Freddie Mac 2009 Annual Report Download - page 268

whole or in part. If, after termination of Treasury’s funding commitment, we pay down the liquidation preference of each
outstanding share of senior preferred stock in full, the shares will be deemed to have been redeemed as of the payment date.
Table 10.1 provides a summary of our senior preferred stock outstanding at December 31, 2009. See “Stock Repurchase
and Issuance Programs” for additional information about our draws on the Purchase Agreement with Treasury during 2009.
Table 10.1 — Senior Preferred Stock
Draw Date
Shares
Authorized
Shares
Outstanding
Total Par
Value
Initial
Liquidation
Preference
Price per Share
Total
Liquidation
Preference
(1)
Redeemable
On or After
(2)
(in millions, except initial liquidation preference price per share)
Senior preferred stock:
(3)
10% . . . . . . . . . . . . . . . . . . . . . . . September 8, 2008
(4)
1.00 1.00 $1.00 $1,000 $ 1,000 N/A
10%
(5)
. . . . . . . . . . . . . . . . . . . . . November 24, 2008 — — — N/A 13,800 N/A
10%
(5)
. . . . . . . . . . . . . . . . . . . . . March 31, 2009 — — — N/A 30,800 N/A
10%
(5)
. . . . . . . . . . . . . . . . . . . . . June 30, 2009 — — — N/A 6,100 N/A
Total, senior preferred stock . . . . . 1.00 1.00 $1.00 $51,700
(1) Amounts stated at redemption value.
(2) In accordance with the Purchase Agreement, until the senior preferred stock is repaid or redeemed in full, we may not, without the prior written
consent of Treasury, redeem, purchase, retire or otherwise acquire any Freddie Mac equity securities (other than the senior preferred stock or warrant).
See “NOTE 11: REGULATORY CAPITAL” for more information.
(3) Dividends on the senior preferred stock are cumulative, and the dividend rate is 10% per year. However, if at any time we fail to pay cash dividends in
a timely manner, then immediately following such failure and for all dividend periods thereafter until the dividend period following the date on which
we have paid in cash full cumulative dividends, the dividend rate will be 12% per year.
(4) We did not receive any cash proceeds from Treasury as a result of issuing the initial liquidation preference.
(5) Represents an increase in the liquidation preference of our senior preferred stock due to the receipt of funds from Treasury.
We received $6.1 billion and $30.8 billion in June 2009 and March 2009, respectively, pursuant to draw requests that
FHFA submitted to Treasury on our behalf to address the deficits in our net worth as of March 31, 2009 and December 31,
2008, respectively. As a result of funding of these draw requests, the aggregate liquidation preference on the senior preferred
stock owned by Treasury increased from $14.8 billion as of December 31, 2008 to $51.7 billion on December 31, 2009.
Issuance of Common Stock Warrant
Pursuant to the Purchase Agreement described in “NOTE 2: CONSERVATORSHIP AND RELATED
DEVELOPMENTS,” on September 7, 2008, we, through FHFA, in its capacity as Conservator, issued a warrant to purchase
common stock to Treasury. The warrant was issued to Treasury in partial consideration of Treasury’s commitment to provide
funds to us under the terms set forth in the Purchase Agreement.
The warrant gives Treasury the right to purchase shares of our common stock equal to 79.9% of the total number of
shares of our common stock outstanding on a fully diluted basis on the date of exercise. The warrant may be exercised in
whole or in part at any time on or before September 7, 2028, by delivery to us of: (a) a notice of exercise; (b) payment of
the exercise price of $0.00001 per share; and (c) the warrant. If the market price of one share of our common stock is
greater than the exercise price, then, instead of paying the exercise price, Treasury may elect to receive shares equal to the
value of the warrant (or portion thereof being canceled) pursuant to the formula specified in the warrant. Upon exercise of
the warrant, Treasury may assign the right to receive the shares of common stock issuable upon exercise to any other person.
We account for the warrant in permanent equity. At issuance on September 7, 2008, we recognized the warrant at fair
value, and we do not recognize subsequent changes in fair value while the warrant remains classified in equity. We recorded
an aggregate fair value of $2.3 billion for the warrant as a component of additional paid-in-capital. We derived the fair value
of the warrant using a modified Black-Scholes model. If the warrant is exercised, the stated value of the common stock
issued will be reclassified to common stock in our consolidated balance sheets. The warrant was determined to be in-
substance non-voting common stock, because the warrant’s exercise price of $0.00001 per share is considered non-
substantive (compared to the market price of our common stock). As a result, the warrant is included in the computation of
basic and diluted earnings (loss) per share. The weighted average shares of common stock outstanding for the years ended
December 31, 2009 and 2008, respectively, included shares of common stock that would be issuable upon full exercise of the
warrant issued to Treasury.
Preferred Stock
Table 10.2 provides a summary of our preferred stock outstanding at December 31, 2009. We have the option to redeem
our preferred stock on specified dates, at their redemption price plus dividends accrued through the redemption date.
However, without the consent of Treasury, we are restricted from making payments to purchase or redeem preferred stock as
well as paying any preferred dividends, other than dividends on the senior preferred stock. In addition, all 24 classes of
preferred stock are perpetual and non-cumulative, and carry no significant voting rights or rights to purchase additional
265 Freddie Mac