Fannie Mae 2008 Annual Report Download - page 32

Treasury, as holder of the senior preferred stock, is entitled to receive, when, as and if declared by our Board
of Directors, out of legally available funds, cumulative quarterly cash dividends at the annual rate of 10% per
year on the then-current liquidation preference of the senior preferred stock. As conservator and under our
charter, FHFA also has authority to declare and approve dividends on the senior preferred stock. The initial
dividend of approximately $31 million was declared by the conservator and paid in cash on December 31,
2008 for the period from but not including September 8, 2008 through and including December 31, 2008. As a
result of the expected draw, our annualized aggregate dividend payment to Treasury, at the 10% dividend rate,
will increase to $1.6 billion. 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 (including any unpaid dividends added to the liquidation
preference), the dividend rate will be 12% per year.
The senior preferred stock ranks ahead of our common stock and all other outstanding series of our preferred
stock, as well as any capital stock we issue in the future, as to both dividends and rights upon liquidation. The
senior preferred stock provides that we may not, at any time, declare or pay dividends on, make distributions
with respect to, or redeem, purchase or acquire, or make a liquidation payment with respect to, any common
stock or other securities ranking junior to the senior preferred stock unless (1) full cumulative dividends on the
outstanding senior preferred stock (including any unpaid dividends added to the liquidation preference) have
been declared and paid in cash, and (2) all amounts required to be paid with the net proceeds of any issuance
of capital stock for cash (as described in the following paragraph) have been paid in cash. Shares of the senior
preferred stock are not convertible. Shares of the senior preferred stock have no general or special voting
rights, other than those set forth in the certificate of designation for the senior preferred stock or otherwise
required by law. The consent of holders of at least two-thirds of all outstanding shares of senior preferred
stock is generally required to amend the terms of the senior preferred stock or to create any class or series of
stock that ranks prior to or on parity with the senior preferred stock.
We are not permitted to redeem the senior preferred stock prior to the termination of Treasury’s funding
commitment set forth in the senior preferred stock purchase agreement. Moreover, we are not permitted to pay
down the liquidation preference of the outstanding shares of senior preferred stock except to the extent of
(1) accrued and unpaid dividends previously added to the liquidation preference and not previously paid down;
and (2) quarterly commitment fees previously added to the liquidation preference and not previously paid
down. In addition, if we issue any shares of capital stock for cash while the senior preferred stock is
outstanding, the net proceeds of the issuance must be used to pay down the liquidation preference of the
senior preferred stock; however, the liquidation preference of each share of senior preferred stock may not be
paid down below $1,000 per share prior to the termination of Treasury’s funding commitment. Following the
termination of Treasury’s funding commitment, we may pay down the liquidation preference of all outstanding
shares of senior preferred stock at any time, in 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.
Issuance of Common Stock Warrant
Pursuant to the senior preferred stock purchase agreement, 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 up to $100.0 billion in funds to us
under the terms set forth in the senior preferred stock 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. The warrant
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