Freddie Mac 2009 Annual Report Download - page 27

whole or in part. If, after termination of Treasury’s funding commitment, we pay down the liquidation preference of each
outstanding share of senior preferred stock in full, the shares will be deemed to have been redeemed as of the payment date.
Issuance of Common Stock Warrant
Pursuant to the Purchase Agreement described above, on September 7, 2008, we, through FHFA, in its capacity as
Conservator, issued a warrant to Treasury to purchase common stock. The warrant was issued to Treasury in partial
consideration of Treasury’s commitment to provide funds to us under the terms set forth in the Purchase Agreement.
The warrant gives Treasury the right to purchase shares of our common stock equal to 79.9% of the total number of
shares of our common stock outstanding on a fully diluted basis on the date of exercise. The warrant may be exercised in
whole or in part at any time on or before September 7, 2028, by delivery to us of: (a) a notice of exercise; (b) payment of
the exercise price of $0.00001 per share; and (c) the warrant. If the market price of one share of our common stock is greater
than the exercise price, then, instead of paying the exercise price, Treasury may elect to receive shares equal to the value of
the warrant (or portion thereof being canceled) pursuant to the formula specified in the warrant. Upon exercise of the
warrant, Treasury may assign the right to receive the shares of common stock issuable upon exercise to any other person.
As of February 23, 2010, Treasury has not exercised the warrant.
Lending Agreement
On September 18, 2008, we entered into the Lending Agreement with Treasury, pursuant to which Treasury established
a secured lending credit facility that was available to us as a liquidity back-stop. The Lending Agreement expired on
December 31, 2009. Treasury’s temporary authority to enter into such an agreement also expired on December 31, 2009. We
did not make any borrowings under the Lending Agreement.
Covenants Under Treasury Agreements
The Purchase Agreement and warrant contain covenants that significantly restrict our business activities. These
covenants, which are summarized below, include a prohibition on our issuance of additional equity securities (except in
limited instances), a prohibition on the payment of dividends or other distributions on our equity securities (other than on the
senior preferred stock or warrant), a prohibition on our issuance of subordinated debt and a limitation on the total amount of
debt securities we may issue. As a result, we can no longer obtain additional equity financing (other than pursuant to the
Purchase Agreement) and we are limited in the amount and type of debt financing we may obtain.
Purchase Agreement Covenants
The Purchase Agreement 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 Freddie Mac
equity securities (other than with respect to the senior preferred stock or warrant);
• redeem, purchase, retire or otherwise acquire any Freddie Mac equity securities (other than the senior preferred stock
or warrant);
• sell or issue any Freddie Mac 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 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 a receivership); (b) of assets and properties in the ordinary course of business,
consistent with past practice; (c) in connection with our liquidation 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-related investments portfolio beginning in 2010;
• 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.
These covenants also apply to our subsidiaries.
The Purchase Agreement also provides that we may not own mortgage assets with an unpaid principal balance 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
24 Freddie Mac