Fannie Mae 2010 Annual Report Download - page 40

Treasury may terminate its funding commitment and declare the senior preferred stock purchase agreement
null and void if a court vacates, modifies, amends, conditions, enjoins, stays or otherwise affects the
appointment of the conservator or otherwise curtails the conservator’s powers. Treasury may not terminate its
funding commitment under the agreement solely by reason of our being in conservatorship, receivership or
other insolvency proceeding, or due to our financial condition or any adverse change in our financial
condition.
The senior preferred stock purchase agreement provides that most provisions of the agreement may be waived
or amended by mutual written agreement of the parties; however, no waiver or amendment of the agreement is
permitted that would decrease Treasury’s aggregate funding commitment or add conditions to Treasury’s
funding commitment if the waiver or amendment would adversely affect in any material respect the holders of
our debt securities or guaranteed Fannie Mae MBS.
In the event of our default on payments with respect to our debt securities or guaranteed Fannie Mae MBS, if
Treasury fails to perform its obligations under its funding commitment and if we and/or the conservator are
not diligently pursuing remedies in respect of that failure, the holders of our debt securities or Fannie Mae
MBS may file a claim in the United States Court of Federal Claims for relief requiring Treasury to fund to us
the lesser of (1) the amount necessary to cure the payment defaults on our debt and Fannie Mae MBS and
(2) the lesser of (a) the deficiency amount and (b) the maximum amount that may be funded under the
agreement less the aggregate amount of funding previously provided under the commitment. Any payment that
Treasury makes under those circumstances will be treated for all purposes as a draw under the senior preferred
stock purchase agreement that will increase the liquidation preference of the senior preferred stock.
Senior Preferred Stock
Pursuant to the senior preferred stock purchase agreement, we issued one million shares of senior preferred
stock to Treasury on September 8, 2008 with an aggregate initial liquidation preference of $1.0 billion. The
stock’s liquidation preference is subject to adjustment. Dividends that are not paid in cash for any dividend
period will accrue and be added to the liquidation preference. In addition, any amounts Treasury pays to us
pursuant to its funding commitment under the senior preferred stock purchase agreement and any quarterly
commitment fees that are either not paid in cash to Treasury or not waived by Treasury will be added to the
liquidation preference. Accordingly, the aggregate liquidation preference of the senior preferred stock was
$88.6 billion as of December 31, 2010 and will increase to $91.2 billion as a result of FHFA’s request on our
behalf for funds to eliminate our net worth deficit as of December 31, 2010.
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. 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.
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