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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
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| Date of Report (Date of Earliest Event Reported): |
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January 25, 2007 |
Federal National Mortgage Association
(Exact name of registrant as specified in its charter)
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| Federally Chartered Corporation
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000-50231
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52-0883107
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| (State or other jurisdiction |
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(Commission
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(I.R.S. Employer |
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File Number)
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Identification No.) |
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| 3900 Wisconsin Avenue, NW, Washington, |
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20016
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| District of Columbia
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| (Address of principal executive offices) |
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(Zip Code) |
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| Registrant’s telephone number, including area code: |
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202-752-7000 |
Not Applicable
Former name or former address, if changed since last report
Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of the
following provisions:
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Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
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Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
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Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
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Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Item 5.02 Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers.
Yesterday Fannie Mae’s Board of Directors and its Compensation Committee
determined the 2007 salaries, the 2006 performance year cash bonuses and the
2006 performance year variable long-term incentive awards for its executive
officers. In accordance with Fannie Mae’s capital restoration plan, as agreed
to with its regulator, the Office of Federal Housing Enterprise Oversight
(OFHEO), all of the non-salary compensation decisions for Fannie Mae’s
“OFHEO-designated executive officers” (which is a larger group of executive
officers than those Fannie Mae has determined are “executive officers” under
the rules of the Securities and Exchange Commission) require OFHEO’s approval.
Fannie Mae has received the required approval from OFHEO for the 2006 bonus and restricted stock awards program.
In determining compensation for the 2006 performance year, the Compensation
Committee and the Board focused on Fannie Mae’s performance against the
corporate performance goals that the Board had established in April 2006 and
the importance of the company’s ability to recruit, retain and maintain
experienced and effective senior management as Fannie Mae works to become
current in filing its financial statements, implement its agreements with OFHEO
and manage its business. The Compensation Committee, with input from other
Board committees, evaluated corporate performance in 2006 against the
previously established corporate performance goals, which related to (1)
stabilizing the company by building relationships with regulators and investors
and restating prior period financial statements; (2) optimizing the company’s
business model and generating shareholder value through key initiatives; (3)
fulfilling Fannie Mae’s affordable housing mission; (4) instilling operational
discipline into all functions; and (5) renewing the company’s culture. The
compensation decisions for Fannie Mae’s senior management presented in this
Form 8-K reflect the assessment of the Board and the Compensation Committee of
the company’s performance in 2006 against these goals and individual
performance of the officers.
Compensation of Fannie Mae’s executive officers is determined annually and
includes three components: (i) salary, (ii) cash bonuses under an annual
incentive plan, and (iii) variable long-term incentive awards. At the senior
levels of the company, the largest component of compensation is a variable
long-term incentive award, which is delivered as stock that vests, generally
over a period of four years. This serves to align management to the company’s
shareholders.
The Board and the Compensation Committee’s decisions discussed below reflect a
change in the compensation philosophy that the Board and the Compensation
Committee adopted in 2005. Under this approach, management’s performance is
measured against a broad set of corporate objectives rather than focusing on a
single financial measure.
The following table sets forth, opposite the name and title of Fannie Mae’s
Chief Executive Officer, its Chief Financial Officer and its four most highly
compensated officers during 2005 other than the Chief Executive Officer, (i)
the 2007 annual base salary for that officer, (ii) the annual cash bonus for
the 2006 performance year for that
– 2 –
officer, and (iii) the number of shares of
restricted stock or restricted stock units issued to that officer for the 2006
performance year. The executive officers listed in this table are referred to
in the discussion below as the “covered executives.” More detailed information
about the terms of the compensation and the manner in which the Compensation
Committee and the Board review and determine compensation for senior management
is set forth following the table.
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| Name and Title |
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2007 Salary |
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2006 Cash Bonus |
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Restricted Shares(1) |
Daniel H. Mudd
President and Chief Executive Officer |
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990,000 |
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$ |
3,500,000 |
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176,506 |
(2) |
Robert T. Blakely
Executive Vice President and Chief
Financial Officer |
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$ |
663,000 |
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$ |
1,290,575 |
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58,236 |
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Robert J. Levin
Executive Vice President and Chief
Business Officer |
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$ |
788,000 |
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$ |
2,087,250 |
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117,679 |
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Thomas A. Lund
Executive Vice
President—Single-Family Mortgage
Business |
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523,000 |
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$ |
1,029,515 |
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41,945 |
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Peter S. Niculescu
Executive Vice President–Capital
Markets |
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$ |
585,000 |
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$ |
1,029,060 |
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50,127 |
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Michael J. Williams
Executive Vice President and Chief
Operating Officer |
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676,000 |
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1,630,200 |
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92,621 |
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Each award vests at the rate of 25 percent per year, beginning in January
2008. On January 25, 2007, the closing price of Fannie Mae’s common stock was
$56.57 per share. |
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One-fifth of this award (net of taxes) must be retained by Mr. Mudd until
his employment with Fannie Mae is terminated. The retained shares will not
count toward fulfilling Mr. Mudd’s obligation to hold shares of Fannie Mae
common stock worth five times his base salary under Fannie Mae’s stock
ownership guidelines. |
Background
Fannie Mae’s Board sets the compensation of Fannie Mae’s executive vice
presidents, while compensation of Fannie Mae’s President and Chief Executive
Officer is determined by the independent members of the Board. In each case,
compensation decisions are based on the recommendation of the Compensation
Committee.
In determining compensation for senior management, the goal of the Compensation
Committee and the Board is to ensure, as required under the Fannie Mae Charter
Act, that Fannie Mae’s compensation is reasonable and comparable with the
compensation of executives with similar duties and responsibilities in other
similar businesses. For these compensation decisions involving senior officers,
the Compensation Committee and the Board used as a guideline the 50th
percentile of compensation paid at a comparison group of diversified financial
services companies. The company’s philosophy prior to 2005
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had been to target
total compensation at approximately the 65th percentile of companies in Fannie
Mae’s comparison group. Information regarding compensation paid at other
companies, including actual 2005 compensation and estimated 2006 compensation
for chief executive officers, was provided by a nationally recognized executive
compensation consulting firm retained to assist in this comparability analysis.
The Compensation Committee retained its own nationally recognized compensation
consultant to act as an independent advisor with regard to compensation
decisions for the covered executives, especially those relating to Mr. Mudd’s
compensation. The Compensation Committee considered compensation scenarios for
each covered executive, taking into account the executive’s outstanding stock
options, restricted shares, and performance share balances; existing severance
arrangements with the executive, if any; and the other benefits (such as life
insurance, pension plan participation and health benefits) available to the
executive under the terms of his employment.
Salary
The Board (and, in the case of the Chief Executive Officer, the independent
members of the Board) established the base salaries for the covered executives
based on the recommendation of the Compensation Committee.
Cash Bonuses
The cash bonuses for the covered executives are set each year in accordance
with Fannie Mae’s Annual Incentive Plan. Fannie Mae’s Annual Incentive Plan
governs the payment of annual cash incentive awards (i.e., cash bonuses) to
Fannie Mae’s executive officers and other management-level employees. Pursuant
to the terms of the plan, on April 24, 2006 and April 25, 2006, the Board and
the Compensation Committee approved the corporate performance goals for 2006
that are described above and bonus award targets for the covered executives and
other executive officers. In January 2007, the Compensation Committee, with
input from other Board committees, evaluated corporate performance against the
goals, including what it determined to be the appropriate weighting of the
goals at that time, and determined that it was appropriate to fund the bonus
pool. The Board (and, in the case of the President and Chief Executive Officer,
the independent members of the Board) then determined, based on the
recommendation of the Compensation Committee, the individual bonus amounts for
each covered executive.
Variable Long-Term Incentive Awards
Variable long-term incentive compensation awards are awards that vest over a
period of years. Fannie Mae believes that providing a portion of senior
management compensation through variable long-term incentive awards that have a
multi-year vesting schedule and that are based in large part on Fannie Mae
common stock aligns the interests of its senior management with those of other
Fannie Mae stockholders, reinforcing their shared interests in company
performance.
Consistent with this compensation philosophy, on January 25, 2007, the Board
determined, based on the recommendation of the Compensation Committee, that
variable
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long-term incentive awards to Fannie Mae’s executive officers for 2006
performance would be made in the form of shares of restricted Fannie Mae common
stock or restricted stock units that would vest at the rate of 25 percent per
year, beginning in January of 2008. Vesting is contingent on the executive’s
continued employment with Fannie Mae, subject to accelerated vesting as a
result of death, disability, retirement or, under specified circumstances, a
negotiated separation from Fannie Mae. Fannie Mae’s restricted stock confers
voting and dividend rights on its holders. Each restricted stock unit
represents the right to receive a share of common stock at the time of vesting.
As a result, restricted stock units are generally similar to restricted stock,
except that restricted stock units do not confer voting rights on their
holders.
Prior to January 2005, Fannie Mae granted long-term incentive awards under its
performance share program. Under the program, senior management was compensated
for meeting performance objectives over a period of three calendar years.
Objectives were set at the beginning of the three-year period, and after the
end of the period the Compensation Committee determined achievement against the
goals and the amount of the award payout. No award cycles have been established
under the program since 2004 and, since January 2005, the Board and the
Compensation Committee have deferred the determination of the amount of any
payouts under the program.
Item 9.01. Financial Statements and Exhibits.
(d) Exhibits. The exhibit index filed herewith is incorporated herein by
reference.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, hereunto duly authorized.
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FEDERAL NATIONAL MORTGAGE ASSOCIATION
By: /s/ Beth A. Wilkinson
Beth A. Wilkinson
Executive Vice President and General Counsel |
Date: January 26, 2007
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EXHIBIT INDEX
The following exhibits are submitted herewith:
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Description of Exhibit |
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99.1
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Form of Restricted Stock Award Document |
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99.2
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Form of Restricted Stock Units Award Document |
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exv99w1
Exhibit 99.1
FANNIE MAE
RESTRICTED STOCK AWARD
Award Document
This grant of Restricted Stock from Fannie Mae
(the “Award”) is made to you as an Eligible Employee
(the “Awardee”) effective as of the date of grant set forth in the grant detail available for you to view on the UBS website.
1. Grant of Stock.
Pursuant to the provisions of the Fannie Mae Stock Compensation Plan of 2003
(the "Plan"), Fannie Mae hereby grants to the Awardee, subject to the terms
and conditions of the Plan and subject further to the terms and conditions set
forth in this Award Document, restricted shares of Common Stock of Fannie Mae
(the “Restricted Stock”) as set forth in the grant detail found on the
“Restricted” page under the “Grants/Awards/Units” tab on the UBS website.
2. Definitions.
Unless provided otherwise herein, all defined terms are written with initial capital letters
and shall have the meaning stated in the Plan.
3. Terms and Conditions.
By accepting the Award, the Awardee agrees that the Award is subject to the following terms and conditions:
(a) Pre-Vesting Limitations.
The Restricted Stock, the right to vote the Restricted Stock, and the right to receive dividends or other
distributions with respect to the Restricted Stock may not, except in accordance with Plan provisions, be sold,
assigned, transferred, exchanged, pledged, hypothecated or otherwise disposed of or encumbered, either
voluntarily or involuntarily, until the restrictions have lapsed. Fannie Mae reserves the right to impose
similar restrictions on any cash or property distributed with respect to any shares of Restricted Stock.
Restrictions shall lapse in accordance with the vesting schedule set forth in the grant detail or, if earlier,
upon the Awardee’s Retirement, Early Retirement, Total Disability or death or at such
earlier time and in such circumstances, if any, as may be determined under the Plan (including, without
limitation, pursuant to Section 4.2(d) of the Plan if applicable). Notwithstanding the foregoing,
restrictions shall not lapse upon the Awardee’s Retirement or Early Retirement if the Committee
determines that the Awardee’s termination of employment is “For Cause.” For the purpose of
this Award, “For Cause” is defined in Section 6 below.
(b) Treatment of Restricted Stock Upon Termination of Employment.
Unless otherwise provided by the Committee, all shares of Restricted Stock as to which the restrictions have not lapsed
in accordance with the provisions hereof shall be immediately forfeited upon the termination of employment of the Awardee.
Forfeited shares of Restricted Stock shall be automatically transferred to Fannie Mae without payment of any
consideration by Fannie Mae and without any required consent or other action by the Awardee, and all rights of Awardee
with respect to such shares of Restricted Stock shall thereupon cease.
(c) Shareholder Rights.
The Awardee shall be entitled to voting rights and the right to any dividends or other distributions with
respect to the shares of Restricted Stock held by the Awardee, regardless of whether such shares are
vested or unvested, provided that such rights shall terminate immediately as to any Restricted Stock that is
forfeited. Dividends and other distributions paid on unvested shares of Restricted Stock may be taxable to the
Awardee as additional compensation.
(d) Payment of Taxes.
This Award is conditioned upon prompt and timely payment by the Awardee to Fannie Mae of any and all taxes required to be
withheld by Fannie Mae with respect to the grant or with respect to the vesting of the Restricted Stock. The Awardee
shall pay such taxes as follows: (i) if the withholding obligation arises in connection with the vesting of
any shares of Restricted Stock, by electing to have a portion of such shares with a value equal to the
required withholding transferred to Fannie Mae, or (ii) by the delivery of a check in form satisfactory to the
plan administrator, or (iii) by wire transfer. Fannie Mae's obligation to release unencumbered shares of Common Stock upon
the lapse of restrictions on any Restricted Stock shall be subject to the satisfaction by the Awardee of these obligations.
(e) Award Confers No Rights with Respect to Continuance of Employment.
This Award shall not confer upon the Awardee any right with respect to continued employment by Fannie Mae,
nor shall it interfere in any way with the right of Fannie Mae to terminate the Awardee’s employment at any time.
(f) Compliance with Law and Regulations.
This Award and the obligation of Fannie Mae to release unencumbered shares hereunder shall be subject to
applicable federal and state laws, rules and regulations, and to such approvals
by any government or regulatory agency as may be required.
4. Awardee Bound by Plan and Administrator’s Records.
Awardee is bound by all the terms and provisions of the Plan and the records of the Plan's administrator (including
any third-party recordkeeper). In the event of a conflict between the Award Document and the terms of the Plan or
the records of the Plan’s administrator, the terms of the Plan and records of the Plan’s administrator shall control.
5. Legends.
Prior to the lapse of the restrictions on the Restricted Stock, Fannie Mae or its designee shall hold
the Restricted Stock in book entry or certificate form and any certificates shall contain the following legend:
“The shares of stock represented hereby
are subject to the terms and conditions (including the risks of forfeiture and restrictions against transfer)
contained in the Fannie Mae Stock Compensation Plan of 2003 and the Restricted Stock Award Document. Release
from such terms and conditions shall be made only in accordance with the provisions of the Plan and this
Award Document, a copy of each of which is on file in the office of the Department of Human Resources of Fannie Mae.”
6. Definition of “For Cause”.
“For Cause” means Fannie Mae determines that the Awardee has:
(a)
materially harmed Fannie Mae by, in connection with the Awardee’s
performance of the Awardee’s duties for Fannie Mae, engaging in dishonest or
fraudulent actions or willful misconduct, or performing the Awardee's duties in a grossly negligent manner, or
(b)
been convicted of, or pleaded nolo contendere with respect to, a felony.
The Awardee will not be deemed to have been terminated For Cause following an event described in (a) above unless Fannie
Mae has provided (i) reasonable notice to the Awardee setting forth Fannie Mae’s
intention to terminate For Cause, (ii) where remedial action is appropriate and feasible, a reasonable
opportunity for such action, (iii) an opportunity for the Awardee, together with the Awardee’s
counsel, to be heard before the Compensation Committee of the Board of Directors or its delegate, and (iv) the
Awardee with a notice of termination stating that the Awardee was guilty of the conduct set forth in (a) above and
specifying the particulars thereof in detail. No act or failure to act by the Awardee will be considered
“willful” unless it is done, or omitted to be done, by the Awardee in bad faith or without
reasonable belief that the Awardee’s action or omission was in the best interests of Fannie Mae.
exv99w2
Exhibit 99.2
FANNIE MAE
RESTRICTED STOCK UNITS AWARD
Award Document
This grant of units of Restricted Stock from Fannie Mae
(the “Award”) is made to you as an Eligible Employee
(the “Awardee”) effective as of the date of grant set forth in the
grant detail available for you to view on the UBS website.
1. Grant of Units.
Pursuant to the provisions of the Fannie Mae Stock Compensation Plan of 2003
(the “Plan”), Fannie Mae hereby grants to the Awardee, subject to the terms and conditions of the Plan and
subject further to the terms and conditions set forth in this Award Document, restricted units
(the “Restricted Stock units”) relating to the Common Stock of Fannie Mae as set forth
in the grant detail found on “Restricted” page under the “Grants/Awards/Units” tab on the UBS website.
Each unit represented by this Award represents the unfunded and unsecured contractual right to the future delivery of
one share of Common Stock, subject to the restrictions herein and in the Plan.
2. Definitions. Unless provided otherwise herein, all defined terms
are written with initial capital letters and shall have the meaning stated in the Plan.
3. Terms and Conditions. By accepting the Award, the Awardee agrees that the
Award evidenced by the Award Document is subject to the following terms and conditions:
(a) Pre-Vesting Limitations. The Restricted Stock units and the right to receive payments from Fannie
Mae in lieu of dividends or other distributions with respect to the Common Stock represented by the units
may not, except in accordance with Plan provisions, be sold, assigned, transferred, exchanged, pledged,
hypothecated or otherwise disposed of or encumbered, either voluntarily or involuntarily. Restrictions shall lapse
in accordance with the vesting schedule set forth in the grant detail or, if earlier, upon the
Awardee’s Retirement, Early Retirement, Total Disability or death or at such earlier time
and in such circumstances, if any, as may be determined under the Plan (including, without limitation,
pursuant to Section 4.2(d) of the Plan if applicable). Notwithstanding the foregoing, restrictions shall
not lapse upon the Awardee’s Retirement or Early Retirement if the Committee determines that
the Awardee’s termination of employment is “For Cause.” For the purpose of this Award,
“For Cause” is defined in Section 5 below.
(b) Treatment of Restricted Stock Units Upon Termination of Employment. Unless otherwise provided by the
Committee, the Awardee’s rights under the Restricted Stock units as to which the restrictions have
not lapsed in accordance with the provisions hereof, including without limitation the right to the future
delivery of shares of Common Stock, shall be immediately forfeited upon the termination of employment of
the Awardee without payment of any consideration by Fannie Mae and without any consent or
other action by the Awardee, and all rights of Awardee with respect to such Restricted Stock units shall thereupon cease.
(c) Delivery of Shares; Shareholder Rights. As soon as practicable following the vesting of a
Restricted Stock unit, Fannie Mae will cause one share of Common Stock to be transferred to the
Awardee (or, in the event of the Awardee’s death, except, as otherwise provided within the Plan, to the
Awardee’s estate). Notwithstanding the foregoing, to the extent necessary to avoid the imposition of
an additional tax under Section 409A of the Internal Revenue Code, any Restricted Stock units that vest
by reason of the Awardee’s termination of employment due to the Awardee’s Retirement or Early Retirement
will be paid no earlier than six months and one day following the Awardee's Retirement or Early Retirement.
Until such time as such share of Common Stock is transferred to the Awardee, the Awardee shall not be treated
as a shareholder with respect thereto and shall have no rights to related dividends or other distributions, or
voting rights; provided, that during such periods, prior to the actual delivery of shares of Common Stock, as the
Awardee holds units hereunder, the Awardee shall be entitled to receive payments from Fannie Mae in lieu
of the regular cash dividends that would have been payable had such units been actual shares of Common Stock
owned by the Awardee. Any such payments in lieu of cash dividends from Fannie Mae shall be taxable as additional
compensation to the Awardee. If there is a stock split, stock dividend or similar change affecting the
Common Stock, Fannie Mae shall appropriately adjust the outstanding units of Restricted Stock to reflect such change.
(d) Payment of Taxes. This
Award and Fannie Mae’s obligation to
deliver shares of Common Stock upon the vesting of this Award are conditioned upon the prompt and timely payment by
the Awardee to Fannie Mae of any and all taxes required to be withheld by Fannie Mae with respect to the
vesting of the Award or the delivery of shares of Common Stock hereunder. The Awardee shall pay such taxes
as follows: (i) if the withholding obligation arises in connection with the delivery of shares of Common
Stock, by electing to have a portion of such shares with a value equal to the required withholding held back
by Fannie Mae; or (ii) by the delivery of a check in form satisfactory to the plan administrator, or (iii) by wire transfer.
(e) Award Confers No Rights with Respect to Continuance of Employment.
This Award shall not confer upon the Awardee any right with respect to continued employment by Fannie Mae, nor
shall it interfere in any way with the right of Fannie Mae to terminate the Awardee’s employment at any time.
(f) Compliance with Law and Regulations.
This Award and the obligation of Fannie Mae to deliver shares hereunder shall be subject to applicable federal and
state laws, rules and regulations, and to such approvals by any government or regulatory agency as may be required.
4. Awardee Bound by Plan and Administrator’s Records. Awardee is bound by all
the terms and provisions of the Plan and the records of the Plan's administrator (including any third-party recordkeeper).
In the event of a conflict between the Award Document and the terms of the Plan or the records of the
Plan’s administrator, the terms of the Plan and records of the Plan’s administrator shall control.
5. Definition of “For Cause”. “For Cause” means Fannie Mae determines that
the Awardee has:
(a) materially harmed Fannie Mae by, in connection with the Awardee’s
performance of the Awardee’s duties for Fannie Mae, engaging in dishonest or fraudulent actions or willful
misconduct, or performing the Awardee's duties in a grossly negligent manner, or
(b) been convicted of, or pleaded nolo contendere with respect to, a felony.
The Awardee will not be deemed to have been terminated For Cause following an event described in (a) above unless
Fannie Mae has provided (i) reasonable notice to the Awardee setting forth Fannie Mae’s
intention to terminate For Cause, (ii) where remedial action is appropriate and feasible, a reasonable opportunity for
such action, (iii) an opportunity for the Awardee, together with the Awardee’s
counsel, to be heard before the Compensation Committee of the Board of Directors or its delegate, and (iv) the
Awardee with a notice of termination stating that the Awardee was guilty of the conduct set
forth in (a) above and specifying the particulars thereof in detail. No act or failure to act by the
Awardee will be considered “willful” unless it is done, or omitted to be done, by the Awardee in bad
faith or without reasonable belief that the Awardee’s action or omission was in the best interests of Fannie Mae.
