[Federal Register Volume 75, Number 159 (Wednesday, August 18, 2010)]
[Notices]
[Pages 51061-51072]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-20372]
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FARM CREDIT ADMINISTRATION
RIN 3052-AC64
Joint and Several Liability Reallocation Agreement
AGENCY: Farm Credit Administration.
ACTION: Notice of joint and several liability reallocation agreement;
request for comments.
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SUMMARY: The Farm Credit Administration (FCA or we) is publishing for
comment a Joint and Several Liability Reallocation Agreement
(Agreement) to be entered into by all of the banks of the Farm Credit
System (Farm Credit or System) and the Federal Farm Credit Banks
Funding Corporation (Funding Corporation). The Agreement is designed to
establish a procedure for nondefaulting banks to pay maturing System-
wide debt on behalf of defaulting banks prior to a statutory joint and
several call by the FCA.
DATES: You may send comments on or before September 17, 2010.
ADDRESSES: There are several methods for you to submit your comments.
For accuracy and efficiency reasons, commenters are encouraged to
submit comments by e-mail or through the FCA's Web site. As facsimiles
(faxes) are difficult for us to process and achieve compliance with
section 508 of the Rehabilitation Act (29 U.S.C. 794d), we are no
longer accepting comments submitted by fax. Please do not submit your
comment multiple times via different methods. You may submit comments
by any of the following methods:
E-mail: Send us an e-mail at [email protected].
FCA Web site: http://www.fca.gov. Select ``Public
Commenters,'' then ``Public Comments,'' and follow the directions for
``Submitting a Comment.''
Federal E-Rulemaking Web site: http://www.regulations.gov.
Follow the instructions for submitting comments.
Mail: Send mail to Gary K. Van Meter, Deputy Director,
Office of Regulatory Policy, Farm Credit Administration, 1501 Farm
Credit Drive, McLean, VA 22102-5090.
You may review copies of comments we receive at our office in
McLean, Virginia, or on our Web site at http://www.fca.gov. Once you
are in the Web site, select ``Public Commenters,'' then ``Public
Comments,'' and follow the directions for ``Reading Submitted Public
Comments.'' We will show your comments as submitted, but for technical
reasons we may omit items such as logos and special characters.
Identifying information that you provide, such as phone numbers and
addresses, will be publicly available. We will attempt to remove e-mail
addresses from comments (other than those submitted in a ``.pdf''
format) to help reduce Internet spam.
FOR FURTHER INFORMATION CONTACT: Chris Wilson, Financial Analyst,
Office of Regulatory Policy, Farm Credit Administration, McLean, VA
22102-5090, (703) 883-4204, TTY (703) 883-4434, or Rebecca S. Orlich,
Senior Counsel, Office of General Counsel, Farm Credit Administration,
McLean, VA 22102-5090, (703) 883-4020, TTY (703) 883-4020.
SUPPLEMENTARY INFORMATION:
I. Objective
Our objective in publishing the Agreement is to seek public comment
on the Agreement before the FCA Board determines whether or not to
approve it.
II. Background
System associations obtain funding by means of direct loans from
their affiliated Farm Credit Banks or Agricultural Credit Bank
(collectively, System Banks or Banks). The Banks in turn obtain their
funding primarily by issuing System-wide obligations to investors
through the Funding Corporation.\1\ The Banks' authority to issue
System-wide obligations is provided in section 4.2(d) of the Farm
Credit Act of 1971, as amended (Act).\2\ Section 4.2(c) of the Act also
authorizes the Banks to obtain funding by issuing consolidated
obligations with other Banks operating under the same title of the Act,
but all of the System's joint funding at the present time is through
System-wide obligations. Consolidated and System-wide obligations (also
referred to as insured obligations) are insured by the Farm Credit
System Insurance Corporation (FCSIC) using
[[Page 51062]]
funds in the Farm Credit Insurance Fund (Insurance Fund).
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\1\ The Funding Corporation is the fiscal agent of the System
established under section 4.9 of the Farm Credit Act of 1971, as
amended (12 U.S.C. 2160). The Farm Credit Act is set forth in 12
U.S.C. 2001-2279cc.
\2\ Section 4.2 of the Act is codified at 12 U.S.C. 2153.
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Investors in consolidated and System-wide obligations have three
levels of repayment sources. The first level is each Bank's own primary
liability under section 4.4(a)(2)(A) of the Act \3\ for its portion of
any consolidated or System-wide obligation from which it received the
proceeds. The second level is payments made by the FCSIC out of the
Insurance Fund under section 4.4(d) of the Act if the Bank that is
primarily liable (defaulting Bank) is unable to pay. The third level is
joint and several calls made by the FCA on nondefaulting Banks under
section 4.4(a)(2) of the Act as follows:
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\3\ Section 4.4 of the Act is codified at 12 U.S.C. 2155.
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The FCA will make calls on nondefaulting Banks in
proportion to each Bank's proportionate share of the aggregate
available collateral held by all nondefaulting Banks. A Bank's
``aggregate available collateral'' is defined in section 4.4(a)(2)(C)
of the Act as ``the amount (determined at the close of the last
calendar quarter ending before such call) by which a bank's collateral
* * * exceeds the collateral required to support the bank's outstanding
notes, bonds, debentures, and other similar obligations.''
If the aggregate available collateral does not fully
satisfy the insured obligations of the defaulting Bank, the FCA will
make calls on all nondefaulting Banks in proportion to each Bank's
remaining assets.
Section 4.4(d) of the Act prohibits the FCA from making joint and
several calls ``before the Farm Credit Insurance Fund is exhausted,
even if the Fund is only able to make a partial payment because of
insufficient amounts in the Fund.''
The Act provides subrogation rights \4\ to both the Banks and the
FCSIC for payments of insured obligations made under the Act on behalf
of a defaulting Bank. With respect to System Banks, section
4.4(a)(2)(E) provides:
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\4\ A right of subrogation means to stand in the place or
``shoes'' of another with regard to a legal right or claim.
Any System bank that, pursuant to a call by the [FCA], makes a
payment of principal or interest to the holder of any consolidated
or System-wide obligations issued on behalf of another System bank
shall be subrogated to the rights of the holder against such other
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bank to the extent of such payment.
With respect to the FCSIC, section 5.61(c)(1) and (2) of the Act \5\
provides:
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\5\ Section 5.61 is codified at 12 U.S.C. 2277a-10.
[O]n the payment to an owner of an insured obligation issued on
behalf of an insured System bank in receivership, the [FCSIC] shall
be subrogated to all rights of the owner against the bank to the
extent of the payment. * * * Subrogation * * * shall include the
right on the part of the [FCSIC] to receive the same dividends from
the proceeds of the assets of the bank as would have been payable to
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the owner on a claim for the insured obligation.
In 2007, the FCA amended the priority of claims regulation in Sec.
627.2750 of our regulations \6\ to give priority rights to System Banks
for payments made under a joint and several reallocation agreement to
holders of insured obligations on behalf of a defaulting Bank (72 FR
54527 (September 26, 2007)). That provision now accords the priority,
prior to payment of the claims of general creditors, as follows:
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\6\ The FCA's regulations are in Title 12, Chapter VI, Parts
600--end of the Code of Federal Regulations.
(h) All claims of holders of consolidated and System-wide bonds
and all claims of the other Farm Credit banks arising from their
payments on consolidated and System-wide bonds pursuant to 12 U.S.C.
2155 [section 4.4 of the Act] or pursuant to an agreement among the
banks to reallocate the payments, provided that agreement is in
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writing and approved by the Farm Credit Administration.
This regulation means that System Banks will have the same subrogation
rights for payments made under a reallocation agreement that they would
have if they made payments under joint and several calls by the FCA as
provided for in section 4.4 of the Act.
III. System Banks' and Funding Corporation's Request for Approval of
the Agreement
The System Banks and the Funding Corporation (collectively the
``parties'') have informed us that they have reached a consensus on a
formula for allocating a defaulting bank's portion of consolidated or
System-wide obligations (after exhaustion of the Insurance Fund) based
on each Bank's percentage of insured obligations and accrued interest
outstanding to the total amount of insured obligations outstanding
(debt-based method) and have drafted an agreement (Agreement) to that
effect. The parties indicated they believe the debt-based method of
allocation is more equitable than the collateral-based allocation
method provided in the Act. The boards of directors of all the Banks
and the board of directors of the Funding Corporation have each adopted
resolutions authorizing their institutions to enter into the Agreement,
and the boards of the Banks have authorized the issuance of insured
obligations to satisfy joint and several payments under the Agreement.
The parties have submitted the proposed Agreement to the FCA for our
approval under Sec. 627.2750(h) and have requested the FCSIC to
provide an expression of non-objection to the Agreement.
The boards of directors of the parties have also authorized their
institutions to make conforming amendments to the Amended and Restated
Market Access Agreement (MAA) to allow certain actions under the
Agreement.\7\ The MAA is an agreement among the Banks and the Funding
Corporation that establishes criteria and procedures to provide
oversight and control of a Bank's access to System-wide debt funding if
the creditworthiness of the Bank declines below specified levels. Banks
not meeting the criteria are placed in one of three categories
depending on the severity of the problems. A Category I Bank has
additional reporting requirements. A Category II Bank's ability to
participate in issuances of System-wide obligations may be restricted.
A Category III Bank may be prohibited from participating in System-wide
obligations. The proposed amendments to the MAA provide that, in a
circumstance where the joint and several payment provisions of the
Agreement have been triggered, all nondefaulting Banks will be able to
issue System-wide obligations to fund payments under the Agreement.
This means that even Banks in Category II and III could participate in
such issuances. Therefore, the Banks and the Funding Corporation have
proposed amendments to the MAA to permit this. Should the FCA approve
the Agreement, the FCA expects also to approve the amendments to the
MAA and will publish the amendments in the Federal Register.
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\7\ The MAA is available at http://www.farmcredit-ffcb.com/pdfs/MarketAccessAgreement.pdf. The FCA published the original version of
the MAA in the Federal Register (59 FR 25644 (May 17, 1994)), and
also published the Restated MAA (68 FR 2037 (January 15, 2003)).
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IV. Effect of the Agreement
In general, the alternative debt-based methodology requires System
Banks with higher relative amounts of outstanding debt to pay a
proportionately larger share under the Agreement. In contrast, under
the statutory collateral-based method, Banks that maintain higher
levels of excess collateral are required to pay a proportionately
greater amount under a joint and several call.
We believe the likelihood of the Agreement actually being used is
remote. For a joint and several call to be issued to nondefaulting
System Banks, a System Bank would first have to default
[[Page 51063]]
on a maturing insured obligation and the amount of such obligation
would have to exceed the amounts in the Insurance Fund available to pay
defaulted insured obligations. In our judgment, it is reasonable to
believe that the Banks may build more capital under the Agreement.
Consequently, we believe that holders of consolidated and System-wide
debt obligations are unlikely to be harmed by the alternative debt-
based methodology. However, we are asking commenters to specifically
comment on the comparisons and differences of each method in terms of
how they benefit the Banks in their ability to pay insured obligations
when one or more of the Banks default.
V. Description of the Agreement
Article I sets forth defined terms. An included term is ``Funding
Certificate,'' which is a notification by the FCSIC to the Banks and
the Funding Corporation that the Insurance Fund will not have enough
funds to make an upcoming payment on maturing insured obligations that
is due on behalf of a defaulting Bank. This will be the FCSIC's signal
that the Insurance Fund is about to be exhausted, and the notification
is intended to start the allocation payment procedure specified in the
Agreement before the actual exhaustion of the Fund (and before the FCA
is required by the Act to commence joint and several calls in
accordance with the statutory collateral-based method). Another key
definition is ``Initial Allocation Percentage,'' which is a
nondefaulting Bank's proportion of a defaulting Bank's insured
obligation. This percentage is calculated by dividing a nondefaulting
Bank's insured obligations by an amount equal to the sum of all
nondefaulting Banks' insured obligations.
Article II sets forth the steps of the Agreement's allocation
procedure, including providing for the Funding Corporation to issue new
insured obligations to pay the maturing obligations of a defaulting
bank under certain circumstances.
Article III contains the parties' representations and warranties,
as well as certain covenants.
Article IV describes the effect of the Agreement. It states that
the parties agree that nothing in the Agreement or the FCA's approval
of the Agreement or the FCSIC's non-objection restricts or qualifies
the authority of the FCA or the FCSIC to exercise any of their powers,
rights, or duties, including the FCA's power to make joint and several
calls under section 4.4 of the Act and to appoint conservators and
receivers under section 4.12 of the Act. Furthermore, the parties agree
that the Agreement does not provide any grounds for challenging the
actions of the FCA and the FCSIC with respect to the creation or
conduct of conservatorships or receiverships.
Article V provides that the parties will arbitrate any disputes
relating to the Agreement.
Article VI provides indemnification for the Banks, the Funding
Corporation, and their directors, officers, stockholders, employees,
and agents.
Article VII sets forth how the Agreement can be terminated. Some of
the termination events are unanimous agreement by the parties (other
than defaulting Banks not entitled to vote) to terminate; and
withdrawal of the FCA's approval of, or withdrawal of the FCSIC's non-
objection to, the Agreement. Should the Agreement terminate, the FCA
would make any subsequent joint and several calls according to the Act.
Article VIII contains confidentiality provisions, and Article IX
contains miscellaneous provisions.
The FCA is now seeking public comment on the Agreement, which is
set forth below:
JOINT AND SEVERAL LIABILITY REALLOCATION AGREEMENT
This JOINT AND SEVERAL LIABILITY REALLOCATION AGREEMENT (the
``Agreement'') is made as of the [------] day of [--------------] (the
``Effective Date''), by and among AgFirst Farm Credit Bank; AgriBank,
FCB; CoBank, ACB; the Farm Credit Bank of Texas; and the U.S. AgBank,
FCB (each, a ``Bank,'' and collectively, the ``Banks''), and the
Federal Farm Credit Banks Funding Corporation (the ``Funding
Corporation'').
WHEREAS, Section 4.4 of the Farm Credit Act of 1971, as amended
(the ``Act''), sets forth a collateral-based allocation methodology
(the ``Collateral Method'') for addressing the joint and several
obligations of the Banks to make, as called upon by the Farm Credit
Administration (the ``FCA''), payments of principal and interest due on
Insured Debt Obligations (as defined herein) for which the Bank that is
primarily liable thereon is unable to pay;
WHEREAS, the parties hereto desire to adopt the debt-based
allocation methodology (the ``Debt-Based Method'') set forth herein for
allocating, prior to a statutory call by the FCA pursuant to Section
4.4 of the Act, the joint and several obligations of the Banks to make
payments of principal and interest due on Insured Debt Obligations for
which the Bank that is primarily liable thereon is unable to pay;
WHEREAS, the boards of directors of the Banks and of the Funding
Corporation gave approval to the Agreement subject to certain
conditions;
WHEREAS, the Agreement was submitted to FCA for approval and to the
Farm Credit System Insurance Corporation (the ``Insurance
Corporation'') for an expression of no objection;
WHEREAS, the FCA published this Agreement in the Federal Register
on [----------------] and sought comments thereon;
WHEREAS, after receiving comments, the FCA, on ------, approved
this Agreement subject to modifications, if any, that are acceptable to
the parties and a notice of such approval was published in the Federal
Register on [----------------];
WHEREAS, pursuant to the letter dated [--------------], from the
FCA to the Banks and the Funding Corporation, the FCA approved this
Agreement and confirmed, based on its statutory authority, that for the
purpose of causing payment as set forth in this Agreement, it will
consider a Bank Notice or Alternative to the Bank Notice relating to a
Bank not in receivership as a request to make the determinations needed
for a Default Certificate, and will consider a Bank Notice or an
Alternative to the Bank Notice as a request to make the determinations
needed for an MPI Certificate, and, if any such determinations are
made, to provide notice of such to the Banks and the Funding
Corporation;
WHEREAS, the Insurance Corporation, pursuant to the letter dated
[--------], from the Insurance Corporation to the Banks and the Funding
Corporation, expressed no objection to this Agreement and confirmed
that for the purposes of causing payment as set forth in this
Agreement, it will consider a Bank Notice or Alternative to the Bank
Notice relating to a Bank in receivership as a request to make the
determinations needed for a Default Certificate, and a Bank Notice or
Alternative to the Bank Notice as a request to make the determinations
needed for a Funding Certificate, and, if any such determinations are
made, to provide notice of such to the Banks and the Funding
Corporation;
WHEREAS, the parties hereto are entering this Agreement in reliance
on Sec. 611.1270, Sec. 627.2750, and Sec. 627.2755 of FCA's
regulations in their present form, respectively;
WHEREAS, the parties are mindful of FCA's independent authority
under Section 5.17(a)(10) of the Act to ensure the safety and soundness
of banks, FCA's independent authority under
[[Page 51064]]
Sections 4.2 and 4.9 of the Act to approve the terms of specific
issuances of debt securities, the Insurance Corporation's independent
authority under Part E of Title V of the Act, and the banks'
independent obligations under Section 4.3(c) of the Act to maintain
necessary collateral levels for debt securities;
WHEREAS, the Banks are entering into this Agreement pursuant to
Section 1.5, Section 3.1, Section 4.2(c), and Section 4.2(d) of the
Act; and
WHEREAS, the Funding Corporation is entering into this Agreement
pursuant to Section 4.9(b) of the Act;
NOW THEREFORE, in consideration of the foregoing, the mutual
promises and agreements herein contained, and other good and valuable
consideration, receipt of which is hereby acknowledged, the parties,
intending to be legally bound hereby, agree as follows:
Article I. Definitions
As used in this Agreement, the following defined terms shall have
the meanings described below:
Section 1.01 ``Act'' shall have the meaning set forth in the
Recitals hereto.
Section 1.02 ``Agreement'' shall have the meaning set forth in the
Preamble hereto.
Section 1.03 ``Allocation Payment(s)'' shall have the meaning set
forth in Section 2.01 hereof.
Section 1.04 ``Allocation Payment Debt'' shall have the meaning set
forth in Section 2.03(a) hereof.
Section 1.05 ``Allocation Payment Investments'' shall mean the
assets or investments, including but not limited to cash or cash
equivalents, of a Bank that is a Category II or Category III Bank under
the Market Access Agreement (as defined herein), to the extent those
assets may be sold at market value (as defined in Sec. 615.5045 of the
FCA Regulations).
Section 1.06 ``Alternative to the Bank Notice'' shall have the
meaning set forth in Section 2.02(b) hereof.
Section 1.07 ``Assertion'' shall have the meaning set forth in
Section 6.04(a) hereof.
Section 1.08 ``Average Insured Debt Obligations'' shall mean a
Bank's twelve (12) month average daily balance of principal and
interest accrued on Insured Debt Obligations, with the average daily
balance for each Bank calculated in accordance with generally accepted
accounting principles (``GAAP''), on the basis of the 12-month period
ending on the last day of the last month prior to the receipt of the
Bank Notice or the findings of an Alternative to the Bank Notice.
Section 1.09 ``Bank'' or ``Banks'' shall have the meaning set forth
in the Preamble hereto.
Section 1.10 ``Bank Notice'' shall have the meaning set forth in
Section 2.02(a)(ii) hereof.
Section 1.11 ``Business Day'' shall mean any day other than (1) a
Saturday or Sunday, (2) a day on which the Federal Reserve Bank of New
York is closed for business, or (3) with respect to any payment in
respect of any book-entry security, a day on which the Federal Reserve
Bank maintaining the book-entry account relating to such book-entry
security is closed for business.
Section 1.12 ``Collateral Method'' shall have the meaning set forth
in the Recitals hereto.
Section 1.13 ``Debt-Based Method'' shall have the meaning set forth
in the Recitals hereto.
Section 1.14 ``Default Certificate'' shall mean a certificate
prepared by the FCA, in the case of a Bank not in receivership, or the
Insurance Corporation (acting in its corporate capacity), in the case
of a Bank in receivership, in such form as the FCA or the Insurance
Corporation may, in their respective discretion, provide, determining
that a Bank is a Defaulting Bank, and specifying the Defaulted Maturing
Obligation Amount.
Section 1.15 ``Defaulted Maturing Obligation'' shall mean a
Maturing Obligation for which the Bank primarily liable thereon is
unable to pay in full when due.
Section 1.16 ``Defaulted Maturing Obligation Allocation Amount''
shall mean the amount of the Defaulted Maturing Obligation Amount that
remains unpaid after exhausting the Fund, as specified in the Funding
Certificate, reduced by the amount of any payment by a Bank, as
required pursuant to Sec. 611.1270, to make provision for such Bank's
joint and several liability.
Section 1.17 ``Defaulted Maturing Obligation Amount'' shall mean
the amount due on a Defaulted Maturing Obligation that the Defaulting
Bank primarily liable for such Defaulted Maturing Obligation is unable
to pay.
Section 1.18 ``Defaulting Bank'' shall mean a Bank that is unable
to make full payment on a Maturing Obligation for which it is primarily
liable.
Section 1.19 ``Effective Date'' shall have the meaning set forth in
the Preamble hereto.
Section 1.20 ``FCA'' shall have the meaning set forth in the
Recitals hereto.
Section 1.21 ``Fund'' shall mean the Farm Credit Insurance Fund
established under the Act.
Section 1.22 ``Funding Certificate'' shall mean a certificate
prepared by the Insurance Corporation (acting in its corporate
capacity), in such form as the Insurance Corporation may, in its
discretion, prescribe, specifying (i) that the Fund will have
insufficient funds to pay a Defaulted Maturing Obligation Amount in
full, and (ii) the amount of the Defaulted Maturing Obligation Amount
that remains unpaid after exhausting the Fund in making payment of the
Defaulted Maturing Obligation Amount.
Section 1.23 ``Funding Corporation'' shall have the meaning set
forth in the Preamble hereto.
Section 1.24 ``Funding Notice'' shall have the meaning set forth in
Section 2.03(b) hereof.
Section 1.25 ``Initial Allocation Amount'' shall have the meaning
set forth in Section 2.01 hereof.
Section 1.26 ``Initial Allocation Percentage'' shall mean the
percentage that (i) a single Non-Defaulting Bank's Average Insured Debt
Obligations represents of (ii) the sum of all Non-Defaulting Banks'
Average Insured Debt Obligations.
Section 1.27 ``Insurance Corporation'' shall have the meaning set
forth in the Recitals hereto.
Section 1.28 ``Insured Debt Obligation(s)'' shall mean an ``insured
obligation'' as defined in Section 5.51(3) of the Act.
Section 1.29 ``Market Access Agreement'' shall mean the Amended and
Restated Market Access Agreement, dated July 1, 2003, by and among
AgFirst Farm Credit Bank; AgriBank, FCB; CoBank, ACB; the Farm Credit
Bank of Texas; and U.S. AgBank, FCB (as successor to the Farm Credit
Bank of Wichita and the Western Farm Credit Bank under Section 7.12 of
the Amended and Restated Market Access Agreement); and the Federal Farm
Credit Banks Funding Corporation, as the same may be supplemented,
amended, or restated from time to time as provided for therein.
Section 1.30 ``Maturing Obligation(s)'' shall mean the principal
and/or interest on an Insured Debt Obligation payable on a specific
date for which one Bank is primarily liable.
Section 1.31 ``Maximum Permitted Indebtedness'' shall mean the
maximum amount of Insured Debt Obligations that a Bank is permitted to
issue on the basis of its available collateral as defined in Sections
4.3 and 4.4 of the Act.
Section 1.32 ``MPI Adjustment'' shall have the meaning set forth in
Section 2.02(b)(iv) hereof.
Section 1.33 ``MPI Bank(s)'' shall mean a Non-Defaulting Bank that
has
[[Page 51065]]
previously reached its Maximum Permitted Indebtedness, or would exceed
its Maximum Permitted Indebtedness without an ``MPI Adjustment'' as
provided in Section 2.02(b)(iv) hereof.
Section 1.34 ``MPI Certificate'' shall mean a certificate prepared
by the FCA, in such form as the FCA may, in its discretion, prescribe,
specifying the Maximum Permitted Indebtedness for each of the Non-
Defaulting Banks.
Section 1.35 ``Non-Defaulting Bank(s)'' shall mean, with respect to
a Defaulted Maturing Obligation for which such Bank(s) is jointly and
severally liable under the Collateral Method, a Bank other than a
Defaulting Bank.
Section 1.36 ``Notice'' shall have the meaning set forth in Section
9.07 hereof.
Section 1.37 ``Payment Conditions'' shall have the meaning set
forth in Section 2.02(c) hereof.
Section 1.38 ``Payment Date'' shall be the date that a payment on a
Defaulted Maturing Obligation is due.
Section 1.39 ``Preliminary Bank Notice'' shall have the meaning set
forth in Section 2.02(a) hereof.
Section 1.40 ``System'' shall mean the Farm Credit System.
Section 1.41 ``Systemwide Debt'' shall mean debt issued under
Section 4.2(d) of the Act.
Section 1.42 ``Termination Date'' shall have the meaning set forth
in Section 7.01 hereof.
Section 1.43 ``U.S. Arbitration Act'' shall mean 9 U.S.C. 1 et
seq., as amended from time to time.
Section 1.44 ``Voting Bank(s)'' shall have the meaning set forth in
Section 7.01(a) hereof.
Article II. Terms of Reallocation
Section 2.01 Debt-Based Allocation
With respect to each Defaulted Maturing Obligation for which the
Payment Conditions have been met, each Non-Defaulting Bank shall make
joint and several liability payments pursuant to the Debt-Based Method
as described herein (in lieu of application of the Collateral Method)
through the Funding Corporation of a portion of the Defaulted Maturing
Obligation Allocation Amount equal to such Non-Defaulting Bank's
Initial Allocation Percentage, calculated as of the date on which the
Payment Conditions under Section 2.02(c) hereof have been satisfied,
multiplied by the total amount of such Defaulted Maturing Obligation
Allocation Amount (each an ``Initial Allocation Amount''), as adjusted
pursuant to Section 2.02(b)(iv) if any adjustment is required
thereunder (each Initial Allocation Amount, adjusted if required
pursuant to Section 2.02(b)(iv), an ``Allocation Payment'').
Section 2.02 Allocation Procedure
(a) Each Bank shall make a good faith effort to determine as
promptly as practicable whether it will be able to make full payment
when due on each Maturing Obligation for which it is primarily liable.
As promptly as practicable after a Bank determines that there is a
reasonable likelihood that it will not be able to make full payment on
a Maturing Obligation for which it is primarily liable, such Bank shall
deliver a notice to each of the other Banks, the Funding Corporation,
the FCA, and the Insurance Corporation indicating that it anticipates
not being able to make full payment when due on such Maturing
Obligation (each, a ``Preliminary Bank Notice'').
(i) As promptly as practicable after such determination, such Bank
shall make a good faith effort to determine the amount of such Maturing
Obligation as to which it will not be able to make payment when due.
(ii) After a Bank has determined the amount of the Maturing
Obligation for which it is primarily liable but for which such Bank
will not be able to make payment when due, such Bank shall promptly
deliver a notice to each of the other Banks, the Funding Corporation,
the FCA, and the Insurance Corporation indicating the amount of the
Maturing Obligation that it will be unable to pay (the ``Bank
Notice'').
(b) Upon the delivery of a Bank Notice under Section 2.02(a)(ii)
hereto, or, in the absence of delivery of a Bank Notice, if the FCA or
the Insurance Corporation (acting in its corporate capacity) believes
there is a reasonable basis that a Bank will be unable to make full
payment on a Maturing Obligation for which it is primarily liable (an
``Alternative to the Bank Notice''), the following steps shall occur in
the following order for each such Maturing Obligation:
(i) The Funding Corporation shall determine the Defaulted Maturing
Obligation Allocation Amount. Before such determination shall be made,
the following shall have been delivered to the Banks and the Funding
Corporation:
(1) A Default Certificate with respect to the Bank primarily liable
for such Maturing Obligation;
(2) A Funding Certificate with respect to the Defaulted Maturing
Obligation Amount; and
(3) An MPI Certificate.
(ii) The Funding Corporation shall determine the Initial Allocation
Percentage for each Non-Defaulting Bank with respect to the Defaulted
Maturing Obligation Allocation Amount, and the Initial Allocation
Amount for each such Bank, pursuant to Section 2.01 hereto.
(iii) The Funding Corporation shall determine whether an MPI
Adjustment shall be made pursuant to Section 2.02(b)(iv) hereof. In the
event no Non-Defaulting Banks are MPI Banks, or would become MPI Banks
as a result of making full payment of their respective Initial
Allocation Amounts, no MPI Adjustment shall be made to any Non-
Defaulting Bank's Allocation Payment, and each Non-Defaulting Bank's
Initial Allocation Amount shall be its Allocation Payment. In the event
any Non-Defaulting Bank is an MPI Bank, or would become an MPI Bank as
a result of making full payment of its Initial Allocation Amount, an
MPI Adjustment shall be made to each Non-Defaulting Bank's Initial
Allocation Amount pursuant to Section 2.02(b)(iv) hereof. Any Bank that
has terminated its System status shall be deemed to be an MPI Bank for
purposes of calculating the MPI Adjustment, and any such Bank's
Allocation Payment shall be zero.
(iv) If there is one (or more) MPI Bank, the Funding Corporation
shall determine the MPI Adjustment for each Non-Defaulting Bank, as
follows (the adjustment as calculated under this subsection, the ``MPI
Adjustment''):
(1) Such adjustment shall be made by first reducing the amount of
the Defaulted Maturing Obligation Allocation Amount allocated to each
MPI Bank such that each MPI Bank's allocation does not cause each such
Bank to exceed its Maximum Permitted Indebtedness.
(2) An increase equal to the amount of the reduction described in
Section 2.02(b)(iv)(1) above shall be made by increasing the amount of
the Defaulted Maturing Obligation Allocation Amount allocated to each
remaining Non-Defaulting Bank that is not an MPI Bank before such
adjustment, in proportion to the ratio of such remaining Non-Defaulting
Bank's Average Insured Debt Obligations compared to the sum of the
Average Insured Debt Obligations for each Non-Defaulting Bank that is
not an MPI Bank before such adjustment.
(3) In the event the adjustment in Section 2.02(b)(iv)(2) shall
cause any Non-Defaulting Bank to become an MPI Bank, the steps in
Section 2.02(b)(iv)(1) and Section 2.02(b)(iv)(2) shall be repeated
with respect to the amount of the Defaulted Maturing Obligation
Allocation Amount allocated to such MPI Bank in excess of its Maximum
Permitted Indebtedness, until the entire Defaulted Maturing Obligation
[[Page 51066]]
Allocation Amount has been allocated among the Non-Defaulting Banks or
cannot be so allocated because each Non-Defaulting Bank would exceed
its Maximum Permitted Indebtedness.
(4) In the event the entire Defaulted Maturing Obligation
Allocation Amount cannot be so allocated under the Debt-Based Method,
the Funding Corporation shall promptly notify the FCA and Insurance
Corporation that a default on a payment of principal or interest on
Insured Debt Obligations is imminent. Notwithstanding any such
notification, this Agreement shall continue in effect unless terminated
pursuant to Section 7.01.
(c) Payment Conditions. Each of the following conditions must be
satisfied before a Non-Defaulting Bank shall be obligated to make an
Allocation Payment (collectively, the ``Payment Conditions'') pursuant
to this Agreement:
(i) Default Certification. A Default Certificate has been delivered
to each of the Banks and the Funding Corporation.
(ii) Funding Certification. A Funding Certificate has been
delivered to each of the Banks and the Funding Corporation.
(iii) MPI Certification. An MPI Certificate has been delivered to
each of the Banks and the Funding Corporation.
(iv) No Call. The FCA shall not have invoked its statutory call
authority under Section 4.4 of the Act with respect to the Defaulted
Maturing Obligation.
Section 2.03 Satisfaction of Allocation Payment
(a) With respect to a Defaulted Maturing Obligation Allocation
Amount, each Non-Defaulting Bank hereby authorizes the Funding
Corporation, for the purpose of making such Non-Defaulting Bank's
Allocation Payment, to issue Systemwide Debt on such Non-Defaulting
Bank's behalf on the Payment Date in the amount of the Non-Defaulting
Bank's Allocation Payment, increased by the amount of any dealer
concessions and other applicable fees required to issue Systemwide Debt
(``Allocation Payment Debt''); provided that (i) the Payment Conditions
have been satisfied as of the date and time of such issuance, (ii) the
Funding Notice has been given as provided herein, and (iii) such Non-
Defaulting Bank that is eligible to make an election under Section
2.03(c) hereof has not made such an election with respect to funding
such Allocation Payment with cash, or, if such election has been made
such Bank making the election has not fully paid its Allocation Payment
in cash by the agreed upon date and time under Section 2.03(c). Each
Non-Defaulting Bank hereby irrevocably authorizes the Funding
Corporation to apply the net proceeds of any issuance pursuant to the
preceding sentence to the payment of such Non-Defaulting Bank's
Allocation Payment, provided that the Payment Conditions have been
satisfied at the Payment Date. Each Non-Defaulting Bank for which
Allocation Payment Debt will be issued may propose to the Funding
Corporation preferred terms and conditions for such Allocation Payment
Debt. After consultation on an individual basis with each Non-
Defaulting Bank for which Allocation Payment Debt will be issued, the
Funding Corporation, acting for each Non-Defaulting Bank, shall issue
Allocation Payment Debt on behalf of each Non-Defaulting Bank in
accordance with Section 4.9 of the Act, taking into consideration the
preferred terms and conditions proposed by such Non-Defaulting Bank.
Each Non-Defaulting Bank liable for an Allocation Payment under this
Agreement shall fund such Allocation Payment, or any portion thereof,
with cash upon its election under Section 2.03(c) or if required to do
so under Section 2.03(d) hereof.
(b) The Funding Corporation shall give each Bank, the FCA and the
Insurance Corporation notice no later than the Payment Date of its
intent to exercise its authority under Section 2.03(a) hereto to issue
Allocation Payment Debt (each a ``Funding Notice''), which Funding
Notice shall also state the applicable Allocation Payment for each Non-
Defaulting Bank, and the Payment Date.
(c) A Non-Defaulting Bank may elect to make its Allocation Payment
in cash in lieu of issuing Allocation Payment Debt. Each Non-Defaulting
Bank must deliver notice of its election under this Section 2.03(c) to
the Funding Corporation within time limits prescribed by the Funding
Corporation, which time limits shall be set in accordance with the
Funding Corporation's deadlines for issuing Insured Debt Obligations.
Each Non-Defaulting Bank funding its Allocation Payment with cash and
the Funding Corporation shall use reasonable and timely efforts to
agree on a date and time by which such Non-Defaulting Bank must deliver
the cash to the Funding Corporation. If the Funding Corporation does
not receive the cash by the agreed upon date and time, the Funding
Corporation shall issue Allocation Payment Debt in accordance with
Section 2.03(a) hereto.
(d) Notwithstanding the provisions of Section 2.03(c) hereto, any
Non-Defaulting Bank that is in Category II or Category III under the
Market Access Agreement shall be required to submit a cash payment to
the Funding Corporation, in an amount equal to the lesser of (i) such
Bank's Allocation Payment, or (ii) such Bank's Allocation Payment
Investments. Any such Non-Defaulting Bank that is in Category II or
Category III under the Market Access Agreement shall submit such a cash
payment to the Funding Corporation to be held in escrow on the later of
(i) the date such Bank is notified of its Allocation Payment or (ii)
two (2) Business Days prior to the Payment Date. A Non-Defaulting Bank
that is obligated to make a cash payment under this Section 2.03(d) in
an amount less than its full Allocation Payment shall nevertheless be
liable for the full amount of its Allocation Payment. The Funding
Corporation shall be permitted to issue Allocation Payment Debt on
behalf of any Bank making a cash payment pursuant to this Section
2.03(d) in an amount not to exceed the excess of such Bank's Allocation
Payment (increased by the amount of any dealer concessions and other
applicable fees required to issue Allocation Payment Debt) over such
Bank's Allocation Payment Investments.
(e) The proceeds of Allocation Payment Debt or any cash delivered
pursuant to Section 2.03(c) or Section 2.03(d) shall be used by the
Funding Corporation solely to satisfy the Defaulted Maturing Obligation
Allocation Amount with respect to which it was issued and for no other
purpose, except that any portion of Allocation Payment Debt issued to
cover dealer concessions and other applicable fees required to issue
Allocation Payment Debt may be used for that limited purpose.
(f) The inability or failure of the Funding Corporation to issue
Allocation Payment Debt shall not relieve the Non-Defaulting Banks from
the obligation to make their respective Allocation Payments.
(g) Any Bank that makes an Allocation Payment to a holder of a
Defaulted Maturing Obligation, directly or indirectly pursuant to this
Agreement, shall have a priority of claim in accordance with Sec.
627.2750 and Sec. 627.2755 of FCA's regulations.
Section 2.04 Market Access Agreement
The limitations under the Market Access Agreement on the amount of
Insured Debt Obligations that a Bank is permitted to issue shall not be
applicable to Allocation Payment Debt.
[[Page 51067]]
Section 2.05 Provision of Information
Each Bank shall provide to the Funding Corporation pertinent
materials and information requested by the Funding Corporation with
respect to the calculations to be performed by the Funding Corporation
under this Article II, as the Funding Corporation shall reasonably
request in writing from the Banks. All Banks shall summarize,
aggregate, or analyze data, as well as provide raw data, in such manner
as the Funding Corporation may reasonably request. Such information
shall be promptly updated or supplemented as the Funding Corporation so
requests in writing of the Banks by such deadlines as the Funding
Corporation may reasonably specify. Each Bank attests that any
information delivered to the Funding Corporation pursuant to this
Section 2.05 is true to the best of such Bank's knowledge. The Funding
Corporation shall be entitled to rely on information provided to it
pursuant to this Section without independently verifying the
information.
Article III. Representations and Warranties and Certain Covenants
Section 3.01 Representations and Warranties of Each Bank to Every Other
Bank and the Funding Corporation
Each Bank represents, warrants and acknowledges to each of the
other parties to this Agreement that:
(a) Organization. Such Bank is an instrumentality, duly organized
and validly existing under the laws of the United States. Such Bank has
all requisite power and authority (corporate and other) to own, lease
and operate the properties used in its business as now being conducted.
(b) Corporate Authority. Such Bank has the corporate power and
authority to enter into contracts and to exercise such other incidental
powers as are necessary to carry out its powers, duties and functions
in accordance with its charter and the Act. The execution, delivery and
performance of this Agreement and the consummation of the transactions
contemplated hereby have been duly authorized and approved by such
Bank's board of directors and no other corporate proceedings on the
part of such Bank are necessary to authorize or approve this Agreement
and the transactions contemplated hereby.
(c) Agreement Binding and Enforceable. This Agreement has been duly
executed and delivered by such Bank and is a valid and binding
agreement of such Bank, enforceable against it in accordance with its
terms, except that (i) such enforcement may be subject to those
provisions of the Act and the regulations thereunder relating to the
liquidation, receivership or conservatorship of institutions of the
System and to other bankruptcy, insolvency, reorganization, moratorium
or other similar laws now or hereafter in effect relating to creditors'
rights, and (ii) the remedy of specific performance and injunctive and
other forms of equitable relief may be subject to equitable defenses
and to the discretion of the court before which any proceeding thereof
may be brought.
(d) Compliance with Law. The execution, delivery and performance by
such Bank of this Agreement and the performance by it of the
transactions contemplated hereby do not and will not violate or
conflict with any other applicable law or regulation, or any order,
judgment, injunction or decree of any court or governmental authority
of competent jurisdiction which is binding on such Bank or by which the
assets of such Bank are bound.
(e) Compliance with Obligations. The execution, delivery and
performance by such Bank of this Agreement and the performance by it of
the transactions contemplated hereby do not and will not violate,
conflict with or constitute breach of or a default under its charter or
bylaws or any other agreement or instrument to which it is a party (or
which is binding on its assets), such that any such violation,
conflict, breach or default, after giving effect to the transactions
contemplated hereby, is reasonably likely to have a material adverse
effect on such Bank's observance or performance of this Agreement or
the performance of the transactions contemplated hereby.
(f) Claims, Suits. There is no governmental or non-governmental
action, suit, or proceeding (or claim of which it has been notified)
which is pending or, to the best knowledge of such Bank, threatened
against or affecting such Bank that would (i) materially and adversely
affect the ability of such Bank to conduct its business as presently
conducted, or (ii) prevent, hinder or delay the consummation of the
transactions contemplated hereby.
(g) Funding Resolution. Such Bank has amended its current standing
funding resolution adopted by its board of directors to authorize
issuances of Allocation Payment Debt without any limitation on the
amount of Allocation Payment Debt that could be issued to the fullest
extent permitted by applicable law.
Section 3.02 Representations and Warranties of the Funding Corporation
to each Bank
The Funding Corporation hereby represents, warrants and
acknowledges to each of the other parties to this Agreement that:
(a) Organization. The Funding Corporation is an instrumentality,
duly organized and validly existing under the laws of the United
States. The Funding Corporation has all requisite power and authority
(corporate and other) to own, lease and operate the properties used in
its business as now being conducted.
(b) Corporate Authority. The Funding Corporation has the corporate
power and authority to enter into contracts and to exercise such other
incidental powers as are necessary to carry out its powers, duties and
functions in accordance with its charter and the Act. The execution,
delivery and performance of this Agreement and the consummation of the
transactions contemplated hereby have been duly authorized and approved
by the board of directors of the Funding Corporation and no other
corporate proceedings on the part of the Funding Corporation are
necessary to authorize or approve this Agreement and the transactions
contemplated hereby.
(c) Binding Agreement. This Agreement has been duly executed and
delivered by the Funding Corporation and is valid, binding and
enforceable against the Funding Corporation in accordance with its
terms, except that (i) such enforcement may be subject to those
provisions of the Act and the regulations thereunder relating to the
liquidation, receivership or conservatorship of institutions of the
System and to other bankruptcy, insolvency, reorganization, moratorium
or other similar laws now or hereafter in effect relating to creditors'
rights, and (ii) the remedy of specific performance and injunctive and
other forms of equitable relief may be subject to equitable defenses
and to the discretion of the court before which any proceeding thereof
may be brought.
(d) Compliance with Law. The execution, delivery and performance by
the Funding Corporation of this Agreement and the performance by it of
the transactions contemplated hereby do not and will not violate or
conflict with any applicable law or regulation, or any order, judgment,
injunction or decree of any court or governmental authority of
competent jurisdiction which is binding on the Funding Corporation or
by which the assets of the Funding Corporation are bound.
[[Page 51068]]
(e) Compliance with Obligations. The execution, delivery and
performance by the Funding Corporation of this Agreement and the
performance by the Funding Corporation of the transactions contemplated
hereby do not and will not violate, conflict with or constitute breach
of or a default under the charter or bylaws of the Funding Corporation
or any other agreement or instrument to which the Funding Corporation
is a party (or which is binding on its assets), such that any said
violation, conflict, breach or default, after giving effect to the
transactions contemplated hereby, is reasonably likely to have a
material adverse effect on the Funding Corporation's observance or
performance of this Agreement or the performance by the Funding
Corporation of the transactions contemplated hereby.
(f) Claims, Suits. There is no governmental or non-governmental
action, suit, or proceeding (or claim of which the Funding Corporation
has been notified) which is pending or, to the best knowledge of the
Funding Corporation, threatened against or affecting the Funding
Corporation that would (i) materially and adversely affect the ability
of the Funding Corporation to conduct its business as presently
conducted, or (ii) prevent, hinder or delay the consummation of the
transactions contemplated hereby.
Section 3.03 Covenants of the Parties
(a) Further Assurances. Subject to the terms and conditions of this
Agreement, each party hereto shall use all reasonable efforts to take,
or cause to be taken, all action, and to do, or cause to be done, all
things necessary, proper or advisable under applicable laws and
regulations or otherwise to fulfill its obligations under this
Agreement.
(b) Organizational Documents. Each party hereto shall not (i)
amend, modify or otherwise supplement its charter or bylaws, or (ii)
amend, modify, supplement, terminate or withdraw its standing funding
resolution referenced in Section 3.01(g) hereof, if such action under
(i) or (ii) could, directly or indirectly, impede the issuance of
Allocation Payment Debt. If any of the actions specified in (i) or (ii)
of this Section 3.03(b) are taken by the Board of Directors of any
party, and such action could, directly or indirectly, impede the
issuance of Allocation Payment Debt, such action shall be deemed a
breach of this Agreement.
(c) No Challenge to this Agreement. Without implying that judicial
action, arbitration, or other similar proceeding may be brought on any
other matter, each Bank and the Funding Corporation specifically agree
not to bring any judicial action, arbitration, or other similar
proceeding to challenge the validity or enforceability of this
Agreement.
Article IV. Effect of This Agreement
Section 4.01 Effect of This Agreement
(a) Notwithstanding any other provision of this agreement and FCA's
approval of the agreement, including through Federal Register notice
and comment, it is expressly agreed by the parties hereto that neither
this agreement, nor the execution or approval of this agreement, nor
the insurance corporation's expression of no objection shall be
interpreted to restrict or qualify, in any way, the authority of the
FCA or the Insurance Corporation to exercise any of their respective
powers, rights or duties, including the FCA's ability to invoke the
joint and several liability provisions set forth in Section 4.4 of the
Act, or to appoint a receiver or conservator.
(b) Notwithstanding any other provision of this agreement, it is
expressly agreed that this agreement, FCA's approval thereof, and the
Insurance Corporation's expression of no objection do not provide any
grounds for challenging FCA or Insurance Corporation actions with
respect to the creation of or the conduct of receiverships or
conservatorships. Without limiting the preceding statement, each bank
specifically and expressly agrees and acknowledges that it cannot, and
agrees that it shall not, attempt to challenge FCA's appointment of a
receiver or conservator for itself or any other System institution or
FCA's or the Insurance Corporation's actions in the conduct of any
receivership or conservatorship on the basis of this agreement or FCA's
approval thereof or the Insurance Corporation's expression of no
objection. The banks jointly and severally agree that they shall
indemnify and hold harmless FCA and the Insurance Corporation against
all costs, expenses and damages, including without limitation,
attorneys' fees and litigation costs, resulting from any such challenge
by any party.
Article V. Arbitration
Section 5.01 Agreement to Arbitrate
All disputes between or among the parties hereto relating to this
Agreement or arising hereunder shall be submitted to final and binding
arbitration pursuant to the U.S. Arbitration Act. Arbitrations shall be
conducted under the Commercial Arbitration Rules of the American
Arbitration Association before a single arbitrator. Neither the fact of
the existence of an arbitration or any part of the records of such
arbitration shall be divulged without the consent of the parties
hereto, provided, however, that any party bringing an arbitration
action against another party to this Agreement shall provide notice to
the FCA and the Insurance Corporation that arbitration among the
parties is pending.
Section 5.02 Procedure; Location
The location of any arbitration proceedings under this Agreement
shall be New York City, but such location may be changed by mutual
agreement of the parties to such arbitration. An arbitrator shall be
selected within fourteen (14) days of the initiation of arbitration by
any party hereto, and the arbitrator shall render a decision within
thirty (30) days of his or her selection, or as otherwise agreed to by
the parties hereto. It is expressly agreed by the parties hereto that
the arbitrator may order specific performance.
Section 5.03 Consistent Treatment of Each Bank
This Agreement will be interpreted and applied in arbitration in a
fashion that ensures that each Bank is treated consistently.
Section 5.04 Arbitration Principles
If any party to this Agreement has taken any action or failed to
take any action that results in the payment, in part or in full, of a
Defaulted Maturing Obligation Allocation Amount by means of a statutory
call by the FCA rather than pursuant to this Agreement, and such
statutory call would not have been made but for the action or inaction
of such a party to this Agreement, such action or inaction shall be
deemed a breach of this Agreement. The arbitrator in any subsequent
arbitration arising out of such action or inaction shall take the
following principles into account in fashioning any remedies awarded in
arbitration:
(a) The parties intend that the arbitrator give economic effect to
this Agreement in the event a Defaulted Maturing Obligation Allocation
Amount is funded, in part or in full, through a statutory call that
would not have been made but for the action or inaction of a party to
this Agreement.
(b) In the event of such action or inaction, the parties intend
that each party to this Agreement will be put in the same economic
position as each party would have occupied had the Defaulted Maturing
Obligation Allocation Amount been allocated under this Agreement.
(c) Notwithstanding any failure of the payment condition specified
in Section
[[Page 51069]]
2.02(c)(iv) to be met, the arbitrator shall be permitted to afford
relief to the parties as indicated pursuant to the principles set forth
in this Section 5.04.
(d) The arbitration principles set forth in this section shall not
be construed to limit or affect the availability of any other relief
that an arbitrator may choose to award in any arbitration pursuant to
this Article V, including but not limited to an award of interest or
consequential damages arising out of the actions or inactions of a
party to this Agreement.
(e) The principles set forth in this Section 5.04 shall not apply
to any Bank for which this Agreement has been repudiated by the
conservator or receiver on behalf of such a Bank in conservatorship or
receivership.
Article VI. Indemnification
Section 6.01 Definitions
As used in this Article VI:
(a) ``Damages'' shall mean any and all losses, costs, liabilities,
damages and expenses, including, without limitation, court costs and
reasonable fees and expenses of attorneys expended in investigation,
settlement and defense (at the trial and appellate levels and
otherwise), which are incurred by an Indemnified Party as a result of
or in connection with any third-party claim alleging liability for
actions taken pursuant to or in connection with this Agreement,
excepting any of the aforesaid to the extent such amounts are incurred
by an Indemnified Party as a result of breaching any of such
Indemnified Party's duties or obligations under this Agreement or for
the violation of any provision under Article III herein. Except to the
extent otherwise provided in this Article VI, Damages shall be deemed
to have been incurred by reason of a final settlement or the dismissal
with prejudice of any such claim, or the issuance of a final
nonappealable order by a court of competent jurisdiction which
ultimately disposes of such a claim, whether favorable or unfavorable.
(b) ``Indemnified Party'' shall mean any Bank or the Funding
Corporation, or any of the past, present or future directors, officers,
stockholders, employees or agents of the foregoing.
(c) ``Indemnity Payment'' shall have the meaning set forth in
Section 6.07(a) hereof.
Section 6.02 Indemnity
To the extent consistent with applicable law, the Banks (including
any Bank seeking indemnification under the Agreement) shall indemnify
and hold harmless each Indemnified Party against and in respect of
Damages to the extent provided in Section 6.07, provided, however, that
an Indemnified Party shall not be entitled to indemnification under
this Article VI in connection with conduct of such Indemnified Party
constituting gross negligence, willful misconduct, intentional tort or
criminal act, or in connection with civil money penalties imposed by
FCA; and provided further that no past, present or future directors,
officers, stockholders, employees or agents of a Bank shall be entitled
to indemnification under this Article VI in respect of Damages for
which they could not be indemnified by such Bank pursuant to its
bylaws, charter, or other agreements or instruments in effect as of the
date of the act for which indemnification is being sought. Damages for
which an Indemnified Party is entitled to indemnification shall be
allocated to and payable by each Bank in proportion to such Bank's
Average Insured Debt Obligations divided by the aggregate Average
Insured Debt Obligations for all Banks, all of which shall be
calculated in accordance with generally accepted accounting principles
(``GAAP''), on the basis of the 12-month period ending on the last day
of the last month prior to the date of the Assertion (as defined
below).
Section 6.03 Advancement of Expenses
The Banks shall advance to an Indemnified Party, as and when
incurred by the Indemnified Party, all reasonable expenses, court costs
and attorneys' fees incurred by such Indemnified Party in defending any
proceeding involving a claim against such Indemnified Party based upon
or alleging any matter that constitutes, or if sustained would
constitute a matter in respect of which indemnification is provided for
in Section 6.02, so long as the Indemnified Party provides the Banks
with a written undertaking to repay all amounts so advanced if it is
ultimately determined by a court in a final nonappealable order or by
agreement of the Banks and the Indemnified Party that the Indemnified
Party is not entitled to be indemnified under Section 6.02. Expenses
advanced to an Indemnified Party pursuant to this Section 6.03 shall be
allocated to and payable by each Bank in proportion to such Bank's
Average Insured Debt Obligations divided by the aggregate Average
Insured Debt Obligations for all Banks, all of which shall be
calculated in accordance with generally accepted accounting principles
(``GAAP''), on the basis of the 12-month period ending on the last day
of the last month prior to the date of the Assertion (as defined
below).
Section 6.04 Assertion of Claim
(a) Promptly after the receipt by an Indemnified Party of notice of
the assertion of any claim or the commencement of any action against
him, her or it in respect of which indemnification may be sought
against the Banks hereunder (each, an ``Assertion''), such Indemnified
Party shall provide written notice of such Assertion to the Banks. The
failure to so notify the Banks shall not relieve the Banks of liability
they may have to such Indemnified Party hereunder, except to the extent
that failure to give such notice results in material prejudice to the
Banks.
(b) The Banks shall be entitled to participate in, and to the
extent the Banks elect in writing on thirty (30) days' notice, to
assume, the defense of an Assertion, at their own expense, with counsel
chosen by them and satisfactory to the Indemnified Party.
Notwithstanding that the Banks shall have elected by such written
notice to assume the defense of any Assertion, such Indemnified Party
shall have the right to participate in the investigation and defense
thereof, with separate counsel chosen by such Indemnified Party, but in
such event the fees and expenses of such separate counsel shall be paid
by such Indemnified Party and shall not be subject to indemnification
by the Banks unless, in the absence of reasonable objections to the
selection of such counsel by the Banks, (i) the Banks shall have agreed
to pay such fees and expenses, (ii) the Banks shall have failed to
assume the defense of such Assertion, or (iii) in the reasonable
judgment of such Indemnified Party, based upon advice of his, her or
its counsel, a conflict of interest may exist between the Banks and
such Indemnified Party with respect to such Assertion, in which case,
if such Indemnified Party timely notifies the Banks that such
Indemnified Party elects to employ separate counsel at the Banks'
expense, the Banks shall not have the right to assume the defense of
such Assertion on behalf of such Indemnified Party. Notwithstanding
anything to the contrary in this Article VI, neither the Banks, nor the
Indemnified Party shall settle or compromise any action or consent to
the entering of any judgment (a) without the prior written consent of
the other, which consent shall not be unreasonably withheld, and (b)
without obtaining, as an unconditional term of such settlement,
compromise or consent, the delivery by the claimant or
[[Page 51070]]
plaintiff to such Indemnified Party of a duly executed written release
of such Indemnified Party from all liability in respect of such
Assertion, which release shall be satisfactory in form and substance to
counsel to such Indemnified Party.
Section 6.05 Remedies; Survival
The indemnification, rights and remedies provided to an Indemnified
Party under this Article VI shall be (i) in addition to and not in
substitution for any other rights and remedies to which any of the
Indemnified Parties may be entitled, under any other agreement with any
other person, or otherwise at law or in equity, and (ii) except as
otherwise specified in Section 6.07, provided prior to and without
regard to any other indemnification available to any Indemnified Party.
This Article VI shall survive the termination of this Agreement.
Section 6.06 No Rights in Third Parties
This Agreement shall not confer upon any person other than the
Indemnified Party any rights or remedies of any nature or kind
whatsoever under or by reason of the indemnification provided for in
this Article VI.
Section 6.07 Indemnification Obligations Net of Insurance Proceeds and
Other Amounts
(a) The parties intend that any Damages subject to indemnification
or reimbursement pursuant to this Article VI will be net of applicable
insurance recoveries. Accordingly, the amount which any Bank is
required to pay to any Indemnified Party will be reduced by any
insurance proceeds theretofore actually recovered by or on behalf of
the Indemnified Party for the related Damages. If an Indemnified Party
receives a payment required by this Agreement from a Bank (an
``Indemnity Payment'') in respect of any Damages and subsequently
receives insurance proceeds applicable to those Damages, then the
Indemnified Party will pay to such Bank an amount equal to the excess
of the Indemnity Payment received over the amount of the Indemnity
Payment that would have been due if the insurance proceeds had been
received, realized or recovered before the Indemnity Payment was made.
(b) An insurer that would otherwise be obligated to pay any claim
shall not be relieved of the responsibility with respect thereto or,
solely by virtue of the indemnification provisions hereof, have any
subrogation rights with respect thereto, it being expressly understood
and agreed that no insurer or any other third party shall be entitled
to a ``windfall'' (i.e., a benefit it would not be entitled to receive
in the absence of the indemnification provisions) by virtue of the
indemnification provisions of this Article VI.
Section 6.08 Prevention of Duplication of Claims for Indemnification of
Damages
(a) In the event a Bank or the Funding Corporation, Pursuant to its
bylaws or an agreement (not including this Agreement) advances expenses
to any of its past, present or future directors, officers,
stockholders, employees or agents, or indemnifies them for Damages,
such Bank or the Funding Corporation shall be entitled to be
indemnified by each Bank to the same extent such past, present or
future directors, officers, stockholders, employees or agents that
received such advancement of expenses or indemnification of Damages
would have been entitled to advancement or indemnification by such Bank
under this Agreement.
(b) To the extent any past, present or future directors, officers,
stockholders, employees or agents of a Bank or the Funding Corporation
has been indemnified by such Bank or the Funding Corporation pursuant
to their respective bylaws or an agreement (not including this
Agreement), such past, present or future directors, officers,
stockholders, employees or agents shall not be entitled to
Indemnification under this Agreement.
Article VII. Term and Termination
Section 7.01 Term
This Agreement shall take effect on the Effective Date and shall
terminate upon the first to occur of the following (the ``Termination
Date''):
(a) Upon the date specified in a notice to the Funding Corporation
that the Voting Banks, as defined herein, elect to terminate the
Agreement. Such notice shall be executed by each Bank (including a Bank
in conservatorship or receivership provided that the conservator or
receiver has not repudiated this Agreement on behalf of such Bank) that
is not currently in default on any Maturing Obligation or identified as
a Bank that will be unable to pay a Maturing Obligation for which it is
primarily liable in a Default Certificate, is a member of the System
subject to the obligation to make Allocation Payments, is fully
performing on that obligation, and if the certifications listed in
Section 2.02(c) hereof have been delivered to the Banks, the Bank would
be able to fully fund its next anticipated Allocation Payment under
this Agreement as determined in the Funding Corporation's reasonable
discretion (each, a ``Voting Bank,'' and collectively, the ``Voting
Banks''). The executed notice shall provide that the Voting Banks, by
unanimous vote, have agreed to terminate this Agreement as of a
specified date, which notice shall be delivered to the Funding
Corporation not less than two (2) Business Days before the date
specified in the notice for the termination of this Agreement;
(b) Upon the effective date of action by the FCA that withdraws
FCA's approval of this Agreement;
(c) Upon the effective date of action by the FCA that amends the
FCA's priority of claims regulations, including FCA regulations
Sec. Sec. 627.2750 and 627.2755, with respect to any payments made to
holders of Insured Debt Obligations;
(d) Upon the effective date of any action by the Insurance
Corporation that withdraws the Insurance Corporation's expression of no
objection to this Agreement;
(e) Any part or provision of this Agreement has been deemed void or
unenforceable by a court of competent jurisdiction pursuant to a final,
nonappealable order; or
(f) Upon the effective date of action by the FCA that amends FCA
regulation Sec. 611.1270, with respect to making provision for joint
and several liability payments subsequent to termination of System
status.
Notwithstanding the foregoing, if the Banks and the Funding
Corporation unanimously agree to continue this Agreement within five
(5) Business Days of an event set forth in (b), (c), (d), (e), or (f)
of this Section, this Agreement shall not terminate. After such
unanimous agreement, the Banks and the Funding Corporation shall work
in good faith to execute an amendment to this Agreement to accomplish
its essential purposes notwithstanding the occurrence of the events
specified in such subsections.
Section 7.02 Effect of Termination
In an event of termination under Section 7.01 hereto, (i) the
transactions contemplated by this Agreement shall be terminated and
abandoned without further action by the parties and no party shall have
any further obligations hereunder to any other party except for those
obligations that specifically survive termination, and (ii) with
respect to any Insured Debt Obligation maturing after the Termination
Date, the methodology for joint and several liability allocation shall
revert to the Collateral Method. The termination of
[[Page 51071]]
this Agreement shall not in any way affect (a) any Allocation Payments
made before the Termination Date, (b) the Banks' subrogation rights
with respect to any such Allocation Payments made before the
Termination Date, (c) the indemnification rights and obligations under
Articles IV or VI, or (d) rights to arbitration under Article V for
breaches of this Agreement that occur prior to termination.
Section 7.03 Severability
In the event the conservator or receiver, on behalf of a Bank in
conservatorship or receivership, repudiates this Agreement, this
Agreement shall remain effective as to the other Banks, except that
strictly for purposes of Section 2.02(b) hereto, the Bank for which
this Agreement has been repudiated shall be deemed to be an MPI Bank
for purposes of calculating the MPI Adjustment, and any such Bank's
Allocation Payment shall be zero pursuant to this Agreement. The
repudiation of this Agreement shall not affect the rights of any party
to pursue a claim for damages or other relief against a Bank in
conservatorship or receivership that has repudiated this Agreement, if
such claim either (i) arose under this Agreement prior to the
appointment of a conservator or receiver, or (ii) did not arise under
this Agreement.
Article VIII. Confidentiality
Section 8.01 Confidentiality
The parties may disclose this Agreement and any amendments to it
and may also disclose any actions taken pursuant to this Agreement in
order to effect funding of a Defaulted Maturing Obligation Allocation
Amount. All other information relating to this Agreement shall be kept
confidential and shall be used solely for purpose of this Agreement,
except that, to the extent permitted by applicable law, such
information may be disclosed (a) by any party in order to comply with
legal or regulatory obligations, (b) under the Farm Credit System
Disclosure Program, (c) by a party, as such party deems appropriate for
purposes of such party's disclosures to borrowers, shareholders,
creditors, investors, or rating agencies, or (d) by a party for
purposes of disclosure to any other transacting party (subject to such
a transacting party's agreement to keep the information confidential,
to the extent such party can reasonably obtain such agreement) of
material information relating to any party. Notwithstanding the
preceding sentence, the parties shall make every reasonable effort, to
the extent consistent with legal requirements, securities disclosure
obligations and other business necessities, to preserve the
confidentiality of information provided to any party and designated as
``Proprietary and Confidential.'' Any expert or consultant retained in
connection with this Agreement shall execute a written undertaking to
preserve the confidentiality of any information received in connection
with this Agreement. Notwithstanding the foregoing, nothing in this
Agreement shall prevent the parties from disclosing information to FCA
or the Insurance Corporation.
Article IX. Miscellaneous
Section 9.01 Relation to Market Access Agreement
This Agreement and the Market Access Agreement are separate
agreements, and invalidation or termination of one shall not affect the
other.
Section 9.02 Relation to the Act
It is expressly agreed by the parties hereto that this Agreement
shall be interpreted to be coextensive with the Act and the regulations
and the obligations thereunder.
Section 9.03 Statutory Collateral Requirement
Nothing in this Agreement shall be construed to permit a Bank to
participate in issuances of Insured Debt Obligations or other
obligations if it does not satisfy the collateral requirements of
Section 4.3(c) of the Act.
Section 9.04 Termination of System Status
Nothing in this Agreement shall be construed to preclude a Bank
from terminating its status as a System institution pursuant to Section
7.10 of the Act, or from withdrawing, as from that time forward, the
funding resolution it has adopted pursuant to Section 4.4(b) of the Act
with respect to Insured Debt Obligations. Notwithstanding the
foregoing, termination of System status does not terminate obligations
under this Agreement. A Bank that terminates its status as a System
institution shall remain liable for any obligations imposed pursuant to
FCA regulation Sec. 611.1270.
Section 9.05 Restrictions Concerning Subsequent Litigation
It is expressly agreed by the Banks that (a) characterization or
categorization of Banks, (b) information furnished to the Banks, (c)
discussions or decisions of the Banks or the Funding Corporation under
this Agreement, (d) FCA's approval of this Agreement, and (e) the
Insurance Corporation's expression of no objection, shall not be used
in any subsequent litigation challenging FCA's or the Insurance
Corporation's action or inaction.
Section 9.06 Headings
The section headings contained in this Agreement are for reference
and convenience only, do not constitute a part of this Agreement, and
shall not in any way limit or affect the meaning or interpretation of
any of the terms or provisions of this Agreement.
Section 9.07 Notices
All notices, requests, demands and other communications which are
required or may be given pursuant to the terms of this Agreement (each
a ``Notice'') by parties to the Agreement, including notice of a change
of address, shall be (i) in writing, and (ii) sent by facsimile or
other electronic transmission (and promptly confirmed by registered or
certified mail or courier service, as provided herein); the
confirmation of a facsimile or other electronic transmission may be
sent by a reputable independent courier service appropriate to the
circumstances, or sent by registered or certified mail, postage
prepaid, return receipt requested, addressed to a party at the
applicable address set forth herein (or at such other address as a
party may designate upon ten (10) days' prior written notice to the
Banks, the Funding Corporation, FCA, and the Insurance Corporation).
Any such communication shall be deemed to have been validly delivered
and received effective on the earlier of (a) the date of transmission
when sent by facsimile or other electronic transmission, or (b) the
date of delivery when delivered by a reputable courier service
maintaining records of receipt or by the applicable national postal
service. Any such communication shall be addressed as follows:
To AgFirst Farm Credit Bank:
AgFirst Farm Credit Bank
Farm Credit Bank Building
1401 Hampton Street
Columbia, South Carolina 29201
Attention: President and Chief Executive Officer
Fax: 803-254-1776
To AgriBank, FCB:
AgriBank, FCB
375 Jackson Street
St. Paul, Minnesota 55101
Attention: President and Chief Executive Officer
[[Page 51072]]
Fax: 651-282-8511
To CoBank, ACB:
CoBank, ACB
5500 South Quebec Street
Greenwood Village, Colorado 80111
Attention: President and Chief Executive Officer
Fax: 303-740-4002
To the Farm Credit Bank of Texas:
Farm Credit Bank of Texas
4801 Plaza on the Lake Drive
Austin, Texas 78746
Attention: President and Chief Executive Officer
Fax: 512-465-0775
To U.S. AgBank, FCB:
U.S. AgBank, FCB
245 North Waco
Wichita, KS 67202
Attention: President and Chief Executive Officer
Fax: 316-266-5126
To Federal Farm Credit Banks Funding Corporation:
Federal Farm Credit Banks Funding Corporation
10 Exchange Place
Suite 1401
Jersey City, NJ 07302
Attention: President and Chief Executive Officer
Fax: 201-200-8109
To the Farm Credit System Insurance Corporation:
Farm Credit System Insurance Corporation
1501 Farm Credit Drive
McLean, VA 22102
Attention: Chairman
Fax: 703-790-9088
To the Farm Credit Administration:
Farm Credit Administration
1501 Farm Credit Drive
McLean, VA 22102-5090
Attention: Chairman
Fax: 703-734-5784
or to such other address, facsimile number or individual as any Bank or
the Funding Corporation, or any successor thereto, shall have
designated.
Section 9.08 Cumulative Rights and No Waiver
Each and every right granted to a party hereunder, or allowed it by
law or equity, shall be cumulative and may be exercised from time to
time. No failure on the part of any party to exercise any right shall
operate as a waiver thereof, nor shall any single or partial exercise
by any party of any right preclude any other exercise thereof or the
exercise of any other right.
Section 9.09 Transfers and Assignments; Binding Agreement
This Agreement shall not be transferable or assignable by any party
without the prior written consent of the other parties hereto, and any
attempted transfer or assignment shall be void and of no effect, except
no prior written consent of the other parties hereto shall be required
for the merger or consolidation of one or more Banks. Except as
otherwise expressly provided herein, the rights and obligations of the
parties hereto shall inure to the benefit of and be binding upon the
successors, transferees and assigns of each of them, including entities
resulting from the merger or consolidation of one or more Banks.
Section 9.10 Governing Law
This Agreement shall be governed by and construed in accordance
with the Federal laws and regulations of the United States of America,
and, to the extent of the absence of Federal law, in accordance with
the laws of the State of New York, excluding any conflicts of law
provisions that would cause the law of any jurisdiction other than New
York to be applied; provided, however, that in the event of any
conflict between the U.S. Arbitration Act and applicable Federal or New
York law, the U.S. Arbitration Act shall control.
Section 9.11 Counterparts
This Agreement may be executed in two or more counterparts, each of
which shall be deemed to be an original, but all of which together
shall constitute a single document.
Section 9.12 Amendments
This Agreement may be modified, supplemented or amended only by an
agreement in writing executed by all of the parties hereto. In
addition, the FCA must approve such modification, supplement or
amendment and the Insurance Corporation must deliver an expression of
no objection to such modification, supplement or amendment.
Section 9.13 Entire Agreement
This Agreement constitutes the entire agreement of the parties
hereto with respect to its subject matter hereof, and supersedes any
and all prior negotiations, correspondence, understandings and
agreements among the parties or between two of the parties, oral or
written, respecting the subject matter hereof.
Section 9.14 Time Is of The Essence
Time is of the essence in interpreting and performing this
Agreement.
Dated: August 12, 2010.
Roland E. Smith,
Secretary, Farm Credit Administration Board.
[FR Doc. 2010-20372 Filed 8-17-10; 8:45 am]
BILLING CODE 6705-01-P