FEDERAL HOME LOAN MORTGAGE CORPORATION NONQUALIFIED STOCK OPTION AGREEMENT
Exhibit
10.3
This NONQUALIFIED STOCK OPTION AGREEMENT is dated
,
2005 (the “Grant Date”) by and between the Federal
Home Loan Mortgage Corporation (the “Corporation”) and
(“Grantee”), pursuant to the Federal Home Loan
Mortgage Corporation 2004 Stock Compensation Plan (the
“Plan”).
1. Grants. (a) Nonqualified
Stock Options. The Corporation has granted to
Grantee a Nonqualified Stock Option (the “Option”) to
purchase
shares of the Common Stock of the Corporation ($0.21 par value)
at a purchase price of
$
per share. The Option is subject to all applicable provisions of
the Plan, the relevant resolution of the Compensation and Human
Resources Committee and to the terms and conditions set forth
herein. The Option is not intended to constitute an incentive
stock option within the meaning of Section 422 of the
Internal Revenue Code of 1986, as amended.
(b) Dividend Equivalents. The
Corporation has also granted to Grantee the right to receive
from the Corporation an amount equivalent to the dividends
declared on the number of shares of Common Stock with respect to
which the Option is exercised or has expired, the record dates
for which dividends have occurred during the period the Option
was outstanding (“Dividend Equivalents”), subject to
Sections 3 and 4 hereof. Such Dividend Equivalents shall be
subject to all terms and conditions (including forfeitures)
otherwise applicable to the Option. Payment of such Dividend
Equivalents shall be made in cash upon exercise of the Option
(in whole or in part) or, to the extent that the Option is not
exercised, upon the Expiration Date (as defined below).
Notwithstanding the foregoing, the amount so payable shall be
reduced by the amount of all Federal, state, local and other
taxes that may be required to be withheld by the Corporation
with respect to such payment.
(c) Restrictions. Grantee
acknowledges and agrees that (i), the Option and related
Dividend Equivalents rights are nontransferable, except as
provided in Section 5(a) hereof and Section 6.6 of the
Plan; (ii) the Option and related Dividend Equivalents
rights are subject to forfeiture in the event of Grantee’s
Termination in certain circumstances, as specified in
Section 2 hereof; (iii) Grantee is subject to the
Corporation’s Code of Conduct and related policies on
xxxxxxx xxxxxxx which restrict Grantee’s ability to sell
shares of the Corporation’s Common Stock received upon
exercise of the Option, which may include “blackout”
periods during which Grantee may not engage in such sales; and
(iv) the Option, and certain gains realized by Grantee upon
exercise of the Option, are subject to forfeiture in the event
Grantee fails to meet applicable requirements relating to
non-competition, non-solicitation of employees and others, and
other provisions protecting the Corporation’s business, as
set forth in Section 4 hereof
(d) Coordination with Plan. All of
the terms, conditions and other provisions of the Plan are
hereby incorporated by reference into this Nonqualified Stock
Option Agreement (the “Agreement”). Capitalized terms
used in this Agreement but not defined herein shall have the
same meanings as in the Plan. If there is any conflict between
the provisions of this Agreement and the provisions of the Plan,
the provisions of the Plan shall govern. A copy of the
Plan is available on the Human Resources homepage of the
Corporation’s intranet site. Grantee hereby agrees to be
bound by the Plan (as presently in effect or hereafter amended)
and this Agreement, and by all decisions and determinations of
the Compensation and Human Resources Committee of the Board of
Directors (including any delegate) (the “Committee”)
thereunder.
2. Rights of
Exercise. (a) Exercisability and
Expiration Date. Any portion of the Option that
has become vested may be exercised by Grantee, in whole or in
part, at any time or from time to time on or before the tenth
anniversary of the Grant Date (the “Expiration Date”)
if Grantee remains continuously employed by the Corporation
through the date of such exercise, and the Option otherwise will
be exercisable if and to the extent so provided in
Section 2(c) below. Except as provided in
Section 2(c), the Option shall become vested and
exercisable at the times and to the extent set forth below:
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Additional percentage of shares in |
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During the period |
respect of which the |
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commencing
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Option may be exercised
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1st
anniversary of the Grant Date
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25% | |
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2nd
anniversary of the Grant Date
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25% | |
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3rd
anniversary of the Grant Date
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25% | |
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4th
anniversary of the Grant Date
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25% |
provided, however, that only whole shares shall vest, and
fractional shares (if any) produced by application of the
relevant percentage will be added to the number of shares
produced by application of the relevant percentage in the next
vesting period, and will vest when a whole number is attained.
Except as provided in this Agreement, the Option may not be
exercised at any time other than as specified in this
Section 2, and shall expire if not exercised in full on or
before the Expiration Date.
(b) Form of Exercise. The Option
shall be exercised by Grantee giving notice of such exercise to
the Corporation (or its designee), in such form as the
Corporation may require in its sole discretion. Such notice
shall specify the number of shares to be purchased and shall be
accompanied by full payment of the purchase price of such shares
(the “Exercise Price”) plus an additional amount equal
to the Federal, state, local and other taxes required to be
withheld by the Corporation with respect to the exercise of the
Option. Payment of the Exercise Price and related withholding
taxes shall be made in cash or by any other method then approved
by the Committee under Section 7.1(b) of the Plan. Unless
otherwise determined by the Committee, permitted exercise
methods shall include a method by which shares of Common Stock
of the Corporation may be surrendered in payment of the Exercise
Price and related withholding taxes. In addition, the Committee
may determine to permit (i) shares subject to the Option to
be withheld to pay the Exercise Price and related withholding
taxes, and/or (ii) payment of the Exercise Price and
related withholding taxes by Grantee irrevocably instructing a
broker-dealer to sell part or all of the shares subject to the
Option, simultaneously with such exercise or as soon as
practicable thereafter, at the market in a broker’s
transaction (within the meaning of Section 4(4) of the
Securities Act of 1933, as amended), with proceeds of such sale
to be remitted to the Corporation in an amount sufficient to pay
such Exercise Price and related withholding taxes. The
availability of any methods other than cash payment, and the
right of Grantee to use a
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combination of such methods, shall be subject to the
determinations and rules of the Committee under
Section 7.1(b) of the Plan and limitations under applicable
law.
(c) Termination Provisions.
(i) Upon Death While Employed. In
the event of the death of Grantee while in the employ of the
Corporation but on or before the Expiration Date, any
restrictions on exercise otherwise applicable to the Option
under Section 2(a) shall lapse immediately and
Grantee’s Beneficiary shall have the right to exercise the
unexercised portion of the Option during the thirty-six month
period that begins as of the date of death (but ends not later
than the Expiration Date); provided, however, that, at the end
of such thirty-six month period (or the Expiration Date, if
earlier), the Option shall cease to be exercisable.
(ii) Upon Disability. In the event
Grantee ceases to be an employee of the Corporation on or before
the Expiration Date by reason of Disability (as defined in the
Plan), any restrictions on exercise otherwise applicable to the
Option under Section 2(a) shall lapse immediately and
Grantee shall have the right to exercise the unexercised portion
of the Option at any time on or before the Expiration Date
(except as limited under Section 2(c)(iv)).
(iii) Upon a Qualifying
Retirement. In the event Grantee ceases to be an
employee of the Corporation on or before the Expiration Date by
reason of a Qualifying Retirement (as defined below), the Option
shall not be forfeited upon such Termination, but the
restrictions on exercise under Section 2(a) (if any) shall
continue, so that Grantee thereafter may exercise the Option at
such time and to the extent as it has become exercisable in
accordance with Section 2(a) at any time on or before the
Expiration Date (except as limited under Section 2(c)(iv)).
For purposes of this Agreement, a “Qualifying
Retirement” shall mean Grantee’s ceasing to be an
employee of the Corporation (whether or not such Termination is
a “Retirement” as defined in the Plan), other than a
Termination by the Corporation for Gross Misconduct (as defined
in Corporate Policy
No. 3-254.1
or 3-254, as
applicable (as may be amended or replaced from time to time) as
determined by the Chief Executive Officer or a Termination
subject to Section 2(c)(i) or (ii), at least one year after
the date of grant of the Option, if, at the time of such
Termination, (A) Grantee has attained (or exceeded)
age 55 and has at least ten years of service with the
Corporation or has attained (or exceeded) age 62 and at least
five years of service with the Corporation, and (B) Grantee
has executed and is subject to a written agreement containing
such non-competition, non-solicitation, and other covenants, and
a release of the Corporation, in form and substance satisfactory
to the Chief Executive Officer in order to protect to the
maximum extent practicable the confidential and proprietary
business information of the Corporation. The Corporation’s
remedies under any such agreement may include but shall not be
limited to cancellation and forfeiture of the unexercised
portion of the Option. For purposes of this
Section 2(c)(iii), “years of service” shall be
defined (and calculated) in the same manner as “year of
qualifying service” under the Federal Home Loan Mortgage
Corporation Employees’ Pension Plan
(iv) Forfeiture. In the event
Grantee ceases to be an employee of the Corporation prior to the
Expiration Date for any reason other than death, Disability or
Qualifying Retirement, the portion of the Option which, as of
the date of Termination, remains unvested and
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subject to the exercise restrictions shall be forfeited, and
Grantee shall have 90 days after the date of Termination in
which to exercise any portion of the Option which, as of the
date of Termination, was exercisable.
(v) Upon Death After Employment. In
the event of the death of Grantee after Grantee has ceased to be
in the employ of the Corporation but at a time that any portion
of the Option remains exercisable under clauses (ii),
(iii) or (iv) of this Section 2(c), any
restrictions on exercise otherwise applicable to such portion of
the Option under Section 2(a) shall lapse immediately and
Grantee’s Beneficiary shall have the right to exercise the
unexercised portion of the Option during the
36-month
period that begins as of the date of death; provided, however,
that, at the end of such
36-month
period, the Option shall cease to be exercisable (the provisions
of clauses (ii) and (iii) of this Section 2(c)
notwithstanding). The foregoing notwithstanding, nothing
contained in this Section 2(c) shall be deemed to permit
the exercise of any portion of the Option after the Expiration
Date.
(d) Automatic Exercise at Expiration
Date. If, at the date on which the Option or any
portion thereof expires or terminates, the Fair Market Value of
a share exceeds the exercise price per share and the Option or
portion thereof that will expire or terminate is otherwise
exercisable, the Option shall be automatically exercised by the
withholding of Option shares sufficient to pay the exercise
price and applicable withholding taxes, provided that this
automatic exercise provision shall not apply unless the
Corporation has previously implemented procedures permitting
elective exercises by the withholding of Option shares and such
procedures remain in effect and in compliance with applicable
law.
3. Dividend
Equivalents. (a) Generally. Dividend
Equivalent rights granted under Section 1(b) hereof confer
upon Grantee a right to receive Dividend Equivalents in respect
of the Option, as follows:
(i) Relating to Cash Dividends. If
the Corporation declares and pays any cash dividend or
distribution on Common Stock other than an extraordinary
dividend, the record date of which occurs while all or a portion
of the Option remains outstanding, the Corporation shall credit
to a bookkeeping account maintained on behalf of Grantee, as
promptly as practicable after the payment date of such dividend
or distribution, a cash amount equal to the amount of cash
actually paid as a dividend or distribution per share of Common
Stock multiplied by the number of shares subject to the Option
on such record date.
(ii) Relating to Extraordinary Stock Dividends,
Stock Splits, and Other Extraordinary Dividends Resulting in
Adjustments to Options. If the Corporation
declares and pays a dividend or distribution in the form of
Common Stock payable on Common Stock, or if there occurs a
forward stock split of the Common Stock, or if there occurs
another extraordinary dividend resulting in an adjustment under
Section 5(c) hereof, the record date of which occurs while
all or a portion of the Option remains outstanding, the
Corporation shall not credit any Dividend Equivalents to
Grantee’s bookkeeping account in connection therewith,
except as otherwise determined by the Committee in accordance
with Section 5(c).
(b) Forfeiture. In the event any
portion of an Option is forfeited, the Dividend
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Equivalents theretofore credited to Grantee’s bookkeeping
account in respect of that portion of the Option shall likewise
be forfeited.
4. Additional Forfeiture Provisions.
(a) Forfeiture of Option and Gains Realized Upon
Prior Exercises. The Option and related
Dividend Equivalents rights are subject to the following
additional forfeiture conditions, to which Grantee, by accepting
the Option, agrees. If any of the events specified in
Section 4(b) occurs (a “Forfeiture Event”), all
of the following forfeitures will result, such forfeitures to be
effective at the time of the occurrence of the Forfeiture Event:
(i) Any unexercised portion of the Option and related
Dividend Equivalents rights, whether or not vested, will be
immediately forfeited and canceled upon the occurrence of the
Forfeiture Event; and
(ii) Grantee will be obligated to repay to the
Corporation, within five business days after demand is made
therefor by the Corporation, the total amount of After-Tax Gain
(as defined herein) realized by Grantee upon any exercise of the
Option that occurred on or after the date that is 12 months
prior to the occurrence of the Forfeiture Event. For purposes of
this Section, the term “After-Tax Gain” shall mean, in
respect of a given exercise of the Option, the sum of
(A) Dividend Equivalents paid to Grantee upon such exercise
(including any portion withheld for taxes) plus (B) the
product of (X) the Fair Market Value per share acquired at
the date of such exercise (without regard to any subsequent
change in the market price of shares) times (Y) the number
of shares as to which the Option was exercised at that date
(treating any shares withheld to cover the exercise price or
taxes as acquired by exercise), provided that, if the exercise
occurred in a calendar year prior to the Corporation making
demand for repayment, such sum shall be reduced by a percentage
equal to Grantee’s marginal tax rate at the time of
exercise as reasonably determined by the Committee. Such
repayment may be in cash or in shares having a Fair Market Value
at the repayment date equal to the After-Tax Gain.
(b) Events Triggering
Forfeiture. The forfeitures specified in
Section 4(a) will be triggered upon the occurrence of the
following Forfeiture Event at any time during Grantee’s
employment by the Corporation or during the noncompetition
period following Termination of Employment specified in any
agreement between the Corporation and Grantee in existence at
the Date of Grant (the “Restrictive Covenant
Agreement”):
Grantee, directly or indirectly, seeks or accepts employment
with or provides professional services, directly or indirectly,
to a “Competitor” in violation of the Restrictive
Covenant Agreement. For purposes of this Section 4(b) and
the second sentence of Section 2(c)(iii), references to the
“Corporation” include any subsidiary, affiliate or
joint venture of the Corporation.
The non-occurrence of the Forfeiture Event set forth herein is a
condition to Grantee’s right to realize and retain value
from the Option, shall remain a condition regardless of any
subsequent change or challenge to or termination of such other
agreement referenced herein and the
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consequences hereunder if Grantee engages in an activity giving
rise to any such Forfeiture Event or the forfeitures specified
in Section 4(a).
(c) Monitoring
Compliance. In order to allow the
Corporation to monitor Grantee’s compliance with the
conditions imposed under this Section 4, beginning with
Grantee’s Termination of Employment Grantee shall provide
written notice to the Executive Vice-President, Human Resources,
of the identity of each new employer with whom Grantee accepts
employment or of any other entity to which Grantee provides
professional services, together with Grantee’s new job
title and a brief description of job duties, during the
noncompetition period specified in the Restrictive Covenant
Agreement.
5. Miscellaneous. (a) Limitations
on Transfer. The Option and Grantee’s rights
and interests therein shall be subject to the restrictions on
transferability and related terms set forth in Section 6.6
of the Plan.
(b) No Right to Continued
Employment. Nothing contained herein or in the
Plan shall be construed as giving Grantee any right to be
retained in the employ of the Corporation, or interfere in any
way with the right of the Corporation to terminate the
employment of Grantee at any time, with or without cause,
without incurring any liability to Grantee due to the inability
of Grantee thereafter to exercise the Option.
(c) Adjustments. The number of
shares subject to the Option, the exercise price, and other
terms of the Option shall be appropriately adjusted, in order to
prevent substantial dilution or enlargement of Grantee’s
rights with respect to the Option, to reflect any changes in the
number and kind of outstanding shares of Common Stock resulting
from any event referred to in Section 4.4 of the Plan,
taking into account any Dividend Equivalents credited to Grantee
in connection with such event under Sections 1(b) and 3
hereof.
(d) Limitation on Rights Triggering Constructive
Receipt. The terms set forth or incorporated in
this Agreement notwithstanding, if, under U.S. federal income
tax laws as presently in effect or hereafter amended, and
regulations thereunder, any rights or elections of Grantee with
respect to the Option would result in Grantee’s
constructive receipt of income relating to the Option prior to
their actual exercise of the Option, such rights or elections
shall be automatically modified and limited to the extent
necessary such that Grantee will not be deemed to be in
constructive receipt of such income prior to the actual exercise
of the Option.
(e) No Stockholder Rights. Grantee
shall have no rights as a stockholder of the Corporation with
respect to any shares of Common Stock subject to the Option
prior to the valid exercise of the Option.
(f) Legal Effect. This Agreement shall be
legally binding when (i) executed by the Corporation
attaching the typed name and title of its authorized officer as
a legally binding electronic signature and (ii) delivered
to Grantee who has consented and agrees to its terms
electronically (or in such other manner as the Corporation may
provide). This Agreement is governed by applicable federal law
and, to the extent not governed by federal law, the laws of the
Commonwealth of Virginia (without regard to conflicts of law
provisions), and is deemed executed
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in the Commonwealth of Virginia.
(g) Binding Agreement. This
Agreement shall be binding upon the heirs, executors,
administrators and successors of the parties. This Agreement
constitutes the entire agreement between the parties with
respect to the Option, and supersedes any prior agreements or
documents with respect to the Option. Copies of this Agreement
shall not represent additional obligations of the Corporation.
No amendment, alteration, suspension, discontinuation or
termination of this Agreement which may impose any additional
obligation upon the Corporation or materially impair the rights
of Grantee with respect to the Option shall be valid unless in
each instance such amendment, alteration, suspension,
discontinuation or termination is expressed in a written
instrument duly executed in the name and on behalf of the
Corporation and by Grantee. The foregoing notwithstanding,
equitable adjustments to the Options under Section 5(c),
including those resulting from a transaction in which the
Corporation’s Common Stock is no longer publicly traded,
and changes that affect only the timing of federal income or
other taxation to Grantee for compensation received hereunder,
shall not be deemed material impairments and therefore shall not
require approval of Grantee.
IN WITNESS WHEREOF, the Corporation has caused this Agreement to
be executed by attaching the typed name and title of its
authorized officer as a legally binding electronic signature as
of the day and year first above written, and Grantee has
consented to and has acknowledged receipt of the Agreement
electronically (or in such other manner as the Corporation may
provide).
FEDERAL HOME LOAN
MORTGAGE CORPORATION
/s/ Xxxx
X. Xxxxxx
| By: | Xxxx X. Xxxxxx |
Executive Vice President
Human Resources
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