Fannie Mae 2011 Annual Report Download - page 40

The senior preferred stock purchase agreement provides that the amount of the quarterly commitment fee is to be
set not later than December 31, 2010 with respect to the ensuing five-year period, is to be reset for every five
years thereafter, and is to be determined with reference to the market value of Treasury’s funding commitment to
Fannie Mae as then in effect. The agreement also provides that the amount of the quarterly commitment fee is to
be mutually agreed by Treasury and Fannie Mae, subject to their reasonable discretion and in consultation with
the Chairman of the Federal Reserve. As of February 29, 2012, the quarterly commitment fee for the initial five-
year period had not yet been established.
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, 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 $112.6 billion as of
December 31, 2011 and will increase to $117.1 billion as a result of FHFA’s request on our behalf for funds to
eliminate our net worth deficit as of December 31, 2011.
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.
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