Freddie Mac 2012 Annual Report Download - page 41

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 quarterly cash dividends, when, as and if
declared by our Board of Directors. Through December 31, 2012, the senior preferred stock accrued quarterly cumulative
dividends at a rate of 10% per year. However, under the August 2012 amendment to the Purchase Agreement, the fixed
dividend rate was replaced with a net worth sweep dividend beginning in the first quarter of 2013. For more information
regarding our net worth sweep dividend, see “NOTE 2: CONSERVATORSHIP AND RELATED MATTERS.”
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.
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 28, 2013, 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.
36 Freddie Mac