Fannie Mae 2011 Annual Report Download - page 340

FANNIE MAE
(In conservatorship)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
• 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 $972 billion through
December 31, 2011. For every year thereafter, our debt cap will equal 120% of the amount of mortgage
assets we are allowed to own 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 $729 billion as of December 31,
2011. On each December 31 thereafter, we are required to reduce our mortgage assets to 90% of the maximum
allowable amount that we were permitted to own 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 occurred subsequent
to the date of the agreement and that require us to recognize additional mortgage assets in our consolidated
balance sheets were not 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 revised to
clarify that it also does not give effect to any change that may be made in respect of the FASB guidance on
accounting for transfers of financial assets or any similar accounting guidance.
In addition, the agreement provides that we may not enter into any new compensation arrangements or increase
amounts or benefits payable under existing compensation arrangements with our named executive officers (as
defined by SEC rules) without the consent of the Director of FHFA, in consultation with the Secretary of the
Treasury. As of December 31, 2011, we were in compliance with the senior preferred stock purchase agreement
covenants.
Termination Provisions
The senior preferred stock purchase agreement provides that Treasury’s funding commitment will terminate
under any the following circumstances: (1) the completion of our liquidation and fulfillment of Treasury’s
obligations under its funding commitment at that time, (2) the payment in full of, or reasonable provision for, all
of our liabilities (whether or not contingent, including mortgage guaranty obligations), or (3) the funding by
Treasury of the maximum amount under the agreement. In addition, Treasury may terminate its funding
commitment and declare the senior preferred stock purchase agreement null and void if a court vacates, modifies,
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