Document:

exv10w10

 

Exhibit 10.10

EMPLOYMENT AGREEMENT

     This Employment Agreement is entered into by and between Wayne M.
Rehberger (“Executive”) and XO Communications, Inc., a Delaware corporation
(“Employer” or the “Company”), executed this
31st day of December 2001, but
effective as of September 25, 2000 (the “Commencement Date”).

WITNESSETH:

     WHEREAS, Employer is engaged in the business of providing high-quality,
non-mobile telecommunications services to the rapidly growing business market;
and

     WHEREAS, Executive has skills and experience in telephony generally and
with the technology associated with Employer’s business specifically; and

     WHEREAS, Employer desires to obtain Executive’s services for the conduct
of its business, and Executive desires to be employed in such business by and
for Employer;

     NOW, THEREFORE, in consideration of the premises and the mutual covenants
herein set forth, the parties hereto agree as follows:

     1. Employment. Employer acknowledges and agrees that it hired
Executive as its Senior Vice President, Finance as of the Commencement Date and
that, effective November 11, 2000, it promoted Executive to Senior Vice
President, Chief Financial Officer, and Executive acknowledges and agrees that
he accepted such employment and promotion upon the terms and conditions
hereinafter set forth.

     2. Duties.

          a. Executive shall report directly to Employer’s Chief Executive
Officer and shall perform his services within the framework of the
policies, objectives and
Bylaws of Employer. In his corporate capacity, Executive (i) shall
exercise general
supervisory responsibility and management authority over Employer’s
financial and
accounting functions and, effective as of the date of Executive’s
promotion to Chief
Financial Officer, as Employer’s principal accounting and financial
officer, and (ii) shall
perform such other duties commensurate with his position as may be
assigned to him
from time to time by Employer’s Chairman and Chief Executive Officer or
board of directors (the “Board of Directors”).

          b. Executive shall devote substantially all his business time, attention
and energies to the performance of his duties and functions under this
Employment
Agreement and shall not during the term of his employment hereunder be
engaged in
any other substantial business activity for gain, profit or other
pecuniary advantage.
Executive shall faithfully, loyally and diligently perform his assigned
duties and functions
and shall not engage in any activities whatsoever which conflict with his
obligations to Employer during the term of his employment hereunder.

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     3. Term. The term of this Employment Agreement shall commence on the
Commencement Date and, unless terminated earlier pursuant to
paragraph 12 hereof,
shall continue through September 25, 2003 (the “Initial Term”), and
thereafter shall
continue unless and until such time as (i) either party hereto
notifies the other, upon sixty
(60) days prior written notice, that this Employment Agreement will
be terminated at the
end of the Initial Term or the later expiration of such sixty day
notice period, or (ii)
Executive’s employment is otherwise terminated pursuant to paragraph
12 hereof (the
“Extended Term”) (the Initial Term, together with the Extended Term,
if any, being
referred to herein as the “Employment Term”).

     4. Compensation. Employer shall pay to Executive, in consideration of
and as compensation for the services agreed to be rendered by Executive
hereunder, the following:

          a. Base Salary. During the Employment Term, the Company shall
pay to Executive a Base Salary of $250,000 per annum; provided that
the amount of
such Base Salary shall be reviewed at least annually and may, in
Employer’s sole
discretion, be increased by Employer from time to time during the
Employment Term in
light of the conditions then existing and the services then being
rendered by Executive,
in which case Executive’s Base Salary shall be such higher amount as
may be
determined by Employer (such annual Base Salary, as in effect from
time to time, being
referred to herein as the “Base Salary”). The Base Salary shall be
payable in
accordance with Employer’s normal payroll schedule, less appropriate
deductions for
federal, state and local income taxes, FICA contributions and any
other deductions
required by law or authorized by Executive.

          b. Annual Performance Bonus. In addition to the Base Salary,
Executive shall be entitled to receive an annual performance bonus
(the “Annual Bonus”)
during each year of service during the Employment Term (each such year
being referred
to as an “Annual Bonus Period”), in an amount, if any, as may be
determined by the
compensation committee of the Board of Directors (the “Compensation
Committee”)
and/or the Board of Directors in their complete discretion, with a
target of 50% of the
Base Salary payable during such Annual Bonus Period, based on
Executive’s
performance against objectives for the prior year of service, provided
that Executive’s
eligibility to receive the Annual Bonus shall be subject to and
conditioned upon
Executive’ continuing to be employed by Employer on the date of
payment of the Annual
Bonus. Each Annual Bonus shall be payable in accordance with
Employer’s normal
annual bonus payment schedule, less appropriate deductions for
federal, state, and local
income taxes, FICA contributions and any other deductions required by
law or authorized by Executive.

          c. Options.

          (i) Grant of Compensatory Options. Effective as of the
Commencement Date, Employer granted to Executive, pursuant to Employer’s Stock
Option Plan (“Plan”) and subject to the terms and conditions set forth in this
paragraph 4(c), an option to acquire 250,000 shares (the “Compensatory
Options”) of Employer’s Class A voting common stock (“Common Stock”) on the
terms set forth in Annex A hereto. The shares of Employer’s Common Stock that
will be issued on exercise of the Compensatory Options are among the Shares
covered by the Form S-8 Registration Statement previously filed and currently
in effect covering awards made under the Plan,

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such
that, upon issuance and distribution of such shares to
Executive, there are no restrictions under federal or state
securities laws on the further transfer of such shares, other than
restrictions imposed by virtue of Executive’s status as an officer
or director of the Company or as may otherwise be imposed by law
with respect to unrestricted shares. In addition, the Company shall
ensure that the provisions of Rule 16b-3 under the Securities
Exchange Act of 1934, as amended (“Exchange Act”) are applicable to
the grant and distribution of the Compensatory Options, and that the
distribution of the Compensatory Options shall not constitute a
“purchase” of the Common Stock pursuant to Section 16(b) of the
Exchange Act.

          (ii) Grant of Inducement Options. At or prior to the Commencement
Date, and subject to the terms and conditions set forth in this paragraph 4(c),
the employer granted to Executive, pursuant to the Plan, an option to acquire
another 25,000 shares of Employer’s Common Stock on the terms set forth in
Annex A hereto (the “Inducement Options”). The shares of Employer’s
Common Stock that will be issued on exercise of the Inducement Options are
among the shares covered by the Form S-8 Registration Statement previously
filed and currently in effect covering awards made under the Plan, such that,
upon issuance and distribution of such shares to Executive, there are no
restrictions under federal or state securities laws or regulations on the
further transfer of such shares, other than restrictions imposed by virtue of
Executive’s status as an officer or director of the Company or as otherwise may
be imposed by law with respect to unrestricted shares. In addition, the
Employer shall exercise its best efforts to ensure that the provisions of Rule
16b-3 under the Exchange
Act are applicable to the grant of the Inducement Options and any
subsequent
distribution of the shares issued upon exercise thereof, and that the
distribution of such shares to Executive shall not constitute a
“purchase” of Common Stock pursuant to
Section 16(b) of the Exchange Act. The Compensatory Options and the
Inducement
options are collectively referred to as the “Options”.

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          (iii) Vesting. The Options shall be subject to vesting schedules, as
follows:

	 	 	 	 	 
	Period of Executive’s	 	Portion of Compensatory
	Continuous Employment from	 	Option Which Becomes
	the Commencement Date
	 	Exercisable

	After one year
	 	 	25	%
	Monthly thereafter
	 	 	2.083	%

Following four (4) years of continuous relationship with the Employer
from the Commencement Date, the Compensatory Options will be 100% vested.

	 	 	 	 	 
	Number of Years of Continuous	 	Shares Available
	Employment from the Effective	 	upon Exercise of the
	Date of this Agreement
	 	Inducement Options

	1
	 	 	6,250	 
	2
	 	 	6,250	 
	3
	 	 	6,250	 
	4
	 	 	6,250	 

          Executive may, in his sole discretion, elect to defer vesting of the
Compensatory or the Inducement Options by delivering to the Employer a written
notice of such election no later than December 31 of the calendar year
immediately preceding the calendar year in which such vesting would otherwise
occur. Any such election shall be irrevocable and shall set a specific date for
the vesting of such Options; provided that Executive may also specify that the
applicable Options shall vest on the earlier of such specified date or the
termination of Executive’s employment hereunder. In the event of such election,
Executive shall indemnify and hold harmless Employer from any and all
withholding amounts and penalties and interest associated therewith that may be
assessed by the Internal Revenue Service or any relevant state of local taxing
authority in connection with any such deferral by Executive in the vesting of
any of the Options and the recognition of income associated therewith.

          (iv) Termination. Upon termination of employment for any reason
other than (w) termination by Employer (other than for Cause) after the
occurrence of a Change in Control, (x) permanent disability (as defined below)
or (y) death or (z) by Executive upon establishment of Constructive
Termination, the unvested portion (if any) of the Options shall immediately
expire and be forfeited. If termination of employment occurs because of
permanent disability or death, Executive shall be deemed to have one additional
year of continuous employment from the date of death or permanent disability
for purposes of applying the vesting schedules. If termination of employment
occurs upon establishment of Constructive Termination or if there is a
termination by Employer (other than for Cause) after the occurrence of a Change
in Control, vesting of the Options shall occur upon the final effectiveness of
such Constructive Termination or the effectiveness of such termination by
Employer (other than for Cause) after the occurrence of a Change of Control.

          (v) Exercise of Options. Executive’s right to exercise the Options

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shall be governed by the terms of the Employer’s Stock Option Plan and the
individual option letter agreements issued to Executive.

          (vi) Withholding. Upon the vesting of any Inducement Options, or
in connection with the exercise of any Compensatory Options, Executive
shall pay to Employer an amount equal to such amount as Employer shall be
obligated to remit to the Internal Revenue Service or any relevant state or
local taxing authority as withholding attributable to the compensation
evidenced by the Inducement Options that have vested. At the discretion of
the Compensation Committee, Executive may pay such amount either in cash or
by delivery to the Company of a number of shares of Common Stock (or
proceeds from the sale thereof) having a Fair Market Value equal to such
withholding amount (which delivery may be made by an instruction to the
Company to retain a portion of the shares available upon exercise of the
Compensatory Options, or shares available upon exercise of Inducement
Options, otherwise distributable to Executive or by an instruction to the
selling broker to remit such sales proceeds, otherwise distributable to
Executive, to the Company).

          (vii) Adjustments. In the event that the Common Stock is changed
into or exchanged for a different number or kind of securities of Employer
or of another entity (by reason of merger, consolidation, recapitalization,
reclassification, stock split, stock dividend, stock combination or
otherwise), or if there is a distribution of cash, securities or other
property made to the holders of the Common Stock (other than cash dividends
made out of current earnings of Employer) then an appropriate and equitable
adjustment shall be made in the number and kind of securities issuable upon
exercise of the Options hereunder, with a view towards preserving the value
to Executive of the rights granted pursuant to this paragraph 4(c). Without
limiting the generality of the foregoing, in the event that an adjustment
is required pursuant to the terms of any options, warrants or convertible
securities of Employer pursuant to any event of the kind specified above,
at least an equivalent adjustment shall be required pursuant to this
paragraph 4(c)(vii). In the event any adjustment is required under this
paragraph 4(c)(vii), appropriate conforming adjustment shall be made to the
exercise price of the Compensatory Options, as appropriate, to all
references to numbers of Inducement Options and/or to the number of shares
covered by the Compensatory Options, as appropriate, contained in this
paragraph 4(c), to the definition of Common Stock, and to any other
provisions of this paragraph 4(c) as necessary to accomplish the intent of
this subparagraph (vii).

               5. Certain Definitions. For purposes of this Agreement:

          “Change of Control” shall mean the occurrence of any of the
following events:

               (A) The Company is merged or consolidated or reorganized
into or with another company or other legal entity, other than a merger or
consolidation or reorganization into or with a company or other legal entity
that is an affiliate of Craig O. McCaw, and as a result of such merger,
consolidation or reorganization less than a
majority of the combined voting power of the then-outstanding securities
of such company or person immediately after such transaction is held directly
or indirectly in the aggregate by the holders of voting securities of the
Company immediately prior to such sale or transfer, including voting
securities issuable upon exercise or conversion of options, warrants or other
securities or rights;

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               (B) The Company sells or otherwise transfers all or
substantially all of its assets to any other company or other legal
entity, other than a such a sale or transfer to a company or other legal
entity that is an affiliate of Craig O. McCaw, and as a result of such
sale or other transfer of assets, less than a majority of the combined
voting power of the then-outstanding securities of such company or person
immediately after such sale or transfer is held directly or indirectly in
the aggregate by the holders of voting securities of the Company immediately
prior to such sale or transfer, including voting securities issuable
upon exercise or conversion of options, warrants or other securities
or rights;

               (C) There
is report filed on Schedule 13D or Schedule 14D-1
(or any successor schedule, form or report), each as promulgated pursuant to
the Securities Exchange Act of 1934, as amended (the “Exchange Act”),
disclosing that any person (as the term “person” is used in Section 13(d)(3)
or Section 14(d)(2) of the Exchange Act) other than Craig O. McCaw and his
affiliates has become the beneficial owner (as the term “beneficial owner” is
defined under Rule 13d-3 or any successor rule or regulation promulgated under
the Exchange Act) of securities representing 50% or more of the voting
securities of the Company, including voting securities issuable upon exercise
or conversion of options, warrants or other securities or rights;

               (D) Notwithstanding
the foregoing provisions of subparagraphs
(A), (B), (C) and (D) hereof, a “Change of Control” shall not be deemed to
have occurred solely because Craig O. McCaw or one or more of his affiliates,
or Wendy P. McCaw or a combination thereof, has converted some or all of the
shares of Class B common stock of the Company held by any of them into shares
of Class A common stock of the Company.

               (E) Notwithstanding the foregoing provisions of subparagraphs
(C) and (D) hereof, a “Change of Control” shall not be deemed to have occurred
solely because (x) the Company, (y) an entity in which the Company directly or
indirectly beneficially owns 50% or more of the voting securities, or (z) any
Company-sponsored employee stock ownership plan or other employee benefit plan
of the Company, either files or becomes obligated to file a report or proxy
statement under or in response to Schedule 13D, Schedule 14D-1, Form 8-K or
Schedule 14A (or any successor schedule, form or report or item therein) under
the Exchange Act, disclosing beneficial ownership
by it of voting securities, whether in excess of 50% or otherwise, or
because the
Company reports that a change of control of the Company has or may have
occurred or
will or may occur in the future by reason of such beneficial ownership.

               (F) Notwithstanding the foregoing provisions of subparagraphs
(A) through (D) above, no Change in Control shall result from a merger,
consolidation or reorganization of the Company with any entity in which Eagle River
Investments, L.L.C. has prior to such merger, consolidation or reorganization invested at
least $10,000,000 in equity.

          “Fair Market Value” of a share of Common Stock shall mean, as of any
given date, (i) the closing price of a share of Common Stock on the
principal exchange on which Common Stock then trades, if any, on the day
previous to such date, or, if shares were not traded on the day previous
to such date, then on the next preceding trading day during which a sale
occurred; or (ii) If such Common Stock is not traded on an exchange but is
quoted on NASDAQ or a successor quotation system, (1) the last

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sales price (if the Common Stock is then listed as a National Market Issue
under the NASDAQ National Market System) or (2) the mean between the closing
representative bid and asked prices (in all other cases) for the Common
Stock on the day previous to such date (or, if shares were not traded on the
day previous to such date, then on the next preceding trading day during
which a sale occurred), as reported by NASDAQ or such successor quotation
systems.

          “Cause” shall have the meaning ascribed in Paragraph 12(b)
below.

          “Permanent Disability” shall have the same meaning as “permanent and
total disability,” as defined in the Employer’s Stock Option Plan.

     6. Additional Options The Compensation Committee of the Board of
Directors of Employer may, in its discretion, grant to Executive,
pursuant to Employer’s
Stock Option Plan, additional options to acquire shares of Employer’s
Common Stock
(“Additional Options”). Except as otherwise provided herein, the terms
and conditions of
such Additional Options shall be as determined by Employer in its sole
discretion.
Executive’s rights with respect to any Additional Options shall be
separate from (and in
addition to) the rights set forth in paragraph 4(c) above with respect
to the
Compensatory Options and Inducement Options.

     7. Benefits. During the Employment Term, Executive shall be entitled to
participate in all group health, major medical, pension and profit
sharing, 401(k) and
other benefit plans maintained by Employer and provided generally to its
executive
officers, on the same terms as apply to participation therein by
management generally
(except as otherwise provided herein). Further, during the Employment
Term, Executive
shall be entitled to participate in all fringe benefit programs and
shall receive all
perquisites if and to the extent that Employer establishes and makes
such benefits and
perquisites available to management generally, including, but not
limited to, Employer-paid long-term disability insurance and life insurance coverage.

     8. Expenses. During the Employment Term, Employer shall reimburse
Executive for all reasonable travel, entertainment and other business
expenses incurred or paid by Executive in performing his duties and functions hereunder.

     9. Vacations. Executive shall be entitled to such vacations, holidays,
sick leave and personal time off as is allowed under the policies of Employer
to management generally (except as otherwise provided herein).

     10. Non-Competition: Non-Solicitation.

     a. During the Employment Term and (except as provided in paragraph 12
herein) for a period of one years thereafter, Executive shall not enter
into or participate in any business competitive to the business carried on by Employer.

     b. During the Employment Term and (except as provided in paragraph 12
herein) for a period of one years thereafter, Executive shall not (i)
directly or indirectly cause or attempt to cause any employee of Employer or any of its
affiliates to leave the employ of Employer or any affiliate of Employer, (if) in any way
interfere with the relationship between Employer and any employee or between an affiliate of
Employer and any employee of such an affiliate, or (iii) interfere or
attempt to interfere with any

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transaction in which Employer or any of its affiliates was involved during
the Employment Term.

     c. The provisions of
this paragraph 10 shall survive the expiration and/or termination of this Employment Agreement.

     11. Confidential
Information. During the Employment Term and for a period of two years thereafter, Executive will not use for his own advantage or
disclose any proprietary or confidential information relating to the business
operations or properties of Employer, any affiliate of Employer or any of their respective
customers, suppliers, landlords, licensors or licensees. Upon the expiration or termination of
the Employment Term, upon Employer’s request, Executive will surrender and deliver to
Employer all documents and information of every kind relating to or connected with
Employer and its affiliates and their respective businesses, customers, suppliers,
landlord, licensors and licensees. The foregoing confidential information provisions shall not
apply to information which: (i) is or becomes publicly known through no wrongful
act of the Executive, (ii) is rightfully received from any third party without
restriction and without breach by Executive of this Employment Agreement; or (iii) is
independently developed by Executive after the term of his employment hereunder or is
independently developed by a competitor of Employer at any time. The provisions of this
paragraph 11 shall survive the expiration and/or termination of this Employment Agreement.

     12. Termination.

          a. Automatic Termination Upon Death. In the event of Executive’s
death during the Employment Term, Executive’s employment hereunder shall
be automatically terminated upon the date of death. As soon as reasonably
practicable following Executive’s death, Employer shall pay to Executive’s
Representative (defined below in paragraph 22) (i) Executive’s accrued but unpaid Base Salary
and Annual Bonus, through the last day of the month of his death, and (ii) any
amount due hereunder for accrued but unused vacation time as of the date of death.
In addition, Executive’s Representative shall be entitled to exercise Executive’s
rights with respect to the Compensatory Options and/or the Inducement Options, as appropriate,
as set forth in Paragraph 4(c) above, and Executive’s rights with respect to the
Options, as provided herein and in the stock option agreement(s) pertaining thereto.

          b. Termination by Employer. During the Initial Term, Employer shall
be entitled to terminate Executive’s employment hereunder only upon the
establishment of “Cause” or the “Permanent Disability” of Executive (as those terms
are defined below) by giving written notice to that effect to Executive. During any
Extended Term, Employer Shall be entitled to terminate Executive’s employment hereunder (i) upon
the establishment of Cause or the Permanent Disability of Executive, by
giving written notice to that effect to Executive or (ii) for any other reason or for no
reason upon 12 months prior written notice to Executive.

          For purposes hereof, the term “Cause” means either (1) Executive’s
failure to substantially perform his duties and functions as contemplated
hereunder, if such failure constitutes gross neglect or willful malfeasance;
(2) Executive’s committing fraud or embezzlement or otherwise engaging in
conduct that results in Executive being convicted of a felony from which all
appeals have been exhausted; (3) Executive’s intentionally acting in a manner
which is materially detrimental or damaging to

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Employer’s reputation, business, operations or relations with its employees,
suppliers or customers, without taking reasonable steps to remedy such
actions promptly after receiving written notice thereof from Employer; (4)
Executive’s chronic or habitual abuse of alcohol or prescription drugs or
controlled substances; or (5) Executive’s committing any other material
breach of this Employment Agreement without taking reasonable steps to cease
or remedy such breach within thirty (30) days after Executive’s receipt of
written notice from Employer specifically identifying the nature of and
circumstances relevant to any such claimed material breach by Executive.

          For purposes hereof the term, “Permanent Disability” means: (i)
Executive’s failure to devote full normal working time as required herein to
his employment hereunder for a period of at least 90 consecutive normal
business days (or for at least a majority of the normal business days in any
consecutive 180-day period); and (ii) the existence of an illness or
incapacity (either physical or mental) affecting Executive which, in the
reasonable opinion of a Qualified Physician, is likely to be of such
character or severity that Executive would be unable to resume devoting his
full normal working time, as required herein, to his employment hereunder for
a period of at feast nine consecutive months; the term “Qualified Physician”
means an impartial physician competent to diagnose and treat the illness or
condition which Executive is believed to be suffering, selected by Employer
and reasonably acceptable to Executive (or if Executive is then incapable of
acting for himself, Executive’s Representative), who shall have
personally
examined Executive and shall have personally reviewed Executive’s relevant
medical records; provided Employer shall bear the costs of such Qualified
Physician’s services and Executive agrees to submit to an examination by such
Qualified Physician and to the disclosure of Executive’s relevant medical
records to such Qualified Physician.

          The date upon which any termination effected pursuant to this
subparagraph 12(b) shall be effective is set forth in subparagraph 12(d), and
the effect of any such termination shall be as described in
subparagraphs
12(e) and (f).

          c. Termination by Executive. During the Initial Term, Executive
shall be entitled to terminate his employment hereunder only upon the
establishment of “Constructive Termination” (as that term is defined below),
by giving written notice to that
effect to Employer. During any Extended Term, Executive shall be entitled to
terminate
his employment hereunder (i) upon the establishment of Constructive
Termination, by giving notice to that effect to Employer or (ii) for any other
reason or for no reason upon 6 months prior written notice to Employer.

          For purposes hereof, “Constructive Termination” shall mean Executive’s
termination of his employment hereunder as a direct result of (i) a reduction
in Executive’s initial Base Salary or in the target Annual Bonus percentage,
(ii) a material change in the nature or extent of Executive’s title or
responsibilities that is inconsistent with Executive’s intended position and
status hereunder, (iii) the relocation of Executive’s principal place of
employment to a location more than 50 miles from Executive’s current
principal place of employment or (iv) the material breach by the Employer of
any provision of this Agreement which continues without reasonable steps
being taken to cure such breach for a period of 30 days after written notice
thereof by Executive to Employer.

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          The date upon which any termination effected pursuant to this
subparagraph 12(c) shall be effective is set forth in subparagraph 12(d),
and the effect of any such termination shall be as described in
subparagraphs 12(f) and (g).

          d. Termination Date. In the event Executive’s employment
hereunder is terminated for circumstances constituting Cause, Permanent
Disability or
Constructive Termination, or if Executive’s employment hereunder is
terminated by
Employer (other than for Cause) after the occurrence of a Change of
Control, such
termination shall take effect upon the termination date set forth in the
written notice to
that effect given by Executive to Employer or by Employer to Executive,
as the case may
be (provided that if either party disputes the propriety of such
termination, the effective
date of termination shall be as established by final resolution of such
dispute, whether by
agreement of the parties or award of an arbitrator as contemplated
herein, In favor of the
propriety of such termination), and in any other case termination of
Executive’s
employment hereunder shall take effect on the date specified in the
written notice
thereof delivered by Executive to Employer or by Employer to Executive,
as the case
may be (the date on which any such termination takes effect being
referred to herein as
the “Termination Date”). Employer, at its option, may require Executive
to continue to
perform his duties hereunder until the Termination Date or pay to
Executive such
amount of compensation and benefits otherwise due hereunder in
accordance with
Employer’s then existing salary payment schedule or in one lump sum
payment.

          e. Effect of Termination by Employer For Cause. In the event
Executive’s employment is terminated by Employer for Cause, or in the
event Executive
voluntarily terminates his employment as contemplated by paragraph
12(c)(ii), at any
time during the Employment Term, then (i) Employer shall pay to
Executive Executive’s
accrued but unpaid Base Salary and Annual Bonus through the Termination
Date; (ii)
notwithstanding any of the provisions of Employer’s Stock Option Plan or
of any option
agreement with respect thereto to the contrary, any and all of the
Options (other than the
Inducement Options) that theretofore have vested may be exercised at any
time on or
before the ninetieth day following such Termination Date and, if not so
exercised,
thereupon automatically shall be canceled; and (iii) Executive’s rights
with respect to the
Compensatory Options and/or the Inducement Options, as appropriate,
shall be as
stated in paragraph 4(c) above.

          f. Effect of Termination Upon Permanent Disability. In the event
Executive’s employment is terminated by Employer upon the permanent
disability of Executive at any time during the Employment Term, then:

               (i) Employer shall pay to Executive (x) Executive’s accrued but
unpaid Base Salary and Annual Bonus through the Termination Date, (y)
Executive’s then existing Base Salary for 12 months from the date written
notice of the termination of Executive’s employment is given by Employer, and
(z) any amount due hereunder for accrued but unused vacation time as of the
Termination Date.

               (ii) Employer, at its expense, shall make all benefit payments, on
behalf of Executive and Executive’s dependents, for such benefits Executive
otherwise would have been entitled to receive hereunder, for 12 months
following the date written notice of the termination of Executive’s
employment is given by Employer.

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               (iii) With respect to any of the Options (other than the inducement
Options) which remain unvested upon such Termination Date, notwithstanding any
provision to the contrary in Employer’s Stock Option Plan and/or any stock
option agreement with respect thereto, there shall be immediate vesting of
that portion of such unvested Options which would have vested within 12 months
of the date written notice of the termination of Executive’s employment is
given by Employer. After giving effect to the foregoing sentence, any Options
(other than the Inducement Options) which remain unvested shall automatically
terminate.

               (iv) Executive’s rights with respect to the
Compensatory
Options and/or the Inducement Options, as appropriate, shall be as stated in
paragraph 4(c) above.

          g. Effect of Wrongful or Constructive Termination or Termination
Following a Change of Control.

               (i) In the event Executive’s employment is terminated during the
Employment Term by Employer (other than for Cause) after the occurrence of a
Change of Control, or by Executive in circumstances constituting Constructive
Termination, then, from and after such Termination Date:

                    (A) Executive
shall not be subject to the non-competition provisions set forth in paragraph 10 hereof.

                    (B) Executive shall be entitled to receive the Base
Salary, Annual Bonus, and benefits, which Executive reasonably would have
expected to receive (I) in the period from the Termination Date to the
expiration of the Initial Term (if such Termination Date occurs more than 6
months prior to the expiration of the Initial Term) or
(II) during the 6 months
following the date written notice of the termination of Executive’s employment
is given by Employer or Executive, as the case may be, (if such Termination
Date occurs after the Initial Term or 6 months prior to the expiration of the
Initial Term). All of such amounts shall be payable upon, and the benefits
shall become effective upon, the Termination Date. The treatment of any Options
other than the Inducement Options shall be governed by the terms of the
applicable granting documents and Annex A.

                    (C) Executive’s rights with respect to the
Compensatory Options and/or the Inducement Options, as appropriate, shall
be as stated in paragraph 4(c) above.

The foregoing shall be Executive’s sole and exclusive remedy for any such
termination of his employment under this subparagraph 12(g).

          h. Miscellaneous. In the event of any termination or attempted
termination hereof: (i) if multiple events, occurrences or circumstances are
asserted as bases for such termination or attempted termination, the event,
occurrence or circumstance that is earliest in time, and any termination or
attempted termination found to be proper hereunder based thereon, shall take
precedence over the others: (ii) no termination of this Employment Agreement
shall relieve or release either party from liability hereunder based on any
breach of the terms hereof by such party occurring prior

11

 

to the Termination Date; (iii) the terms of this Employment Agreement relevant
to performance or satisfaction of any obligation hereunder expressly remaining
to be performed or satisfied in whole or in part at the Termination Date shall
continue in force until such full performance or satisfaction has been
accomplished and otherwise neither party hereto shall have any other or
further remaining obligations to other party hereunder; and (iv) the vesting
and exercise provisions set forth in Employer’s Stock Option Plan and/or any
option agreement with respect to the Options (other than the Inducement
Options) shall continue to apply except to the extent otherwise expressly
provided in this paragraph 12 or Annex A.

          i. No
Set-off; No Duty of Mitigation. There shall be no right of
setoff or counterclaim, in respect of any actual or alleged claim, debt or
obligation, against any payments or benefits required to be made or provided to
Executive hereunder (including, without limitation, pursuant to subparagraphs
12(f) and (g) above). In the event of any termination of Executive’s employment
under this paragraph 12, Executive shall be under no obligation to seek other
employment and shall be entitled to all payments or benefits required to be
made or provided to Executive hereunder, without any duty of mitigation of
damages and regardless of any other employment obtained by Executive.

     13. Injunctive Relief. It is agreed that the services of Executive are
unique and that any breach or threatened breach by Executive of any provision of
this Employment Agreement cannot be remedied solely by damages. Accordingly, in
the event of a breach by Executive of his obligations under this Employment
Agreement, Employer shall be entitled to seek and obtain interim restraints and
permanent injunctive relief without proving the inadequacy of damages as a remedy, restraining
Executive and any business, firm, partnership, individual, corporation or entity
participating in such breach or attempted breach. Nothing herein, however, shall be construed as
prohibiting Employer from pursuing any other remedies available at law or in equity
for such breach or threatened breach, including the recovery of damages and the
termination of the services of Executive.

     14. Arbitration. Any dispute or controversy arising out of or relating to
this Employment Agreement or any claimed breach hereof shall be settled, at the
request of either party, by an arbitration proceeding conducted in accordance with
the rules of the American Arbitration Association (“AAA”), with the award determined to be
appropriate by the arbitrator therein to be final, non-appealable and binding on the
parties hereto, and with judgment upon such award as is rendered in any such arbitration
proceeding available for entry and enforcement in any court having jurisdiction of
the parties hereto. The arbitrator shall be an impartial arbitrator qualified to serve in
accordance with the rules of the AAA and shall be reasonably acceptable to each of the
Employer and the Executive. If no such acceptable arbitrator is so appointed within 15 days
after the initial request for arbitration of such disputed matter, each of the parties
promptly shall designate a person qualified to serve as an arbitrator in accordance with
the rules of the AAA, and the two persons so designated promptly shall select the
arbitrator from among those persons qualified to serve in accordance with the rules of the AAA.
The arbitration shall be held in the greater Northern Virginia area, or in such other
place as may be agreed upon at the time by the parties. The expenses of the arbitration
proceeding shall  be borne by Employer, but the arbitrator’s award may provide that
Executive shall reimburse Employer for an equitable share of such expenses if Executive is
not the prevailing party on any of the issues involved in such arbitration. The
Employer shall pay for and bear the cost of its own and Executive’s experts, evidence and
counsel in

12

 

such arbitration proceeding, but the arbitrator’s award may provide that, in
addition to any other amounts or relief due to Employer, Executive shall
reimburse Employer on demand for all of such costs of Executive’s experts,
evidence and counsel initially incurred by Employer, to the extent the award
finds such costs properly allocable to any issue(s) in dispute as to which the
award indicates the Employer to be the prevailing party.

     15. Indemnification.

          a. Employer shall Indemnify Executive to the fullest extent permitted
by Delaware law as in effect on the date hereof against all costs,
expenses, liabilities
and losses (including, without limitation, attorneys’ fees, judgments,
penalties and
amounts paid in settlement) reasonably incurred by Executive in connection
with any
action, suit or proceeding, whether civil, criminal, administrative or
investigative in which
Executive is made, or is threatened to be made, a party to or a witness in
such action,
suit or proceeding by reason of the fact that he is or was an officer,
director, consultant,
agent or Executive of the Employer or of any of Employer’s controlled
affiliates or is or
was serving as an officer, consultant director, member, Executive,
trustee, agent or
fiduciary of any other entity at the request of the Employer (a
“Proceeding”).

          b. Employer shall advance to Executive all reasonable costs and
expenses incurred by him in connection with a proceeding within 20 days
after receipt by
Employer of a written request for such advance, accompanied by an itemized
list of the
costs and expenses and Executive’s written undertaking to repay to
Employer on
demand the amount of such advance if it shall ultimately be determined
that Executive is
not entitled to be indemnified against such costs and expenses.

          c. The indemnification provided to Executive hereunder is in addition
to, and not in lieu of, any additional indemnification to which he may be
entitled pursuant
to Employer’s Certificate of Incorporation or Bylaws, any insurance
maintained by
Employer from time to time providing coverage to Executive and other
officers and
directors of Employer, or any separate written agreement with Executive.
The provisions
of this paragraph 15 shall survive any termination of this Employment
Agreement.

     16. Amendment and Modification. This Employment Agreement (including
the Annex A hereto) contains the entire agreement between the parties with
respect to
the subject matter hereof, and supersedes any and all prior agreements,
arrangements
or understandings between the parties hereto with respect to the subject
matter hereof,
whether written or oral Subject to applicable law and upon the consent of
the Board of
Directors of Employer, this Employment Agreement may be amended, modified
and
supplemented by written agreement of Employer and Executive with respect
to any of
the terms contained herein.

     17. Waiver of Compliance. Any failure of either party to comply with any
obligation, covenant, agreement or condition on its part contained herein
may be
expressly waived in writing by the other party, but such waiver or failure
to insist upon
strict compliance shall not operate as a waiver of, or estoppel with
respect to, any
subsequent or other failure. Whenever this Employment Agreement requires
or permits
consent by or on behalf of any party, such consent shall be given in
writing.

13

 

     18. Notices. All notices, requests, demands and other communications
required or permitted hereunder shall be in writing and shall be deemed
to have been
duly given if delivered by hand, sent by registered or certified U.S.
Mail, postage prepaid,
commercial overnight courier service or transmitted by facsimile and
shall be deemed
served or delivered to the addressee at the address for such notice
specified below
when hand delivered, upon confirmation of sending when sent by fax, on
the day after
being sent when sent by overnight delivery or five (5) days after having
been mailed,
certified or registered, with postage prepaid:

	 	 	 
	If to Employer
	 	If to Executive:

	XO Communications, Inc.

	 	Wayne M. Rehberger
	11111 Sunset Hills Road

	 	At such address as shall be reflected
	Reston, VA 20190

	 	in Employer’s payroll records
	Facsimile: 703-547-2025
	 	 
	Attention: General Counsel
	 	 

or/in the case of either such party, to such substitute address as such party
may designate from time to time for purposes of notices to be given to such
party hereunder, which substitute address shall be designated as such
in a
written notice given to the other party addressed as aforesaid.

     19. Assignment. This Employment Agreement shall inure to the benefit of
Executive and Employer and be binding upon the successors and general
assigns of Employer. This Employment Agreement shall not be assignable, except to the
extent set forth in paragraph 22.

     20. Enforceability. In the event it is determined that this Employment
Agreement is unenforceable in any respect, it is the mutual intent of the
parties that it be
construed to apply and be enforceable to the maximum extent permitted by
applicable law.

     21. Applicable Law. This Employment Agreement shall be construed and
enforced in accordance with the laws applicable to contracts executed,
delivered and fully to be performed in the State of Virginia.

     22. Beneficiaries: Executive’s Representative. Executive shall be entitled
to select (and to change, from time to time, except to the extent prohibited
under any
applicable law) a beneficiary or beneficiaries to receive any payments,
distributions or
benefits to be made or distributed hereunder upon or following Executive’s
death. Any
such designation shall be made by written notice to Employer. In the event
of Executive’s death or of a judicial determination of Executive’s
incompetence, references
in this Agreement to Executive shall be deemed, as appropriate, to refer
to his
designated beneficiary, to his estate or to his executor or personal
representative
(“Executive’s Representative”) solely for the purpose of providing a clear
mechanism for
the exercise of Executive’s rights hereunder in the case of Executive’s
death or Permanent Disability.

14

 

     IN WITNESS WHEREOF, the parties have executed this Employment
Agreement to be effective on and as of the day and year first above
written.

	 	 	 
	

	 	XO COMMUNICATIONS, INC.
	 
	 	 
	

	 	
	 
	 	 
	

	 	

15

 

ANNEX A

To

Employment Agreement

between

XO Communications, Inc.

and

Wayne M. Rehberger

Effective: September 25, 2000

     The Inducement Options shall be granted as follows:

Non-qualified Options to acquire 25,000 shares for Employer Class A
Common Stock awarded on the Commencement Date. The Inducement
Options shall vest annually in four equal amounts on September 25,
2001, 2002, 2003 and 2004. The exercise price of the Inducement
Options is $.01 per share.

The Compensatory Options shall be granted as follows:

Non-qualified options to acquire 250,000 shares of Employer
Class A Common Stock awarded on the Commencement Date. The
Compensatory Options shall vest pursuant to the standard
vesting schedule under the Stock Option Plan. The exercise
price of the Compensatory Options is $33.00, the closing sale
price on the Commencement Date as reported by NASDAQ.

     All Options shall, to the extent not theretofore vested in accordance with
their normal terms, vest on an automatic and accelerated basis (i) in the
circumstances set forth in paragraphs 12(f) and (g) of the Employment
Agreement, or (ii) upon the occurrence of Executive’s termination (other than
for Cause) after the occurrence of a Change of Control Event.

     All Options (upon vesting) will have an exercise period often (10) years
after the relevant grant date subject to earlier termination of the exercise
period in the event of termination of Executive’s employment either (i) by
Employer in circumstances constituting Cause or (ii) by Executive other than in
circumstances constituting Constructive Termination; in either of which case,
the Options shall be canceled if not exercised within 90 days following the
Termination Date with respect to such termination.

     All Options (and all shares issued on exercise of such Options) will be
subject to an effective Form S-8 (or other appropriate form) registration
statement and will be qualified for the treatment afforded under Rule 16b-3.

     To the extent not otherwise provided above, or in the Employment Agreement
of which this Annex A forms a part, the terms applicable to all of the Options
(and of any option agreement entered into in connection therewith) shall be the
standard terms normally applicable to a grant of “non-qualified” stock options
granted pursuant to the XO Communications, Inc. Stock Option Plan.

16exv10w12

 

EXHIBIT 10.12

FANNIE MAE

STOCK COMPENSATION PLAN OF 2003

Effective as of May 20, 2003

AMENDED MARCH 1, 2004

 

 

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.

2

 

	 	(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 the
Fair Market Value shall be the mean of (1) the mean between the high and low selling
prices of the common stock, as reported on the NYSE, for the first trading day
immediately preceding the date of determination and (2) the mean between the high and
low selling prices of the common stock, as reported on the NYSE, for the first trading
day immediately following the date of determination. If the Common Stock is no longer
traded on the NYSE, or if for any other reason using the foregoing methods to
determine Fair Market Value is not possible or logical under the circumstances, the
Committee may determine the Fair Market Value, 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.

3

 

	 	(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.
	 
	 	(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.

4

 

	 	(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

5

 

	 	(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.

6

 

	 	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.
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, and,
subject to such
overall maximum as
applied to all
Awards, the maximum
number of shares of
Common Stock that
may be delivered
under Specified
Stock Awards (as
hereinafter
defined) shall not
exceed, in the
aggregate,
2,000,000 shares.
For purposes of
this Section
1.5(b),
	 

	 	(i)	 	a Specified
Stock Award is (A)
an Award granted
pursuant to Article
IV (“Restricted
Stock Awards”) that
is scheduled to
vest in full before
the third
anniversary of the
date of grant, or
(B) an Award
granted pursuant to
Section 5.1
(“Grants of
Performance Share
Awards”) with a
performance cycle
that ends less than
one year from the
date of grant, or
(C) an Award
granted pursuant to
Section 5.2
(“Grants of Stock
Bonuses”) that is
fully and
immediately vested
or that has vesting
or performance
features described
in (A) or (B)
above;
	 
	 	(ii)	 	an Award that
is described in
both Article IV and
Section 5.1 shall
be considered a
Specified Stock
Award only if it is
described in both
of clauses (A) and
(B) of Section
1.5(b)(i) above;
	 
	 	(iii)	 	in applying
Sections 1.5(b)(i),
there shall be
disregarded any
Award or Plan
provision that
could result in
accelerated vesting
of or delivery of
Common Stock under
an Award; and
	 
	 	(iv)	 	the 40,000,000
and 2,000,000
limitations shall
be subject to
adjustment in
accordance with
Section 8.2.”
	 

	 	(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

7

 

	 	 	 	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.
	 
	 	(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

8

 

	 	 	 	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
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

9

 

	 	 	 	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 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.

10

 

	 	(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.

11

 

	 	(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.

12

 

	 	(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

13

 

	 	 	 	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.

14

 

	 	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.

15

 

	 	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.

16

 

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.

17

 

	 	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.

18

 

	 	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.

19

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