Freddie Mac 2010 Annual Report Download - page 31

preference of the senior preferred stock. As described below, we may make payments to reduce the liquidation preference of
the senior preferred stock in limited circumstances.
Treasury, as the holder of the senior preferred stock, is entitled to receive, when, as and if declared by our Board of
Directors, cumulative quarterly cash dividends at the annual rate of 10% per year on the then-current liquidation preference
of the senior preferred stock. Through December 31, 2010, we have paid cash dividends of $10.0 billion at the direction of
the Conservator. If at any time we fail to pay cash dividends in a timely manner, then immediately following such failure and
for all dividend periods thereafter until the dividend period following the date on which we have paid in cash full cumulative
dividends (including any unpaid dividends added to the liquidation preference), the dividend rate will be 12% per year.
The senior preferred stock is senior to our common stock and all other outstanding series of our preferred stock, as well
as any capital stock we issue in the future, as to both dividends and rights upon liquidation. The senior preferred stock
provides that we may not, at any time, declare or pay dividends on, make distributions with respect to, or redeem, purchase
or acquire, or make a liquidation payment with respect to, any common stock or other securities ranking junior to the senior
preferred stock unless: (a) full cumulative dividends on the outstanding senior preferred stock (including any unpaid
dividends added to the liquidation preference) have been declared and paid in cash; and (b) all amounts required to be paid
with the net proceeds of any issuance of capital stock for cash (as described in the following paragraph) have been paid in
cash. Shares of the senior preferred stock are not convertible. Shares of the senior preferred stock have no general or special
voting rights, other than those set forth in the certificate of designation for the senior preferred stock or otherwise required
by law. The consent of holders of at least two-thirds of all outstanding shares of senior preferred stock is generally required
to amend the terms of the senior preferred stock or to create any class or series of stock that ranks prior to or on parity with
the senior preferred stock.
We are not permitted to redeem the senior preferred stock prior to the termination of Treasury’s funding commitment set
forth in the Purchase Agreement; however, we are permitted to pay down the liquidation preference of the outstanding shares
of senior preferred stock to the extent of: (a) accrued and unpaid dividends previously added to the liquidation preference
and not previously paid down; and (b) quarterly commitment fees previously added to the liquidation preference and not
previously paid down. In addition, if we issue any shares of capital stock for cash while the senior preferred stock is
outstanding, the net proceeds of the issuance must be used to pay down the liquidation preference of the senior preferred
stock; however, the liquidation preference of each share of senior preferred stock may not be paid down below $1,000 per
share prior to the termination of Treasury’s funding commitment. Following the termination of Treasury’s funding
commitment, we may pay down the liquidation preference of all outstanding shares of senior preferred stock at any time, in
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
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 24, 2011, Treasury has not exercised the warrant.
Covenants Under Treasury Agreements
The Purchase Agreement and warrant contain covenants that significantly restrict our business activities. For example,
as a result of these covenants, 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);
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