Fannie Mae 2008 Annual Report Download - page 36

and the senior preferred stock and warrant issued to Treasury pursuant to the agreement have had the
following adverse effects on our common and preferred shareholders:
• the senior preferred stock ranks senior to the common stock and all other series of preferred stock as to
both dividends and distributions upon dissolution, liquidation or winding up of the company;
• the senior preferred stock purchase agreement prohibits the payment of dividends on common or preferred
stock (other than the senior preferred stock) without the prior written consent of Treasury; and
• the warrant provides Treasury with the right to purchase shares of our common stock equal to up to
79.9% of the total number of shares of our common stock outstanding on a fully diluted basis on the date
of exercise for a nominal price, thereby substantially diluting the ownership in Fannie Mae of our
common shareholders at the time of exercise. Until Treasury exercises its rights under the warrant or its
right to exercise the warrant expires on September 7, 2028 without having been exercised, the holders of
our common stock continue to have the risk that, as a group, they will own no more than 20.1% of the
total voting power of the company. Under our charter, bylaws and applicable law, 20.1% is insufficient to
control the outcome of any vote that is presented to the common shareholders. Accordingly, existing
common shareholders have no assurance that, as a group, they will be able to control the election of our
directors or the outcome of any other vote after the conservatorship ends.
As described above and in “Item 1A—Risk Factors,” the Treasury agreements also impact our business in
ways that indirectly affect our common and preferred shareholders.
New York Stock Exchange Listing
As of February 26, 2009, our common stock continues to trade on the NYSE. We received a notice from the
NYSE on November 12, 2008 that we had failed to satisfy one of the NYSE’s standards for continued listing
of our common stock because the average closing price of our common stock during the 30 consecutive
trading days ended November 12, 2008 had been less than $1.00 per share.
On November 26, 2008, we advised the NYSE of our intent to cure this deficiency by May 11, 2009. At that
time, we also advised the NYSE that, if necessary to cure the deficiency by that date, and subject to the
approval of Treasury, we might undertake a reverse stock split, in which we would combine some specified
number of shares of our common stock into a single share of our common stock. We are working internally
and with the conservator to determine the specific action or actions that we will take.
If our share price and our average share price for the 30 consecutive trading days preceding May 11, 2009 is
not at or above $1.00 as of May 11, 2009, the NYSE rules provide that the NYSE will initiate suspension and
delisting procedures for our common stock. At that time, we expect that the NYSE also would delist all
classes of our preferred stock. For a description of the risks to our business if the NYSE were to delist our
common and preferred stock, refer to “Item 1A—Risk Factors.”
Charter Act
We are a shareholder-owned corporation, originally established in 1938, organized and existing under the Federal
National Mortgage Association Charter Act, as amended, which we refer to as the Charter Act or our charter.
The Charter Act sets forth the activities that we are permitted to conduct, authorizes us to issue debt and equity
securities, and describes our general corporate powers. The Charter Act states that our purpose is to:
• provide stability in the secondary market for residential mortgages;
• respond appropriately to the private capital market;
• provide ongoing assistance to the secondary market for residential mortgages (including activities relating
to mortgages on housing for low- and moderate-income families involving a reasonable economic return
that may be less than the return earned on other activities) by increasing the liquidity of mortgage
investments and improving the distribution of investment capital available for residential mortgage
financing; and
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