exv10w1



 






Exhibit 10.1




EXECUTION COPY




EMPLOYMENT AGREEMENT




between




FANNIE MAE




and




DANIEL H. MUDD




 









 








TABLE OF CONTENTS




	 	 	 	 	 	 	 
	 	 	 	 	Page	 
	 
	 	 	 	 	 	 
	ARTICLE 1
	 	DEFINITIONS	 	 	1	 
	 
	 	 	 	 	 	 
	Section 1.1.
	 	Agreement Term	 	 	1	 
	Section 1.2.
	 	Annual Incentive Plan	 	 	1	 
	Section 1.3.
	 	Base Salary	 	 	1	 
	Section 1.4.
	 	Board	 	 	2	 
	Section 1.5.
	 	Board of Directors	 	 	2	 
	Section 1.6.
	 	Cause	 	 	2	 
	Section 1.7.
	 	Compete	 	 	2	 
	Section 1.8.
	 	Corporation	 	 	2	 
	Section 1.9.
	 	Director	 	 	2	 
	Section 1.10.
	 	Early Retirement	 	 	2	 
	Section 1.11.
	 	Effective Date	 	 	2	 
	Section 1.12.
	 	Employee	 	 	2	 
	Section 1.13.
	 	Employment	 	 	2	 
	Section 1.14.
	 	Executive Pension Plan	 	 	3	 
	Section 1.15.
	 	Existing Agreement	 	 	3	 
	Section 1.16.
	 	Expiration Date	 	 	3	 
	Section 1.17.
	 	Failure to Extend	 	 	3	 
	Section 1.18.
	 	Good Reason	 	 	3	 
	Section 1.19.
	 	OFHEO	 	 	4	 
	Section 1.20.
	 	Option	 	 	4	 
	Section 1.21.
	 	Performance Cycle	 	 	4	 
	Section 1.22.
	 	Performance Share Award	 	 	4	 
	Section 1.23.
	 	Qualifying Termination	 	 	4	 
	Section 1.24.
	 	Restricted Stock	 	 	4	 
	Section 1.25.
	 	Retirement	 	 	4	 
	Section 1.26.
	 	Section 409A	 	 	4	 
	Section 1.27.
	 	Serious Illness or Disability	 	 	4	 
	Section 1.28.
	 	Stock Compensation Plan	 	 	5	 
	Section 1.29.
	 	Surviving Spouse	 	 	5	 
	Section 1.30.
	 	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	 
	Section 3.3.
	 	Reimbursement	 	 	9	 






 









 






	 	 	 	 	 	 	 
	 	 	 	 	Page	 
	 
	 	 	 	 	 	 
	ARTICLE 4
	 	TERMINATION OF EMPLOYMENT	 	 	9	 
	 
	 	 	 	 	 	 
	Section 4.1.
	 	Termination of Employment By the Corporation.	 	 	9	 
	Section 4.2.
	 	Termination of Employment By Employee.	 	 	11	 
	Section 4.3.
	 	Other Termination of Employment	 	 	12	 
	Section 4.4.
	 	Resignation as Member of the Board of Directors	 	 	12	 
	 
	 	 	 	 	 	 
	ARTICLE 5
	 	COMPENSATION AND BENEFITS FOLLOWING TERMINATION OF EMPLOYMENT	 	 	12	 
	 
	 	 	 	 	 	 
	Section 5.1.
	 	Voluntary Termination Pursuant to Section 4.2(b)	 	 	12	 
	Section 5.2.
	 	Termination for Cause	 	 	12	 
	Section 5.3.
	 	Qualifying Termination (Other Than by Reason Of Death)	 	 	13	 
	Section 5.4.
	 	Termination of Employment By Reason of Death	 	 	17	 
	Section 5.5.
	 	Termination of Employment By Reason of Retirement or Early Retirement	 	 	18	 
	 
	 	 	 	 	 	 
	ARTICLE 6
	 	MISCELLANEOUS	 	 	20	 
	 
	 	 	 	 	 	 
	Section 6.1.
	 	Noncompetition.	 	 	20	 
	Section 6.2.
	 	Payment of Certain Expenses	 	 	21	 
	Section 6.3.
	 	Assignment by Employee	 	 	21	 
	Section 6.4.
	 	No Funding Required	 	 	21	 
	Section 6.5.
	 	Disclosure of Information to the Corporation	 	 	22	 
	Section 6.6.
	 	Nondisclosure of Confidential Information	 	 	22	 
	Section 6.7.
	 	Waiver	 	 	22	 
	Section 6.8.
	 	Notice	 	 	22	 
	Section 6.9.
	 	Applicable Law	 	 	23	 
	Section 6.10.
	 	Taxes	 	 	23	 
	Section 6.11.
	 	Benefit	 	 	23	 
	Section 6.12.
	 	Entire Agreement	 	 	24	 
	Section 6.13.
	 	Arbitration	 	 	24	 
	Section 6.14.
	 	Severability	 	 	24	 
	Section 6.15.
	 	Code Section 409A	 	 	25	 
	Section 6.16.
	 	Regulatory Approval.	 	 	25	 






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EMPLOYMENT AGREEMENT




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



     WHEREAS, the Board of Directors of the Corporation has appointed Employee its President and
Chief Executive Officer, effective June 1, 2005;



     WHEREAS, the Corporation and Employee desire to replace, with effect from June 1, 2005, the
existing employment agreement between them (the “Existing Agreement”), with a revised agreement
reflecting Employee’s new responsibilities and agreed compensation arrangements; and



     WHEREAS, until this Agreement is executed by the Corporation and Employee, and the regulatory
approval provided for in Section 6.16 occurs, the Existing Agreement shall remain in full force and
effect.



     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 the Expiration Date.



     Section 1.2. Annual Incentive Plan means the Corporation’s Annual Incentive Plan as from
time to time amended and in effect, or any successor plan.



     Section 1.3. Base Salary means the dollar amount of Employee’s annual base compensation as
determined by the Board.



 









 





     Section 1.4. Board means the Board of Directors of the Corporation, acting without the
participation of the Employee.



     Section 1.5. Board of Directors means the Board of Directors 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, any firm or
business if as of the date of Employee’s Termination of Employment (or during the two-year
non-compete period as set forth in Section 6.1(a)) a substantial part of the business of such firm
or business is in the same field as a substantial part of the business of the Corporation
(provided, that Employee shall not be deemed directly or indirectly to Compete solely by virtue of
Employee’s employment in a general management position by a diversified financial services firm).
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. Director means the Director of OFHEO or any successor.



     Section 1.10. Early Retirement is defined in the Stock Compensation Plan.



     Section 1.11. Effective Date means June 1, 2005, subject, however, to the provisions of
Section 6.16 (“Regulatory Approval”).



     Section 1.12. Employee means Daniel H. Mudd.



     Section 1.13. Employment means Employee’s employment by the Corporation under this
Agreement.



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     Section 1.14. Executive Pension Plan means the Corporation’s Executive Pension Plan as from
time to time amended and in effect, or any successor plan.



     Section 1.15. Existing Agreement is defined in the preamble to this Agreement.



     Section 1.16. Expiration Date means December 31, 2009.



     Section 1.17. Failure to Extend means notification 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, and any failure to provide such timely notice shall also
be deemed 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 those applicable to Employee at the time of said notice, but subject, however,
to regulatory approval, any nonextension shall not be deemed to be a Failure to Extend.



     Section 1.18. 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, (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, in the case of each of



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the preceding clauses (a)
through (e), within 30 days of the written notice given by Employee pursuant to Section 4.2(a)(i),
the Corporation cures or otherwise eliminates the basis for Employee’s assertion that Good Reason
exists.



     Section 1.19. OFHEO means the Office of Federal Housing Enterprise Oversight or any
successor office or agency as the Corporation’s primary regulator.



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



     Section 1.21. Performance Cycle means a “performance cycle” as such term is defined in
Section 5.1 of the Stock Compensation Plan.



     Section 1.22. Performance Share Award is defined in the Stock Compensation Plan.




     Section 1.23. 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 1.24. Restricted Stock is defined in the Stock Compensation Plan.



     Section 1.25. Retirement is defined in the Stock Compensation Plan.



     Section 1.26. Section 409A means Section 409A of the Internal Revenue Code of 1986, as
amended.



     Section 1.27. 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.



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     Section 1.28. Stock Compensation Plan means either or both, as the context requires, of the
Corporation’s Stock Compensation Plan of 1993 and the Corporation’s Stock Compensation Plan of
2003, in each case as from time to time amended and in effect, or any successor plan.



     Section 1.29. Surviving Spouse
is defined in the Executive Pension Plan.



     Section 1.30. 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 employ Employee, and
Employee shall serve, as President and Chief Executive Officer of the Corporation, upon the terms
and conditions of this Agreement, for the period from the Effective Date through the Expiration
Date; provided that there may be an earlier Termination of Employment as contemplated by Section 4.



     Section 2.2. Duties. Employee shall serve the Corporation under this Agreement as
President and Chief Executive Officer of the Corporation. 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 delegated to him from time to time by the Chairman of the Board of
Directors, provided that such duties are reasonable and customary for a corporate president and
chief executive officer. Employee shall be subject to the Corporation’s standards of conduct and
similar policies and procedures applicable generally to the Corporation’s executive officers.
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



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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 $950,000 (which is his base salary at June 1, 2005). 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” (revising the limitation on “other taxable compensation” for that
purpose to 100% of Employee’s base salary for each year) as those terms are defined in the
Executive Pension Plan; provided, however that, in the event Employee elects to commence receiving
benefits under the Executive Pension Plan prior to the date on which he attains age 60, Employee’s
Pension Goal shall be reduced by 3% for each year (3/12% for each month) by which the date of
commencement precedes the date on which he attains age 60. 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



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Agreement, as in effect on the date of execution
of this Agreement or, if benefits are improved, as of the date of such improvement; provided
further, however, that if Employee receives his
benefit payments under the Executive Pension Plan in the form of a joint and 100% survivor
annuity, the amount of such benefit payments shall be actuarially reduced to reflect Employee’s and
his Surviving Spouse’s joint life expectancy. Employee acknowledges and agrees to be bound by the
provisions set forth in this Section 3.2(a) notwithstanding any provisions in the Executive Pension
Plan to the contrary.



     (b) Options. Employee shall be considered for grants of Options consistent with the
compensation philosophy of the Corporation determined from time to time by the Compensation
Committee of the Board of Directors.



     (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 determined from time to time by the Compensation Committee of the
Board of Directors.



     (d) Performance Share Awards. Employee shall be considered for grants of Performance
Share Awards consistent with the compensation philosophy of the Corporation determined from time to
time by the Compensation Committee of the Board of Directors.



     (e) Restricted Stock. Employee shall be considered for grants of Restricted Stock
consistent with the compensation philosophy of the Corporation determined from time to time by the
Compensation Committee of the Board of Directors.



     (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.



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     (g) Legal Expenses. The Corporation shall pay or reimburse the legal expenses
incurred by Employee in connection with the negotiation of this Agreement and any subsequent
negotiation, amendment or discussion of this Agreement among any of the Director, the
Corporation, the Board and the Employee and any of their respective advisors.



     (h) Annual Physical. 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.



     (i) General Rights Under Benefit Plans.




     (i) Employee shall at all times during Employment 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, except as otherwise expressly provided herein, nothing in this
Agreement shall be deemed to 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



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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.



     Section 3.3. Reimbursement. Employee acknowledges that certain of his bonus or other
incentive-based or equity-based compensation may be subject to a requirement that they be
reimbursed to the Corporation in the event that Section 304 of the Sarbanes-Oxley Act of 2002
applies to that compensation, and Employee agrees to comply with the requirements of that section.
Employee also acknowledges that the Corporation’s plans and arrangements for compensation and
incentive awards may contain similar provisions, or other provisions related to reimbursement of
compensation or awards, or cancellation of rights, in similar circumstances, and Employee
understands that his participation in such plans and arrangements will be subject to such
provisions, any provisions of this Agreement to the contrary notwithstanding.



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; provided, however, that the



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Corporation shall
have the option to designate any date as the last date on which Employee shall be authorized to
occupy his office.



     (b) For Cause. Notwithstanding any other provision hereunder, the Corporation may
terminate Employee’s employment for “Cause,” which shall mean that Employee has (A) materially
harmed the Corporation by, in connection with his service under this Agreement, engaging in
dishonest or fraudulent actions or willful misconduct, or performing his duties in a grossly
negligent manner, or (B) been convicted of, or pleaded nolo contendere with respect to, a felony.
The Corporation by written notice may terminate Employee’s employment for Cause at any time
following the occurrence of an event described in (B). Employee shall not be deemed to have been
terminated for Cause following the occurrence of an event described in (A) unless the Corporation
shall have provided (i) reasonable notice to Employee setting forth the Corporation’s intention to
terminate for Cause, (ii) where remedial action is feasible, a reasonable opportunity for such
action, (iii) an opportunity for Employee, together with his counsel, to be heard before the Board
and (iv) Employee with a notice of termination stating that Employee was guilty of the conduct set
forth in this Section 4.1(b)(A) and specifying the particulars thereof in detail. No act or
failure to act will be considered “willful” unless it is done, or omitted to be done, by Employee
in bad faith or without reasonable belief that his action or omission was in the best interests of
the Corporation.



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



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



     Section 4.2. Termination of Employment By Employee.



     (a) For Good Reason, etc. (i) Employee shall have the right to terminate his
Employment for Good Reason 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 and must specify in reasonable detail the circumstances constituting Good Reason;
provided, however, that if, on or before the date of termination specified in such notice, the
Corporation shall have cured or otherwise eliminated the asserted basis for the Good Reason claim,
such notice shall be void, and Employee’s Employment shall not be terminated thereby.




     (ii) 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 1.23(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). 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).



     (c) Upon receipt of any notice from Employee pursuant to Section 4.2(a) or (b), the
Corporation shall have the option, exercisable by giving Employee written notice within 30 days



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of
such receipt, (i) 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 and (ii) to designate any date
as the last date on which Employee shall be authorized to occupy his office. 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.



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



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



ARTICLE 5




COMPENSATION AND BENEFITS FOLLOWING TERMINATION OF EMPLOYMENT




     Section 5.1. 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 and any benefits or awards (whether of
options, stock or other property) which have vested prior to such date.



     Section 5.2. Termination for Cause. In the event of a Termination of Employment for
Cause, Employee shall not be entitled to any payments or benefits except as follows: Employee
shall be entitled to payment of all accrued but unpaid Base Salary amounts and any benefits or
awards (whether of options, stock or other property) which have vested prior to such date;
provided, however, that Employee shall not be entitled to any amounts payable (but unpaid) of any
bonus, or under any Performance Share Award with respect to a Performance Cycle, whether



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or not
completed as of the date of such Termination of Employment, if the reason for such Termination of
Employment for Cause is substantially related to the earning of such bonus or to
the performance over the Performance Cycle upon which the payment was based. The Corporation
shall have no further obligations to Employee.



     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:



     (a) Continuation of Base Salary. Unless such Qualifying Termination shall have been
by reason of a Qualifying Termination described in Section 1.23(iv):




     (i) Subject to Section 6.15, 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 second anniversary of the date of the
Qualifying Termination.




     (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



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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 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 pursuant to Section 5.3(a)(i) over (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 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 1.23(iv), the Corporation shall promptly pay to Employee 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 promptly
pay to Employee any portion or all of such prorated Annual Incentive Plan payment. In any case
where payment under this Section 5.3(b) is promptly made to Employee, 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



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occurs based on the Board’s determination of the
likelihood of the Corporation’s achievement of targets for such year. Employee acknowledges and
agrees that any payments made pursuant to this Section 5.3(b) are subject to Section 6.15.



     (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 a
Performance 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 18 months of the related
Performance Cycle has elapsed as of the date of the Termination of Employment, after the end of
such Performance Cycle, the product of (i) the award that would have been payable to Employee for
such Performance Cycle had he remained in Employment, based on actual results for such Performance
Cycle, and (ii) a fraction, the numerator of which is the number of days of Employment in such
Performance Cycle and the denominator of which is the total number of days in such Performance
Cycle. In the case of a Qualifying Termination described in Section 1.23(iv), the Corporation shall
promptly pay to Employee all prorated Performance Share Award payments described in this Section
5.3(c). In the case of any other Qualifying Termination, the Corporation in its discretion may
promptly pay to Employee any portion or all of any such payments. In any case where payment under
this Section 5.3(c) is promptly made to Employee, the amount determined under clause (i) above
shall be the award that the Board determines Employee would have received for the Performance Cycle
in which the Qualifying Termination occurs based on the Board’s determination of the likelihood of
the Corporation’s achievement of targets for such Performance Cycle. Employee



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acknowledges and
agrees that any payments made pursuant to this Section 5.3(c) are subject to Section 6.15.



     (d) Restricted Stock. All shares of Restricted Stock awarded to Employee, to the
extent not already vested, shall become immediately vested.



     (e) Options. Notwithstanding any provision of the Stock Compensation Plan to the
contrary, in the case of a Qualifying Termination by reason of a termination by the Corporation
without Cause, by the Employee for Good Reason, due to Failure to Extend or by reason of Serious
Illness or Disability, all Options held by Employee, to the extent not already vested, shall become
immediately vested and, solely with respect to those Options granted to Employee on or after the
date hereof, shall remain exercisable through the earlier of the remainder of the original exercise
period and the third anniversary of the date of such Qualifying Termination.



     (f) Medical and Dental Coverage. Subject to Section 6.15, 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 or until age 21 if later), without premium payments by Employee, until the earlier of
the second anniversary of the date of such Qualifying Termination and the date the Employee obtains
comparable coverage through another employer. 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.



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     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. Subject to Section 6.15, 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. Subject to Section 6.15, 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 a Performance Cycle that had ended on or prior to the date of death, plus
with respect to each Performance Share Award held by Employee as of the date of death for each
Performance Cycle as to which at least 18 months of the related Performance Cycle had elapsed prior
to the date of death, the product of (i) the award that the Board determines Employee (had he
lived) would have received for such Performance Cycle had he remained in Employment based on the
Board’s determination of the likelihood of the Corporation’s achievement of targets for such
Performance Cycle, multiplied by (ii) a fraction, the numerator



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of which is the number of days in
the Performance Cycle that had elapsed prior to Employee’s death and the denominator of which is
the total number of days in the Performance Cycle.



     (c) Restricted Stock. All shares of Restricted Stock awarded to Employee, to the
extent not already vested, shall become immediately vested.



     (d) Options. Notwithstanding any provision of the Stock Compensation Plan to the
contrary, all Options held by Employee, to the extent not already vested, shall become
immediately vested and, solely with respect to those Options granted to Employee on or after
the date hereof, shall remain exercisable by Employee’s designated beneficiary or, if none,
Employee’s estate through the earlier of the remainder of the original exercise period and the
third anniversary of the date of Employee’s death.



     Section 5.5. Termination of Employment By Reason of Retirement or Early Retirement.
If there is a Termination of Employment by reason of Employee’s Retirement or Early Retirement,
then in addition to the payment to Employee of Employee’s accrued but unpaid Base Salary:



     (a) Performance Share Awards. Notwithstanding any provision of the Stock Compensation
Plan to the contrary, the Corporation shall pay to Employee all amounts payable (but unpaid) under
any Performance Share Award with respect to a Performance Cycle that had ended as of the date of
Retirement or Early Retirement, as the case may be, plus with respect to each Performance Share
Award then held by Employee as to which at least 18 months of the related Performance Cycle had
elapsed as of the date of Retirement or Early Retirement, as the case may be, the product of (i)
the award that would have been payable to Employee for such Performance Cycle had he remained in
Employment, based on actual results for such Performance Cycle, and (ii) a fraction, the numerator
of which is the number of days of



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Employment in such Performance Cycle and the denominator of which
is the total number of days in such Performance Cycle. Alternatively, the Corporation in its
discretion may promptly pay to Employee any portion or all of any such payments. In any case where
payment under this Section 5.5(a) is promptly made to Employee, the amount determined under clause
(i) above shall be the award that the Board determines Employee would have received for the
Performance Cycle in which the Retirement or Early Retirement, as the case may be, occurs based on
the Board’s determination of the likelihood of the Corporation’s achievement of targets for such
Performance Cycle. Employee acknowledges and agrees that any payments made pursuant to this
Section 5.5(a) are subject to Section 6.15.



     (b) Restricted Stock. In the event there is a Termination of Employment by reason of
Employee’s Retirement, all shares of Restricted Stock awarded to Employee, to the extent not
already vested, shall become immediately vested. Notwithstanding any provision of the Stock
Compensation Plan to the contrary, in the event there is a Termination of Employment by reason of
Employee’s Early Retirement, the Corporation in its discretion may accelerate the vesting of shares
of Restricted Stock awarded to Employee, to the extent not already vested.



     (c) Options. Notwithstanding any provision of the Stock Compensation Plan to the
contrary, all Options held by Employee, to the extent not already vested, shall become immediately
vested and, solely with respect to those Options granted to Employee on or after the date hereof,
shall remain exercisable through the earlier of the remainder of the original exercise period and
the third anniversary of the date of such Retirement or Early Retirement, as the case may be.



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ARTICLE 6




MISCELLANEOUS




     Section 6.1. Noncompetition.



     (a) Following Termination of Employment for any reason, during the period from the date of the
Termination of Employment to the second 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. In any case where Employee is contemplating an activity described
in Section 6.1(a)(i) above, 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



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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 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



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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,
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



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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, when delivered, if sent by courier service, 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 6.9. 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 substantially all 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



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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 6.16, supersedes and voids all prior written or oral
agreements or waivers between them, other than the Agreement on Ideas, Inventions and Confidential
Information dated March 22, 2001 and the Indemnification Agreement dated as of May 24, 2004 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 6.13. 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 6.16, 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



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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. Code Section 409A. In light of the uncertainty surrounding the proper
application of Section 409A, the parties hereto agree to cooperate to make necessary amendments to
this Agreement (including, without limitation, to the timing of any severance payments payable
pursuant to Article 5) to avoid imposition of penalties and additional taxes
under Section 409A. It is intended that the provisions of this Agreement comply with Section
409A, and all provisions of this Agreement shall be construed and interpreted in a manner
consistent with Section 409A. In particular, if necessary to avoid imposition of penalties and
additional taxes under Section 409A, (a) the timing of severance payments shall be subject to a
six-month deferral in a manner consistent with Section 409A(a)(2)(B)(i) and (b) any amounts payable
under the Annual Incentive Plan or any Performance Share Award shall be paid to Employee not later
than the expiration of two and one-half months from the end of the first taxable year in which the
amount is no longer subject to a substantial risk of forfeiture.



     Section 6.16. 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. If, following
OFHEO’s review and approval of such provisions, any benefit plans of



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the Corporation affecting
final termination benefits under this Agreement are altered, such alteration will require OFHEO’s
review and approval at the time of termination of employment with the Corporation and prior to the
payment of any such benefits. Upon determining that Employee’s Employment is terminating or has
terminated, the Corporation shall timely seek OFHEO’s review and approval of any alteration
referred to in the immediately preceding sentence.



     The parties therefore agree as follows:



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



     (b) This Agreement shall take effect as of the Effective Date if the Director’s approval of
terms hereof relating to benefits upon termination of employment is given by January 1, 2006.



[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/   Judith C. Dunn	 	 	 	By:	 	    /s/    Joe K. Pickett
	 	 	 	 	 	 	 
	 

	 	 	 	 	 	 	 	Chairman of the Compensation Committee of
the Board
	 
	 	 	 	 	 	 	 	 
	Date:

	 	 	 	 	 	Date:	 	 
	 

	 	          11-15-05	 	 	 	 	 	                11-15-05
	 

	 	 
	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	Witness:	 	 	 	 	 	 
	 
	 	 /s/     Beverly Fitzgerald	 	 	 	 	 	     /s/     Daniel H. Mudd
	 	 	 	 	 
	 	 	 	 	 	 	DANIEL H. MUDD
	 
	 	 	 	 	 	 	 	 
	Date:

	 	          11-15-05	 	 	 	Date:	 	          11-15-05
	 

	 	 
	 	 	 	 	 	 






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