Freddie Mac 2014 Annual Report Download - page 200

195 Freddie Mac
Table 11.3 — Senior Preferred Stock
Draw Date Shares Authorized Shares Outstanding Total Par Value
Initial
Liquidation
Preference
Price per Share
Total
Liquidation
Preference
(in millions, except initial liquidation preference price per share)
September 8, 2008 1.00 1.00 $ 1.00 $ 1,000 $ 1,000
November 24, 2008 — — — N/A 13,800
March 31, 2009 — — — N/A 30,800
June 30, 2009 — — — N/A 6,100
June 30, 2010 — — — N/A 10,600
September 30, 2010 — — — N/A 1,800
December 30, 2010 — — — N/A 100
March 31, 2011 — — — N/A 500
September 30, 2011 — — — N/A 1,479
December 30, 2011 — — — N/A 5,992
March 30, 2012 — — — N/A 146
June 29, 2012 — — — N/A 19
Total, senior preferred stock 1.00 1.00 $ 1.00 $ 72,336
No cash was received from Treasury under the Purchase Agreement in 2014, because we had positive net worth at
December 31, 2013, March 31, 2014, June 30, 2014, and September 30, 2014 and, consequently, FHFA did not request a draw
on our behalf. At December 31, 2014, our assets exceeded our liabilities under GAAP; therefore no draw is being requested
from Treasury under the Purchase Agreement. Our quarterly senior preferred stock dividend is the amount, if any, by which our
Net Worth Amount at the end of the immediately preceding fiscal quarter exceeds the applicable Capital Reserve Amount,
which was established at $3 billion for 2013 and declines to zero in 2018. Based on our Net Worth Amount at December 31,
2014 and the Capital Reserve Amount of $1.8 billion in 2015, our dividend obligation to Treasury in March 2015 will be $851
million. See “NOTE 2: CONSERVATORSHIP AND RELATED MATTERS — Government Support for our Business” for
additional information. The aggregate liquidation preference on the senior preferred stock owned by Treasury was $72.3 billion
and $72.3 billion as of December 31, 2014 and 2013, respectively. See “NOTE 18: REGULATORY CAPITAL” for additional
information.
Common Stock Warrant
Pursuant to the Purchase Agreement described in “NOTE 2: CONSERVATORSHIP AND RELATED MATTERS,” on
September 7, 2008, we 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 shares associated with the warrant are 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, 2014, 2013, and 2012, respectively, included shares of common stock that would be issuable upon full exercise
of the warrant issued to Treasury.
Preferred Stock
The table below provides a summary of our preferred stock outstanding at their redemption values at December 31, 2014.
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
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