Exhibit 10.1

EMPLOYMENT AGREEMENT
between
FANNIE MAE
and
FRANKLIN D. RAINES

INCLUDING ALL AMENDMENTS
THROUGH JULY 1, 2003

 

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TABLE OF CONTENTS

                            A.      
EMPLOYMENT TERM
    2             1.    
Term and Duties
    2             2.    
Annual Salary
    4             3.    
Employee’s Rights Under Certain Plans and Other Benefits
    5             4.    
Termination Without Cause, Termination or Resignation Upon a Change of Control
or Failure to Extend
    25             5.    
Termination by Employee; Breach by Employee
    28             6.    
Resignation as Board Member
    32     B.      
DISABILITY
    33             7.    
Disability
    33     C.      
DEATH
    35             8.    
Death
    35     D.      
MISCELLANEOUS
    37             9.    
Payment of Certain Expenses
    37             10.    
Secretary and Office
    38             11.    
Assignment by Employee
    39             12.    
Funding Prohibitions
    39             13.    
Disclosure of Information to the Corporation
    40             14.    
Nondisclosure of Confidential Information
    40             15.    
Waiver
    41             16.    
Notice
    42             17.    
Applicable Law
    42             18.    
Taxes
    43  

 

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                    19.     Benefit  
43
  20.     Entire Agreement  
44
  21.     Arbitration  
44
  22.     Interpretation  
45
  23.     Severability  
45

 

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EMPLOYMENT AGREEMENT

     THIS EMPLOYMENT AGREEMENT, effective as of the 21st day of May, 1998, is by
and between FANNIE MAE (the “Corporation”) and FRANKLIN D. RAINES (“Employee”).

     WITNESSETH THAT:

     WHEREAS, the Corporation desires to employ Employee, from the date of this
Agreement through December 31, 1998, as Chairman of the Board-Designate and
Chief Executive Officer-Designate of the Corporation and, commencing on January
1, 1999, as Chief Executive Officer and Chairman of the Board, and Employee
desires to serve in such capacities;

     WHEREAS, the Corporation and Employee desire to set forth the terms and
conditions of such employment; and

     WHEREAS, the Board of Directors of the Corporation (the “Board”) duly
approved and authorized the terms of this Agreement for and on behalf of the
Corporation at a meeting held on July 21, 1998, at which meeting a quorum was
present, and the Board authorized the Chairman of the

 

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Board to finalize and enter into this Agreement with Employee on behalf of the
Corporation;

     NOW, THEREFORE, in consideration of the foregoing and of the mutual
promises and covenants herein contained, the parties hereto agree as follows:

A. EMPLOYMENT TERM

1. Term and Duties

     (a)  The Corporation hereby agrees to employ Employee, and Employee hereby
agrees to serve, as Chairman of the Board-Designate and Chief Executive
Officer-Designate of the Corporation, upon the terms and conditions herein
contained, for a term commencing on May 21, 1998 (the “Effective Date”) and,
subject to the terms hereof, terminating on December 31, 1998, and, as Chairman
of the Board and Chief Executive Officer of the Corporation, upon the terms and
conditions herein contained, for a term commencing on January 1, 1999 and,
subject to the terms hereof, terminating on June 30, 2004 (the “Termination
Date”). As used in this Agreement, “Employment Term” shall mean the period from
the Effective Date through the Termination Date, plus any extension of such
period pursuant to the written agreement of the parties.

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     (b)  During the Employment Term, Employee shall be nominated for election
to the Board, and shall be identified as a nominee recommended for election by
the Board, at each annual meeting of the stockholders of the Corporation,
beginning with the annual meeting held in 1998.

     (c)  While serving as Chairman of the Board-Designate and Chief Executive
Officer-Designate, Employee shall perform such duties for the Corporation as may
be determined from time to time by the Chairman of the Board, provided that such
duties are reasonable and customary for a chairman of the board-designate and
chief executive officer-designate. While serving as Chairman of the Board and
Chief Executive Officer, Employee shall perform such duties for the Corporation
as may be determined from time to time by the Board, provided that such duties
are reasonable and customary for a chairman of the board and chief executive
officer.

     (d)  The Corporation and Employee acknowledge that the Employment Term may
be extended for an additional period by mutual written agreement entered into at
any time prior to the expiration of the Employment Term.

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2. Annual Salary

     (a)  Commencing on the Effective Date and, subject to Paragraphs 4, 5, 7
and 8 below, during the remainder of the Employment Term, the Corporation shall
pay to Employee an annual base salary of not less than $900,000 (such amount to
be prorated for 1998), payable in equal biweekly installments on the same dates
the other senior officers of the Corporation are paid. Employee’s annual base
salary payable pursuant to this Paragraph 2 (including any increases in such
salary approved by the Board pursuant to this Paragraph 2) is hereinafter
referred to as “Employee’s Basic Compensation.”

     (b)  The Board shall, from time to time, review Employee’s Basic
Compensation and may increase (but in no event decrease) such compensation for
any year after 1999 by such amounts as the Board deems proper. The criteria that
the Board may take into consideration in providing for any such increases are
the base compensation payable to chairmen and chief executive officers and other
comparable officers of comparable financial institutions and corporations,
Employee’s ability and performance, any increases in the responsibilities
assumed by Employee, the success achieved by the Corporation, any increase or
change

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in the volume, character or variety of the business of the Corporation,
increases in the cost of living and any other criteria the Board may deem
relevant.

3. Employee’s Rights Under Certain Plans and Other Benefits

     (a)  Executive Pension Plan. Employee and the Corporation acknowledge that
the Corporation has previously designated Employee as a participant in the
Executive Pension Plan of the Federal National Mortgage Association (the
“Executive Pension Plan”). Notwithstanding any of the provisions of the
Executive Pension Plan to the contrary, the following provisions shall apply to
Employee:

  (i)   Employee’s Pension Goal under the Executive Pension Plan shall at all
times be equal to at least 60% of his High-Three Total Compensation (as such
terms are defined in the Executive Pension Plan as modified in this Agreement);
    (ii)   Employee’s Total Compensation and High-Three Total Compensation shall
be determined solely by reference to Employee’s Employment Term;

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  (iii)   As of the Effective Date, Employee shall be 60% vested in his Pension
Goal in recognition of his prior service as Vice-Chairman and in recognition of
his agreement to serve in the positions described in this Agreement. Employee’s
vesting in his Pension Goal shall be increased an additional 10% per year in
accordance with the provisions of the Executive Pension Plan, calculated on the
basis of Employee’s Hours of Service in each year, starting in 1998, so that,
assuming that Employee’s employment under this Agreement has not been terminated
for any reason, Employee would become 100% vested in his Pension Goal in 2001.  
  (iv)   At termination of his employment with the Corporation for any reason
(including non-extension of the Employment Term) upon and after reaching the age
of 55, Employee shall commence to receive, within 30 days after the date his
employment terminates, his vested normal

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      retirement benefit (as determined under the Executive Pension Plan as
modified in this Agreement and in the form provided in the Executive Pension
Plan). If Employee’s employment with the Corporation is terminated for any
reason (including non-extension of the Employment Term) prior to Employee’s
reaching the age of 55, then, within 30 days after Employee’s reaching the age
of 55, he shall commence to receive his vested normal retirement benefit (as
determined under the Executive Pension Plan as modified in this Agreement and in
the form provided in the Executive Pension Plan). There shall be no actuarial
adjustment to any benefits payable under this Paragraph 3(a)(iv) by reason of
the commencement of benefit payments prior to age 60.     (v)   If Employee dies
after the commencement of payments to him under the Executive Pension Plan, his
Surviving Spouse, as

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      such term is defined in such plan, shall receive (regardless of her age at
the time of Employee’s death) monthly payments, commencing on the first day of
the month coincident with or next following the date of Employee’s death and
continuing for her lifetime, equal to 100% of the monthly amount which was being
paid to Employee at the time of his death.     (vi)   If Employee dies before
the commencement of payments to him under the Executive Pension Plan, his
Surviving Spouse, as such term is defined in such plan, shall receive
(regardless of her age at the time of Employee’s death) a monthly preretirement
surviving spouse’s benefit, commencing within 30 days of Employee’s death and
continuing for her lifetime, equal to the monthly normal retirement benefit that
Employee would have received (under the Executive Pension Plan as modified in
this Agreement) had he

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      terminated employment on the day prior to the date of his death and had he
attained at least age 55 prior to his death. There shall be no age-based
actuarial reduction in the preretirement surviving spouse’s benefit, except
that, where Employee dies before reaching the age of 55, there shall be an
age-based actuarial reduction based solely on the number of years, if any, that
Employee’s age at the date of his death is less than 55.     (vii)   The
Corporation may amend the Executive Pension Plan from time to time; provided,
however, that no such amendment shall adversely modify the vesting schedule or
decrease Employee’s Pension Goal or the vested benefits to which Employee or his
Surviving Spouse, if any, would have been entitled under such plan, as modified
in this Agreement, as in effect on the date hereof or, if benefits are improved,
as of the date of such improvement.

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     (b)  Stock Options. The Corporation has granted to Employee, as of May 21,
1998, a Nonqualified Stock Option (the “May 1998 Option”), pursuant to the
Fannie Mae Stock Compensation Plan of 1993 (the “1993 Stock Compensation Plan”),
to purchase 358,830 shares of common stock of the Corporation (the “Stock”) for
a price equal to the Fair Market Value (as defined in the 1993 Stock
Compensation Plan) of the Stock on the date of such grant. The Corporation shall
also grant to Employee, as of January 4, 1999 (the first business day following
January 1, 1999), a Nonqualified Stock Option (the “January 1999 Option”),
pursuant to the 1993 Stock Compensation Plan, to purchase 195,000 shares of
Stock for a price equal to the Fair Market Value (as defined in the 1993 Stock
Compensation Plan) of the Stock on the date of such grant. Employee shall be
considered for additional grants of Nonqualified Stock Options or Incentive
Stock Options at any time the Corporation grants Nonqualified Stock Options or
Incentive Stock Options to other officers. Notwithstanding the foregoing or any
provision of the 1993 Stock Compensation Plan or any successor plan, the
following provisions shall apply to Employee:

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  (i)   The May 1998 Option shall expire on May 21, 2008 and shall become
exercisable with respect to 25% of the Stock covered thereby on May 21 of each
of 1999, 2000, 2001 and 2002, or earlier as provided in (iv) below, provided,
however, that in the case of termination pursuant to Paragraph 5(a) or 5(b)
below, any portion of the May 1998 Option not exercisable on the date of such
termination shall become exercisable from and after the date of such termination
only as provided in the 1993 Stock Compensation Plan.     (ii)   The January
1999 Option shall expire on January 2, 2009 and shall become exercisable with
respect to 25% of the Stock covered thereby on January 4 of each of 2000, 2001,
2002, and 2003, or earlier as provided in (iv) below, provided, however, that in
the case of termination pursuant to Paragraph 5(a) or 5(b) below, any portion of
the January 1999 Option not exercisable on the date of such termination shall
become

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      exercisable from and after the date of such termination only as provided
in the 1993 Stock Compensation Plan.     (iii)   Any additional Nonqualified
Stock Option or any Incentive Stock Option granted to Employee shall become
exercisable as provided in the 1993 Stock Compensation Plan or any successor
plan, or earlier as provided in (iv) below, provided, however, that in the case
of termination pursuant to Paragraph 5(a) or 5(b) below, any portion of such
Nonqualified Stock Option or Incentive Stock Option not exercisable on the date
of such termination shall become exercisable from and after the date of such
termination only as provided in the 1993 Stock Compensation Plan or any
successor plan.     (iv)   In the event that (v) Employee is terminated without
Cause pursuant to Paragraph 4(a) below, (w) Employee is terminated or resigns
within six (6) months following a Change of Control (as defined in
Paragraph 4(d) below), (x) the Employment Term expires

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      because of the failure of the Corporation to extend this Agreement as set
forth in Paragraph 4(a) below, (y) Employee is terminated by reason of serious
illness or disability pursuant to Paragraph 7(a) below, or (z) Employee dies
while employed under this Agreement, all of Employee’s Incentive Stock Options
and Nonqualified Stock Options, including the May 1998 Option and the January
1999 Option specified above in this Paragraph 3(b), shall become immediately
exercisable.     (v)   Employee (or, in the case of serious illness, disability
or death, the person or persons to whom Employee’s rights under any Incentive
Stock Option or any Nonqualified Stock Option pass by will or applicable law or,
if no such person has such rights, Employee’s executors or administrators) shall
have the right to exercise any exercisable Incentive Stock Option and any
exercisable Nonqualified Stock Option, until it expires by its terms, regardless
of

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      whether Employee is employed by the Corporation at the time of such
exercise, provided, however, that in the case of a termination pursuant to
Paragraph 5(a) or 5(b) below, all stock options, including the May 1998 Option
and the January 1999 Option specified above in this Paragraph 3(b), may be
exercised from and after the date of such termination only as provided in the
1993 Stock Compensation Plan or any successor plan.

     (c)  Annual Incentive Plan. Employee’s Maximum Potential Award (as defined
in the Federal National Mortgage Association Annual Incentive Plan (the “Annual
Incentive Plan”)) for each year during the Employment Term shall be at least
200% of Employee’s Basic Compensation. The amount to be paid with respect to
such award for each such year shall be determined by the extent to which any
Corporate Goals (as defined in the Annual Incentive Plan) are attained. Employee
shall be entitled to participate in the Annual Incentive Plan for 1998 on a pro
rata basis. Notwithstanding any provision of the

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Annual Incentive Plan to the contrary, the following provisions shall apply to
Employee:

  (i)   In the event that (w) Employee is terminated without Cause pursuant to
Paragraph 4(a) below, (x) Employee is terminated or resigns within six (6)
months following a Change of Control (as defined in Paragraph 4(d) below),
(y) Employee is terminated by reason of serious illness or disability pursuant
to Paragraph 7(a) below or (z) Employee dies while employed under this
Agreement, the Corporation shall pay to Employee at the time of payment of
awards to other participants in the Annual Incentive Plan (regardless of whether
Employee is employed by the Corporation on the date of payment) (A) the amount
of any bonus earned by and payable to Employee pursuant to the Annual Incentive
Plan for a completed calendar year (with the period May 21-December 31, 1998
being considered a completed calendar year for

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      such purposes) but not yet paid by the Corporation for such year and (B) a
pro rata award calculated assuming 100% attainment of the target Corporate Goal
specified by the Board for the Annual Incentive Plan for the year in which such
termination or resignation occurred.     (ii)   In the event that the Employment
Term expires because of the failure of the Corporation to extend this Agreement,
the Corporation shall pay to Employee the amount of any bonus earned by and
payable to Employee pursuant to the Annual Incentive Plan for a completed
calendar year (with the period May 21-December 31, 1998 being considered a
completed calendar year for such purposes) but not yet paid by the Corporation
for such year.

     (d)  Performance Shares. The Corporation has granted to Employee, as of
May 21, 1998, Performance Shares pursuant to the 1993 Stock Compensation Plan
for the 1996-1998, 1997-1999 and 1998-2000 Award Periods (as defined in

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the 1993 Stock Compensation Plan) in amounts equal to 14,973, 20,251 and 55,132
Performance Shares, respectively. The Corporation shall also grant to Employee,
as of January 4, 1999 (the first business day following January 1, 1999),
Performance Shares pursuant to the 1993 Stock Compensation Plan for the
1997-1999 and 1998-2000 Award Periods (as defined in the 1993 Stock Compensation
Plan) in amounts equal to 938 and 3,162 Performance Shares, respectively. The
Employee shall be considered for additional grants of Performance Shares at any
time the Corporation grants Performance Shares to other employees.
Notwithstanding any provision of the 1993 Stock Compensation Plan to the
contrary, the following provisions shall apply to Employee:

  (i)   In the event that (w) Employee is terminated without Cause pursuant to
Paragraph 4(a) below, (x) Employee is terminated or resigns within six (6)
months following a Change of Control (as defined in Paragraph 4(d) below),
(y) the Employment Term expires because of the failure of the Corporation to
extend this Agreement or (z) Employee is terminated

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      by reason of serious illness or disability pursuant to Paragraph 7(a)
below, the Corporation shall pay to Employee, after the end of each such Award
Period, Actual Awards with respect to Performance Shares awarded for each Award
Period of the Performance Share Plan in which Employee has completed at least 18
months of service, in each case on a pro rata basis reflecting Employee’s
completed months of service in the Award Period, based on the actual achievement
of Program Targets for the Award Period and using as the Valuation Date (as
defined in the 1993 Stock Compensation Plan) (A) in the case of a termination
upon a Change in Control, the date of such Change in Control, and (B) in the
case of a termination without Cause, the failure of the Corporation to extend
the Employment Term or a termination because of serious illness or disability,
the last day of the Award Period.

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  (ii)   In the event that Employee dies while employed under this Agreement,
the Corporation shall pay to Employee’s designated beneficiary or, if none,
Employee’s estate as soon as is practicable after the date of Employee’s death,
Actual Awards with respect to Performance Shares awarded for each Award Period
of the Performance Share Plan, in each case on a pro rata basis reflecting the
Board’s determination of the likelihood of the Corporation’s achievement of
Program Targets for the Award Period and using the date of death as the
Valuation Date (as defined in the 1993 Stock Compensation Plan).

     (e)  Restricted Stock. In the event that (i) Employee is terminated without
Cause pursuant to Paragraph 4(a) below, (ii) Employee is terminated or resigns
within six (6) months following a Change of Control (as defined in Paragraph
4(d) below), (iii) the Employment Term expires because of the failure of the
Corporation to extend this Agreement or (iv) Employee is terminated by reason of

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serious illness or disability pursuant to Paragraph 7(a) below, any grants of
restricted stock made to Employee shall continue to vest in accordance with the
schedule included in each such grant through the end of the Employment Term, but
any unvested shares at the end of the Employment Term shall be forfeited. Upon
the death of Employee, all grants of restricted stock made to Employee, not
previously forfeited, but not yet vested on the date of death, shall immediately
vest. In the case of a termination pursuant to Paragraph 5(a) or 5(b) below,
Employee shall receive any restricted stock vested on or prior to the date of
such termination, but shall forfeit any restricted stock not vested on the date
of such termination.

     (f)  Other Benefits. The Corporation shall also provide Employee with the
following benefits:

  (i)   The Corporation shall reimburse Employee for actual expenses incurred by
Employee while Employee is employed under this Agreement in obtaining tax and
investment assistance and advice.     (ii)   The Corporation shall pay the legal
expenses incurred by Employee in

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      connection with the negotiation of this Agreement.     (iii)   The
Corporation shall provide Employee with access to a car and driver for
transportation relating to business purposes while Employee is employed under
this Agreement.     (iv)   The Corporation shall, on no more than a yearly
basis, pay or reimburse Employee for actual expenses incurred by Employee while
Employee is employed under this Agreement for a complete physical examination at
a medical facility of his choice.     (v)   The Corporation shall pay or
reimburse Employee for all reasonable travel expenses incurred by Employee’s
spouse in accompanying Employee on his trips made on behalf of the Corporation
while Employee is employed under this Agreement.     (vi)   While Employee is
employed under this Agreement, the Corporation shall provide

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      Employee, at its own expense, term life insurance in the face amount of
$900,000.     (vii)   If Employee incurs a Reimbursable Expense, as described
below, and the Corporation includes the amount of any reimbursement for that
expense on Employee’s Wage and Tax Statement, the Corporation agrees to pay to
Employee, in addition to reimbursement for the amount of the expense, any
additional amount necessary to make Employee whole on an after-tax basis.
Reimbursable Expense means any expense for travel (including travel expenses of
Employee’s spouse as described in this Paragraph 3(f)), entertainment or other
activity undertaken in connection with the performance of Employee’s duties for
the Corporation.     (viii)   In the event that (w) Employee is terminated
without Cause pursuant to Paragraph 4(a) below, (x) Employee is terminated or
resigns within six (6)

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      months following a Change of Control (as defined in Paragraph 4(d) below),
(y) the Employment Term expires because of the failure of the Corporation to
extend this Agreement or (z) Employee is terminated by reason of serious illness
or disability pursuant to Paragraph 7(a) below, the Corporation shall continue
to provide to Employee, until the later of (A) the expiration of the Employment
Term or (B) one year following the date of such termination, resignation or
expiration, an office and secretary and job assistance services, as appropriate
to his position held on the last date of his employment under this Agreement.

     (g)  General Rights Under Benefit Plans. Nothing contained herein is
intended to or shall be deemed to affect adversely any of Employee’s rights as a
participant under any long- or short-term bonus, stock option, restricted stock
or other executive compensation plans, or under any program of perquisites or
disability, retirement, stock purchase, retirement savings, health, medical,
life

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insurance, expense reimbursement or similar plans of the Corporation now or
hereafter in effect. Employee shall at all times during the Employment Term be
entitled to participate in all long- or short-term bonus, stock option,
restricted stock, and other executive compensation plans, and in all perquisite
programs and disability, retirement, stock purchase, thrift and savings, health,
medical, life insurance, expense reimbursement and similar plans of the
Corporation which are from time to time in effect and in which other senior
officers of the Corporation generally are entitled to participate. Except as
otherwise provided in this Agreement, Employee’s participation in such plans and
programs shall be in accordance with the provisions of such plans and programs
applicable from time to time, it being the intent of the parties hereto that
nothing in this Agreement shall decrease the rights and benefits of Employee
under any such plans and programs as may be in effect from time to time. Except
as specifically set forth in this Agreement, or as specifically permitted by the
terms of any such plan or program, no right or benefit under any such plan or
program shall become vested or exercisable after the termination of Employee’s
employment by the Corporation. If for any reason any benefits payable

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pursuant to this Agreement cannot be paid under the Corporation’s employee
benefit or executive compensation plans, such payments shall be made out of the
general assets of the Corporation.

4. Termination Without Cause, Termination or Resignation Upon a Change of
Control or Failure to Extend

     (a)  Notwithstanding any other provision hereunder, the Corporation shall
have the right to terminate Employee’s employment hereunder without Cause (as
defined in Paragraph 5(b) below) at any time for any reason in its sole
discretion on not less than thirty (30) days’ prior written notice to Employee.
In the event that (i) the Corporation terminates Employee’s employment pursuant
to the immediately preceding sentence, (ii) Employee is terminated or resigns
within six (6) months following a Change of Control (as defined in
Paragraph 4(d) below) or (iii) the Employment Term expires because of the
failure of the Corporation to extend this Agreement, the Corporation shall,
subject to Paragraph 4(b) below, continue to pay Employee’s Basic Compensation
to Employee at the rate in effect at the time of such termination, resignation
or expiration until the later of (A) the expiration of the Employment Term or
(B) one year following the date of such

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termination, resignation or expiration. Employee shall, subject to Paragraph
4(b) below, continue to participate in all Employee Welfare Benefit Plans (as
such term is defined in Section 3(1) of the Employee Retirement Income Security
Act of 1974, as amended, and the regulations promulgated thereunder) maintained
by the Corporation during the remainder of the Employment Term or until such
later date as may be expressly provided under the terms of any such plan.

     (b)  Following a termination or resignation pursuant to Paragraph 4(a)
above or the expiration of the Employment Term because of the failure of the
Corporation to extend this Agreement, Employee shall have the duty, commencing
on the date six (6) months after the date of such termination, resignation or
expiration, to seek other employment or to become self-employed; provided,
however, that Employee shall not be required to accept other employment or to
become self-employed in any position not at least substantially equivalent (in
terms of importance, dignity and responsibilities) to his position last held
pursuant to this Agreement. Any income received from such employment (including
self-employment but excluding service on boards of directors) after such
six-month period shall reduce, on

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a dollar-for-dollar basis (but not below zero), the Corporation’s obligation to
pay Employee’s Basic Compensation. Any employee benefits provided to Employee in
consideration of such employment after such six (6) month period shall relieve
the Corporation of its obligation to provide comparable benefits hereunder to
the extent of the benefits so provided; provided, however, that Employee’s
retirement benefit, if any, pursuant to Paragraph 3(a) above shall not be
reduced on account of any such income or benefits resulting from such
employment.

     (c)  If at any time during the Employment Term, (i) there is a material
reduction of Employee’s authority or any material change in Employee’s
functions, duties or responsibilities which would in any material way cause
Employee’s position to become less important, (ii) the Corporation shall require
Employee to relocate his office outside the Washington, D.C. area, or (iii) the
Corporation shall breach materially any other material obligation under this
Agreement, Employee shall have the right, upon not less than thirty (30) days’
written notice to the Corporation, which notice must be given within four
calendar months after the event giving rise to said right, to treat such event
as a termination by the Corporation of

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his employment without Cause pursuant to Paragraph 4(a) above for all purposes
under this Agreement, and all of the provisions of this Agreement applicable to
such a termination without Cause shall be operative with respect to such
termination.

     (d)  A “Change of Control” shall have occurred if there is a change in the
composition of a majority of the Board of Directors elected by the stockholders
within twelve (12) months after any “person” (as defined in Sections 3(a)(9) and
13(d)(3) of the Securities Exchange Act of 1934 (the “Exchange Act”), as such
sections are in effect on the Effective Date) is or becomes the “beneficial
owner” (as defined in Rule 13d-3 under the Exchange Act, as such rule is in
effect on the Effective Date) of securities representing 25% or more of the
combined voting power of the then outstanding securities of the Corporation.

5. Termination by Employee; Breach by Employee

     (a)  Notwithstanding any other provision hereunder, Employee shall have the
right to terminate his employment by the Corporation at any time for any reason
in his sole discretion on not less than thirty (30) days’ prior written notice
to the Corporation. Upon receipt of any such notice from Employee, the
Corporation shall have the option,

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exercisable by giving Employee written notice within thirty (30) days of such
receipt, to designate any date after the date of such notice to Employee and
prior to the expiration of the aforesaid notice period as the date on which
Employee shall cease to be an officer and employee of the Corporation, and the
effective date of termination hereunder shall be any such earlier date so
designated by the Corporation. In no event shall the termination of Employee’s
employment by the Corporation without Cause pursuant to Paragraph 4(a) above,
Employee’s termination or resignation within six (6) months following a Change
of Control pursuant to Paragraph 4(a) above or the expiration of the Employment
Term because of the failure of the Corporation to extend this Agreement be
deemed to be a termination by Employee pursuant to this Paragraph 5(a).

     (b)  Notwithstanding any other provision hereunder, the Corporation may
terminate Employee’s employment hereunder for “Cause,” which shall mean that
Employee has materially harmed the Corporation by, in connection with his
service under this Agreement, engaging in dishonest or fraudulent actions or
willful misconduct, or performing his duties in a negligent manner.
Notwithstanding the foregoing, Employee shall not be deemed to have been

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terminated for Cause unless the Corporation shall have provided (i) reasonable
notice to Employee setting forth the reasons for the Corporation’s intention to
terminate for Cause, (ii) where remedial action is feasible, a reasonable
opportunity for such action, (iii) an opportunity for Employee, together with
his counsel, to be heard before the Board and (iv) Employee with a notice of
termination stating that Employee was guilty of the conduct set forth in this
Paragraph 5(b) and specifying the particulars thereof in detail. No act or
failure to act will be considered “willful” unless it is done, or omitted to be
done, by Employee in bad faith or without reasonable belief that his action or
omission was in the best interests of the Corporation.

     (c)  In the event of a termination pursuant to Paragraph 5(a) or 5(b)
above, Employee shall be entitled to all of Employee’s Basic Compensation which
has accrued to the date of termination and any benefits or awards (whether of
options, stock or other property) which have vested prior to such date. The
Corporation shall have no further obligations to Employee.

     (d)  In the event of a termination by Employee pursuant to Paragraph 5(a)
above, during the period from

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the effective date of termination to the earlier of (i) the first anniversary
thereof and (ii) the expiration of the Employment Term, Employee shall not,
directly or indirectly (x) Compete with the Corporation in the United States,
(y) solicit any officer or employee of the Corporation or any of its affiliates
to engage in any conduct prohibited hereby for Employee or to terminate any
existing relationship with the Corporation or such affiliate or (z) assist any
other person to engage in any activity in any manner prohibited hereby to
Employee. As used herein, “Compete” shall mean to engage directly or indirectly
in any business, or to become connected directly or indirectly with any business
or firm, if a substantial part of such business or the business of any such firm
involves transactions in what is commonly known as the secondary market in
residential mortgages; provided, however, that Employee shall not be deemed,
directly or indirectly, to Compete with the Corporation solely by virtue of
Employee’s employment with any corporation or firm involved in transactions in
what is commonly known as the secondary market in residential mortgages so long
as Employee himself does not participate in such corporation’s or firm’s
involvement in such transactions.

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     (e)  The need to protect the Corporation against Employee’s competition, as
well as the nature and scope of such protection, has been carefully considered
by the parties hereto in light of the uniqueness of Employee’s talent and his
importance to the Corporation. Accordingly, Employee agrees that, in addition to
any other relief to which the Corporation may be entitled, the Corporation shall
be entitled to seek and obtain injunctive relief (without the requirement of a
bond) from a court of competent jurisdiction for the purpose of restraining
Employee from any actual or threatened breach of the covenant contained in
Paragraph 5(d) above. If for any reason a final decision of any court determines
that the restrictions under Paragraph 5(d) above are not reasonable or that
consideration therefor is inadequate, such restrictions shall be interpreted,
modified or rewritten by such court to include as much of the duration, scope
and geographic area identified in Paragraph 5(d) above as will render such
restrictions valid and enforceable.

6. Resignation as Board Member

     In the event Employee ceases to be employed by the Corporation and Employee
is then a member of the Board, Employee hereby agrees that, unless otherwise
requested by

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the Board, he shall submit his resignation as a member of the Board and of the
Fannie Mae Foundation in writing on or before the date he ceases to be an
officer of the Corporation. If Employee fails or neglects to submit such
resignations in writing, this Paragraph 6 may be deemed by the Corporation to
constitute Employee’s written resignation as a member of the Board and of the
Fannie Mae Foundation effective on the same date that Employee ceases to be
employed by the Corporation.

B. DISABILITY

7. Disability

     (a)  In the event that, while employed under this Agreement, Employee is
prevented from performing his duties hereunder by reason of serious illness or
disability, the Corporation may, on sixty (60) days’ prior written notice to
Employee, terminate Employee’s employment. If, within sixty (60) days of such
notice, Employee recovers and is again able to perform his duties hereunder,
such notice shall be void, and the Employee’s employment shall not be terminated
thereby. Upon the termination of Employee’s employment pursuant to this
Paragraph 7(a), the Corporation shall, subject to Paragraphs 7(b) and (c) below,
continue

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to pay Employee’s Basic Compensation at the rate in effect at the time of such
termination until the later of (A) the expiration of the Employment Term or (B)
one year following the date of such termination. Employee shall, subject to
Paragraph 7(b) below, continue to participate in all Employee Welfare Benefit
Plans maintained by the Corporation and receive benefits to which he is entitled
under such plans during the remainder of the Employment Term or until such later
date as may be expressly provided under the terms of any such plan.

     (b)  Employee may, in his sole discretion, after the date he ceases to be
employed by the Corporation pursuant to Paragraph 7(a) above, engage in regular
employment (whether as the employee of another or as a self-employed person).
Any income received from such employment, including self-employment, shall
reduce, on a dollar-for-dollar basis (but not below zero), the Corporation’s
obligation to pay Employee’s Basic Compensation under Paragraph 7(a) above. Any
employee benefits provided to Employee in consideration of such employment shall
relieve the Corporation of its obligation to provide comparable benefits
hereunder to the extent of the benefits so provided; provided, however, that
Employee’s retirement

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benefits, if any, pursuant to Paragraph 3(a) above shall not be reduced on
account of any such income or benefits resulting from such employment.

     (c)  If Employee becomes entitled to and receives disability benefits under
any disability payment plan, including disability insurance, the amount of
Employee’s Basic Compensation otherwise payable by the Corporation to Employee
pursuant to Paragraph 7(a) above shall be reduced, on a dollar-for-dollar basis
(but not below zero), by the amount of any such disability benefits received by
him, but only to the extent such benefits are attributable to premium payments
made by the Corporation.

C. DEATH

8. Death

     (a)  In the event Employee dies while employed under this Agreement, the
Corporation shall pay Employee’s designated beneficiary or, if none, Employee’s
estate, in one cash payment an amount equal to 200% of Employee’s Basic
Compensation in effect on the date of his death.

     (b)  At all times while employed under this Agreement, Employee shall be
covered at the Corporation’s expense under the Corporation’s Executive Insurance
Plan by

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a whole life insurance policy in a face amount equal to 200% of Employee’s Basic
Compensation. In order to eliminate the income tax burden on Employee by reason
of the imputation of income as a result of such insurance coverage, the
Corporation shall pay to Employee an amount equal to the income taxes imposed on
such imputed income plus the income taxes imposed on such payment. In the event
this Agreement terminates or expires other than pursuant to Paragraph 5(a) or
5(b) above, Employee may, pursuant to the terms of the insurance policy through
which such benefits are provided and the agreement between the Corporation and
Employee entered into thereunder, acquire such insurance policy by paying the
Corporation an amount equal to the sum of all premium payments made by the
Corporation on such policy, and the Corporation shall pay to Employee an amount
equal to the income taxes imposed on Employee with respect to such acquisition
plus the income taxes imposed on such payment. In the event Employee completes
thirteen (13) years of service with the Corporation pursuant to this Agreement,
such insurance policy shall automatically be transferred to Employee pursuant to
the terms of such policy and the agreement between the Corporation and Employee
entered into

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thereunder. In the event of any such transfer, in order to eliminate the income
tax burden on Employee by reason of the income arising from such transfer, the
Corporation shall pay to Employee an amount equal to the income taxes imposed on
such income plus the income taxes imposed on such payment. Nothing contained
herein shall reduce any benefit payable pursuant to Paragraph 3(a) above or
under the terms of any other qualified or nonqualified pension, executive
compensation or welfare plan of the Corporation.

     (c)  Unless Employee’s employment shall have terminated pursuant to
Paragraph 5(a) or 5(b) above, after Employee’s death at any time during or after
the expiration of the Employment Term, the Corporation shall continue the health
and medical coverage elected by the Employee, without direct premium payments by
Employee’s family, for Employee’s surviving spouse for her life, and for his
other dependents so long as they remain dependents as defined in said health and
medical plan.

D. MISCELLANEOUS

9. Payment of Certain Expenses

     The Corporation agrees to pay promptly as incurred, to the fullest extent
permitted by law, all legal fees and

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expenses which Employee may reasonably incur as a result of any contest by the
Corporation, Employee or others of the validity or enforceability of, or
liability under, any provision of this Agreement (including as a result of any
contest initiated by Employee about the amount of any payment due pursuant to
this Agreement), plus in each case interest on any delayed payment at the
applicable federal rate provided for in Section 7872(f)(2)(A) of the Internal
Revenue Code of 1986, as amended; provided, however, that the Corporation shall
not be obligated to make such payment with respect to any contest in which the
Corporation prevails over Employee.

10. Secretary and Office

     If Employee’s employment under this Agreement is terminated on or after his
reaching age fifty-five (55), other than pursuant to Paragraph 5(a) or 5(b)
above, the Corporation shall provide to Employee, at any time Employee is not
employed by any person on a full-time basis, an office and secretary.

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11. Assignment by Employee

     Except as otherwise expressly provided in this Agreement, the rights and
benefits of Employee pursuant hereto are personal to him, and no such right or
benefit shall be subject to voluntary or involuntary alienation, assignment or
transfer.

12. Funding Prohibitions

     All payments to be made under this Agreement shall be paid from the general
funds of the Corporation or from the funds set aside or reserved for payment of
the Corporation’s obligations under its employee benefit or executive
compensation plans, if any. Employee shall have no right, title or interest in
or to any investments which the Corporation may make to aid it in meeting its
obligations under this Agreement. All such assets shall be the property solely
of the Corporation and shall be subject to the claims of the Corporation’s
unsecured general creditors. To the extent Employee or any other person acquires
a right to receive payments from the Corporation under this Agreement, such
right shall be no greater than the right of any unsecured general creditor of
the Corporation and such person shall have only the unsecured

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contractual agreement of the Corporation that such payments shall be made.

13. Disclosure of Information to the Corporation

     In the event Paragraph 4 or 7 above becomes applicable, Employee or, in the
event of Employee’s incapacity or death, his personal representative shall make
available to the Corporation on a confidential basis such records, documents and
other information reasonably necessary to enable the Corporation to verify the
amount of income available to offset the payments otherwise due Employee
pursuant to Paragraph 4 or 7 above.

14. Nondisclosure of Confidential Information

     Employee shall not, without the prior written consent of the Corporation,
divulge, disclose or make accessible to any other person, firm, partnership,
corporation or other entity any Confidential Information pertaining to the
business of the Corporation, except (i) while employed by the Corporation, in
the business of and for the benefit of the Corporation, or (ii) when required to
do so by a court of competent jurisdiction, by any governmental agency having
supervisory authority over the

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business of the Corporation, or by any administrative body or legislative body
(including a committee thereof) with purported or apparent jurisdiction to order
Employee to divulge, disclose or make accessible such information. For purposes
of this Paragraph 14, “Confidential Information” shall mean nonpublic
information concerning the Corporation’s financial data, strategic business
plans, product development (or other proprietary product data), marketing plans
and other nonpublic, proprietary and confidential information of the Corporation
that is not otherwise available to the public. Confidential Information,
however, shall not include information the disclosure of which cannot reasonably
be expected to affect adversely the business of the Corporation to a material
degree.

15. Waiver

     The failure of either party hereto to insist upon strict compliance by the
other party with any term, covenant or condition hereof shall not be deemed a
waiver of such term, covenant or condition, nor shall any waiver or
relinquishment or failure to insist upon strict compliance of any right or power
hereunder at any one time

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or more times be deemed a waiver or relinquishment of such right or power at any
other time or times.

16. Notice

     Any notice required or desired to be given pursuant to this Agreement shall
be sufficient if in writing transmitted by hand delivery or sent by prepaid
courier or registered or certified mail, postage prepaid, to the addresses
hereinafter set forth or to such other address as any party hereto may designate
in writing and transmit in such manner. Any such notice shall be deemed given
when delivered, if transmitted by hand delivery, 24 hours after deposit with a
prepaid courier service or 72 hours after deposit in the United States mail, if
sent by registered or certified mail.

17. Applicable Law

     This Agreement shall be governed by the laws of the District of Columbia
without regard to any otherwise applicable conflict of laws principles.

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18. Taxes

     The Corporation shall deduct from all amounts payable under this Agreement
all federal, state, local and other taxes required by law to be withheld with
respect to such payments.

19. Benefit

     Except as is otherwise herein expressly provided, this Agreement shall
inure to the benefit of and be binding upon the Corporation, its successors and
assigns, and upon Employee, his spouse, heirs, executors and administrators;
provided, however, that the obligations of Employee hereunder shall not be
delegated. The Corporation shall require any successor (whether direct or
indirect, by purchase, merger, reorganization, consolidation, acquisition of
property or stock, liquidation, or otherwise) to all or a substantial portion of
its assets, by agreement in form and substance reasonably satisfactory to
Employee, expressly to assume and agree to perform this Agreement in the same
manner and to the same extent that the Corporation would be required to perform
this Agreement if no such succession had taken place. Regardless of whether such
an agreement is executed, this Agreement shall

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be binding upon any successor of the Corporation in accordance with the
operation of law, and such successor shall be deemed the “Corporation” for
purposes of this Agreement.

20. Entire Agreement

     The parties hereto agree that this Agreement contains the entire
understanding and agreement between them and cannot be amended, modified or
supplemented in any respect except by an agreement in writing signed by both
parties.

21. Arbitration

     Except as to any controversy or claim which Employee elects, by written
notice to the Corporation, to have adjudicated by a court of competent
jurisdiction, any controversy or claim arising out of or relating to this
Agreement or the breach hereof shall be settled by arbitration in the District
of Columbia in accordance with the laws of the District of Columbia. The
arbitration shall be conducted in accordance with the rules of the American
Arbitration Association. The costs and expenses of the arbitrator(s) shall be
borne by the Corporation.

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The award of the arbitrator(s) shall be binding upon the parties. Judgment upon
the award rendered by the arbitrator(s) may be entered in any court having
jurisdiction.

22. Interpretation

     Wherever reference is made herein to the “failure of the Corporation to
extend this Agreement,” such a failure shall be deemed to have occurred if and
only if the Corporation either notifies Employee that it does not desire to
extend this Agreement or that it desires to do so only on terms in the aggregate
materially less favorable to Employee than those contained herein. If the
Corporation notifies Employee it desires to extend this Agreement on terms that
are in the aggregate substantially equivalent to or more favorable to Employee
than those contained herein, any nonextension shall not be deemed to be a
“failure of the Corporation to extend this Agreement.”

23. Severability

     It is the intent and understanding of each party hereto that, if any term,
restriction, covenant, or promise is found to be invalid or otherwise
unenforceable, then

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such term, restriction, covenant, or promise shall not thereby be terminated but
shall be deemed modified to the extent necessary to make it enforceable and, if
it cannot be so modified, shall be deemed amended to delete therefrom such
provision or portion found to be invalid or unenforceable, such modification or
amendment in any event to apply only with respect to the operation of this
Agreement in the particular jurisdiction in which such finding is made.

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     IN WITNESS WHEREOF, the Corporation has caused its name to be ascribed to
this Agreement by its duly authorized representative and Employee has executed
this Agreement, each as of the day and the year first above written.

      Attest:   FANNIE MAE     3900 Wisconsin Avenue, N.W.     Washington, D.C.
20016       /s/ Elizabeth Berg   By: /s/James A. Johnson

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    Chairman of the Board     of Directors       Witness:           /s/ Equilla
Ford   /s/ Franklin D. Raines

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    FRANKLIN D. RAINES

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