exhibit10_2.htm


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    EMPLOYMENT
      AGREEMENT

    


    This
      Agreement is made and entered into, effective as of January 1, 2008, by and
      between National Rural Utilities Cooperative Finance Corporation, a District
      of
      Columbia cooperative corporation ("CFC") and Sheldon C. Petersen (the
      "Executive").

    


    WHEREAS,
      CFC desires to retain the Executive as its Governor and Chief

    Executive
      Officer under this Agreement for the period provided for in this Agreement,
      and
      the Executive is willing to serve in the employ of CFC on a full-time basis
      for
      such period, upon such terms and conditions as are provided herein;

    


    NOW,
      THEREFORE, in consideration of the premises and mutual covenants herein
      contained and for other good and valuable consideration, the parties hereby
      agree as follows:

    


    1.          Employment.
      Subject
      to and upon the terms and conditions herein provided, CFC hereby agrees to
      employ the Executive and the Executive hereby agrees to be employed by CFC
      for
      the Term of Employment, as defined in Section 3 hereof.

    


    2.         Position
      and
      Responsibilities.  During the Term of Employment hereunder, the
      Executive shall be employed as the Chief Executive Officer of CFC, and/or in
      such other senior executive capacity or capacities as may be mutually
      satisfactory to the Executive and CFC. The Executive will be the senior
      executive officer of CFC, reporting only to the Board of Directors of CFC (the
      "Board"), and all other officers of CFC shall report to the

    Executive
      or to other officers designated by the Executive. The Executive shall, at the
      request of the Board, serve as an officer or director of any subsidiary or
      affiliated entity of CFC.

    


    During
      the Term of Employment, except as hereinafter provided and except for vacation,
      holidays observed by CFC and periods of illness, the Executive agrees to devote
      substantially all of his business time and attention to carrying out his duties
      and responsibilities under this Agreement and shall use his best efforts, skills
      and abilities to further the interests of CFC. The Executive shall be permitted,
      to the extent such activities do not substantially interfere with the
      performance of the Executive's responsibilities and duties hereunder, (i) to
      manage his personal, financial and legal affairs and (ii) to serve on civic,
      charitable, religious or educational boards or
      committees   However, the Executive may not serve on the board of
      directors of any other business entities without the prior express written
      consent of the Board and subject to such reasonable limitations as may be
      imposed by the Board in granting such consent.

    


    3.  Term
      of
      Employment.  The Term of Employment under this Agreement shall
      commence as of January 1, 2008, and shall terminate on February 29, 2012 unless
      earlier terminated as provided in Section 6 below or extended as provided in
      the
      following sentence (the "Term of Employment").   The Term of
      Employment shall automatically be extended on

    


    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    


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    March
      1, 2012 and each subsequent March 1 for an additional year unless, not later
      than 6 months prior to any such date, either party to this Agreement shall
      have
      given written notice to the other party that he or it does not wish to extend
      or
      further extend the Term of Employment.

    


    4
      .        Compensation. For all
      services rendered by the Executive during the

    Term
      of Employment, CFC shall pay the Executive as compensation (i) a base salary,
      in
      periodic installments in accordance with CFC's usual payroll practice for its
      senior executives, at an annual rate of no less than $710,000 (the "Base
      Salary"), (ii) an annual incentive (the "Short-Term Incentive") pursuant to
      the
      terms set forth in the CFC Annual Incentive Plan; and (iii) a long-term
      incentive pursuant to the terms of the CFC Long Term Incentive Plan. During
      the
      Term of Employment, the Executive's Base Salary shall be reviewed for possible
      increase at least annually, and the term "Base Salary" shall thereafter refer
      to
      the Base Salary as so increased.

    


    5.         Executive
      Benefits,
      Perquisites and Expenses.

    


    5.1        CFC
      Plans. The
      Executive shall be entitled to participate in all CFC health, accident, life
      insurance, savings, retirement, disability and other benefit plans, programs
      or
      practices from time to time in effect for senior executives of CFC at least
      to
      the same extent as other senior executives (or, where applicable, retired senior
      executives) of CFC, including, without limitation, CFC's Annual Incentive Plan,
      Long-Term Incentive Plan, Pension Restoration Deferred Compensation Plan and
      Pension Restoration Severance Pay Plan.

    


    5.2       Vacations.   The
      Executive shall be entitled to an amount of paid vacation during each
      twelve-month period during the Term of Employment equal to the maximum amount
      of
      vacation allowed for any full-time employee of CFC (but not less than five
      weeks
      of paid vacation earned uniformly during each such period), plus such holidays,
      sick leave and other time off as are established by the policies of CFC. Unused
      days of vacation may be carried over to subsequent years, provided, however,
      that amounts
      of unused vacation in excess of 240 hours at the close of each such twelve-month
      period shall be settled in cash at the current rate of pay. The Executive shall
      receive within thirty (30) days after his employment terminates, a payment
      (based on the Executive's Base Salary in effect on the date the Executive
      terminated employment with CFC) for any accrued but unused vacation at the
      termination but not in excess of 12 weeks regardless of the reason for such
      termination of employment of the Executive.

    


    5.3       Perquisites;
      Expenses. During the Term of Employment, the

    Executive
      shall be entitled to receive such perquisites as CFC may determine to provide
      to
      its senior executive officers, and CFC shall reimburse the Executive for all
      reasonable and documented expenses incurred by the Executive in connection
      with
      the performance of the Executive's duties hereunder, including, an annual
      allowance approved by the Board of Directors to cover expenses incurred as
      a
      result of the attendance by the Executive's wife at a function or meeting where
      the Executive determines that her attendance is appropriate.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

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    5.4       Automobile.
      During
      the Term of Employment, CFC shall provide the Executive with an annual allowance
      approved by the Board of Directors to cover all reasonable expenses (including,
      insurance, repairs, maintenance, fuel and oil) for an automobile selected by
      the
      Executive.

    


    5.5       Executive
      Health
      Physical. During the Term of Employment, the

    Executive
      shall be entitled to have an executive health physical on an annual basis,
      at a
      medical institution of his choice within the continental US.  The
      health physical shall be comprehensive, and consistent with the standards that
      are established practice within the medical profession at the time. All
      diagnostic and ancillary fees that qualify will be submitted by the Executive
      for insurance reimbursement, and all remaining fees for the health physical
      services will be either paid directly by CFC or reimbursed to the
      Executive.

    


    6.         Payments
      to the Executive
      Upon Termination of Employment.

    


    6.1       Termination
      by
      CFC.

    


    (a)        CFC
      shall have the right to terminate the Executive's employment at any time during
      the Term of Employment with or without "Cause", as defined in Section 6.5(a).
      If, during the Term of Employment, CFC terminates the employment of the
      Executive under this Section 6 without Cause, the Term of Employment shall
      terminate immediately thereafter, and:

    


    (i)
      CFC shall pay the Executive such Base Salary provided herein as he may be
      entitled to receive for services rendered prior to the date of such
      termination;

    


    (ii)
      CFC shall pay the Executive for any accrued but unused vacation as set forth
      in
      Section 5.2 and for any properly-documented unreimbursed expenses;

    


    (iii)
      CFC shall pay the Executive the benefits which the Executive

    is,
      or may become, entitled to receive under the terms and conditions of such CFC
      plans as are in effect from time to time; and

    


    (iv)
      CFC shall pay the Executive a single lump-sum payment

    equal
      to the product of (a) three and (b) the sum of (1) his annual Base Salary at
      the
      rate in effect on the date of such termination, and (2) the Executive's
      Short-Term Incentive award, if any, for the year prior (or annual bonus, if
      any,
      for 2007) to the year in which such termination occurs.

    


    (b)        If,
      during the Term of Employment, CFC terminates the employment of the Executive
      for "Cause", as defined below, the Term of Employment shall terminate
      immediately thereafter, and CFC shall pay the Executive such compensation as
      is
      set forth in Section 6.1(a)(i), (ii) and (iii) herein.

    


    


    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

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    6.2       Termination
      by the
      Executive.

    


    (a)       The
      Executive has the right to terminate his employment hereunder at any time during
      the Term of Employment upon not less than 90 days prior written notice to CFC,
      provided, however, that if the Executive wishes to terminate his employment
      for
      "Good

    Reason"
      as defined in Section 6.5(b), the Executive must notify CFC in writing of such
      intent within 30 days of the event or events that he believes constitute Good
      Reason and such notice must specify such events in reasonable detail. If during
      the Term of Employment the

    Executive's
      employment is terminated for "Good Reason", as defined below, the Term
      of

    Employment
      shall terminate immediately thereafter, and CFC shall pay the Executive such
      compensation as is set forth in Section 6.1(a)(i)-(iv).

    


    (b)       If
      during the Term of Employment the Executive terminates his employment for other
      than "Good Reason", as defined below, the Term of Employment shall terminate
      immediately thereafter, and CFC shall pay the Executive such compensation as
      is
      set forth in Section 6.1(b).

    


    6.3       Disability.
      Upon the
      "Disability", as defined in Section 6.5(c), of the Executive during the Term
      of
      Employment, and for the period of Disability, in addition to any other benefits
      to which he may be entitled pursuant to this Agreement, but in lieu of his
      Base
      Salary and any Short-Term Incentive award, the Executive shall receive through
      the end of the Term of Employment or, if earlier, the Executive's date of
      recovery, actual termination of employment (in which case the applicable
      provisions of Section 6.1 or 6.2 shall apply and this Section 6.3 shall cease
      to
      apply) or death (in which case Section 6.4 and any other relevant provisions
      shall apply) an annual Disability Benefit equal to 60% of the Base Salary
      the

    Executive
      was receiving at the commencement of the Disability and 60% of his target award,
      if any, under CFC's Short-Term Incentive Plan for the year in which the
      Executive became disabled. Payment of the Disability Benefit shall be in equal
      monthly installments, and such payments shall be reduced by the monthly payments
      received by the Executive under any other

    CFC-sponsored
      disability plan or program and the monthly disability benefits received by
      the
      Executive pursuant to the applicable provisions of the Social Security Act.
      During the period that Disability Benefits are payable to the Executive, he
      shall continue to participate in CFC's plans described in Section 5.1 (other
      than the Short-Term Incentive Plan and the Long-Term

    Incentive
      Plan) as if he had continued to be an active CFC employee and as if he had
      received

    60%
      of the Base Salary then in effect under Section 4 (and 60% of his target award,
      if any, under the CFC Annual Incentive Plan for the year in which he became
      disabled).

    


    6.4       Death.
      In the event
      of the termination of the Executive's employment by reason of death during
      the
      Term of Employment, the Executive's "Designated

    Beneficiary",
      as defined below, shall be entitled to receive

    


    (i)
      payment of the Executive's unpaid Base Salary through the date of
      death;

    


    (ii)
      payment of a pro-rated Short-Term Incentive award, if any, for the year of
      the
      Executive's death (at 100% of the target award);

     

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

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    (iii)
      the lesser of (a) a lump sum payment equal to one year's Base

    Salary
      at the rate in effect on the date of death or (b) the Base Salary that would
      have been paid to the Executive in the remaining period of the Term of
      Employment prior to death (but in no case less than the Base Salary that would
      have been paid to the Executive for a 6 month period);

    


    (iv)
      reimbursement for any properly-documented unreimbursed expenses;
      and

    


    (v)
      such survivor benefits and payments for the Executive's family or with respect
      to the Executive that are provided, or may be provided, under CFC's plans
      described in Section 5.1 determined in accordance with the then applicable
      provisions of such plans, programs or arrangements.

    


    6.5       Definitions.

    


    (a)        "Cause".
      For purposes
      of this Agreement, Cause shall mean (i) the willful and continued failure by
      the
      Executive, as determined in good faith by two-thirds of the members of the
      Board
      (after notice to the Executive and providing the Executive an opportunity to
      meet with the Board), to perform his duties under this Agreement or comply
      with
      written policies of CFC, or (ii) willful conduct materially injurious to CFC
      or
      (iii) conviction of a felony involving moral turpitude, provided, however,
      that
      any act or omission by the Executive shall not fall within the scope of this
      Section 6.5(a)(i) and (ii) if it was done or omitted to be done by the Executive
      in good faith and with a reasonable belief that such action or omission was
      in
      the best interests of CFC.

    


    (b)        "Good
      Reason". For
      purposes of this Agreement, Good Reason shall mean, without the prior written
      consent of the Executive, (i) a reduction in the rate of the

    Executive's
      Base Salary, (ii) a decrease in the Executive's titles, duties or
      responsibilities hereunder or the assignment of new responsibilities hereunder
      which, in either case, is materially less favorable to the Executive when
      compared to the Executive's titles, duties and responsibilities which were
      in
      effect immediately prior to such assignment, or (iii) the relocation of CFC's
      principal office or the relocation of the Executive to a location more than
      50
      miles from the principal office of CFC on the date of this Agreement; provided,
      however, that the term "Good Reason" shall not include the occurrence of any
      of
      the above if such occurrence is remedied by CFC within 20 business days after
      receipt by CFC of the Executive's written notice of resignation for Good Reason
      under Section 6.2(a) setting forth in specific detail the facts and
      circumstances resulting in the Good Reason upon which his resignation is
      based.

    


    (c)        "Disability".
      For
      purposes of this Agreement, Disability shall mean that the Executive has not
      performed his full-time duties with CFC for three consecutive months as a result
      of his incapacity due to physical or mental illness and within thirty (30)
      days
      after written notice of such incapacity is given to the Executive he shall
      not
      have returned to the full-time performance of his duties hereunder.

     

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

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    (d)        "Designated
      Beneficiary". For purposes of this Agreement the

    Designated
      Beneficiary shall be any person designated by the Executive in a written
      instrument signed by the Executive and delivered to CFC to be the beneficiary
      of
      payments to be made by CFC hereunder upon the death of the Executive if such
      person survives the Executive.   Any

    Designated
      Beneficiary may be changed by the Executive at any time and from time to time
      by
      a written instrument signed by the Executive and delivered to
      CFC.   If no Designated Beneficiary survives the Executive, the
      Designated Beneficiary shall be the estate of the Executive.

    


    7.         No
      Mitigation. CFC
      agrees that if the Executive's employment is terminated during the Term of
      Employment, the Executive is not required to seek other employment or to attempt
      in any way to reduce the amounts payable and the benefits to be provided to
      the
      Executive by CFC under this Agreement. Further, the amount or nature of any
      such
      payment or benefit to be paid to or with respect to the Executive shall not
      be
      reduced by any compensation earned by the Executive as a result of employment
      by
      another employer, by retirement benefits, or offset against any amount claimed
      to be owed by the Executive to CFC or any of its subsidiaries or
      otherwise.

    


    8.          Confidential
      Information. The Executive shall not at any time during his employment
      with CFC or following termination or expiration of this Agreement, directly
      or
      indirectly, disclose, publish or divulge to any person (except in the regular
      course of CFC's business or as required by law or regulations), or appropriate,
      use or cause, permit or induce any person to appropriate or use, any
      proprietary, secret or confidential information of CFC including, without
      limitation, knowledge or information relating to its copyrights, trade secrets,
      business methods, the names or requirements of its customers, vendors,
      contractors, agents, dealers and distributors or the prices, credit or other
      terms extended or granted to any of such persons, all of which the Executive
      agrees are and will be of great value to CFC and shall at all times be kept
      confidential.   Upon the termination of the Term of Employment
      hereunder, the Executive shall promptly deliver or return to CFC all materials
      of a proprietary, secret or confidential nature relating to CFC together with
      any other property of CFC which may have theretofore been delivered to or may
      then be in the possession or control of the Executive.   CFC and
      the Executive agree that the provisions of this Section shall survive the
      termination of the Executive's employment hereunder.

    


    9.         Indemnification.
      CFC
      agrees that if the Executive is made, or is

    threatened
      to be made, a party to any action or proceeding, whether civil or criminal,
      by
      reason of the fact that he is or was a director or officer of CFC or any of
      its
      subsidiaries or, at the request of CFC, serves or served any other corporation,
      partnership, joint venture, trust or other enterprise in any capacity, CFC
      shall
      indemnify him to the fullest extent permitted by the Charter and By-Laws of
      CFC
      or, if greater, by the applicable laws of the State of Virginia, against all
      costs, expenses, liabilities and losses reasonably incurred or suffered by
      the
      Executive in connection therewith. CFC shall advance to the Executive all
      reasonable costs and expenses incurred by him in connection with any such
      proceeding upon receipt of an itemized list of such costs and
      expenses.

     

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

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    10.       Legal
      Fees and
      Expenses. In the event that a claim for payment or
      benefits under this Agreement is disputed, the Executive shall be reimbursed
      for
      all reasonable attorney fees and expenses incurred by the Executive on a
      proportionate basis in pursuing such claim, to the extent that the Executive
      is
      successful as to all or part of the disputed claim by reason of litigation,
      arbitration or settlement.

    


    11.        Amendment;
      Waiver.   This Agreement contains the entire agreement of
      the parties with respect to the matters set forth herein, and may only be
      amended by subsequent written agreement of the parties hereto.  All
      prior agreements between the Executive and CFC, whether in writing or not,
      relating to terms and conditions of employment are hereby canceled. No waiver
      by
      CFC of any breach by the Executive of any term, condition or provision of this
      Agreement to be performed by the Executive shall be deemed a waiver of a similar
      or dissimilar condition or provision at the same or prior or subsequent
      time.

    


    12.       Binding
      Effect. The
      Executive's rights and obligations under this

    Agreement
      shall not be transferable by assignment or otherwise, such rights shall not
      be
      subject to commutation, encumbrance, or the claims of the Executive's creditors,
      and any attempt to do any of the foregoing shall be null and void. The
      provisions of this Agreement shall be binding upon and inure to the benefit
      of
      the Executive and his heirs, beneficiaries and personal representatives, and
      shall be binding upon and inure to the benefit of CFC and its successors or
      assigns.

    


    13.        Governing
      Law;
      Severability.   Except as otherwise set forth herein, this
      Agreement is governed by and is to be construed and enforced in accordance
      with
      the laws of the State of Virginia without regard to principles of conflicts
      of
      law.  If any provision or portion of this Agreement shall be
      determined to be invalid or unenforceable for any reason, in whole or in part,
      the remaining provisions of this Agreement shall be, unaffected thereby and
      shall remain in full force and effect to the fullest extent permitted by
      law.

    


    14.        Withholding
      of Taxes.
      CFC may withhold from any compensation payable under this Agreement all federal,
      state, city, or other taxes as shall be required pursuant to any law, regulation
      or ruling.

    


    15.        Counterparts.
      This
      Agreement may be executed in several counterparts, each of which shall be deemed
      to be an original but all of which together will constitute one and the same
      instrument.

    


    16.       Headings.
      The
      headings contained in this Agreement are for reference purposes only and shall
      not be deemed to be part of the Agreement or to affect the meaning or
      interpretation of this Agreement.

    


    17.       Notices.
      Any notice
      given to either party hereto shall be in writing and shall be deemed to have
      been given when delivered personally or sent by certified or registered mail,
      postage prepaid, return receipt requested, duly and properly addressed to the
      party concerned at the address indicated below or to such changed address as
      party may subsequently give notice of:

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    -8-

    If
      to CFC:

    


    National
      Rural Utilities

    Cooperative
      Finance Corporation

    Woodland
      Park

    2201
      Cooperative Way

    Herndon,
      Virginia 22071

    Attn:
      President

    


    If
      to the Executive:

    


    Mr.
      Sheldon C. Petersen

    


    18.
      Enforcement of
      Agreement. The respective rights and obligations of the parties hereunder
      shall survive any termination of this Agreement or the Term of Employment for
      any reason to the extent necessary to obtain the intended provision of such
      rights and the intended performance of such obligations.

    


    IN
      WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
      date
      and year first above written.

    


    NATIONAL
      RURAL UTILITIES COOPERATIVE

    FINANCE
      CORPORATION

    


    


    By:
      /s/ Terryl Jacobs

       President

    


    


    


    /s/
      Sheldon C. Petersen

    Sheldon
      C. Petersen