Fannie Mae 2010 Annual Report Download - page 39

and December 24, 2009. Unless the context indicates otherwise, references in this report to the senior
preferred stock purchase agreement refer to the agreement as amended through December 24, 2009. The terms
of the senior preferred stock purchase agreement, senior preferred stock and the warrant discussed below will
continue to apply to us even if we are released from the conservatorship. Please see “Risk Factors” for a
description of the risks to our business relating to the Treasury agreements, as well as the adverse effects of
the senior preferred stock and the warrant on the rights of holders of our common stock and other series of
preferred stock.
Senior Preferred Stock Purchase Agreement and Related Issuance of Senior Preferred Stock and Common
Stock Warrant
Senior Preferred Stock Purchase Agreement
Under the senior preferred stock purchase agreement, we issued to Treasury (a) one million shares of Variable
Liquidation Preference Senior Preferred Stock, Series 2008-2, which we refer to as the “senior preferred
stock,” and (b) a warrant to purchase, for a nominal price, shares of common stock equal to 79.9% of the total
number of shares of our common stock outstanding on a fully diluted basis at the time the warrant is
exercised, which we refer to as the “warrant.”
The senior preferred stock and warrant were issued to Treasury as an initial commitment fee in consideration
of the commitment from Treasury to provide funds to us under the terms and conditions set forth in the senior
preferred stock purchase agreement. 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, prepared in accordance with GAAP, for the
applicable fiscal quarter (referred to as the “deficiency amount”).
On December 24, 2009, the maximum amount of Treasury’s funding commitment to us under the senior
preferred stock purchase agreement was increased pursuant to an amendment to the agreement. The
amendment provides that the maximum amount 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 after December 31, 2012, Treasury’s remaining funding commitment will be
$124.8 billion, ($200 billion less the $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.
In announcing the December 24, 2009 amendments to the senior preferred stock purchase agreement and to
Treasury’s preferred stock purchase agreement with Freddie Mac, Treasury noted that the amendments “should
leave no uncertainty about the Treasury’s commitment to support [Fannie Mae and Freddie Mac] as they
continue to play a vital role in the housing market during this current crisis.” 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. We discuss our net worth deficits and FHFA’s requests on our behalf
for funds from Treasury in “Executive Summary—Summary of our Financial Performance for 2010.”
Under the senior preferred stock purchase agreement, beginning on March 31, 2011, we were scheduled to
begin paying a quarterly commitment fee to Treasury. On December 29, 2010, Treasury notified FHFA 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 it 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 to determine whether to set the quarterly commitment fee under the senior preferred stock purchase
agreement.
The senior preferred stock purchase agreement provides that the Treasury’s funding commitment will
terminate under any of the following circumstances: (1) the completion of our liquidation and fulfillment of
Treasury’s obligations under its funding commitment at that time, (2) the payment in full of, or reasonable
provision for, all of our liabilities (whether or not contingent, including mortgage guaranty obligations), or
(3) the funding by Treasury of the maximum amount that may be funded under the agreement. In addition,
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