Fannie Mae 2004 Annual Report Download - page 323

approved the Board of Directors’ recommendation to increase the aggregate maximum number of shares of
common stock available for employee purchase to 50 million from 41 million. Since its inception in 1985, we
have made available 39,581,505 shares under the 1985 Purchase Plan. In any purchase period, the maximum
number of shares available for purchase by an eligible employee is the largest number of whole shares having
an aggregate fair market value on the first day of the purchase period that does not exceed $25,000. The
shares offered under the 1985 Purchase Plan are authorized and unissued shares of common stock or treasury
shares.
The Stock Compensation Plan of 2003 (the “2003 Plan”) is the successor to the Stock Compensation Plan of
1993 (the “1993 Plan”). By its terms, no new awards were permitted to be made under the 1993 Plan after
May 20, 2003 other than automatic grants of restricted stock to directors joining our Board of Directors on or
prior to May 22, 2006. The 2003 Plan, like the 1993 Plan, enables us to make stock awards in various forms
and combinations. Under the 2003 Plan, these include stock options, stock appreciation rights, restricted stock,
restricted stock units, performance share awards and stock bonus awards. The aggregate maximum number of
shares of common stock available for award to employees and non-management directors under the 2003 Plan
is 40 million. Since its inception in 2003 and after the effects of cancellations, we have awarded
4,028,732 shares under this plan. The shares awarded under the 2003 Plan may be authorized and unissued
shares, treasury shares or shares purchased on the open market.
Stock-Based Compensation Programs
Nonqualified Stock Options
Under the 2003 Plan, we may grant stock options to eligible employees and non-management members of the
Board of Directors. Generally, employees and non-management directors cannot exercise their options until at
least one year subsequent to the grant date, and they expire ten years from the date of grant. Typically options
vest 25% per year beginning on the first anniversary of the date of grant. The exercise price of each option
was equal to the fair market value of our common stock on the date we granted the option. Since 2003, we
have recorded compensation expense for grants under this plan under SFAS 123. We recorded compensation
expense related to nonqualified stock options of $34 million and $20 million for the years ended December 31,
2004 and 2003, respectively. Prior to our adoption of SFAS 123, we did not recognize compensation expense
for this program.
Under the 1993 Plan, our Board of Directors approved the EPS Challenge Option Grant in January 2000 for
all regular full-time and part-time employees. At that time, all employees, other than management group
employees, received a one-time grant of 350 options at a price of $62.50 per share, the fair market value of
the stock on the grant date. Management group employees received option grants equivalent to a set
percentage of their November 1999 stock grants. Subsequent grants were made to new or promoted employees.
EPS Challenge Option Grants were scheduled to vest over a stated time period with accelerated vesting if we
met target financial performance goals in 2003 based on a pre-determined earnings per share amount set by
the Board of Directors. The Board of Directors determined that we exceeded the target goal in December 2003
and the EPS Challenge options vested in January 2004.
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FANNIE MAE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)