Document:

exv4w2

 

Exhibit 4.2

CERTIFICATE OF DESIGNATION OF TERMS OF

4.75% NON-CUMULATIVE PREFERRED STOCK, SERIES M

	1.
	 	Designation, Par Value and Number of Shares.

     The designation of the series of preferred stock of the Federal National
Mortgage Association (“Fannie Mae”) created by this resolution shall be “4.75%
Non-Cumulative Preferred Stock, Series M” (the “Series M Preferred Stock”), and
the number of shares initially constituting the Series M Preferred Stock is
8,000,000*. Shares of Series M Preferred Stock will have no par value and a
stated value and liquidation preference of $50 per share. The Board of
Directors of Fannie Mae, or a duly authorized committee thereof, in its sole
discretion, may reduce the number of shares of Series M Preferred Stock,
provided such reduction is not below the number of shares of Series M Preferred
Stock then outstanding.

	2.
	 	Dividends.

     (a) Holders of record of Series M Preferred Stock (each individually a
“Holder”, or collectively the “Holders”) will be entitled to receive, when, as
and if declared by the Board of Directors of Fannie Mae, or a duly authorized
committee thereof, in its sole discretion out of funds legally available
therefor, non-cumulative quarterly cash dividends which will accrue from and
including June 10, 2003 and will be payable on March 31, June 30, September 30
and December 31 of each year (each, a “Dividend Payment Date”), commencing
September 30, 2003 at the annual rate of $2.375 per share or 4.75% of the
stated value and liquidation preference of $50 per share (without taking into
account any adjustments referred to in clause (b) below). If a Dividend Payment
Date is not a Business Day, the related dividend (if declared) will be paid on
the next succeeding Business Day with the same force and effect as though paid
on the Dividend Payment Date, without any increase to account for the period
from such Dividend Payment Date through the date of actual payment. A “Business
Day” shall mean any day other than a Saturday, Sunday, or a day on which
banking institutions in New York, New York are authorized by law to close.
Dividends will be paid to Holders on the record date fixed by the Board of
Directors or a duly authorized committee thereof, which may not be earlier than
45 days or later than 10 days prior to the applicable Dividend Payment Date. If
declared, the initial dividend, which will be for the period from and including
June 10, 2003 to but excluding September 30, 2003, will be $0.7257 per share
and will be payable on September 30, 2003 and, thereafter, if declared,
quarterly dividends will be $0.5938 per share. After the initial dividend, the
dividend period relating to a Dividend Payment Date will be the period from and
including the preceding Dividend Payment Date to but excluding the related
Dividend Payment Date. If Fannie Mae redeems the Series M Preferred Stock, the
dividend that would otherwise be payable for the then-current quarterly
dividend period accrued to but excluding the date of redemption will be
included in the redemption price of the shares redeemed and will not be
separately payable. Dividends payable on the Series M Preferred Stock for any
period greater or less than a full dividend period will be computed on the
basis of a 360-day year consisting of twelve 30-day months. The amount of
dividends per share payable at redemption will be rounded to the fourth digit
after the decimal point. (If the fifth digit to the right of the decimal point
is five or greater, the fourth digit will be rounded up by one.)

     (b) No dividend (other than dividends or distributions paid in shares of, or
options, warrants or rights to subscribe for or purchase shares of, the common
stock of Fannie Mae or any other stock of Fannie Mae ranking, as to the payment
of dividends and the distribution of assets upon dissolution, liquidation or
winding up of Fannie Mae, junior to the Series M Preferred Stock) may be
declared or paid or set apart for payment on Fannie Mae’s common stock (or on
any other stock of Fannie Mae ranking, as to the payment of dividends, junior
to the Series M Preferred Stock) unless dividends have been declared and paid
or set apart (or ordered to be set apart) on the Series M Preferred Stock for
the then-current quarterly dividend period; provided, however, that the
foregoing dividend preference shall not be cumulative and shall not in

	*
	 	Plus up to 1,200,000 additional shares pursuant to the Underwriters’
overallotment option.

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any way create any claim or right in favor of the Holders of Series M Preferred
Stock in the event that dividends have not been declared or paid or set apart
(or ordered to be set apart) on the Series M Preferred Stock in respect of any
prior dividend period. If the full dividend on the Series M Preferred Stock is
not paid for any quarterly dividend period, the Holders of Series M Preferred
Stock will have no claim in respect of the unpaid amount so long as no dividend
(other than those referred to above) is paid on Fannie Mae’s common stock (or
any other stock of Fannie Mae ranking, as to the payment of dividends, junior
to the Series M Preferred Stock) for such dividend period.

     (c) The Board of Directors of Fannie Mae, or a duly authorized committee
thereof, may, in its discretion, choose to pay dividends on the Series M
Preferred Stock without the payment of any dividends on Fannie Mae’s common
stock (or any other stock of Fannie Mae ranking, as to the payment of
dividends, junior to the Series M Preferred Stock).

     (d) No full dividends shall be declared or paid or set apart for payment
on any stock of Fannie Mae ranking, as to the payment of dividends, on a parity
with the Series M Preferred Stock for any period unless full dividends have
been declared and paid or set apart for payment on the Series M Preferred Stock
for the then-current quarterly dividend period. When dividends are not paid in
full upon the Series M Preferred Stock and all other classes or series of stock
of Fannie Mae, if any, ranking, as to the payment of dividends, on a parity
with the Series M Preferred Stock, all dividends declared upon shares of Series
M Preferred Stock and all such other stock of Fannie Mae will be declared pro
rata so that the amount of dividends declared per share of Series M Preferred
Stock and all such other stock will in all cases bear to each other the same
ratio that accrued dividends per share of Series M Preferred Stock (but
without, in the case of any noncumulative preferred stock, accumulation of
unpaid dividends for prior dividend periods) and such other stock bear to each
other.

     (e) No dividends may be declared or paid or set apart for payment on any
shares of Series M Preferred Stock if at the same time any arrears exist or
default exists in the payment of dividends on any outstanding class or series
of stock of Fannie Mae ranking, as to the payment of dividends, prior to the
Series M Preferred Stock.

     (f) Holders of Series M Preferred Stock will not be entitled to any
dividends, whether payable in cash or property, other than as herein provided
and will not be entitled to interest, or any sum in lieu of interest, in
respect of any dividend payment.

	3.
	 	Optional Redemption.

     (a) The Series M Preferred Stock shall not be redeemable prior to June
10, 2008. On or after that date, subject to the notice provisions set forth in
Section 3(b) below and subject to any further limitations which may be imposed
by law, Fannie Mae may redeem the Series M Preferred Stock, in whole or in
part, at any time or from time to time, out of funds legally available
therefor, at the redemption price of $50 per share plus an amount equal to the
amount of the dividend (whether or not declared) for the then-current quarterly
dividend period accrued to but excluding the date of such redemption, but
without accumulation of unpaid dividends on the Series M Preferred Stock for
prior dividend periods. If less than all of the outstanding shares of Series M
Preferred Stock are to be redeemed, Fannie Mae will select the shares to be
redeemed from the outstanding shares not previously called for redemption by
lot or pro rata (as nearly as possible) or by any other method that the Board
of Directors of Fannie Mae, or a duly authorized committee thereof, in its sole
discretion deems equitable.

     (b) In the event Fannie Mae shall redeem any or all of the Series M
Preferred Stock as aforesaid, Fannie Mae will give notice of any such
redemption to Holders of Series M Preferred Stock not less than 30 days prior
to the date fixed by the Board of Directors of Fannie Mae, or duly authorized
committee thereof, for such redemption. Each such notice will state: (1) the
number of shares of Series M Preferred Stock to be redeemed and, if fewer than
all of the shares of Series M Preferred Stock held by a Holder are to be
redeemed, the number of shares to be redeemed from such Holder; (2) the
redemption price; (3) the redemption date; and (4) the place at which a
Holder’s certificate(s) representing shares of Series M Preferred Stock must be
presented upon such redemption. Failure to give notice, or any defect in the
notice,

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to any Holder of Series M Preferred Stock shall not affect the validity of
the proceedings for the redemption of shares of any other Holder of Series M
Preferred Stock being redeemed.

     (c) Notice having been given as herein provided, from and after the
redemption date, dividends on the Series M Preferred Stock called for
redemption shall cease to accrue and such Series M Preferred Stock called for
redemption will no longer be deemed outstanding, and all rights of the Holders
thereof as registered holders of such shares of Series M Preferred Stock will
cease. Upon surrender in accordance with said notice of the certificate(s)
representing shares of Series M Preferred Stock so redeemed (properly endorsed
or assigned for transfer, if the Board of Directors of Fannie Mae, or a duly
authorized committee thereof, shall so require and the notice shall so state),
such shares shall be redeemed by Fannie Mae at the redemption price aforesaid.
Any shares of Series M Preferred Stock that shall at any time have been
redeemed shall, after such redemption, be cancelled and not reissued. In case
fewer than all the shares represented by any such certificate are redeemed, a
new certificate shall be issued representing the unredeemed shares without cost
to the Holder thereof.

     (d) The Series M Preferred Stock will not be subject to any mandatory
redemption, sinking fund or other similar provisions. In addition, Holders of
Series M Preferred Stock will have no right to require redemption of any shares
of Series M Preferred Stock.

	4.
	 	Liquidation Rights.

     (a) Upon any voluntary or involuntary dissolution, liquidation or winding
up of Fannie Mae, after payment or provision for the liabilities of Fannie Mae
and the expenses of such dissolution, liquidation or winding up, the Holders of
outstanding shares of the Series M Preferred Stock will be entitled to receive
out of the assets of Fannie Mae or proceeds thereof available for distribution
to stockholders, before any payment or distribution of assets is made to
holders of Fannie Mae’s common stock (or any other stock of Fannie Mae ranking,
as to the distribution of assets upon dissolution, liquidation or winding up of
Fannie Mae, junior to the Series M Preferred Stock), the amount of $50 per
share plus an amount equal to the dividend (whether or not declared) for the
then-current quarterly dividend period accrued to but excluding the date of
such liquidation payment, but without accumulation of unpaid dividends on the
Series M Preferred Stock for prior dividend periods.

     (b) If the assets of Fannie Mae available for distribution in such event
are insufficient to pay in full the aggregate amount payable to Holders of
Series M Preferred Stock and holders of all other classes or series of stock of
Fannie Mae, if any, ranking, as to the distribution of assets upon dissolution,
liquidation or winding up of Fannie Mae, on a parity with the Series M
Preferred Stock, the assets will be distributed to the Holders of Series M
Preferred Stock and holders of all such other stock pro rata, based on the full
respective preferential amounts to which they are entitled (but without, in the
case of any noncumulative preferred stock, accumulation of unpaid dividends for
prior dividend periods).

     (c) Notwithstanding the foregoing, Holders of Series M Preferred Stock
will not be entitled to be paid any amount in respect of a dissolution,
liquidation or winding up of Fannie Mae until holders of any classes or series
of stock of Fannie Mae ranking, as to the distribution of assets upon
dissolution, liquidation or winding up of Fannie Mae, prior to the Series M
Preferred Stock have been paid all amounts to which such classes or series are
entitled.

     (d) Neither the sale, lease or exchange (for cash, shares of stock,
securities or other consideration) of all or substantially all of the property
and assets of Fannie Mae, nor the merger, consolidation or combination of
Fannie Mae into or with any other corporation or the merger, consolidation or
combination of any other corporation or entity into or with Fannie Mae, shall
be deemed to be a dissolution, liquidation or winding up, voluntary or
involuntary, for the purposes of this Section 4.

     (e) After payment of the full amount of the distribution of assets upon
dissolution, liquidation or winding up of Fannie Mae to which they are entitled
pursuant to paragraphs (a), (b) and (c) of this Section 4, the Holders of
Series M Preferred Stock will not be entitled to any further participation in
any distribution of assets by Fannie Mae.

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	5.
	 	No Conversion or Exchange Rights.

     The Holders of shares of Series M Preferred Stock will not have any rights
to convert such shares into or exchange such shares for shares of any other
class or classes, or of any other series of any class or classes, of stock or
obligations of Fannie Mae.

	6.
	 	No Pre-Emptive Rights.

     No Holder of Series M Preferred Stock shall be entitled as a matter of
right to subscribe for or purchase, or have any pre-emptive right with respect
to, any part of any new or additional issue of stock of any class whatsoever,
or of securities convertible into any stock of any class whatsoever, or any
other shares, rights, options or other securities of any class whatsoever,
whether now or hereafter authorized and whether issued for cash or other
consideration or by way of dividend.

	7.
	 	Voting Rights; Amendments.

     (a) Except as provided below, the Holders of Series M Preferred Stock
will not be entitled to any voting rights, either general or special.

     (b) Without the consent of the Holders of Series M Preferred Stock,
Fannie Mae will have the right to amend, alter, supplement or repeal any terms
of this Certificate or the Series M Preferred Stock (1) to cure any ambiguity,
or to cure, correct or supplement any provision contained in this Certificate
of Designation that may be defective or inconsistent with any other provision
herein or (2) to make any other provision with respect to matters or questions
arising with respect to the Series M Preferred Stock that is not inconsistent
with the provisions of this Certificate of Designation so long as such action
does not materially and adversely affect the interests of the Holders of Series
M Preferred Stock; provided, however, that any increase in the amount of
authorized or issued Series M Preferred Stock or the creation and issuance, or
an increase in the authorized or issued amount, of any other class or series of
stock of Fannie Mae, whether ranking prior to, on a parity with or junior to
the Series M Preferred Stock, as to the payment of dividends or the
distribution of assets upon dissolution, liquidation or winding up of Fannie
Mae, or otherwise, will not be deemed to materially and adversely affect the
interests of the Holders of Series M Preferred Stock.

     (c) Except as set forth in paragraph (b) of this Section 7, the terms of
this Certificate or the Series M Preferred Stock may be amended, altered,
supplemented, or repealed only with the consent of the Holders of at least
two-thirds of the shares of Series M Preferred Stock then outstanding, given in
person or by proxy, either in writing or at a meeting of stockholders at which
the Holders of Series M Preferred Stock shall vote separately as a class. On
matters requiring their consent, Holders of Series M Preferred Stock will be
entitled to one vote per share.

     (d) The rules and procedures for calling and conducting any meeting of
Holders (including, without limitation, the fixing of a record date in
connection therewith), the solicitation and use of proxies at such a meeting,
the obtaining of written consents, and any other aspect or matter with regard
to such a meeting or such consents shall be governed by any rules that the
Board of Directors of Fannie Mae, or a duly authorized committee thereof, in
its discretion, may adopt from time to time, which rules and procedures shall
conform to the requirements of any national securities exchange on which the
Series M Preferred Stock are listed at the time.

	8.
	 	Additional Classes or Series of Stock.

     The Board of Directors of Fannie Mae, or a duly authorized committee
thereof, shall have the right at any time in the future to authorize, create
and issue, by resolution or resolutions, one or more additional classes or
series of stock of Fannie Mae, and to determine and fix the distinguishing
characteristics and the relative rights, preferences, privileges and other
terms of the shares thereof. Any such class or series of

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stock may rank prior to, on a parity with or junior to the Series M
Preferred Stock as to the payment of dividends or the distribution of assets
upon dissolution, liquidation or winding up of Fannie Mae, or otherwise.

	9.
	 	Priority.

     For purposes of this Certificate of Designation, any stock of any class or
series of Fannie Mae shall be deemed to rank:

     (a) Prior to the shares of Series M Preferred Stock, either as to the
payment of dividends or the distribution of assets upon dissolution,
liquidation or winding up of Fannie Mae, if the holders of such class or series
shall be entitled to the receipt of dividends or of amounts distributable upon
dissolution, liquidation or winding up of Fannie Mae, as the case may be, in
preference or priority to the Holders of shares of Series M Preferred Stock.

     (b) On a parity with shares of Series M Preferred Stock, either as to the
payment of dividends or the distribution of assets upon dissolution,
liquidation or winding up of Fannie Mae, whether or not the dividend rates or
amounts, dividend payment dates or redemption or liquidation prices per share,
if any, be different from those of the Series M Preferred Stock, if the holders
of such class or series shall be entitled to the receipt of dividends or of
amounts distributable upon dissolution, liquidation or winding up of Fannie
Mae, as the case may be, in proportion to their respective dividend rates or
amounts or liquidation prices, without preference or priority, one over the
other, as between the holders of such class or series and the Holders of shares
of Series M Preferred Stock.

     (c) Junior to shares of Series M Preferred Stock, either as to the
payment of dividends or the distribution of assets upon dissolution,
liquidation or winding up of Fannie Mae, if such class shall be common stock of
Fannie Mae or if the Holders of shares of Series M Preferred Stock shall be
entitled to the receipt of dividends or of amounts distributable upon
dissolution, liquidation or winding up of Fannie Mae, as the case may be, in
preference or priority over the holders of such class or series.

     (d) The shares of Preferred Stock of Fannie Mae designated “5.25%
Non-Cumulative Preferred Stock, Series D” (the “Series D Preferred Stock”),
“5.10% Non-Cumulative Preferred Stock, Series E” (the “Series E Preferred
Stock”), “Variable Rate Non-Cumulative Preferred Stock, Series F” (the “Series
F Preferred Stock”), “Variable Rate Non-Cumulative Preferred Stock, Series G”
(the “Series G Preferred Stock”), “5.81% Non-Cumulative Preferred Stock, Series
H” (the “Series H Preferred Stock”), “5.375% Non-Cumulative Preferred Stock,
Series I” (the “Series I Preferred Stock”), “Variable Rate Non- Cumulative
Preferred Stock, Series J (the “Series J Preferred Stock”), “Variable Rate
Non-Cumulative Preferred Stock, Series K” (the “Series K Preferred Stock”) and
“5.125% Non-Cumulative Preferred Stock, Series L” (the “Series L Preferred
Stock”) shall be deemed to rank on a parity with shares of Series M Preferred
Stock as to the payment of dividends and the distribution of assets upon
dissolution, liquidation or winding up of Fannie Mae. Accordingly, the holders
of record of Series D Preferred Stock, the holders of record of Series E
Preferred Stock, the holders of record of Series F Preferred Stock, the holders
of record of Series G Preferred Stock, the holders of record of Series H
Preferred Stock, the holders of record of Series I Preferred Stock, the holders
of record of Series J Preferred Stock, the holders of record of Series K
Preferred Stock, the holders of record of Series L Preferred Stock and the
holders of record of Series M Preferred Stock shall be entitled to the receipt
of dividends and of amounts distributable upon dissolution, liquidation or
winding up of Fannie Mae, as the case may be, in proportion to their respective
dividend rates or amounts or liquidation prices, without preference or
priority, one over the other.

	10.
	 	Transfer Agent, Dividend Disbursing Agent and Registrar.

     Fannie Mae hereby appoints EquiServe Trust Company, N.A., as its initial
transfer agent, dividend disbursing agent and registrar for the Series M
Preferred Stock. Fannie Mae may at any time designate an additional or
substitute transfer agent, dividend disbursing agent and registrar for the
Series M Preferred Stock.

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	11.
	 	Notices.

     Any notice provided or permitted by this Certificate of Designation to be
made upon, or given or furnished to, the Holders of Series M Preferred Stock by
Fannie Mae shall be made by first-class mail, postage prepaid, to the addresses
of such Holders as they appear on the books and records of Fannie Mae. Such
notice shall be deemed to have been sufficiently made upon deposit thereof in
the United States mail. Notwithstanding anything to the contrary contained
herein, in the case of the suspension of regular mail service or by reason of
any other cause it shall be impracticable, in Fannie Mae’s judgment, to give
notice by mail, then such notification may be made, in Fannie Mae’s discretion,
by publication in a newspaper of general circulation in The City of New York or
by hand delivery to the addresses of Holders as they appear on the books and
records of Fannie Mae.

     Receipt and acceptance of a share or shares of the Series M Preferred
Stock by or on behalf of a Holder shall constitute the unconditional acceptance
by such Holder (and all others having beneficial ownership of such share or
shares) of all of the terms and provisions of this Certificate of Designation.
No signature or other further manifestation of assent to the terms and
provisions of this Certificate of Designation shall be necessary for its
operation or effect as between Fannie Mae and the Holder (and all such others).

6exv10w1

 

Exhibit 10.1

EMPLOYMENT AGREEMENT

between

FANNIE MAE

and

FRANKLIN D. RAINES

INCLUDING ALL AMENDMENTS

THROUGH JULY 1, 2003

 

 

TABLE OF CONTENTS

	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	A.	 	 	 	EMPLOYMENT TERM
	 	 	2	 
	 	 	 	 	 	1.	 	 	Term and Duties
	 	 	2	 
	 	 	 	 	 	2.	 	 	Annual Salary
	 	 	4	 
	 	 	 	 	 	3.	 	 	Employee’s Rights Under Certain Plans
and Other Benefits
	 	 	5	 
	 	 	 	 	 	4.	 	 	Termination Without Cause, Termination or
Resignation Upon a Change of Control or
Failure to Extend
	 	 	25	 
	 	 	 	 	 	5.	 	 	Termination by Employee; Breach by
Employee
	 	 	28	 
	 	 	 	 	 	6.	 	 	Resignation as Board Member
	 	 	32	 
	 	B.	 	 	 	DISABILITY
	 	 	33	 
	 	 	 	 	 	7.	 	 	Disability
	 	 	33	 
	 	C.	 	 	 	DEATH
	 	 	35	 
	 	 	 	 	 	8.	 	 	Death
	 	 	35	 
	 	D.	 	 	 	MISCELLANEOUS
	 	 	37	 
	 	 	 	 	 	9.	 	 	Payment of Certain Expenses
	 	 	37	 
	 	 	 	 	 	10.	 	 	Secretary and Office
	 	 	38	 
	 	 	 	 	 	11.	 	 	Assignment by Employee
	 	 	39	 
	 	 	 	 	 	12.	 	 	Funding Prohibitions
	 	 	39	 
	 	 	 	 	 	13.	 	 	Disclosure of Information
to the Corporation
	 	 	40	 
	 	 	 	 	 	14.	 	 	Nondisclosure of Confidential Information
	 	 	40	 
	 	 	 	 	 	15.	 	 	Waiver
	 	 	41	 
	 	 	 	 	 	16.	 	 	Notice
	 	 	42	 
	 	 	 	 	 	17.	 	 	Applicable Law
	 	 	42	 
	 	 	 	 	 	18.	 	 	Taxes
	 	 	43	 

 

 

	 	 	 	 	 	 	 	 	 
	 	19.	 	 	Benefit	 	43

	 	20.	 	 	Entire Agreement	 	44

	 	21.	 	 	Arbitration	 	44

	 	22.	 	 	Interpretation	 	45

	 	23.	 	 	Severability	 	45

 

 

EMPLOYMENT AGREEMENT

     THIS EMPLOYMENT AGREEMENT, effective as of the 21st day of May, 1998, is
by and between FANNIE MAE (the “Corporation”) and FRANKLIN D. RAINES
(“Employee”).

     WITNESSETH THAT:

     WHEREAS, the Corporation desires to employ Employee, from the date of this
Agreement through December 31, 1998, as Chairman of the Board-Designate and
Chief Executive Officer-Designate of the Corporation and, commencing on January
1, 1999, as Chief Executive Officer and Chairman of the Board, and Employee
desires to serve in such capacities;

     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 July 21, 1998, 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 Chairman of the Board-Designate and Chief Executive
Officer-Designate of the Corporation, upon the terms and conditions herein
contained, for a term commencing on May 21, 1998 (the “Effective Date”) and,
subject to the terms hereof, terminating on December 31, 1998, and, as Chairman
of the Board and Chief Executive Officer of the Corporation, upon the terms and
conditions herein contained, for a term commencing on January 1, 1999 and,
subject to the terms hereof, terminating on June 30, 2004 (the “Termination
Date”). As used in this Agreement, “Employment Term” shall mean the period
from the Effective Date through the Termination Date, plus any extension of
such period pursuant to the written agreement of the parties.

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     (b)  During the Employment Term, 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.

     (c)  While serving as Chairman of the Board-Designate and Chief Executive
Officer-Designate, 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 chairman of the board-designate
and chief executive officer-designate. While serving as Chairman of the Board
and Chief Executive Officer, Employee shall perform such duties for the
Corporation as may be determined from time to time by the Board, provided that
such duties are reasonable and customary for a chairman of the board and chief
executive 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

     (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 $900,000 (such amount to
be prorated for 1998), 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 1999 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 base compensation payable to chairmen and chief executive 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

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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.

3. Employee’s Rights Under Certain Plans and Other Benefits

     (a)  Executive Pension Plan. Employee and the Corporation acknowledge that
the Corporation has previously designated Employee as a participant in the
Executive Pension Plan of the Federal National Mortgage Association (the
“Executive Pension Plan”). Notwithstanding any of the provisions of the
Executive Pension Plan to the contrary, the following provisions shall apply to
Employee:

	 	(i)	 	Employee’s Pension Goal under the
Executive Pension Plan shall at all times be equal to at
least 60% of his High-Three Total Compensation (as such
terms are defined in the Executive Pension Plan as
modified in this Agreement);
	 
	 	(ii)	 	Employee’s Total Compensation and
High-Three Total Compensation shall be determined solely
by reference to Employee’s Employment Term;

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	 	(iii)	 	As of the Effective Date, Employee shall
be 60% vested in his Pension Goal in recognition of his
prior service as Vice-Chairman and in recognition of his
agreement to serve in the positions described in this
Agreement. Employee’s vesting in his Pension Goal shall be
increased an additional 10% per year in accordance with
the provisions of the Executive Pension Plan, calculated
on the basis of Employee’s Hours of Service in each year,
starting in 1998, so that, assuming that Employee’s
employment under this Agreement has not been terminated
for any reason, Employee would become 100% vested in his
Pension Goal in 2001.
	 
	 	(iv)	 	At termination of his employment with the
Corporation for any reason (including non-extension of the
Employment Term) upon and after reaching the age of 55,
Employee shall commence to receive, within 30 days after
the date his employment terminates, his vested normal

-6-

 

	 	 	 	retirement benefit (as determined under the Executive
Pension Plan as modified in this Agreement and in the
form provided in the Executive Pension Plan). If
Employee’s employment with the Corporation is
terminated for any reason (including non-extension of
the Employment Term) prior to Employee’s reaching the
age of 55, then, within 30 days after Employee’s
reaching the age of 55, he shall commence to receive
his vested normal retirement benefit (as determined
under the Executive Pension Plan as modified in this
Agreement and in the form provided in the Executive
Pension Plan). There shall be no actuarial adjustment
to any benefits payable under this Paragraph 3(a)(iv)
by reason of the commencement of benefit payments
prior to age 60.
	 
	 	(v)	 	If Employee dies after the commencement
of payments to him under the Executive Pension Plan, his
Surviving Spouse, as

-7-

 

	 	 	 	such term is defined in such plan, shall receive
(regardless of her age at the time of Employee’s
death) monthly payments, commencing on the first day
of the month coincident with or next following the
date of Employee’s death and continuing for her
lifetime, equal to 100% of the monthly amount which
was being paid to Employee at the time of his death.
	 
	 	(vi)	 	If Employee dies before the commencement
of payments to him under the Executive Pension Plan, his
Surviving Spouse, as such term is defined in such plan,
shall receive (regardless of her age at the time of
Employee’s death) a monthly preretirement surviving
spouse’s benefit, commencing within 30 days of Employee’s
death and continuing for her lifetime, equal to the
monthly normal retirement benefit that Employee would have
received (under the Executive Pension Plan as modified in
this Agreement) had he

-8-

 

	 	 	 	terminated employment on the day prior to the date of
his death and had he attained at least age 55 prior to
his death. There shall be no age-based actuarial
reduction in the preretirement surviving spouse’s
benefit, except that, where Employee dies before
reaching the age of 55, there shall be an age-based
actuarial reduction based solely on the number of
years, if any, that Employee’s age at the date of his
death is less than 55.
	 
	 	(vii)	 	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 modified in this
Agreement, as in effect on the date hereof or, if benefits
are improved, as of the date of such improvement.

-9-

 

     (b)  Stock Options. The Corporation has granted to Employee, as of May 21,
1998, a Nonqualified Stock Option (the “May 1998 Option”), pursuant to the
Fannie Mae Stock Compensation Plan of 1993 (the “1993 Stock Compensation
Plan”), to purchase 358,830 shares of common stock of the Corporation (the
“Stock”) for a price equal to the Fair Market Value (as defined in the 1993
Stock Compensation Plan) of the Stock on the date of such grant. The
Corporation shall also grant to Employee, as of January 4, 1999 (the first
business day following January 1, 1999), a Nonqualified Stock Option (the
“January 1999 Option”), pursuant to the 1993 Stock Compensation Plan, to
purchase 195,000 shares of Stock for a price equal to the Fair Market Value (as
defined in the 1993 Stock Compensation Plan) of the Stock on the date of such
grant. Employee shall be considered for additional grants of Nonqualified
Stock Options or Incentive Stock Options at any time the Corporation grants
Nonqualified Stock Options or Incentive Stock Options to other officers.
Notwithstanding the foregoing or any provision of the 1993 Stock Compensation
Plan or any successor plan, the following provisions shall apply to Employee:

-10-

 

	 	(i)	 	The May 1998 Option shall expire on May 21, 2008 and
shall become exercisable with respect to 25% of the Stock covered
thereby on May 21 of each of 1999, 2000, 2001 and 2002, or
earlier as provided in (iv) below, provided, however, that in the
case of termination pursuant to Paragraph 5(a) or 5(b) below, any
portion of the May 1998 Option not exercisable on the date of
such termination shall become exercisable from and after the date
of such termination only as provided in the 1993 Stock
Compensation Plan.
	 
	 	(ii)	 	The January 1999 Option shall expire on January 2, 2009
and shall become exercisable with respect to 25% of the Stock
covered thereby on January 4 of each of 2000, 2001, 2002, and
2003, or earlier as provided in (iv) below, provided, however,
that in the case of termination pursuant to Paragraph 5(a) or
5(b) below, any portion of the January 1999 Option not
exercisable on the date of such termination shall become

-11-

 

	 	 	 	exercisable from and after the date of such termination
only as provided in the 1993 Stock Compensation Plan.
	 
	 	(iii)	 	Any additional Nonqualified Stock Option or any
Incentive Stock Option granted to Employee shall become
exercisable as provided in the 1993 Stock Compensation Plan or
any successor plan, or earlier as provided in (iv) below,
provided, however, that in the case of termination pursuant to
Paragraph 5(a) or 5(b) below, any portion of such Nonqualified
Stock Option or Incentive Stock Option not exercisable on the
date of such termination shall become exercisable from and after
the date of such termination only as provided in the 1993 Stock
Compensation Plan or any successor plan.
	 
	 	(iv)	 	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

-12-

 

	 	 	 	because of the failure of the Corporation to extend this
Agreement as set forth in Paragraph 4(a) below, (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, all of
Employee’s Incentive Stock Options and Nonqualified Stock
Options, including the May 1998 Option and the January 1999
Option specified above in this Paragraph 3(b), shall become
immediately exercisable.
	 
	 	(v)	 	Employee (or, in the case of serious illness,
disability or death, the person or persons to whom Employee’s
rights under any Incentive Stock Option or any Nonqualified Stock
Option pass by will or applicable law or, if no such person has
such rights, Employee’s executors or administrators) shall have
the right to exercise any exercisable Incentive Stock Option and
any exercisable Nonqualified Stock Option, until it expires by
its terms, regardless of

-13-

 

	 	 	 	whether Employee is employed by the Corporation at the time
of such exercise, provided, however, that in the case of a
termination pursuant to Paragraph 5(a) or 5(b) below, all
stock options, including the May 1998 Option and the
January 1999 Option specified above in this Paragraph 3(b),
may be exercised from and after the date of such
termination only as provided in the 1993 Stock Compensation
Plan or any successor plan.

     (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 at least 200% 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 1998 on a pro rata basis. Notwithstanding any provision of
the

-14-

 

Annual Incentive 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) 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, the Corporation shall pay to
Employee at the time of payment of awards to other
participants in the Annual Incentive Plan (regardless of
whether Employee is employed by the Corporation on the
date of payment) (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
21-December 31, 1998 being considered a completed calendar
year for

-15-

 

	 	 	 	such purposes) but not yet paid by the Corporation for
such year and (B) a pro rata 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, 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 21-December
31, 1998 being considered a completed calendar year for
such purposes) but not yet paid by the Corporation for
such year.

     (d)  Performance Shares. The Corporation has granted to Employee, as of
May 21, 1998, Performance Shares pursuant to the 1993 Stock Compensation Plan
for the 1996-1998, 1997-1999 and 1998-2000 Award Periods (as defined in

-16-

 

the 1993 Stock Compensation Plan) in amounts equal to 14,973, 20,251 and 55,132
Performance Shares, respectively. The Corporation shall also grant to
Employee, as of January 4, 1999 (the first business day following January 1,
1999), Performance Shares pursuant to the 1993 Stock Compensation Plan for the
1997-1999 and 1998-2000 Award Periods (as defined in the 1993 Stock
Compensation Plan) in amounts equal to 938 and 3,162 Performance Shares,
respectively. The Employee shall be considered for additional grants of
Performance Shares at any time the Corporation grants Performance Shares to
other employees. 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 (z) Employee is terminated

-17-

 

	 	 	 	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
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.

-18-

 

	 	(ii)	 	In the event that Employee dies while
employed under this 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 awarded for each Award Period of the
Performance Share Plan, in each case on a pro rata basis
reflecting 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).

     (e)  Restricted Stock. 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 (iv) Employee is terminated by reason
of

-19-

 

serious illness or disability pursuant to Paragraph 7(a) below, any grants
of restricted stock made to Employee shall continue to vest in accordance with
the schedule included in each such grant through the end of the Employment
Term, but any unvested shares at the end of the Employment Term shall be
forfeited. Upon the death of Employee, all grants of restricted stock made to
Employee, not previously forfeited, but not yet vested on the date of death,
shall immediately vest. In the case of a termination pursuant to Paragraph
5(a) or 5(b) below, Employee shall receive any restricted stock vested on or
prior to the date of such termination, but shall forfeit any restricted stock
not vested on the date of such termination.

     (f)  Other Benefits. The Corporation shall also provide Employee with the
following benefits:

	 	(i)	 	The Corporation shall reimburse Employee
for actual expenses incurred by Employee while Employee is
employed under this Agreement in obtaining tax and
investment assistance and advice.
	 
	 	(ii)	 	The Corporation shall pay the legal
expenses incurred by Employee in

-20-

 

	 	 	 	connection with the negotiation of this Agreement.
	 
	 	(iii)	 	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.
	 
	 	(iv)	 	The Corporation shall, on no more than a
yearly basis, pay or reimburse Employee for actual
expenses incurred by Employee while Employee is employed
under this Agreement for a complete physical examination
at a medical facility of his choice.
	 
	 	(v)	 	The Corporation shall pay or reimburse
Employee for all reasonable travel expenses incurred by
Employee’s spouse in accompanying Employee on his trips
made on behalf of the Corporation while Employee is
employed under this Agreement.
	 
	 	(vi)	 	While Employee is employed under this
Agreement, the Corporation shall provide

-21-

 

	 	 	 	Employee, at its own expense, term life insurance in
the face amount of $900,000.
	 
	 	(vii)	 	If Employee incurs a Reimbursable
Expense, as described below, and the Corporation includes
the amount of any reimbursement for that expense on
Employee’s Wage and Tax Statement, the Corporation agrees
to pay to Employee, in addition to reimbursement for the
amount of the expense, any additional amount necessary to
make Employee whole on an after-tax basis. Reimbursable
Expense means any expense for travel (including travel
expenses of Employee’s spouse as described in this
Paragraph 3(f)), entertainment or other activity
undertaken in connection with the performance of
Employee’s duties for the Corporation.
	 
	 	(viii)	 	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)

-22-

 

	 	 	 	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 (z) Employee is terminated by reason
of serious illness or disability pursuant to Paragraph
7(a) below, the Corporation shall continue to provide
to Employee, until the later of (A) the expiration of
the Employment Term or (B) one year following the date
of such termination, resignation or expiration, an
office and secretary and job assistance services, as
appropriate to his position held on the last date of
his employment under this Agreement.

     (g)  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

-23-

 

insurance, expense reimbursement 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, expense reimbursement and similar plans of the
Corporation which are from time to time in effect and in which other senior
officers of the Corporation generally are entitled to participate. Except as
otherwise provided in this Agreement, Employee’s participation in such plans
and programs shall be in accordance with the provisions of such plans and
programs applicable from time to time, it being the intent of the parties
hereto that nothing in this Agreement shall decrease the rights and benefits of
Employee under any such plans and programs as may be in effect from time to
time. 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

-24-

 

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 thirty (30) 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, 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

-25-

 

termination, resignation or expiration. 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.

     (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, 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 last held
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

-26-

 

a dollar-for-dollar basis (but not below zero), the Corporation’s obligation to
pay Employee’s Basic Compensation. Any employee benefits provided to 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 provided; 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 resulting from such
employment.

     (c)  If at any time during the Employment Term, (i) there is a material
reduction of Employee’s authority 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, (ii) the Corporation shall
require Employee to relocate his office outside the Washington, D.C. area, or
(iii) the Corporation shall breach materially any other material obligation
under this Agreement, Employee shall have the right, upon not less than thirty
(30) 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

-27-

 

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)  A “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.

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 thirty (30) days’ prior written notice
to the Corporation. Upon receipt of any such notice from Employee, the
Corporation shall have the option,

-28-

 

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 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 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 negligent manner.
Notwithstanding the foregoing, Employee shall not be deemed to have been

-29-

 

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) 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
Paragraph 5(b) 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)  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

-30-

 

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 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 himself does not participate in such
corporation’s or firm’s involvement in such transactions.

-31-

 

     (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

-32-

 

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

B. DISABILITY

7. Disability

     (a)  In the event that, while employed under this 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. If, within sixty (60) days of such
notice, Employee recovers and is again able to perform his duties hereunder,
such notice shall be void, and the Employee’s employment shall not be
terminated thereby. 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

-33-

 

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 and receive benefits to which he is
entitled under such plans 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 provided to 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 provided; provided, however, that
Employee’s retirement

-34-

 

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, the
Corporation shall pay Employee’s designated beneficiary or, if none, Employee’s
estate, in one cash payment an amount equal to 200% of Employee’s Basic
Compensation in effect on the date of his death.

     (b)  At all times while employed under this Agreement, Employee shall be
covered at the Corporation’s expense under the Corporation’s Executive
Insurance Plan by

-35-

 

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 terminates or expires other than pursuant to Paragraph
5(a) or 5(b) above, 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, and the Corporation shall pay to
Employee an amount equal to the income taxes imposed on Employee with respect
to such acquisition plus the income taxes imposed on such payment. In the
event Employee completes thirteen (13) years of service with the Corporation
pursuant to this 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

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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.

     (c)  Unless Employee’s employment shall have terminated pursuant to
Paragraph 5(a) or 5(b) above, after Employee’s death at any time during or
after the expiration of the Employment Term, the Corporation shall continue the
health and medical coverage elected by the Employee, without direct premium
payments by Employee’s family, for Employee’s surviving spouse for her life,
and for his other dependents so long as they remain dependents as defined in
said health and medical plan.

D. MISCELLANEOUS

9. Payment of Certain Expenses

     The Corporation agrees to pay promptly as incurred, to the fullest extent
permitted by law, all legal fees and

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expenses which Employee may reasonably incur as a result of any contest by the
Corporation, Employee or others of the validity or enforceability of, or
liability under, any provision of this Agreement (including as a result of any
contest initiated by Employee about the amount of any payment due pursuant to
this Agreement), plus in each case interest on any delayed payment at the
applicable federal rate provided for in Section 7872(f)(2)(A) of the Internal
Revenue Code of 1986, as amended; provided, however, that the Corporation shall
not be obligated to make such payment with respect to any contest in which the
Corporation prevails over Employee.

10. Secretary and Office

     If Employee’s employment under this Agreement is terminated on or after
his reaching age fifty-five (55), other than pursuant to Paragraph 5(a) or 5(b)
above, the Corporation shall provide to Employee, at any time Employee is not
employed by any person on a full-time basis, an office and secretary.

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11. 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.

12. 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

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contractual agreement of the Corporation that such payments shall be made.

13. 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.

14. 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

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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 14, “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.

15. 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

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

16. 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.

17. 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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18. 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.

19. 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, his spouse, heirs, executors and administrators;
provided, however, that the obligations of Employee hereunder shall not be
delegated. The Corporation shall require any successor (whether direct or
indirect, by purchase, merger, reorganization, consolidation, acquisition of
property or stock, liquidation, or otherwise) to all or a substantial portion
of its assets, by agreement in form and substance reasonably satisfactory to
Employee, expressly to assume and agree to perform this Agreement in the same
manner and to the same extent that the Corporation would be required to perform
this Agreement if no such succession had taken place. Regardless of whether
such an agreement is executed, this Agreement shall

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be binding upon any successor of the Corporation in accordance with the
operation of law, and such successor shall be deemed the “Corporation” for
purposes of this Agreement.

20. 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.

21. Arbitration

     Except as to any controversy or claim which Employee elects, by written
notice to the Corporation, to have adjudicated by a court of competent
jurisdiction, any controversy or claim arising out of or relating to this
Agreement or the breach hereof 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 rules of the American
Arbitration Association. The costs and expenses of the arbitrator(s) shall be
borne by the Corporation.

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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.

22. Interpretation

     Wherever reference is made herein to the “failure of the Corporation to
extend this 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 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 on
terms that are in the aggregate substantially equivalent to or more favorable
to Employee than those contained herein, any nonextension shall not be deemed
to be a “failure of the Corporation to extend this Agreement.”

23. 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

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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.

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     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/ Elizabeth Berg	 	
By: /s/James A. Johnson
	
	 	

	 	 	
Chairman of the Board
	 	 	
of Directors
	 	 	 
	Witness:	 	 
	 	 	 
	/s/ Equilla Ford	 	
/s/ Franklin D. Raines
	
	 	

	 	 	
FRANKLIN D. RAINES

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