required from time to time by such rules and regulations;
 
(c)      transmit by mail to all Securityholders, as their names and addresses appear in the Security Register, within 30 days after the filing thereof with the Trustee, such summaries of any information, documents and reports required to be filed by the Company pursuant to paragraphs (a) and (b) of this Section as may be required by rules and regulations prescribed from time to time by the Commission; and
 
(d)      in addition, the Company agrees that for so long as any Securities remain Outstanding, the Company will furnish to the Securityholders and to securities analysts and prospective investors, upon their request, the information required to be delivered pursuant to Rule 144A(d)(4) under the Securities Exchange Act of 1934, as amended.  As of September 1, 2009, the requirements of such Rule 144A(d)(4) shall be met if the Holder and a prospective purchaser designated by the Holder have the right to obtain from the Company, upon request of the Holder, and the prospective purchaser has received from the Company, the seller, or a person acting on either of their behalf, at or prior to the time of sale, upon such prospective purchaser’s request to the Holder or the Company, the following information (which shall be reasonably current in relation to the date of resale under this section):  a very brief statement of the nature of the business of the Company and the products and services it offers; and the Company’s most recent balance sheet and profit and loss and retained earnings statements, and similar financial statements for such part of the two preceding fiscal years as the Company has been in operation (the financial statements should be audited to the extent reasonably available).
 
(e)      delivery of any reports, information and documents by the Company to the Trustee pursuant to the provisions of this Section 903 is for informational purposes only and the Trustee’s receipt of same shall not constitute constructive notice of any information contained therein or determinable from information contained therein, including the Company’s compliance with any of the covenants hereunder (as to which the Trustee is entitled to rely exclusively on Officers’ Certificates).
 
(f)       the Company intends to file the reports referred to in this Section 903 hereof with the Commission in electronic form pursuant to Regulation S-T of the Commission using the Commission’s Electronic Data Gathering, Analysis and Retrieval system.  Compliance with the foregoing, or any successor electronic system approved by the Commission, shall constitute delivery by the Company of such reports to the Trustee and Holders in compliance with the provision of Section 903.  Notwithstanding anything to the contrary herein, the Trustee shall have no duty to search for or obtain any electronic or other filings that the Company makes with the Commission, regardless of whether such filings are periodic, supplemental or otherwise.  Delivery of the reports, information and documents to the Trustee pursuant to this Section 903(f) shall be solely for the purposes of compliance with Section 903.  The Trustee’s receipt of such reports, information and documents shall not constitute notice to it of the content thereof or of any matter determinable from the content thereof (and the Trustee shall not have any duty to ascertain or inquire as to such content or matter), including the Company’s compliance with any of its covenants hereunder, as to which the Trustee is absolutely entitled to rely upon Officers’ Certificates.

 
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Article Ten
 
Consolidation, Merger, Conveyance or Transfer
 
Section 1001.   Company May Consolidate, Etc., Only on Certain Terms.   The Company shall not consolidate with or merge into any Person or sell, assign, lease, convey or otherwise transfer its properties and assets substantially as an entirety to any Person, unless
 
(1)       the Person formed by such consolidation or into which the Company is merged or the Person which acquires by sale, assignment, lease, conveyance or other transfer the properties and assets of the Company substantially as an entirety shall be a corporation, instrumentality, partnership, cooperative association, other association, limited liability company or similar organization or a trust organized and existing under the laws of the United States of America or any State thereof or the District of Columbia, and shall expressly assume, by an indenture supplemental hereto, executed and delivered to the Trustee, the due and punctual payment of the principal of and premium and interest on all the Securities and the performance and observance of every covenant of this Indenture and the Securities on the part of the Company to be performed or observed;
 
(2)       immediately after giving effect to such transaction, no Event of Default, and no event which, after notice or lapse of time or both, would become an Event of Default, shall have happened and be continuing; and
 
(3)       the Company has delivered to the Trustee an Officers’ Certificate and an Opinion of Counsel each stating that such consolidation, merger, sale, assignment, lease, conveyance or other transfer and such supplemental indenture comply with this Article and that all conditions precedent herein provided for relating to such transactions have been complied with.
 
Section 1002.     Successor Substituted.   Upon any consolidation of the Company with, or merger of the Company into, any other Person or any sale, assignment, lease, conveyance or other transfer of the properties and assets of the Company substantially as an entirety in accordance with Section 1001, the successor Person formed by such consolidation or into which the Company is merged or to which such sale, assignment, lease, conveyance or other transfer is made shall succeed to, and be substituted for, and may exercise every right and power of, the Company under this Indenture with the same effect as if such successor Person had been named as the Company herein, and thereafter, except in the case of a lease, the predecessor Person shall be relieved of all obligations and covenants under this Indenture and the Securities.

 
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Article Eleven
 
Supplemental Indentures
 
Section 1101.    Supplemental Indentures Without Consent of Holders.   Without the consent of any Holders of Securities or the Control Party, the Company, the Guarantor and the Trustee, at any time and from time to time, may enter into one or more Supplemental Indentures amending and supplementing this Indenture, for any of the following purposes:
 
(1)       to evidence the succession of another Person to the Company or the Guarantor and the assumption by any such successor of the covenants of the Company or the Guarantor herein and in the Securities; or
 
(2)       to add to the covenants of the Company for the benefit of the Control Party or, if the Guarantor is not the Control Party, the Holders of the Securities or to surrender any right or power herein conferred upon the Company or the Guarantor; or
 
(3)       to add any additional Events of Default; or
 
(4)       to add to or change any of the provisions of this Indenture to such extent as shall be necessary to permit or facilitate the issuance of Securities in bearer form, registrable or not registrable as to principal, and with or without interest coupons, or to permit or facilitate the issuance of Securities in uncertificated form; or
 
(5)       to change or eliminate any of the provisions of this Indenture, provided that any such change or elimination (a) shall become effective only when there is no Security Outstanding created prior to the execution of such supplemental indenture which is entitled to the benefit of such provision or (b) shall not apply to any Security Outstanding; or
 
(6)       to establish the form of Securities as permitted by Sections 201 and 301; or
 
(7)       to evidence and provide for the acceptance of appointment hereunder by a successor Trustee with respect to the Securities and to add to or change any of the provisions of this Indenture as shall be necessary to provide for or facilitate the administration of the trusts hereunder by more than one Trustee pursuant to the requirements of Section 811(b); or
 
(8)       (A) to cure any ambiguity or to correct or supplement any provision herein which may be defective or inconsistent with any other provision herein, or (B) to make any other provisions with respect to matters or questions arising under this Indenture, provided that such action shall not adversely affect the interests of the Control Party or, if the Guarantor is not the Control Party, the Holders of Securities in any material respect.
 
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Section 1102.     Supplemental Indentures with Consent of Holders. The Company, the Trustee and the Guarantor also may from time to time and at any time enter into an indenture or indentures supplemental to this Indenture to amend or supplement the terms of the Series 2009A Bonds with (1) the written consent of the Control Party, or, if the Guarantor is not the Control Party, the written consent of the Holders of at least 50% of the aggregate principal amount of the Series 2009A Bonds Outstanding, or (2) the approval by resolution of the Control Party or, if the Guarantor is not the Control Party, holders of over 50% of the aggregate principal amount of the Series 2009A Bonds Outstanding represented at a meeting of Holders where a Quorum is present.  However, each affected Holder (for purposes of this Section the Control Party shall not be considered such affected Holder or permitted to take action on their behalf) and the Control Party or, if the Guarantor is not the Control Party, each affected Holder and the Guarantor, must consent for the parties to amend or supplement the terms of the Indenture or the Series 2009A Bonds to:
 
(1)      change the Stated Maturity of the principal of, or any installment of principal of or interest on, any Security, or reduce the principal amount thereof, or the rate of interest thereon or any premium payable thereon, or reduce the amount of the principal of an Original Issue Discount Security that would be due and payable upon a declaration of acceleration of the Maturity thereof pursuant to Section 602 or change the coin or currency in which any Security or any premium or any interest thereon is payable, or impair the right to institute suit for the enforcement of any such payment on or after the Stated Maturity thereof (or, in the case of redemption at the option of the Company, on or after the Redemption Date), or
 
(2)       reduce the percentage in principal amount of the Outstanding Securities, the consent of whose Holders is required for any such Supplemental Indenture, or the consent of whose Holders is required for any waiver (of compliance with certain provisions of this Indenture or certain defaults hereunder and their consequences) provided for in Section 611 of this Indenture, or reduce the requirements of Section 1404 for quorum or voting, or
 
(3)       change any obligation of the Company to maintain an office or agency in the places and for the purposes specified in Section 1202, or
 
(4)       adversely affect the right to repayment, if any, of any Securities at the option of the Holders thereof;
 
(5)       eliminate or modify the mandatory redemption provided by Section 1303; or
 
(6)       modify any of the provisions of this Section or Section 611, except to increase any such percentage or to provide that certain other provisions of this Indenture cannot be modified or waived without the consent of the Holder of each Outstanding Security affected thereby; provided, however, that this clause shall not be deemed to require the consent of any Holder of a Security with respect to changes in the references to “the Trustee” and concomitant changes in this Section, or the deletion of this proviso, in accordance with the requirements of Sections 811(b) and 1101(7).
 
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It shall not be necessary for any Act of Holders of Securities under this Section to approve the particular form of any proposed Supplemental Indenture, but it shall be sufficient if such Act shall approve the substance thereof.
 
Section 1103.    Execution of Supplemental Indentures.   In executing, or accepting the additional trusts created by, any Supplemental Indenture permitted by this Article or the modifications thereby of the trusts created by this Indenture, the Trustee shall receive, and (subject to Section 801) shall be fully protected in relying upon, an Opinion of Counsel stating that the execution of such Supplemental Indenture is authorized or permitted by this Indenture and such Supplemental Indenture constitutes the legal, valid and binding obligation of the Company enforceable in accordance with its terms, subject to customary exceptions.  The Trustee may, but shall not be obligated to, enter into any such supplemental indenture which affects the Trustee’s own rights, duties or immunities under this Indenture or otherwise.
 
Section 1104.    Effect of Supplemental Indentures.   Upon the execution of any Supplemental Indenture under this Article, this Indenture shall be modified in accordance therewith, and such Supplemental Indenture shall form a part of this Indenture for all purposes; and every Holder of Securities theretofore or thereafter authenticated and delivered hereunder shall be bound thereby.
 
Section 1105.    Reference in Securities to Supplemental Indentures.   Securities authenticated and delivered after the execution of any Supplemental Indenture pursuant to this Article may, and shall if required by the Trustee, bear a notation in form approved by the Trustee as to any matter provided for in such Supplemental Indenture.  If the Company shall so determine, new Securities so modified as to conform, in the opinion of the Trustee and the Company, to any such Supplemental Indenture may be prepared and executed by the Company and authenticated and delivered by the Trustee in exchange for Outstanding Securities.
 
Article Twelve

Covenants
 
Section 1201.    Payment of Principal, Premium and Interest.   The Company covenants and agrees for the benefit of the Holders of the Securities that it will duly and punctually pay the principal of and premium and interest on the Securities in accordance with the terms of the Securities and this Indenture.
 
Section 1202.    Maintenance of Office or Agency.   The Company will maintain in each Place of Payment for the Securities an office or agency where the Securities may be presented or surrendered for payment, where Securities may be surrendered for registration of transfer or exchange and where notices and demands to or upon the Company in respect of the Securities and this Indenture may be served.  The Company will give prompt written notice to the Trustee and the Holders of the Securities of the location, and any change in the location, of any such office or agency.  If at any time the Company shall fail to maintain any such required office or agency in respect of the Securities or shall fail to furnish the Trustee with the address thereof, such presentations, and surrenders of the Securities may be made and notices and demands may be made or served at the Corporate Trust Office of the Trustee.
 
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The Company may also from time to time designate one or more other offices or agencies where the Securities may be presented or surrendered for any or all such purposes and may from time to time rescind such designations; provided, however, that no such designation or rescission shall in any manner relieve the Company of its obligation to maintain an office or agency in accordance with the requirements set forth above for the Securities for such purposes.  The Company will give prompt written notice to the Trustee and the Holders of such Securities of any such designation or rescission and of any change in the location of any such other office or agency.
 
The Company hereby designates the Corporate Trust Office of the Trustee as a Place of Payment for the Securities, initially appoints the Corporate Trust Office of the Trustee as its agency for the purposes of the first sentence of this Section and initially appoints the Trustee, acting through its Corporate Trust Office, as Paying Agent, transfer agent and Security Registrar for the Securities, and the Trustee accepts such appointments.
 
Section 1203.     Money for Securities Payments to Be Held in Trust.   If the Company shall at any time act as its own Paying Agent with respect to the Securities, it will, on or before each due date of the principal of and any premium or interest on any of the Securities, segregate and hold in trust for the benefit of the Persons entitled thereto a sum sufficient to pay the principal and any premium or interest so becoming due until such sums shall be paid to such Persons or otherwise disposed of as herein provided and will promptly notify the Trustee in writing of its action or failure so to act.
 
Whenever the Company shall have one or more Paying Agents for the Securities, it will, on each due date of the principal of and any premium or interest on any Securities, deposit or instruct the Trustee to deposit with a Paying Agent a sum sufficient to pay the principal and any premium or interest so becoming due, such sum to be held in trust for the benefit of the Persons entitled to such principal, premium or interest and (unless such Paying Agent is the Trustee) the Company will promptly notify the Trustee in writing of its action or failure so to act.
 
The Company will cause each Paying Agent for the Securities other than the Trustee to execute and deliver to the Trustee an instrument in which such Paying Agent shall agree with the Trustee, subject to the provisions of this Section, that such Paying Agent will:
 
(1)      hold all sums held by it for the payment of the principal of and any premium or interest on the Securities in trust for the benefit of the Persons entitled thereto until such sums shall be paid to such Persons or otherwise disposed of as herein provided;
 
(2)      give the Trustee notice in writing of any default by the Company (or any other obligor upon the Securities) in the making of any payment of principal of and any premium or interest on the Securities; and
 
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(3)      at any time during the continuance of any such default, upon the written request of the Trustee, forthwith pay to the Trustee all sums so held in trust by such Paying Agent.
 
The Company may at any time, for the purpose of obtaining the satisfaction and discharge of this Indenture or for any other purpose, pay, or by Company Order direct any Paying Agent to pay, to the Trustee all sums held in trust by the Company or such Paying Agent, such sums to be held by the Trustee upon the same trusts as those upon which such sums were held by the Company or such Paying Agent; and, upon such payment by any Paying Agent to the Trustee, such Paying Agent shall be released from all further liability with respect to such money.
 
Any money deposited with the Trustee or any Paying Agent or held by the Company in trust for the payment of the principal of and any premium or interest on any Security and remaining unclaimed for two years after such principal or any premium or interest, as the case may be, has become due and payable shall be paid to the Company on Company Request, or (if then held by the Company) shall be discharged from such trust; and the Holder of such Security shall thereafter, as an unsecured general creditor, look only to the Company for payment thereof, and all liability of the Trustee or such Paying Agent with respect to such trust money, and all liability of the Company as trustee thereof, shall thereupon cease; provided, however, that the Trustee or such Paying Agent, before being required to make any such repayment, may at the expense of the Company cause to be published once, in an Authorized Newspaper in each Place of Payment, notice that such money remains unclaimed and that, after a date specified therein, which shall not be less than 30 days from the date of such publication, any unclaimed balance of such money then remaining will be repaid to the Company.
 
Section 1204.    Officers’ Certificate.   The Company will deliver to the Trustee, within 120 days after the end of each fiscal year of the Company, a written statement signed by the Chief Financial Officer, Secretary-Treasurer or an Assistant Secretary-Treasurer of the Company, stating, as to each signer thereof, that
 
(1)       a review of the activities of the Company during such year and of performance under this Indenture has been made under his supervision, and
 
(2)      to the best of his knowledge, based on such review, (a) the Company has fulfilled all its obligations under this Indenture throughout such year, or, if there has been a default in the fulfillment of any such obligation, specifying each such default known to him and the nature and status thereof, and (b) no event has occurred and is continuing which is, or upon notice or lapse of time or both would become, an Event of Default, or, if such an event has occurred and is continuing, specifying each such event known to him and the nature and status thereof.
 
The Company will deliver a written notice to the Trustee promptly after any officer of the Company has knowledge of the occurrence of any event which with the giving of notice or the lapse of time or both would become an Event of Default.
 
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Article Thirteen
 
Redemption of Securities
 
Section 1301.     Applicability of Article.   Securities which are redeemable before their Stated Maturity shall be redeemable in accordance with their terms and in accordance with this Article.
 
Section 1302.    Election to Redeem; Notice to Trustee.   In the case of any redemption at the election of the Company of less than all the Securities with the same (i) Stated Maturity, (ii) period or periods within which, price or prices at which and terms and conditions upon which such Securities may or shall be redeemed or purchased, in whole or in part, at the option of the Company or pursuant to any sinking fund or analogous provision or repayable at the option of the Holder, (iii) rate or rates at which the Securities bear interest or formula pursuant to which such rate or rates accrue, and (iv) date or dates on which any interest shall be payable (collectively, the “Equivalent Principal Terms” ), the Company shall, at least 45 days prior to the Redemption Date fixed by the Company (unless a shorter notice shall be satisfactory to the Trustee), notify the Trustee in writing of such Redemption Date and of the principal amount of the Securities and with such Equivalent Principal Terms to be redeemed.  In the case of any redemption of Securities (i) prior to the expiration of any restriction on such redemption provided in the terms of such Securities with Equivalent Principal Terms or elsewhere in this Indenture, or (ii) pursuant to an election of the Company which is subject to a condition specified in the terms of such Securities with Equivalent Principal Terms, the Company shall furnish the Trustee with an Officers’ Certificate evidencing compliance with such restriction or condition.
 
Section 1303.    Extraordinary Mandatory Redemption.   (a) The Securities are subject to extraordinary mandatory redemption, and shall be redeemed, with funds provided by the Company, on a redemption date selected by the Trustee, which shall not be more than 60 days following a Determination of Tax Credit Ineligibility, at a redemption price equal to the principal amount thereof of the Securities being so redeemed plus accrued interest therein to the redemption date.  Any such redemption shall be in whole, unless the Trustee receives an opinion of Bond Counsel delivered to the Trustee by the 45th day prior to the redemption date that the redemption of a portion of the Outstanding Securities would have the result that the tax credit under Section 54 of the Code will be available to the Holders of the Securities remaining outstanding after such redemption, in which case only such portion need be redeemed.  If fewer than all Securities are redeemed, the Trustee will select the Securities to be redeemed as provided in Section 1305 hereof, subject to Section 54 of the Code.
 
(b)      The Securities are subject to extraordinary mandatory redemption, and shall be redeemed, with funds on hand with the Trustee in the Project Account pursuant to a written direction by the Company, on a redemption date selected by the Trustee, which shall be at least 45 days but not more than 225 days following a Determination of Potential Tax Credit Ineligibility, at a redemption price equal to the principal amount thereof of the Securities being so redeemed plus accrued interest therein to the redemption date.  Any such redemption shall only be that portion of the Outstanding Securities that need to be redeemed so that the tax credit under Section 54 of the Code will continue to be available to the Holders of the Securities remaining outstanding after such redemption.  If fewer than all Securities are redeemed, the Trustee will select the Securities to be redeemed as provided in Section 1305 hereof, subject to Section 54 of the Code.
 
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Section 1304.     Mandatory Sinking Fund Redemption .  The Securities are also subject to mandatory redemption pursuant to the terms of the sinking fund as provided in the form of Securities and in Article Fifteen hereof, at a redemption price equal to 100% of the principal amount thereof plus (if the redemption date is not an Interest Payment Date) accrued interest thereon to the redemption date.
 
As and for a sinking fund for the retirement of a part of the Series 2009A Bonds, the Company shall deposit or cause to be deposited in the Bond Fund in Federal or other immediately available funds current in New York, New York, on or before each sinking fund redemption date referred to in the form of the Security hereto an amount sufficient to redeem (after credit as provided in Article Fifteen) the principal amount of the Series 2009A Bonds to be redeemed on such date as set forth in such Security.
 
Section 1305.     Selection by Trustee of Securities to Be Redeemed.   If less than all the Securities with Equivalent Principal Terms are to be redeemed, the particular Securities to be redeemed shall be selected not more than 60 days prior to the Redemption Date by the Trustee, from the Outstanding Securities with Equivalent Principal Terms not previously called for redemption, by such method as the Trustee shall deem fair and appropriate and which may provide for the selection for redemption of portions (equal to the minimum authorized denomination for the Securities or any integral multiple thereof) of the principal amount of Securities with Equivalent Principal Terms of a denomination larger than the minimum authorized denomination for Securities with Equivalent Principal Terms.
 
The Trustee shall promptly notify the Company in writing of the Securities selected for redemption and, in the case of any Securities selected for partial redemption, the principal amount thereof to be redeemed.
 
For all purposes of this Indenture, unless the context otherwise requires, all provisions relating to the redemption of Securities shall relate, in the case of any Securities redeemed or to be redeemed only in part, to the portion of the principal amount of such Securities which has been or is to be redeemed.
 
Section 1306.     Notice of Redemption.   Notice of redemption shall be given in the manner provided in Section 106 to the Holders of Securities to be redeemed not less than 30 nor more than 60 days prior to the Redemption Date.
 
All notices of redemption shall state:
 
(1)      the Redemption Date,
 
(2)      the Redemption Price,
 
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(3)      if less than all the Outstanding Securities with Equivalent Principal Terms  are to be redeemed, the identification (and, in the case of partial redemption, the principal amounts) of the particular Securities to be redeemed,
 
(4)      that on the Redemption Date the Redemption Price will become due and payable upon each such Security to be redeemed and, if applicable, that interest thereon will cease to accrue on and after said date unless the Company shall default in the payment of the Redemption Price plus accrued interest,
 
(5)      the place or places where such Securities are to be surrendered for payment of the Redemption Price,
 
(6)      that the redemption is for a sinking fund, if such is the case, and
 
(7)      the CUSIP number of the Securities, if any.
 
Notice of redemption of Securities to be redeemed at the election of the Company shall be given by the Company or, at the Company’s written request, by the Trustee in the name and at the expense of the Company in which event the Company shall provide the Trustee with the information required by Clauses (1) through (7) above.
 
Section 1307.     Deposit of Redemption Price.   On or prior to any Redemption Date, the Company shall deposit with the Trustee or with a Paying Agent (or, if the Company is acting as its own Paying Agent, segregate and hold in trust as provided in Section 1203) an amount of money in immediately available funds sufficient to pay the Redemption Price of, and (if accrued interest is to be paid to the Persons surrendering the relevant Securities for redemption) accrued interest on, all the Securities which are to be redeemed on that date.
 
Section 1308.    Securities Payable on Redemption Date.   Notice of redemption having been given as aforesaid, the Securities so to be redeemed shall, on the Redemption Date, become due and payable at the Redemption Price therein specified, and from and after such date (unless the Company shall default in the payment of the Redemption Price and accrued interest) such Securities shall cease to bear interest.  Upon surrender of any such Security for redemption in accordance with said notice, maturing after the Redemption Date, such Security shall be paid by the Company at the Redemption Price, together (if accrued interest is to be paid to the Persons surrendering the relevant Securities for redemption) with accrued interest to the Redemption Date; provided, however, that, unless otherwise specified as contemplated by Section 301, installments of interest on Securities whose Stated Maturity is on or prior to the Redemption Date shall be payable to the Holders of such Securities, or one or more Predecessor Securities, registered as such at the close of business on the relevant Record Dates according to their terms and the provisions of Section 307.
 
If any Security called for redemption shall not be so paid upon surrender thereof for redemption, the principal and any premium shall, until paid, bear interest from the Redemption Date at the rate prescribed therefor in the Security or with respect to such Securities pursuant to Section 301, as the case may be, or, if no such interest rate is prescribed therefor, at the interest rate or rates, if any, borne by such Securities.
 
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Section 1309.    Securities Redeemed in Part.   Any Security which is to be redeemed only in part shall be surrendered at a Place of Payment therefor (with, if the Company or the Trustee so requires, due endorsement by, or a written instrument of transfer in form satisfactory to the Company and the Trustee duly executed by, the Holder thereof or his attorney duly authorized in writing), and the Company shall execute, and the Trustee shall authenticate and deliver to the Holder of such Security without service charge, a new Security or Securities and of like tenor and terms, of any authorized denomination as requested by such Holder, in aggregate principal amount equal to and in exchange for the unredeemed portion of the principal of the Security so surrendered.
 
Article Fourteen
 
Meetings of Holders of Securities
 
Section 1401.     Purposes for Which Meetings May Be Called.   A meeting of Holders of Securities may be called at any time and from time to time pursuant to this Article to make, give or take any request, demand, authorization, direction, notice, consent, waiver or other action provided by this Indenture to be made, given or taken by Holders of the Securities.
 
Section 1402.    Call, Notice and Place of Meetings.    (a) The Trustee may at any time call a meeting of Holders of Securities for any purpose specified in Section 1401, to be held at such time and at such place in the Borough of Manhattan, The City of New York as the Trustee shall determine.  Notice of every meeting of Holders of Securities, setting forth the time and the place of such meeting and in general terms the action proposed to be taken at such meeting, shall be given, in the manner provided in Section 106, not less than 21 nor more than 180 days prior to the date fixed for the meeting.
 
(b)      In case at any time the Company, pursuant to a Board Resolution, or the Holders of at least 10% in principal amount of the Outstanding Securities shall have requested the Trustee to call a meeting of the Holders of the Securities for any purpose specified in Section 1401, by written request setting forth in reasonable detail the action proposed to be taken at the meeting, and the Trustee shall not have made the first publication of the notice of such meeting within 21 days after receipt of such request or shall not thereafter proceed to cause the meeting to be held as provided herein, then the Company or the Holders of the Securities in the amount above specified, as the case may be, may determine the time and the place in the Borough of Manhattan, The City of New York for such meeting and may call such meeting for such purposes by giving notice thereof as provided in Subsection (a) of this Section.
 
Section 1403.    Persons Entitled to Vote at Meetings.   To be entitled to vote at any meeting of Holders of Securities, a Person shall be (1) a Holder of one or more Outstanding Securities, or (2) a Person appointed by an instrument in writing as proxy for a Holder or Holders of one or more Outstanding Securities by such Holder or Holders.  The only Persons who shall be entitled to be present or to speak at any meeting of Holders of Securities shall be the Persons entitled to vote at such meeting and their counsel, any representatives of the Trustee and its counsel and any representatives of the Company and its counsel.
 
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Section 1404.    Quorum; Action.   The Persons entitled to vote a majority in principal amount of the Outstanding Securities shall constitute a quorum for a meeting of Holders of the Securities; provided, however, that if any action is to be taken at such meeting with respect to a request, demand, authorization, direction, notice, consent, waiver or other action which this Indenture or the Securities expressly provides may be given, made or taken by the Holders of not less than 66-2/3% in principal amount of the Outstanding Securities, the Persons entitled to vote 66-2/3% in principal amount of the Outstanding Securities shall constitute a quorum.  In the absence of a quorum within 30 minutes of the time appointed for any such meeting, the meeting shall, if convened at the request of Holders of the Securities, be dissolved.  In any other case the meeting may be adjourned for a period of not less than 10 days as determined by the chairman of the meeting prior to the adjournment of such meeting.  In the absence of a quorum at any such adjourned meeting, such adjourned meeting may be further adjourned for a period of not less than 10 days as determined by the chairman of the meeting prior to the adjournment of such adjourned meeting.  Notice of the reconvening of any adjourned meeting shall be given as provided in Section 1402(a), except that such notice need be given only once not less than five days prior to the date on which the meeting is scheduled to be reconvened.  Notice of the reconvening of an adjourned meeting shall state expressly the percentage, as provided above, of the principal amount of the Outstanding Securities which shall constitute a quorum.
 
Except as limited by the proviso set forth in the first paragraph of Section 1102, any resolution presented to a meeting or adjourned meeting duly reconvened at which a quorum is present as aforesaid may be adopted by the affirmative vote of the Holders of a majority in principal amount of the Outstanding Securities; provided, however, that, except as limited by the proviso set forth in the first paragraph of Section 1102, any resolution with respect to any request, demand, authorization, direction, notice, consent, waiver or other action which this Indenture or the Securities expressly provides may be given, made or taken by the Holders of not less than 66-2/3% in principal amount of the Outstanding Securities may be adopted at a meeting or an adjourned meeting duly reconvened and at which a quorum is present as aforesaid only by the affirmative vote of the Holders of 66-2/3% in principal amount of the Outstanding Securities; and provided, further, that, except as limited by the proviso set forth in the first paragraph of Section 1102, any resolution with respect to any request, demand, authorization, direction, notice, consent, waiver or other action which this Indenture or the Securities expressly provides may be made, given or taken by the Holders of a specified percentage, which is less than a majority, in principal amount of the Outstanding Securities may be adopted at a meeting or an adjourned meeting duly reconvened and at which a quorum is present as aforesaid by the affirmative vote of the Holders of such specified percentage in principal amount of the Outstanding Securities.
 
Any resolution passed or decision taken at any meeting of Holders of Securities duly held in accordance with this Section shall be binding on all the Holders of Securities, whether or not present or represented at the meeting.
 
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Section 1405.     Determination of Voting Rights; Conduct and Adjournment of Meetings.   (a) Notwithstanding any other provisions of this Indenture, the Trustee may make such reasonable regulations as it may deem advisable for any meeting of Holders of the Securities in regard to proof of the holding of the Securities and of the appointment of proxies and in regard to the appointment and duties of inspectors of votes, the submission and examination of proxies, certificates and other evidence of the right to vote, and such other matters concerning the conduct of the meeting as it shall deem appropriate.
 
(b)     The Trustee shall, by an instrument in writing, appoint a temporary chairman of the meeting, unless the meeting shall have been called by the Company or by Holders of the Securities as provided in Section 1402(b), in which case the Company or the Holders of Securities calling the meeting, as the case may be, shall appoint a temporary chairman.  A permanent chairman and a permanent secretary of the meeting shall be elected by vote of the Persons entitled to vote a majority in principal amount of the Outstanding Securities represented at the meeting.
 
(c)      At any meeting each Holder of a Security and each proxy shall be entitled to one vote for each $1,000 principal amount of the Outstanding Securities held or represented by him; provided, however, that no vote shall be cast or counted at any meeting in respect of any Security challenged as not Outstanding and ruled by the chairman of the meeting to be not Outstanding.  The chairman of the meeting shall have no right to vote, except as a Holder of a Security or as a proxy.
 
(d)      Any meeting of Holders of Securities duly called pursuant to Section 1402 at which a quorum is present may be adjourned from time to time by Persons entitled to vote a majority in principal amount of the Outstanding Securities represented at the meeting; and the meeting may be held as so adjourned without further notice.
 
Section 1406.    Counting Votes and Recording Action of Meetings.   The vote upon any resolution submitted to any meeting of Holders of Securities shall be by written ballots on which shall be subscribed the signatures of the Holders of Securities or of their representatives by proxy and the principal amounts and serial numbers of the Outstanding Securities held or represented by them.  The permanent chairman of the meeting shall appoint two inspectors of votes who shall count all votes cast at the meeting for or against any resolution and who shall make and file with the secretary of the meeting their verified written reports in duplicate of all votes cast at the meeting.  A record, at least in duplicate of the proceedings of each meeting of Holders of Securities shall be prepared by the secretary of the meeting and there shall be attached to such record the original reports of the inspectors of votes on any vote by ballot taken thereat and affidavits by one or more persons having knowledge of the facts setting forth a copy of the notice of the meeting and showing that such notice was given as provided in Section 1402 and, if applicable, Section 1404.  Each copy shall be signed and verified by the affidavits of the permanent chairman and secretary of the meeting and one such copy shall be delivered to the Company, and another to the Trustee to be preserved by the Trustee, the latter to have attached thereto the ballots voted at the meeting.  Any record so signed and verified shall be conclusive evidence of the matters therein stated.
 
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Article Fifteen
 
Sinking Funds
 
Section 1501.    Applicability of Article.   The provisions of this Article shall be applicable to any sinking fund for the retirement of the Securities.
 
The minimum amount of any sinking fund payment provided for by the terms of the Securities is herein referred to as a “mandatory sinking fund payment.”  If provided for by the terms of the Securities, the cash amount of any sinking fund payment may be subject to reduction as provided in Section 1502.  Each sinking fund payment shall be applied to the redemption of Securities as provided for by the terms of the Securities.
 
Section 1502.   Satisfaction of Sinking Fund Payments with Securities.   The Company (1) may deliver Outstanding Securities (other than any previously called for redemption) and (2) may apply as a credit Securities which have been redeemed either at the election of the Company pursuant to the terms of such Securities or through the application of permitted optional sinking fund payments pursuant to the terms of such Securities, in each case under Clause (1) or (2) above in satisfaction of all or any part of any sinking fund payment with respect to the Securities required to be made pursuant to the terms of such Securities; provided that such Securities have not been previously so credited.  Such Securities shall be received and credited for such purpose by the Trustee at the Redemption Price specified in such Securities for redemption through operation of the sinking fund and the amount of such sinking fund payment shall be reduced accordingly.
 
Section 1503.   Redemption of Securities for Sinking Fund.   Not less than 60 days prior to each sinking fund payment date for the Securities or such shorter period as shall be satisfactory to the Trustee, the Company will deliver to the Trustee an Officers’ Certificate specifying the amount of the next ensuing sinking fund payment for such Securities pursuant to the terms of such Securities, the portion thereof, if any, which is to be satisfied by payment of cash and the portion thereof, if any, which is to be satisfied by delivering and crediting the Securities pursuant to Section 1502 and will also deliver to the Trustee any Securities to be so delivered.  The Trustee shall select the Securities to be redeemed upon such sinking fund payment date in the manner specified in Section 1305 and cause notice of the redemption thereof to be given in the name of and at the expense of the Company in the manner provided in Section 1306.  Such notice having been duly given, the redemption of such Securities shall be made upon the terms and in the manner stated in Sections 1308 and 1309.
 
Article Sixteen
 
Satisfaction and Discharge
 
Section 1601.   Satisfaction and Discharge of Indenture. This Indenture shall upon Company Request cease to be of further effect (except as to any surviving rights expressly provided for in the last paragraph of this Section 1601), and the Trustee, at the expense of the Company, shall execute proper instruments acknowledging satisfaction and discharge of this Indenture, when
 
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(1)     either
 
(A)      all Securities theretofore authenticated and delivered (other than (i) Securities which have been destroyed, lost or stolen and which have been replaced or paid as provided in Section 306, (ii) Securities for whose payment money has theretofore been deposited in trust or segregated and held in trust by the Company and thereafter repaid to the Company or discharged from such trust, as provided in Section 1203) have been delivered to the Trustee for cancellation; or
 
(B)       all such Securities not theretofore delivered to the Trustee for cancellation
 
(i)      have become due and payable, or
 
(ii)     will become due and payable at their Stated Maturity within ninety days,
 
and the Company, in the case of (i) or (ii) above, has deposited or caused to be deposited with the Trustee as trust funds in trust for the purpose (A) an amount of cash or (B) U.S. Government Obligations, which through the payment of interest and principal in respect thereof in accordance with their terms will provide, not later than one day before the due date of any payment of principal (including any premium), and interest under the Securities, money in an amount or (C) a combination of (A) and (B) sufficient (in the opinion with respect to (B) and (C) of a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee) to pay and discharge the entire indebtedness on such Securities not theretofore delivered to the Trustee for cancellation, for principal and premium, if any, and interest to the date of such deposit (in the case of Securities which have become due and payable) or to the Stated Maturity or Redemption Date, as the case may be; provided, however, that the Company shall not make or cause to be made the deposit provided by subclause (B) unless the Company shall have delivered to the Trustee an Opinion of Bond Counsel to the effect that such deposit will not impair the tax credit of the owners of the Securities or violate the provisions of the Tax Compliance Agreement;
 
(2)     the Company has paid or caused to be paid all other sums payable hereunder by the Company; and
 
(3)    the Company has delivered to the Trustee an Officers’ Certificate and an Opinion of Counsel, each stating that all conditions precedent herein provided for relating to the satisfaction and discharge of this Indenture have been complied with.
 
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Notwithstanding the satisfaction and discharge of this Indenture, the obligations of the Company to the Trustee under Section 807, the obligations of the Company to the Holders of any Securities which are repayable by the Company at the option of such Holders in accordance with Article Fifteen, the provisions of Sections 304, 305, 306, 307, 1202, 1203 and 1205 and the payment obligations to any Authenticating Agent under Section 814 shall survive and, if cash or U.S. Government Obligations shall have been deposited with the Trustee pursuant to Clause (1)(B) of clause (1) of this Section, or if money, U.S. Government Obligations shall have been deposited with or received by the Trustee pursuant to Section 1603, the obligations of the Trustee under Section 1602 and the last paragraph of Section 1203 shall survive this Section, the provisions of Section 1602, the rights of Holders of Outstanding Securities to receive, from the trust funds described in this Section and as more fully provided in Section 1602, payments in respect of the principal of and any premium and interest on such Securities when such payments are due, the other provisions of this Article Sixteen and, if applicable, the provisions of Article Thirteen, shall also survive.
 
Section 1602.     Application of Trust Money. Subject to the provisions of the last paragraph of Section 1203, all cash or U.S. Government Obligations deposited with the Trustee pursuant to Section 1601 shall be held in trust and applied by it, in accordance with the provisions of the Securities and this Indenture, to the payment, either directly or through any Paying Agent (other than the Company acting as its own Paying Agent) as the Trustee may determine, to the Persons entitled thereto, of the principal and premium and interest for whose payment such money has been deposited with the Trustee; but such money need not be segregated from other funds except to the extent required by law.
 
Section 1603.     Satisfaction, Discharge and Defeasance of Securities .  If, at the Company’s option, either
 
(a)      the Company will be deemed to have been Discharged from its obligations with respect to the Securities or
 
(b)     the Company will cease to be under any obligation to comply with any term, provision or condition set forth in (x) Sections 1001 and 1002 or (y) the instrument or instruments setting forth the terms, provisions or conditions of such Securities pursuant to Section 301 ( provided in case of this subclause (y) that such instrument or instruments specify which terms, provisions or conditions, if any, are subject to this clause (b); provided further, however, that no such instrument may specify that the Company may cease to comply with any obligations as to which it may not be Discharged pursuant to the definition of “Discharged” );
 
in each case (a) and (b) with respect to the Securities and Coupons, if any, thereof, on the 91st day after the applicable conditions set forth below in (p) and either (q) or (r) have been satisfied:
 
(p)(1)    the Company has paid or caused to be paid all other sums payable with respect to the Outstanding Securities, if any (in addition to any sums required under (q) or (r)); and
 
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   (2)     the Company has delivered to the Trustee an Officers’ Certificate and an Opinion of Counsel as contemplated by Section 102 and each stating that all conditions precedent herein provided for relating to the satisfaction and discharge of the entire indebtedness on all Outstanding Securities, if any, have been complied with;
 
(q)(1)   the Company shall have deposited or caused to be deposited irrevocably with the Trustee as a trust fund specifically pledged as security for, and dedicated solely to, the benefit of the Holders of the Securities (i) money in an amount or (ii) U.S. Government Obligations (as defined below), which through the payment of interest and principal in respect thereof in accordance with their terms will provide, not later than one day before the due date of any payment of principal (including any premium) and interest under the Securities, money in an amount (or (iii) a combination of (i) and (ii)) sufficient (in the opinion with respect to (ii) and (iii) of a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee) to pay and discharge each installment of principal of and premium, if any, and interest on, the Outstanding Securities, if any, on the dates such installments of interest or principal are due; provided, however, that the Company shall not make or cause to be made the deposit provided by this clause (1) unless the Company shall have delivered to the Trustee an Opinion of Counsel to the effect that such deposits will not impair the tax credit of the owners of the Securities or violate the provisions of the Tax Compliance Agreement;
 
(2)(i)    no Event of Default or event (including such deposit) which with notice or lapse of time or both would become an Event of Default with respect to the Securities shall have occurred and be continuing on the date of such deposit, (ii) no Event of Default as defined in clause (4) of Section 601, or event which with notice or lapse of time or both would become an Event of Default under either such clause, shall have occurred within 90 days after the date of such deposit and (iii) such deposit and the related intended consequence under (a) or (b) will not result in any default or event of default under any material indenture, agreement or other instrument binding upon the Company or any of its properties;
 
    (3)    the Company shall have delivered to the Trustee an Opinion of Counsel to the effect that Holders of the Securities will not recognize income, gain or loss for Federal income tax purposes as a result of the Company’s exercise of its option under this Section 1603 and will be subject to Federal income tax in the same amount, in the same manner and at the same times as would have been the case if such option had not been exercised; and
 
(r)     the Company has properly fulfilled such other means of satisfaction and discharge as is specified, as contemplated by Section 301, to be applicable to the Securities.
 
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Any deposits with the Trustee referred to in clause (q)(1) above will be made under the terms of an escrow trust agreement in form and substance satisfactory to the Trustee.  If any Outstanding Securities are to be redeemed prior to their Stated Maturity, whether pursuant to any mandatory redemption provisions or in accordance with any mandatory sinking fund requirement, the applicable escrow trust agreement will provide therefor and the Company will make arrangements for the giving of notice of redemption by the Trustee in the name, and at the expense, of the Company.
 
(c)      The Trustee shall deliver or pay to the Company from time to time upon Company Request any U.S. Government Obligations or money held by it as provided in Section 1601 or 1603 which, in the opinion of a nationally-recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee, are then in excess of the amount thereof which then would have been required to be deposited for the purpose for which such obligations or money were deposited or received.  The Trustee shall also deliver or pay to the Company from time to time upon Company Request any U.S. Government Obligations or money held by it as provided in Section 1601 or 1603, in exchange for other U.S. Government Obligations or money, upon the following conditions:
 
(1)       such exchange shall occur simultaneously;
 
(2)      the Company has delivered to the Trustee an Officers’ Certificate and an Opinion of Counsel, each stating that all conditions precedent herein provided for relating to the exchange contemplated by paragraph (c) of this Section have been complied with; and
 
(3)      in the opinion of a nationally-recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee, immediately after such exchange the U.S. Government Obligations or money then held by the Trustee as provided in Section 1601 or 1603 shall be in such amount as then would have been required to be deposited in order to comply with Section 1601(l) or 1603(q)(1) hereof, as the case may be.
 
Section 1604.     Reinstatement .  If the Trustee is unable to apply any money or U.S. Government Obligations in accordance with Section 1601 by reason of any legal proceeding or by reason of any order or judgment of any court or governmental authority enjoining, restraining or otherwise prohibiting such application, the Company’s obligations under this Indenture and the Securities shall be revived and reinstated as though no deposit had occurred pursuant to Section 1601 until such time as the Trustee is permitted to apply all such money or U.S. Government Obligations in accordance with Section 1601; provided, however, that if the Company has made any payment of any interest on or principal of (and premium, if any) on any Securities because of the reinstatement of its obligations, the Company shall be subrogated to the rights of the Holders of such Securities to receive such payment from the money or U.S. Government Obligations held by the Trustee.
 
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Article Seventeen
 
Grant of Security Interest in Pledged Collateral
 
Section 1701.     Security Interest .  To secure the full and punctual payment of the Obligations in accordance with the terms of this Indenture, the Securities and the Credit Support Agreement, the Company shall enter into the Pledge and Security Agreement with the Trustee, pursuant to which the Company shall grant a security interest to the Trustee for the ratable benefit of the Holders from time to time of the Securities (such Trustee and Holders from time to time being collectively the “Secured Parties” ) in, and shall pledge and collaterally assign to and with the Trustee for the ratable benefit of the Secured Parties, the Pledged Collateral and all of the rights and remedies of the Company in and to the Pledged Collateral (such security interest, pledge and collateral assignment being the “Security Interest” ).
 
Article Eighteen
 
Immunity of Incorporators, Stockholders, Officers and Directors
 
Section 1801.     Exemption from Individual Liability.   No recourse under or upon any obligation, covenant or agreement of this Indenture, or of any Security, or for any claim based thereon or otherwise in respect thereof, shall be had against any incorporator, stockholder, officer or director, as such, past, present or future, of the Company or of any successor Person, either directly or through the Company, whether by virtue of any constitution, statute or rule of law, or by the enforcement of any assessment or penalty or otherwise; it being expressly understood that this Indenture and the obligations issued hereunder are solely corporate obligations, and that no such personal liability whatever shall attach to, or is or shall be incurred by, the incorporators, stockholders, officers or directors, as such, of the Company or of any successor Person, or any of them, because of the creation of the indebtedness hereby authorized, or under or by reason of the obligations, covenants or agreements contained in this Indenture or in any of the Securities or inferred therefrom; and that any and all such personal liability, either at common law or in equity or by constitution or statute, of, and any and all such rights and claims against, every such incorporator, stockholder, officer or director, as such, because of the creation of the indebtedness hereby authorized, or under or by reason of the obligations, covenants or agreements contained in this Indenture or in any of the Securities or implied therefrom, are hereby expressly waived and released as a condition of, and as a consideration for, the execution of this Indenture and the issue of such Securities.
 
*     *     *
 
This instrument may be executed in any number of counterparts, each of which so executed shall be deemed to be an original, but all such counterparts shall together constitute but one and the same instrument.

 
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In Witness Whereof , the parties hereto have caused this Indenture to be duly executed, all as of the day and year first written above.

National Rural Utilities Cooperative
Finance Corporation
     
By
   
 
Name:
 
 
Title:
 
     
U.S. Bank National Association , as Trustee
     
By
   
 
Name:
 
 
Title:
 
     
Federal Agricultural Mortgage
Corporation , as Guarantor
     
By
   
 
Name:
 
 
Title:
 
 
 
 

 

Exhibit A

[Form of Series 2009A Bond]

Number
Dollars
No.
$             
 
This Security is a Global Security registered in the name of the Depositary (referred to herein) or a nominee thereof and, unless and until it is exchanged in whole or in part for the individual Securities represented hereby, this Global Security may not be transferred except as a whole by the Depositary to a nominee of the Depositary or by a nominee of the Depositary to the Depositary or another nominee of the Depositary or by the Depositary or any such nominee to a successor Depositary or a nominee or such successor Depositary.
 
Unless this Global Security is presented by an authorized representative of The Depository Trust Company (55 Water Street, New York, New York), to the Trustee for registration of transfer, exchange or payment, and any certificate issued is registered in the name of Cede & Co. or such other name as requested by an authorized representative of The Depository Trust Company and any payment is made to Cede & Co., any transfer, pledge or other use hereof for value or otherwise by or to any person is wrongful since the Registered Owner hereof, Cede & Co., has an interest herein.
 
This Security is not a savings account deposit or obligation of any bank and is not insured or guaranteed by any governmental agency of the United States, including the Federal Deposit Insurance Corporation, Bank Insurance Fund or Savings Association Insurance Fund.
 
National Rural Utilities
Cooperative Finance Corporation
Clean Renewable Energy Bonds
Secured Tax Credit Series 2009A

Original Issue Date:
CUSIP:  637432 ___
October 23, 2009
 
Maturity Date:  December 15,            

Registered Owner:  Cede & Co.
   
     
Principal Amount:
   
     
Tax Credit Rate:
Interest Rate:
per annum
 
National Rural Utilities Cooperative Finance Corporation, a cooperative association duly organized and existing under the laws of the District of Columbia (herein called the “Company,” which term includes any successor Person under the Indenture hereinafter referred to), for value received, hereby promises to pay to the Registered Owner identified above, or registered assigns, on the Maturity Date identified above, the Principal Amount identified above.
 

 
This Security has been designated by the Company as a Clean Renewable Energy Bond under Section 54 of the Internal Revenue Code of 1986, as amended.  An Owner of this Security (an “Owner” ) on any Credit Allowance Date of this Security occurring during any taxable year will be allowed a credit against the Owner’s federal income tax.  The total annual credit with respect to the Series 2009A Bonds is equal to the product of (a) the Tax Credit Rate identified above; multiplied by (b) the outstanding face amount of such Securities.  The credit allowed to an Owner for its taxable year is equal to the sum of the credits determined on each Credit Allowance Date that falls within the Owner’s tax year.  The Credit Allowance Dates are March 15, June 15, September 15, December 15, and the last day on which the Securities are outstanding.  The amount of the credit allowed on each Credit Allowance Date is equal to 25% of the annual credit unless the Securities are issued less than three months prior to the first credit allowance date or redeemed less than three months after the last credit allowance date.  With respect to those periods, the amount of credit allowed on the respective credit allowance date is a ratable portion of the otherwise allowable credit, based upon the portion of the three-month period during which the Security is outstanding.  Ownership of the Securities may result in other federal income tax consequences to certain taxpayers.  Each owner of a Security should consult its own tax advisor concerning tax consequences of ownership of the Securities.
 
Interest on the Bonds will be computed on the basis of a 360-day year of twelve 30-day months and will be paid semi-annually on June 15 and December 15 of each year, commencing December 15, 2009.  Payment of the principal of (and premium, if any) and interest on this Security will be made at the office or agency of the Paying Agent maintained for that purpose in New York, New York, in such coin or currency of the United States of America as at the time of payment is legal tender for payment of public and private debts; provided, however, that at the option of the Company payment of interest may be made (i) by check mailed to the address of the Person entitled thereto as such address shall appear in the Security Register or (ii) by wire transfer in immediately available funds at such place and to such account as may be designated in writing by the Person entitled thereto as specified in the Security Register at least fifteen days prior to the relevant Interest Payment Date.
 
This Security has not been registered under the Securities Act of 1933 (the “1933 Act” ).  The Bondholder hereof, by purchasing this Security, agrees for the benefit of the Company that this Security may not be resold, pledged or otherwise transferred other than (i) in a transaction exempt from registration under the 1933 Act and only to the Initial Purchaser or through the Initial Purchaser to an institutional investor approved by the Initial Purchaser as an institutional accredited investor or a qualified institutional buyer purchasing for its own account or for the account of an institutional accredited investor or qualified institutional buyer, respectively, or (ii) to a qualified institutional buyer that purchases for its own account or for the account of a qualified institutional buyer and to whom notice is given that the transfer is being made in reliance on Rule 144A, in each case in accordance with any applicable securities laws of any state of the United States.  The Bondholder hereof further agrees for the benefit of the Company that it will notify any purchaser hereof of the resale restrictions referred to above.  Any Bondholder holding this Security agrees that it will notify the Company and the Trustee of any transfer by it of this Security and that it will furnish to the Company and the Initial Purchaser such certificates and other information as they may reasonably require to confirm that any transfer by it of this Security complies with the foregoing restrictions.  The Bondholder hereof, by purchasing this Security represents and agrees for the benefit of the Company that it is (1) a qualified institutional buyer within the meaning of Rule 144A or (2) an institution that is an “Accredited Investor” as defined in Rule 501(A)(1), (2), (3) or (7) under the 1933 Act and that it is holding this Security for investment purposes and not for distribution.

 
A-2

 
 
This Security is one of a duly authorized issue of securities of the Company (herein called the “Securities” ), issued under an Indenture, dated as of September 1, 2009 (the “Indenture” ) among the Company, U.S. Bank National Association, as Trustee (herein called the “Trustee,” which term includes any successor trustee under the Indenture) and the Federal Agricultural Mortgage Corporation (the “Guarantor” ), to which Indenture and all indentures supplemental thereto reference is hereby made for a statement of the respective rights, limitations of rights, duties and immunities thereunder of the Company, the Trustee and the Holders of the Securities and of the terms upon which the Securities are, and are to be, authenticated and delivered.  This Security is one of the series designated National Rural Utilities Cooperative Finance Corporation Clean Renewable Energy Bonds, Secured Tax Credit Series 2009A (the “Series 2009A Bonds” ) and limited in aggregate principal amount to $28,908,000.
 
Pursuant to the Indenture, the Guarantor has agreed to fully and unconditionally guarantee (the “Guarantee” ) to the Trustee for the benefit of the Holders of the Series 2009A Bonds and the Company, the timely payment of interest on the Series 2009A Bonds and, in the case of principal, an amount equal to the amount of outstanding principal of the Series 2009A Bonds less any amounts in the Series 2009A Project Account (as set forth in the Indenture).  Although the Guarantor is a federally chartered instrumentality of the United States, the obligations of the Guarantor under the Indenture will be obligations solely of the Guarantor, and the Guarantee will not be an obligation of, and will not be guaranteed by, the Farm Credit Administration, the United States or any agency or instrumentality of the United States.
 
Payment by the Guarantor under the Indenture of any amount required to be paid by the Company under the Indenture shall be deemed to be a payment thereunder for purposes of determining whether there is an Event of Default under the Indenture which will permit the Trustee to exercise any remedies under such instrument.
 
The Series 2009A Bonds are subject to redemption by the Company prior to their Stated Maturity, in the following events:
 
(a)      Not more than 60 days following a Determination of Tax Credit Ineligibility, at a redemption price equal to the principal amount thereof of the Securities being so redeemed plus accrued interest thereon to the redemption date.  Any such redemption shall be in whole, unless the Trustee receives an opinion of Bond Counsel delivered to the Trustee by the 45th day prior to the redemption date that the redemption of a portion of Series 2009A Bonds would have the result that the tax credit under Section 54 of the Code will be available to the Holders of the Series 2009A Bonds remaining outstanding after such redemption, in which case only such portion need be redeemed.  If fewer than all Series 2009A Bonds are redeemed, the Trustee will select the Series 2009A Bonds to be redeemed as provided in the Indenture, subject to Section 54 of the Code; or

 
A-3

 
 
(b)     At least 45 days but not more than 225 days following a Determination of Potential Tax Credit Ineligibility, at a redemption price equal to the principal amount thereof of the Series 2009A Bonds being so redeemed plus accrued interest thereon to the redemption date.  Any such redemption shall only be that portion of the Series 2009A Bonds that need to be redeemed so that the tax credit under Section 54 of the Code will continue to be available to the Holders of the Series 2009A Bonds remaining outstanding after such redemption.  If fewer than all Series 2009A Bonds are redeemed, the Trustee will select the Series 2009A Bonds to be redeemed as provided in the Indenture, subject to Section 54 of the Code.
 
So long as no “Guarantor Default” (as defined under the Indenture) is existing and continuing, the Guarantor shall be the “Control Party” under the Indenture.  If the Guarantor is the Control Party, the Guarantor shall be considered the Holder of all Series 2009A Bonds Outstanding for all purposes under the Indenture and shall be permitted to take any and all actions permitted to be taken by the Holders or a specified percentage of Holders thereunder, provided, however, the Guarantor shall not be entitled to receive payments of principal of and interest on the Series 2009A Bonds other than (i) pursuant to the Guarantor’s subrogation rights and (ii) to the extent that the Guarantor is a Holder of the Series 2009A Bonds.  The Control Party will have the sole right to direct the time, method and place of conducting any proceeding for any remedy available to the Trustee with respect to the Series 2009A Bonds or exercising any trust or power conferred on the Trustee with respect to the Series 2009A Bonds.  The Guarantor shall, to the extent it makes any payment of any amount with respect to the Series 2009A Bonds, become subrogated to the rights of the recipient of such payments to the extent of such payments.  Subject to and conditioned upon any payment with respect to the Series 2009A Bonds by or on behalf of the Guarantor, the Trustee assigns to the Guarantor, pursuant the Indenture, all rights to the payment of interest or principal with respect to the Series 2009A Bonds which are then due for payment to the extent of all payments made by the Guarantor, and the Guarantor may exercise any option, vote, right, power or the like with respect to the Series 2009A Bonds to the extent that it has made a payment on the Series 2009A Bonds pursuant to the Guarantee.  To evidence such subrogation, the Trustee shall note the Guarantor’s rights as subrogee in the Bond Register upon receipt from the Guarantor of payment by the Guarantor of any amount with respect to the Series 2009A Bonds.  Such subrogation shall in all cases not impair the rights of the Holders of the Series 2009A Bonds to receive all amounts payable by the Guarantor in respect of the Series 2009A Bonds pursuant to the Guarantee.  Each Holder of Series 2009A Bonds is hereby deemed to acknowledge and agree to the rights of subrogation of the Guarantor hereunder, under the Indenture, under the Guarantee and otherwise under applicable law.
 
The Indenture contains provisions for satisfaction and discharge of the entire indebtedness of this Security upon compliance by the Company with certain conditions set forth in the Indenture.
 
If an Event of Default with respect to the Series 2009A Bonds shall occur and be continuing, the principal of the Series 2009A Bonds may be declared due and payable in the manner and with the effect provided in the Indenture.

 
A-4

 
 
The Indenture permits, with certain exceptions as therein provided, the amendment thereof and the modification of the rights and obligations of the Company and the rights of the Holders of the Securities to be affected under the Indenture at any time by the Company and the Trustee with the consent of the Holders of a majority in principal amount of the Securities at the time Outstanding to be affected, treated as one class.  The Indenture also contains provisions permitting the Holders of specified percentages in principal amount of the Securities at the time Outstanding, on behalf of the Holders of all Securities, to waive compliance by the Company with certain provisions of the Indenture and certain past defaults under the Indenture and their consequences.  Any such consent or waiver by the Holder of this Security shall be conclusive and binding upon such Holder and upon all future Holders of this Security and of any Security issued upon the registration of transfer hereof or in exchange here for or in lieu hereof, whether or not notation of such consent or waiver is made upon this Security.
 
As provided in and subject to the provisions of the Indenture, the Holder of this Security shall not have the right to institute any proceeding with respect to the Indenture or for the appointment of a receiver or trustee or for any other remedy thereunder, unless such Holder shall have previously given the Trustee written notice of a continuing Event of Default with respect to the Series 2009A Bonds, the Holders of not less than 25% in principal amount of the Series 2009A Bonds at the time Outstanding shall have made written request to the Trustee to institute proceedings in respect of such Event of Default as Trustee and offered the Trustee indemnity satisfactory to it, the Trustee shall not have received from the Holders of a majority in principal amount of Series 2009A Bonds at the time Outstanding a direction inconsistent with such request, and the Trustee shall have failed to institute any such proceeding, for 60 days after receipt of such notice, request and offer of indemnity.  The foregoing shall not apply to any suit instituted by the Holder of this Bond for the enforcement of any payment of principal hereof or any premium or interest hereon on or after the respective due dates expressed or provided for herein.
 
No reference herein to the Indenture and no provision of this Security or of the Indenture shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal of and any premium and interest on this Security at the times, place and rate, and in the coin or currency, herein prescribed.
 
As provided in the Indenture and subject to certain limitations therein set forth, the transfer of this Security is registrable in the Security Register, upon surrender of this Security for registration of transfer at the office or agency of the Company in any place where the principal of and any premium and interest on this Security are payable, duly endorsed by, or accompanied by a written instrument of transfer in form satisfactory to the Company and the Security Registrar duly executed by, the Holder hereof or his attorney duly authorized in writing, and thereupon one or more new Series 2009A Bonds and of like tenor, of authorized denominations and for the same aggregate principal amount, will be issued to the designated transferee or transferees.  No service charge shall be made for any such registration of transfer or exchange, but the Company and the Security Registrar may require payment of a sum sufficient to cover any tax or other governmental charge payable in connection therewith.

 
A-5

 
 
Prior to due presentment of this Security for registration of transfer, the Company, the Trustee and any agent of the Company or the Trustee may treat the Person in whose name this Security is registered as the owner hereof for all purposes, whether or not this Security be overdue, and neither the Company, the Trustee nor any such agent shall be affected by notice to the contrary.
 
The Series 2009A Bonds are issuable only in registered form without coupons in denominations of $100,000 and any integral multiple of $1,000 in excess of $100,000.  As provided in the Indenture and subject to certain limitations therein set forth, Series 2009A Bonds are exchangeable for a like aggregate principal amount of Securities of like tenor of a different authorized denomination, as requested by the Holder surrendering the same.
 
All terms used in this Bond which are defined in the Indenture shall have the meanings assigned to them in the Indenture.
 
The Indenture and this Security shall be governed by and construed in accordance with the laws of the State of New York without regard to conflicts of laws principles thereof.
 
This Security is a global security within the meaning of the Indenture hereinafter referred to and is registered in the name of a depositary or a nominee of a depositary.  This Security is exchangeable for securities registered in the name of a person other than the depositary or its nominee only in the limited circumstances described in the indenture and may not be transferred except as a whole by the depositary to a nominee of the depositary or by a nominee of the depositary to the depositary or another nominee of the depositary.
 
Unless the certificate of authentication hereon has been executed by the Trustee referred to on the reverse hereof by manual signature, this Security shall not be entitled to any benefit under the Indenture or be valid or obligatory for any purpose.
 
 
A-6

 
 
In Witness Whereof , the Company has caused this instrument to be duly executed.
  
Dated:
   
National Rural Utilities Cooperative
Finance Corporation
       
     
By:
   
       
Name:
 
       
Title:
 
 
Certificate of Authentication
 
This is one of the Securities of the series designated herein referred to in the within-mentioned Indenture.
  
Date:
   
U.S. Bank National Association , as Trustee
         
     
By:
 
       
Authorized Signatory
 
 
A-7

 

Assignment
 
The following abbreviations, when used in the inscription on the face of the within Security, shall be construed as though they were written out in full according to applicable laws or regulations
 
TEN COM 
—  as tenants in common
 
TENANT
—  as tenants by the entireties
 
JT TEN
—  as joint tenants with right of survivorship and not as tenants in common
 
UNIF GIFT MIN ACT          —  _____________   Custodian   _____________
(Cust)                                      (Minor)
under Uniform Gifts to Minors Act
 
Additional abbreviations may also be used though not in the above list.
 
For Value Received , the undersigned hereby sell(s), assign(s) and transfer(s) unto
 
____________________________________________________________
 
Please Insert Social Security or
other Identifying Number of Assignee:
 
   
 
________________________________________________________________________________________________________
________________________________________________________________________________________________________
(Please Print or Typewrite Name and Address, Including Postal Zip Code, of Assignee)
 
________________________________________________________________________________________________________
the within Security and all rights thereunder, and hereby irrevocably constitutes and appoints ______________________________________________ to transfer said Security on the books of the Company, with full power of substitution in the premises.
 
If less than the entire principal amount of the within Security is to be sold, transferred or assigned, specify the portion thereof which the Holder elects to have sold, transferred or assigned:  ______________; and specify the denomination or denominations (which shall not be less than the minimum-authorized denomination) of the Securities to be issued to the Holder for the portion of the within Security not being sold, transferred or assigned (in the absence of any such specification, one such Security will be issued for the portion not being sold, transferred or assigned):  ______________________.
 
 
A-8

 
 
Dated:  ______________
 
Signature:  _________________________
(Sign exactly as your name appears on the other side of this Security Certificate)
 
Signature Guarantee*:  _________________________
 

*
Signature must be guaranteed by an “eligible guarantor institution” that is a bank, stockbroker, savings and loan association or credit union meeting the requirements of the Registrar, which requirements include membership or participation in the Securities Transfer Agents Medallion Program ( “STAMP” ) or such other “signature guarantee program” as may be determined by the Registrar in addition to, or in substitution for, STAMP, all in accordance with the Securities and Exchange Act of 1934, as amended.
 
 
A-9

 

Exhibit B

Form of Expense Requisition Statement
(pursuant to Section 402(c) of the Indenture)
 
U.S. Bank National Association
100 Wall Street
Suite 1600
New York, NY  10005
Attn:  Corporate Trust Services

 
Requisition No: ___
 
Requisition Amount:  $________
 
Date:  ___________, 200_
 
Ladies and Gentlemen:
 
This Certificate is provided pursuant to Section 402(c) of the Indenture, dated as of September 1, 2009 (the “Indenture” ) by and among National Rural Utilities Cooperative Finance Corporation (the “Company” ), Federal Agricultural Mortgage Corporation and U.S. Bank National Association, Trustee (the “Trustee” ), relating to that issue of Clean Renewable Energy Bonds, Secured Tax Credit Series 2009A of National Rural Utilities Cooperative Finance Corporation (the “Series 2009A Bonds” ), requesting payment out of the Series 2009A Expense Account of the Project Fund (the “Account” ), as defined and established in the Indenture.  Capitalized terms used herein and not otherwise defined herein shall have the meaning assigned to them in the Indenture.  Payment in the amount listed above as the “Requisition Amount” should be wired to Company.  The account information is as follows:
 
[Name of Bank]
ABA Routing Number:            __________
Account Name:                        __________
Account Number:                     __________
 
The undersigned Authorized Officer of the Company, on behalf of the Company, does hereby represent as follows:
 
(i)       the amount of money listed above as the “Requisition Amount” is due and owing, has not been previously paid with moneys disbursed from the Account and is a proper cost of issuing the Series 2009A Bonds; and

 
 

 
 
(ii)      the money received pursuant to this requisition will be used to pay the fees, costs and expenses of issuing the Series 2009A Bonds, including, without limitation, all printing expenses in connection with the Indenture, Loan Agreements, Project Agreements and Series 2009A Bonds, Rating Agency fees, legal fees, administrative charges of the Company and the initial fees and expenses of the Trustee.
 
Sincerely,
 
National Rural Utilities Cooperative Finance
Corporation
   
By
 
 
Authorized Company Representative
 
 
B-2

 

Exhibit C

Form of Demand Letter
 
[Date]

Federal Agricultural Mortgage Corporation
1133 21st Street, N.W., Suite 600
Washington, D.C.  20036
Attn:  Timothy L. Buzby, Vice President – Finance
Telecopier:  202-872-7713
 
Re: Indenture dated as of September 1, 2009 (the “Indenture” ), among National Rural Utilities Cooperative Finance Corporation, as Company (the “Company” ), Federal Agricultural Mortgage Corporation, as guarantor (the “Guarantor” ), and U.S. Bank National Association, as trustee (the “Trustee” )

Ladies and Gentlemen:
 
In accordance with Section 502(a) of the Indenture, the Trustee hereby makes a claim under the Guarantee due to a Guaranty Event.  Please remit funds in the amount of ______________________________ ($__________) to the Trustee by 2:30 p.m. Eastern time on the following payment date:_______________________.  Capitalized terms used but not otherwise defined herein have the meanings set forth in the Indenture.

Sincerely,
 
     
U.S. Bank National Association , as Trustee
 
   
By:
   
 
Name:
 
 
Title:
 

cc:
CFO of National Rural Utilities
 
Cooperative Finance Corporation
 
 
 

 

Exhibit D

Form of Control Party Instructions
 
[Date]
 
U.S. Bank National Association
100 Wall Street
Suite 1600
New York, NY  10005
Attn:  Corporate Trust Services
 
Re: Indenture dated as of September 1, 2009 (the “Indenture” ), among National Rural Utilities Cooperative Finance Corporation, as Company (the “Company” ), Federal Agricultural Mortgage Corporation, as guarantor (the “Guarantor” ), and U.S. Bank National Association, as trustee (the “Trustee” )

Ladies and Gentlemen:
 
[__________________], as Control Party, hereby directs U.S. Bank National Association, as Trustee, to distribute funds in the following amounts to the following parties as required by Section 605 of the Indenture:
 
[List of amounts and locations $s/b sent]
 
 Capitalized terms used but not otherwise defined herein have the meanings set forth in the Indenture.
Sincerely,
 
   
 
   
 
   
By:
   
 
Name:
 
 
Title:
 

cc:
CFO of National Rural Utilities
 
Cooperative Finance Corporation
 
 
 

 

Exhibit E

Form of Funds Direction Statement
(pursuant to Section 404(c) of the Indenture)
 
U.S. Bank National Association
100 Wall Street
Suite 1600
New York, NY  10005
Attn:  Corporate Trust Services

 
Direction No: ___
 
Direction Amount:  $________
 
Date:  ___________, 200_
 
Ladies and Gentlemen:
 
This Certificate is provided pursuant to Section 404(c) of the Indenture, dated as of September 1, 2009 (the “Indenture” ) by and among National Rural Utilities Cooperative Finance Corporation (the “Company” ), Federal Agricultural Mortgage Corporation and U.S. Bank National Association, Trustee (the “Trustee” ), relating to that issue of Clean Renewable Energy Bonds, Secured Tax Credit Series 2009A of National Rural Utilities Cooperative Finance Corporation (the “Series 2009A Bonds” ), requesting transfer out of the Borrower Repayments Fund relating (the “Fund” ), as defined and established in the Indenture.  Capitalized terms used herein and not otherwise defined herein shall have the meaning assigned to them in the Indenture.
 
The Trustee is hereby requested to transfer $_________ from the Borrower Repayments Account to be used as set forth below.
 
The undersigned Authorized Officer of the Company, on behalf of the Company, does hereby represent as follows:
 
(i)       For transfer to the Bond Fund to be used to pay principal or interest on the Series 2009A Bonds; or
 
(ii)      for payment to the Company, to be used to pay the fees, costs and expenses of maintaining the Series 2009A Bonds program, including, without limitation, all administrative charges of the Company.

Sincerely,
   
National Rural Utilities Cooperative
Finance Corporation
   
By
 
 
Authorized Company Representative

 
 

 
Exhibit 31.1
 
CERTIFICATION
 
 
I, Michael A. Gerber, certify that:
 
 
1.
I have reviewed this Quarterly Report on Form 10-Q of the Federal Agricultural Mortgage Corporation for the fiscal quarter ended June 30, 2010;
 
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
 
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
 
4.
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
 
 
(a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
 
 
(b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
 
 
(c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
 
 
(d)
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
 
5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
 
 
(a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
 
 
(b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
 
 
Date: August 9, 2010
 
 
/s/ Michael A. Gerber         
 
Michael A. Gerber
Chief Executive Officer
 
Exhibit 31.2
 
CERTIFICATION
 
I, Timothy L. Buzby, certify that:
 
 
1.
I have reviewed this Quarterly Report on Form 10-Q of the Federal Agricultural Mortgage Corporation for the fiscal quarter ended June 30, 2010;
 
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
 
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
 
4.
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
 
 
(a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
 
 
(b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
 
 
(c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
 
 
(d)
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
 
5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
 
 
(a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
 
 
(b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
 
 
Date: August 9, 2010
 
 
/s/ Timothy L. Buzby            
 
Timothy L. Buzby
Chief Financial Officer
 
Exhibit 32

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report on Form 10-Q of the Federal Agricultural Mortgage Corporation (the “Corporation”) for the quarterly period ended June 30, 2010 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned, Michael A. Gerber, Chief Executive Officer of the Corporation, and Timothy L. Buzby, Chief Financial Officer of the Corporation, each hereby certifies pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to his knowledge:

 
(1)
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

 
(2)
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Corporation.


/s/ Michael A. Gerber                                                        
Michael A. Gerber
Chief Executive Officer


/s/ Timothy L. Buzby                                                        
Timothy L. Buzby
Chief Financial Officer


Date: August 9, 2010