Freddie Mac 2011 Annual Report Download - page 230

• 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 also apply to our subsidiaries.
The Purchase Agreement also provides that we may not own mortgage assets with a UPB in excess of:
(a) $900 billion on December 31, 2009; or (b) on December 31 of each year thereafter, 90% 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 any change in the accounting guidance related to transfers
of financial assets and consolidation of VIEs or any similar accounting guidance. Therefore, these limitations were not
affected by our implementation of the changes to the accounting guidance for transfers of financial assets and
consolidation of VIEs, under which we consolidated our single-family PCs and certain 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.
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: (a) the completion of our liquidation and fulfillment of Treasury’s obligations under its funding
commitment at that time; (b) the payment in full of, or reasonable provision for, all of our liabilities (whether or not
contingent, including mortgage guarantee obligations); and (c) the funding by Treasury of the maximum amount of the
commitment 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.
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