exv10w1



 







Exhibit 10.1




EMPLOYMENT AGREEMENT



between



FANNIE MAE



and



FRANKLIN D. RAINES



 









 





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.
	 	Good Reason	 	 	3	 
	Section 1.15.
	 	OFHEO	 	 	3	 
	Section 1.16.
	 	Option	 	 	3	 
	Section 1.17.
	 	Performance Share Award	 	 	4	 
	Section 1.18.
	 	Qualifying Termination	 	 	4	 
	Section 1.19.
	 	Restricted Stock	 	 	4	 
	Section 1.20.
	 	Retirement	 	 	4	 
	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	 	 	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	 	 	10	 
	Section 4.1.
	 	Termination of Employment By the Corporation	 	 	10	 
	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	 	 	14	 







 









 






	 	 	 	 	 	 	 
	Section 5.1.
	 	Termination of Employment (Other Than By Reason of Death)	 	 	14	 
	Section 5.2.
	 	Voluntary Termination Pursuant to Section 4.2(c)	 	 	14	 
	Section 5.3.
	 	Termination for Cause	 	 	15	 
	Section 5.4.
	 	Qualifying Termination (Other Than by Reason Of Death)	 	 	16	 
	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	 	 	23	 
	Section 6.4.
	 	No Funding Required	 	 	23	 
	Section 6.5.
	 	Nondisclosure of Confidential Information	 	 	23	 
	Section 6.6.
	 	Waiver	 	 	24	 
	Section 6.7.
	 	Notice	 	 	24	 
	Section 6.8.
	 	Applicable Law	 	 	24	 
	Section 6.9.
	 	Taxes	 	 	24	 
	Section 6.10.
	 	Benefit	 	 	24	 
	Section 6.11.
	 	Entire Agreement	 	 	25	 
	Section 6.12.
	 	Arbitration	 	 	25	 
	Section 6.13.
	 	Severability	 	 	26	 
	Section 6.14.
	 	Regulatory Approval	 	 	26	 







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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;



     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. Employee’s Base Salary
may be paid or provided, as 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



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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.



     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.



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     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 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.



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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 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.



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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
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,



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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
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.



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     (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:




       (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.



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       (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 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.



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       (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.




       (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



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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,
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



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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 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



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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 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.



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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.



     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.



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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 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:



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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:




       (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



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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 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



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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 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.



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     (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 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



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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 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



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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 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



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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 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



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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. 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.



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     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 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



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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
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



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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 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



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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 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/ Anthony F. Marra	 	
/s/ Franklin D. Raines

FRANKLIN D. RAINES
	Date: 5/3/04	 	
Date:  5/3/04








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