Fannie Mae 2011 Annual Report Download - page 338

FANNIE MAE
(In conservatorship)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
also has authority to declare dividends on 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. Dividends declared
and paid on our senior preferred stock were $9.6 billion, $7.7 billion and $2.5 billion for the years ended
December 31, 2011, 2010 and 2009, respectively.
The senior preferred stock ranks prior to our common stock and all other outstanding series of our preferred stock
as to both dividends and rights upon liquidation. We may not 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 without the prior written consent of Treasury.
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 in full prior to the termination of Treasury’s funding
commitment under the senior preferred stock purchase agreement. However, we are permitted to pay down the
liquidation preference of the outstanding shares of senior preferred stock 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, to the
extent we issue any shares of capital stock for cash at any time the senior preferred stock is outstanding (which
requires Treasury’s approval), 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 we pay down the liquidation
preference of each outstanding share of senior preferred stock in full, the shares will be considered 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. If the
warrant is exercised, the stated value of the common stock issued will be reclassified as “Common stock” in our
consolidated balance sheets. As of February 29, 2012, Treasury had not exercised the warrant.
Senior Preferred Stock Purchase Agreement with Treasury
Commitment Fee
We were scheduled to begin paying Treasury a quarterly commitment fee beginning on March 31, 2011;
however, Treasury has waived the quarterly commitment fee under the senior preferred stock purchase agreement
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