Freddie Mac 2004 Annual Report Download - page 208

commencing on the grant date. Dividend equivalent rights provide participants with the right to
receive, at the time stock options are exercised or upon expiration, an amount equal to the accumulated
dividends declared on the stock from the date the options were granted.
‚ Each RSU entitles the participant to receive one share of common stock at a speciÑed future date.
RSUs do not have voting rights, but do have dividend equivalent rights, which are paid to the RSU
holder as and when dividends on common stock are declared.
‚ Restricted stock entitles participants to all the rights of a stockholder, including dividends, except that
the shares awarded are subject to a risk of forfeiture and may not be disposed of by the participant until
the end of the restriction period established by Freddie Mac at the grant of the restricted stock.
The maximum number of shares of common stock authorized to be granted to employees under the 2004
Employee Plan is 12.9 million shares, which includes approximately 2.8 million remaining shares plus any
future forfeited, cancelled or surrendered shares from the 1995 Employee Plan. At December 31, 2004, fewer
than 0.1 million shares had been issued and approximately 12.9 million shares remained available for grant.
Grants under the 2004 Employee Plan will cease upon the earlier of the exhausting of the authorized share
pool or November 4, 2014.
Directors' Plan: Under the stockholder-approved Directors' Plan, Freddie Mac is permitted to grant
stock options with dividend equivalent rights, restricted stock and RSUs with dividend equivalent rights to
non-employee members of the Board of Directors (""Directors'').
Under the Directors' Plan, on the date of the annual meeting, each reelected or reappointed Director is
granted an option to purchase shares of Freddie Mac's common stock with a market value of approximately
$150,000 on the date of the grant. Each such Director also receives restricted stock units relating to common
stock with a market value of approximately $65,000 on the date of the award. The number of restricted stock
units and shares subject to a stock option are calculated by dividing the dollar amount of the award by the
market value of Freddie Mac's common stock on the date of grant. Through 2004, vesting with respect to both
stock options and restricted stock units occurred in even increments over Ñve terms on the Board, with
20 percent vesting at the end of every term of oÇce, unless vesting was accelerated under certain
circumstances including death, disability or retirement from the Board. A term is deÑned as the period
between annual stockholders' meetings. EÅective January 1, 2005 and thereafter, vesting occurs in even
increments over four terms.
Through 2004, on the date of the annual meeting (or for new Directors elected by the Board or appointed
by the President between annual meetings, the Ñrst meeting attended after their election or appointment),
newly elected and newly appointed Directors received an option to purchase shares with a market value of
approximately $300,000 and restricted stock units relating to common stock with a market value on the date of
grant of approximately $130,000. During their second term of service, those Directors were not eligible to
receive any additional grants. Beginning in 2005, newly elected or appointed Directors will receive the same
grants as other Directors and they will be eligible to receive similar grants in their second term.
For Directors, stock options and restricted stock units have dividend equivalent rights that entitle the
grantee to dividend equivalents on each share subject to the grant in the amount of dividends per share payable
on Freddie Mac's outstanding shares of common stock. Dividend equivalents on stock options are accrued and
are payable in cash upon exercise or expiration of the option. Dividend equivalents on restricted stock units are
accrued as additional restricted stock units to be settled at the same time as the underlying restricted stock
units.
The maximum number of shares of common stock authorized for grant to Directors under the Directors'
Plan is 2.4 million shares. At December 31, 2004, a total of approximately 0.8 million shares had been issued
and approximately 1.6 million shares remained available for grant. Grants under the Directors' Plan will cease
upon the earlier of exhaustion of the authorized share pool or Freddie Mac's Annual Meeting of Stockholders
in 2008.
See ""NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES,'' for a description of
the accounting treatment for employee stock-based compensation, including grants under the ESPP and
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