Freddie Mac 2014 Annual Report Download - page 54

49 Freddie Mac
the approval of FHFA before taking actions involving dividends. In addition, FHFA has adopted a regulation prohibiting us
from making capital distributions during conservatorship, except as authorized by the Director of FHFA.
Restrictions Under the Purchase Agreement
The Purchase Agreement prohibits us and any of our subsidiaries from declaring or paying any dividends on Freddie Mac
equity securities (other than with respect to the senior preferred stock or warrant) without the prior written consent of Treasury.
Restrictions Under the GSE Act
Under the GSE Act, FHFA has authority to prohibit capital distributions, including payment of dividends, if we fail to
meet applicable capital requirements. Under the GSE Act, we are not permitted to make a capital distribution if, after making
the distribution, we would be undercapitalized, except the Director of FHFA may permit us to repurchase shares if the
repurchase is made in connection with the issuance of additional shares or obligations in at least an equivalent amount and will
reduce our financial obligations or otherwise improve our financial condition. If FHFA classifies us as undercapitalized, we are
not permitted to make a capital distribution that would result in our being reclassified as significantly undercapitalized or
critically undercapitalized. If FHFA classifies us as significantly undercapitalized, approval of the Director of FHFA is required
for any capital distribution; the Director may approve a capital distribution only if the Director determines that the distribution
will enhance the ability of the company to meet required capital levels promptly, will contribute to the long-term financial
safety-and-soundness of the company, or is otherwise in the public interest. Our capital requirements have been suspended
during conservatorship.
Restrictions Under our Charter
Without regard to our capital classification, we must obtain prior written approval of FHFA to make any capital
distribution that would decrease total capital to an amount less than the risk-based capital level or that would decrease core
capital to an amount less than the minimum capital level. As noted above, our capital requirements have been suspended during
conservatorship.
Restrictions Relating to Subordinated Debt
During any period in which we defer payment of interest on qualifying subordinated debt, we may not declare or pay
dividends on, or redeem, purchase or acquire, our common stock or preferred stock. Our qualifying subordinated debt provides
for the deferral of the payment of interest for up to five years if either: (a) our core capital is below 125% of our critical capital
requirement; or (b) our core capital is below our statutory minimum capital requirement, and the Secretary of the Treasury,
acting on our request, exercises his or her discretionary authority pursuant to Section 306(c) of our charter to purchase our debt
obligations. FHFA has directed us to make interest and principal payments on our subordinated debt, even if we fail to maintain
required capital levels. As a result, the terms of any of our subordinated debt that provide for us to defer payments of interest
under certain circumstances, including our failure to maintain specified capital levels, are no longer applicable.
Restrictions Relating to Preferred Stock
Payment of dividends on our common stock is also subject to the prior payment of dividends on our 24 series of preferred
stock and one series of senior preferred stock, representing an aggregate of 464,170,000 shares and 1,000,000 shares,
respectively, outstanding as of December 31, 2014. Payment of dividends on all outstanding preferred stock, other than the
senior preferred stock, is subject to the prior payment of dividends on the senior preferred stock. We paid dividends on the
senior preferred stock during 2014 at the direction of the Conservator, as discussed in “MD&A — LIQUIDITY AND
CAPITAL RESOURCES — Capital Resources, the Purchase Agreement, and the Dividend Obligation on the Senior Preferred
Stock” and “NOTE 11: STOCKHOLDERS’ EQUITY — Dividends Declared.” We did not declare or pay dividends on any
other series of preferred stock outstanding in 2014.
Recent Sales of Unregistered Securities
The securities we issue are “exempted securities” under the Securities Act of 1933. As a result, we do not file registration
statements with the SEC with respect to offerings of our securities.
Following our entry into conservatorship, we suspended the operation of, and ceased making grants under, equity
compensation plans. Previously, we had provided equity compensation under these plans to employees and members of our
Board of Directors. Under the Purchase Agreement, we cannot issue any new options, rights to purchase, participations, or
other equity interests without Treasury’s prior approval. However, grants outstanding as of the date of the Purchase Agreement
remain in effect in accordance with their terms. No stock options were exercised during the three months ended December 31,
2014. See “NOTE 11: STOCKHOLDERS’ EQUITY” for more information.
Issuer Purchases of Equity Securities
We did not repurchase any of our common or preferred stock during 2014. Additionally, we do not currently have any
outstanding authorizations to repurchase common or preferred stock. Under the Purchase Agreement, we cannot repurchase our
common or preferred stock without Treasury’s prior consent, and we may only purchase or redeem the senior preferred stock in
certain limited circumstances set forth in the certificate of designation of the senior preferred stock.
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