Freddie Mac 2008 Annual Report Download - page 230

or acquire, or make a liquidation payment with respect to, any common stock or other securities ranking junior to the senior
preferred stock unless: (1) 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 (2) 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 (1) accrued and unpaid dividends previously added to the liquidation preference and
not previously paid down; and (2) 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
Pursuant to the Purchase Agreement described above, on September 7, 2008, we, through FHFA, in its capacity as
Conservator, issued a warrant to purchase common stock to Treasury. 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.
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;
• Incur indebtedness that would result in our aggregate indebtedness exceeding 110% of our aggregate indebtedness as
of June 30, 2008 (which Treasury has committed to increase correspondingly to the increase in the limit on our
mortgage assets discussed below), calculated based primarily on the carrying value of our indebtedness as reflected on
our GAAP consolidated balance sheets;
• Issue any subordinated debt;
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