Freddie Mac 2012 Annual Report Download - page 234

The covenants 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) 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.
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
229 Freddie Mac