Freddie Mac 2008 Annual Report Download - page 27

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.
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
not diligently pursuing remedies in respect of that failure, the holders of these debt securities or Freddie Mac mortgage
guarantee obligations may file a claim in the United States Court of Federal Claims for relief requiring Treasury to fund to
us the lesser of: (1) the amount necessary to cure the payment defaults on our debt and Freddie Mac mortgage guarantee
obligations; and (2) the lesser of: (a) the deficiency amount; and (b) the maximum amount of the commitment less the
aggregate amount of funding previously provided under the commitment. Any payment that Treasury makes under those
circumstances will be treated for all purposes as a draw under the Purchase Agreement that will increase the liquidation
preference of the senior preferred stock.
Issuance of Senior Preferred Stock
Pursuant to the Purchase Agreement described above, we issued one million shares of senior preferred stock to Treasury
on September 8, 2008. The senior preferred stock 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.
Shares of the senior preferred stock have a par value of $1, and have a stated value and initial liquidation preference
equal to $1,000 per share. The liquidation preference of the senior preferred stock is subject to adjustment. Dividends that
are not paid in cash for any dividend period will accrue and be added to the liquidation preference of the senior preferred
stock. In addition, any amounts Treasury pays to us pursuant to its funding commitment under the Purchase Agreement and
any quarterly commitment fees that are not paid in cash to Treasury nor waived by Treasury will be added to the liquidation
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. The initial dividend was paid in cash on December 31, 2008 at the direction of the Conservator,
for the period from but not including September 8, 2008 through and including December 31, 2008, in the aggregate amount
of $172 million. 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 ranks ahead of 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: (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.
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