Freddie Mac 2006 Annual Report Download - page 144

Stock options
Stock options granted allow for the purchase of our common stock at an exercise price equal to the fair market value of
our common stock on the grant date. During 2006, the 2004 Employee Plan was amended to change the deÑnition of fair
market value to the closing sales price of a share of common stock from the average of the high and low sales prices,
eÅective for all grants after December 6, 2006. Options generally may be exercised for a period of 10 years from the grant
date, subject to a vesting schedule commencing on the grant date.
Stock options that we previously granted included dividend equivalent rights. Depending on the terms of the grant, the
dividend equivalents may be paid when and as dividends on our common stock are declared. Alternatively, dividend
equivalents may be paid upon exercise or expiration of the stock option. Subsequent to November 30, 2005, dividend
equivalent rights were no longer granted in connection with awards of stock options to grantees to address Internal Revenue
Code Section 409A.
Restricted stock units
A restricted stock unit entitles the grantee to receive one share of common stock at a speciÑed future date. Restricted
stock units do not have voting rights, but do have dividend equivalent rights, which are (a) paid to restricted stock unit
holders who are employees as and when dividends on common stock are declared or (b) accrued as additional restricted
stock units for non-employee members of our board of directors.
Restricted stock
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 at the time of grant.
The following is a description of each of our stock-based compensation plans under which grants are currently being
made.
ESPP: We have an ESPP that is qualiÑed under Internal Revenue Code Section 423. Under the ESPP, substantially
all full-time and part-time employees that choose to participate in the ESPP have the option to purchase shares of common
stock at speciÑed dates, with an annual maximum market value of $20,000 per employee as determined on the grant date.
The purchase price is equal to 85 percent of the lower of the average price (average of the daily high and low prices) of the
stock on the grant date or the average price of the stock on the purchase (exercise) date.
At December 31, 2006, the maximum number of shares of common stock authorized for grant to employees totaled
6.8 million shares, of which approximately 0.4 million shares had been issued and approximately 6.4 million shares remained
available for grant. At December 31, 2006, no options to purchase stock were exercisable under the ESPP, as the options to
purchase stock outstanding at year-end become exercisable subsequent to year-end, and are exercised or forfeited during the
subsequent year.
2004 Employee Plan: Under the 2004 Employee Plan, we may grant employees stock-based awards, including stock
options, restricted stock units and restricted stock. In addition, we have the right to impose performance conditions with
respect to these awards. Employees may also be granted stock appreciation rights; however, at December 31, 2006, no stock
appreciation rights had been granted under the 2004 Employee Plan. At December 31, 2006, the maximum number of
shares of common stock authorized for grant to employees in accordance with the 2004 Employee Plan totaled 14.3 million
shares, of which approximately 3.4 million shares had been issued and approximately 10.9 million shares remained
available for grant.
Directors' Plan: Under the Directors' Plan, we are permitted to grant stock options, restricted stock units and
restricted stock to non-employee members of our board of directors. At December 31, 2006, the maximum number of shares
of common stock authorized for grant to members of our board of directors in accordance with the Directors' Plan totaled
2.4 million shares, of which approximately 0.9 million shares had been issued and approximately 1.5 million shares
remained available for grant.
See ""NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES,'' for a description of the accounting
treatment for stock-based compensation, including grants under the ESPP, Employee Plans and Directors' Plan.
Estimates used to determine the assumptions noted in the table below are determined as follows:
(a) the expected volatility is based on the historical volatility of the stock over a time period equal to the expected life;
(b) the weighted average volatility is the weighted average of the expected volatility;
(c) the weighted average expected dividend yield is based on the most recent dividend announcement relative to the
grant date and the stock price at the grant date;
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