exv10w2



 






Exhibit 10.2




EMPLOYMENT AGREEMENT



between



FANNIE MAE



and



DANIEL H. MUDD



 









 





TABLE OF CONTENTS



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







 









 






	 	 	 	 	 	 	 
	Section 5.1.
	 	Voluntary Termination Pursuant to Section 4.2(b)	 	 	13	 
	Section 5.2.
	 	Termination for Cause	 	 	13	 
	Section 5.3.
	 	Qualifying Termination (Other Than by Reason Of Death)	 	 	13	 
	Section 5.4.
	 	Termination of Employment By Reason of Death	 	 	17	 
	ARTICLE 6
	 	MISCELLANEOUS	 	 	18	 
	Section 6.1.
	 	Noncompetition	 	 	18	 
	Section 6.2.
	 	Payment of Certain Expenses	 	 	19	 
	Section 6.3.
	 	Assignment by Employee	 	 	20	 
	Section 6.4.
	 	No Funding Required	 	 	20	 
	Section 6.5.
	 	Disclosure of Information to the Corporation	 	 	20	 
	Section 6.6.
	 	Nondisclosure of Confidential Information	 	 	21	 
	Section 6.7.
	 	Waiver	 	 	21	 
	Section 6.8.
	 	Notice	 	 	21	 
	Section 6.9.
	 	Applicable Law	 	 	22	 
	Section 6.10.
	 	Taxes	 	 	22	 
	Section 6.11.
	 	Benefit	 	 	22	 
	Section 6.12.
	 	Entire Agreement	 	 	22	 
	Section 6.13.
	 	Arbitration	 	 	23	 
	Section 6.14.
	 	Severability	 	 	23	 
	Section 6.15.
	 	Regulatory Approval.	 	 	23	 







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EMPLOYMENT AGREEMENT




     THIS EMPLOYMENT AGREEMENT (this “Agreement”) is between FANNIE MAE (the
“Corporation”) and DANIEL H. MUDD (“Employee”).



     WHEREAS, the Corporation and Employee are parties to an employment
agreement dated as of February 23, 2000, which as extended terminates 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;



     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; and



     WHEREAS the Corporation and Employee agree that the terms of the agreement
set forth below if approved in their entirety to the extent required would
provide compensation and benefits to Employee that are at least as favorable as
the compensation and benefits provided under the Existing Agreement, it being
understood and acknowledged, however, that absent approval by OFHEO of the
provisions set forth below relating to benefits upon termination of employment,
the compensation and benefits described below would not be comparable or
substantially equivalent to those provided under the Existing Agreement and in
the aggregate would be materially less favorable to Employee than those
provided under the Existing Agreement;



     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.



     Section 1.5. Board means the Board of Directors of the Corporation,
acting without the participation of the Vice Chairmen of the Board of
Directors.



     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



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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 6.15 (“Regulatory Approval”).



     Section 1.10. Employee means Daniel H. Mudd.



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



     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. Failure to Extend means notification of Employee by
the Corporation that it does not desire to extend the Agreement Term (or the
term of any successor agreement) or that it desires to do so only on terms in
the aggregate that are materially less favorable to Employee than those
applicable to Employee at the time of said notice. The Corporation shall give
Employee notice with respect to extension or non-extension of the Agreement
Term (or the term of any successor agreement) not less than six months before
the expiration of the Agreement Term or the term of any successor agreement, as
the case may be. Failure to provide any notice on or before the six month
period shall also constitute a Failure to Extend. If the Corporation notifies
Employee that it desires to extend the Agreement Term (or the term of any
successor agreement) on terms that are in the aggregate substantially similar
to or more favorable than



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those applicable to Employee at the time of said notice, any nonextension
shall not be deemed to be a Failure to Extend.



     Section 1.15. 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, (c) a requirement that Employee report to anyone other than the
Chairman of the Board of Directors, or the appointment by the Corporation of
any person other than Employee to the position of President, Deputy Chairman or
similar position superior to Employee’s position and inferior to the position
of Chairman of the Corporation, (d) a requirement by the Corporation that
Employee relocate his office outside of the Washington, D.C. area, or (e) 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 1.16. OFHEO means the Office of Federal Housing Enterprise
Oversight.



     Section 1.17. Option is defined in the Stock Compensation Plan.



     Section 1.18. Performance Share Award is defined in the Stock
Compensation Plan.



     Section 1.19. Qualifying Termination means Termination of
Employment (i) by the Corporation without Cause, (ii) by Employee for Good
Reason, (iii) upon expiration of the Agreement Term (or the term of any
successor agreement) if there has been a Failure to Extend, (iv) by reason of
Employee’s acceptance of an appointment to a senior position in the U.S.
Federal Government, (v) by reason of Serious Illness or Disability or (vi) by
reason of Employee’s death.



     Section 1.20. Restricted Stock is defined in the Stock Compensation
Plan.



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     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 Vice Chairman of
the Corporation’s Board of Directors and Chief Operating 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 Vice Chairman of the Corporation’s Board of Directors and as
Chief Operating Officer. Employee shall devote his full business time and
attention to the Corporation and shall faithfully and diligently perform such
duties for the Corporation as may be determined from time to time



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by the Chairman of the Board of Directors, provided that such duties are
reasonable and customary for a corporate vice chairman and chief operating
officer. 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 to Employee Base Salary of not less than his base salary
at June 30, 2004. The Board shall from time to time review Employee’s Base
Salary and may increase (but in no event decrease) 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. Employee’s “Pension Goal” under the Executive Pension
Plan shall at all times be equal to at least 50% of his “High-Three Total
Compensation,” as those terms are defined in the Executive Pension Plan. The
Corporation may amend the Executive Pension Plan from time to time; provided,
however,



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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.



     (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:



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       (i) The Corporation shall pay or reimburse Employee for reasonable
expenses incurred by Employee in obtaining tax and investment assistance
and advice, up to $25,000 per calendar year.




       (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 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



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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, including, without limitation, the provisions
thereof applicable to retirement; 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 at least 90 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.




       (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



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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 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,



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



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     Section 4.2. Termination of Employment By Employee.



     (a) For Good Reason, etc. 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. Employee shall also have the right to terminate his
Employment at any time by written notice to the Corporation in the
circumstances described in Section 1.19(iv).



     (b) Other Than For Good Reason. Employee shall have the right to
terminate his Employment at any time for any reason other than as described in
Section 4.2(a) above in his sole discretion by giving not less than 90 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 earlier than the date specified by
Employee. In no event shall the Termination of Employment by the Corporation
without Cause, by Employee as described in Section 4.2(a) or by reason of a
Failure to Extend be deemed to be a Termination of Employment by Employee
pursuant to this Section 4.2(b).



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



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     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. Voluntary Termination Pursuant to Section 4.2(b). If
the Termination of Employment is a voluntary termination pursuant to Section
4.2(b), Employee shall be entitled to payment of all accrued but unpaid Base
Salary amounts.



     Section 5.2. Termination for Cause. In the event of a Termination
of Employment for Cause, Employee shall be entitled to payment of all accrued
but unpaid Base Salary amounts. Any award made on or after the Effective Date
under the Annual Incentive Plan that is outstanding at the time of the
Termination of Employment, and all awards, if any, of Options, Performance
Share Awards, and/or Restricted Stock that were made on or after the Effective
Date and that are outstanding at the time of the Termination of Employment
shall be forfeited or canceled without payment.



     Section 5.3. Qualifying Termination (Other Than by Reason Of
Death). If there is a Qualifying Termination (other than by reason of
Employee’s death), Employee shall be entitled to prompt payment of all accrued
but unpaid Base Salary amounts and all amounts payable (but unpaid) under the
Annual Incentive Plan with respect to any year ended on or prior to the
Qualifying Termination, plus the following:



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     (a) Continuation of Base Salary. Unless such Qualifying
Termination shall have been by reason of a Qualifying Termination described in
Section 1.19(iv):




       (i) The Corporation shall pay to Employee in cash, on the normal
payroll schedule applicable to his Base Salary, cash compensation at an
annual rate equal to his Base Salary as in effect at the time of the
Qualifying Termination. Such cash compensation shall continue to be paid
until the later of the expiration of the Agreement Term or the first
anniversary of the date of the Qualifying Termination. The Corporation
may accelerate the payment of any portion or all of any amount payable
under this Section 5.3(a)(i).




       (ii) Notwithstanding (i) above, if Employee obtains other employment
(including self-employment, but excluding service on boards of directors)
following his Termination of Employment hereunder, any income received by
Employee from such employment shall reduce, on a dollar-for-dollar basis
(but not below zero), the Corporation’s obligation to pay cash
compensation to Employee pursuant to this Section 5.3(a). If the
Corporation has already paid any cash compensation under Section
5.3(a)(i) to which an offset would otherwise have applied, Employee shall
promptly reimburse the Corporation the amount of such compensation. In
the event of a Qualifying Termination by reason of Serious Illness or
Disability, if Employee becomes entitled to and receives disability
benefits under any disability payment plan, including disability
insurance, the amount of cash compensation otherwise payable by the
Corporation to Employee pursuant to Section 5.3(a) shall be paid at a
rate equal to the excess of (A) the rate at which such cash compensation
would otherwise be paid over



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(B) the disability benefits for which Employee is eligible under
such plan or insurance to the extent those benefits are attributable to
premium payments made by the Corporation.



     (b) Annual Incentive Plan. Except in the case of a Qualifying
Termination by reason of a Failure to Extend and except as hereinafter
provided, 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 Qualifying Termination occurs (even if Employee is not employed by the
Corporation on the last day of such year) 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 described in Section 1.19(iv), the Corporation shall promptly
accelerate the payment of the prorated Annual Incentive Plan payment described
in this Section 5.3(b). In the case of any other Qualifying Termination
subject to this Section 5.3, 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 5.3(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 all amounts payable (but
unpaid) under any Performance Share Award with respect to an Award Cycle that
had ended as of the date of the Termination of Employment plus, with respect to
each Performance Share Award then held by Employee as to which at least



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18 months of the related Award Period has elapsed as of the date of the
Termination of Employment, after the end of such Award Period, 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 described in
Section 1.19(iv), the Corporation shall promptly accelerate the payment of all
prorated Performance Share Award payments described in this Section 5.3(c). In
the case of any other Qualifying Termination subject to this Section 5.3, 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 5.3(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. The shares of Restricted Stock awarded on
February 23, 2000, to the extent not already vested, shall become immediately
vested, and all Restricted Stock granted to Employee after February 23, 2000
shall continue to vest on the same basis as if Employee had remained employed
through June 30, 2007.



     (e) Medical and Dental Coverage. In the case of a Qualifying
Termination by reason of a termination by the Corporation without Cause or by
Employee for Good Reason, 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



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or until age 21 if later), without premium payments by Employee, until the
end of the Agreement Term. If, for any reason, it is not possible for
Employee, Employee’s spouse or the other eligible dependents of Employee to
participate in medical and dental coverage pursuant to the immediately
preceding sentence, the Corporation shall make arrangements to provide
comparable coverage.



     Section 5.4. 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 payment to Employee’s estate of Employee’s accrued but unpaid
Base Salary:



     (a) 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 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.



     (b) 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 Cycle 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 and as to which at least 18 months had elapsed prior to the
date of death equal



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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.



     (c) Restricted Stock. The shares of Restricted Stock awarded on
February 23, 2000, to the extent not already vested, shall become immediately
vested, and all Restricted Stock granted to Employee after February 23, 2000
shall continue to vest on the same basis as if Employee had remained employed
through June 30, 2007.



ARTICLE 6

MISCELLANEOUS



     Section 6.1. Noncompetition.



     (a) Following Termination of Employment for any reason other than for
Cause or by reason of a voluntary termination by Employee pursuant to Section
4.2(b), during the period from the date of the Termination of Employment to the
later of the last day of the Agreement Term or the first anniversary of 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. Following
Termination of Employment for Cause or by reason of a voluntary termination by
Employee pursuant to Section 4.2(b), Employee shall not, directly or
indirectly, engage in any of the activities described in (i), (ii) or (iii) of
the immediately preceding sentence during the one-year



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period following the date of the Termination of Employment. In any case
where Employee is contemplating an activity described in Section 6.1(a)(i)
above, other than an activity described in Section 1.7(ii) or (iii) or an
activity described in Section 1.7(i) as it relates to the secondary mortgage
market, the Board, upon the request of Employee for a waiver, shall determine
in good faith whether Employee’s engaging in the proposed activity would
prejudice the interests of the Corporation and shall not unreasonably withhold
its consent to such request for a waiver if it determines that the proposed
activity would not prejudice the interests of the Corporation.



     (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 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



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



     Section 6.5. Disclosure of Information to the Corporation. In the
event Section 5.3 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,



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documents and other information reasonably necessary to enable the
Corporation to verify the amount of income available to offset the payments
otherwise due Employee.



     Section 6.6. Nondisclosure of Confidential Information. Employee
acknowledges that he is bound by the terms of an Agreement on Ideas, Inventions
and Confidential Information dated March 22, 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 6.7. 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 6.8. 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 6.9. 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 6.10. 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 6.11. 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 6.12. 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 6.15, supersedes all prior written or oral agreements between them,
other than the Agreement on Ideas, Inventions and Confidential Information
dated March 22, 2001 and an Indemnification Agreement between the Corporation



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



     Section 6.13. 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 6.14. Severability. Except as otherwise provided in
Section 6.15, 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 6.15. 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”). 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. If such approval does not occur by
such date, Employee shall have the benefit of all other terms of this Agreement
until that date and Employee, in his sole discretion, may designate that
failure to obtain approval as a “failure of the Corporation to extend” the
Existing Agreement.



[remainder of this page intentionally left blank]



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     IN WITNESS WHEREOF, the Corporation has caused this Agreement to be
executed by its duly authorized representative, and Employee has executed this
Agreement.



	 	 	 
	Witness:	 	
FANNIE MAE

3900 Wisconsin Avenue, N.W.

Washington, D.C.  20016
	/s/ Monica Medina	 	
By: /s/ Anne Mulcahy
	 	 	
Chairman of the Compensation

Committee of the Board
	Date: 4/19/04	 	
Date: 4/19/04
	Witness:	 	 
	/s/ Judith C. Dunn	 	
/s/ Daniel H. Mudd
	 	 	
DANIEL H. MUDD
	Date: 5/5/04	 	
Date: 5/5/04








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