Fannie Mae 2010 Annual Report Download - page 366

part. If we pay down the liquidation preference of each outstanding share of senior preferred stock in full, the
shares will be considered redeemed as of the payment date.
Common Stock Warrant
The warrant gives Treasury the right to purchase shares of our common stock equal to 79.9% of the total
number of shares of 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 Fannie Mae
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 common stock is greater than the exercise price, in lieu of exercising the warrant
by payment of 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 recorded the aggregate fair value of the warrant of $3.5 billion as a component of additional
paid-in-capital upon issuance of the warrant. If the warrant is exercised, the stated value of the common stock
issued will be reclassified as “Common stock” in our consolidated balance sheet. As of February 24, 2011,
Treasury had not exercised the warrant.
Senior Preferred Stock Purchase Agreement with Treasury
Commitment Fee
We were scheduled to begin paying Treasury a quarterly commitment fee beginning on March 31, 2011. On
December 29, 2010, FHFA was notified by Treasury that Treasury was waiving the commitment fee for the
first quarter of 2011 due to adverse conditions in the U.S. mortgage market and because Treasury believed that
imposing the commitment fee would not generate increased compensation for taxpayers. Treasury further
noted that it would reevaluate matters in the next calendar quarter. We may elect to pay the periodic
commitment fee in cash or add the amount of the fee to the liquidation preference of the senior preferred
stock.
Funding Commitment
Treasury’s funding commitment under the senior preferred stock purchase agreement is intended to ensure that
we maintain a positive net worth. Treasury’s maximum funding commitment to us prior to a December 2009
amendment of the senior preferred stock purchase agreement was $200 billion. The amendment to the
agreement stipulates that the cap on Treasury’s funding commitment to us under the senior preferred stock
purchase agreement will increase as necessary to accommodate any net worth deficits for calendar quarters in
2010 through 2012. For any net worth deficits as of December 31, 2012, Treasury’s remaining funding
commitment will be $124.8 billion ($200 billion less $75.2 billion cumulatively drawn through March 31,
2010) less the smaller of either (a) our positive net worth as of December 31, 2012 or (b) our cumulative
draws from Treasury for the calendar quarters in 2010 through 2012. The senior preferred stock purchase
agreement provides that the deficiency amount will be calculated differently if we become subject to
receivership or other liquidation process. The deficiency amount may be increased above the otherwise
applicable amount upon our mutual written agreement with Treasury. In addition, if the Director of FHFA
determines that the Director will be mandated by law to appoint a receiver for us unless our capital is
increased by receiving funds under the commitment in an amount up to the deficiency amount (subject to the
maximum amount that may be funded under the agreement), then FHFA, in its capacity as our conservator,
may request that Treasury provide funds to us in such amount. The senior preferred stock purchase agreement
also provides that, if we have a deficiency amount as of the date of completion of the liquidation of our assets,
we may request funds from Treasury in an amount up to the deficiency amount (subject to the maximum
F-108
FANNIE MAE
(In conservatorship)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)