Document:

exv10w2

 

EXHIBIT 10.2

EMPLOYMENT AGREEMENT

between

FANNIE MAE

and

DANIEL H. MUDD

INCLUDING ALL

AMENDMENTS TO DATE

 

 

TABLE OF CONTENTS

	 	 	 	 	 	 	 
	A.	 	
EMPLOYMENT TERM
	 	 	2	 
	1.	 	
Term and Duties
	 	 	2	 
	2.	 	
Annual Salary; Certain Reimbursements and Fringe Benefits
	 	 	3	 
	3.	 	
Employee’s Rights Under Certain Plans
	 	 	4	 
	4.	 	
Termination Without Cause, Termination or Resignation
Upon a Change
 of Control or Failure to Extend
	 	 	13	 
	5.	 	
Termination by Employee; Breach by Employee
	 	 	16	 
	6.	 	
Resignation as Board Member
	 	 	18	 
	B.	 	
DISABILITY
	 	 	19	 
	7.	 	
Disability
	 	 	19	 
	C.	 	
DEATH
	 	 	20	 
	8.	 	
Death
	 	 	20	 
	D.	 	
MISCELLANEOUS
	 	 	21	 
	9.	 	
Assignment by Employee
	 	 	21	 
	10.	 	
Funding Prohibitions
	 	 	22	 
	11.	 	
Disclosure of Information to the Corporation
	 	 	22	 
	12.	 	
Nondisclosure of Confidential Information
	 	 	23	 
	13.	 	
Waiver
	 	 	23	 
	14.	 	
Notice
	 	 	24	 
	15.	 	
Applicable Law
	 	 	24	 
	16.	 	
Taxes
	 	 	24	 
	17.	 	
Benefit
	 	 	24	 
	18.	 	
Entire Agreement
	 	 	25	 
	19.	 	
Interpretation
	 	 	25	 

 

 

	 	 	 	 	 	 	 
	20.	 	
Severability
	 	 	25	 
	21.	 	
Regulatory Approval
	 	 	26	 

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EMPLOYMENT AGREEMENT

     THIS
EMPLOYMENT AGREEMENT, effective as of the 23rd day of February, 2000,
is by and between FANNIE MAE (the “Corporation”) and DANIEL H. MUDD
(“Employee”).

WITNESSETH THAT:

     WHEREAS, the Corporation desires to employ Employee as Vice Chairman of
the Board and Chief Operating Officer of the Corporation, and Employee desires
to serve in such capacity;

     WHEREAS, the Corporation and Employee desire to set forth the terms and
conditions of such employment; and

     WHEREAS, the Board of Directors of the Corporation (the “Board”) duly
approved and authorized the terms of this Agreement for and on behalf of the
Corporation at a meeting held on February 23, 2000, at which meeting a quorum
was present, and the Board authorized the Chairman of the Board to finalize and
enter into this Agreement with Employee on behalf of the Corporation;

     NOW, THEREFORE, in consideration of the foregoing and of the mutual
promises and covenants herein contained, the parties hereto agree as follows:

 

 

A.     EMPLOYMENT TERM

	1.	 	Term and Duties

     (a)     The Corporation hereby agrees to employ Employee, and Employee hereby
agrees to serve, as Vice Chairman of the Board and Chief Operating Officer of
the Corporation, upon the terms and conditions herein contained, for a term
commencing on February 23, 2000 (the “Effective Date”) and, subject to the
terms hereof, terminating on June 30, 2003 (the “Termination Date”). As used
in this Agreement, “Employment Term” shall mean the period from the Effective
Date until the Termination Date, plus any extension of such period pursuant to
the written agreement of the parties.

     (b)     The Corporation hereby agrees that, as of February 23, 2000, Employee
shall become a member of the Board. During the Employment Term (including any
extension thereof), Employee shall be nominated for election to the Board, and
shall be identified as a nominee recommended for election by the Board, at each
annual meeting of the stockholders of the Corporation, beginning with the
annual meeting held in 2000.

     (c)     Employee shall perform such duties for the Corporation as may be
determined from time to time by the Chairman of the Board, provided that such
duties are reasonable and customary for a corporate vice chairman and chief
operating officer.

     (d)     The Corporation and Employee acknowledge that the Employment Term may
be extended for an additional period by mutual written agreement entered into
at any time prior to the expiration of the Employment Term.

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	2.	 	Annual Salary; Certain Reimbursements and Fringe Benefits

     (a)     Commencing on the Effective Date and, subject to Paragraphs 4, 5, 7
and 8 below, during the remainder of the Employment Term, the Corporation shall
pay to Employee an annual base salary of not less than $625,170 (such amount
being prorated for 2000), payable in equal biweekly installments on the same
dates the other senior officers of the Corporation are paid. Employee’s annual
base salary payable pursuant to this Paragraph 2 (including any increases in
such salary approved by the Board pursuant to this Paragraph 2) is hereinafter
referred to as “Employee’s Basic Compensation.”

     (b)     The Board shall, from time to time, review Employee’s Basic
Compensation and may increase (but in no event decrease) such compensation for
any year after 2000 by such amounts as the Board deems proper. The criteria
that the Board may take into consideration in providing for any such increases
are the recommendation of the Chairman of the Board, the base compensation
payable to vice chairmen or chief operating officers and other comparable
officers of comparable financial institutions and corporations, Employee’s
ability and performance, any increases in the responsibilities assumed by
Employee, the success achieved by the Corporation, any increase or change in
the volume, character or variety of the business of the Corporation, increases
in the cost of living and any other criteria the Board may deem relevant.

     (c)     The Corporation shall reimburse Employee for actual expenses incurred
by Employee while Employee is employed under this Agreement or any successor
agreement in obtaining tax and investment assistance and advice; provided,
however, that in no event shall the Corporation be obligated to reimburse
Employee under this Paragraph 2(c) for more than $25,000 for expenses incurred
in any calendar year.

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     (d)     The Corporation shall provide Employee with access to a car and driver
for transportation relating to business purposes while Employee is employed
under this Agreement or any successor agreement on the same terms as the other
members of the Office of the Chairman.

	3.	 	Employee’s Rights Under Certain Plans

     (a)     Executive Pension Plan. The Corporation hereby designates Employee as
a participant in the Executive Pension Plan of the Federal National Mortgage
Association (the “Executive Pension Plan”) with a Pension Goal at all times
equal to no less than 50% of his High-Three Total Compensation (as such terms
are defined in the Executive Pension Plan), as of the Effective Date. The
Corporation may amend the Executive Pension Plan from time to time; provided,
however, that no such amendment shall adversely modify the vesting schedule or
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 in
effect on the date hereof or, if benefits are improved, as of the date of such
improvement.

     (b)     Stock Options. The Corporation shall grant the following stock
options to Employee.

	 	(i)	 	The Corporation shall grant to Employee, as of
February 23, 2000, a Nonqualified Stock Option (the
“Option”), pursuant to the Federal National Mortgage
Association Stock Compensation Plan of 1993 (the “1993 Stock
Compensation Plan”), to purchase 114,855 shares of common
stock of the Corporation (the “Stock”)

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	 	 	 	for a price equal to the Fair Market Value (as defined in
such plan) of the Stock on the date of such grant. The
Option shall expire on February 23, 2010 and shall become
exercisable with respect to 25% of the Stock covered
thereby on February 23, of each of 2001, 2002, 2003 and
2004; provided, in each case, that Employee is still
employed by the Corporation on such date. Notwithstanding
the foregoing or any provision of the 1993 Stock
Compensation Plan to the contrary, in the event that (v)
Employee is terminated without Cause pursuant to Paragraph
4(a) below, (w) Employee is terminated or resigns within
six (6) months following a Change of Control (as defined in
Paragraph 4(d) below), (x) the Employment Term expires
because of the failure of the Corporation to extend this
Agreement or any successor agreement, (y) Employee is
terminated by reason of serious illness or disability
pursuant to Paragraph 7(a) below or (z) Employee dies while
employed under this Agreement or any successor agreement,
Employee (or, in the case of serious illness, disability or
death, the person or persons to whom Employee’s rights
under the Option pass by will or applicable law or, if no
such person has such rights, Employee’s executors or
administrators) shall be entitled to exercise the Option
with respect to 100% of the Stock covered thereby until
February 23, 2010.

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	 	(ii)	 	The Corporation shall grant to Employee, as of
February 23, 2000, an Earnings Per Share Challenge Option
(“EPS Option”), pursuant to the 1993 Stock Compensation Plan,
to purchase 116,710 shares of stock for a price equal to the
Fair Market Value (as defined in such plan) of the Stock on
the date of such grant. The EPS Option shall expire on
January 18, 2010. If the Corporation’s earnings per share
for 2003 is $6.46 or greater, the EPS Option shall become
exercisable with respect to all of the Stock covered thereby
on the date of the Corporation’s January 2004 Board meeting;
however, if the Corporation’s earnings per share for 2003 is
less than $6.46, the EPS Option shall become exercisable with
respect to 25% of the Stock covered thereby on January 18 of
each 2005, 2006, 2007 and 2008; provided, in each case, that
Employee is still employed by the Corporation on such date.
Notwithstanding the foregoing or any provision of the 1993
Stock Compensation Plan to the contrary, in the event that
(v) Employee is terminated without Cause pursuant to
Paragraph 4(a) below, (w) Employee is terminated or resigns
within six (6) months following a Change of Control (as
defined in Paragraph 4(d) below), (x) the Employment Term
expires because of the failure of the Corporation to extend
this Agreement or any successor agreement, (y) Employee is
terminated by reason of serious illness or disability
pursuant to Paragraph 7(a) below or (z) Employee dies while
employed under

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	 	 	 	this Agreement or any successor agreement, Employee (or, in
the case of serious illness, disability or death, the
person or persons to whom Employee’s rights under the EPS
Option pass by will or applicable law or, if no such person
has such rights, Employee’s executors or administrators)
shall be entitled to exercise the EPS Option with respect
to 100% of the Stock covered thereby until January 18,
2010.

     (c)     Annual Incentive Plan. Employee’s Maximum Potential Award (as defined
in the Federal National Mortgage Association Annual Incentive Plan (the “Annual
Incentive Plan”)) for each year during the Employment Term shall be 137.5% of
Employee’s Basic Compensation. The amount to be paid with respect to such
award for each such year shall be determined by the extent to which any
Corporate Goals (as defined in the Annual Incentive Plan) are attained.
Employee shall be entitled to participate in the Annual Incentive Plan for 2000
on a pro rata basis. Notwithstanding any provision of the Annual Incentive
Plan to the contrary, the following provisions shall apply to Employee:

	 	(i)	 	In the event that (x) Employee is terminated
without Cause pursuant to Paragraph 4(a) below, (y) Employee
is terminated or resigns within six (6) months following a
Change of Control (as defined in Paragraph 4(d) below) or (z)
Employee is terminated by reason of serious illness,
disability pursuant to Paragraph 7(a) below, or death, the
Corporation shall pay to Employee at the time of payment of
awards to other participants in the Plan (A) the amount of
any bonus earned by and payable to Employee pursuant

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	 	 	 	to the Annual Incentive Plan for a completed calendar year
(with the period February 23-December 31, 2000 being
considered a completed calendar year for such purposes) but
not yet paid by the Corporation for such year and (B) an
award calculated assuming 100% attainment of the target
corporate goal specified by the Board for the Annual
Incentive Plan for the year in which such termination or
resignation occurred.
	 
	 	(ii)	 	In the event that the Employment Term expires
because of the failure of the Corporation to extend this
Agreement or any successor agreement, the Corporation shall
pay to Employee the amount of any bonus earned by and payable
to Employee pursuant to the Annual Incentive Plan for a
completed calendar year (with the period February 23-December
31, 2000 being considered a completed calendar year for such
purposes) but not yet paid by the Corporation for such year.

     (d)     Restricted Stock. The Corporation shall grant to Employee, as of
February 23, 2000, 25,000 shares of Restricted Common Stock (“Restricted
Stock”) pursuant to the 1993 Stock Compensation Plan. Twenty percent (20%) of
such shares of Restricted Stock shall vest, and the Restricted Period
applicable to such shares shall end, on February 23 in each of 2001, 2002,
2003, 2004 and 2005; provided, in each case, that Employee is still employed by
the Corporation under this Agreement or any successor agreement on such date.
Notwithstanding the foregoing or any provision of the 1993

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Stock Compensation Plan to the contrary, the following provisions shall
apply to Employee:

	 	(i)	 	In the event that (w) Employee is terminated
without Cause pursuant to Paragraph 4(a) below, (x) Employee
is terminated or resigns within six (6) months following a
Change of Control (as defined in Paragraph 4(d) below), (y)
the Employment Term expires because of the failure of the
Corporation to extend this Agreement or any successor
agreement or (z) Employee is terminated by reason of serious
illness or disability pursuant to Paragraph 7(a) below,
Employee’s rights with respect to (A) shares of Restricted
Stock awarded on February 23, 2000 shall become immediately
vested and the Restricted Period applicable to all such
shares shall end in accordance with the terms of the 1993
Stock Compensation Plan and (B) shares of Restricted Stock
awarded after February 23, 2000 shall continue to vest and
the Restricted Period applicable to such shares shall end in
accordance with the schedule included in each such grant
through the end of the Employment Term.
	 
	 	(ii)	 	In the event that Employee dies while employed
under this Agreement or any successor agreement, Employee’s
rights with respect to all shares of Restricted Stock shall
become immediately vested and the Restricted Period
applicable to such shares shall end

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	 	 	 	in accordance with the terms of the 1993 Stock Compensation
Plan.

     (e)     Performance Shares. The Corporation shall grant to Employee, as of
February 23, 2000, Performance Shares pursuant to the 1993 Stock Compensation
Plan for the 1998-2000, 1999-2001 and 2000-2002 Award Periods (as defined in
the 1993 Stock Compensation Plan) in amounts equal to 7,028, 16,152 and 34,620
Performance Shares, respectively. The 7,028 Performance Shares represent a
proration of a full 24,610 Performance Share Grant for the 1998-2000 Award
Period, prorated to reflect Employee’s employment by the Corporation for a
portion (313 days) of such three-year Award Period. The 16,152 Performance
Shares represent a proration of a full 26,110 Performance Share grant for the
1999-2001 Award Period, prorated to reflect Employee’s employment by the
Corporation for a portion (678 days) of such three-year Award Period. The grant
of 34,620 Performance Shares for the 2000-2002 Award Period has not been
prorated. If grants are made to other Participants for future Award Periods,
Employee shall likewise be awarded a grant for each such future Award Period.
Notwithstanding any provision of the 1993 Stock Compensation Plan to the
contrary, the following provisions shall apply to Employee:

	 	(i)	 	In the event that (w) Employee is terminated
without Cause pursuant to Paragraph 4(a) below, (x) Employee
is terminated or resigns within six (6) months following a
Change of Control (as defined in Paragraph 4(d) below), (y)
the Employment Term expires because of the failure of the
Corporation to extend this Agreement or any successor
agreement or (z) Employee is

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	 	 	 	terminated by reason of serious illness or disability
pursuant to Paragraph 7(a) below, the Corporation shall pay
to Employee, after the end of each such Award Period,
Actual Awards with respect to Performance Shares previously
awarded for each Award Period of the Performance Share Plan
in which Employee has completed at least 18 months of
service, in each case on a pro rata basis reflecting
Employee’s completed months of service in the Award Period,
based on the actual achievement of Program Targets for the
Award Period and using as the Valuation Date (as defined in
the 1993 Stock Compensation Plan) (A) in the case of a
termination upon a Change in Control, the date of such
Change in Control, and (B) in the case of a termination
without Cause, the failure of the Corporation to extend the
Employment Term or a termination because of serious illness
or disability, the last day of the Award Period.
	 
	 	(ii)	 	In the event that Employee dies while employed
under this Agreement or any successor agreement, the
Corporation shall pay to Employee’s designated beneficiary
or, if none, Employee’s estate as soon as is practicable
after the date of Employee’s death, Actual Awards with
respect to Performance Shares previously awarded for (x) the
1999-2001 Award Period, if Employee’s death occurs after
February 22, 2001, and (y) each other Award Period of the
Performance Share Plan in which Employee has completed at
least

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	 	 	 	18 months of service, in each case on a pro rata basis
reflecting Employee’s completed months of service in the
Award Period, based on the Board’s determination of the
likelihood of the Corporation’s achievement of Program
Targets for the Award Period and using the date of death as
the Valuation Date (as defined in the 1993 Stock
Compensation Plan).

     (f)     General Rights Under Benefit Plans. Nothing contained herein is
intended to or shall be deemed to affect adversely any of Employee’s rights as
a participant under any long- or short-term bonus, stock option, restricted
stock or other executive compensation plans, or under any program of
perquisites or disability, retirement, stock purchase, retirement savings,
health, medical, life insurance, or similar plans of the Corporation now or
hereafter in effect. 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, 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. Except as
specifically set forth in this Agreement, or as specifically permitted by the
terms of any such plan or program, no

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right or benefit under any such plan or program shall become vested or
exercisable after the termination of Employee’s employment by the Corporation.
If for any reason any benefits payable pursuant to this Agreement cannot be
paid under the Corporation’s employee benefit or executive compensation plans,
such payments shall be made out of the general assets of the
Corporation.

	4.	 	Termination Without Cause, Termination or Resignation Upon a Change of
Control or Failure to Extend

     (a)     Notwithstanding any other provision hereunder, the Corporation shall
have the right to terminate Employee’s employment hereunder without Cause (as
defined in Paragraph 5(b) below) at any time for any reason in its sole
discretion on not less than ninety (90) days’ prior written notice to Employee.
In the event that (i) the Corporation terminates Employee’s employment
pursuant to the immediately preceding sentence, (ii) Employee is terminated or
resigns within six (6) months following a Change of Control (as defined in
Paragraph 4(d) below) or (iii) the Employment Term expires because of the
failure of the Corporation to extend this Agreement or any successor agreement,
the Corporation shall, subject to Paragraph 4(b) below, continue to pay
Employee’s Basic Compensation to Employee at the rate in effect at the time of
such termination, resignation or expiration until the later of (A) the
expiration of the Employment Term or (B) one year following the date of such
termination or resignation or notification to Employee of such failure to
extend. Employee shall, subject to Paragraph 4(b) below, continue to
participate in all Employee Welfare Benefit Plans (as such term is defined in
Section 3(1) of the Employee Retirement Income Security Act of 1974, as
amended, and

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the regulations promulgated thereunder) maintained by the Corporation
during the remainder of the Employment Term or until such later date as may be
expressly provided under the terms of any such plan.

     (b)     Following a termination or resignation pursuant to Paragraph 4(a)
above or the expiration of the Employment Term because of the failure of the
Corporation to extend this Agreement or any successor agreement, Employee shall
have the duty, commencing on the date six (6) months after the date of such
termination, resignation or expiration, to seek other employment or to become
self-employed; provided, however, that Employee shall not be required to accept
other employment or to become self-employed in any position not at least
substantially equivalent (in terms of importance, dignity and responsibilities)
to his position as Vice Chairman of the Board and Chief Operating Officer of
the Corporation pursuant to this Agreement. Any income received from such
employment (including self-employment but excluding service on boards of
directors) after such six-month period shall reduce, on a dollar-for-dollar
basis (but not below zero), the Corporation’s obligation to pay Employee’s
Basic Compensation. Any employee benefits received by Employee in
consideration of such employment after such six (6) month period shall relieve
the Corporation of its obligation to provide comparable benefits hereunder to
the extent of the benefits so received; provided, however, that Employee’s
retirement benefit, if any, pursuant to Paragraph 3(a) above shall not be
reduced on account of any such income or benefits received from such
employment.

     (c)     If at any time during the Employment Term, there is a material
reduction of Employee’s authority as Vice Chairman of the Board and Chief
Operating Officer of

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the Corporation, or any material change in Employee’s functions, duties or
responsibilities which would in any material way cause Employee’s position to
become less important or if Employee reports to anyone other than the Chairman
of the Board or if the Corporation appoints a person other than Employee to the
position of President, Deputy Chairman or a similar position superior to
Employee’s position and inferior to the position of Chairman of Fannie Mae,
with the understanding that a change in the functions reporting to him is not
per se material, or if the Corporation shall require Employee to relocate
outside the Washington, D.C. area, Employee shall have the right, upon not less
than ninety (90) days’ written notice to the Corporation, which notice must be
given within four calendar months after the event giving rise to said right, to
treat such event as a termination by the Corporation of his employment without
Cause pursuant to Paragraph 4(a) above for all purposes under this Agreement,
and all of the provisions of this Agreement applicable to such a termination
without Cause shall be operative with respect to such termination.

     (d)     “Change of Control” shall have occurred if there is a change in the
composition of a majority of the Board of Directors elected by the stockholders
within twelve (12) months after any “person” (as defined in Sections 3(a)(9)
and 13(d)(3) of the Securities Exchange Act of 1934 (the “Exchange Act”), as
such sections are in effect on the Effective Date) is or becomes the
“beneficial owner” (as defined in Rule 13d-3 under the Exchange Act, as such
rule is in effect on the Effective Date) of securities representing 25% or more
of the combined voting power of the then outstanding securities of the
Corporation.

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	5.	 	Termination by Employee; Breach by Employee

     (a)     Notwithstanding any other provision hereunder, Employee shall have the
right to terminate his employment by the Corporation at any time for any reason
in his sole discretion on not less than ninety (90) days’ prior written notice
to the Corporation. Upon receipt of any such notice from Employee, the
Corporation shall have the option, exercisable by giving Employee written
notice within thirty (30) days of such receipt, to designate any date after the
date of such notice to Employee and prior to the expiration of the aforesaid
notice period as the date on which Employee shall cease to be an officer and
employee of the Corporation, and the effective date of termination hereunder
shall be any such earlier date so designated by the Corporation. In no event
shall the termination of Employee’s employment by the Corporation without Cause
pursuant to Paragraph 4(a) above, Employee’s termination or resignation within
six (6) months following a Change of Control pursuant to Paragraph 4(a) above
or the expiration of the Employment Term because of the failure of the
Corporation to extend this Agreement or any successor agreement be deemed to be
a termination by Employee pursuant to this Paragraph 5(a).

     (b)     Notwithstanding any other provision hereunder, the Corporation may
terminate Employee’s employment hereunder for “Cause,” which shall mean that
Employee has materially breached this Agreement by engaging in dishonest or
fraudulent actions or willful misconduct or has materially harmed the
Corporation by performing his duties in a negligent manner. Notwithstanding
the foregoing, Employee shall not be deemed to have been terminated for Cause
unless the Corporation shall have provided (i) reasonable notice to Employee
setting forth the reasons for the Corporation’s intention to terminate for
Cause, (ii) an opportunity for Employee, together with his counsel, to be

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heard before the Board and (iii) Employee with a notice of termination stating
that Employee was guilty of the conduct set forth in this Paragraph 5(b) and
specifying the particulars thereof in detail.

     (c)     In the event of a termination pursuant to Paragraph 5(a) or 5(b)
above, Employee shall be entitled to all of Employee’s Basic Compensation which
has accrued to the date of termination and any benefits or awards (whether of
options, stock or other property) which have vested prior to such date. The
Corporation shall have no further obligations to Employee.

     (d)     In the event of a termination by Employee pursuant to Paragraph 5(a)
above, during the period from the effective date of termination to the earlier
of (i) the first anniversary thereof and (ii) the expiration of the Employment
Term, Employee shall not, directly or indirectly (x) Compete with the
Corporation in the United States of America, (y) 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 (z) assist any other person to engage in
any activity in any manner prohibited hereby to Employee. As used herein,
“Compete” shall mean to engage directly or indirectly in any business, or to
become connected directly or indirectly with any business or firm, if a
substantial part of such business or the business of any such firm involves
transactions in what is commonly known as the secondary market in residential
mortgages; provided, however, that Employee shall not be deemed, directly or
indirectly, to Compete with the Corporation solely by virtue of Employee’s
employment with any corporation or firm involved in transactions in what is
commonly

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known as the secondary market in residential mortgages so long as Employee
himself does not participate in such corporation’s or firm’s involvement in
such transactions.

     (e)     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 Paragraph 5(d) above. If for any reason a final decision of any
court determines that the restrictions under Paragraph 5(d) above are not
reasonable or that consideration therefor 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 Paragraph 5(d) above as
will render such restrictions valid and enforceable.

	6.	 	Resignation as Board Member

     In the event Employee ceases to be employed by the Corporation and
Employee is then a member of the Board, Employee hereby agrees that, unless
otherwise requested by the Board, he shall submit his resignation as a member
of the Board and of the Fannie Mae Foundation in writing on or before the date
he ceases to be an officer of the Corporation. If Employee fails or neglects
to submit such resignations in writing, this Paragraph 6 may be deemed by the
Corporation to constitute Employee’s written

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resignation as a member of the Board and of the Fannie Mae Foundation effective
on the same date that Employee ceases to be an officer of the Corporation.

B.  DISABILITY

	7.	 	Disability

     (a)     In the event that, while employed under this Agreement or any
successor agreement, Employee is prevented from performing his duties hereunder
by reason of serious illness or disability, the Corporation may, on sixty (60)
days’ prior written notice to Employee, terminate Employee’s employment. Upon
the termination of Employee’s employment pursuant to this Paragraph 7(a), the
Corporation shall, subject to Paragraphs 7(b) and (c) below, continue to pay
Employee’s Basic Compensation at the rate in effect at the time of such
termination until the later of (A) the expiration of the Employment Term or (B)
one year following the date of such termination. Employee shall, subject to
Paragraph 7(b) below, continue to participate in all Employee Welfare Benefit
Plans maintained by the Corporation during the remainder of the Employment Term
or until such later date as may be expressly provided under the terms of any
such plan.

     (b)     Employee may, in his sole discretion, after the date he ceases to be
employed by the Corporation pursuant to Paragraph 7(a) above, engage in regular
employment (whether as the employee of another or as a self-employed person).
Any income received from such employment, including self-employment, shall
reduce, on a dollar-for-dollar basis (but not below zero), the Corporation’s
obligation to pay Employee’s Basic Compensation under Paragraph 7(a) above.
Any employee benefits received by Employee in consideration of such employment
shall relieve the Corporation

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of its obligation to provide comparable benefits hereunder to the extent of the
benefits so received; provided, however, that Employee’s retirement benefits,
if any, pursuant to Paragraph 3(a) above shall not be reduced on account of any
such income or benefits resulting from such employment.

     (c)     If Employee becomes entitled to and receives disability benefits under
any disability payment plan, including disability insurance, the amount of
Employee’s Basic Compensation otherwise payable by the Corporation to Employee
pursuant to Paragraph 7(a) above shall be reduced, on a dollar-for-dollar basis
(but not below zero), by the amount of any such disability benefits received by
him, but only to the extent such benefits are attributable to premium payments
made by the Corporation.

C.  DEATH

	8.	 	Death

     (a)     In the event Employee dies while employed under this Agreement or any
successor agreement, the Corporation shall pay Employee’s designated
beneficiary or, if none, Employee’s estate, in one cash payment an amount equal
to 100% of Employee’s Basic Compensation at the rate in effect on the date of
his death.

     (b)     At all times while employed under this Agreement or any successor
agreement, Employee shall be covered at the Corporation’s expense under the
Corporation’s Executive Insurance Plan by a whole life insurance policy in a
face amount equal to 200% of Employee’s Basic Compensation. In order to
eliminate the income tax burden on Employee by reason of the imputation of
income as a result of such insurance coverage, the Corporation shall pay to
Employee an amount equal to the income taxes

- 20 -

 

imposed on such imputed income plus the income taxes imposed on such payment.
In the event this Agreement or any successor agreement expires because of the
failure of the Corporation to extend such agreement, Employee may, pursuant to
the terms of the insurance policy through which such benefits are provided and
the agreement between the Corporation and Employee entered into thereunder,
acquire such insurance policy by paying the Corporation an amount equal to the
sum of all premium payments made by the Corporation on such policy. In the
event Employee completes sixteen (16) years of service with the Corporation
pursuant to this Agreement or any successor agreement, such insurance policy
shall automatically be transferred to Employee pursuant to the terms of such
policy and the agreement between the Corporation and Employee entered into
thereunder. In the event of any such transfer, in order to eliminate the
income tax burden on Employee by reason of the income arising from such
transfer, the Corporation shall pay to Employee an amount equal to the income
taxes imposed on such income plus the income taxes imposed on such payment.
Nothing contained herein shall reduce any benefit payable pursuant to Paragraph
3(a) above or under the terms of any other qualified or nonqualified pension,
executive compensation or welfare plan of the Corporation.

D.  MISCELLANEOUS

	9.	 	Assignment by Employee

     Except as otherwise expressly provided in this Agreement, the rights and
benefits of Employee pursuant hereto are personal to him and no such right or
benefit shall be subject to voluntary or involuntary alienation, assignment or
transfer.

- 21 -

 

	10.	 	Funding Prohibitions

     All payments to be made under this Agreement shall be paid from the
general funds of the Corporation or from the funds set aside or reserved for
payment of the Corporation’s obligations under its employee benefit or
executive compensation plans, if any. Employee shall have no right, title or
interest in or to any investments which the Corporation may make to aid it in
meeting its obligations under this Agreement. All such assets shall be the
property solely of the Corporation and shall be subject to the claims of the
Corporation’s unsecured general creditors. To the extent Employee or any other
person acquires a right to receive payments from the Corporation under this
Agreement, such right shall be no greater than the right of any unsecured
general creditor of the Corporation and such person shall have only the
unsecured contractual agreement of the Corporation that such payments shall be
made.

	11.	 	Disclosure of Information to the Corporation

     In the event Paragraph 4 or 7 above 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 pursuant to Paragraph 4 or 7 above.

- 22 -

 

	12.	 	Nondisclosure of Confidential Information

     Employee shall not, without the prior written consent of the Corporation,
divulge, disclose or make accessible to any other person, firm, partnership,
corporation or other entity any Confidential Information pertaining to the
business of the Corporation, except (i) while employed by the Corporation, in
the business of and for the benefit of the Corporation, or (ii) when required
to do so by a court of competent jurisdiction, by any governmental agency
having supervisory authority over the business of the Corporation, or by any
administrative body or legislative body (including a committee thereof) with
purported or apparent jurisdiction to order Employee to divulge, disclose or
make accessible such information. For purposes of this Paragraph 12,
“Confidential Information” shall mean nonpublic information concerning the
Corporation’s financial data, strategic business plans, product development (or
other proprietary product data), marketing plans and other nonpublic,
proprietary and confidential information of the Corporation that is not
otherwise available to the public. Confidential Information, however, shall
not include information the disclosure of which cannot reasonably be expected
to affect adversely the business of the Corporation to a material degree.

	13.	 	Waiver

     The failure of either party hereto to insist upon strict compliance by the
other party with any term, covenant or condition hereof 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.

- 23 -

 

	14.	 	Notice

     Any notice required or desired to be given pursuant to this Agreement
shall be sufficient if in writing transmitted by hand delivery or sent by
prepaid courier or registered or certified mail, postage prepaid, to the
addresses hereinafter set forth or to such other address as any party hereto
may designate in writing and transmit in such manner. Any such notice shall be
deemed given when delivered, if transmitted by hand delivery, 24 hours after
deposit with a prepaid courier service or 72 hours after deposit in the United
States mail, if sent by registered or certified mail.

	15.	 	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.

	16.	 	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 payments.

	17.	 	Benefit

     Except as is otherwise herein expressly provided, this Agreement shall
inure to the benefit of and be binding upon the Corporation, its successors and
assigns, and upon

- 24 -

 

Employee, his spouse, heirs, executors and administrators; provided, however,
that the obligations of Employee hereunder shall not be delegated.

	18.	 	Entire Agreement

     The parties hereto agree that this Agreement contains the entire
understanding and agreement between them and cannot be amended, modified or
supplemented in any respect except by an agreement in writing signed by both
parties.

	19.	 	Interpretation

     Wherever reference is made herein to the “failure of the Corporation to
extend this Agreement or any successor agreement,” such a failure shall be
deemed to have occurred if and only if the Corporation either notifies Employee
that it does not desire to extend this Agreement or 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. If the Corporation notifies Employee it desires to extend this
Agreement or 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, any nonextension shall not be deemed to be a “failure
of the Corporation to extend this Agreement or any successor agreement.”

	20.	 	Severability

     Except as provided in Section 21, it is the intent and understanding of
each party hereto that, if any term, restriction, covenant, or promise is found
to be invalid or

- 25 -

 

otherwise unenforceable, then such term, restriction, covenant, or promise
shall not thereby be terminated 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.

	21.	 	Regulatory Approved

     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 the terms of Employee’s 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
termination of employment and shall seek diligently to obtain such approval;

     (b)     No such provisions shall become effective unless and until the
Director’s approval thereof shall have been obtained; and

     (c)     The Director’s approval of all such provisions shall be a condition
subsequent to the continued effectiveness of this Agreement such that, in the
event that the Director shall reject or otherwise refuse to approve any such
provision in a timely

- 26 -

 

manner, this Agreement shall thereafter be voidable by Employee on thirty
(30) days notice to the Corporation.

     IN WITNESS WHEREOF, the Corporation has caused its name to be ascribed to
this Agreement by its duly authorized representative, and Employee has executed
this Agreement, each as of the day and the year first above written.

	 	 	 
	Attest:	 	
FANNIE MAE

3900 Wisconsin Avenue, N.W.

Washington, D.C. 20016
	 
	/s/ Rebecca Culverson

	 	
By: /s/ Franklin D. Raines

       Chairman of the Board of

       Directors
	 
	Witness:	 	 
	 
	/s/ Thomas R. Nides

	 	
/s/ Daniel H. Mudd

DANIEL H. MUDD

- 27 -exv10w3

 

EXHIBIT 10.3

EMPLOYMENT AGREEMENT

between

FANNIE MAE

and

JAMIE S. GORELICK

INCLUDING ALL

AMENDMENTS TO DATE

 

 

TABLE OF CONTENTS

	 	 	 	 	 	 
	A.	 	EMPLOYMENT TERM 	 	2
	 	 	1.	
Term and Duties
	 	2
	 	 	2.	
Annual Salary; Certain Reimbursements
and Fringe Benefits
	 	3
	 	 	3.	
Employee’s Rights Under Certain Plans
	 	5
	 	 	4.	
Termination Without Cause, Termination or
Resignation Upon a Change of Control or
Failure to Extend
	 	15
	 	 	5.	
Termination by Employee; Breach by
Employee
	 	19
	 	 	6.	
Resignation as Board Member
	 	23
	B.	 	
DISABILITY
	 	23
	 	 	7.	
Disability
	 	23
	C.	 	
DEATH
	 	25
	 	 	8.	
Death
	 	25
	D.	 	
MISCELLANEOUS
	 	28
	 	 	9.	
Assignment by Employee
	 	28
	 	 	10.	
Funding Prohibitions
	 	28
	 	 	11.	
Disclosure of Information
to the Corporation
	 	29
	 	 	12.	
Nondisclosure of Confidential Information
	 	29
	 	 	13.	
Waiver
	 	30
	 	 	14.	
Notice
	 	31
	 	 	15.	
Applicable Law
	 	31

 

 

	 	 	 	 	 	 
	 	 	16.	
Taxes
	 	32
	 	 	17.	
Benefit
	 	32
	 	 	18.	
Entire Agreement
	 	32
	 	 	19.	
Interpretation
	 	32
	 	 	20.	
Severability
	 	33

 

 - ii -

 

EMPLOYMENT AGREEMENT

     THIS EMPLOYMENT AGREEMENT, effective as of the 1st day of May, 1997, is by
and between FANNIE MAE (the “Corporation”) and JAMIE S. GORELICK (“Employee”).

WITNESSETH THAT:

     WHEREAS, the Corporation desires to employ Employee as Vice Chair of the
Board and Employee desires to serve in such capacity;

     WHEREAS, the Corporation and Employee desire to set forth the terms and
conditions of such employment; and

     WHEREAS, the Board of Directors of the Corporation (the “Board”) duly
approved and authorized the terms of this Agreement for and on behalf of the
Corporation at a meeting held on May 7, 1997, at which meeting a quorum was
present, and the Board authorized the Chairman of the Board to finalize and
enter into this Agreement with Employee on behalf of the Corporation;

     NOW, THEREFORE, in consideration of the foregoing and of the mutual
promises and covenants herein contained, the parties hereto agree as follows:

 

 

A.      EMPLOYMENT TERM

	1.	 	Term and Duties

     (a)     The Corporation hereby agrees to employ Employee, and Employee hereby
agrees to serve, as Vice Chair-Designate and Vice Chair of the Board of the
Corporation, upon the terms and conditions herein contained, for a term
commencing on May 1, 1997 (the “Effective Date”) and, subject to the terms
hereof, terminating on April 30, 2003 (the “Termination Date”). As used in
this Agreement, “Employment Term” shall mean the period from the Effective Date
until the Termination Date, plus any extension of such period pursuant to the
written agreement of the parties.

     (b)     The Corporation hereby agrees that, as of May 7, 1997, Employee shall
become a member of the Board and shall be reappointed as a member of the Board
immediately following the annual meeting of the stockholders in 1997. During
the Employment Term (including any extension thereof), Employee shall be
nominated for election to the Board, and shall be identified as a nominee
recommended for election by the Board, at each annual meeting of the
stockholders of the Corporation, beginning with the annual meeting held in
1998.

- 2 -

 

     (c)       Employee shall perform such duties for the Corporation as may be
determined from time to time by the Chairman of the Board, provided that such
duties are reasonable and customary for a corporate vice chair.

     (d)     The Corporation and Employee acknowledge that the Employment Term may
be extended for an additional period by mutual written agreement entered into
at any time prior to the expiration of the Employment Term.

	2.	 	Annual Salary; Certain Reimbursements
and Fringe Benefits

     (a)     Commencing on the Effective Date and, subject to Paragraphs 4, 5, 7
and 8 below, during the remainder of the Employment Term, the Corporation shall
pay to Employee an annual base salary of not less than $567,000 (such amount
being prorated for 1997), payable in equal biweekly installments on the same
dates the other senior officers of the Corporation are paid. Employee’s annual
base salary payable pursuant to this Paragraph 2 (including any increases in
such salary approved by the Board pursuant to this Paragraph 2) is hereinafter
referred to as “Employee’s Basic Compensation.”

     (b)     The Board shall, from time to time, review Employee’s Basic
Compensation and may increase (but in no

- 3 -

 

event decrease) such compensation for any year after 1998 by such amounts as
the Board deems proper. The criteria that the Board may take into
consideration in providing for any such increases are the recommendation of the
Chairman of the Board, the base compensation payable to vice chairs and other
comparable officers of comparable financial institutions and corporations,
Employee’s ability and performance, any increases in the responsibilities
assumed by Employee, the success achieved by the Corporation, any increase or
change in the volume, character or variety of the business of the Corporation,
increases in the cost of living and any other criteria the Board may deem
relevant.

     (c)     The Corporation shall reimburse Employee for actual expenses incurred
by Employee while Employee is employed under this Agreement or any successor
agreement in obtaining tax and investment assistance and advice; provided,
however, that in no event shall the Corporation be obligated to reimburse
Employee under this Paragraph 2(c) for more than $25,000 for expenses incurred
in any calendar year.

     (d)     The Corporation shall provide Employee with access to a car and driver
for transportation relating to business purposes while Employee is employed
under this

- 4 -

 

Agreement or any successor agreement on the same terms as the other members of
the Office of the Chairman.

	3.	 	Employee’s Rights Under Certain Plans

     (a)     Executive Pension Plan. The Corporation hereby designates Employee as
a participant in the Executive Pension Plan of the Federal National Mortgage
Association (the “Executive Pension Plan”) with a Pension Goal at all times
equal to no less than 50% of her High-Three Total Compensation (as such terms
are defined in the Executive Pension Plan), as of the Effective Date. The
Corporation may amend the Executive Pension Plan from time to time; provided,
however, that no such amendment shall adversely modify the vesting schedule or
decrease Employee’s Pension Goal or the vested benefits to which Employee or
her surviving spouse, if any, would have been entitled under such plan as in
effect on the date hereof or, if benefits are improved, as of the date of such
improvement.

     (b)       Stock Options. The Corporation shall grant to Employee, as of May 7,
1997, a Nonqualified Stock Option (the “Option”), pursuant to the Federal
National Mortgage Association Stock Compensation Plan of 1993 (the “1993 Stock
Compensation Plan”), to purchase 42,100 shares of

- 5 -

 

common stock of the Corporation (the “Stock”) for a price equal to the Fair
Market Value (as defined in such plan) of the Stock on the date of such grant.
The Option shall expire on May 7, 2007 and shall become exercisable with
respect to 25% of the Stock covered thereby on May 7, of each of 1998, 1999,
2000 and 2001; provided, in each case, that Employee is still employed by the
Corporation on such date. Notwithstanding the foregoing or any provision of
the 1993 Stock Compensation Plan to the contrary, in the event that (i)
Employee is terminated without Cause pursuant to Paragraph 4(a) below, (ii)
Employee is terminated or resigns within six (6) months following a Change of
Control (as defined in Paragraph 4(d) below), (iii) the Employment Term expires
because of the failure of the Corporation to extend this Agreement or any
successor agreement, (iv) Employee is terminated by reason of serious illness
or disability pursuant to Paragraph 7(a) below or (v) Employee dies while
employed under this Agreement or any successor agreement, Employee (or, in the
case of serious illness, disability or death, the person or persons to whom
Employee’s rights under the Option pass by will or applicable law or, if no
such person has such rights, Employee’s executors or administrators) shall be
entitled

- 6 -

 

to exercise the Option with respect to 100% of the Stock covered thereby until
May 7, 2007.

     (c)     Annual Incentive Plan. Employee’s Maximum Potential Award (as defined
in the Federal National Mortgage Association Annual Incentive Plan (the “Annual
Incentive Plan”)) for each year during the Employment
Term shall be 112.5% of Employee’s Basic Compensation. The amount to be paid
with respect to such award for each such year shall be determined by the extent
to which any Corporate Goals (as defined in the Annual Incentive Plan) are
attained. Employee shall be entitled to participate in the Annual Incentive
Plan for 1997 on a pro rata basis. Notwithstanding any provision of the Annual
Incentive Plan to the contrary, the following provisions shall apply to
Employee:

	 	 	 (i)	In the event that (x) Employee is terminated
without Cause pursuant to Paragraph 4(a) below, (y) Employee
is terminated or resigns within six (6) months following a
Change of Control (as defined in Paragraph 4(d) below) or (z)
Employee is terminated by reason of serious illness,
disability pursuant to Paragraph 7(a) below, or death, the

- 7 -

 

	 	 	 	Corporation shall pay to Employee at the time of payment of
awards to other participants in the Plan (A) the amount of
any bonus earned by and payable to Employee pursuant to the
Annual Incentive Plan for a completed calendar year (with
the period May 1-December 31, 1997 being considered a
completed calendar year for such purposes) but not yet paid
by the Corporation for such year and (B) an award
calculated assuming 100% attainment of the target corporate
goal specified by the Board for the Annual Incentive Plan
for the year in which such termination or resignation
occurred.
	 
	 	  	 (ii)	In the event that the Employment Term expires
because of the failure of the Corporation to extend this
Agreement or any successor agreement, the Corporation shall
pay to Employee the amount of any bonus earned by and payable
to Employee pursuant to the Annual Incentive Plan for a
completed calendar year (with the period May 1-December 31,
1997 being considered a

- 8 -

 

	 	 	 	completed calendar year for such purposes) but not yet paid
by the Corporation for such year.

     (d)     Restricted Stock. The Corporation shall grant to Employee, as of May
7, 1997, 25,000 shares of Restricted Common Stock (“Restricted Stock”) pursuant
to the 1993 Stock Compensation Plan. Twenty percent (20%) of such shares of
Restricted Stock shall vest, and the Restricted Period applicable to such
shares shall end, on May 7 in each of 1998, 1999, 2000, 2001 and 2002;
provided, in each case, that Employee is still employed by the Corporation
under this Agreement or any successor agreement on such date. Notwithstanding
the foregoing or any provision of the 1993 Stock Compensation Plan to the
contrary, the following provisions shall apply to Employee:

	 	 	 (i)	In the event that (w) Employee is terminated
without Cause pursuant to Paragraph 4(a) below, (x) Employee
is terminated or resigns within six (6) months following a
Change of Control (as defined in Paragraph 4(d) below), (y)
the Employment Term expires because of the failure of the
Corporation to extend this Agreement or any successor

- 9 -

 

	 	 	 	agreement or (z) Employee is terminated by reason of
serious illness or disability pursuant to Paragraph 7(a)
below, Employee’s rights with respect to (A) shares of
Restricted Stock awarded on May 7, 1997 shall become
immediately vested and the Restricted Period applicable to
all such shares shall end in accordance with the terms of
the 1993 Stock Compensation Plan and (B) shares of
Restricted Stock awarded after May 7, 1997 shall continue
to vest and the Restricted Period applicable to such shares
shall end in accordance with the schedule included in each
such grant through the end of the Employment Term.
	 
	 	 	 (ii)	In the event that Employee dies while employed
under this Agreement or any successor agreement, Employee’s
rights with respect to all shares of Restricted Stock shall
become immediately vested and the Restricted Period
applicable to such shares shall end in accordance with the
terms of the 1993 Stock Compensation Plan.

- 10 -

 

     (e)     Performance Shares. The Corporation shall grant to Employee, as of
May 7, 1997, Performance Shares pursuant to the 1993 Stock Compensation Plan
for the 1995-1997, 1996-1998 and 1997-1999 Award Periods (as defined in the
1993 Stock Compensation Plan) in amounts equal to 8,756, 15,522 and 16,084
Performance Shares, respectively. This represents an award of (x) 39,400
Performance Shares for the 1995-1997 Award Period prorated to reflect
Employee’s employment by the Corporation for a maximum of eight (8) months of
such three-year Award Period, (y) 27,940 Performance Shares for the 1996-1998
Award Period prorated to reflect Employee’s employment by the Corporation for a
maximum of twenty (20) months of such three-year Award Period and (z) 18,045
Performance Shares for the 1997-1999 Award Period prorated to reflect
Employee’s employment for a maximum of thirty-two (32) months of such
three-year Award Period. If grants are made to other Participants for future
Award Periods, Employee shall likewise be awarded a grant for each such future
Award Period. Notwithstanding any provision of the 1993 Stock Compensation
Plan to the contrary, the following provisions shall apply to Employee:

	 	 	 (i)	In the event that (w) Employee is terminated
without Cause pursuant to Paragraph 4(a)

- 11 -

 

	 	 	 	below, (x) Employee is terminated or resigns within six (6)
months following a Change of Control (as defined in
Paragraph 4(d) below), (y) the Employment Term expires
because of the failure of the Corporation to extend this
Agreement or any successor agreement or (z) Employee is
terminated by reason of serious illness or disability
pursuant to Paragraph 7(a) below, the Corporation shall pay
to Employee, after the end of each such Award Period,
Actual Awards with respect to Performance Shares previously
awarded for each Award Period of the Performance Share Plan
in which Employee has completed at least 18 months of
service, in each case on a pro rata basis reflecting
Employee’s completed months of service in the Award Period,
based on the actual achievement of Program Targets for the
Award Period and using as the Valuation Date (as defined in
the 1993 Stock Compensation Plan) (A) in the case of a
termination upon a Change in Control, the date of such
Change

- 12 -

 

	 	 	 	in Control, and (B) in the case of a termination without
Cause, the failure of the Corporation to extend the
Employment Term or a termination because of serious illness
or disability, the last day of the Award Period.
	 
	 	 	 (ii)	In the event that Employee dies while employed
under this Agreement or any successor agreement, the
Corporation shall pay to Employee’s designated beneficiary
or, if none, Employee’s estate as soon as is practicable
after the date of Employee’s death, Actual Awards with
respect to Performance Shares previously awarded for (x) the
1996-1998 Award Period, if Employee’s death occurred after
April 30, 1998, and (y) each other Award Period of the
Performance Share Plan in which Employee has completed at
least 18 months of service, in each case on a pro rata basis
reflecting Employee’s completed months of service in the
Award Period, based on the Board’s determination of the
likelihood of the

- 13 -

 

	 	 	 	Corporation’s achievement of Program Targets for the Award
Period and using the date of death as the Valuation Date
(as defined in the 1993 Stock Compensation Plan).

     (f)     General Rights Under Benefit Plans. Nothing contained herein is
intended to or shall be deemed to affect adversely any of Employee’s rights as
a participant under any long- or short-term bonus, stock option, restricted
stock or other executive compensation plans, or under any program of
perquisites or disability, retirement, stock purchase, retirement savings,
health, medical, life insurance, or similar plans of the Corporation now or
hereafter in effect. 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, 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

- 14 -

 

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. 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 the termination of Employee’s employment by the
Corporation. If for any reason any benefits payable pursuant to this Agreement
cannot be paid under the Corporation’s employee benefit or executive
compensation plans, such payments shall be made out of the general assets of
the Corporation.

	4.	 	Termination Without Cause, Termination or
Resignation Upon a Change of Control or
Failure to Extend

     (a)     Notwithstanding any other provision hereunder, the Corporation shall
have the right to terminate Employee’s employment hereunder without Cause (as
defined in Paragraph 5(b) below) at any time for any reason in its sole
discretion on not less than ninety (90) days’ prior

- 15 -

 

written notice to Employee. In the event that (i) the Corporation terminates
Employee’s employment pursuant to the immediately preceding sentence, (ii)
Employee is terminated or resigns within six (6) months following a Change of
Control (as defined in Paragraph 4(d) below) or (iii) the Employment Term
expires because of the failure of the Corporation to extend this Agreement or
any successor agreement, the Corporation shall, subject to Paragraph 4(b)
below, continue to pay Employee’s Basic Compensation to Employee at the rate in
effect at the time of such termination, resignation or expiration until the
later of (A) the expiration of the Employment Term or (B) one year following
the date of such termination or resignation or notification to Employee of such
failure to extend. Employee shall, subject to Paragraph 4(b) below, continue
to participate in all Employee Welfare Benefit Plans (as such term is defined
in Section 3(1) of the Employee Retirement Income Security Act of 1974, as
amended, and the regulations promulgated thereunder) maintained by the
Corporation during the remainder of the Employment Term or until such later
date as may be expressly provided under the terms of any such plan.

- 16 -

 

     (b)     Following a termination or resignation pursuant to Paragraph 4(a)
above or the expiration of the Employment Term because of the failure of the
Corporation to extend this Agreement or any successor agreement, Employee shall
have the duty, commencing on the date six (6) months after the date of such
termination, resignation or expiration, to seek other employment or to become
self-employed; provided, however, that Employee shall not be required to accept
other employment or to become self-employed in any position not at least
substantially equivalent (in terms of importance, dignity and responsibilities)
to her position as Vice Chair pursuant to this Agreement. Any income received
from such employment (including self-employment but excluding service on boards
of directors) after such six-month period shall reduce, on a dollar-for-dollar
basis (but not below zero), the Corporation’s obligation to pay Employee’s
Basic Compensation. Any employee benefits received by Employee in
consideration of such employment after such six (6) month period shall relieve
the Corporation of its obligation to provide comparable benefits hereunder to
the extent of the benefits so received; provided, however, that Employee’s
retirement benefit, if any, pursuant to Paragraph 3(a) above shall not

- 17 -

 

be reduced on account of any such income or benefits received from such
employment.

     (c)     If at any time during the Employment Term, there is a material
reduction of Employee’s authority as Vice Chair or any material change in
Employee’s functions, duties or responsibilities which would in any material
way cause Employee’s position to become less important, with the understanding
that a change in the functions reporting to her is not per se material, or if
the Corporation shall require Employee to relocate outside Washington, D.C.,
Employee shall have the right, upon not less than ninety (90) days’ written
notice to the Corporation, which notice must be given within four calendar
months after the event giving rise to said right, to treat such event as a
termination by the Corporation of her employment without Cause pursuant to
Paragraph 4(a) above for all purposes under this Agreement, and all of the
provisions of this Agreement applicable to such a termination without Cause
shall be operative with respect to such termination.

     (d)     “Change of Control” shall have occurred if there is a change in the
composition of a majority of the Board of Directors elected by the stockholders
within twelve (12) months after any “person” (as defined in Sections 3(a)(9)

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and 13(d)(3) of the Securities Exchange Act of 1934 (the “Exchange Act”), as
such sections are in effect on the Effective Date) is or becomes the
“beneficial owner” (as defined in Rule 13d-3 under the Exchange Act, as such
rule is in effect on the Effective Date) of securities representing 25% or more
of the combined voting power of the then outstanding securities of the
Corporation.

	5.	 	Termination by Employee; Breach by Employee

     (a)     Notwithstanding any other provision hereunder, Employee shall have the
right to terminate her employment by the Corporation at any time for any reason
in her sole discretion on not less than ninety (90) days’ prior written notice
to the Corporation. Upon receipt of any such notice from Employee, the
Corporation shall have the option, exercisable by giving Employee written
notice within thirty (30) days of such receipt, to designate any date after the
date of such notice to Employee and prior to the expiration of the aforesaid
notice period as the date on which Employee shall cease to be an officer and
employee of the Corporation, and the effective date of termination hereunder
shall be any such earlier date so designated by the Corporation. In no event
shall the termination of Employee’s employment by the Corporation without Cause

- 19 -

 

pursuant to Paragraph 4(a) above, Employee’s termination or resignation within
six (6) months following a Change of Control pursuant to Paragraph 4(a) above
or the expiration of the Employment Term because of the failure of the
Corporation to extend this Agreement or any successor agreement be deemed to be
a termination by Employee pursuant to this Paragraph 5(a).

     (b)     Notwithstanding any other provision hereunder, the Corporation may
terminate Employee’s employment hereunder for “Cause,” which shall mean that
Employee has materially breached this Agreement by engaging in dishonest or
fraudulent actions or willful misconduct or has materially harmed the
Corporation by performing her duties in a negligent manner. Notwithstanding
the foregoing, Employee shall not be deemed to have been terminated for Cause
unless the Corporation shall have provided (i) reasonable notice to Employee
setting forth the reasons for the Corporation’s intention to terminate for
Cause, (ii) an opportunity for Employee, together with her counsel, to be heard
before the Board and (iii) Employee with a notice of termination stating that
Employee was guilty of the conduct set forth in this Paragraph 5(b) and
specifying the particulars thereof in detail.

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     (c)     In the event of a termination pursuant to Paragraph 5(a) or 5(b)
above, Employee shall be entitled to all of Employee’s Basic Compensation which
has accrued to the date of termination and any benefits or awards (whether of
options, stock or other property) which have vested prior to such date. The
Corporation shall have no further obligations to Employee.

     (d)     In the event of a termination by Employee pursuant to Paragraph 5(a)
above, during the period from the effective date of termination to the earlier
of (i) the first anniversary thereof and (ii) the expiration of the Employment
Term, Employee shall not, directly or indirectly (x) Compete with the
Corporation in the United States, (y) 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 (z) assist any other person to engage in any activity in any
manner prohibited hereby to Employee. As used herein, “Compete” shall mean to
engage directly or indirectly in any business, or to become connected directly
or indirectly with any business or firm, if a substantial part of such business
or the business of any such firm involves

- 21 -

 

transactions in what is commonly known as the secondary market in residential
mortgages; provided, however, that Employee shall not be deemed, directly or
indirectly, to Compete with the Corporation solely by virtue of Employee’s
employment with any corporation or firm involved in transactions in what is
commonly known as the secondary market in residential mortgages so long as
Employee herself does not participate in such corporation’s or firm’s
involvement in such transactions.

     (e)     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 her
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 Paragraph 5(d) above. If for any reason a final decision of any
court determines that the restrictions under Paragraph 5(d) above are not
reasonable

- 22 -

 

or that consideration therefor 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 Paragraph 5(d) above as will
render such restrictions valid and enforceable.

	6.	 	Resignation as Board Member

     In the event Employee ceases to be employed by the Corporation and
Employee is then a member of the Board, Employee hereby agrees that, unless
otherwise requested by the Board, she shall submit her resignation as a member
of the Board and of the Fannie Mae Foundation in writing on or before the date
she ceases to be an officer of the Corporation. If Employee fails or neglects
to submit such resignations in writing, this Paragraph 6 may be deemed by the
Corporation to constitute Employee’s written resignation as a member of the
Board and of the Fannie Mae Foundation effective on the same date that Employee
ceases to be an officer of the Corporation.

B.    DISABILITY

	7.	 	Disability

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     (a)     In the event that, while employed under this Agreement or any
successor agreement, Employee is prevented from performing her duties hereunder
by reason of serious illness or disability, the Corporation may, on sixty (60)
days’ prior written notice to Employee, terminate Employee’s employment. Upon
the termination of Employee’s employment pursuant to this Paragraph 7(a), the
Corporation shall, subject to Paragraphs 7(b) and (c) below, continue to pay
Employee’s Basic Compensation at the rate in effect at the time of such
termination until the later of (A) the expiration of the Employment Term or (B)
one year following the date of such termination. Employee shall, subject to
Paragraph 7(b) below, continue to participate in all Employee Welfare Benefit
Plans maintained by the Corporation during the remainder of the Employment Term
or until such later date as may be expressly provided under the terms of any
such plan.

     (b)     Employee may, in her sole discretion, after the date she ceases to be
employed by the Corporation pursuant to Paragraph 7(a) above, engage in regular
employment (whether as the employee of another or as a self-employed person).
Any income received from such employment, including self-employment, shall
reduce, on a dollar-for-

- 24 -

 

dollar basis (but not below zero), the Corporation’s obligation to pay
Employee’s Basic Compensation under Paragraph 7(a) above. Any employee
benefits received by Employee in consideration of such employment shall relieve
the Corporation of its obligation to provide comparable benefits hereunder to
the extent of the benefits so received; provided, however, that Employee’s
retirement benefits, if any, pursuant to Paragraph 3(a) above shall not be
reduced on account of any such income or benefits resulting from such
employment.

     (c)     If Employee becomes entitled to and receives disability benefits under
any disability payment plan, including disability insurance, the amount of
Employee’s Basic Compensation otherwise payable by the Corporation to Employee
pursuant to Paragraph 7(a) above shall be reduced, on a dollar-for-dollar basis
(but not below zero), by the amount of any such disability benefits received by
her, but only to the extent such benefits are attributable to premium payments
made by the Corporation.

C.      DEATH

	8.	 	Death

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     (a)     In the event Employee dies while employed under this Agreement or any
successor agreement, the Corporation shall pay Employee’s designated
beneficiary or, if none, Employee’s estate, in one cash payment an amount equal
to 100% of Employee’s Basic Compensation at the rate in effect on the date of
her death.

     (b)     At all times while employed under this Agreement or any successor
agreement, Employee shall be covered at the Corporation’s expense under the
Corporation’s Executive Insurance Plan by a whole life insurance policy in a
face amount equal to 200% of Employee’s Basic Compensation. In order to
eliminate the income tax burden on Employee by reason of the imputation of
income as a result of such insurance coverage, the Corporation shall pay to
Employee an amount equal to the income taxes imposed on such imputed income
plus the income taxes imposed on such payment. In the event this Agreement or
any successor agreement expires because of the failure of the Corporation to
extend such agreement, Employee may, pursuant to the terms of the insurance
policy through which such benefits are provided and the agreement between the
Corporation and Employee entered into thereunder, acquire such insurance policy
by paying the Corporation an amount equal to the sum of all

- 26 -

 

premium payments made by the Corporation on such policy. In the event Employee
completes sixteen (16) years of service with the Corporation pursuant to this
Agreement or any successor agreement, such insurance policy shall automatically
be transferred to Employee pursuant to the terms of such policy and the
agreement between the Corporation and Employee entered into thereunder. In the
event of any such transfer, in order to eliminate the income tax burden on
Employee by reason of the income arising from such transfer, the Corporation
shall pay to Employee an amount equal to the income taxes imposed on such
income plus the income taxes imposed on such payment. Nothing contained herein
shall reduce any benefit payable pursuant to Paragraph 3(a) above or under the
terms of any other qualified or nonqualified pension, executive compensation or
welfare plan of the Corporation.

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D.      MISCELLANEOUS

	9.	 	Assignment by Employee

     Except as otherwise expressly provided in this Agreement, the rights and
benefits of Employee pursuant hereto are personal to her and no such right or
benefit shall be subject to voluntary or involuntary alienation, assignment or
transfer.

	10.	 	Funding Prohibitions

     All payments to be made under this Agreement shall be paid from the
general funds of the Corporation or from the funds set aside or reserved for
payment of the Corporation’s obligations under its employee benefit or
executive compensation plans, if any. Employee shall have no right, title or
interest in or to any investments which the Corporation may make to aid it in
meeting its obligations under this Agreement. All such assets shall be the
property solely of the Corporation and shall be subject to the claims of the
Corporation’s unsecured general creditors. To the extent Employee or any other
person acquires a right to receive payments from the Corporation under this
Agreement, such right shall be no greater than the right of any unsecured
general creditor of the

- 28 -

 

Corporation and such person shall have only the unsecured contractual agreement
of the Corporation that such payments shall be made.

	11.	 	Disclosure of Information to the Corporation

     In the event Paragraph 4 or 7 above becomes applicable, Employee or, in
the event of Employee’s incapacity or death, her 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 pursuant to Paragraph 4 or 7 above.

	12.	 	Nondisclosure of Confidential Information

     Employee shall not, without the prior written consent of the Corporation,
divulge, disclose or make accessible to any other person, firm, partnership,
corporation or other entity any Confidential Information pertaining to the
business of the Corporation, except (i) while employed by the Corporation, in
the business of and for the benefit of the Corporation, or (ii) when required
to do so by a court of competent jurisdiction, by any governmental agency

- 29 -

 

having supervisory authority over the business of the Corporation, or by any
administrative body or legislative body (including a committee thereof) with
purported or apparent jurisdiction to order Employee to divulge, disclose or
make accessible such information. For purposes of this Paragraph 12,
“Confidential Information” shall mean nonpublic information concerning the
Corporation’s financial data, strategic business plans, product development (or
other proprietary product data), marketing plans and other nonpublic,
proprietary and confidential information of the Corporation that is not
otherwise available to the public. Confidential Information, however, shall
not include information the disclosure of which cannot reasonably be expected
to affect adversely the business of the Corporation to a material degree.

	13.	 	Waiver

     The failure of either party hereto to insist upon strict compliance by the
other party with any term, covenant or condition hereof 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

- 30 -

 

or more times be deemed a waiver or relinquishment of such right or power at
any other time or times.

	14.	 	Notice

     Any notice required or desired to be given pursuant to this Agreement
shall be sufficient if in writing transmitted by hand delivery or sent by
prepaid courier or registered or certified mail, postage prepaid, to the
addresses hereinafter set forth or to such other address as any party hereto
may designate in writing and transmit in such manner. Any such notice shall be
deemed given when delivered, if transmitted by hand delivery, 24 hours after
deposit with a prepaid courier service or 72 hours after deposit in the United
States mail, if sent by registered or certified mail.

	15.	 	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.

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	16.	 	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 payments.

	17.	 	Benefit

     Except as is otherwise herein expressly provided, this Agreement shall
inure to the benefit of and be binding upon the Corporation, its successors and
assigns, and upon Employee, her spouse, heirs, executors and administrators;
provided, however, that the obligations of Employee hereunder shall not be
delegated.

	18.	 	Entire Agreement

     The parties hereto agree that this Agreement contains the entire
understanding and agreement between them and cannot be amended, modified or
supplemented in any respect except by an agreement in writing signed by both
parties.

	19.	 	Interpretation

     Wherever reference is made herein to the “failure of the Corporation to
extend this Agreement or any successor

- 32 -

 

agreement,” such a failure shall be deemed to have occurred if and only if the
Corporation either notifies Employee that it does not desire to extend this
Agreement or any successor agreement or that it desires to do so only on terms
in the aggregate materially less favorable to Employee than those contained
herein. If the Corporation notifies Employee it desires to extend this
Agreement or any successor agreement on terms that are in the aggregate
substantially similar to or more favorable than those contained herein, any
nonextension shall not be deemed to be a “failure of the Corporation to extend
this Agreement or any successor agreement.”

	20.	 	Severability

     It is the intent and understanding of each party hereto that, if any term,
restriction, covenant, or promise is found to be invalid or otherwise
unenforceable, then such term, restriction, covenant, or promise shall not
thereby be terminated 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

- 33 -

 

to apply only with respect to the operation of this Agreement in the particular
jurisdiction in which such finding is made.

     IN WITNESS WHEREOF, the Corporation has caused its name to be ascribed to
this Agreement by its duly authorized representative and Employee has executed
this Agreement, each as of the day and the year first above written.

	 	 	 	 	 
	Attest:	 	FANNIE MAE

	 	 	3900 Wisconsin Avenue, N.W.

	 	 	Washington, D.C. 20016

	 	 	 	 	 
	/s/ Ann Marie Wheelock	 	By:	/s/ James A. Johnson	 
	
	 	 	
	 
	 	 	 	Chairman of the Board of
Directors	 

	 	 	 
	Witness:	 	 
	 	 	 
	/s/ Carol Banks	 	
/s/ Jamie S. Gorelick
	
	 	

	 	 	
JAMIE S. GORELICK

- 34 -

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