Document:

exv10w4

 

Exhibit 10.4

FANNIE MAE STOCK COMPENSATION PLAN OF 2003

	I.
	 	The Plan

	1.1
	 	Purpose. The purpose of the Fannie Mae Stock Compensation Plan of
2003 is to promote the success of Fannie Mae by providing stock
compensation to employees and directors that is comparable to that
provided by similar companies; to attract, motivate, retain and reward
employees of Fannie Mae; to provide incentives for high levels of
individual performance and improved financial performance of Fannie
Mae; to attract, motivate and retain experienced and knowledgeable
independent directors; and to promote a close identity of interests
between directors, officers, employees and shareholders.

	1.2
	 	Definitions.

                    The following terms shall have the meanings set forth below:

	(1)
	 	“Award” shall mean an award of any Option, Stock Appreciation Right,
Restricted Stock, Performance Share Award, Stock Bonus or any other
award authorized under Section 1.6, or any combination thereof,
whether alternative or cumulative, or an award of any Options or
Restricted Stock authorized under Articles VI and VII.

	(2)
	 	“Award Date” shall mean the date upon which the Committee takes the
action granting an Award or a later date designated by the Committee
as the Award Date at the time it grants the Award, or, in the case of
Awards under Sections 6.2 or 7.2, the applicable dates set forth
therein.

	(3)
	 	“Award Document” shall mean any writing (including in electronic or
other form approved by the Committee), which may be an agreement,
setting forth the terms of an Award that has been granted by the
Committee.

	(4)
	 	“Award Period” shall mean the period beginning on an Award Date and
ending on the expiration date of such Award.

	(5)
	 	“Beneficiary” shall mean the person or persons designated by a
Participant or Permitted Transferee in writing to the senior-ranking
officer in the Human Resources department of Fannie Mae to receive the
benefits specified in an Award Document and under the Plan in the
event of the death of the Participant or Permitted Transferee.

	(6)
	 	“Benefit Plans Committee” shall mean the Benefit Plans Committee
established by the Board, consisting of employees of Fannie Mae.

	(7)
	 	“Board” shall mean the Board of Directors of Fannie Mae.

	(8)
	 	“Cause” shall mean significant harm to Fannie Mae in connection with a
Participant’s employment by Fannie Mae, by the Participant’s engaging
in dishonest or fraudulent actions or willful misconduct or performing
the Participant’s duties in a negligent manner, as determined by the
Committee for a member of the Board who is an officer or employee of
Fannie Mae and for the General Counsel of Fannie Mae, and by the
General Counsel of Fannie Mae for all other employees; provided that
no act or failure to act will be considered “willful” unless it is
done, or omitted to be done, by the Participant in bad faith or
without reasonable belief that the act or failure to act was in the
interest of Fannie Mae.

	(9)
	 	“Change in Control Event” shall mean a change in the composition of a
majority of the Board elected by shareholders within 12 months after
any “person” (as such term is used in Sections 3(a)(9), 13(d)(3) and
14(d)(2) of the Securities Exchange Act of 1934) is or becomes the
beneficial owner, directly or indirectly, of securities of Fannie Mae
representing more than 25 percent of the combined voting power of the
then-outstanding securities of Fannie Mae entitled to then vote
generally in the election of directors of Fannie Mae.

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	(10)
	 	“Code” shall mean the Internal Revenue Code of 1986, as amended from time to time.

	(11)
	 	“Committee” shall mean the Compensation Committee of the Board.

	(12)
	 	“Common Stock” shall mean the common stock of Fannie Mae and, in the event such common
stock is converted to another security or property pursuant to Section 8.2, such other
security or property.

	(13)
	 	“Director Term” shall mean the period starting immediately following the annual
meeting of the shareholders at which directors are elected to serve on the Board and
ending at the close of the next annual meeting at which directors are elected.

	(14)
	 	“Early Retirement” means separation from service with Fannie Mae at or after the
attainment of age 60 (but before attainment of age 65) with five years of service with
Fannie Mae, or at an earlier age only if permitted by the Committee in its sole
discretion. For purposes of this Section 1.2(14), a year of service shall be
determined in accordance with the Federal National Mortgage Association Retirement
Plan for Employees Not Covered Under Civil Service Retirement Law.

	(15)
	 	“Eligible Employee” shall mean any employee of Fannie Mae.

	(16)
	 	“ERISA” shall mean the Employee Retirement Income Security Act of 1974, as amended.

	(17)
	 	“Fair Market Value” shall mean the per share value of Common Stock as determined by
using the mean between the high and low selling prices of such Common Stock, on the
date of determination, as reported on the NYSE. If such prices are not available or if
the Common Stock is no longer traded on the NYSE, the Fair Market Value shall be
determined by the Committee, in good faith, using any reasonable method.

	(18)
	 	“Fannie Mae” shall mean Fannie Mae and its successors and, where the context requires,
its Subsidiaries.

	(19)
	 	"Immediate Family Member” shall mean, with respect to a Participant, (i) the
Participant’s child, stepchild, grandchild, parent, stepparent, grandparent, spouse,
former spouse, sibling, half-sibling, stepsibling, mother-in-law, father-in-law,
son-in-law, daughter-in-law, brother-in-law or sister-in-law (including adoptive
relations where the adopted individual shall not have attained the age of 18 years
prior to such adoption); (ii) the Participant’s Domestic Partner (as defined in
Section 2.18 of the Federal National Mortgage Association Retirement Plan for
Employees Not Covered Under Civil Service Retirement Law and determined pursuant to
the guidelines and procedures established thereunder); (iii) any lineal ascendant or
descendant of any individual described in (i) or (ii) above; (iv) any partnership,
limited liability company, association, corporation or other entity all of whose
beneficial interests (including without limitation all pecuniary interests, voting
rights and investment power) are held by and for the benefit of the Participant and/or
one or more individuals described in (i), (ii) or (iii) above; or (v) any trust for
the sole benefit of the Participant and/or one or more individuals described in (i),
(ii) or (iii) above.

	(20)
	 	“Incentive Stock Option” shall mean an Option that is designated as an incentive stock
option within the meaning of Section 422 of the Code, or any successor provision, and
that otherwise satisfies the requirements of that section.

	(21)
	 	“NMD Participant” shall mean a Nonmanagement Director who has been granted an Award
under Article VI or Article VII.

	(22)
	 	“Nonmanagement Director” shall mean a member of the Board who is not an officer or
employee of Fannie Mae.

	(23)
	 	“Nonqualified Stock Option” shall mean an Option that is not an Incentive Stock Option.

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	(24)
	 	“NYSE” shall mean the New York Stock Exchange.

	(25)
	 	“Option” shall mean an option to purchase shares of Common Stock pursuant to an Award.

	(26)
	 	“Participant” shall mean a Nonmanagement Director who has been granted an Award under
the Plan or an Eligible Employee who has been granted an Award under the Plan.

	(27)
	 	“Performance Share Award” shall mean an Award granted under Section 5.1.

	(28)
	 	“Permitted Transferee” shall mean (i) any Immediate Family Member with respect to the
Participant, and (ii) in the case of an Eligible Employee, any organization described
in Section 170(c) of the Code that is eligible to receive tax-deductible, charitable
contributions or any intermediary designated to exercise an Option for the benefit of
such organization.

	(29)
	 	“Personal Representative” shall mean the person or persons who, upon the incompetence
of a Participant or Permitted Transferee, shall have acquired, by legal proceeding or
power of attorney, the power to exercise the rights under the Plan, and who shall
have become the legal representative of the Participant or Permitted Transferee, or,
in the event of the death of the Participant or the Permitted Transferee, the
executor or administrator of the estate of the Participant or Permitted Transferee.

	(30)
	 	“Plan” shall mean this Fannie Mae Stock Compensation Plan of 2003.

	(31)
	 	“Plan Termination Date” shall mean the tenth anniversary of the date of the meeting
at which shareholders of Fannie Mae approve the Plan.

	(32)
	 	“QDRO” shall mean a qualified domestic relations order as defined in Section 414(p)
of the Code or Section 206(d)(3) of ERISA (to the same extent as if this Plan were
subject thereto) and the applicable rules thereunder.

	(33)
	 	“Restricted Stock” shall mean shares or bookkeeping units of Common Stock awarded to
a Participant subject to payment of the consideration, if any, and the conditions on
vesting and transfer and other restrictions as are established under the Plan, for so
long as such shares or units remain nonvested under the terms of the applicable Award
Document.

	(34)
	 	"Retirement” shall mean, in the case of an Eligible Employee, separation from service
with Fannie Mae under conditions entitling such Eligible Employee to an immediate
annuity under the Federal National Mortgage Association Retirement Plan for Employees
Not Covered Under Civil Service Retirement Law or under the Civil Service retirement
law, whichever is applicable to such Eligible Employee, at or after the attainment of
age 65.

	(35)
	 	"Stand-Alone SAR” shall mean a Stock Appreciation Right granted independently of any
other Award.

	(36)
	 	“Stock Appreciation Right” shall mean a right pursuant to an Award to receive a
number of shares of Common Stock or an amount of cash, or a combination of shares of
Common Stock and cash, the aggregate amount or value of which is determined by
reference to a change in the Fair Market Value of the Common Stock.

	(37)
	 	“Stock Bonus” shall mean an Award of shares of Common Stock under Section 5.2.

	(38)
	 	“STSP” shall mean the Fannie Mae Securities Transactions Supervision Program and the
guidelines thereunder.

	(39)
	 	“Subsidiary” shall mean an organization whose employees are identified by the Board
as eligible to participate in benefit plans of Fannie Mae.

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	(40)
	 	“Total Disability” shall mean complete and permanent inability by reason of illness or accident to
perform the duties of the occupation at which the Participant was employed when the illness commenced
or accident occurred, as determined by Fannie Mae’s independent medical consultant.

	(41)
	 	“Without Consideration” shall mean, with respect to a transfer of an Option, that the transfer is
being made purely as a gift or donation, with no promise or receipt of payment, goods, services or
other thing of value in exchange for the Option; provided, however, if the terms of a transfer of
Options to an otherwise Permitted Transferee require that, upon proper notice of exercise of such
Options, (i) Fannie Mae may reduce the number of shares of Common Stock or sell such number of shares
of Common Stock otherwise deliverable thereunder to the extent required to fund any additional
withholding tax on behalf of the Eligible Employee necessitated by the exercise, delivering only the
balance of the shares of Common Stock due upon exercise of the Option to the Permitted Transferee,
and/or (ii) the Permitted Transferee sell the shares of Common Stock so received upon exercise of the
Option, apply a portion of the net proceeds of the exercise to the payment of any additional taxes,
fees or other costs or expenses incurred by the donor Eligible Employee in connection with or as a
result of such transfer and then deliver (if an intermediary) or retain (if an organization described
in Section 170(c) of the Code) the remaining net proceeds from such sales of shares of Common Stock,
the transfer shall nevertheless continue to be Without Consideration for the purposes hereof. A
distribution of an Option by an entity or trust described in Section 1.2(19)(iv) or (v) to an owner
or beneficiary thereof shall be treated as a transfer Without Consideration.

	1.3
	 	Administration and Authorization; Power and Procedure.

	(a)
	 	The Committee. The Plan shall be administered by, and all Awards to Eligible Employees shall be
authorized by, the Committee, unless otherwise required by law or regulation. Action of the Committee
with respect to the administration of the Plan shall be taken by majority vote or unanimous written
consent of the respective members.

	(b)
	 	Plan Awards; Interpretation; Powers. Subject to the express provisions of the Plan, the Committee
shall have the authority:

	(i)
	 	to determine the Eligible Employees who will receive an Award;

	(ii)
	 	to grant an Award to such Eligible Employees, to determine
the amount of and the price at which shares of Common Stock
will be offered or awarded, to determine the other specific
terms and conditions of such Award consistent with the
express limits of the Plan, to establish the installments (if
any) in which such Award shall become exercisable or shall
vest, and to establish the expiration date and the events of
termination of such Award;

	(iii)
	 	to construe and interpret the Plan and any Award Documents,
to further define the terms used in the Plan, and to
prescribe, amend and rescind rules and regulations relating
to the administration of the Plan;

	(iv)
	 	to cancel, modify or waive Fannie Mae’s rights with respect
to, or modify, discontinue, suspend or terminate, an Award
being granted or an outstanding Award granted to or held by
an Eligible Employee, subject to any required consents under
Section 8.5;

	(v)
	 	as part of any Eligible Employee’s employment agreement
approved by the Committee, to modify or change an Award;

	(vi)
	 	to accelerate the vesting of, extend the ability to exercise,
or extend the term of an Award being granted or an
outstanding Award; and

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	(vii)
	 	to make all other determinations and take such other actions as
contemplated by the Plan or as may be necessary or advisable for the
administration of the Plan and the effectuation of its purposes.

	 
	 	Notwithstanding the foregoing, the provisions of Articles VI
and VII (except Sections 6.7 and 7.5) relating to Nonmanagement
Director Awards shall be automatic and, to the maximum extent
possible, self-effectuating. Ministerial, non-discretionary
actions with respect to implementation of the Plan shall be
performed by individuals who are officers or employees of
Fannie Mae at the direction of the senior ranking officer in
the Human Resources department of Fannie Mae. The senior
ranking officer in the Human Resources department of Fannie Mae
may also direct that certain administrative functions shall be
performed by service providers outside of Fannie Mae.

	(c)
	 	Binding Determinations. Any action taken
by, and any inaction of, Fannie Mae, any
Subsidiary, the Board, the Committee or the
Benefit Plans Committee relating or pursuant
to the Plan shall be within the absolute
discretion of that entity or body and shall
be conclusive and binding upon all persons.
Subject only to compliance with the express
provisions of the Plan, the Board, the
Committee and the Benefit Plans Committee
may act in their absolute discretion in
matters within their authority related to
this Plan.

	(d)
	 	Reliance on Experts. In making any
determination or in taking or not taking any
action under the Plan, the Board, the
Committee and the Benefit Plans Committee
may obtain and may rely upon the advice of
experts, including professional advisors to
Fannie Mae.

	(e)
	 	Delegation. The Committee may delegate,
subject to such terms and conditions as it
may impose, some or all of its authority
under the Plan to one or more members of the
Board or, for Awards to Eligible Employees
below the rank of Senior Vice President, to
the senior-ranking officer in the Human
Resources department. In addition, the
Committee may delegate ministerial,
non-discretionary functions to individuals
who are officers, employees, contractors or
vendors of Fannie Mae.

	(f)
	 	No Liability. No member of the Board, the
Committee or the Benefit Plans Committee, or
director, officer or employee of Fannie Mae
or any Subsidiary shall be liable,
responsible or accountable in damages or
otherwise for any determination made or
other action taken or any failure to act by
such person in connection with the
administration of the Plan, so long as such
person is not determined by a final
adjudication to be guilty of willful
misconduct with respect to such
determination, action or failure to act.

	(g)
	 	Indemnification. To the extent permitted
by law, each of the members of the Board,
the Committee and the Benefit Plans
Committee and each of the directors,
officers and employees of Fannie Mae and any
Subsidiary shall be held harmless and be
indemnified by Fannie Mae for any liability,
loss (including amounts paid in settlement),
damages or expenses (including reasonable
attorneys’ fees) suffered by virtue of any
determinations, acts or failures to act, or
alleged acts or failures to act, in
connection with the administration of the
Plan so long as such person is not
determined by a final adjudication to be
guilty of willful misconduct with respect to
such determination, action or failure to
act.

	1.4
	 	Participation. Awards may be granted by the Committee to Eligible
Employees. An Eligible Employee who has been granted an Award may be
granted, if otherwise eligible, additional Awards if the Committee
shall so determine. Nonmanagement Directors shall be eligible to
receive Awards granted automatically under Sections 6.2 and 7.2 and
Awards granted under Sections 6.7 and 7.5.

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	1.5
	 	Shares Available for Awards.

	(a)
	 	Common Stock. Subject to the
provisions of Section 8.2, the shares of
Common Stock that may be delivered under
this Plan shall be shares of Fannie Mae’s
authorized but unissued Common Stock,
shares of Common Stock held by Fannie Mae
as treasury shares or shares of Common
Stock purchased by Fannie Mae on the open
market.

	(b)
	 	Number of Shares. Subject to
adjustments in accordance with Section
8.2, the maximum number of shares of
Common Stock that may be delivered under
Awards granted to Eligible Employees and
Nonmanagement Directors under the Plan
shall not exceed 40,000,000 shares.

	(c)
	 	Calculation of Available Shares and
Replenishment. A good faith estimate
of the number of shares of Common Stock
subject to outstanding Awards that will
be satisfied by delivery of shares of
Common Stock, plus the number of shares
of Common Stock referenced in calculating
an Award paid in cash, shall be reserved
from the number of shares of Common Stock
available for Awards under the Plan. The
aggregate number of shares of Common
Stock delivered under the Plan plus the
number of shares of Common Stock
referenced with respect to Awards paid in
cash shall reduce the number of shares of
Common Stock remaining available for
Awards under the Plan. If any Award shall
expire or be canceled or terminated
without having been exercised in full, or
any Common Stock subject to a Restricted
Stock Award or other Award shall not vest
or be delivered, the unpurchased,
nonvested or undelivered shares of Common
Stock subject thereto or the shares of
Common Stock referenced with respect
thereto shall again be available under
the Plan. In the case of Awards granted
in combination such that the exercise of
one results in a proportionate
cancellation of the other, the number of
shares of Common Stock reserved for
issuance shall be the greater of the
number that would be reserved if one or
the other alone were outstanding. If
Fannie Mae withholds shares of Common
Stock pursuant to Section 8.4, the number
of shares of Common Stock that would have
been deliverable with respect to an Award
but that are withheld pursuant to the
provisions of Section 8.4 shall be
treated as delivered, and the aggregate
number of shares of Common Stock
deliverable with respect to the
applicable Award and under the Plan shall
be reduced by the number of shares of
Common Stock so withheld, and such
withheld shares shall not be available
for additional Awards.

	1.6
	 	Grant of Awards. Subject to the express provisions of the Plan, the
Committee shall determine the number of shares of Common Stock subject
to each Award, the price (if any) to be paid for such shares or Award
and other terms and conditions of the Award. Each Award to an Eligible
Employee shall be evidenced by an Award Document, which, if required
by the Committee, shall be signed by the Eligible Employee. Awards are
not restricted to any specified form or structure and may include,
without limitation, the types of Awards set forth in Articles II, III,
IV and V or, without limitation, any other transfers of Common Stock
or any options or warrants to acquire shares of Common Stock, or any
similar right with value related to or derived from the value of
Common Stock, as may be determined by the Committee. An Award may
consist of one such benefit, or two or more of them in any combination
or alternative.

	1.7
	 	Award Period. Each Award and all executory rights or obligations
under the related Award Document shall expire on such date (if any) as
shall be determined by the Committee.

	1.8
	 	Limitations on Exercise and Vesting of Awards.

	(a)
	 	Provisions for Exercise. An Award
shall be exercisable or shall vest as
determined by the Committee.

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	(b)
	 	Procedure. Any exercisable Award shall be exercised
when the person appointed by the Committee or the
Committee’s designee receives written notice of exercise
from the Participant or by any other method, including
in electronic form, approved by the Committee, together
with satisfactory arrangements for any required payment
to be made in accordance with Sections 2.2 or 8.4 or the
terms of the Award Document, as the case may be.

	 
	(c)
	 	Fractional Shares. Fractional share interests shall
be disregarded, but may be accumulated, or the Committee
may determine that cash will be paid or transferred in
lieu of any fractional share interests.

	1.9
	 	Transferability.

	(a)
	 	General Restrictions. Awards may be exercised only by
the Participant; the Participant’s Personal
Representative, if any; the Participant’s Beneficiary,
if the Participant has died; the recipient of an Award
by will or the laws of descent and distribution or, in
the case of a Nonqualified Stock Option, pursuant to a
QDRO; in the case of a Nonqualified Stock Option, a
person who was a Permitted Transferee at the time the
Option was transferred to such person; a Permitted
Transferee’s Personal Representative, if any; or a
Permitted Transferee’s Beneficiary, if the Permitted
Transferee has died. Amounts payable or shares of Common
Stock issuable under an Award shall be paid to (or
registered in the name of) the person or persons
specified by the person exercising the Award. Other than
(i) by will or the laws of descent and distribution or,
in the case of a Nonqualified Stock Option, pursuant to
a QDRO or (ii) to a Permitted Transferee in the case of
any Nonqualified Stock Option and (subject to (b), (c),
(d), and (e) below), no right or benefit under this Plan
or any Award, whether vested or not vested, shall be
transferable by a Participant or Permitted Transferee or
shall be subject in any manner to anticipation,
alienation, sale, transfer, assignment, pledge,
encumbrance or charge (other than to Fannie Mae), and
any such attempted action shall be void. Fannie Mae
shall disregard any attempt at transfer, assignment or
other alienation prohibited by the preceding sentences
and shall pay or deliver such cash or shares of Common
Stock only in accordance with the provisions of this
Plan. The designation of a Beneficiary hereunder shall
not constitute a transfer for these purposes.

	(b)
	 	Tax Withholding. An Eligible Employee may not
transfer Options (“Transferred Options”) to a Permitted
Transferee, other than a charitable organization
described in Section 1.2(28)(ii), unless the Eligible
Employee agrees to retain, and not to exercise until the
exercise of the Transferred Options, at least 50 percent
of the exercisable Options held by the Eligible Employee
with the same exercise price and expiration date as the
Transferred Options. The condition set forth in the
first sentence of this Section 1.9(b), however, may be
waived at any time by (A) the Chairman of the Committee
in the case of an Eligible Employee who is either a
member of the Board or the senior-ranking officer in the
Human Resources department of Fannie Mae, or (B) the
senior-ranking officer in the Human Resources department
of Fannie Mae in the case of any other Eligible
Employee, and, as a condition of such waiver, the
Chairman of the Committee or the senior-ranking officer
in the Human Resources department of Fannie Mae, as the
case may be, may specify other steps that the Eligible
Employee must take to provide for the collection by
Fannie Mae of all federal, state, local and other taxes
required by law to be withheld upon the exercise of such
Transferred Options.

	(c)
	 	Notice of Transfer. A transfer of an Option to a
Permitted Transferee shall not be effective unless,
prior to making the transfer, the transferor (i)
provides written notice of the transfer to (A) the
Chairman of the Committee in the case of a transfer by a
Participant who is either a member of the Board, the
senior-ranking officer in the Human Resources department
of Fannie Mae or the General Counsel of Fannie Mae (or a
transfer by a Permitted Transferee of an Option
originally granted to a member of the Board or to

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	 	the senior-ranking officer in
the Human Resources department
of Fannie Mae), or (B) the
senior-ranking officer in the
Human Resources department of
Fannie Mae in the case of any
other transfer, and (ii)
certifies in writing to the
Chairman of the Committee or the
senior-ranking officer in the
Human Resources department of
Fannie Mae, as the case may be,
that the transfer will be
Without Consideration.

	(d)
	 	Approval of Transfer. A transfer of an Option
to a charitable organization described in
section 1.2(28)(ii) shall not be effective
unless, after receiving the notice described in
(c) above, the Chairman of the Committee or,
after consultation with the General Counsel of
Fannie Mae, the senior-ranking officer in the
Human Resources department of Fannie Mae, as the
case may be, either approves the proposed
transfer in writing or does not disapprove the
proposed transfer in writing within ten business
days after receipt of such notice. The Chairman
of the Committee or, after consultation with the
General Counsel of Fannie Mae, the
senior-ranking officer in the Human Resources
department of Fannie Mae, as the case may be,
may disapprove a proposed transfer if he or she
determines, in his or her good faith judgment,
that (i) the proposed Permitted Transferee has
philosophies, purposes, policies, objectives,
goals or practices inconsistent with those of
Fannie Mae or (ii) the Participant has not taken
such steps as may be necessary or appropriate to
provide for the collection by Fannie Mae of all
federal, state, local and other taxes required
by law to be withheld upon exercise of the
Option.

	(e)
	 	Transfer of Nonvested Options. A nonvested
Option may be transferred only to an Immediate
Family Member described in section 1.2(28)(i)
and only with the prior consent of (A) the
Chairman of the Committee in the case of a
Participant who is either a member of the Board,
the senior-ranking officer in the Human
Resources department of Fannie Mae or the
General Counsel of Fannie Mae, or (B) after
consultation with the General Counsel, the
senior-ranking officer in the Human Resources
department of Fannie Mae, after consultation
with the General Counsel of Fannie Mae, in the
case of any other Participant.

	1.10
	 	Section 83(b) Elections. If a Participant shall file an
election with the Internal Revenue Service under Section
83(b) of the Code to include the value of any Award in the
Participant’s gross income while the Award remains subject to
restrictions, the Participant shall promptly furnish Fannie
Mae with a copy of such election.

	II.
	 	Options

	2.1
	 	Grants. One or more Options may be granted under this Article II to
any Eligible Employee. Each Option granted may be either an Incentive
Stock Option or a Nonqualified Stock Option.

	2.2
	 	Option Price.

	(a)
	 	Pricing Limits. The exercise price for shares of
Common Stock covered by an Option shall be determined
by the Committee at the time of the Award, but shall
not be less than 100 percent of the Fair Market Value
of the Common Stock on the Award Date. Notwithstanding
any provision of the Plan, an Option may not be
modified so as to reduce the exercise price of the
Option.

	(b)
	 	Payment Provisions. The exercise price for any
shares of Common Stock purchased on exercise of an
Option granted under this Article II shall be paid in
full at the time of each exercise in one or a
combination of the following methods: (i) by
electronic funds transfer; (ii) by check payable to
the order of Fannie Mae; (iii) by notice and third
party payment; (iv) by the delivery of shares of
Common Stock already owned by the Participant; or (v)
by cashless exercise, or any other method, if
permitted by law and authorized by the Committee, in
its discretion, or specified in the applicable Award
Document; provided, however, that the Committee, in
its discretion, may limit the

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	 	Participant’s ability to exercise an
Option by delivering shares of Common
Stock, including by imposing a
requirement that the Participant satisfy
a minimum holding period with respect to
the shares so delivered. Shares of Common
Stock used to satisfy the exercise price
of an Option shall be valued at their
Fair Market Value on the date of
exercise.

	2.3
	 	Limitations on Incentive Stock Options. There shall be imposed in
any Award Document relating to Incentive Stock Options such terms and
conditions as from time to time are required in order that the Option
be an “incentive stock option” as that term is defined in Section 422
of the Code, or any successor provision.

	2.4
	 	Option Period.

	(a)
	 	Award Period. Each Option shall specify the Award
Period for which the Option is granted and shall provide
that the Option shall expire at the end of such Award
Period. The Committee may extend the Award Period by
amendment of an Option or in an Eligible Employee’s
employment agreement approved by the Committee.
Notwithstanding the foregoing, the Award Period with
respect to an Incentive Stock Option, including all
extensions, shall not exceed ten years.

	(b)
	 	Effect of Termination of Employment. Notwithstanding
the provisions of Section 2.4(a), unless otherwise
provided by the Committee or in an Eligible Employee’s
employment agreement approved by the Committee, (i) for a
Participant whose employment is terminated for any reason
other than for Cause, Retirement, Early Retirement, Total
Disability, death or having attained at least age 55 with
at least five years of service and is not covered by
Section 2.5(d), an Option shall expire on the earlier to
occur of (A) the end of the Award Period or (B) the date
three months following the Participant’s termination of
employment, (ii) for a Participant whose employment is
terminated and is covered by Section 2.5(d), an Option
shall expire on the earlier to occur of (A) the end of
the Award Period or (B) the date 12 months following the
Participant’s termination of employment, (iii) for a
Participant whose employment is terminated by reason of
Retirement, Early Retirement, Total Disability, death or
having attained at least age 55 with at least five years
of service, an Option shall expire on the end of the
Award Period and (iv) for a Participant whose employment
is terminated by Fannie Mae for Cause, an Option shall
expire upon the Participant’s termination.

	(c)
	 	Death of Permitted Transferee. Unless otherwise
provided by the Committee, an Option held by a Permitted
Transferee shall expire on the earlier of the date on
which it would expire pursuant to Section 2.4(a) or (b)
or the date 12 months following the Permitted
Transferee’s death.

	2.5
	 	Vesting; Forfeiture.

	(a)
	 	Vesting Generally. An Option shall be exercisable and
vested upon such terms and conditions or pursuant to such
schedule as the Committee shall determine. Except as
otherwise provided in this Section 2.5 or unless
otherwise specified by the Committee or in an Eligible
Employee’s employment agreement approved by the
Committee, an Option that is not vested upon a
Participant’s termination of employment shall be
forfeited. If a Participant’s employment is terminated by
Fannie Mae for Cause, an Option that is not vested upon
the Participant’s termination shall be forfeited.

	(b)
	 	Change in Control. The Committee, in its discretion,
may grant Options that by their terms shall become
immediately exercisable and fully vested upon a Change in
Control Event.

	(c)
	 	Retirement, Early Retirement, Total Disability or Death.
Unless otherwise specified by the Committee, an Option
shall become immediately exercisable and fully vested
upon the Participant’s Total Disability or the
Participant’s termination of employment by reason of
Retirement, Early Retirement or death.

C-9

 

	(d)
	 	Vesting Upon Termination with Separation Agreements.
Notwithstanding the foregoing, (i) for a Participant
who, prior to the termination of employment, executes
a separation agreement with Fannie Mae pursuant to
Fannie Mae’s Voluntary Separation Agreement program
(“VSA”) or Voluntary Separation Option program
(“VSO”), one-half of the portion of each Award that
would have vested within 12 months of the date of such
Participant’s termination of employment shall become
immediately exercisable and fully vested upon the
Participant’s termination; (ii) for a Participant who
accepts Fannie Mae’s offer to terminate employment
voluntarily and, prior to such termination, executes a
separation agreement with Fannie Mae pursuant to an
Elective Severance Window under the Federal National
Mortgage Association Discretionary Severance Benefit
Plan, the portion of each Award that would have vested
within 12 months of the date of such Participant’s
termination of employment by Fannie Mae, and one-half
of the portion of each Award that would have vested
within 13-24 months of the date of termination, shall
become immediately exercisable and fully vested upon
termination; and (iii) for a Participant who, prior to
the termination of his or her employment, executes a
separation agreement with Fannie Mae pursuant to a
Displacement Program under the Federal National
Mortgage Association Discretionary Severance Benefit
Plan or pursuant to the Fannie Mae Individual
Severance Plan, the portion of each Award that would
have vested within 12 months of the date of
termination of employment shall become immediately
exercisable and fully vested upon the Participant’s
termination. If the Committee approves an employment
agreement with an Eligible Employee that provides for
vesting of certain Awards upon the employee’s
termination, such Awards shall vest in accordance with
the terms of such Eligible Employee’s employment
agreement.

	(e)
	 	“EPS Challenge Grants.” Section 2.5(d) shall not
apply to Options granted under the “EPS Challenge
Grant” program established by the Board on January 18,
2000 or, if so provided by the Committee, to Options
granted under other special incentive Option programs.

	2.6
	 	Option Amendments or Waiver of Restrictions. Subject to Sections
1.5 and 8.5 and the specific limitations on Awards contained in the
Plan, the Committee from time to time may authorize, generally or in
specific cases only, for the benefit of any Participant who is an
Eligible Employee, any adjustment in the vesting schedule, the
restrictions upon or the term of an Award granted under this Article
II by amendment, waiver or other legally valid means. The amendment or
other action may provide, among other changes, for a longer or shorter
vesting or exercise period.

	2.7
	 	Gain Deferral. Any Participant who is eligible to participate in
the Fannie Mae Stock Option Gain Deferral Plan may elect to exercise a
Nonqualified Stock Option under the provisions of such plan.

	III.
	 	Stock Appreciation Rights

	3.1
	 	Grants. In its discretion, the Committee may grant to any Eligible
Employee Stock Appreciation Rights either concurrently with the grant
of another Award or in respect of an outstanding Award, in whole or in
part, or may grant to any Eligible Employee Stand-Alone SARs. Any
Stock Appreciation Right granted in connection with an Incentive Stock
Option shall contain such terms as may be required to comply with the
provisions of Section 422 of the Code (or any successor provision).
Each Stand-Alone SAR shall specify the Award Period for which the
Stand-Alone SAR is granted and shall provide that the Stand-Alone SAR
shall expire at the end of such Award Period. The Committee may extend
the Award Period by amendment of a Stand-Alone SAR.

	3.2
	 	Exercise of Stock Appreciation Rights.

	(a)
	 	Related Awards. Unless the Award Document
or the Committee otherwise provides, a Stock
Appreciation Right related to another Award
shall be exercisable at such time or times,
and to the extent, that the related Award
shall be exercisable.

C-10

 

	(b)
	 	Stand-Alone SARs. Stand-Alone SARs shall be exercisable
and vest upon such terms and conditions or pursuant to such
schedule as the Committee shall determine at the time of the
Award. Unless otherwise provided by the Committee or in an
Eligible Employee’s employment agreement approved by the
Committee, (i) in the case of a Participant’s termination of
employment for Cause, Stand-Alone SARs shall expire and no
longer be exercisable upon the Participant’s termination;
(ii) in the case of a Participant’s Total Disability or a
Participant’s termination of employment by reason of
Retirement, Early Retirement or death or having attained at
least age 55 with at least five years of service, Stand-Alone
SARs shall become immediately exercisable and fully vested
upon the Participant’s Total Disability or termination of
employment, and Stand-Alone SARs shall expire and no longer
be exercisable at the end of the Award Period; and (iii) in
the case of a Participant’s termination of employment for any
reason other than for Cause, Retirement, Early Retirement,
Total Disability or death or having attained at least age 55
with at least five years of service, Stand-Alone SARs shall
expire and no longer be exercisable on the earlier to occur
of (A) the end of the Award Period or (B) the date three
months following the Participant’s termination. The
Committee, in its discretion, may grant Stand-Alone SARs that
by their terms shall become immediately exercisable and fully
vested upon a Change in Control Event.

	3.3
	 	Payment.

	(a)
	 	Amount. Unless the Committee otherwise provides, upon
exercise of a Stock Appreciation Right and surrender of the
appropriate exercisable portion of any related Award, the
Participant shall be entitled to receive payment of an amount
determined by multiplying

	(i)
	 	the difference obtained by
subtracting the exercise price per
share of Common Stock under the
related Award (if applicable) or
the initial share value specified
in the Award from the Fair Market
Value on the date of exercise, by

	(ii)
	 	the number of shares of Common
Stock with respect to which the
Participant is exercising the Stock
Appreciation Right.

	(b)
	 	Form of Payment. The Committee, in its discretion, shall
determine the form in which payment shall be made of the
amount determined under paragraph (a) above, which may be
solely in cash, solely in shares of Common Stock (valued at
their Fair Market Value on the date of exercise of the Stock
Appreciation Right), or partly in shares and partly in cash.
If the Committee permits the Participant to elect to receive
cash or shares of Common Stock (or a combination thereof) on
such exercise, any such election shall be subject to such
conditions as the Committee may impose.

	IV.
	 	Restricted Stock Awards

	4.1
	 	Grants. The Committee, in its discretion, may grant one or more
Restricted Stock Awards to any Eligible Employee. Each Restricted
Stock Award Document shall specify the number of shares or units of
Common Stock to be issued to the Participant, the date of such
issuance, the consideration for the Restricted Stock, if any, to be
paid by the Participant, the restrictions imposed on the Restricted
Stock, and the conditions of release or lapse of such restrictions.
Promptly after the lapse of restrictions on Restricted Stock, shares
of Common Stock equal to the number of shares or units as to which the
restrictions have lapsed (or such lesser number as may be permitted
pursuant to Section 8.4) shall be delivered or credited to the
Participant or other person entitled under the Plan to receive the
shares. The Participant or such other person shall deliver to Fannie
Mae such further assurance and documents as the Committee may require.

	4.2
	 	Restrictions.

	(a)
	 	Pre-Vesting Restraints. Except as provided in
Section 1.9, shares or units of Restricted Stock may
not be sold, assigned, transferred, pledged or
otherwise disposed of or encumbered, either
voluntarily or involuntarily, until the restrictions
have lapsed.

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	(b)
	 	Dividend and Voting Rights. Unless otherwise provided in the
applicable Award Document, a Participant receiving shares (but not
units) of Restricted Stock shall be entitled to cash dividend and
voting rights for all shares of Common Stock issued even though they
are not vested, provided that such rights shall terminate immediately
as to any shares of Restricted Stock that cease to be eligible for
vesting. If provided in the applicable Award Document, a Participant
receiving units of Restricted Stock shall be entitled to cash dividend
and voting rights for such units even though they are not vested,
provided that such rights shall terminate immediately as to any units
of Restricted Stock that cease to be eligible for vesting.

	(c)
	 	Accelerated Vesting. Unless otherwise provided by the Committee or
in an Eligible Employee’s employment agreement approved by the
Committee, the restrictions on Restricted Stock shall lapse upon the
Participant’s Total Disability or termination of employment by reason
of Retirement, Early Retirement, or death, and, if provided in the
applicable Award Document, restrictions on Restricted Stock held for
more than one year from the Award Date by Participants shall lapse
upon a Change in Control Event.

	(d)
	 	Vesting Upon Termination with Separation Agreements.
Notwithstanding the foregoing, (i) for a Participant who, prior to the
termination of employment, executes a separation agreement with Fannie
Mae pursuant to Fannie Mae’s Voluntary Separation Agreement program
(“VSA”) or Voluntary Separation Option program (“VSO”), one-half of
the portion of each Award of Restricted Stock that would have vested
within 12 months of the date of such Participant’s termination of
employment shall become fully vested upon the Participant’s
termination; (ii) for a Participant who accepts Fannie Mae’s offer to
terminate employment voluntarily and, prior to such termination,
executes a separation agreement with Fannie Mae pursuant to an
Elective Severance Window under the Federal National Mortgage
Association Discretionary Severance Benefit Plan, the portion of each
Award of Restricted Stock that would have vested within 12 months of
the date of such Participant’s termination of employment by Fannie
Mae, and one-half of the portion of each Award of Restricted Stock
that would have vested within 13-24 months of the date of termination,
shall become fully vested upon termination; and (iii) for a
Participant who, prior to the termination of his or her employment,
executes a separation agreement with Fannie Mae pursuant to a
Displacement Program under the Federal National Mortgage Association
Discretionary Severance Benefit Plan or pursuant to the Fannie Mae
Individual Severance Plan, the portion of each Award of Restricted
Stock that would have vested within 12 months of the date of
termination of employment shall become fully vested upon the
Participant’s termination. If the Committee approves an employment
agreement with an Eligible Employee that provides for vesting of
certain Awards upon the employee’s termination, such Awards shall vest
in accordance with the terms of such Eligible Employee’s employment
agreement.

	(e)
	 	Forfeiture. Unless otherwise provided by the Committee or in an
Eligible Employee’s employment agreement approved by the Committee,
Restricted Stock as to which the restrictions have not lapsed in
accordance with the provisions of the Award or pursuant to Section
4.2(c) shall be forfeited upon a Participant’s termination of
employment. Upon the occurrence of any forfeiture of Restricted Stock,
the forfeited Restricted Stock shall be automatically transferred to
Fannie Mae without payment of any consideration by Fannie Mae and
without any action by the Participant.

	V.
	 	Performance Share Awards and Stock Bonuses

	5.1
	 	Grants of Performance Share Awards.

	(a)
	 	The Committee, in its discretion, may grant
Performance Share Awards to Eligible
Employees. An Award shall specify the maximum
number of shares of Common Stock (if any)
subject to the Performance Share Award and its
terms and conditions. The Committee shall
establish the specified period (a “performance
cycle”) for the

C-12

 

	 
	 	Performance Share Award and the
measure(s) of the performance of Fannie
Mae (or any part thereof) or the Eligible
Employee. The Committee, during the
performance cycle, may make such
adjustments to the measure(s) of
performance as it may deem appropriate to
compensate for, or reflect, any
significant changes that may occur in
accounting practices, tax laws and other
laws or regulations that alter or affect
the computation of the measure(s). The
Award Document shall specify how the
degree of attainment of the measure(s)
over the performance cycle is to be
determined.

	(b)
	 	In its discretion, the Committee may grant Performance
Share Awards which, by their terms, provide that, upon a
Change in Control Event, payments shall be made with
respect to a Performance Share Award held for more than
one year from the Award Date by an Eligible Employee,
based on the assumption that the performance achievement
specified in the Award would have been attained by the
end of the performance cycle. If the Committee approves
an employment agreement with an Eligible Employee that
provides for payments with respect to a Performance Share
Award upon the employee’s termination, payments shall be
made with respect to such Performance Share Awards in
accordance with the terms of such Eligible Employee’s
employment agreement.

	(c)
	 	Unless otherwise provided by the Committee or in an
Eligible Employee’s employment agreement approved by the
Committee, if an Eligible Employee’s employment is
terminated because of Retirement, Total Disability or
Early Retirement prior to the end of the performance
cycle, but at least 18 months after the first day of the
performance cycle, such Eligible Employee shall receive a
pro rata Performance Share Award, calculated as if the
Eligible Employee were employed by Fannie Mae at the end
of the performance cycle but adjusted to reflect the
portion of the performance cycle in which the Participant
actually was employed by Fannie Mae, payable in full as
soon as practicable after the end of the performance
cycle.

	(d)
	 	Unless otherwise provided by the Committee or in an
Eligible Employee’s employment agreement approved by the
Committee, if an Eligible Employee’s employment is
terminated because of the Eligible Employee’s death prior
to the end of the performance cycle, but at least 18
months after the first day of the performance cycle, the
Eligible Employee shall receive a pro rata Performance
Share Award, payable in full as soon as practicable after
the Eligible Employee’s death, in an amount that is based
upon the Committee’s assessment of the likelihood of
Fannie Mae’s success in attaining the performance
measures by the end of the performance cycle and the
portion of the performance cycle during which the
Eligible Employee was employed by Fannie Mae, and
calculated using the date of the Eligible Employee’s
death as the date for establishing the Fair Market Value
of such Award.

	(e)
	 	Unless otherwise provided by the Committee or in an
Eligible Employee’s employment agreement approved by the
Committee, if, after the end of the performance cycle, an
Eligible Employee’s employment is terminated because of
the Eligible Employee’s Retirement, Total Disability,
death or Early Retirement, all portions of the Eligible
Employee’s Performance Share Award not yet paid shall be
paid in full as soon as practicable thereafter, except to
the extent subject to a deferral election under Section
5.3.

	(f)
	 	Unless otherwise provided by the Committee or in an
Eligible Employee’s employment agreement approved by the
Committee, any Eligible Employee who is not employed by
Fannie Mae on the last day of a performance cycle or on
the date of a scheduled payment of any portion of a
Performance Share Award (determined without regard to any
deferral election under Section 5.3), other than by
reason of the Eligible Employee’s Retirement, Total
Disability, death or Early Retirement, shall forfeit such
payment and all future payments with respect to such
performance cycle.

	5.2
	 	Grants of Stock Bonuses. The Committee may grant a Stock Bonus to
any Eligible Employee in such amounts of shares of Common Stock and on
such terms and conditions as determined from time to time by the
Committee.

C-13

 

	5.3
	 	Deferred Payments. The Committee, in its discretion, may permit any
Eligible Employee to defer receipt of a Performance Share Award. Such
deferral shall be subject to such further conditions, restrictions or
requirements as the Committee may impose, subject to any vested rights
of the Eligible Employee.

	VI.
	 	Nonmanagement Director Options

	6.1
	 	Participation. Awards under this Article VI shall be made only to Nonmanagement Directors.

	6.2
	 	Annual Option Grants.

	(a)
	 	Annual Awards. On the first day of the
Director Term in 2004 and in each subsequent
year prior to the Plan Termination Date (each
of which shall be the Award Date), there shall
be granted automatically (without any action
by the Board or the Committee) to each
Nonmanagement Director then in office a
Nonqualified Stock Option to purchase 4,000
shares of Common Stock. Any Nonmanagement
Director appointed or elected to office during
a Director Term shall be granted automatically
(without any action by the Board or the
Committee) a Nonqualified Stock Option (the
Award Date of which shall be the date such
person takes office) to purchase the nearest
whole number of shares of Common Stock equal
to 4,000 multiplied by the number of partial
or full calendar months remaining in the
Director Term in which the Award is granted
divided by 12.

	(b)
	 	Maximum Number of Shares. Annual grants
that would otherwise cause the total Awards
under this Plan to exceed the maximum number
of shares of Common Stock under Section 1.5(b)
shall be prorated to come within such
limitation.

	6.3
	 	Option Price. The exercise price per share of Common Stock covered by each Option granted under
Sections 6.2 or 6.7 shall be 100 percent of the Fair Market Value on the Award Date.
Notwithstanding any provision of the Plan, an Option may not be modified so as to reduce the
exercise price of the Option. The exercise price of any Option granted under this Article shall be
paid in full at the time of each purchase, in cash or by check or in shares of Common Stock valued
at their Fair Market Value on the date of exercise of the Option, or partly in shares and partly in
cash.

	6.4
	 	Option Period and Ability to Exercise. Each Option granted under Sections 6.2 or 6.7 shall
provide that the Option shall expire ten years from the Award Date and shall be subject to earlier
termination as provided below. Each Option granted under Sections 6.2 or 6.7 shall vest and become
exercisable over a four-year period at a rate of 25 percent each year on the anniversary of the
date of grant.

	6.5
	 	Termination of Directorship. If an NMD Participant’s services as a member of the Board terminate
for any reason, any Option granted under Sections 6.2 or 6.7 held by the NMD Participant shall
immediately vest and may be exercised until the earlier of one year after the date of such
termination or the expiration of the stated term of the Option.

	6.6
	 	Adjustments. Options granted under Sections 6.2 or 6.7 shall be subject to adjustment as
provided in Section 8.2, but only to the extent that such adjustment is based on objective criteria
and is consistent with adjustments to Options or other Awards held by persons other than
Nonmanagement Directors.

	6.7
	 	Additional Option Awards. Under this Article VI, the Committee may grant additional Option
Awards to Nonmanagement Directors as appropriate, based on market compensation data or other
information or circumstances.

	VII.
	 	Nonmanagement Director Restricted Stock

	7.1
	 	Participation. Awards under this Article VII shall be made only to
Nonmanagement Directors. Neither the Plan nor any action taken under
the Plan shall give any NMD Participant the right to be reappointed or
renominated to serve as a member of the Board.

C-14

 

	7.2
	 	Amount of Awards. Each Nonmanagement Director who is a member of
the Board immediately following the annual meeting of the shareholders
of Fannie Mae in 2006 or 2010 shall be granted, immediately following
such annual meeting, an Award of shares of Restricted Stock (rounded
to the nearest full share) having an aggregate Fair Market Value on
the date of grant equal to $75,000 in 2006 and $90,000 in 2010. A
Nonmanagement Director who is newly appointed or elected after the
annual meeting of shareholders in 2006 or 2010 shall receive an Award
of shares of Restricted Stock equal to the number of shares (rounded
to the nearest full share) that would have been granted to such newly
appointed or elected Nonmanagement Director had he or she been a
member of the Board on the date of the annual meeting of the
shareholders of Fannie Mae in the year 2006 or 2010, as the case may
be, multiplied by the number of partial or full calendar months
remaining in the four-year Award cycle from the date of the
Nonmanagement Director’s appointment or election divided by 48.

	7.3
	 	Restrictions and Vesting.

	(a)
	 	Pre-Vesting Restrictions. Except as provided in
Section 1.9, shares of Restricted Stock may not be
sold, assigned, transferred, pledged or otherwise
disposed of or encumbered, either voluntarily or
involuntarily, until the restrictions have lapsed.

	(b)
	 	Dividend and Voting Rights. A NMD Participant
receiving shares of Restricted Stock shall be
entitled to cash dividend and voting rights for all
shares of Common Stock issued even though they are
not vested, provided that such rights shall
terminate immediately as to any Restricted Stock
that is forfeited under Section 7.3(e).

	(c)
	 	Vesting. Unless otherwise provided by the
Committee for Restricted Stock granted under
Section 7.5, the restrictions on Restricted Stock
granted under this Article VII shall lapse as
follows. On the day before each annual meeting of
Fannie Mae’s shareholders, each Restricted Stock
Award granted to a NMD Participant under this
Article VII shall vest, and the restrictions on
such Restricted Stock shall lapse, at a rate of 25%
per year (or by the appropriate pro-rata percentage
for Nonmanagement Directors newly appointed or
elected after the annual meeting in 2006 or 2010).
Promptly after the lapse of restrictions on
Restricted Stock, shares of Common Stock equal to
the number of shares or units as to which the
restrictions have lapsed (or such lesser number as
may be permitted pursuant to Section 8.4) shall be
delivered or credited to the NMD Participant or
other person entitled under the Plan to receive the
shares.

	(d)
	 	Accelerated Vesting. Unless otherwise provided
by the Committee for Restricted Stock granted under
Section 7.5, the restrictions on Restricted Stock
granted under this Article VII shall lapse upon the
NMD Participant’s membership on the Board
terminating because of (i) Total Disability, (ii)
death, or (iii) as to a Nonmanagement Director who
is elected to the Board by the shareholders, not
being renominated after reaching age 70.

	(e)
	 	Forfeiture. Unless otherwise provided by the
Committee for Restricted Stock granted under
Section 7.5, Restricted Stock granted under Article
VII as to which the restrictions have not lapsed in
accordance with the provisions of the Award or
pursuant to Section 7.3(c) or (d) shall be
forfeited upon the termination of a NMD
Participant’s membership on the Board. Upon the
occurrence of any forfeiture of Restricted Stock,
the forfeited Restricted Stock shall be
automatically transferred to Fannie Mae without
payment of any consideration by Fannie Mae and
without any action by the NMD Participant.

	7.4
	 	Adjustments. Restricted Stock granted under this Article VII shall
be subject to adjustment as provided in Section 8.2, but only to the
extent that such adjustment is based on objective criteria and is
consistent with adjustments to Restricted Stock or other Awards held
by persons other than Nonmanagement Directors.

	7.5
	 	Additional Restricted Stock Awards. Under this Article VII, the
Committee may grant additional Restricted Stock Awards to
Nonmanagement Directors as appropriate, based on market compensation
data or other information or circumstances.

C-15

 

	VIII.
	 	Other Provisions

	8.1
	 	Rights of Eligible Employees, Participants and Beneficiaries.

	(a)
	 	Employment Status. Status as
an Eligible Employee shall not be
construed as a commitment that
any Award will be made under this
Plan to an Eligible Employee or
to Eligible Employees generally.

	(b)
	 	No Employment Contract.
Nothing contained in the Plan (or
in any other documents related to
the Plan or to any Award) shall
confer upon any Participant any
right to continue in the employ
or other service of Fannie Mae or
constitute any contract or
agreement of employment or other
service, nor shall the Plan
interfere in any way with the
right of Fannie Mae to change
such person’s compensation or
other benefits or to terminate
the employment of such person,
with or without cause; provided,
however, that nothing contained
in the Plan or any related
document shall adversely affect
any independent contractual right
of any Participant without the
Participant’s consent.

	(c)
	 	Plan Not Funded. Awards
payable under the Plan shall be
payable in shares of Common Stock
or from the general assets of
Fannie Mae, and (except as
provided in Section 1.5(c)) no
special or separate reserve, fund
or deposit shall be made to
assure payment of Awards. No
Participant, Beneficiary or other
person shall have any right,
title or interest in any fund or
in any specific asset (including
shares of Common Stock, except as
expressly otherwise provided) of
Fannie Mae by reason of any Award
hereunder. Neither the provisions
of the Plan (or of any related
documents), nor the creation or
adoption of the Plan, nor any
action taken pursuant to the
provisions of the Plan shall
create, or be construed to
create, a trust of any kind or a
fiduciary relationship between
Fannie Mae and any Participant,
Beneficiary or other person. To
the extent that a Participant,
Beneficiary or other person
acquires a right to receive
payment pursuant to any Award
hereunder, such right shall be no
greater than the right of any
unsecured general creditor of
Fannie Mae.

	8.2
	 	Adjustments.

	(a)
	 	Events Requiring Adjustments.
If any of the following events
occur, the Committee shall make
the adjustments described in
Section 8.2(b): (i) any
recapitalization, stock split
(including a stock split in the
form of a stock dividend),
reverse stock split,
reorganization, merger,
combination, consolidation,
split-up, spin-off, combination,
repurchase or exchange of Common
Stock or other securities of
Fannie Mae, (ii) any issuance of
warrants or other rights to
purchase shares of Common Stock
or other securities of Fannie Mae
(other than to employees) at less
than 80 percent of Fair Market
Value on the date of such
issuance, (iii) a sale of
substantially all the assets of
Fannie Mae, or (iv) any other
similar corporate transaction or
event with respect to the Common
Stock.

	(b)
	 	Adjustments to Awards. If any
of the events described in
Section 8.2(a) occurs, then the
Committee shall, in the manner
and to the extent (if any) as it
deems appropriate and equitable,
(i) proportionately adjust any or
all of (1) the number and type of
shares of Common Stock that
thereafter may be made the
subject of Awards (including the
specific maximum set forth in
Section 1.5), (2) the number,
amount and type of shares of
Common Stock subject to any or
all outstanding Awards, (3) the
grant, purchase or exercise price
of any or all outstanding Awards,
(4) the shares of Common Stock or
cash deliverable upon exercise of
any outstanding Awards, or (5)
the performance standards
appropriate to any outstanding
Awards; or (ii) make provision
for a cash payment or for the
substitution or exchange of any
or all outstanding Awards based
upon the distribution or
consideration payable to holders
of Common Stock upon or in
respect of the event; provided,
however, in each case, that with
respect to Awards of Incentive
Stock Options, no adjustment
shall be made that would cause
the Plan to violate Section 422
or 424(a) of the Code or any
successor provisions thereto.

C-16

 

	8.3
	 	Compliance with Laws. The Plan, the granting and vesting of Awards
under the Plan and the issuance and delivery of shares of Common Stock
and the payment of money under the Plan or under Awards granted
hereunder are subject to compliance with all applicable federal and
state laws, rules and regulations (including but not limited to state
and federal securities law and federal margin requirements) and to
approvals by any listing, regulatory or governmental authority as may,
in the opinion of counsel for Fannie Mae, be necessary or advisable in
connection therewith. Any securities delivered under the Plan shall be
subject to such restrictions, and the person acquiring the securities
shall, if requested by Fannie Mae, provide such assurances and
representations to Fannie Mae, as Fannie Mae may deem necessary or
desirable to assure compliance with all applicable legal requirements.

	8.4
	 	Tax Withholding. Upon any exercise, vesting or payment of any Award
or upon the disposition of shares of Common Stock acquired pursuant to
the exercise of an Incentive Stock Option prior to satisfaction of the
holding period requirements of Section 422 of the Code (or any
successor provision), the Committee may make such provisions and take
such steps as it may deem necessary or appropriate for the withholding
by Fannie Mae of all federal, state, local and other taxes required by
law to be withheld, including without limitation, the right, at its
option, to the extent permitted by law (i) to require the Participant
(or Personal Representative or Beneficiary, as the case may be) to pay
or provide for payment of the amount of any taxes that Fannie Mae may
be required to withhold with respect to the transaction as a condition
to the release of the shares of Common Stock or the making of any
payment or distribution, or (ii)(a) to deduct from any amount payable
in cash, or (b) to reduce the number of shares of Common Stock
otherwise deliverable (or otherwise reacquire such shares), based upon
their Fair Market Value on the date of delivery, or (c) to grant the
Participant the right to elect reduction in the number of shares upon
such terms and conditions as it may establish for the amount of any
taxes that Fannie Mae may be required to withhold.

	8.5
	 	Plan Amendment, Termination and Suspension.

	(a)
	 	Board Authorization. Subject to this
Section 8.5, the Board may, at any time,
terminate or amend, modify or suspend the
Plan, in whole or in part. No Awards may
be granted during any suspension of the
Plan or after termination of the Plan, but
the Committee shall retain jurisdiction as
to Awards then outstanding in accordance
with the terms of the Plan.

	(b)
	 	Shareholder Approval. If any amendment
would (i) materially increase the benefits
accruing under the Plan, or (ii)
materially increase the aggregate number
of shares of Common Stock that may be
issued under the Plan (except as provided
in Section 8.2), then to the extent deemed
necessary or advisable by the Board or as
required by law or the rules of the NYSE,
such amendment shall be subject to
shareholder approval.

	(c)
	 	Amendments to Awards. Without limiting
any other express authority granted under
the Plan, but subject to its express
limits, the Committee may waive conditions
of or limitations on Awards, without the
consent of the Participant, and may make
other changes to the terms and conditions
of Awards that do not affect the
Participant’s rights and benefits under an
Award in any materially adverse manner.

	(d)
	 	Limitations on Amendments to Plan and
Awards. No amendment, suspension or
termination of the Plan or any change
affecting any outstanding Award shall,
without the written consent of the
Participant, Beneficiary or Personal
Representative, as applicable, affect in
any manner materially adverse to such
person any rights or benefits of any such
person or any obligations of Fannie Mae
under any Award granted under the Plan
prior to the effective date of such
change; however, any changes made pursuant
to Section 8.2 shall not be deemed to
constitute changes or amendments for
purposes of this Section 8.5.

C-17

 

	8.6
	 	Privileges of Stock Ownership. Except as otherwise expressly
authorized by the Committee or the Plan and expressly stated in an
Award Document, a Participant shall not be entitled to any privilege
of stock ownership as to any shares of Common Stock not actually
delivered to and held of record by the Participant. No adjustment
shall be made for dividends or other shareholder rights for which a
record date is prior to the date of delivery of such shares.

	8.7
	 	Effective Date of the Plan. The Plan shall be effective as of the
date of the meeting at which the shareholders of Fannie Mae approve
it.

	8.8
	 	Term of the Plan. Except for any Award pursuant to Section 7.2
granted to a Nonmanagement Director who is newly appointed or elected
to the Board during the 2010-2014 cycle, no Award shall be granted
after the Plan Termination Date. Unless otherwise expressly provided
in the Plan or in an applicable Award Document, any Award may extend
beyond the Plan Termination Date, and all authority of the Committee
with respect to Awards hereunder shall continue during any suspension
of the Plan and in respect of Awards outstanding on the Plan
Termination Date.

	8.9
	 	Governing Law/Construction/Severability.

	(a)
	 	Choice of Law. The Plan, the Awards, all
documents evidencing Awards, and all other
related documents shall be governed by, and
construed in accordance with the laws of
the District of Columbia, without reference
to its principles of conflicts of law.

	(b)
	 	Severability. If any provision shall be
held by a court of competent jurisdiction
to be invalid and unenforceable, the
remaining provisions of the Plan shall
continue in effect.

	8.10
	 	Captions. Captions and headings are given to the sections and
subsections of the Plan solely as a convenience to facilitate
reference. The headings shall not be deemed in any way material or
relevant to the construction or interpretation of the Plan or of its
provisions.

	8.11
	 	Effect of Change of Subsidiary Status. For purposes of the Plan
and any Award, if an entity ceases to be a Subsidiary, the employment
of all Participants who are employed by such entity shall be deemed
to have terminated, except any Participant who continues as an
employee of another entity within Fannie Mae.

	8.12
	 	Nonexclusivity of Plan. Nothing in the Plan shall limit or be
deemed to limit the authority of the Board or the Committee to grant
awards or authorize any other compensation, with or without reference
to the Common Stock, under any other plan or authority.

	8.13
	 	Plan Binding on Successors. The obligations of Fannie Mae under
the Plan shall be binding upon any successor corporation or
organization resulting from the merger, consolidation or other
reorganization of Fannie Mae, or upon any successor corporation or
organization succeeding to substantially all of the assets and
business of Fannie Mae. Fannie Mae agrees that it will make
appropriate provisions for the preservation of all Participants’
rights under the Plan in any agreement or plan that it may enter into
or adopt to effect any such merger, consolidation, reorganization or
transfer of assets.

C-18exv10w2

 

Exhibit 10.2

SEPARATION AGREEMENT AND GENERAL RELEASE

     THIS SEPARATION AGREEMENT AND GENERAL RELEASE (the “Agreement”) is made
and entered into by and between Paul Turner (“Employee”) residing at 10696
Henderson Road, Fairfax Station, VA 22039, and American Management Systems,
Incorporated (“AMS”) with its principal place of business at 4050 Legato Road,
Fairfax, VA, 22033, and is effective as of the date of execution by Employee.

     WHEREAS, Employee is employed by AMS as a Executive Vice President; and

     WHEREAS, pursuant to this Agreement Employee and AMS agree to end the
employment relationship; and

     WHEREAS, AMS wishes to provide Employee assistance in transitioning from
AMS employment and so has offered and Employee has agreed to accept this
Agreement as set forth below; and

     WHEREAS, the parties agree that it is in their mutual interest to resolve
all matters between them on an amicable basis;

     NOW, THEREFORE, in consideration of the mutual promises, covenants and
agreements set forth in this Agreement, the sufficiency of which the parties
acknowledge, it is agreed as follows:

     1. Separation
  from Employment 

     Employee’s last day as an AMS employee will be June 30, 2003 (the
“Separation Date”). However, Employee may perform services for AMS as a
consultant on an as-needed basis after Separation Date.

     2. Severance
  and Other Consideration 

     (a) In consideration for Employee’s promises in this Agreement, and in
full settlement of any actual or potential claims, AMS agrees to do the
following:

i) pay to Employee the sum of Four hundred thousand dollars ($
400,000) which constitutes an amount equal to one year of Employee’s
current base salary;

 

 

ii) pay to Employee amounts equal to 18 months of premiums for health
and dental insurance continuation coverage under any AMS health plans
that Employee is enrolled in as of Separation Date pursuant to Section
4980B of the Internal Revenue Code of 1986, as amended (the “Code”),
less the employee portion of such premiums.

iii) provide Employee with the option of recording an outgoing message
for his AMS voicemail box that contains information as to where he can
be reached. AMS will keep the outgoing message in the voicemail
system for three (3) months after the Separation Date. Employee has
provided AMS with the contents of this outgoing message and AMS has
approved of such message;

iv) provide Employee with executive outplacement services through
Right Management Consultants’ Professional Management Service program
for a period of up to nine (9) months after he first consults Right
Management Consultants; and

v) in any formal announcement concerning Employee’s departure the
reason for the separation will be set forth as “Employee is leaving
AMS to retire and pursue other interests”.

	(b)
	 	Within fifteen (15) business days following the receipt by AMS of
this Agreement signed by Employee, the payments referenced in
Section 2(a)(i) and (ii) will be made by direct deposit into
Employee’s Bank of America account into which his paychecks are
currently deposited. These payments shall be subject to all legally
required withholdings and deductions.

	(c)
	 	Employee understands that AMS will not provide him with severance
pay or any of the other benefits listed above if he revokes his
signature as allowed in Section 16 below.

     3. Consideration
  Acknowledgement 

     The parties agree that AMS’s promises in Section 2 are in full, final and
complete settlement of all claims Employee may have against AMS, its
affiliates, past and present officers, directors, employees, agents, successors
and assigns, and exceed those to which Employee

-2-

 

otherwise would be entitled absent his promises in this Agreement.

     4. Stock
  Options 

     Employee’s stock options with a grant date of March 6, 2003
(Non-qualified) shall fully vest on Separation Date. Moreover, notwithstanding
language to the contrary in the relevant stock option agreement signed by
Employee and the terms of the American Management Systems, Incorporated 1996
Amended and Restated Option Plan F, Employee shall retain the right to exercise
any of his outstanding stock options through August 31, 2003.

     5. Other
  Welfare Benefit Plans 

     This agreement does not affect in any way Employee’s rights to any vested
amounts in his accounts under the American Management Systems, Inc. 401(k)
Plan, the American Management Systems, Inc. WealthBuilder Plan, the American
Management Systems, Incorporated Deferred Compensation Plan, and the American
Management Systems, Incorporated StockBuilder Plan.

     6. Accrued
  Vacation 

     AMS will pay Employee any accrued but unused annual leave at current rate
of pay as of his Separation Date, in accordance with AMS policies. Such payment
will be disbursed by check made payable to Employee no later than the next
regularly scheduled payday after the Separation Date.

     7. Business
  Expenses 

     AMS will reimburse Employee for legitimate business expenses incurred on
or before Separation Date in accordance with AMS’s expense reimbursement
practices so long as such expenses are submitted on or before August 15, 2003.

     8. Non-Admission
  of Liability 

     Nothing in this Agreement shall be construed as an admission of liability
by AMS, its affiliates, or its past and present officers, directors, employees
or agents, and AMS specifically disclaims liability to or wrongful treatment of
Employee on the part of itself, its affiliates, and its past and present
officers, directors, employees and agents.

     9. No Pending
  Actions 

-3-

 

     Employee represents that he has not filed any complaints or charges
against AMS with the U.S. Department of Labor, the Equal Employment Opportunity
Commission, or with any other federal, state or local agency or court, and
covenants that he will not seek to recover on any claim released in this
Agreement. To the extent permitted by law, Employee promises that he will not
voluntarily assist any third party in pursuing any legal claim against AMS, and
he will immediately notify AMS if he is asked to provide such assistance.

     10. Legal
  Fees and Indemnification 

     In the event that Employee becomes a party to a lawsuit based on his
actions lawfully taken as an employee of AMS, AMS agrees to reimburse Employee
for his reasonable legal fees and expenses of legal counsel in defending
against such action, provided that Employee provides AMS written notice of such
action within five (5) business days of receiving service of such action and
further provided that Employee’s choice of legal counsel is subject to AMS’s
approval, which approval shall not be unreasonably withheld. Notwithstanding
the foregoing, AMS is under no obligation to pay for Employee’s legal fees if
AMS or its shareholders are bringing an action against Employee for fraud,
gross negligence, willful misconduct, embezzlement, misrepresentation,
misappropriation or similar wrongdoing. However, if Employee defends against
and prevails in such an action brought by AMS or its shareholders, Employee
shall be entitled to full reimbursement for all reasonable costs, fees, and
legal expenses. Further, in the event of such an action, the confidentiality
provisions of this agreement shall not apply to the extent disclosure is
necessary in the course of the litigation.

     With respect to any claim(s) that may be advanced against Employee personally
for actions lawfully taken during the ordinary course of his employment with
AMS, Employee shall be entitled to the same right to indemnification by AMS
that is afforded to similarly situated employees of AMS, namely the
indemnification rights that may exist under AMS’s insurance policies or in an
individual employment agreement. No provision in this Agreement shall be
construed to create any additional rights to indemnification.

     11. Ongoing
  Cooperation 

     In the event that a third party pursues a legal claim against AMS relating
in any way to any task or project on which Employee worked while at AMS, he
agrees to provide reasonable and lawful cooperation to AMS in its defense
against such claim. AMS shall pay any reasonable

-4-

 

expenses incurred by Employee in connection with such cooperation. Employee
voluntarily agrees to make himself available to AMS for interviews and to
provide AMS with truthful and accurate information including but not limited to
documents, testimony, or written or oral statements. Employee agrees to notify
AMS, directly or through counsel, within five (5) days of receipt of any
subpoena regarding his employment with AMS so that AMS may take any action that
it deems appropriate to protect its proprietary and other interests.

     12. General
  Release and Covenant Not to Sue 

     Employee covenants not to sue, and fully and forever releases and
discharges AMS, its subsidiaries, affiliates, divisions, successors and
assigns, together with its past and present shareholders, directors, officers,
employees, and agents (collectively, the “Releasees”) from any and all claims,
debts, liens, liabilities, demands, obligations, acts, agreements, causes of
action, suits, costs and expenses (including attorneys’ fees), damages (whether
pecuniary, actual, compensatory, punitive or exemplary) or liabilities of any
nature or kind whatsoever in tort, contract, or by federal, state or local
statute, regulation or order, law or equity or otherwise, whether now known or
unknown; provided, however, that nothing in this Agreement shall either waive
any rights or claims of Employee that arise after the date Employee signs this
Agreement or which, as a matter of law, cannot be released or waived.
Moreover, nothing in this Agreement shall impair or preclude Employee’s right
to claim reasonable expenses, legal fees or indemnification pursuant to
Sections 10 and 11, or to take action to enforce the terms of this Agreement.
This release includes but is not limited to claims arising under federal, state
or local laws prohibiting employment discrimination, including but not limited
to Title VII of the Civil Rights Act of 1964, as amended, the Age
Discrimination in Employment Act, as amended, or the Americans with
Disabilities Act; claims under the Worker Adjustment and Retraining
Notification Act; claims for attorneys’ fees or costs; workers’ compensation
claims; any and all claims regarding any employment contract, whether written,
oral, implied or otherwise; claims relating to AMS’s right to terminate its
employees; claims for salary, payments in lieu of extended leave, incentive
payments or any other remuneration, or any other claims under federal, state,
or local statute, regulation or ordinance, common law, or any other law
whatsoever. Employee expressly agrees and understands that this is a General
Release.

     13. Employment
  Verification 

-5-

 

     Employee shall direct all employment verification inquiries to Pat
Bradshaw, Vice President Human Resources Operations, who shall provide
requestor only Employee’s dates of employment and last job title and shall
confirm his most recent salary.

     14. Confidential
  Information and Return of Company Property 

     Employee acknowledges that all confidential information regarding the
business of AMS compiled by, created by, obtained by, or furnished to, Employee
during his employment with AMS is the exclusive property of AMS. On or before
Separation Date, Employee will return to AMS all originals and copies of any
material involving such confidential information. Employee further agrees that
such confidential information is a valuable and unique asset of AMS and agrees
that he will not at any time after execution of this Agreement, directly or
indirectly, divulge or use such information, whether or not such information is
in written or other tangible form unless required by law. Employee also will
return to AMS on or before Separation Date any items in his possession, custody
or control that are the property of AMS including, but not limited to, his
computer, employee manual, passwords, office equipment, identification card and
office keys.

     15. Non-Disparagement
  

     Subject to Employee’s obligation to provide truthful and accurate
information in legal proceedings, Employee agrees that he will not voluntarily
make any negative or disparaging statements (written or verbal) about AMS or
any of its directors, officers or employees.
It is not AMS management’s intent to disparage Employee’s work abilities or to
impede Employee’s ability to secure alternate employment. If Employee notifies
the AMS Chief Human Resources Officer that he believes he has been disparaged
by a specific AMS employee, AMS will take appropriate action to deter future
disparagement.

     16. Execution
  and Revocation Periods 

Employee acknowledges that he has been given at least twenty-one (21) days to
consider this Agreement and that he has seven (7) days from the date he
executes this Agreement in which to revoke it and that this Agreement will not
be effective or enforceable nor the payments and other benefits set forth in
Section 2(a) provided until after the seven (7) day revocation period ends.

-6-

 

Employee’s signature below, on a date before the expiration of the twenty-one
(21) day review period, shows that he has waived any of the remaining time
within the twenty-one (21) days. Revocation can be made by delivery of a
written notice of revocation to Garry Griffiths, Chief Human Resources Officer,
American Management Systems, Inc., 4050 Legato Road, Fairfax, Virginia, 22033,
by midnight on or before the seventh calendar day after Employee signs the
Agreement.

     17. Consultation
  with Counsel 

     Employee acknowledges that he has been advised to consult with an attorney
of his choice with regard to this Agreement. AMS agrees to contribute up to
$3,000 in legal expenses incurred by Employee for legal consultation provided
AMS receives an invoice for such expenses. Employee hereby acknowledges that
he understands the significance of this Agreement, and represents that the
terms of this Agreement are fully understood and voluntarily accepted by him.

     18. Binding
  Effect 

     This Agreement shall be binding on AMS and Employee and upon their
respective heirs, administrators, representatives, executors, successors and
assigns, and shall run to the benefit of the Releasees and each of them and to
their respective heirs, administrators, representatives, executors, successors
and assigns.

     19. Non-Compete,
  Non-Solicitation Provisions 

     Employee acknowledges that in the course of his employment with AMS he has
been exposed to a significant amount of highly confidential information about
AMS and its clients, business practices and strategies and that even
inadvertent disclosure of this information would cause AMS great harm.
Accordingly Employee agrees that:

	a.
	 	for twelve (12) months from the Separation Date (the “Restricted
Period”) he will not, on his own behalf or on behalf of any other
person or entity, directly or indirectly solicit for the provision of,
or provide competitive products or services to, any AMS customers for
which he provided products and services on behalf of AMS during the two
(2) years prior to the Separation Date, or any prospective customers
that AMS was actively soliciting to become clients during the two (2)
years prior to his Separation Date and in which

-7-

 

	 
	 	Employee had any involvement in the solicitation or proposal process.
“Competitive Products or Services” means products or services, which are
in whole or in part similar to AMS’s proprietary products or to services
then available from AMS Innovation and Transformation business unit on
the Separation Date.

	b.
	 	during the Restricted Period Employee will not directly or
indirectly, on his own behalf or in aid of another person or
entity, hire or engage or solicit for hire or engagement any
individual who was an employee of AMS in the three (3) months
prior to the solicitation or hire.

	c.
	 	Employee agrees that the above restrictions are reasonable—
including the short length of time, and the limitation as to AMS
customers and prospective customers—and do not unreasonably
restrict his ability to earn a living after the Separation Date.
Employee further agrees that these restrictions protect AMS’s
legitimate business interests. Employee also agrees that in
addition to any other remedies, including an action for damages,
AMS also may seek injunctive relief against Employee for
violation of this Section.

     At the sole discretion of AMS, any of the provisions of paragraph 19 may
be waived by the Chief Human Resources Officer, but such waiver must be in
writing.

     20. Entire
  Agreement 

     This Agreement sets forth the entire agreement between Employee and AMS,
and fully supersedes any and all prior agreements or understandings between
them regarding its subject matter; provided, however, that nothing in this
Agreement is intended to or shall be construed to modify, impair or terminate
any obligation (a) of Employee pursuant to the AMS Confidentiality and
Intellectual Property Rights Agreement signed by Employee on January 7, 2000,
that by its terms continues after Employee’s separation from AMS’s employment
(copy attached as Exhibit A), or (b) of Employer pursuant to any agreements
establishing the terms of benefit or long term compensation plans with the
exception of any stock option agreements.

     21. Amendment
  

     This Agreement may be modified only by written agreement signed by both
parties.

-8-

 

Employee acknowledges that he has not relied upon any statement or
representation, written or oral, by any AMS Releasee that is not set forth or
referenced in this Agreement.

     22. Choice
  of Law 

     This Agreement shall be governed in all respects by the law of the
Commonwealth of Virginia, without regard to its conflict of laws principles.

     23. Confidential
  Nature of Agreement 

     Employee agrees to keep both the existence and the terms of this Agreement
confidential and not reveal its contents to any person or entity (including
former and current employees of AMS). Notwithstanding the foregoing, Employee
may discuss this Agreement with his attorney, immediate family members,
financial consultants, or as otherwise required by law. However, Employee must
advise whomsoever he tells that he/she has the same confidentiality obligations
as Employee. This confidentiality provision is an essential part of the
consideration for AMS to enter into this Agreement and if breached, AMS would
be irreparably harmed and entitled to recover damages.

     24. Counterparts
  

     This Agreement may be signed in counterparts and each such counterpart
shall be deemed to be an original but together all such counterparts shall be
deemed a single agreement.

     25. Interpretation
  and Severability 

     The language in this Agreement shall be construed as a whole and will be
given its fair meaning. This Agreement will not be interpreted for or against
any party. In the event that any one or more of the provisions contained
herein shall for any reason be held to be unenforceable in any respect under
the law of any state or of the United States, such unenforceability shall not
affect any other provision of this Agreement, but, with respect only to that
jurisdiction holding the provision to be unenforceable, this Agreement shall be
construed as if such unenforceable provision had never been in the Agreement.

     26. Arbitration
  

     Any dispute or controversy arising under or in connection with this
Agreement shall be settled by arbitration, in accordance with the Employment
Arbitration Rules and procedures of

-9-

 

the American Arbitration Association. Arbitration shall occur before a
single arbitrator, provided, however, that if the parties cannot agree on the
selection of such arbitrator within thirty (30) days after the matter is
referred to arbitration, each party shall select one arbitrator and those
arbitrators shall jointly designate a third arbitrator to comprise a panel of
three arbitrators. The decision of the arbitrator shall be rendered in
writing, shall be final, and may be entered as a judgment in any court in the
Commonwealth of Virginia. AMS and the Employee each irrevocably consent to the
jurisdiction of the federal and state courts located in Virginia for this
purpose. The arbitrator shall be authorized to allocate the costs of
arbitration between the parties. Notwithstanding the foregoing, AMS, in its
sole discretion, may bring an action in any court of competent jurisdiction to
seek injunctive relief in order to avoid irreparable harm and such other relief
as AMS shall elect to enforce sections 11, 14, 15, and 19.

PLEASE READ CAREFULLY. THIS

AGREEMENT AND GENERAL RELEASE INCLUDES A

RELEASE OF ALL KNOWN AND UNKNOWN CLAIMS. EMPLOYEE’S
 VOLUNTARY SIGNATURE
BELOW ACKNOWLEDGES THAT HE HAS READ THIS
 AGREEMENT, UNDERSTANDS ITS TERMS, AND
HAS ENTERED INTO IT
 KNOWINGLY.

  	 	 	 	 	 	 
	Dated:
	
          06/05/03
          

          
	 	 	 	/s/ Paul A. Turner

         
  (EMPLOYEE
        NAME)
	 	 
	Dated:
	
          06/05/03
          

          
	 	 	 	AMERICAN MANAGEMENT SYSTEMS,

        INCORPORATED
	 	 
	 	 	 	 By: 	 	/s/ Garry
          Griffiths
           

        

         Garry Griffiths, EVP and Chief HR
          Officer

-10-

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