Exhibit 10.1

EMPLOYMENT AGREEMENT

between

FANNIE MAE

and

FRANKLIN D. RAINES

As Amended on June 30, 2004

 

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TABLE OF CONTENTS

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ARTICLE 1
  DEFINITIONS     1  
Section 1.1.
  Agreement Term     1  
Section 1.2.
  Annual Incentive Plan     1  
Section 1.3.
  Award Period     1  
Section 1.4.
  Base Salary     1  
Section 1.5.
  Board     2  
Section 1.6.
  Cause     2  
Section 1.7.
  Compete     2  
Section 1.8.
  Corporation     2  
Section 1.9.
  Effective Date     2  
Section 1.10.
  Employee     2  
Section 1.11.
  Employment     2  
Section 1.12.
  Executive Pension Plan     3  
Section 1.13.
  Existing Agreement     3  
Section 1.14.
  Good Reason     3  
Section 1.15.
  OFHEO     3  
Section 1.16.
  Option     3  
Section 1.17.
  Performance Share Award     3  
Section 1.18.
  Qualifying Termination     3  
Section 1.19.
  Restricted Stock     3  
Section 1.20.
  Retirement     3  
Section 1.21.
  Serious Illness or Disability     4  
Section 1.22.
  Stock Compensation Plan     4  
Section 1.23.
  Surviving Spouse     4  
Section 1.24.
  Termination of Employment     4  
ARTICLE 2
  PERIOD OF EMPLOYMENT AND DUTIES     4  
Section 2.1.
  Period of Employment     4  
Section 2.2.
  Duties     4  
ARTICLE 3
  COMPENSATION AND BENEFITS     5  
Section 3.1.
  Base Salary     5  
Section 3.2.
  Benefits     6  
ARTICLE 4
  TERMINATION OF EMPLOYMENT     9  
Section 4.1.
  Termination of Employment By the Corporation     9  
Section 4.2.
  Termination of Employment By Employee     12  
Section 4.3.
  Other Termination of Employment     13  
Section 4.4.
  Resignation as Member of the Board of Directors     13  
ARTICLE 5
  COMPENSATION AND BENEFITS FOLLOWING TERMINATION OF EMPLOYMENT     13  

 

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Section 5.1.
  Termination of Employment (Other Than By Reason of Death)     13  
Section 5.2.
  Voluntary Termination Pursuant to Section 4.2(c)     14  
Section 5.3.
  Termination for Cause     14  
Section 5.4.
  Qualifying Termination (Other Than by Reason Of Death)     15  
Section 5.5.
  Termination of Employment By Reason of Death     19  
ARTICLE 6
  MISCELLANEOUS     21  
Section 6.1.
  Noncompetition     21  
Section 6.2.
  Payment of Certain Expenses     22  
Section 6.3.
  Assignment by Employee     22  
Section 6.4.
  No Funding Required     22  
Section 6.5.
  Nondisclosure of Confidential Information     23  
Section 6.6.
  Waiver     23  
Section 6.7.
  Notice     23  
Section 6.8.
  Applicable Law     24  
Section 6.9.
  Taxes     24  
Section 6.10.
  Benefit     24  
Section 6.11.
  Entire Agreement     24  
Section 6.12.
  Arbitration     25  
Section 6.13.
  Severability     25  
Section 6.14.
  Regulatory Approval     25  

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EMPLOYMENT AGREEMENT

     THIS EMPLOYMENT AGREEMENT (this “Agreement”) is between FANNIE MAE (the
“Corporation”) and FRANKLIN D. RAINES (“Employee”).

     WHEREAS, the Corporation and Employee are parties to an employment
agreement dated as of May 21, 1998, which as extended provides for termination
on June 30, 2004 (the “Existing Agreement”);

     WHEREAS, under the termination provisions of the Existing Agreement, which
were approved by OFHEO, Employee is contractually entitled to certain
compensation and benefits if, among other circumstances, Employee’s employment
is not extended; and

     WHEREAS, Employee has successfully discharged his responsibilities under
the Existing Agreement and has earned certain vested amounts, as described in
his Existing Agreement, over the course of his employment;

     NOW, THEREFORE, the Corporation and Employee agree as follows:

ARTICLE 1

DEFINITIONS

     The following terms shall have the meanings set forth below:

     Section 1.1. Agreement Term means the period of time beginning on the
Effective Date and ending on June 30, 2007 or such later date as may be agreed
to pursuant to Section 2.1.

     Section 1.2. Annual Incentive Plan means the Federal National Mortgage
Association Annual Incentive Plan as from time to time amended and in effect, or
any successor plan.

     Section 1.3. Award Period is defined in the Stock Compensation Plan.

     Section 1.4. Base Salary means the dollar amount of Employee’s annual base
compensation as determined by the Board. Employee’s Base Salary may be paid or
provided, as

 

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     the Board determines, either entirely in cash or partly in cash and partly
in long-term, equity-based compensation valued as determined by the Board in its
reasonable discretion.

     Section 1.5. Board means the Board of Directors of the Corporation, acting
without the participation of those of its members who are also officers of the
Corporation.

     Section 1.6. Cause is defined in Section 4.1(b).

     Section 1.7. Compete means directly or indirectly to manage, operate,
control, participate in the ownership, management, operation or control of, be
connected as an officer, employee, partner, director, consultant or otherwise
with, or have any financial interest in, (i) any business if a substantial part
of such business involves originating, purchasing, selling, servicing or
otherwise dealing in the residential mortgage market (provided, that Employee
shall not be deemed, directly or indirectly, to Compete solely by virtue of
Employee’s employment by a business that engages in transactions in the
residential mortgage market so long as Employee himself does not participate
directly in the residential mortgage business), (ii) Freddie Mac, or (iii) any
part of the Federal Home Loan Bank System (including any one of the Federal Home
Loan Banks or the Federal Home Loan Banks Office of Finance). Employee shall not
be deemed to Compete solely by reason of ownership, for personal investment
purposes only, of less than 2% of the voting interests of any business.

     Section 1.8. Corporation means Fannie Mae.

     Section 1.9. Effective Date means July 1, 2004, subject, however, to the
provisions of Section 6.14 (“Regulatory Approval”).

     Section 1.10. Employee means Franklin D. Raines.

     Section 1.11. Employment means Employee’s employment by the Corporation
under this Agreement.

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     Section 1.12. Executive Pension Plan means the Executive Pension Plan of
the Federal National Mortgage Association as from time to time amended and in
effect, or any successor plan.

     Section 1.13. Existing Agreement is defined in the preamble to this
Agreement.

     Section 1.14. Good Reason means (a) a material reduction by the Corporation
of Employee’s authority or a material change in Employee’s functions, duties or
responsibilities that in any material way would cause Employee’s position to
become less important, (b) a reduction in Employee’s Base Salary or the dollar
amount of the cash salary portion thereof, (c) a requirement by the Corporation
that Employee relocate his office outside of the Washington, D.C. area, or (d) a
breach by the Corporation of any material obligation of the Corporation under
this Agreement, unless, within 30 days of the written notice given by Employee
and specifying a circumstance constituting Good Reason, the Corporation
eliminates such circumstance.

     Section 1.15. OFHEO means the Office of Federal Housing Enterprise
Oversight.

     Section 1.16. Option is defined in the Stock Compensation Plan.

     Section 1.17. Performance Share Award is defined in the Stock Compensation
Plan.

     Section 1.18. Qualifying Termination means Termination of Employment (i) by
the Corporation without Cause, (ii) by Employee for Good Reason, (iii) by
Retirement, (iv) by reason of Serious Illness or Disability or (v) by reason of
Employee’s death.

     Section 1.19. Restricted Stock is defined in the Stock Compensation Plan.

     Section 1.20. Retirement means (i) Employee’s voluntary retirement pursuant
to prior written notice as specified in Section 4.2(b) from service with Fannie
Mae at or after the attainment of age 55, or (ii) Termination of Employment by
reason of the expiration of the

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Agreement Term, or (iii) Termination of Employment by Employee by reason of
Employee’s acceptance of an appointment to a senior position in the U.S. Federal
Government.

     Section 1.21. Serious Illness or Disability means a serious physical or
mental illness or disability which, in the reasonable determination of the
Board, prevents Employee from performing his duties under this Agreement for a
period of at least six months in any twelve-month period.

     Section 1.22. Stock Compensation Plan means either or both, as the context
requires, of the Fannie Mae Stock Compensation Plan of 1993 and the Fannie Mae
Stock Compensation Plan of 2003, in each case as from time to time amended and
in effect, or any successor plan.

     Section 1.23. Surviving Spouse is defined in the Executive Pension Plan.

     Section 1.24. Termination of Employment means the cessation of Employment
for any reason.

ARTICLE 2

PERIOD OF EMPLOYMENT AND DUTIES

     Section 2.1. Period of Employment. The Corporation shall continue to employ
Employee, and Employee shall continue to serve, as Chairman of the Corporation’s
Board of Directors and Chief Executive Officer of the Corporation, upon the
terms and conditions of this Agreement, for the period July 1, 2004 through the
last day of the Agreement Term unless there is an earlier Termination of
Employment. The Agreement Term may be extended by mutual written agreement of
the parties entered into at any time prior to the date the Agreement Term would
otherwise expire.

     Section 2.2. Duties. Employee shall serve the Corporation under this
Agreement as Chairman of the Corporation’s Board of Directors and as Chief
Executive Officer. Employee

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shall devote his full business time and attention to the Corporation and shall
faithfully and diligently perform such duties for the Corporation, consistent
with his position as Chairman of the Corporation’s Board of Directors and as
Chief Executive Officer, as may be determined from time to time by the Board.
Employee shall be subject to the Corporation’s standards of conduct and similar
policies and procedures applicable generally to members of the Board of
Directors or to the Corporation’s executive officers, as the case may be.
Employee may (a) serve on corporate, civic or charitable boards or committees or
(b) manage personal investments, so long as such activities do not materially
interfere with the performance of his responsibilities under this Agreement and
so long as such activities comply with the aforementioned standards, policies
and procedures of the Corporation. During his Employment, Employee shall be
nominated for election to the Corporation’s Board of Directors and shall be
identified as a nominee recommended for election by the Board, at each annual
meeting of the stockholders of the Corporation.

ARTICLE 3

COMPENSATION AND BENEFITS

     Section 3.1. Base Salary. During Employee’s Employment, the Corporation
shall pay (or, in the case of non-cash compensation, provide) to Employee Base
Salary of not less than his base salary at June 30, 2004. The cash component of
Employee’s Base Salary shall be paid on the same periodic basis as payments of
base salary to other senior executives of the Corporation and shall not be less
than the cash component of Employee’s base salary at June 30, 2004. The non-cash
component, if any, of Employee’s Base Salary shall be provided in such form or
forms and subject to such terms and conditions as the Board may determine in its
reasonable discretion, including, if it so determines, vesting or performance
conditions (which, if such non-cash

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component is part of another award, shall be consistent with the vesting or
performance conditions applicable generally to such other award). The Board
shall from time to time review Employee’s Base Salary and may increase (but in
no event decrease) the aggregate dollar amount of such Base Salary by such
amounts as it deems proper.

     Section 3.2. Benefits.

     (a) Executive Pension Plan. The parties acknowledge that the Corporation
has previously designated Employee as a participant in the Executive Pension
Plan. Notwithstanding any provision 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.”
High-Three Total Compensation shall be as defined in the Executive Pension Plan,
except that in determining “Total Compensation” for purposes of such definition,
(A) the base salary component of that term shall be determined by Employee’s
Base Salary hereunder (and, for prior years, by his base salary under prior
agreements with the Corporation), whether or not currently taxable, and (B) the
“other taxable compensation” component of that term shall include, for any year,
up to 100 percent of Employee’s Base Salary (or, under prior agreements, base
salary) for such year, except as provided in Section 5.3. There shall be no
actuarial adjustment to any benefits payable under the Executive Pension Plan by
reason of the commencement of benefit payments prior to Employee’s reaching age
60. If Employee dies after Termination of Employment, his Surviving Spouse 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

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Employee’s death and continuing for her lifetime, equal to 100% of the monthly
amount that was being paid to Employee at the time of his death (or, if Employee
dies after Termination of Employment but before commencement of payments under
the Executive Pension Plan, that Employee would have received had payments
commenced prior to his death).

     (ii) The Corporation may amend the Executive Pension Plan from time to
time; provided, however, that no such amendment shall 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 Effective Date or, if benefits are improved, as of the date
of such improvement.

     (b) Options. Employee shall be considered for grants of Options consistent
with the compensation philosophy of the Corporation set forth in the charter of
the Compensation Committee of the Board.

     (c) Annual Incentive Plan. Employee shall be considered for a potential
award under the Annual Incentive Plan for each year during Employment consistent
with the compensation philosophy of the Corporation set forth in the charter of
the Compensation Committee of the Board.

     (d) Performance Share Awards. Employee shall be considered for grants of
Performance Share Awards consistent with the compensation philosophy of the
Corporation set forth in the charter of the Compensation Committee of the Board.

     (e) Restricted Stock. Employee shall be considered for grants of Restricted
Stock consistent with the compensation philosophy of the Corporation set forth
in the charter of the Compensation Committee of the Board.

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     (f) Life Insurance and Death Benefits. Employee shall receive life
insurance benefits consistent with the Corporation’s life insurance policies and
programs as from time to time in effect.

     (g) Other Benefits. The Corporation shall provide Employee with the
following additional benefits during Employment:

     (i) The Corporation shall pay or reimburse Employee for reasonable expenses
incurred by Employee in obtaining tax and investment assistance and advice.

     (ii) The Corporation shall pay or reimburse the legal expenses incurred by
Employee in connection with the negotiation of this Agreement.

     (iii) The Corporation shall provide Employee with access to a car and
driver for transportation relating to the Corporation’s business purposes.

     (iv) The Corporation shall pay or reimburse Employee for actual expenses
incurred by Employee for a complete annual physical examination at a medical
facility of his choice.

     (h) General Rights Under Benefit Plans.

     (i) 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

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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.
Employee’s rights as a participant under any compensation, benefit or fringe
benefit plan or arrangement of the Corporation that is from time to time in
effect and in which other senior officers of the Corporation generally are
entitled to participate shall be subject to this Agreement and modified to the
extent expressly provided herein, but except as so modified shall be determined
under the applicable provisions of such plans and programs; provided, that all
such plans and programs and this Agreement shall be construed and administered
to avoid any duplication of benefits under any such plan or program and this
Agreement.

     (ii) 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 Termination of
Employment.

ARTICLE 4

TERMINATION OF EMPLOYMENT

     Section 4.1. Termination of Employment By the Corporation.

     (a) Without Cause. The Corporation shall have the right to terminate
Employee’s Employment without Cause at any time for any reason in the
Corporation’s sole discretion by giving thirty (30) days’ prior written notice
to Employee.

     (b) For Cause. The Corporation may terminate Employee’s Employment for
Cause. For purposes of this Agreement, termination for “Cause” shall have the
meaning set forth at Section 4.1(b)(i) below, and Employee’s Employment shall
not be treated as having been terminated for Cause unless such termination is
accomplished in accordance with Section 4.1(b)(ii) below.

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     (i) For purposes of this Agreement, Employee shall be treated as having
been terminated for “Cause” only if Employee has (A) been convicted of, or
pleaded nolo contendere with respect to, a felony, or (B) participated
personally in an act of fraud in the discharge of his duties under this
Agreement that demonstrably discredits the Corporation and that cannot be cured,
or (C) continued for 30 days following written notice from the Corporation to
engage in activities that are not contemplated or permitted by this Agreement
and that involve a material conflict of interest with Employee’s duties and
responsibilities under this Agreement, or (D) continued for 30 days following
written notice from the Corporation to fail substantially to perform the
material duties of his office (other than as a result of total or partial
incapacity due to physical or mental illness or disability), or (E) failed to
cure, within 30 days following written notice from the Corporation, any material
breach of the material terms of this Agreement or of any written noncompetition,
nondisclosure or nonsolicitation policy or agreement to which Employee is at the
time subject or by which he is at the time bound. The Corporation’s written
notice to Employee referred to in (C), (D) and (E) above will not be deemed to
have been given unless it identifies with particularity the asserted basis or
bases for a for-Cause termination and requests, with specific reference to this
Section 4.1(b)(i), that it or they be corrected or cured.

     (ii) The Corporation by written notice may terminate Employee’s employment
for Cause at any time following the occurrence of an event described in
Section 4.1(b)(i)(A) above. Within 10 days following the occurrence of an act
described in Section 4.1(b)(i)(B) above, or following the end of the 30-day
correction or cure period described in any of Section 4.1(b)(i)(C), (D) or
(E) above, if the basis or bases asserted

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by the Board for a for-Cause termination thereunder have not been corrected or
cured, the Board shall give written notice to Employee setting forth with
particularity the asserted basis or bases for a for-Cause termination and giving
Employee a reasonable opportunity, including reasonable access to information
and documents, to appear with counsel before the Board to contest the asserted
basis or bases for such termination. Employee shall not be treated as having
been terminated for Cause unless, following such opportunity to contest the
basis or bases for termination, the Board determines in writing by the
affirmative vote of a majority of its members that the asserted basis or bases
for termination exist under Section 4.1(b)(i)(B) through (E), as applicable,
above and that Employee is therefore terminated for Cause. During the pendency
of any process described in the immediately preceding sentence, the Corporation
may transfer some or all of Employee’s duties and responsibilities to one or
more other officers of the Corporation, but until Employee’s employment is
terminated in accordance with the preceding provisions of this
Section 4.1(b)(ii) he shall continue during the Agreement Term to be entitled to
all the remuneration and employee benefits to which he would otherwise be
entitled as an active employee under this Agreement. In any proceeding before
the Board described in this Section 4.1(b)(ii), where Employee’s good faith in
the performance of his duties is in question, such good faith shall be presumed
unless the preponderance of the evidence indicates otherwise.

     (c) By Reason of Serious Illness or Disability. In the event of Employee’s
Serious Illness or Disability during Employment, the Corporation may terminate
Employee’s Employment by giving Employee at least 60 days’ advance written
notice specifying the date of termination. If, on or before the date of
termination specified in such notice, Employee recovers

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and is again able to perform his duties hereunder, such notice shall be void,
and Employee’s Employment shall not be terminated thereby.

     Section 4.2. Termination of Employment By Employee.

     (a) For Good Reason. Employee shall have the right to terminate his
Employment for Good Reason, unless the Corporation prior to such termination
shall have cured the asserted basis for the Good Reason claim, by giving not
less than 30 days’ prior written notice to the Corporation, which notice must be
given within six calendar months after the event giving rise to the Good Reason.

     (b) By Retirement. Employee shall have the right to terminate his
Employment by Retirement by giving not less than six months’ prior written
notice to the Corporation, which notice may not be given after the Corporation
has provided a written notice of termination to Employee under Section 4.1(b).
Voluntary termination by Employee of his Employment, other than as set forth in
Section 1.20, shall not constitute Retirement for purposes of this Agreement but
may result in a termination described in Section 4.2(c).

     (c) Other Than For Good Reason or Retirement. Employee shall have the right
to terminate his Employment at any time for any reason other than Good Reason or
Retirement in his sole discretion by giving not less than 30 days’ prior written
notice to the Corporation, which notice may not be given after the Corporation
has provided a written notice of termination to Employee under Section 4.1(b).
Upon receipt of any such notice from Employee, the Corporation shall have the
option, exercisable by giving Employee written notice within 30 days of such
receipt, to designate any date (not earlier than 30 days after the date of
Employee’s notice) as the date on which Employee’s Employment shall cease. The
effective date of the Termination of Employment hereunder shall be the date so
designated by the Corporation if

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earlier than the date specified by Employee. In no event shall the Termination
of Employment by the Corporation without Cause, by Employee for Good Reason or
by reason of Retirement, be deemed to be a Termination of Employment by Employee
pursuant to this Section 4.2(c).

     Section 4.3. Other Termination of Employment. Employee’s Employment shall
also terminate on Employee’s death.

     Section 4.4. Resignation as Member of the Board of Directors. A Termination
of Employment shall constitute, unless otherwise requested by the Board,
Employee’s resignation as a member of the Corporation’s Board of Directors and
as a member of the Board of Directors of the Fannie Mae Foundation, effective on
the date of the Termination of Employment.

ARTICLE 5

COMPENSATION AND BENEFITS FOLLOWING TERMINATION OF EMPLOYMENT

     Section 5.1. Termination of Employment (Other Than By Reason of Death). If
there is a Termination of Employment for any reason other than Employee’s death,
Employee shall be entitled to receive, and within 30 days of such Termination of
Employment shall commence to receive, his vested normal retirement benefit under
the Executive Pension Plan as modified by this Agreement and in the form
provided in the Executive Pension Plan. Except as provided in the preceding
sentence (relating to benefits under the Executive Pension Plan), upon a
Termination of Employment Employee shall be entitled to receive only those
vested benefits, if any, to which he is entitled under any pension,
profit-sharing or stock plan or plans maintained by the Corporation (except as
otherwise expressly provided in Sections 5.2 through 5.5, as applicable) and to
those payments and benefits, if any, as are specified in Sections 5.2 through
5.5, as applicable.

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     Section 5.2. Voluntary Termination Pursuant to Section 4.2(c). If the
Termination of Employment is a voluntary termination pursuant to Section 4.2(c),
then in addition to the benefits payable under Section 5.1 and payment of all
accrued but unpaid Base Salary amounts, plus all amounts payable (but unpaid)
under any Performance Share Award with respect to an Award Period that had ended
on or prior to the Termination of Employment, Employee shall be entitled to the
benefits described in Section 5.4(e) (Medical and Dental Coverage) and
Section 5.4(f) (Administration), in each case on the same basis as if his
Termination of Employment had been by reason of a Qualifying Termination, and to
the benefits described in Section 5.4(c) (Performance Share Awards) determined
by applying the provisions of Section 5.4(c) as if Employee’s Termination of
Employment had been by reason of a Qualifying Termination. Employee shall be
entitled to such rights, if any, under any awards of Restricted Stock as are set
forth in the applicable awards.

     Section 5.3. Termination for Cause. In the event of a Termination of
Employment for Cause, except as provided in Section 5.1 Employee shall not be
entitled to any payments or benefits except as follows: Employee shall be
entitled to all amounts payable (but unpaid) under any Performance Share Award
with respect to an Award Period commencing prior to July 1, 2004 that had ended
on or prior to the Termination of Employment. In addition, Employee shall be
entitled to the benefits described in Section 5.4(c) (Performance Share Awards)
with respect to Award Periods commencing prior to July 1, 2004 in which at least
18 months had elapsed prior to the date of the Termination of Employment
determined by applying the provisions of Section 5.4(c) as if Employee had
incurred a Qualifying Termination. Any Performance Share Awards with respect to
Award Periods commencing on or after July 1, 2004 shall be forfeited. All
Options, vested and unvested, that are granted on or after July 1, 2004 and that
are held by

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Employee at Termination of Employment shall be immediately and automatically
canceled. Vested Options granted prior to July 1, 2004 shall continue to be
exercisable for the remainder of their stated term, and all unvested Options
that were granted prior to July 1, 2004 and that are held by Employee at
Termination of Employment shall be immediately and automatically canceled.
Employee shall be entitled to such rights, if any, under any awards of
Restricted Stock as are set forth in the applicable awards. In the event of a
Termination of Employment for Cause, the benefit payable to Employee and/or his
Surviving Spouse under the Executive Pension Plan shall be determined by
applying Section 3.2(a)(i)(B) for all periods relevant to the determination of
the benefit under the Executive Pension Plan with the following modification: in
lieu of the words “up to 100 percent” under Section 3.2(a)(i)(B), there shall be
substituted the words “up to 50 percent”.

     Section 5.4. Qualifying Termination (Other Than by Reason Of Death). If
there is a Qualifying Termination (other than by reason of Employee’s death)
then in addition to the benefits payable under Section 5.1 Employee shall be
entitled to prompt payment of all accrued but unpaid Base Salary amounts, all
amounts payable (but unpaid) under the Annual Incentive Plan with respect to any
year ended on or prior to the Qualifying Termination, and all amounts payable
(but unpaid) under any Performance Share Award with respect to an Award Period
that had ended on or prior to the Qualifying Termination, plus the following:

     (a) Options. In the event of a Qualifying Termination, Employee’s Options
shall become exercisable as provided in (i) through (iv) below, as applicable,
and except as so provided shall be immediately and automatically cancelled:

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     (i) If the Qualifying Termination occurs by reason of Serious Illness or
Disability or by Employee for Good Reason, all of Employee’s Options shall
become immediately exercisable.

     (ii) If the Qualifying Termination occurs by reason of a termination by the
Corporation without Cause, all of Employee’s Options granted prior to July 1,
2004 shall become immediately exercisable. Employee’s Options granted on or
after July 1, 2004 shall also become immediately exercisable, except that the
Board in its discretion may determine, taking into account Employee’s
performance and the interests of the Corporation, that any portion of such
Options that would have become exercisable (had Employee continued in
employment) more than one year following the date of the Termination of
Employment shall be canceled, in which event such portion shall be canceled.

     (iii) If the Qualifying Termination is by reason of Retirement occurring at
the end of the Agreement Term, all of Employee’s Options shall become
immediately exercisable. If the Retirement occurs prior to the end of the
Agreement Term, Employee’s Options granted on or after January 1, 2003 and
before July 1, 2004 shall become immediately exercisable and his Options granted
on or after July 1, 2004 shall become exercisable only for the number of
additional shares for which they would have become exercisable had Employee
continued in employment for one additional year.

In each of the foregoing cases, Employee’s Options, to the extent exercisable,
shall remain exercisable for the remainder of their stated term.

     (b) Annual Incentive Plan. The Corporation shall pay to Employee at the
time of payment of awards to other participants in the Annual Incentive Plan for
the year in which the

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Qualifying Termination occurs (even if Employee is not employed by the
Corporation on the last day of such year), except as hereinafter provided, a
prorated amount equal to (i) the award that would have been payable to Employee
for such year had he remained in Employment, based on actual results for such
year, multiplied by (ii) a fraction, the numerator of which is the number of
days of Employment during such year and the denominator of which is 365. In the
case of a Qualifying Termination by reason of a Retirement described in clause
(iii) of Section 1.20, the Corporation shall promptly accelerate the payment of
the prorated Annual Incentive Plan payment described in this Section 5.4(b). In
the case of any other Qualifying Termination subject to this Section 5.4, the
Corporation in its discretion may accelerate the payment of any portion or all
of such prorated Annual Incentive Plan payment. In any case where payment under
this Section 5.4(b) is accelerated, the amount determined under clause (i) above
shall be the award that the Board determines Employee would have received for
the year in which the Qualifying Termination occurs based on the Board’s
determination of the likelihood of the Corporation’s achievement of targets for
such year.

     (c) Performance Share Awards. Notwithstanding any provision of the Stock
Compensation Plan to the contrary, in the case of any Qualifying Termination,
the Corporation shall deliver to Employee, with respect to each Performance
Share Award then held by Employee, after the end of the Award Period applicable
to such Award, the product of (i) the award that would have been payable to
Employee for such Award Period had he remained in Employment, based on actual
results for such Award Period, and (ii) a fraction, the numerator of which is
the number of days of Employment in such Award Period and the denominator of
which is the total number of days in such Award Period. In the case of a
Qualifying Termination by reason of a Retirement described in clause (iii) of
Section 1.20, the Corporation shall promptly

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accelerate the payment of all prorated Performance Share Award payments
described in this Section 5.4(c). In the case of any other Qualifying
Termination subject to this Section 5.4, the Corporation in its discretion may
accelerate the payment of any portion or all of any such payments. In any case
where payment under this Section 5.4(c) is accelerated, the amount determined
under clause (i) above shall be the award that the Board determines Employee
would have received for the Award Period in which the Qualifying Termination
occurs based on the Board’s determination of the likelihood of the Corporation’s
achievement of targets for such Award Period.

     (d) Restricted Stock. Employee shall be entitled to such rights, if any,
under any awards of Restricted Stock as are set forth in the applicable awards.

     (e) Medical and Dental Coverage. Employee and Employee’s family shall
continue to receive medical and dental insurance coverage as follows. To the
extent permitted under the Corporation’s medical and dental plans, the
Corporation shall continue the medical and dental coverage elected by Employee
for Employee and Employee’s spouse and dependents (but in the case of employee’s
dependents only for so long as they remain dependents or until age 21 if later),
without premium payments by Employee, for Employee’s life. After Employee’s
death, the Corporation shall continue the medical and dental coverage elected by
Employee, without premium payments by Employee’s family, for Employee’s
Surviving Spouse for her life, and for the other dependents of Employee on the
date of his death, so long as such dependents are under the age of 21 or, under
the definitions set forth in such medical and dental plan, such dependents
remain dependents of Employee’s Surviving Spouse. If, for any reason, it is not
possible for Employee, Employee’s Surviving Spouse or the other eligible
dependents of Employee to

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participate in medical and dental coverage pursuant to this Agreement, the
Corporation shall make arrangements to provide comparable coverage.

     (f) Administration. During such time following Employee’s Qualifying
Termination (during his lifetime) as he is not employed by any person on a
full-time basis, the Corporation shall provide administrative services to
support the provision of an office and related secretarial and administrative
services for Employee’s benefit, provided that Employee reimburses the
Corporation for the fair market value of such office and services as reasonably
determined by the Corporation.

     Section 5.5. Termination of Employment By Reason of Death. If there is a
Termination of Employment by reason of Employee’s death, then in addition to the
benefits payable under Section 5.1 and the payment to Employee’s estate of
Employee’s accrued but unpaid Base Salary:

     (a) Executive Pension Plan. Employee’s Surviving Spouse shall receive
(regardless of her age at the time of Employee’s death) monthly payments,
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 terminated
employment on the date of his death.

     (b) Options. All Employee’s Options shall become immediately exercisable by
the person or persons to whom Employee’s rights under such Options pass by will
or applicable law and shall remain exercisable for the remainder of their
respective terms.

     (c) Annual Incentive Plan. The Corporation shall pay to Employee’s
designated beneficiary or, if none, to Employee’s estate, as soon as is
practicable after the date of Employee’s death, all amounts payable (but unpaid)
under the Annual Incentive Plan with

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respect to any year ended on or prior to death plus, for the year of death, a
prorated amount equal to (i) the award that the Board determines Employee (had
he lived) would have received for the year in which his death occurs based on
the Board’s determination of the likelihood of the Corporation’s achievement of
targets for such year multiplied by (ii) a fraction, the numerator of which is
the number of days of Employment during such year prior to his death and the
denominator of which is 365.

     (d) Performance Share Awards. The Corporation shall pay to Employee’s
designated beneficiary or, if none, to Employee’s estate, as soon as is
practicable after the date of Employee’s death, all amounts payable (but unpaid)
under any Performance Share Award with respect to an Award Period that had ended
on or prior to the date of death, plus an amount with respect to Performance
Share Awards made for each Award Period that had not ended prior to the date of
death equal to the award that the Board determines Employee (had he lived) would
have received for the Award Period in which his death occurs based on the
Board’s determination of the likelihood of the Corporation’s achievement of
targets for such Award Period multiplied by a fraction, the numerator of which
is the number of days in the Award Period that had elapsed prior to Employee’s
death and the denominator of which is the total number of days in the Award
Period.

     (e) Restricted Stock. Any outstanding awards of Restricted Stock shall be
treated in accordance with the terms set forth in the applicable awards.

     (f) Medical and Dental Benefits. The Corporation shall continue the medical
and dental coverage elected by Employee, without premium payments by Employee’s
family, for Employee’s Surviving Spouse for her life, and for the other
dependents of Employee on the date of his death, so long as such dependents are
under the age of 21 or, under the definitions set forth

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in such medical and dental plan, such dependents remain dependents of Employee’s
Surviving Spouse. If, for any reason, it is not possible for Employee’s
Surviving Spouse or the other eligible dependents of Employee to participate in
medical and dental coverage pursuant to this Agreement, the Corporation shall
make arrangements to provide comparable coverage.

ARTICLE 6

MISCELLANEOUS

     Section 6.1. Noncompetition.

     (a) Following Termination of Employment for any reason, during the one-year
period following the date of the Termination of Employment, Employee shall not,
directly or indirectly, (i) Compete in the United States, (ii) 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 (iii) assist any other person to
engage in any activity in any manner prohibited hereby to Employee.

     (b) 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
Section 6.1(a).

     (c) If for any reason a final decision of any court determines that the
restrictions under this Section 6.1 are not reasonable or that the consideration
therefore is inadequate, such restrictions shall be interpreted, modified or
rewritten by such court to include as much of the

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duration, scope and geographic area identified in this Section 6.1 as will
render such restrictions valid and enforceable.

     Section 6.2. Payment of Certain Expenses. As promptly as permitted by law
the Corporation shall pay or advance to Employee all legal fees and expenses
that Employee may reasonably incur as a result of any contest or arbitration
requested by the Corporation, Employee or others of the validity or
enforceability of, or liability under, any provision of this Agreement
(including any contest initiated by Employee concerning the amount of any
payment due pursuant to this Agreement), plus in each case interest at the
applicable federal rate provided for in Section 7872(f)(2)(A) of the Internal
Revenue Code of 1986, as amended, on any payment of legal fees and expenses that
is delayed by more than 10 days following delivery by Employee to the
Corporation of a proper request for payment. If as to any such contest or
arbitration Employee does not prevail, and only in such case, within 10 days
following written demand from the Corporation Employee shall repay any advance
made by the Corporation pursuant to the immediately preceding sentence with
respect to such contest or arbitration, with interest at the applicable federal
rate provided for in Section 7872(f)(2)(A) of the Internal Revenue Code of 1986,
as amended, from the date of the Corporation’s payment.

     Section 6.3. Assignment by Employee. Except as otherwise expressly provided
herein or in the Corporation’s benefit plans, the obligations, rights and
benefits of Employee hereunder are personal to him, and no such obligation,
right or benefit shall be subject to voluntary or involuntary alienation,
assignment, delegation or transfer.

     Section 6.4. No Funding Required. Nothing in this Agreement shall be
construed as requiring the Corporation to establish a trust or otherwise to fund
any payments to be made under this Agreement, but the Corporation in its
discretion may establish such nonqualified trusts or

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other arrangements as it determines to be appropriate to assist it in meeting
its obligations under this Agreement.

     Section 6.5. Nondisclosure of Confidential Information. Employee
acknowledges that he is bound by the terms of an Agreement on Ideas, Inventions
and Confidential Information dated April 2001. Nothing in this Agreement shall
be construed as limiting Employee’s obligations under the aforesaid Agreement on
Ideas, Inventions and Confidential Information or any successor thereto, which
shall be treated for all purposes also as obligations of Employee under this
Agreement. This Agreement in no way limits the ability of Employee to provide
information covered by this Agreement to a government entity in order to assist
the government entity in the fulfillment of its duties.

     Section 6.6. Waiver. The failure of either party hereto to insist upon
strict compliance by the other party with any term, covenant or condition of
this Agreement 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 or more times be
deemed a waiver or relinquishment of such right or power at any other time or
times.

     Section 6.7. Notice. Any notice required or desired to be given pursuant to
this Agreement shall be sufficient if transmitted in writing by hand delivery or
sent by prepaid courier or by registered or certified mail, postage prepaid,
(i) if notice is to the Corporation, to the Corporation’s address hereinafter
set forth, or (ii) if notice is to Employee, to Employee’s address in the
metropolitan District of Columbia area contained in the records of the
Corporation, or, in either such case, to such other address of a party as such
party may designate in writing and transmit to the other party in such manner.
Any such notice shall be deemed given, if transmitted by hand delivery, one
business day after deposit with a prepaid courier

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service or, if sent by registered or certified mail, three business days after
deposit in the United States mail.

     Section 6.8. 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.

     Section 6.9. 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 amounts.

     Section 6.10. Benefit. Except as otherwise expressly provided herein, 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. 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 be binding upon any successor of
the Corporation, and such successor shall be deemed the “Corporation” for
purposes of this Agreement.

     Section 6.11. Entire Agreement. This Agreement contains the entire
understanding and agreement between the parties relating to the terms of
Employee’s employment by the Corporation and, except as otherwise provided in
Section 6.14, supersedes all prior written or oral agreements between them,
other than the Agreement on Ideas, Inventions and Confidential Information dated
April 2001 and an Indemnification Agreement between the Corporation and

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Employee. This Agreement cannot be amended, modified or supplemented in any
respect except by an agreement in writing signed by both parties hereto.

     Section 6.12. Arbitration. Any controversy or claim arising out of or
relating to this Agreement or the breach of this Agreement 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
applicable rules of the American Arbitration Association. The costs and expenses
of the arbitrator(s) shall be borne by the Corporation. Except as otherwise
provided in Section 6.2, each party shall pay his or its own legal costs and
other expenses (other than the costs and expenses of the arbitrator(s)) relating
to an arbitration. 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.

     Section 6.13. Severability. Except as otherwise provided in Section 6.14,
it is the intent and understanding of each party hereto that, if any term,
restriction, covenant or promise herein is found to be invalid or otherwise
unenforceable, then such term, restriction, covenant or promise shall not
thereby be invalid or unenforceable 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.

     Section 6.14. Regulatory Approval

     The parties hereto acknowledge and agree that pursuant to Section 309(d) of
the Federal National Mortgage Association Charter Act, as amended by the Federal
Housing Enterprises Financial Safety and Soundness Act of 1992 (as so amended,
the “Act”), 12 U.S.C. 1723a(d), no

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provision of this Agreement relating to Employee’s benefits upon termination of
employment shall be effective unless and until such provision has been reviewed
and approved by the Director (the “Director”) of the Office of Federal Housing
Enterprise Oversight (“OFHEO”). If, following OFHEO’s review and approval of
such provisions, any benefit plans of the Corporation affecting final
termination benefits under this Agreement are altered, such alteration will
require OFHEO’s review and approval at the time of termination of the Employee’s
employment with the Corporation and prior to the payment of any such benefits.
Upon determining that Employee’s Employment is terminating or has terminated,
the Corporation shall timely seek OFHEO’s review and approval of any alteration
referred to in the immediately preceding sentence.

     The parties therefore agree as follows:

     (a) The Corporation shall promptly hereafter submit this Agreement to the
Director for his review and approval of those terms hereof relating to benefits
upon termination of employment and shall seek diligently to obtain such
approval;

     (b) This Agreement shall take effect as of the Effective Date if the
Director’s approval of terms hereof relating to benefits upon termination of
employment is given by January 1, 2005.

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