UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Date of Report (Date of earliest event reported):
September 6, 2008
FEDERAL HOME LOAN MORTGAGE CORPORATION
(Exact name of registrant as specified in its charter)
Freddie Mac
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Federally chartered
corporation
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000-53330
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52-0904874
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(State or other jurisdiction of
incorporation)
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(Commission
File Number)
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(IRS Employer
Identification No.)
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8200 Jones Branch Drive
McLean, Virginia
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22102
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(Address of principal executive offices)
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(Zip Code)
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Registrant’s telephone number, including area code:
(703) 903-2000
Not applicable
(Former name or former address, if changed since last
report)
Check the appropriate box below if the
Form 8-K
filing is intended to simultaneously satisfy the filing
obligation of the registrant under any of the following
provisions
(see
General Instruction A.2. below):
o
Written
communications pursuant to Rule 425 under the Securities
Act (17 CFR 230.425)
o
Soliciting
material pursuant to
Rule 14a-12
under the Exchange Act
(17 CFR 240.14a-12)
o
Pre-commencement
communications pursuant to
Rule 14d-2(b)
under the Exchange Act
(17 CFR 240.14d-2(b))
o
Pre-commencement
communications pursuant to
Rule 13e-4(c)
under the Exchange Act
(17 CFR 240.13e-4(c))
Item 1.01. Entry
into a Material Definitive Agreement
On September 6, 2008, the Board of Directors (the
“Board”) of Freddie Mac (formally known as the Federal
Home Loan Mortgage Corporation) adopted a resolution consenting
to the appointment of the Federal Housing Finance Agency
(“FHFA”) as conservator of Freddie Mac. On
September 6, 2008, the Director of FHFA (the
“Director”) appointed FHFA as conservator of Freddie
Mac in accordance with the Federal Housing Finance Reform Act of
2008 (the “Reform Act”) and the Federal Housing
Enterprises Financial Safety and Soundness Act of 1992. In a
statement made on September 7, 2008, the Director stated
his conclusion that Freddie Mac could not continue to operate
safely and soundly and fulfill its mission without significant
action and summarized the FHFA’s concerns in this regard. A
copy of the Director’s statement is attached as
Exhibit 99.1 to this report. On the same day, the Secretary
of the U.S. Department of the Treasury
(“Treasury”) made a statement concerning the
appointment of the FHFA as conservator of Freddie Mac. A copy of
the Secretary’s statement is attached as Exhibit 99.2
to this report.
On September 7, 2008, in connection with the appointment of
FHFA as conservator, Freddie Mac and Treasury entered into a
Senior Preferred Stock Purchase Agreement (“Purchase
Agreement”). A copy of the Purchase Agreement is attached
as Exhibit 10.1 to this report. The principal terms of the
Purchase Agreement are as follows:
As consideration for Treasury’s entry into the Purchase
Agreement, Freddie Mac has issued $1 billion aggregate
liquidation preference of senior preferred stock to Treasury,
together with a warrant for the purchase of common stock
representing 79.9% of Freddie Mac’s common stock on a fully
diluted basis, determined as of the exercise date. The warrant
is exercisable at any time and from time to time through
September 7, 2028 at a price of $0.00001 per share.
The senior preferred stock will pay quarterly cumulative
dividends at a rate of 10% per year, or 12% in any quarter in
which dividends are not paid in cash, until all accrued
dividends have been paid in cash. If FHFA determines that
Freddie Mac’s liabilities have exceeded its assets
(excluding Treasury’s commitment and any unfunded amounts
thereof under the Purchase Agreement) under generally accepted
accounting principles, Treasury will contribute funds to Freddie
Mac in an amount equal to the difference between such
liabilities and assets. The maximum aggregate amount funded
under the Purchase Agreement is $100 billion. An amount
equal to each such contribution will be added to the aggregate
liquidation preference of the senior preferred stock. In
addition, Freddie Mac will be required to pay a quarterly
commitment fee to Treasury based on the market value of
Treasury’s commitment, in an amount to be determined,
beginning March 31, 2010. At the election of Freddie Mac,
it may pay the quarterly commitment fee in cash or by adding the
amount of such fee to the aggregate liquidation preference of
the senior preferred stock held by Treasury. The senior
preferred stock will be senior to all other existing or future
issues of preferred stock, common stock or other capital stock
of Freddie Mac.
The Purchase Agreement provides that, without the prior consent
of Treasury, Freddie Mac shall not:
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Make any payment to purchase or redeem its capital stock, or pay
any dividends, including preferred dividends (other than
dividends on the senior preferred stock);
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Issue capital stock of any kind (other than the senior preferred
stock, the warrant or any shares of common stock issued pursuant
to the warrant);
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Terminate the conservatorship other than in connection with a
receivership;
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Sell, transfer, lease or otherwise dispose of any of its assets
outside the ordinary course of business except under limited
circumstances, including as necessary to meet its obligation
under the Purchase Agreement to reduce Freddie Mac’s
portfolio of retained mortgages and mortgage-backed securities;
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Increase Freddie Mac’s total indebtedness to more than 110%
of its indebtedness as of June 30, 2008 or become liable
for any subordinated indebtedness;
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Acquire or consolidate with, or merge into, another
entity; or
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Engage in any transaction with an affiliate unless the terms of
such transaction are no less favorable to Freddie Mac than in an
arm’s-length transaction with a non-affiliate or such
transaction is undertaken in the ordinary course or pursuant to
an existing contractual obligation or customary employment
arrangement.
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Under the Purchase Agreement, Freddie Mac shall not, without the
consent of the Director in consultation with the Secretary of
the Treasury, enter into any new compensation arrangements with,
or increase amounts or benefits payable under existing
compensation arrangements of, any “named executive
officers” of Freddie Mac.
In addition, Freddie Mac’s retained mortgage and
mortgage-backed securities portfolio as of December 31,
2009 may not exceed $850 billion, and must decline by
10% per year thereafter until it reaches $250 billion.
Item 1.03. Bankruptcy
or Receivership
See Item 1.01 above for a description of the appointment of
FHFA as conservator of Freddie Mac.
Item 3.01. Notice
of Delisting or Failure to Satisfy a Continued Listing Rule or
Standard; Transfer of Listing
Since September 7, 2008, we have been in discussions with
the New York Stock Exchange (NYSE) concerning the effect of
conservatorship on our ongoing compliance with the NYSE’s
corporate governance listing standards. At this time, we have
not been notified by the NYSE that we are not in compliance with
these listing standards. We continue to be in discussions with
the NYSE.
Item 3.02. Unregistered
Sales of Equity Securities
In connection with the Purchase Agreement, Treasury acquired
$1 billion in senior preferred stock of Freddie Mac as of
September 8, 2008 as consideration for entering into the
Purchase Agreement. See Item 1.01 above. The terms of the
senior preferred stock are set forth in the Certificate of
Creation, Designation, Powers, Preferences, Rights, Privileges,
Qualifications, Limitations, Restrictions, Terms and Conditions
of Variable Liquidation Preference Senior Preferred Stock, a
copy of which is attached as Exhibit 4.2 to this report.
Pursuant to the Purchase Agreement, Freddie Mac issued to
Treasury on September 7, 2008 a warrant for the purchase of
common stock of Freddie Mac representing 79.9% of the common
stock of Freddie Mac on a fully diluted basis at a price of
$0.00001 per share. See Item 1.01 above.
The senior preferred stock and the warrant were issued directly
to Treasury by Freddie Mac in consideration of the commitment
set forth in the Purchase Agreement, and for no additional
consideration. The senior preferred stock and the warrant were
issued without the participation
of an underwriter or placement agent. A copy of the warrant is
attached to this report as Exhibit 10.2.
Under its Congressional charter, securities issued by Freddie
Mac are “exempted securities” for purposes of the
Securities Act of 1933. Accordingly, no registration statement
for the issuance of the senior preferred stock or the warrant
has been filed with the SEC.
Item 3.03. Material
Modification to Rights of Security Holders
Under the terms of the Purchase Agreement, the senior preferred
stock ranks senior to all other existing and future issues of
preferred stock, common stock or other capital stock of Freddie
Mac.
On September 7, 2008, the Director of FHFA, acting as
conservator for Freddie Mac, adopted a resolution eliminating
the par value of Freddie Mac’s common stock and approving
any amendment to the Seventh Amended and Restated Certificate of
Designation, Powers, Preferences, Rights, Privileges,
Qualifications, Limitations, Restrictions, Terms and Conditions
of Voting Common Stock of Freddie Mac (the “Common Stock
Certificate”) necessary for such elimination. The
resolution also increased the number of shares of Freddie Mac
common stock authorized for issuance to 4,000,000,000 and
approved any amendment to the Common Stock Certificate necessary
for such increase. A copy of the amended Common Stock
Certificate is attached as Exhibit 4.1 to this report.
As conservator, FHFA has succeeded to all rights and powers of
Freddie Mac’s common and preferred stockholders. The
Purchase Agreement provides that, without the prior consent of
Treasury, Freddie Mac shall not make any payment to purchase or
redeem its capital stock, or pay any dividends, including
preferred dividends (other than dividends on the senior
preferred stock). The holders of Freddie Mac’s existing
common stock and preferred stock (other than the senior
preferred stock) will retain all their rights in the financial
worth of those instruments, as such worth is determined by the
market.
Item 5.01. Changes
in Control of Registrant
On September 6, 2008 the Director of FHFA appointed FHFA as
conservator of Freddie Mac in accordance with the Reform Act and
the Federal Housing Enterprises Financial Safety and Soundness
Act of 1992. As conservator, FHFA is in control of Freddie Mac.
Specifically, the Reform Act provides that FHFA, as conservator,
has
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(i)
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all rights, titles, powers, and privileges of Freddie Mac, and
of any stockholder, officer, or director of Freddie Mac with
respect to Freddie Mac and its assets; and
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(ii)
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title to the books, records, and assets of any other legal
custodian of Freddie Mac.
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As conservator, FHFA is authorized under the Reform Act to,
among other things:
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(i)
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take over the assets of and operate Freddie Mac with all the
powers of the shareholders, the directors, and the officers of
Freddie Mac and conduct all the business of Freddie Mac;
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(ii)
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collect all obligations and money due to Freddie Mac;
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(iii)
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perform all functions of Freddie Mac in the name of Freddie Mac
which are consistent with the FHFA’s appointment as
conservator;
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(iv)
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preserve and conserve the assets and property of Freddie
Mac; and
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(v)
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provide by contract for assistance in fulfilling any function,
activity, action, or duty of FHFA as conservator.
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The exercise by Treasury of its warrant to purchase 79.9% of the
common stock of Freddie Mac would result in Treasury holding a
majority of Freddie Mac’s common stock.
Item 5.02. Departure
of Directors or Certain Officers; Election of Directors;
Appointment of Certain Officers; Compensatory Arrangements of
Certain Officers
On September 7, 2008, the Director of FHFA, acting as
conservator for Freddie Mac, appointed David M. Moffett as Chief
Executive Officer of Freddie Mac, effective immediately.
Mr. Moffett replaces Richard F. Syron as Chief Executive
Officer.
Mr. Moffett, age 56, was a Senior Advisor at The
Carlyle Group since August 2007 until his resignation on
September 7, 2008. From February 2001 until February 2007,
Mr. Moffett was Vice Chairman and Chief Financial Officer
of U.S. Bancorp. Information with respect to the terms of
Mr. Moffett’s employment is not yet determined or
available.
Item 8.01. Other
Events
Treasury
GSE Credit Facility
Pursuant to its authority under the Reform Act, Treasury has
established the Government Sponsored Enterprise Credit Facility
(“GSECF”). The GSECF is a lending facility to ensure
credit availability to Freddie Mac, Fannie Mae, and the Federal
Home Loan Banks that will provide secured funding on an as
needed basis under terms and conditions established by the
Secretary of the Treasury to protect taxpayers. The facility
will offer liquidity if needed until December 31, 2009.
Any funding to Freddie Mac under the GSECF will be provided
directly by Treasury in exchange for eligible collateral
consisting of guaranteed mortgage-backed securities issued by
Freddie Mac, with appropriate collateral margins as determined
by Treasury.
Loans under the GSECF will be for short-term durations and would
in general be expected to be for less than one month but no
shorter than one week. The term of a loan may not be extended,
but a maturing loan may be replaced with a new loan under the
same borrowing procedures as the initial loan. The rate on a
loan request ordinarily will be based on the daily LIBOR fix for
a similar term of the loan plus 50 basis points (LIBOR
+50 bp). The rate is set at the discretion of the Secretary
of the Treasury with the objective of protecting the taxpayer,
and is subject to change.
Treasury
MBS Purchase Program
Pursuant to its authority under the Reform Act, Treasury
announced a program under which Treasury will purchase
Government Sponsored Enterprise (“GSE”)
mortgage-backed securities (“MBS”) in the open market.
The size and timing of Treasury’s investments in agency MBS
will be subject to the discretion of the Secretary of the
Treasury. The scale of the program will be based on developments
in the capital markets and housing markets. Treasury’s
authority to purchase MBS expires on December 31, 2009.
Treasury will designate independent asset managers as financial
agents to undertake the purchase and management of a portfolio
of GSE MBS on behalf of Treasury. The primary objectives of this
portfolio will be to promote market stability, ensure mortgage
availability, and protect the taxpayer.
Ratings
Various credit ratings assigned to Freddie Mac and its
securities have recently been revised by nationally recognized
statistical rating organizations. The table below reflects our
credit ratings as of September 8, 2008.
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Standard & Poor’s
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Moody’s
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Fitch
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Senior Long-Term Debt
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AAA
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Aaa
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AAA
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Short-Term Debt
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A-1+
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P-1
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F-1+
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Subordinated Debt
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BBB+/Watch Positive
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Aa2
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AA-/Rating Watch Evolving
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Preferred Stock
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C
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Ca
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C/RR6
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Risk-to-the-Government
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NR (Not Rated)
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Not Applicable
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Not Applicable
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Bank Financial Strength
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Not Applicable
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E+
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Not Applicable
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Ratings are not a recommendation to purchase, hold or sell
securities and may be changed, suspended or withdrawn at any
time by the assigning rating agency. Freddie Mac’s current
ratings and the rating outlooks currently assigned to Freddie
Mac are dependent upon economic conditions and other factors
affecting credit risk that are outside the control of Freddie
Mac. Each rating should be evaluated independently of the
others. Detailed explanations of the ratings may be obtained
from the rating agencies. The information above was obtained
from information available on the websites of the rating
agencies.
Impact of
Transactions
The company is evaluating the impact of the transactions
described in this report on its current and future business
model and earnings as well as on its future reported results of
operations and financial condition. Such impact may be material
and could cause actual results to differ materially and
adversely from our previously stated expectations and other
forward-looking statements, including, among other things, with
respect to portfolio growth, capital, deferred tax assets,
credit losses, loan loss reserves, other than temporary
impairment of MBSs and other matters.
Forward-Looking
Statements
This Report includes forward-looking statements, which include
matters relating to the conservatorship and expectations related
to our operating results, financial condition, business, capital
management, credit losses, trends and other matters. You should
not rely unduly on our forward-looking statements. Actual
results might differ significantly from those described in or
implied by such forward-looking statements due to various
factors and uncertainties.
Item 9.01. Financial
Statements and Exhibits
(d) Exhibits
The following exhibits are being filed as part of this Report on
Form 8-K:
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Exhibit Number
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Description of Exhibit
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4.1
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Eighth Amended and Restated Certificate of Designation, Powers,
Preferences, Rights, Privileges, Qualifications, Limitations,
Restrictions, Terms and Conditions of Voting Common Stock (no
par value per share), dated September 10, 2008
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4.2
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Certificate of Creation, Designation, Powers, Preferences,
Rights, Privileges, Qualifications, Limitations, Restrictions,
Terms and Conditions of Variable Liquidation Preference Senior
Preferred Stock (par value $1.00 per share), dated
September 7, 2008
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10.1
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Senior Preferred Stock Purchase Agreement dated as of
September 7, 2008, between the United States Department of
the Treasury and Federal Home Loan Mortgage Corporation, acting
through the Federal Housing Finance Agency as its duly appointed
conservator
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10.2
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Warrant to Purchase Common Stock, dated September 7, 2008
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99.1
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Statement of FHFA Director James B. Lockhart dated
September 7, 2008
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99.2
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Statement by Secretary Henry M. Paulson, Jr. on Treasury
and Federal Housing Finance Agency Action to Protect Financial
Markets and Taxpayers dated September 7, 2008
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned hereunto duly authorized.
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FEDERAL HOME LOAN MORTGAGE CORPORATION
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By:
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/s/ David
M. Moffett
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David M. Moffett
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Chief Executive Officer
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Date:
September 11, 2008
EXHIBIT
INDEX
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Exhibit Number
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Description of Exhibit
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4.1
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Eighth Amended and Restated
Certificate of Designation, Powers, Preferences, Rights,
Privileges, Qualifications, Limitations, Restrictions, Terms and
Conditions of Voting Common Stock (no par value per share),
dated September 10, 2008
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4.2
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Certificate of Creation, Designation,
Powers, Preferences, Rights, Privileges, Qualifications,
Limitations, Restrictions, Terms and Conditions of Variable
Liquidation Preference Senior Preferred Stock (par value $1.00
per share), dated September 7, 2008
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10.1
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Senior Preferred Stock Purchase
Agreement dated as of September 7, 2008, between the United
States Department of the Treasury and Federal Home Loan Mortgage
Corporation, acting through the Federal Housing Finance Agency
as its duly appointed conservator
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10.2
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Warrant to Purchase Common Stock,
dated September 7, 2008
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99.1
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Statement of FHFA Director
James B. Lockhart dated September 7, 2008
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99.2
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Statement by Secretary Henry M.
Paulson, Jr. on Treasury and Federal Housing Finance Agency
Action to Protect Financial Markets and Taxpayers dated
September 7, 2008
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Exhibit 4.1
FREDDIE
MAC
EIGHTH
AMENDED AND RESTATED CERTIFICATE OF DESIGNATION,
POWERS, PREFERENCES, RIGHTS, PRIVILEGES, QUALIFICATIONS,
LIMITATIONS, RESTRICTIONS, TERMS AND CONDITIONS
of
VOTING COMMON STOCK
(No Par Value Per Share)
I, ROBERT E. BOSTROM, Corporate Secretary of the Federal
Home Loan Mortgage Corporation, a government-sponsored
enterprise of the United States of America (“Freddie
Mac”), do hereby certify, pursuant to resolutions adopted
on September 7, 2008 by the Federal Housing Finance Agency
in its capacity as the conservator of Freddie Mac (the
“Conservator”) and the authority delegated to the
authorized officers thereunder (which resolutions are in full
force and effect), that:
— Pursuant to Section 304(a) of the Federal Home
Loan Mortgage Corporation Act, as amended
(12 U.S.C. §1453(a)) (the “Freddie Mac
Act”), the voting common stock of Freddie Mac (the
“Common Stock”) shall be issued to such holders and in
the manner and amount, and subject to any limitations on
concentration of ownership, as Freddie Mac prescribes; and
— The Common Stock has the following designation,
powers, rights, privileges, qualifications, limitations,
restrictions, terms and conditions:
1.
Designation, Par Value and Number of Shares.
The Common Stock of Freddie Mac shall be designated “Common
Stock,” shall have no par value per share, and shall
consist of 4,000,000,000 shares that have been issued or
authorized for issuance (without limitation upon the authority
of the Board of Directors to authorize the issuance of
additional shares from time to time).
2.
Dividends.
(a) The holders of outstanding shares of Common Stock shall
be entitled to receive, ratably, dividends (in cash, stock or
other property), when, as and if declared by the Board of
Directors out of assets legally available therefor. The amount
of dividends, if any, to be paid to holders of the outstanding
Common Stock from time to time and the dates of payment shall be
fixed by the Board of Directors of Freddie Mac (the “Board
of Directors”). Each such dividend shall be paid to the
holders of record of outstanding shares of the Common Stock as
they appear in the books and records of Freddie Mac on such
record date, not to be earlier than 45 days nor later than
10 days preceding the applicable dividend payment date, as
shall be fixed in advance by the Board of Directors.
(b) Holders of shares of Common Stock shall not be entitled
to any dividends, in cash, stock or other property, other than
as herein provided and shall not be entitled to interest, or any
sum in lieu of interest, on or in respect of any dividend
payment.
3. Voting
Rights.
(a) The holders of the outstanding shares of Common Stock
shall have the right to vote (i) for the election of
directors of Freddie Mac to the extent prescribed by applicable
federal law, (ii) with respect to the amendment,
alteration, supplementation or repeal of the provisions of this
Certificate to the extent provided in Section 10(h) hereof,
and (iii) with respect to such other matters, if any, as
may be prescribed by the Board of Directors, in its sole
discretion, or by applicable federal law; provided, however,
that no vote shall be cast or counted in respect of any shares
of Common Stock which, pursuant to procedures implemented in
accordance with Section 7(b) hereof, may not be voted, nor
shall such shares be considered outstanding for the purposes of
calculating the requisite number or percentage of shares whose
vote is required as to any matter.
(b) Holders of the outstanding shares of Common Stock
entitled to vote shall be entitled to one vote per share on all
matters presented to them for their vote. Such vote shall be
cast in person or by proxy at a meeting of such holders or, if
so determined by the Board of Directors, by written consent of
the holders of the requisite number of
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shares of Common Stock. In connection with any meeting of such
holders, the Board of Directors shall fix a record date, neither
earlier than 60 days nor later than 10 days prior to
the date of such meeting, and holders of record of shares of
Common Stock on such record date shall be entitled to notice of
and to vote at any such meeting and any adjournment. The Board
of Directors, or such person or persons as it may designate, may
establish reasonable rules and procedures as to the solicitation
of the vote of holders of Common Stock at any such meeting or
otherwise, as to the conduct of such vote, as to quorum
requirements therefor, as to the requisite number or percentage
of affirmative votes required for the approval of any matter and
as to all related questions. Such rules and procedures shall
conform to the requirements of any national securities exchange
on which the Common Stock may be listed.
4. No
Redemption.
Freddie Mac shall not, and shall not have the right to, redeem
any shares of Common Stock whether for cash, stock or other
property.
5. No
Conversion Rights.
The holders of shares of Common Stock shall not have any right
to convert such shares into or exchange such shares for any
other class or series of stock or obligation of Freddie Mac.
6. No
Preemptive Rights.
No holder of Common Stock shall as such holder have any
preemptive right to purchase or subscribe for any other shares,
rights, options or other securities of any class of Freddie Mac
which at any time may be sold or offered for sale by Freddie Mac.
7.
Ownership Reports.
(a) Except as otherwise provided herein, any beneficial
owner (as such term is defined in Securities and Exchange
Commission (“SEC”)
Rule 13d-3
under the Securities Exchange Act of 1934 (the “Exchange
Act”)) of the outstanding Common Stock shall furnish in
writing to Freddie Mac and to each exchange where the Common
Stock is listed such statements of beneficial ownership of the
Common Stock, and amendments thereto, on such forms, in such
time periods and in such manner as would be required by Exchange
Act Sections 13(d) and 13(g) and by SEC regulations
thereunder if the Common Stock were an equity security of a
class registered under Exchange Act Section 12. Statements
of beneficial ownership furnished to Freddie Mac under this
Section 7 shall be publicly available and may be furnished
to any person upon request and payment of any costs therefor,
and Freddie Mac shall assume no liability for the contents of
such documents. All references to the Exchange Act and any rules
and regulations promulgated thereunder shall mean such statute,
or such rules and regulations, as amended and in effect from
time to time, including any successor statute, rules or
regulations.
(b) The CEO or his designee shall be empowered to take such
steps and implement such procedures as he deems to be necessary
or appropriate to ensure compliance with the reporting
requirements set forth in this Section 7, including the
refusal to permit the voting of any excess shares of Common
Stock beneficially owned by any person failing to comply with
such requirements. For purposes of this Section 7, excess
shares shall include all shares of Common Stock beneficially
owned by a person other than that number of shares the
beneficial ownership of which would not give rise to a reporting
obligation if such number constituted all of the shares
beneficially owned by such person.
(c) Any beneficial owner of shares of Common Stock believed
by Freddie Mac to be in violation of the reporting requirements
imposed by this Section 7 shall be required to respond to
inquiries by the CEO or his designee made for the purpose of
determining the existence, nature or extent of any such
violation. Such inquiry shall be made in writing sent by first
class mail, postage prepaid, shall set forth the reporting
requirements referred to in this Section 7 and shall
require such beneficial owner to provide Freddie Mac with such
information concerning such beneficial ownership as may be
specified in such inquiry. If such inquiry shall not have been
responded to in a manner satisfactory to Freddie Mac within five
business days after the date on which it was mailed, the shares
to which the inquiry pertains shall be considered for all
purposes to be beneficially owned in violation of the reporting
requirements imposed by this Section 7, and the CEO or his
designee shall be authorized to invoke the measures authorized
by paragraph (b) of this Section 7, including the
refusal to permit the voting of such shares.
2
(d) Any resolution or determination of, or decision or
exercise of any discretion or power by, the Board of Directors
or the officers, employees and agents of Freddie Mac hereunder
shall be conclusive and binding on any beneficial owner of
Common Stock affected and all persons concerned and shall not be
open to challenge, whether as to its validity or otherwise, on
any grounds whatsoever, and the Board of Directors, Freddie Mac
and its officers, employees and agents shall not have any
liability whatsoever in respect thereof.
(e) Each certificate representing a share or shares of
Common Stock issued after December 10, 1990 shall bear a
conspicuous legend to the effect that ownership of the Common
Stock is subject to the reporting requirements of this
Section 7.
(f) The Board of Directors shall have the right at any time
to remove, relax or grant exceptions to the reporting
requirements imposed under this Section 7.
8.
Liquidation Rights.
(a) Upon the dissolution, liquidation or winding up of
Freddie Mac, after payment of or provision for the liabilities
of Freddie Mac and the expenses of such dissolution, liquidation
or winding up, and after any payment or distribution shall have
been made on any other class or series of stock of Freddie Mac
ranking prior to the Common Stock upon liquidation, the holders
of the outstanding shares of the Common Stock shall be entitled
to receive out of the assets of Freddie Mac available for
distribution to stockholders, before any payment or distribution
shall be made on any other class or series of stock of Freddie
Mac ranking junior to the Common Stock upon liquidation, the
amount of $0.21 per share, plus a sum equal to all dividends
declared but unpaid on such shares to the date of final
distribution. The holders of the outstanding shares of any class
or series of stock of Freddie Mac ranking prior to, on a parity
with or junior to the Common Stock upon liquidation shall also
receive out of such assets payment of any corresponding
preferential amount to which the holders of such stock may, by
the terms thereof, be entitled. Thereafter, subject to the
foregoing and to the provisions of paragraph (b) of this
Section 8, the balance of any assets of Freddie Mac
available for distribution to stockholders upon such
dissolution, liquidation or winding up shall be distributed to
the holders of outstanding Common Stock in the aggregate.
(b) Notwithstanding the foregoing, upon the dissolution,
liquidation or winding up of Freddie Mac, the holders of shares
of the Common Stock then outstanding shall not be entitled to be
paid any amounts to which such holders are entitled pursuant to
paragraph (a) of this Section 8 unless and until the
holders of any classes or series of stock of Freddie Mac ranking
prior upon liquidation to the Common Stock have been paid all
amounts to which such classes or series of stock are entitled
pursuant to their respective terms.
(c) Neither the sale of all or substantially all the
property or business of Freddie Mac, nor the merger,
consolidation or combination of Freddie Mac into or with any
other corporation or entity, shall be deemed to be a
dissolution, liquidation or winding up for the purpose of this
Section 8.
9.
Additional Classes or Series of Stock.
The Board of Directors shall have the right at any time in the
future to authorize, create and issue, by resolution or
resolutions, one or more additional classes or series of stock
of Freddie Mac, and to determine and fix the distinguishing
characteristics and the relative rights, preferences, privileges
and other terms of the shares thereof. Any such class or series
of stock may rank prior to or on a parity with or junior to the
Common Stock as to dividends or upon liquidation or otherwise.
10.
Miscellaneous.
(a) Any stock of any class or series of Freddie Mac shall
be deemed to rank:
(i) prior to the shares of the Common Stock, either as to
dividends or upon liquidation, if the holder of such class or
series shall be entitled to the receipt of dividends or of
amounts distributable upon dissolution, liquidation or winding
up of Freddie Mac, as the case may be, in preference or priority
to the holders of shares of the Common Stock;
(ii) on a parity with shares of the Common Stock, either as
to dividends or upon liquidation, whether or not the dividend
rates or amounts, dividend payment dates or redemption or
liquidation prices per share, if any,
3
be different from those of the Common Stock, if the holders of
such class or series shall be entitled to the receipt of
dividends or of amounts distributable upon dissolution,
liquidation or winding up of Freddie Mac, as the case may be, in
proportion to their respective dividend rates or amounts or
liquidation prices, without preference or priority, one over the
other, as between the holders of such class or series and the
holders of shares of the Common Stock; and
(iii) junior to shares of the Common Stock, either as to
dividends or upon liquidation, if the holders of shares of the
Common Stock shall be entitled to the receipt of dividends or of
amounts distributable upon dissolution, liquidation or winding
up of Freddie Mac, as the case may be, in preference or priority
to the holders of shares of such class or series.
(b) Freddie Mac and any agent of Freddie Mac may deem and
treat the holder of a share or shares of Common Stock, as shown
in Freddie Mac’s books and records, as the absolute owner
of such share or shares of Common Stock for the purpose of
receiving payment of dividends in respect of such share or
shares of Common Stock and for all other purposes whatsoever,
and neither Freddie Mac nor any agent of Freddie Mac shall be
affected by any notice to the contrary. All payments made to or
upon the order of any such person shall be valid and, to the
extent of the sum or sums so paid, effectual to satisfy and
discharge liabilities for moneys payable by Freddie Mac on or
with respect to any such share or shares of Common Stock.
(c) The shares of the Common Stock, when duly issued, shall
be fully paid and non-assessable. Any shares owned by Freddie
Mac shall retain the status of issued shares, unless and until
Freddie Mac shall retire and cancel the same, but such shares
shall not be regarded as outstanding while so owned.
(d) Except as otherwise provided in Freddie Mac’s
Employee Stock Purchase Plan or any other executive compensation
or employee benefit plan or any direct stock purchase plan
currently in effect or hereafter adopted by Freddie Mac, the
Common Stock shall be issued, and shall be transferable on the
books of Freddie Mac, only in whole shares, it being intended
that, except as provided in said Plan or plans, no fractional
interests in shares of the Common Stock shall be created or
recognized by Freddie Mac.
(e) For the purposes of this Certificate, the term
“Freddie Mac” means the Federal Home Loan Mortgage
Corporation and any successor thereto by operation of law or by
reason of a merger, consolidation or combination.
(f) This Certificate and the respective rights and
obligations of Freddie Mac and the holders of Common Stock with
respect to such Common Stock shall be construed in accordance
with and governed by the laws of the United States, provided
that the law of the Commonwealth of Virginia shall serve as the
federal rule of decision in all instances except where such law
is inconsistent with Freddie Mac’s enabling legislation,
its public purposes or any provision of this Certificate.
(g) Any notice, demand or other communication which by any
provision of this Certificate is required or permitted to be
given or served to or upon Freddie Mac shall be given or served
in writing addressed (unless and until another address shall be
published by Freddie Mac) to the Federal Home Loan Mortgage
Corporation, 8200 Jones Branch Drive, McLean, Virginia
22102, Attn: Executive Vice President, General Counsel and
Corporate Secretary. Such notice, demand or other communication
to or upon Freddie Mac shall be deemed to have been sufficiently
given or made only upon actual receipt of a writing by Freddie
Mac. Any notice, demand or other communication which by any
provision of this Certificate is required or permitted to be
given or served by Freddie Mac hereunder may be given or served
by being deposited first class, postage prepaid in a United
States post office letter box addressed (i) to the holder
as such holder’s name and address may appear at such time
in the books and records of Freddie Mac or (ii) if to a
person or entity other than a holder of record of Common Stock,
to such person or entity at such address as appears to Freddie
Mac to be appropriate at such time.
(h) Freddie Mac, by or under the authority of the Board of
Directors, may amend, alter, supplement or repeal any provision
of this Certificate pursuant to the following terms and
conditions:
(i) Without the affirmative vote of the holders of the
Common Stock, Freddie Mac may amend, alter, supplement or repeal
any provision of this Certificate to cure any ambiguity, to
correct or supplement any provision herein which may be
defective or inconsistent with any other provision herein, or to
make any other provisions with respect to matters or questions
arising under this Certificate, provided that such action shall
not materially and adversely affect the interests of the holders
of the Common Stock.
4
(ii) The affirmative vote by the holders of shares
representing at least 66 2/3% of all of the shares of the
Common Stock at the time outstanding and entitled to vote,
voting together as a class, shall be necessary for authorizing,
effecting or validating the amendment, alteration,
supplementation or repeal of any of the provisions of this
Certificate if such amendment, alteration, supplementation or
repeal would materially and adversely affect the powers,
preferences, rights, privileges, qualifications, limitations,
restrictions, terms or conditions of the Common Stock. The
creation and issuance of any other class or series of stock of
Freddie Mac, whether ranking prior to, on a parity with or
junior to the Common Stock, or any split or reverse split of the
Common Stock (including any attendant proportionate adjustment
to the par value thereof), shall not be deemed to constitute
such an amendment, alteration, supplementation or repeal.
(i) RECEIPT AND ACCEPTANCE OF A SHARE OR SHARES OF
COMMON STOCK BY OR ON BEHALF OF A HOLDER SHALL CONSTITUTE THE
UNCONDITIONAL ACCEPTANCE BY THE HOLDER (AND ALL OTHERS HAVING
BENEFICIAL OWNERSHIP OF SUCH SHARE OR SHARES) OF ALL OF THE
TERMS AND PROVISIONS OF THIS CERTIFICATE. NO SIGNATURE OR OTHER
FURTHER MANIFESTATION OF ASSENT TO THE TERMS AND PROVISIONS OF
THIS CERTIFICATE SHALL BE NECESSARY FOR ITS OPERATION OR EFFECT
AS BETWEEN FREDDIE MAC AND THE HOLDER (AND ALL SUCH OTHERS).
IN WITNESS WHEREOF, I have executed this Certificate as of this
10
th
day of September, 2008.
[Seal]
Robert E. Bostrom,
Corporate Secretary
5
Exhibit 4.2
EXECUTION
VERSION
FREDDIE
MAC
CERTIFICATE
OF CREATION, DESIGNATION, POWERS,
PREFERENCES, RIGHTS, PRIVILEGES, QUALIFICATIONS,
LIMITATIONS, RESTRICTIONS, TERMS AND CONDITIONS
OF
VARIABLE LIQUIDATION PREFERENCE SENIOR PREFERRED STOCK
(PAR VALUE $1.00 PER SHARE)
The Federal Housing Finance Agency, as Conservator of the
Federal Home Loan Mortgage Corporation, a government-sponsored
enterprise of the United States of America (the
“Company”), does hereby certify that, pursuant to
authority vested in the Board of Directors of the Company by
Section 306(f) of the Federal Home Loan Mortgage
Corporation Act, and pursuant to the authority vested in the
Conservator of the Company by Section 1367(b) of the
Federal Housing Enterprises Financial Safety and Soundness Act
of 1992 (12 U.S.C. §4617), as amended, the Conservator
adopted Resolution FHLMC
2008-24
on
September 7, 2008, which resolution is now, and at all
times since such date has been, in full force and effect, and
that the Conservator approved the final terms of the issuance
and sale of the preferred stock of the Company designated above.
The Senior Preferred Stock shall have the following designation,
powers, preferences, rights, privileges, qualifications,
limitations, restrictions, terms and conditions:
1. Designation,
Par Value, Number of Shares and Seniority
The class of preferred stock of the Company created hereby (the
“Senior Preferred Stock”) shall be designated
“Variable Liquidation Preference Senior Preferred
Stock,” shall have a par value of $1.00 per share and shall
consist of 1,000,000 shares. The Senior Preferred Stock
shall rank prior to the common stock of the Company as provided
in this Certificate and shall rank, as to both dividends and
distributions upon liquidation, prior to (a) the
Fixed-to-Floating Rate Non-Cumulative Perpetual Preferred Stock
issued on December 4, 2007, (b) the 6.55%
Non-Cumulative Preferred Stock issued on September 28,
2007, (c) the 6.02% Non-Cumulative Preferred Stock issued
on July 24, 2007, (d) the 5.66% Non-Cumulative
Preferred Stock issued on April 16, 2007, (e) the
5.57% Non-Cumulative Preferred Stock issued on January 16,
2007, (f) the 5.9% Non-Cumulative Preferred Stock issued on
October 16, 2006, (g) the 6.42% Non-Cumulative
Preferred Stock issued on July 17, 2006, (h) the
Variable Rate, Non-Cumulative Preferred Stock issued on
July 17, 2006, (i) the 5.81% Non-Cumulative Preferred
Stock issued on January 29, 2002, (j) the 5.7%
Non-Cumulative Preferred Stock issued on October 30, 2001,
(k) the 6% Non-Cumulative Preferred Stock issued on
May 30, 2001, (l) the Variable Rate, Non-Cumulative
Preferred Stock issued on May 30, 2001 and June 1,
2001, (m) the 5.81% Non-Cumulative Preferred Stock issued
on March 23, 2001, (n) the Variable Rate,
Non-Cumulative Preferred Stock issued on March 23, 2001,
(o) the Variable Rate, Non-Cumulative Preferred Stock
issued on January 26, 2001, (p) the Variable Rate,
Non-Cumulative Preferred Stock issued on November 5, 1999,
(q) the 5.79% Non-Cumulative Preferred Stock issued on
July 21, 1999, (r) the 5.1% Non-Cumulative Preferred
Stock issued on March 19, 1999, (s) the 5.3%
Non-Cumulative Preferred Stock issued on October 28, 1998,
(t) the
5.1% Non-Cumulative Preferred Stock issued on
September 23, 1998, (u) the Variable Rate,
Non-Cumulative Preferred Stock issued on September 23, 1998
and September 29, 1998, (v) the 5% Non-Cumulative
Preferred Stock issued on March 23, 1998, (w) the
5.81% Non-Cumulative Preferred Stock issued on October 27,
1997, (x) the Variable Rate, Non-Cumulative Preferred Stock
issued on April 26, 1996, (y) any other capital stock
of the Company outstanding on the date of the initial issuance
of the Senior Preferred Stock, and (z) any capital stock of
the Company that may be issued after the date of initial
issuance of the Senior Preferred Stock.
(a) For each Dividend Period from the date of the initial
issuance of the Senior Preferred Stock, holders of outstanding
shares of Senior Preferred Stock shall be entitled to receive,
ratably, when, as and if declared by the Board of Directors, in
its sole discretion, out of funds legally available therefor,
cumulative cash dividends at the annual rate per share equal to
the then-current Dividend Rate on the then-current Liquidation
Preference. Dividends on the Senior Preferred Stock shall accrue
from but not including the date of the initial issuance of the
Senior Preferred Stock and will be payable in arrears when, as
and if declared by the Board of Directors quarterly on
March 31, June 30, September 30 and December 31 of
each year (each, a “Dividend Payment Date”),
commencing on December 31, 2008. If a Dividend Payment Date
is not a “Business Day,” the related dividend will be
paid not later than the next Business Day with the same force
and effect as though paid on the Dividend Payment Date, without
any increase to account for the period from such Dividend
Payment Date through the date of actual payment. “Business
Day” means a day other than (i) a Saturday or Sunday,
(ii) a day on which New York City banks are closed, or
(iii) a day on which the offices of the Company are closed.
If declared, the initial dividend will be for the period from
but not including the date of the initial issuance of the Senior
Preferred Stock through and including December 31, 2008.
Except for the initial Dividend Payment Date, the “Dividend
Period” relating to a Dividend Payment Date will be the
period from but not including the preceding Dividend Payment
Date through and including the related Dividend Payment Date.
The amount of dividends payable on the initial Dividend Payment
Date or for any Dividend Period that is not a full calendar
quarter shall be computed on the basis of
30-day
months, a
360-day
year
and the actual number of days elapsed in any period of less than
one month. For the avoidance of doubt, in the event that the
Liquidation Preference changes in the middle of a Dividend
Period, the amount of dividends payable on the Dividend Payment
Date at the end of such Dividend Period shall take into account
such change in Liquidation Preference and shall be computed at
the Dividend Rate on each Liquidation Preference based on the
portion of the Dividend Period that each Liquidation Preference
was in effect.
(b) To the extent not paid pursuant to Section 2(a)
above, dividends on the Senior Preferred Stock shall accrue and
shall be added to the Liquidation Preference pursuant to
Section 8, whether or not there are funds legally available
for the payment of such dividends and whether or not dividends
are declared.
(c) “Dividend Rate” means 10.0%; provided,
however, that if at any time the Company shall have for any
reason failed to pay dividends in cash in a timely manner as
required by this Certificate, then immediately following such
failure and for all Dividend Periods thereafter until
2
the Dividend Period following the date on which the Company
shall have paid in cash full cumulative dividends (including any
unpaid dividends added to the Liquidation Preference pursuant to
Section 8), the “Dividend Rate” shall mean 12.0%.
(d) Each such dividend shall be paid to the holders of
record of outstanding shares of the Senior Preferred Stock as
they appear in the books and records of the Company on such
record date as shall be fixed in advance by the Board of
Directors, not to be earlier than 45 days nor later than
10 days preceding the applicable Dividend Payment Date. The
Company 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 (i) full cumulative dividends on the outstanding
Senior Preferred Stock in respect of the then-current Dividend
Period and all past Dividend Periods (including any unpaid
dividends added to the Liquidation Preference pursuant to
Section 8) have been declared and paid in cash (including
through any pay down of Liquidation Preference pursuant to
Section 3) and (ii) all amounts required to be
paid pursuant to Section 4 (without giving effect to any
prohibition on such payment under any applicable law) have been
paid in cash.
(e) Notwithstanding any other provision of this
Certificate, the Board of Directors, in its discretion, may
choose to pay dividends on the Senior Preferred Stock without
the payment of any dividends on the common stock, preferred
stock or any other class or series of stock from time to time
outstanding ranking junior to the Senior Preferred Stock with
respect to the payment of dividends.
(f) If and whenever dividends, having been declared, shall
not have been paid in full, as aforesaid, on shares of the
Senior Preferred Stock, all such dividends that have been
declared on shares of the Senior Preferred Stock shall be paid
to the holders pro rata based on the aggregate Liquidation
Preference of the shares of Senior Preferred Stock held by each
holder, and any amounts due but not paid in cash shall be added
to the Liquidation Preference pursuant to Section 8.
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3.
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Optional
Pay Down of Liquidation Preference
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(a) Following termination of the Commitment (as defined in
the Preferred Stock Purchase Agreement referred to in
Section 8 below), and subject to any limitations which may
be imposed by law and the provisions below, the Company may pay
down the Liquidation Preference of all outstanding shares of the
Senior Preferred Stock pro rata, at any time, in whole or in
part, out of funds legally available therefor, with such payment
first being used to reduce any accrued and unpaid dividends
previously added to the Liquidation Preference pursuant to
Section 8 below and, to the extent all such accrued and
unpaid dividends have been paid, next being used to reduce any
Periodic Commitment Fees (as defined in the Preferred Stock
Purchase Agreement referred to in Section 8 below)
previously added to the Liquidation Preference pursuant to
Section 8 below. Prior to termination of the Commitment,
and subject to any limitations which may be imposed by law and
the provisions below, the Company may pay down the Liquidation
Preference of all outstanding shares of the Senior Preferred
Stock pro rata, at any time, out of funds legally available
therefor, but only to the extent of (i) accrued and unpaid
dividends previously added to the Liquidation Preference
pursuant to Section 8 below and not repaid by any prior pay
down of Liquidation Preference and (ii) Periodic Commitment
Fees previously added to the Liquidation
3
Preference pursuant to Section 8 below and not repaid by
any prior pay down of Liquidation Preference. Any pay down of
Liquidation Preference permitted by this Section 3 shall be
paid by making a payment in cash to the holders of record of
outstanding shares of the Senior Preferred Stock as they appear
in the books and records of the Company on such record date as
shall be fixed in advance by the Board of Directors, not to be
earlier than 45 days nor later than 10 days preceding
the date fixed for the payment.
(b) In the event the Company shall pay down of the
Liquidation Preference of the Senior Preferred Stock as
aforesaid, notice of such pay down shall be given by the Company
by first class mail, postage prepaid, mailed neither less than
10 nor more than 45 days preceding the date fixed for the
payment, to each holder of record of the shares of the Senior
Preferred Stock, at such holder’s address as the same
appears in the books and records of the Company. Each such
notice shall state the amount by which the Liquidation
Preference of each share shall be reduced and the pay down date.
(c) If after termination of the Commitment the Company pays
down the Liquidation Preference of each outstanding share of
Senior Preferred Stock in full, such shares shall be deemed to
have been redeemed as of the date of such payment, and the
dividend that would otherwise be payable for the Dividend Period
ending on the pay down date will be paid on such date. Following
such deemed redemption, the shares of the Senior Preferred Stock
shall no longer be deemed to be outstanding, and all rights of
the holders thereof as holders of the Senior Preferred Stock
shall cease, with respect to shares so redeemed, other than the
right to receive the pay down amount (which shall include the
final dividend for such shares). Any shares of the Senior
Preferred Stock which shall have been so redeemed, after such
redemption, shall no longer have the status of authorized,
issued or outstanding shares.
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4.
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Mandatory
Pay Down of Liquidation Preference Upon Issuance of Capital
Stock
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(a) If the Company shall issue any shares of capital stock
(including without limitation common stock or any series of
preferred stock) in exchange for cash at any time while the
Senior Preferred Stock is outstanding, then the Company shall,
within 10 Business Days, use the proceeds of such issuance net
of the direct costs relating to the issuance of such securities
(including, without limitation, legal, accounting and investment
banking fees) to pay down the Liquidation Preference of all
outstanding shares of Senior Preferred Stock pro rata, out of
funds legally available therefor, by making a payment in cash to
the holders of record of outstanding shares of the Senior
Preferred Stock as they appear in the books and records of the
Company on such record date as shall be fixed in advance by the
Board of Directors, not to be earlier than 45 days nor
later than 10 days preceding the date fixed for the
payment, with such payment first being used to reduce any
accrued and unpaid dividends previously added to the Liquidation
Preference pursuant to Section 8 below and, to the extent
all such accrued and unpaid dividends have been paid, next being
used to reduce any Periodic Commitment Fees (as defined in the
Preferred Stock Purchase Agreement referred to in Section 8
below) previously added to the Liquidation Preference pursuant
to Section 8 below; provided that, prior to the termination
of the Commitment (as defined in the Preferred Stock Purchase
Agreement referred to in Section 8 below), the Liquidation
Preference of each share of Senior Preferred Stock shall not be
paid down below $1,000 per share.
4
(b) If the Company shall not have sufficient assets legally
available for the pay down of the Liquidation Preference of the
shares of Senior Preferred Stock required under
Section 4(a), the Company shall pay down the Liquidation
Preference per share to the extent permitted by law, and shall
pay down any Liquidation Preference not so paid down because of
the unavailability of legally available assets or other
prohibition as soon as practicable to the extent it is
thereafter able to make such pay down legally. The inability of
the Company to make such payment for any reason shall not
relieve the Company from its obligation to effect any required
pay down of the Liquidation Preference when, as and if permitted
by law.
(c) If after the termination of the Commitment the Company
pays down the Liquidation Preference of each outstanding share
of Senior Preferred Stock in full, such shares shall be deemed
to have been redeemed as of the date of such payment, and the
dividend that would otherwise be payable for the Dividend Period
ending on the pay down date will be paid on such date. Following
such deemed redemption, the shares of the Senior Preferred Stock
shall no longer be deemed to be outstanding, and all rights of
the holders thereof as holders of the Senior Preferred Stock
shall cease, with respect to shares so redeemed, other than the
right to receive the pay down amount (which shall include the
final dividend for such redeemed shares). Any shares of the
Senior Preferred Stock which shall have been so redeemed, after
such redemption, shall no longer have the status of authorized,
issued or outstanding shares.
Except as set forth in this Certificate or otherwise required by
law, the shares of the Senior Preferred Stock shall not have any
voting powers, either general or special.
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6.
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No
Conversion or Exchange Rights
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The holders of shares of the Senior Preferred Stock shall not
have any right to convert such shares into or exchange such
shares for any other class or series of stock or obligations of
the Company.
No holder of the Senior Preferred Stock shall as such holder
have any preemptive right to purchase or subscribe for any other
shares, rights, options or other securities of any class of the
Company which at any time may be sold or offered for sale by the
Company.
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8.
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Liquidation
Rights and Preference
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(a) Except as otherwise set forth herein, upon the
voluntary or involuntary dissolution, liquidation or winding up
of the Company, the holders of the outstanding shares of the
Senior Preferred Stock shall be entitled to receive out of the
assets of the Company available for distribution to
stockholders, before any payment or distribution shall be made
on the common stock or any other class or series of stock of the
Company ranking junior to the Senior Preferred Stock upon
liquidation, the amount per share equal to the Liquidation
Preference plus an amount, determined in accordance with Section
2(a) above, equal to the dividend otherwise payable for the
then-current Dividend Period accrued through and including the
date of payment in respect of such dissolution, liquidation or
winding up; provided, however, that if the assets of the Company
5
available for distribution to stockholders shall be insufficient
for the payment of the amount which the holders of the
outstanding shares of the Senior Preferred Stock shall be
entitled to receive upon such dissolution, liquidation or
winding up of the Company as aforesaid, then, all of the assets
of the Company available for distribution to stockholders shall
be distributed to the holders of outstanding shares of the
Senior Preferred Stock pro rata based on the aggregate
Liquidation Preference of the shares of Senior Preferred Stock
held by each holder.
(b) “Liquidation Preference” shall initially mean
$1,000 per share and shall be:
(i) increased each time a Deficiency Amount (as defined in
the Preferred Stock Purchase Agreement) is paid to the Company
by an amount per share equal to the aggregate amount so paid to
the Company divided by the number of shares of Senior Preferred
Stock outstanding at the time of such payment;
(ii) increased each time the Company does not pay the full
Periodic Commitment Fee (as defined in the Preferred Stock
Purchase Agreement) in cash by an amount per share equal to the
amount of the Periodic Commitment Fee that is not paid in cash
divided by the number of shares of Senior Preferred Stock
outstanding at the time such payment is due;
(iii) increased on the Dividend Payment Date if the Company
fails to pay in full the dividend payable for the Dividend
Period ending on such date by an amount per share equal to the
aggregate amount of unpaid dividends divided by the number of
shares of Senior Preferred Stock outstanding on such
date; and
(iv) decreased each time the Company pays down the
Liquidation Preference pursuant to Section 3 or
Section 4 of this Certificate by an amount per share equal
to the aggregate amount of the pay down divided by the number of
shares of Senior Preferred Stock outstanding at the time of such
pay down.
(c) “Preferred Stock Purchase Agreement” means
the Preferred Stock Purchase Agreement dated September 7,
2008, between the Company and the United States Department of
the Treasury.
(d) Neither the sale of all or substantially all of the
property or business of the Company, nor the merger,
consolidation or combination of the Company into or with any
other corporation or entity, shall be deemed to be a
dissolution, liquidation or winding up for the purpose of this
Section 8.
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9.
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Additional
Classes or Series of Stock
|
The Board of Directors shall have the right at anytime in the
future to authorize, create and issue, by resolution or
resolutions, one or more additional classes or series of stock
of the Company, and to determine and fix the distinguishing
characteristics and the relative rights, preferences, privileges
and other terms of the shares thereof; provided that, any such
class or series of stock may not rank prior to or on parity with
the Senior Preferred Stock without the prior written consent of
the holders of at least two-thirds of all the shares of Senior
Preferred Stock at the time outstanding.
6
(a) The Company and any agent of the Company may deem and
treat the holder of a share or shares of Senior Preferred Stock,
as shown in the Company’s books and records, as the
absolute owner of such share or shares of Senior Preferred Stock
for the purpose of receiving payment of dividends in respect of
such share or shares of Senior Preferred Stock and for all other
purposes whatsoever, and neither the Company nor any agent of
the Company shall be affected by any notice to the contrary. All
payments made to or upon the order of any such person shall be
valid and, to the extent of the sum or sums so paid, effectual
to satisfy and discharge liabilities for moneys payable by the
Company on or with respect to any such share or shares of Senior
Preferred Stock.
(b) The shares of the Senior Preferred Stock, when duly
issued, shall be fully paid and non-assessable.
(c) The Senior Preferred Stock may be issued, and shall be
transferable on the books of the Company, only in whole shares.
(d) For purposes of this Certificate, the term “the
Company” means the Federal Home Loan Mortgage Corporation
and any successor thereto by operation of law or by reason of a
merger, consolidation, combination or similar transaction.
(e) This Certificate and the respective rights and
obligations of the Company and the holders of the Senior
Preferred Stock with respect to such Senior Preferred Stock
shall be construed in accordance with and governed by the laws
of the United States, provided that the law of the Commonwealth
of Virginia shall serve as the federal rule of decision in all
instances except where such law is inconsistent with the
Company’s enabling legislation, its public purposes or any
provision of this Certificate.
(f) Any notice, demand or other communication which by any
provision of this Certificate is required or permitted to be
given or served to or upon the Company shall be given or served
in writing addressed (unless and until another address shall be
published by the Company) to Freddie Mac, 8200 Jones Branch
Drive, McLean, Virginia 22102, Attn: Executive Vice President
and General Counsel. Such notice, demand or other communication
to or upon the Company shall be deemed to have been sufficiently
given or made only upon actual receipt of a writing by the
Company. Any notice, demand or other communication which by any
provision of this Certificate is required or permitted to be
given or served by the Company hereunder may be given or served
by being deposited first class, postage prepaid, in the United
States mail addressed (i) to the holder as such
holder’s name and address may appear at such time in the
books and records of the Company or (ii) if to a person or
entity other than a holder of record of the Senior Preferred
Stock, to such person or entity at such address as reasonably
appears to the Company to be appropriate at such time. Such
notice, demand or other communication shall be deemed to have
been sufficiently given or made, for all purposes, upon mailing.
(g) The Company, by or under the authority of the Board of
Directors, may amend, alter, supplement or repeal any provision
of this Certificate pursuant to the following terms and
conditions:
7
(i) Without the consent of the holders of the Senior
Preferred Stock, the Company may amend, alter, supplement or
repeal any provision of this Certificate to cure any ambiguity,
to correct or supplement any provision herein which may be
defective or inconsistent with any other provision herein, or to
make any other provisions with respect to matters or questions
arising under this Certificate, provided that such action shall
not adversely affect the interests of the holders of the Senior
Preferred Stock.
(ii) The consent of the holders of at least two-thirds of
all of the shares of the Senior Preferred Stock at the time
outstanding, given in person or by proxy, either in writing or
by a vote at a meeting called for the purpose at which the
holders of shares of the Senior Preferred Stock shall vote
together as a class, shall be necessary for authorizing,
effecting or validating the amendment, alteration,
supplementation or repeal (whether by merger, consolidation or
otherwise) of the provisions of this Certificate other than as
set forth in subparagraph (i) of this paragraph (g).
The creation and issuance of any other class or series of stock,
or the issuance of additional shares of any existing class or
series of stock, of the Company ranking junior to the Senior
Preferred Stock shall not be deemed to constitute such an
amendment, alteration, supplementation or repeal.
(iii) Holders of the Senior Preferred Stock shall be
entitled to one vote per share on matters on which their consent
is required pursuant to subparagraph (ii) of this paragraph
(g). In connection with any meeting of such holders, the Board
of Directors shall fix a record date, neither earlier than
60 days nor later than 10 days prior to the date of
such meeting, and holders of record of shares of the Senior
Preferred Stock on such record date shall be entitled to notice
of and to vote at any such meeting and any adjournment. The
Board of Directors, or such person or persons as it may
designate, may establish reasonable rules and procedures as to
the solicitation of the consent of holders of the Senior
Preferred Stock at any such meeting or otherwise, which rules
and procedures shall conform to the requirements of any national
securities exchange on which the Senior Preferred Stock may be
listed at such time.
(h)
RECEIPT AND ACCEPTANCE OF A SHARE OR SHARES OF THE
SENIOR PREFERRED STOCK BY OR ON BEHALF OF A HOLDER SHALL
CONSTITUTE THE UNCONDITIONAL ACCEPTANCE BY THE HOLDER (AND ALL
OTHERS HAVING BENEFICIAL OWNERSHIP OF SUCH SHARE OR SHARES) OF
ALL OF THE TERMS AND PROVISIONS OF THIS CERTIFICATE. NO
SIGNATURE OR OTHER FURTHER MANIFESTATION OF ASSENT TO THE TERMS
AND PROVISIONS OF THIS CERTIFICATE SHALL BE NECESSARY FOR ITS
OPERATION OR EFFECT AS BETWEEN THE COMPANY AND THE HOLDER (AND
ALL SUCH OTHERS).
8
IN WITNESS WHEREOF, I have hereunto set my hand and the seal of
the Company this
7
th
day of September, 2008.
[Seal]
FEDERAL HOME LOAN MORTGAGE CORPORATION,
by
The Federal Housing Finance Agency, its Conservator
/s/ James
B. Lockhart III
James B. Lockhart III
Director
Signature Page to Certificate of Designations of Senior
Preferred Stock
Exhibit 10.1
EXECUTION
VERSION
SENIOR
PREFERRED STOCK PURCHASE AGREEMENT
SENIOR PREFERRED STOCK PURCHASE AGREEMENT (this
“
Agreement
”) dated as of September 7,
2008, between the UNITED STATES DEPARTMENT OF THE TREASURY
(“
Purchaser
”) and FEDERAL HOME LOAN MORTGAGE
CORPORATION (“
Seller
”), acting through the
Federal Housing Finance Agency (the “
Agency
”)
as its duly appointed conservator (the Agency in such capacity,
“
Conservator
”). Reference is made to
Article 1 below for the meaning of capitalized terms used
herein without definition.
Background
A. The Agency has been duly appointed as Conservator for
Seller pursuant to Section 1367(a) of the Federal Housing
Enterprises Financial Safety and Soundness Act of 1992 (as
amended, the “
FHE Act
”). Conservator has
determined that entry into this Agreement is (i) necessary
to put Seller in a sound and solvent condition;
(ii) appropriate to carry on the business of Seller and
preserve and conserve the assets and property of Seller; and
(iii) otherwise consistent with its powers, authorities and
responsibilities.
B. Purchaser is authorized to purchase obligations and
other securities issued by Seller pursuant to
Section 306(l) of the Federal Home Loan Mortgage
Corporation Act, as amended (the “
Charter
Act
”). The Secretary of the Treasury has determined,
after taking into consideration the matters set forth in
Section 306(l)(1)(C) of the Charter Act, that the purchases
contemplated herein are necessary to (i) provide stability
to the financial markets; (ii) prevent disruptions in the
availability of mortgage finance; and (iii) protect the
taxpayer.
THEREFORE, the parties hereto agree as follows:
Terms and
Conditions
1. DEFINITIONS
As used in this Agreement, the following terms shall have the
meanings set forth below:
“Affiliate”
means, when used with respect to a
specified Person (i) any direct or indirect holder or group
(as defined in Sections 13(d) and 14(d) of the Exchange
Act) of holders of 10.0% or more of any class of capital stock
of such Person and (ii) any current or former director or
officer of such Person, or any other current or former employee
of such Person that currently exercises or formerly exercised a
material degree of Control over such Person, including without
limitation each current or former Named Executive Officer of
such Person.
“Available Amount”
means, as of any date of
determination, the lesser of (a) the Deficiency Amount as
of such date and (b) the Maximum Amount as of such date.
“Business Day”
means any day other than a
Saturday, Sunday or other day on which commercial banks are
authorized to close under United States federal law and the law
of the State of New York.
“Capital Lease Obligations”
of any Person shall
mean the obligations of such Person to pay rent or other amounts
under any lease of (or other similar arrangement conveying the
right to use) real or personal property, or a combination
thereof, which obligations are required to be classified and
accounted for as capital leases on a balance sheet of such
Person under GAAP and, for purposes hereof, the amount of such
obligations at any time shall be the capitalized amount thereof
at such time determined in accordance with GAAP.
“Control”
shall mean the possession, directly
or indirectly, of the power to direct or cause the direction of
the management or policies of a Person, whether through the
ownership of voting securities, by contract or otherwise.
“Deficiency Amount”
means, as of any date of
determination, the amount, if any, by which (a) the total
liabilities of Seller exceed (b) the total assets of Seller
(such assets excluding the Commitment and any unfunded amounts
thereof), in each case as reflected on the balance sheet of
Seller as of the applicable date set forth in this Agreement,
prepared in accordance with GAAP;
provided
,
however
, that:
(i) for the avoidance of doubt, in measuring the Deficiency
Amount liabilities shall exclude any obligation in respect of
any capital stock of Seller, including the Senior Preferred
Stock contemplated herein;
(ii) in the event that Seller becomes subject to
receivership or other liquidation process or proceeding,
“Deficiency Amount” shall mean, as of any date of
determination, the amount, if any, by which (a) the total
allowed claims against the receivership or other applicable
estate (excluding any liabilities of or transferred to any LLRE
(as defined in Section 5.4(a)) created by a receiver)
exceed (b) the total assets of such receivership or other
estate (excluding the Commitment, any unfunded amounts thereof
and any assets of or transferred to any LLRE, but including the
value of the receiver’s interest in any LLRE);
(iii) to the extent Conservator or a receiver of Seller. or
any statute, rule, regulation or court of competent
jurisdiction, specifies or determines that a liability of Seller
(including without limitation a claim against Seller arising
from rescission of a purchase or sale of a security issued by
Seller (or guaranteed by Seller or with respect to which Seller
is otherwise liable) or for damages arising from the purchase,
sale or retention of such a security) shall be subordinated
(other than pursuant to a contract providing for such
subordination) to all other liabilities of Seller or shall be
treated on par with any class of equity of Seller, then such
liability shall be excluded in the calculation of Deficiency
Amount; and
(iv) the Deficiency Amount may be increased above the
otherwise applicable amount by the mutual written agreement of
Purchaser and Seller, each acting in its sole discretion.
“Designated Representative”
means Conservator
or (a) if Conservator has been superseded by a receiver
pursuant to Section 1367(a) of the FHE Act, such receiver,
or (b) if Seller is not in con-
- 2 -
servatorship or receivership pursuant to Section 1367(a) of
the FHE Act, Seller’s chief financial officer.
“Director”
shall mean the Director of the
Agency.
“Effective Date”
means the date on which this
Agreement shall have been executed and delivered by both of the
parties hereto.
“Equity Interests”
of any Person shall mean any
and all shares, interests, rights to purchase or otherwise
acquire, warrants, options, participations or other equivalents
of or interests in (however designated) equity, ownership or
profits of such Person, including any preferred stock, any
limited or general partnership interest and any limited
liability company membership interest, and any securities or
other rights or interests convertible into or exchangeable for
any of the foregoing,
“Exchange Act”
means the Securities Exchange
Act of 1934, as amended, and the rules and regulations of the
SEC promulgated thereunder.
“GAAP”
means generally accepted accounting
principles in effect in the United States as set forth in the
opinions and pronouncements of the Accounting Principles Board
and the American Institute of Certified Public Accountants and
statements and pronouncements of the Financial Accounting
Standards Board from time to time.
“Indebtedness”
of any Person means, for
purposes of Section 5.5 only, without duplication,
(a) all obligations of such Person for money borrowed by
such Person, (b) all obligations of such Person evidenced
by bonds, debentures, notes or similar instruments, (c) all
obligations of such Person under conditional sale or other title
retention agreements relating to property or assets purchased by
such Person, (d) all obligations of such Person issued or
assumed as the deferred purchase price of property or services,
other than trade accounts payable, (e) all Capital Lease
Obligations of such Person, (f) obligations, whether
contingent or liquidated, in respect of letters of credit
(including standby and commercial), bankers’ acceptances
and similar instruments and (g) any obligation of such
Person, contingent or otherwise, guaranteeing or having the
economic effect of guaranteeing any Indebtedness of the types
set forth in clauses (a) through (f) payable by
another Person other than Mortgage Guarantee Obligations.
“Liquidation End Date”
means the date of
completion of the liquidation of Seller’s assets.
“Maximum Amount”
means, as of any date of
determination, $100,000,000,000 (one hundred billion dollars),
less the aggregate amount of funding under the Commitment prior
to such date.
“Mortgage Assets”
of any Person means assets of
such Person consisting of mortgages, mortgage loans,
mortgage-related securities, participation certificates,
mortgage-backed commercial paper, obligations of real estate
mortgage investment conduits and similar assets, in each case to
the extent such assets would appear on the balance sheet of such
Person in accordance with GAAP as in effect as of the date
hereof (and, for the avoidance of doubt, without giving effect
to any
- 3 -
change that may be made hereafter in respect of Statement of
Financial Accounting Standards No. 140 or any similar
accounting standard).
“Mortgage Guarantee Obligations”
means
guarantees, standby commitments, credit enhancements and other
similar obligations of Seller, in each case in respect of
Mortgage Assets.
“Named Executive Officer”
has the meaning given
to such term in Item 402(a)(3) of
Regulation S-K
under the Exchange Act, as in effect on the date hereof.
“Person”
shall mean any individual,
corporation, limited liability company, partnership, joint
venture, association, joint-stock company, trust, estate,
unincorporated organization or government or any agency or
political subdivision thereof, or any other entity whatsoever.
“SEC”
means the Securities and Exchange
Commission.
“Senior Preferred Stock”
means the Variable
Liquidation Preference Senior Preferred Stock of Seller,
substantially in the form of Exhibit A hereto.
“
Warrant”
means a warrant for the purchase of
common stock of Seller representing 79.9% of the common stock of
Seller on a fully-diluted basis, substantially in the form of
Exhibit B hereto.
2. COMMITMENT
2.1.
Commitment.
Purchaser hereby commits to
provide to Seller, on the terms and conditions set forth herein,
immediately available funds in an amount up to but not in excess
of the Available Amount, as determined from time to time (the
“
Commitment
”);
provided
, that in no
event shall the aggregate amount funded under the Commitment
exceed $100,000,000,000 (one hundred billion dollars). The
liquidation preference of the Senior Preferred Stock shall
increase in connection with draws on the Commitment, as set
forth in Section 3.3 below.
2.2.
Quarterly Draws on Commitment.
Within
fifteen (15) Business Days following the determination of
the Deficiency Amount, if any, as of the end of each fiscal
quarter of Seller which ends on or before the Liquidation End
Date, the Designated Representative may, on behalf of Seller,
request that Purchaser provide immediately available funds to
Seller in an amount up to but not in excess of the Available
Amount as of the end of such quarter. Any such request shall be
valid only if it is in writing, is timely made, specifies the
account of Seller to which such funds are to be transferred, and
contains a certification of the Designated Representative that
the requested amount does not exceed the Available Amount as of
the end of the applicable quarter. Purchaser shall provide such
funds within sixty (60) days of its receipt of such request
or, following any determination by the Director that the
Director will be mandated by law to appoint a receiver for
Seller if such funds are not received sooner, such shorter
period as may be necessary to avoid such mandatory appointment
of a receiver if reasonably practicable taking into
consideration Purchaser’s access to funds.
2.3.
Accelerated Draws on
Commitment.
Immediately following any
determination by the Director that the Director will be mandated
by law to appoint a receiver for Seller prior to the Liquidation
End Date unless Seller’s capital is increased by an amount
(the “
Special Amount
”)
- 4 -
up to but not in excess of the then current Available Amount
(computed based on a balance sheet of Seller prepared in
accordance with GAAP that differs from the most recent balance
sheet of Seller delivered in accordance with Section 5.9(a)
or (b)) on a date that is prior to the date that funds will be
available to Seller pursuant to Section 2.2, Conservator
may, on behalf of Seller, request that Purchaser provide to
Seller the Special Amount in immediately available funds. Any
such request shall be valid only if it is in writing, is timely
made, specifies the account of Seller to which such funds are to
be transferred, and contains certifications of Conservator that
(i) the requested amount does not exceed the Available
Amount (including computations in reasonable detail and
satisfactory to Purchaser of the then existing Deficiency
Amount) and (ii) the requested amount is required to avoid
the imminent mandatory appointment of a receiver for Seller.
Purchaser shall provide such funds within thirty (30) days
of its receipt of such request or, if reasonably practicable
taking into consideration Purchaser’s access to funds, any
shorter period as may be necessary to avoid mandatory
appointment of a receiver.
2.4.
Final Draw on Commitment.
Within fifteen
(15) Business Days following the determination of the
Deficiency Amount, if any, as of the Liquidation End Date
(computed based on a balance sheet of Seller as of the
Liquidation End Date prepared in accordance with GAAP), the
Designated Representative may, on behalf of Seller, request that
Purchaser provide immediately available funds to Seller in an
amount up to but not in excess of the Available Amount as of the
Liquidation End Date. Any such request shall be valid only if it
is in writing, is timely made, specifies the account of Seller
to which such funds are to be transferred, and contains a
certification of the Designated Representative that the
requested amount does not exceed the Available Amount (including
computations in reasonable detail and satisfactory to Purchaser
of the Deficiency Amount as of the Liquidation End Date).
Purchaser shall provide such funds within sixty (60) days
of its receipt of such request.
2.5.
Termination of Purchaser’s
Obligations.
Subject to earlier termination
pursuant to Section 6.7, all of Purchaser’s
obligations under and in respect of the Commitment shall
terminate upon the earliest of: (a) if the Liquidation End
Date shall have occurred, (i) the payment in full of
Purchaser’s obligations with respect to any valid request
for funds pursuant to Section 2.4 or (ii) if there is
no Deficiency Amount on the Liquidation End Date or if no such
request pursuant to Section 2.4 has been made, the close of
business on the 15th Business Day following the
determination of the Deficiency Amount, if any, as of the
Liquidation End Date; (b) the payment in full of,
defeasance of or other reasonable provision for all liabilities
of Seller, whether or not contingent, including payment of any
amounts that may become payable on, or expiry of or other
provision for, all Mortgage Guarantee Obligations and provision
for unmatured debts; and (c) the funding by Purchaser under
the Commitment of an aggregate of $100,000,000,000 (one hundred
billion dollars). For the avoidance of doubt, the Commitment
shall
not
be terminable by Purchaser solely by reason of
(i) the conservatorship, receivership or other insolvency
proceeding of Seller or (ii) the Seller’s financial
condition or any adverse change in Seller’s financial
condition.
3. PURCHASE
OF SENIOR PREFERRED STOCK AND WARRANT; FEES
3.1.
Initial Commitment Fee.
In consideration
of the Commitment, and for no additional consideration, on the
Effective Date (or as soon thereafter as is practicable) Seller
shall sell and issue to Purchaser, and Purchaser shall purchase
from Seller, (a) one million (1,000,000) shares of Senior
Preferred Stock, with an initial liquidation preference equal to
$1,000 per share
- 5 -
($1,000,000,000 (one billion dollars) liquidation
preference in the aggregate), and (b) the Warrant.
3.2.
Periodic Commitment
Fee.
(a) Commencing March 31, 2010,
Seller shall pay to Purchaser quarterly, on the last day of
March, June, September and December of each calendar year (each
a “
Periodic Fee Date
”), a periodic commitment
fee (the “
Periodic Commitment Fee
”). The
Periodic Commitment Fee shall accrue from January 1, 2010.
(b) The Periodic Commitment Fee is intended to fully
compensate Purchaser for the support provided by the ongoing
Commitment following December 31, 2009. The amount of the
Periodic Commitment Fee shall be set not later than
December 31, 2009 with respect to the ensuing five-year
period, shall be reset every five years thereafter and shall be
determined with reference to the market value of the Commitment
as then in effect. The amount of the Periodic Commitment Fee
shall be mutually agreed by Purchaser and Seller, subject to
their reasonable discretion and in consultation with the
Chairman of the Federal Reserve;
provided
, that Purchaser
may waive the Periodic Commitment Fee for up to one year at a
time, in its sole discretion, based on adverse conditions in the
United States mortgage market.
(c) At the election of Seller, the Periodic Commitment Fee
may be paid in cash or by adding the amount thereof ratably to
the liquidation preference of each outstanding share of Senior
Preferred Stock so that the aggregate liquidation preference of
all such outstanding shares of Senior Preferred Stock is
increased by an amount equal to the Periodic Commitment Fee.
Seller shall deliver notice of such election not later than
three (3) Business Days prior to each Periodic Fee Date. If
the Periodic Commitment Fee is not paid in cash by 12:00 pm
(New York time) on the applicable Periodic Fee Date
(irrespective of Seller’s election pursuant to this
subsection), Seller shall be deemed to have elected to pay the
Periodic Commitment Fee by adding the amount thereof to the
liquidation preference of the Senior Preferred Stock, and the
aggregate liquidation preference of the outstanding shares of
Senior Preferred Stock shall thereupon be automatically
increased, in the manner contemplated by the first sentence of
this section, by an aggregate amount equal to the Periodic
Commitment Fee then due.
3.3.
Increases of Senior Preferred Stock Liquidation
Preference as a Result of Funding under the
Commitment.
The aggregate liquidation preference
of the outstanding shares or Senior Preferred Stock shall be
automatically increased by an amount equal to the amount of each
draw on the Commitment pursuant to Article 2 that is funded
by Purchaser to Seller, such increase to occur simultaneously
with such funding and ratably with respect to each share of
Senior Preferred Stock.
3.4.
Notation of Increase in Liquidation
Preference.
Seller shall duly mark its records to
reflect each increase in the liquidation preference of the
Senior Preferred Stock contemplated herein (but, for the
avoidance of doubt, such increase shall be effective regardless
of whether Seller has properly marked its records).
- 6 -
4. REPRESENTATIONS
Seller represents and warrants as of the Effective Date, and
shall be deemed to have represented and warranted as of the date
of each request for and funding of an advance under the
Commitment pursuant to Article 2, as follows:
4.1.
Organization and Good Standing.
Seller is
a corporation, chartered by the Congress of the United States,
duly organized, validly existing and in good standing under the
laws of the United States and has all corporate power and
authority to carry on its business as now conducted and as
proposed to be conducted.
4.2.
Organizational Documents.
Seller has made
available to Purchaser a complete and correct copy of its
charter and bylaws, each as amended to date (the
“
Organizational Documents
”). The Organizational
Documents are in full force and effect. Seller is not in
violation of any provision of its Organizational Documents.
4.3.
Authorization and Enforceability.
All
corporate or other action on the part of Seller or Conservator
necessary for the authorization, execution, delivery and
performance of this Agreement by Seller and for the
authorization, issuance and delivery of the Senior Preferred
Stock and the Warrant being purchased under this Agreement, has
been taken. This Agreement has been duly and validly executed
and delivered by Seller and (assuming due authorization,
execution and delivery by the Purchaser) shall constitute the
valid and legally binding obligation of seller, enforceable
against Seller in accordance with its terms, except to the
extent the enforceability thereof may be limited by bankruptcy
laws, insolvency laws, reorganization laws, moratorium laws or
other laws of general applicability affecting creditors’
rights generally or by general equitable principles (regardless
of whether enforcement is sought in a proceeding in equity or at
law). The Agency is acting as conservator for Seller under
Section 1367 of the FHE Act. The Board of Directors of
Seller, by valid action at a duly called meeting of the Board of
Directors on September 6, 2008, consented to the
appointment of the Agency as conservator for purposes of
Section 1367(a)(3)(I) of the FHE Act, and the Director of
the Agency has appointed the Agency as Conservator for Seller
pursuant to Section 1367(a)(I) of the FHE Act, and each
such action has not been rescinded, revoked or modified in any
respect.
4.4.
Valid Issuance.
When issued in accordance
with the terms of this Agreement, the Senior Preferred Stock and
the Warrant will be duly authorized, validly issued, fully paid
and nonassessable, free and clear of all liens and preemptive
rights. The shares of common stock to which the holder of the
Warrant is entitled have been duly and validly reserved for
issuance. When issued and delivered in accordance with the terms
of this Agreement and the Warrant, such shares will be duly
authorized, validly issued, fully paid and nonassessable, free
and clear of all liens and preemptive rights.
4.5.
Non-Contravention.
(a) The execution, delivery or performance by Seller of
this Agreement and the consummation by Seller of the
transactions contemplated hereby do not and will not
(i) conflict with
- 7 -
or violate any provision of the Organizational Documents of
Seller; (ii) conflict with or violate any law, decree or
regulation applicable to Seller or by which any property or
asset of Seller is bound or affected, or (iii) result in
any breach of, or constitute a default (with or without notice
or lapse of time, or both) under, or give to others any right of
termination, amendment, acceleration or cancellation of, or
result in the creation of a lien upon any of the properties or
assets of Seller, pursuant to any note, bond, mortgage,
indenture or credit agreement, or any other contract, agreement,
lease, license, permit, franchise or other instrument or
obligation to which Seller is a party or by which Seller is
bound or affected, other than, in the case of clause (iii), any
such breach, default, termination, amendment, acceleration,
cancellation or lien that would not have and would not
reasonably be expected to have, individually or in the
aggregate, a material adverse effect on the business, property,
operations or condition of the Seller, the authority of the
Conservator or the validity or enforceability of this Agreement
(a “
Material Adverse Effect
”).
(b) The execution and delivery of this Agreement by Seller
does not, and the consummation by Seller of the transactions
contemplated by this Agreement will not, require any consent,
approval, authorization, waiver or permit of, or filing with or
notification to, any governmental authority or any other person,
except for such as have already been obtained.
5. COVENANTS
From the Effective Date until such time as the Senior Preferred
Stock shall have been repaid or redeemed in full in accordance
with its terms:
5.1.
Restricted Payments.
Seller shall not,
and shall not permit any of its subsidiaries to, in each case
without the prior written consent of Purchaser, declare or pay
any dividend (preferred or otherwise) or make any other
distribution (by reduction of capital or otherwise), whether in
cash, property, securities or a combination thereof, with
respect to any of Seller’s Equity Interests (other than
with respect to the Senior Preferred Stock or the Warrant) or
directly or indirectly redeem, purchase, retire or otherwise
acquire for value any of Seller’s Equity Interests (other
than the Senior Preferred Stock or the Warrant), or set aside
any amount for any such purpose.
5.2.
Issuance of Capital Stock.
Seller shall
not, and shall not permit any of its subsidiaries to, in each
case without the prior written consent of Purchaser, sell or
issue Equity Interests of Seller or any of its subsidiaries of
any kind or nature, in any amount, other than the sale and
issuance of the Senior Preferred Stock and Warrant on the
Effective Date and the common stock subject to the Warrant upon
exercise thereof, and other than as required by (and pursuant
to) the terms of any binding agreement as in effect on the date
hereof.
5.3.
Conservatorship.
Seller shall not (and
Conservator, by its signature below, agrees that it shall not),
without the prior written consent of Purchaser, terminate, seek
termination of or permit to be terminated the conservatorship of
Seller pursuant to Section 1367 of the FHE Act, other than
in connection with a receivership pursuant to Section 1367 of
the FHE Act.
5.4.
Transfer of Assets.
Seller shall not, and
shall not permit any of its subsidiaries to, in each case
without the prior written consent of Purchaser, sell, transfer,
lease or otherwise dispose
- 8 -
of (in one transaction or a series of related transactions) all
or any portion of its assets (including Equity Interests in
other persons, including subsidiaries), whether now owned or
hereafter acquired (any such sale, transfer, lease or
disposition, a “
Disposition
”), other than
Dispositions for fair market value:
(a) to a limited life regulated entity
(“
LLRE
”) pursuant to Section 1367(i) of
the FHE Act;
(b) of assets and properties in the ordinary course of
business, consistent with past practice;
(c) in connection with a liquidation of Seller by a
receiver appointed pursuant to Section 1367(a) of the FHE
Act;
(d) of cash or cash equivalents for cash or cash
equivalents; or
(e) to the extent necessary to comply with the covenant set
forth in Section 5.7 below.
5.5.
Indebtedness.
Seller shall not, and shall
not permit any of its subsidiaries to, in each case without the
prior written consent of Purchaser, incur, assume or otherwise
become liable for (a) any Indebtedness if, after giving
effect to the incurrence thereof, the aggregate Indebtedness of
Seller and its subsidiaries on a consolidated basis would exceed
110.0% of the aggregate Indebtedness of Seller and its
subsidiaries on a consolidated basis as of June 30, 2008 or
(b) any Indebtedness if such Indebtedness is subordinated
by its terms to any other Indebtedness of Seller or the
applicable subsidiary. For purposes of this covenant the
acquisition of a subsidiary with Indebtedness will be deemed to
be the incurrence of such Indebtedness at the time of such
acquisition.
5.6.
Fundamental Changes.
Seller shall not,
and shall not permit any or its subsidiaries to, in each case
without the prior written consent of Purchaser, (i) merge
into or consolidate or amalgamate with any other Person, or
permit any other Person to merge into or consolidate or
amalgamate with it, (ii) effect a reorganization or
recapitalization involving the common stock of Seller, a
reclassification of the common stock of Seller or similar
corporate transaction or event or (iii) purchase, lease or
otherwise acquire (in one transaction or a series of
transactions) all or substantially all of the assets of any
other Person or any division, unit or business of any Person.
5.7.
Mortgage Assets.
Seller shall not own, as
of any applicable date, Mortgage Assets in excess of (i) on
December 31, 2009, $850 billion, or (ii) on
December 31 of each year thereafter, 90.0% of the aggregate
amount of Mortgage Assets of Seller as of December 31 of the
immediately preceding calendar year;
provided
, that in no
event shall Seller be required under this Section 5.7 to
own less than $250 billion in Mortgage Assets.
5.8.
Transactions with Affiliates.
Seller
shall not, and shall not permit any of its subsidiaries to,
without the prior written consent of Purchaser, engage in any
transaction of any kind or nature with an Affiliate of Seller
unless such transaction is (i) pursuant to this Agreement,
the Senior Preferred Stock or the Warrant, (ii) upon terms
no less favorable to Seller than would be ob-
- 9 -
tained in a comparable arm’s-length transaction with a
Person that is not an Affiliate of Seller or (iii) a
transaction undertaken in the ordinary course or pursuant to a
contractual obligation or customary employment arrangement in
existence as of the date hereof.
5.9.
Reporting.
Seller shall provide to
Purchaser:
(a) not later than the time period specified in the
SEC’s rules and regulations with respect to issuers as to
which Section 13 and 15(d) of the Exchange Act apply,
annual reports on
Form 10-K
(or any successor or comparable form) containing the information
required to be contained therein (or required in such successor
or comparable form);
(b) not later than the time period specified in the
SEC’s rules and regulations with respect to issuers as to
which Section 13 and 15(d) of the Exchange Act apply,
reports on
Form 10-Q
(or any successor or comparable form) containing the information
required to be contained therein (or required in such successor
or comparable form);
(c) promptly from time to time after the occurrence of an
event required to be therein reported (and in any event within
the time period specified in the SEC’s rules and
regulations), such other reports on
Form 8-K
(or any successor or comparable form);
(d) concurrently with any delivery of financial statements
under paragraphs (a) or (b) above, a certificate of
the Designated Representative, (i) certifying that Seller
is (and since the last such certificate has at all times been)
in compliance with each of the covenants contained herein and
that no representation made by Seller herein or in any document
delivered pursuant hereto or in connection herewith was false or
misleading in any material respect when made, or, if the
foregoing is not true, specifying the nature and extent of the
breach of covenant
and/or
representation and any corrective action taken or proposed to be
taken with respect thereto, and (ii) setting forth
computations in reasonable detail and satisfactory to the
Purchaser of the Deficiency Amount, if any;
(e) promptly, from time to time, such other information
regarding the operations, business affairs, plans, projections
and financial condition of Seller, or compliance with the terms
of this Agreement, as Purchaser may reasonably request; and
(f) as promptly as reasonably practicable, written note of
the following:
(i) the occurrence of the Liquidation End Date;
(ii) the filing or commencement of, or any written threat
or notice of intention of any Person to file or commence, any
action, suit or proceeding, whether at law or in equity or by or
before any governmental authority or in arbitration, against
Conservator, Seller or any other Person which, if adversely
determined, would reasonably be expected to have a Material
Adverse Effect;
(iii) any other development that is not a matter of general
public knowledge and that has had, or would reasonably be
expected to have, a Material Adverse Effect.
- 10 -
5.10.
Executive Compensation.
Seller shall
not, without the consent of the Director, in consultation with
the Secretary of the Treasury, enter into any new compensation
arrangements with, or increase amounts or benefits payable under
existing compensation arrangements of, any Named Executive
Officer of Seller.
6. MISCELLANEOUS
6.1.
No Third-Party Beneficiaries.
Until the
termination of the Commitment, at any time during the existence
and continuance of a payment default with respect to debt
securities issued by Seller
and/or
a
default by Seller with respect to any Mortgage Guarantee
Obligations, any holder of such defaulted debt securities or
beneficiary of such Mortgage Guarantee Obligations
(collectively, the “
Holders
”) may
(a) deliver notice to the Seller and the Designated
Representative requesting exercise of all rights available to
them under this Agreement to draw on the Commitment up to the
lesser of the amount necessary to cure the outstanding payment
defaults and the Available Amount as of the last day of the
immediately preceding fiscal quarter, and (b) if Seller and
the Designated Representative fail to act as requested within
thirty (30) days of such notice, or if Purchaser shall fail
to perform its obligations in respect of any draw on the
Commitment and Seller
and/or
the
Designated Representative shall not be diligently pursuing
remedies in respect of such failure, seek judicial relief
requiring Seller to draw on the Commitment or Purchaser to fund
the Commitment, as applicable. The Holders shall have no other
rights under or in respect of this Agreement, and the Commitment
shall not otherwise be enforceable by any creditor of Seller or
by any other Person other than the parties hereto, and no such
creditor or other Person is intended to be, or shall be, a third
party beneficiary of any provision of this Agreement.
6.2.
Non-Transferable; Successors.
The
Commitment is solely for the benefit of Seller and shall not
inure to the benefit of any other Person (other than the Holders
to the extent set forth in Section 6.1), including any
entity to which the charter of Seller may be transferred, to any
LLRE or to any other successor to the assets, liabilities or
operations of Seller. The Commitment may not be assigned or
otherwise transferred, in whole or in part, to any Person
(including, for the avoidance of doubt, any LLRE to which a
receiver has assigned all or a portion of Seller’s assets)
without the prior written consent of Purchaser (which may be
withheld in its sole discretion). In no event shall any
successor to Seller (including such an LLRE) be entitled to the
benefit of the Commitment without the prior written consent of
Purchaser. Seller and Conservator, for themselves and on behalf
of their permitted successors, covenant and agree not to
transfer or purport to transfer the Commitment in contravention
of the terms hereof, and any such attempted transfer shall be
null and void
ab initio.
It is the expectation of the
parties that, in the event Seller were placed into receivership
and an LLRE formed to purchase certain of its assets and assume
certain of its liabilities, the Commitment would remain with
Seller for the benefit of the holders of the debt of Seller not
assumed by the LLRE.
6.3.
Amendments; Waivers.
This Agreement may
be waived or amended solely by a writing executed by both of the
parties hereto, and, with respect to amendments to or waivers of
the provisions of Sections 5.3, 6.2 and 6.11, the
Conservator;
provided
,
however
, that no such
waiver or amendment shall decrease the aggregate Commitment or
add conditions to funding the amounts required to be funded by
Purchaser under the Commitment if such waiver or amendment
would,
- 11 -
in the reasonable opinion of Seller, adversely affect in any
material respect the holders of debt securities of Seller
and/or
the
beneficiaries of Mortgage Guarantee Obligations, in each case in
their capacities as such, after taking into account any
alternative arrangements that may be implemented concurrently
with such waiver or amendment. In no event shall any rights
granted hereunder prevent the parties hereto from waiving or
amending in any manner whatsoever the covenants of Seller
hereunder.
6.4.
Governing Law; Jurisdiction; Venue.
This
Agreement and the Warrant shall be governed by, and construed in
accordance with, the federal law of the United States of America
if and to the extent such federal law is applicable, and
otherwise in accordance with the laws of the State of New York.
The Senior Preferred Stock shall be governed as set forth in the
terms thereof. The United States District Court for the District
of Columbia shall have exclusive jurisdiction over all civil
actions arising out of this Agreement, the Commitment, the
Senior Preferred Stock and the Warrant, and venue for any such
civil action shall lie exclusively in the United States District
Court for the District of Columbia.
6.5.
Notices.
Any notices delivered pursuant
to or in connection with this Agreement shall be delivered to
the applicable parties at the addresses set forth below:
If to Seller:
Federal Home Loan Mortgage Corporation
c/o Federal
Housing Finance Authority
1700 G Street, NW
4th Floor
Washington, DC 20552
Attention: General Counsel
If to Purchaser:
United States Department of the Treasury
1500 Pennsylvania Avenue, NW
Washington DC 20220
Attention: Under Secretary for Domestic Finance
with a copy to:
United States Department of the Treasury
1500 Pennsylvania Avenue, NW
Washington DC 20220
Attention: General Counsel
If to Conservator:
Federal Housing Finance Authority
1700 G Street, NW
- 12 -
4th Floor
Washington, DC 20552
Attention: General Counsel
All notices and other communications provided for herein shall
be in writing and shall be delivered by hand or overnight
courier service, mailed by certified or registered mail. All
notices hereunder shall be effective upon receipt.
6.6.
Disclaimer of Guarantee.
This Agreement
and the Commitment are not intended to and shall not be deemed
to constitute a guarantee by Purchaser or any other agency or
instrumentality of the United States of the payment or
performance of any debt security or any other obligation,
indebtedness or liability of Seller of any kind or character
whatsoever.
6.7.
Effect of Order; Injunction; Decree.
If
any order, injunction or decree is issued by any court of
competent jurisdiction that vacates, modifies, amends,
conditions, enjoins, stays or otherwise affects the appointment
of Conservator as conservator of Seller or otherwise curtails
Conservator’s powers as such conservator (except in each
case any order converting the conservatorship to a receivership
under Section 1367(a) of the FHE Act), Purchaser may by
written notice to Conservator and Seller declare this Agreement
null and void, whereupon all transfers hereunder (including the
issuance of the Senior Preferred Stock and the Warrant and any
funding of the Commitment) shall be rescinded and unwound and
all obligations of the parties (other than to effectuate such
rescission and unwind) shall immediately and automatically
terminate.
6.8.
Business Day.
To the extent that any
deadline or date of performance of any right or obligation set
forth herein shall fall on a day other than a Business Day, then
such deadline or date of performance shall automatically be
extended to the next succeeding Business Day.
6.9.
Entire Agreement.
This Agreement,
together with the Senior Preferred Stock and Warrant, contains
the entire agreement between the parties hereto with respect to
the transactions contemplated hereby and supersedes and cancels
all prior agreements, including, but not limited to, all
proposals, term sheets, statements, letters of intent or
representations, written or oral, with respect thereto.
6.10.
Remedies.
In the event of a breach by
Seller of any covenant or representation of Seller set forth
herein, Purchaser shall be entitled to specific performance (in
the case of a breach of covenant), damages and such other
remedies as may be available at law or in equity;
provided
, that Purchaser shall not have the right to
terminate the Commitment solely as a result of any such breach,
and compliance with the covenants and the accuracy of the
representations set forth in this Agreement shall not be
conditions to funding the Commitment.
6.11.
Tax Reporting.
Neither Seller nor
Conservator shall take, or shall permit any of their respective
successors or assigns to take, a position for any tax,
accounting or other purpose that is inconsistent with Internal
Revenue Service Notice
2008-76
(or
the regulations to be issued pursuant to such Notice) regarding
the application of Section 382 of the Internal Revenue Code
of 1986, as amended, a copy of which Notice has been provided to
Seller in connection with the execution of this Agreement.
- 13 -
6.12.
Non-Severability.
Each of the provisions
of this Agreement is integrated with and integral to the whole
and shall not be severable from the remainder of the Agreement.
In the event that any provision of this Agreement, the Senior
Preferred Stock or the Warrant is determined to be illegal or
unenforceable, then Purchaser may, in its sole discretion, by
written notice to Conservator and Seller, declare this Agreement
null and void, whereupon all transfers hereunder (including the
issuance of the Senior Preferred Stock and the Warrant and any
funding of the Commitment) shall be rescinded and unwound and
all obligations of the parties (other than to effectuate such
rescission and unwind) shall immediately and automatically
terminate.
[Signature
Page Follows]
- 14 -
FEDERAL HOME LOAN MORTGAGE
CORPORATION, by
Federal Housing Finance Agency,
its Conservator
/s/ James
B. Lockhart III
James B. Lockhart III
Director
UNITED STATES DEPARTMENT
OF THE TREASURY
/s/ Henry
M. Paulson, Jr.
Henry M. Paulson, Jr.
Secretary of the Treasury
Acknowledged and, solely as
to Sections 5.3, 6.2 and 6.11,
agreed:
FEDERAL HOUSING
FINANCE AGENCY
as Conservator
/s/ James
B. Lockhart III
James B. Lockhart III
Director
Signature
Page to Senior Preferred Stock Purchase Agreement
Exhibit 10.2
EXECUTION
VERSION
FEDERAL HOME
LOAN MORTGAGE CORPORATION
WARRANT TO PURCHASE COMMON STOCK
|
|
|
|
NO. 2008-1
|
September
7, 2008
|
VOID AFTER
SEPTEMBER 7, 2028
THIS CERTIFIES THAT, for value received, the United States
Department of the Treasury, with its principal office at 1500
Pennsylvania Avenue, NW, Washington, DC 20220 (the
“
Holder
”), is entitled to purchase at the
Exercise Price (defined below) from Federal Home Loan Mortgage
Corporation, a government-sponsored enterprise of the United
States of America, with its principal office at 8200 Jones
Branch Drive, McLean, Virginia 22102 (the
“
Company
”), shares of common stock, no par
value, of the Company, as provided herein.
1.
Definitions
. As used herein, the following
terms shall have the following respective meanings:
“
Affiliate
” shall mean, as to any specified
Person, any other Person directly or indirectly controlling or
controlled by or under direct or indirect common control with
such specified Person. For the purposes of this definition,
“control,” when used with respect to any Person, means
the power to direct the management and policies of such Person,
directly or indirectly, whether through the ownership of voting
securities, by contract or otherwise and the terms
“affiliated,” “controlling” and
“controlled” have meanings correlative to the
foregoing.
“
Business Day
” shall mean each Monday, Tuesday,
Wednesday, Thursday and Friday that is not a day on which
banking institutions in New York, New York are authorized or
obligated by law or executive order to close.
“
Common Stock
” shall mean the common stock, no
par value, of the Company, and all other stock of any class or
classes (however designated) of the Company from time to time
outstanding, the holders of which have the right, without
limitation as to amount, either to all or to a share of the
balance of current dividends or liquidating distributions after
the payment of dividends and distributions on any shares
entitled to preference.
“
Exercise Period
” shall mean the time period
commencing with the date hereof and ending at 5:00 p.m. New
York time on the 20th anniversary of the date hereof.
“
Exercise Price
” shall mean one one-thousandth
of a cent ($0.00001) per share.
“
Exercise Shares
” shall mean the shares of the
Common Stock issuable upon exercise of this Warrant, subject to
adjustment pursuant to the terms herein, and shall also mean any
other shares, securities, assets or property otherwise issuable
upon exercise of this Warrant.
“
Fair Market Value
” shall mean, with respect to
a share of Common Stock, or any other security of the Company or
any other issuer:
(a) the volume weighted average daily Market Price
during the period of the most recent twenty (20) Trading
Days, ending on the last Trading Day before the date of
determination of Fair Market Value, if such class of Common
Stock or other security is (i) traded
on the New York Stock Exchange or any other U.S. national or
regional securities exchange, or admitted to unlisted trading
privileges on such an exchange, or (ii) is quoted or
reported on the
Over-the-Counter
Bulletin Board (“OTCBB”) or by Pink OTC Markets
Inc. or a similar organization or agency succeeding to its
functions of reporting prices; or
(b) if such class of Common Stock or other security
is not then so listed, admitted to trading or quoted, the Fair
Market Value shall be the Market Price on the last Business Day
before the date of determination at Fair Market Value.
“
Fully Diluted
” shall mean, as of immediately
prior to the exercise of this Warrant (or a portion of this
Warrant), the sum of, without duplication, (i) the total
number of shares of Common Stock outstanding and (ii) all
shares of Common Stock issuable in respect of securities
convertible into or exercisable or exchangeable for Common
Stock, stock appreciation rights or options, warrants (including
this Warrant) and other rights to purchase or subscribe for
Common Stock or securities convertible into or exercisable or
exchangeable for Common Stock (in each case, assuming that no
restrictions apply with respect to conversion, exercise,
exchange, subscription or purchase).
“
Market Price
” shall be, as of any specified
date with respect to any share of any class of Common Stock or
any other security of the Company or any other issuer:
(i) the closing price on that date or, if no closing
price is reported, the last reported sale price, of shares of
the Common Stock or such other security on the New York Stock
Exchange on that date; or
(ii) if the Common Stock or such other security is
not traded on the New York Stock Exchange, the closing price on
that date as reported in composite transactions for the
principal U.S. national or regional securities exchange on
which the Common Stock or such other security is so traded or,
if no closing price is reported, the last reported sale price of
shares of the Common Stock or such other security on the
principal U.S. national or regional securities exchange on
which the Common Stock or such other security is so traded on
that date; or
(iii) if the Common Stock or such other security is
not traded on a U.S. national or regional securities
exchange, the last quoted bid price on that date for the Common
Stock or such other security in the over-the-counter market as
reported (x) by the OTCBB or (y) if reports are
unavailable under clause (x) above by Pink OTC Markets Inc.
or a similar organization or agency succeeding to its functions
of reporting prices;
(iv) if the Common Stock or such other security is
not so quoted by OTCBB or Pink OTC Markets Inc. or a similar
organization, the Market Price shall be determined in accordance
with the Valuation Procedure.
“
Participating Securities
” shall mean,
(i) any equity security (other than Common Stock) that
entitles the holders thereof to participate in liquidations or
other distributions with the holders of Common Stock or
otherwise participate in the capital of the Company other than
through a fixed or floating rate of return on capital loaned or
invested, and (ii) any stock appreciation rights, phantom
stock rights, or any other profit participation rights with
respect to
- 2 -
any of the Company’s capital stock or other equity
ownership interest, or any rights or options to acquire any such
rights.
“
Person
” shall mean any individual,
corporation, limited liability company, partnership, joint
venture, association, joint-stock company, trust, estate,
unincorporated organization or government or any agency or
political subdivision thereof, or any other entity whatsoever.
“
Trading Day
” shall mean, with respect to any
class of Common Stock or any other security of the Company or
any other issuer a day (i) on which the securities exchange
or other trading platform applicable for purposes of determining
the Market Price of a share or unit of such class of Common
Stock or other security shall be open for business or
(ii) for which quotations from such securities exchange or
other trading platform of the character specified for purposes
of determining such Market Price shall be reported.
“
Valuation Procedure
” shall mean a
determination made in good faith by the Board of Directors of
the Company (the “
Board
”) that is set forth in
resolutions of the Board that are certified by the Secretary of
the Company, which certified resolutions (i) set forth the
basis of the Board’s determination, which, in the case of a
valuation in excess of $100 million, shall include the
Board’s reliance on the valuation of a nationally
recognized investment banking or appraisal firm, and (ii) are
delivered to the Holder within ten (10) Business Days
following such determination. A Valuation Procedure with respect
to the value of any capital stock shall be based on the price
that would be paid for all of the capital stock of the issuer in
an arm’s-length transaction between a willing buyer and a
willing seller (neither acting under compulsion).
2.
Exercise of Warrant; Number of Shares
.
2.1
Exercise
. This Warrant may be exercised in
whole or in part at any time during the Exercise Period, by
delivery of the following to the Company at its address set
forth above (or at such other address as it may designate by
notice in writing to the Holder):
(a) an executed Notice of Exercise in the form
attached hereto;
(b) payment of the Exercise Price (i) in cash or
by check, (ii) by cancellation of indebtedness or
(iii) pursuant to Section 2.2 hereof; and
(c) this Warrant.
This Warrant will be exercisable for a number of shares of
Common Stock that, together with the shares of Common Stock
previously issued pursuant to this Warrant, is equal to 79.9% of
the total number of shares of Common Stock outstanding on a
Fully Diluted basis on the date of exercise. Whenever the Holder
exercises this Warrant in whole or in part, it may assign its
right to receive the Exercise Shares issuable upon such exercise
to any other Person.
As soon as practicable (and in any event within five Business
Days) after this Warrant shall have been exercised, a
certificate or certificates for the Exercise Shares so
purchased, registered in the name of the Holder or such other
Person as may be designated by the Holder (to the extent such
transfer is not validly restricted and upon payment of any
transfer taxes that are
- 3 -
required to be paid by the Holder in connection with any such
transfer), shall be issued and delivered by the Company to the
Holder or such other Person.
The Person in whose name any certificate or certificates for the
Exercise Shares are to be issued upon exercise of this Warrant
shall be deemed to have become the holder of record of such
shares on the date on which this Warrant was surrendered and
payment of the Exercise Price was made, irrespective of the date
of delivery of such certificate or certificates, except that, if
the date of such surrender and payment is a date when the stock
transfer books of the Company are closed, such Person shall be
deemed to have become the holder of such shares at the close of
business on the next succeeding date on which the stock transfer
books are open (whether before or after the end of the Exercise
Period).
2.2
Net Exercise
. Notwithstanding any
provision herein to the contrary, if the Market Price of one
share of the Common Stock is greater than the Exercise Price (at
the date of calculation as set forth below), in lieu of
exercising this Warrant by payment of cash, check or
cancellation of indebtedness, the Holder may elect (the
“
Conversion Right
”) to receive shares equal to
the value (as determined below) of this Warrant (or the portion
thereof being canceled) by surrender of this Warrant at the
principal office of the Company together with the properly
endorsed Notice of Exercise in which event the Company shall
issue to the Holder a number of shares of Common Stock computed
using the following formula:
X =
Y (A − B)
A
Where X = the number of shares of Common Stock to be issued
Y = the number of shares of Common Stock purchasable under this
Warrant or, if only a portion of this Warrant is being
exercised, the portion of this Warrant being exercised (at the
date of such calculation)
A = the Market Price of one share of the Common Stock (at the
date of such calculation)
B = Exercise Price (as adjusted pursuant to the terms herein to
the date of such calculation)
The Company shall pay all reasonable administrative costs
incurred by the Holder in connection with the exercise of the
Conversion Right by the Holder pursuant to this Section 2.2.
3.
Covenants and Representations of the Company
3.1
Covenants as to Exercise Shares
.
(a) The Company covenants and agrees that all
Exercise Shares that may be issued upon the exercise of this
Warrant will, upon issuance, be validly authorized, issued and
outstanding, fully paid and nonassessable, free of preemptive
rights and free from all taxes, liens and charges with respect
to the issuance thereof. If the Common Stock or the class of
securities of any other Exercise Shares is then listed or quoted
on a national securities exchange
- 4 -
or a regional securities exchange, all such Exercise Shares
shall, upon issuance, also be so listed or quoted. The Company
further covenants and agrees that the Company will at all times
during the Exercise Period, have authorized and reserved solely
for purposes of the exercise of this Warrant, free from
preemptive rights, a sufficient number of shares of its Common
Stock or the class of securities of any other Exercise Shares to
provide for the exercise in full of this Warrant (without taking
into account any possible exercise pursuant to Section 2.2
hereof). If at any time during the Exercise Period the number of
authorized but unissued shares of Common Stock or the class of
securities of any other Exercise Shares shall not be sufficient
to permit exercise in full of this Warrant (without taking into
account any possible exercise pursuant to Section 2.2
hereof), the Company will take such corporate action as shall be
necessary to increase its authorized but unissued shares of
Common Stock or the class of securities of any other Exercise
Shares to such number of shares as shall be sufficient for such
purposes.
(b) If at any time the Exercise Shares shall include
any shares or other securities other than shares of Common
Stock, or any other property or assets, the terms of this
Warrant shall be modified or supplemented (and in the absence of
express written documentation thereof, shall be deemed to be so
modified or supplemented), and the Company shall take all
actions as may be necessary to preserve, in a manner and on
terms as nearly equivalent as practicable to the provisions of
this Warrant as they apply to the Common Stock, the rights of
the Holder hereunder, including any equitable replacements of
the term “Common Stock” with the term “Exercise
Shares” and adjustments of any formula included herein.
(c) The Company’s filings under the Securities
Exchange Act of 1934, as amended (the “
Exchange
Act
”), will comply in all material respects as to form
with the Exchange Act and the rules and regulations thereunder.
(d) Without prior written consent of the Holder, the
Company shall not permit any Significant Subsidiary (as defined
by
Rule 1-02(w)
of
Regulation S-X
under the Securities Act or any successor rule) to
(i) issue or grant any capital stock or equity ownership
interest, including any Participating Security; (ii) any
rights, options, warrants or convertible security that is
exercisable for or convertible into any capital stock or other
equity ownership interest, including any Participating Security;
or (iii) any stock appreciation rights, phantom stock
rights, or any other profit participation rights, or any rights
or options to acquire any such rights, in each case of clauses
(i), (ii) and (iii) above, to any Person other than
the Company or its wholly owned subsidiaries.
(e) The Company shall not take any action that will
result in an increase in the par value of the Common Stock.
3.2
No Impairment
. Except and to the extent as
waived or consented to in writing by the Holder, the Company
will not, by amendment of its charter, bylaws or other governing
documents or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities
or any other action, avoid or seek to avoid the observance or
performance of any of the terms to be observed or performed
hereunder by the Company, but will at all times in good faith
assist in the carrying out of all the provisions of this Warrant
and in the taking of all such action as may be necessary or
appropriate in order to protect the exercise rights of the
Holder against impairment or dilution consistent with the intent
and principles
- 5 -
expressed herein. If any event or occurrence shall occur
(including without limitation, stock dividends and stock splits)
as to which the failure to make any adjustment to the Exercise
Price
and/or
the number of shares or other assets or property subject to this
Warrant would adversely affect the purchase rights or value
represented by this Warrant, including any issuance of Common
Stock or Participating Securities, then, in each such case, the
Company shall determine the adjustment, if any, on a basis
consistent with the essential intent and principles herein,
necessary to preserve, without dilution, the purchase rights
represented by this Warrant. If such determination involves or
is based on a determination of the Fair Market Value of any
securities or other assets or property, such determination shall
be made in accordance with the Valuation Procedure. Without
limiting the foregoing, in the event of any dividend or
distribution by the Company of assets or property (including
shares of any other Person) on or with respect to the Common
Stock, or any exchange of the shares of Common Stock into any
other assets, property or securities, this Warrant will be
equitably adjusted to permit the Holder to receive upon exercise
the assets, property or securities that would have been received
if the Warrant had been exercised immediately prior to such
dividend, distribution or exchange.
3.3
Notice of Record Date
. In the event
(i) the Company takes a record of the holders of any class
of securities for the purpose of determining the holders thereof
who are entitled to receive any dividend or other distribution,
(ii) the Company authorizes the granting to the holders of
Common Stock (or holders of the class of securities of any other
Exercise Shares) of rights to subscribe to or purchase any
shares of capital stock of any class or securities convertible
into any shares of capital stock or of any other right,
(iii) the Company authorizes any reclassification of, or
any recapitalization involving, any class of Common Stock or any
consolidation or merger to which the Company is a party and for
which approval of the stockholders of the Company is required,
or of the sale or transfer of all or substantially all of the
assets of the Company, (iv) the Company authorizes or
consents to or otherwise commences the voluntary or involuntary
dissolution, liquidation or winding up of the Company or
(v) the Company authorizes or takes any other action that
would trigger an adjustment in the Exercise Price or the number
or amount of shares of Common Stock or other Exercise Shares
subject to this Warrant, the Company shall mail to the Holder,
at least ten (10) days prior to the earlier of the record
date for any such action or stockholder vote and the date of
such action, a notice specifying (a) which action is to be
taken and the date on which any such record is to be taken for
the purpose of any such action, (b) the date that any such
action is to take place and (c) the amount and character of
any stock, other securities or property and amounts, or rights
or options with respect thereto, proposed to be issued, granted
or delivered to each holder of Common Stock (or holders of the
class of securities of any other Exercise Shares).
4.
Fractional Shares
. No fractional shares
shall be issued upon the exercise of this Warrant. All Exercise
Shares (including fractions) issuable upon exercise of this
Warrant may be aggregated for purposes of determining whether
the exercise would result in the issuance of any fractional
share. If, after aggregation, the exercise would result in the
issuance of a fractional share, the Company shall, in lieu of
issuance of any fractional share, pay the Holder otherwise
entitled to such fraction a sum in cash equal to the product
resulting from multiplying such fractional amount by the Fair
Market Value of one share of Common Stock.
- 6 -
5.
Listing Rights
. The Company shall use its
best efforts, upon the request of the Holder, to cause the
Exercise Shares to be listed or quoted on a national securities
exchange or a regional securities exchange.
6.
No Stockholder Rights or Liabilities
.
Without limiting the consent rights of the Holder contained in
Section 3, this Warrant in and of itself shall not entitle
the Holder to any voting rights or other rights as a stockholder
of the Company. No provision of this Warrant, in the absence of
affirmative action by the Holder to exercise this Warrant in
exchange for shares of Common Stock, and no mere enumeration
herein of the rights or privileges of the Holder, shall give
rise to any liability of the Holder for the Exercise Price or as
a stockholder of the Company, whether such liability is asserted
by the Company or by creditors of the Company.
7.
Transfer of Warrant
. This Warrant is not
transferable; provided, however, that the Holder may assign its
rights to receive shares upon exercise of this Warrant pursuant
to Section 2.1.
8.
Payment of Taxes on Stock Certificate Issues
Upon Exercise
. The initial issuance of certificates of
Common Stock upon any exercise of this Warrant shall be made
without charge to the exercising Holder for any transfer, stamp
or similar tax or for any other governmental charges that may be
imposed in respect of the issuance of such stock certificates,
and such stock certificates shall be issued in the respective
names of, or in such names as may be directed by, the Holder;
provided, however, that the Company shall not be required to pay
any tax or such other charges that may be payable in respect of
any transfer involved in the issuance and delivery of any such
stock certificate, any new warrants or other securities in a
name other than that of the Holder upon exercise of this Warrant
(other than to an Affiliate), and the Company shall not be
required to issue or deliver such certificates or other
securities unless and until the Person or Persons requesting the
issuance thereof shall have paid to the Company the amount of
such tax or shall have established to the satisfaction of the
Company that such tax has been paid or is not payable.
9.
Lost, Stolen, Mutilated or Destroyed
Warrant
. If this Warrant is lost, stolen, mutilated or
destroyed, the Company may, on such terms as to indemnity or
otherwise as it may reasonably impose (which shall, in the case
of a mutilated Warrant, include the surrender thereof), issue a
new Warrant of like denomination and tenor as this Warrant so
lost, stolen, mutilated or destroyed. Any such new Warrant shall
constitute an original contractual obligation of the Company,
whether or not the allegedly lost, stolen, mutilated or
destroyed Warrant shall be at any time enforceable by anyone.
10.
Closing of Books
. The Company will at no
time close its transfer books against the transfer of any shares
of Common Stock issued or issuable upon the exercise or
conversion of any Warrant in any manner which interferes with
the timely exercise or conversion of this Warrant.
- 7 -
11.
Notices, Etc
. All notices required or
permitted hereunder shall be in writing and shall be deemed
effectively given: (a) upon personal delivery to the party
to be notified, (b) when sent by confirmed telex or
facsimile if sent during normal business hours of the recipient
or if not, then on the next Business Day, (c) five
(5) days after having been sent by registered or certified
mail, return receipt requested, postage prepaid, or (d) one
(1) Business Day after deposit with a nationally recognized
overnight courier, specifying next Business Day delivery, with
written verification of receipt. All notices and other
communications shall be sent to the Company at the address
listed on the signature page and to Holder at the address set
forth below or at such other address as the Company or Holder
may designate by ten (10) days advance written notice to
the other parties hereto:
United States Department of the Treasury
1500 Pennsylvania Avenue, NW
Washington, DC 20220
Attn: Under Secretary for Domestic Finance
with a copy to:
United States Department of the Treasury
1500 Pennsylvania Avenue, NW
Washington, DC 20220
Attn: General Counsel
12.
Acceptance
. Receipt of this Warrant by the
Holder shall constitute acceptance of and agreement to all of
the terms and conditions contained herein.
13.
Binding Effect on Successors
. This Warrant
shall be binding upon any Person succeeding the Company by
merger, consolidation or acquisition of all or substantially all
of the Company’s assets, and all of the obligations of the
Company relating to the Common Stock issuable upon the exercise
or conversion of this Warrant shall survive the exercise,
conversion and termination of this Warrant and all of the
covenants and agreements of the Company shall inure to the
benefit of the successors and assigns of the Holder.
14.
Governing Law
. This Warrant and all
rights, obligations and liabilities hereunder shall be governed
and construed in accordance with Federal law, if and to the
extent such Federal law is applicable, and otherwise in
accordance with the law of the State of New York.
- 8 -
IN WITNESS WHEREOF, the Company has caused this Warrant to be
executed by its duly authorized officer as of September 7,
2008.
FEDERAL HOME LOAN MORTGAGE
CORPORATION, by
The Federal Housing Finance Agency, its Conservator
/s/ James
B. Lockhart III
James B. Lockhart III
Director
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Address:
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8200 Jones Branch Drive
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McLean, Virginia 22102
Signature Page to Warrant
NOTICE
OF EXERCISE
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TO:
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FEDERAL HOME
LOAN MORTGAGE CORPORATION
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(1)
o
The
undersigned hereby elects to purchase
shares of the Common Stock of Federal Home Loan Mortgage
Corporation (the “
Company
”) pursuant to the
terms of the attached Warrant, and tenders herewith or is
delivering by wire transfer to account number
at
(bank) payment of the exercise price in full.
o
The
undersigned hereby elects to purchase
shares of the Common Stock of the Company pursuant to the terms
of the net exercise provisions set forth in Section 2.2 of
the attached Warrant.
(2) Please issue a certificate or
certificates representing said shares of Common Stock in the
name of the undersigned or in such other name as is specified
below:
(Name)
(Address)
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(Date)
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(Signature)
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(Print name)
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Exhibit 99.1
FEDERAL HOUSING FINANCE AGENCY
STATEMENT
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Contact:
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Corinne
Russell (202) 414-6921
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Stefanie
Mullin (202) 414-6376
For Immediate
Release September 7, 2008
STATEMENT
OF FHFA DIRECTOR JAMES B. LOCKHART
Good Morning
Fannie Mae and Freddie Mac share the critical mission of
providing stability and liquidity to the housing market. Between
them, the Enterprises have $5.4 trillion of guaranteed
mortgage-backed securities (MBS) and debt outstanding, which is
equal to the publicly held debt of the United States. Their
market share of all new mortgages reached over 80 percent
earlier this year, but it is now falling. During the turmoil
last year, they played a very important role in providing
liquidity to the conforming mortgage market. That has required a
very careful and delicate balance of mission and safety and
soundness. A key component of this balance has been their
ability to raise and maintain capital. Given recent market
conditions, the
1
balance has been lost. Unfortunately, as house prices, earnings
and capital have continued to deteriorate, their ability to
fulfill their mission has deteriorated. In particular, the
capacity of their capital to absorb further losses while
supporting new business activity is in doubt.
Today’s action addresses safety and soundness concerns.
FHFA’s rating system is called GSE Enterprise Risk or
G-Seer.
It
stands for Governance, Solvency, Earnings and Enterprise Risk
which includes credit, market and operational risk. There are
pervasive weaknesses across the board, which have been getting
worse in this market.
Over the last three years OFHEO, and now FHFA, have worked hard
to encourage the Enterprises to rectify their accounting,
systems, controls and risk management issues. They have made
good progress in many areas, but market conditions have
overwhelmed that progress.
The result has been that they have been unable to provide needed
stability to the market. They also find themselves unable to
meet their affordable housing mission. Rather than letting these
conditions fester and worsen and put our markets in jeopardy,
FHFA, after painstaking review, has decided to take action now.
2
Key events over the past six months have demonstrated the
increasing challenge faced by the companies in striving to
balance mission and safety and soundness, and the ultimate
disruption of that balance that led to today’s
announcements. In the first few months of this year, the
secondary market showed significant deterioration, with buyers
demanding much higher prices for mortgage backed securities.
In February, in recognition of the remediation progress in
financial reporting, we removed the portfolio caps on each
company, but they did not have the capital to use that
flexibility.
In March, we announced with the Enterprises an initiative to
increase mortgage market liquidity and market confidence. We
reduced the OFHEO-directed capital requirements in return for
their commitments to raise significant capital and to maintain
overall capital levels well in excess of requirements.
In April, we released our Annual Report to Congress, identifying
each company as a significant supervisory concern and noting, in
particular, the deteriorating mortgage credit environment and
the risks it posed to the companies.
3
In May OFHEO lifted its 2006 Consent Order with Fannie Mae after
the company completed the terms of that order. Subsequently,
Fannie Mae successfully raised $7.4 billion of new capital,
but Freddie Mac never completed the capital raise promised in
March.
Since then credit conditions in the mortgage market continued to
deteriorate, with home prices continuing to decline and mortgage
delinquency rates reaching alarming levels. FHFA intensified its
reviews of each company’s capital planning and capital
position, their earnings forecasts and the effect of falling
house prices and increasing delinquencies on the credit quality
of their mortgage book.
In getting to today, the supervision team has spent countless
hours reviewing with each company various forecasts, stress
tests, and projections, and has evaluated the performance of
their internal models in these analyses. We have had many
meetings with each company’s management teams, and have had
frank exchanges regarding loss projections, asset valuations,
and capital adequacy. More recently, we have gone the extra step
of inviting the Federal Reserve and the OCC to have some of
their senior mortgage credit experts join our team in these
assessments.
4
The conclusions we reach today, while our own, have had the
added benefit of their insight and perspective.
After this exhaustive review, I have determined that the
companies cannot continue to operate safely and soundly and
fulfill their critical public mission, without significant
action to address our concerns, which are:
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the safety and soundness issues I mentioned, including current
capitalization;
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current market conditions;
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the financial performance and condition of each company;
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the inability of the companies to fund themselves according to
normal practices and prices; and
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the critical importance each company has in supporting the
residential mortgage market in this country,
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Therefore, in order to restore the balance between safety and
soundness and mission, FHFA has placed Fannie Mae and Freddie
Mac into conservatorship. That is a statutory process designed
to stabilize a troubled institution with the
5
objective of returning the entities to normal business
operations. FHFA will act as the conservator to operate the
Enterprises until they are stabilized.
The Boards of both companies consented yesterday to the
conservatorship. I appreciate the cooperation we have received
from the boards and the management of both Enterprises. These
individuals did not create the inherent conflict and flawed
business model embedded in the Enterprises’ structure.
The goal of these actions is to help restore confidence in
Fannie Mae and Freddie Mac, enhance their capacity to fulfill
their mission, and mitigate the systemic risk that has
contributed directly to the instability in the current market.
The lack of confidence has resulted in continuing spread
widening of their MBS, which means that virtually none of the
large drop in interest rates over the past year has been passed
on to the mortgage markets. On top of that, Freddie Mac and
Fannie Mae, in order to try to build capital, have continued to
raise prices and tighten credit standards.
FHFA has not undertaken this action lightly. We have consulted
with the Chairman of the Board of Governors of the Federal
Reserve System, Ben Bernanke, who was appointed a consultant to
FHFA under the new legislation. We
6
have also consulted with the Secretary of the Treasury, not only
as an FHFA Oversight Board member, but also in his duties under
the law to provide financing to the GSEs. They both concurred
with me that conservatorship needed to be undertaken now.
There are several key components of this conservatorship:
First, Monday morning the businesses will open as normal, only
with stronger backing for the holders of MBS, senior debt and
subordinated debt.
Second, the Enterprises will be allowed to grow their guarantee
MBS books without limits and continue to purchase replacement
securities for their portfolios, about $20 billion per
month without capital constraints.
Third, as the conservator, FHFA will assume the power of the
Board and management.
Fourth, the present CEOs will be leaving, but we have asked them
to stay on to help with the transition.
7
Fifth, I am announcing today I have selected Herb Allison to be
the new CEO of Fannie Mae and David Moffett the CEO of Freddie
Mac. Herb has been the Vice Chairman of Merrill Lynch and for
the last eight years chairman of
TIAA-CREF.
David was the Vice Chairman and CFO of US Bancorp. I
appreciate the willingness of these two men to take on these
tough jobs during these challenging times. Their compensation
will be significantly lower than the outgoing CEOs. They will be
joined by equally strong non-executive chairmen.
Sixth, at this time any other management action will be very
limited. In fact, the new CEOs have agreed with me that it is
very important to work with the current management teams and
employees to encourage them to stay and to continue to make
important improvements to the Enterprises.
Seventh, in order to conserve over $2 billion in capital
every year, the common stock and preferred stock dividends will
be eliminated, but the common and all preferred stocks will
continue to remain outstanding. Subordinated debt interest and
principal payments will continue to be made.
Eighth, all political activities — including all
lobbying — will be halted immediately. We will review
the charitable activities.
8
Lastly and very importantly, there will be the financing and
investing relationship with the U.S. Treasury, which
Secretary Paulson will be discussing. We believe that these
facilities will provide the critically needed support to Freddie
Mac and Fannie Mae and importantly the liquidity of the mortgage
market.
One of the three facilities he will be mentioning is a secured
liquidity facility which will be not only for Fannie Mae and
Freddie Mac, but also for the 12 Federal Home Loan Banks
that FHFA also regulates. The Federal Home Loan Banks have
performed remarkably well over the last year as they have a
different business model than Fannie Mae and Freddie Mac and a
different capital structure that grows as their lending activity
grows. They are joint and severally liable for the Bank
System’s debt obligations and all but one of the 12 are
profitable. Therefore, it is very unlikely that they will use
the facility.
During the conservatorship period, FHFA will continue to work
expeditiously on the many regulations needed to implement the
new law. Some of the key regulations will be minimum capital
standards, prudential safety and soundness standards and
portfolio limits. It is critical to complete these regulations
so that any new investor will understand the investment
proposition.
9
This decision was a tough one for the FHFA team as they have
worked so hard to help the Enterprises remain strong suppliers
of support to the secondary mortgage markets. Unfortunately, the
antiquated capital requirements and the turmoil in housing
markets over-whelmed all the good and hard work put in by the
FHFA teams and the Enterprises’ managers and employees.
Conservatorship will give the Enterprises the time to restore
the balances between safety and soundness and provide affordable
housing and stability and liquidity to the mortgage markets. I
want to thank the FHFA employees for their work during this
intense regulatory process. They represent the best in public
service. I would also like to thank the employees of Fannie Mae
and Freddie Mac for all their hard work. Working together we can
finish the job of restoring confidence in the Enterprises and
with the new legislation build a stronger and safer future for
the mortgage markets, homeowners and renters in America.
Thank you and I will now turn it back to Secretary Paulson.
10
