Freddie Mac 2008 Annual Report Download - page 231

• 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 Purchase Agreement also provides that we may not own mortgage assets in excess of: (a) $850 billion on
December 31, 2009 (which Treasury has committed to increase to $900 billion) based on the carrying value of such assets as
reflected on our GAAP consolidated balance sheets; or (b) on December 31 of each year thereafter, 90% of the aggregate
amount of our mortgage assets 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.
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 (as defined
by SEC rules) without the consent of the Director of FHFA, in consultation with the Secretary of the Treasury.
We are required under the Purchase Agreement to provide annual reports on Form 10-K, quarterly reports on
Form 10-Q and current reports on Form 8-K to Treasury in accordance with the time periods specified in the SEC’s rules. In
addition, our designated representative (which, during the conservatorship, is the Conservator) is required to provide quarterly
certifications to Treasury concerning compliance with the covenants contained in the Purchase Agreement and the accuracy
of the representations made pursuant to the agreement. We also are obligated to provide prompt notice to Treasury of the
occurrence of specified events, such as the filing of a lawsuit that would reasonably be expected to have a material adverse
effect.
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) 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;
(c) we may not take any action that will result in an increase in the par value of our common stock; (d) 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.
Termination Provisions
The Purchase Agreement provides that the Treasury’s funding commitment will terminate under any of 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 guarantee obligations); and (3) the funding by Treasury of the maximum amount committed under the Purchase
Agreement. In addition, Treasury may terminate its funding commitment and declare the Purchase Agreement null and void
if a court vacates, modifies, amends, conditions, enjoins, stays or otherwise affects the appointment of the Conservator or
otherwise curtails the Conservator’s powers. Treasury may not terminate its funding commitment under the Purchase
Agreement solely by reason of our being in conservatorship, receivership or other insolvency proceeding, or due to our
financial condition or any adverse change in our financial condition.
Waivers and Amendments
The Purchase Agreement provides that most provisions of the agreement may be waived or amended by mutual written
agreement of the parties; however, no waiver or amendment of the agreement is permitted that would decrease Treasury’s
aggregate funding commitment or add conditions to Treasury’s funding commitment if the waiver or amendment would
adversely affect in any material respect the holders of our debt securities or Freddie Mac mortgage guarantee obligations.
Third-party Enforcement Rights
In the event of our default on payments with respect to our debt securities or Freddie Mac mortgage guarantee
obligations, if Treasury fails to perform its obligations under its funding commitment and if we and/or the Conservator are
not diligently pursuing remedies in respect of that failure, the holders of these debt securities or Freddie Mac mortgage
guarantee obligations may file a claim in the United States Court of Federal Claims for relief requiring Treasury to fund to
us the lesser of: (1) the amount necessary to cure the payment defaults on our debt and Freddie Mac mortgage guarantee
obligations; and (2) the lesser of: (a) the deficiency amount; and (b) the maximum amount of the commitment less the
228 Freddie Mac