Fannie Mae 2006 Annual Report Download - page 286

granted prior to the adoption of SFAS 123R to employees eligible for retirement on or before December 31,
2006.
Stock-Based Compensation Plans
The 1985 Employee Stock Purchase Plan (the “1985 Purchase Plan”) provides employees an opportunity to
purchase shares of Fannie Mae common stock at a discount to the fair market value of the stock during
specified purchase periods. Our Board of Directors sets the terms and conditions of offerings under the 1985
Purchase Plan, including the number of available shares and the size of the discount. In 2004, our shareholders
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 38,039,742 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”). The 2003 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 7,580,006 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. No new awards were permitted under the 1993 Plan after
May 20, 2003, except for automatic grants of restricted stock to directors joining our Board of Directors
through May 2006.
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. We recorded
compensation expense related to nonqualified stock options of $21 million, $23 million and $34 million for
the years ended December 31, 2006, 2005 and 2004, respectively. The total unrecognized compensation cost
related to unvested options in this program is $9 million for 2006, which is expected to be realized over a
weighted average life of 0.7 years. Cash received from the exercise of options in 2006 was $22 million.
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FANNIE MAE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)