Fannie Mae 2009 Annual Report Download - page 363

preferred stock purchase agreement also provides that, if we have a deficiency amount as of the date of
completion of the liquidation of our assets, we may request funds from Treasury in an amount up to the
deficiency amount (subject to the maximum amount that may be funded under the agreement). Any amounts
that we draw under the senior preferred stock purchase agreement will be added to the liquidation preference
of the senior preferred stock. No additional shares of senior preferred stock are required to be issued under the
senior preferred stock purchase agreement.
Covenants
The senior preferred stock purchase agreement, as amended, 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
Fannie Mae equity securities (other than with respect to the senior preferred stock or warrant);
• Redeem, purchase, retire or otherwise acquire any Fannie Mae equity securities (other than the senior
preferred stock or warrant);
• Sell or issue any Fannie Mae 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 senior preferred stock 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 receivership); (b) of assets and properties in the ordinary
course of business, consistent with past practice; (c) in connection with a liquidation of Fannie Mae by a
receiver; (d) of cash or cash equivalents for cash or cash equivalents; or (e) to the extent necessary to
comply with the covenant described below relating to the reduction of our mortgage assets beginning in
2010;
• Incur indebtedness that would result in our aggregate indebtedness exceeding $1,080 billion through
December 31, 2010. Beginning December 31, 2010 and on December 31 of each year thereafter, our debt
cap that will apply through December 31 of the following year will equal 120% of the amount of
mortgage assets we are allowed to hold on December 31 of the immediately preceding calendar year;
• 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 senior preferred stock
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 senior preferred stock purchase agreement.
The agreement also provides that we may not own mortgage assets in excess of $900 billion as of
December 31, 2009. We are also required to reduce our mortgage assets, beginning on December 31, 2010 and
each year thereafter, to 90% of the amount of the mortgage assets we were allowed to hold as of December 31
of the immediately preceding calendar year, until the amount of our mortgage assets reaches $250 billion.
Under the agreement, the effect of changes in generally accepted accounting principles that occur subsequent
to the date of the agreement and that require us to recognize additional mortgage assets on our consolidated
balance sheets will not be considered for purposes of evaluating our compliance with the limitation on the
amount of mortgage assets we may own. In addition, the definition of indebtedness in the agreement was
F-105
FANNIE MAE
(In conservatorship)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)