Freddie Mac 2014 Annual Report Download - page 166

161 Freddie Mac
Purchase Agreement Covenants
The Purchase Agreement provides that, until the senior preferred stock is repaid or redeemed in full, we may not, without
the prior written consent of Treasury:
• declare or pay any dividend (preferred or otherwise) or make any other distribution with respect to any Freddie Mac
equity securities (other than with respect to the senior preferred stock or warrant);
• redeem, purchase, retire or otherwise acquire any Freddie Mac equity securities (other than the senior preferred stock
or warrant);
• sell or issue any Freddie Mac equity securities (other than the senior preferred stock, the warrant and the common
stock issuable upon exercise of the warrant and other than as required by the terms of any binding agreement in effect
on the date of the Purchase Agreement);
• terminate the conservatorship (other than in connection with a receivership);
• sell, transfer, lease or otherwise dispose of any assets, other than dispositions for fair market value: (a) to a limited life
regulated entity (in the context of a receivership); (b) of assets and properties in the ordinary course of business,
consistent with past practice; (c) of assets and properties having fair market value individually or in aggregate less
than $250 million in one transaction or a series of related transactions; (d) in connection with our liquidation by a
receiver; (e) of cash or cash equivalents for cash or cash equivalents; or (f) to the extent necessary to comply with the
covenant described below relating to the reduction of our mortgage-related investments portfolio;
• issue any subordinated debt;
• enter into a corporate reorganization, recapitalization, merger, acquisition or similar event; or
• engage in transactions with affiliates unless the transaction is: (a) pursuant to the Purchase Agreement, the senior
preferred stock or the warrant; (b) upon arm’s length terms; or (c) a transaction undertaken in the ordinary course or
pursuant to a contractual obligation or customary employment arrangement in existence on the date of the Purchase
Agreement.
The covenants generally also apply to our subsidiaries.
The Purchase Agreement also requires us to reduce the amount of mortgage assets we own. The Purchase Agreement, as
revised in the August 2012 amendment, provides that we could not own mortgage assets with UPB in excess of $650 billion on
December 31, 2012 and on December 31 of each year thereafter, may not own mortgage assets with UPB in excess of 85% of
the aggregate amount of mortgage assets we are permitted to own as of December 31 of the immediately preceding calendar
year, provided that we are not required to own less than $250 billion in mortgage assets. Under the Purchase Agreement, we
also may not incur indebtedness that would result in the par value of our aggregate indebtedness exceeding 120% of the amount
of mortgage assets we are permitted to own on December 31 of the immediately preceding calendar year. The mortgage asset
and indebtedness limitations are determined without giving effect to the changes to the accounting guidance for transfers of
financial assets and consolidation of VIEs, under which we consolidated our single-family PC trusts and certain of our Other
Guarantee Transactions in our financial statements as of January 1, 2010.
In addition, the Purchase Agreement provides that we may not enter into any new compensation arrangements or increase
amounts or benefits payable under existing compensation arrangements of any named executive officer or other executive
officer (as such terms are defined by SEC rules) without the consent of the Director of FHFA, in consultation with the Secretary
of the Treasury.
The Purchase Agreement also provides that, on an annual basis, we are required to deliver a risk management plan to
Treasury setting out our strategy for reducing our enterprise-wide risk profile and the actions we will take to reduce the
financial and operational risk associated with each of our reportable business segments.
Warrant Covenants
The warrant we issued to Treasury includes, among others, the following covenants: (a) our SEC filings under the
Exchange Act will comply in all material respects as to form with the Exchange Act and the rules and regulations thereunder;
(b) without the prior written consent of Treasury, we may not permit any of our significant subsidiaries to issue capital stock or
equity securities, or securities convertible into or exchangeable for such securities, or any stock appreciation rights or other
profit participation rights to any person other than Freddie Mac or its wholly-owned subsidiaries; (c) we may not take any
action that will result in an increase in the par value of our common stock; (d) unless waived or consented to in writing by
Treasury, we may not take any action to avoid the observance or performance of the terms of the warrant and we must take all
actions necessary or appropriate to protect Treasury’s rights against impairment or dilution; and (e) we must provide Treasury
with prior notice of specified actions relating to our common stock, such as setting a record date for a dividend payment,
granting subscription or purchase rights, authorizing a recapitalization, reclassification, merger or similar transaction,
commencing a liquidation of the company or any other action that would trigger an adjustment in the exercise price or number
or amount of shares subject to the warrant.
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