Fannie Mae 2008 Annual Report Download - page 378

unpaid dividends previously added to the liquidation preference and not previously paid down; and
(ii) quarterly commitment fees previously added to the liquidation preference and not previously paid down. In
addition, to the extent we issue any shares of capital stock for cash at any time the senior preferred stock is
outstanding, we are required to use the net proceeds of the issuance 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.
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 26, 2009,
Treasury has not exercised the warrant.
Senior Preferred Stock Purchase Agreement with Treasury
On September 7, 2008, we, through FHFA, in its capacity as conservator, entered into a senior preferred stock
purchase agreement with Treasury. The agreement was amended and restated on September 26, 2008. Pursuant
to the agreement, in exchange for Treasury’s commitment to provide up to $100.0 billion in funding to us and
in addition to our issuance of the senior preferred stock and the common stock warrant described above,
beginning on March 31, 2010, we will pay a periodic commitment fee to Treasury on a quarterly basis, which
will accrue from January 1, 2010. The fee, to be mutually agreed upon by us and Treasury and to be
determined with reference to the market value of Treasury’s commitment as then in effect, will be determined
by or before December 31, 2009, and will be reset every five years. Treasury may waive the periodic
commitment fee for up to one year at a time, in its sole discretion, based on adverse conditions in the
U.S. mortgage market. 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.
Treasury’s funding commitment under the senior preferred stock purchase agreement is intended to ensure that
we maintain a positive net worth. The senior preferred stock purchase agreement provides that, on a quarterly
basis, we generally may draw funds up to the amount, if any, by which our total liabilities exceed our total
assets, as reflected on our consolidated balance sheet for the applicable fiscal quarter (referred to as the
“deficiency amount”), provided that the aggregate amount funded under the agreement may not exceed
$100.0 billion. 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
F-100
FANNIE MAE
(In conservatorship)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)