e10v12g
 



UNITED STATES

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10


GENERAL FORM FOR REGISTRATION OF SECURITIES

Pursuant to Section 12(b) or (g) of the Securities Exchange Act of 1934


FEDERAL NATIONAL MORTGAGE ASSOCIATION

(Exact name of registrant as specified in its charter)
Fannie Mae
     
Federally chartered corporation   52-0883107
(State or other jurisdiction of incorporation or organization)
  (I.R.S. Employer Identification No.)
 
3900 Wisconsin Avenue, NW
Washington, DC
  20016
(Zip Code)
(Address of principal executive offices)    

Registrant’s telephone number, including area code: (202) 752-7000

Securities to be registered pursuant to Section 12(b) of the Act: None

Securities to be registered pursuant to Section 12(g) of the Act: Common Stock, without par value




 

Explanatory Note

      We have included certain information in this Registration Statement on Form 10 pursuant to Section 12(g) of the Securities Exchange Act of 1934 for the registration of the common stock of the Federal National Mortgage Association (“Fannie Mae”) by reference to the Annual Report on Form 10-K attached as Exhibit 99.1.

1


 

INFORMATION REQUIRED IN REGISTRATION STATEMENT

Item 1.     Business.

      Information on Fannie Mae’s business is set forth under Item 1 of the Annual Report on Form 10-K attached as Exhibit 99.1.

Item 2.     Financial Information.

      Fannie Mae’s financial information is set forth under Items 6, 7 and 7A of the Annual Report on Form 10-K attached as Exhibit 99.1.

Item 3.     Properties.

      Information on Fannie Mae’s properties is set forth under Item 2 of the Annual Report on Form 10-K attached as Exhibit 99.1.

Item 4.     Security Ownership of Certain Beneficial Owners and Management.

      The following table shows the beneficial ownership of Fannie Mae common stock by its directors, certain executive officers and holders of more than 5% of Fannie Mae common stock at January 24, 2003.

                             
Amount and Nature of Beneficial
Ownership(1)

Common Stock
Beneficially Total Common
Owned Stock Options Stock
Excluding Exercisable Beneficially
Name Position Options Within 60 Days Owned





Directors
                           

                           
Victor H. Ashe
  Director     856       7,666       8,522  
Stephen B. Ashley
  Director     19,351 (2)     18,000       37,351  
Molly H. Bordonaro
  Director     857       7,666       8,523  
Kenneth M. Duberstein
  Director     3,011       20,000       23,011  
Thomas P. Gerrity
  Director     17,251 (3)     20,000       37,251  
Jamie S. Gorelick
  Vice Chair of the Board     71,977       296,110       368,087  
William R. Harvey
  Director     1,356       7,666       9,022  
Manuel J. Justiz
  Director     1,813       6,666       8,479  
Ann McLaughlin Korologos
  Director     5,738       29,200       34,938  
Frederic V. Malek
  Director     1,697       4,000       5,697  
Donald B. Marron
  Director     1,871       8,000       9,871  
Daniel H. Mudd
  Vice Chairman of the Board and Chief Operating Officer     39,136       152,804       191,940  
Anne M. Mulcahy
  Director     1,714       12,667       14,381  
Joe K. Pickett
  Director     4,881       28,000       32,881  
Franklin D. Raines
  Chairman of the Board and Chief Executive Officer     134,471       1,049,380       1,183,851  
Taylor C. Segue, III
  Director     856       7,666       8,522  
H. Patrick Swygert
  Director     1,409       11,666       13,075  

2


 

                             
Amount and Nature of Beneficial
Ownership(1)

Common Stock
Beneficially Total Common
Owned Stock Options Stock
Excluding Exercisable Beneficially
Name Position Options Within 60 Days Owned





Executive Officers
                           

                           
J. Timothy Howard
  Executive Vice President and Chief Financial Officer     185,783 (4)     408,624 (5)     594,407  
Robert J. Levin
  Executive Vice President— Housing and Community Development     165,567 (6)     386,333       551,900  
All directors and executive officers as a group (25 persons)
        820,075       2,944,220       3,764,295  
                             
Common Stock
Beneficially Percent of
Owned Class


5% Holders
                           

                           
FMR Corp.
82 Devonshire Street
Boston, Massachusetts 02109
    97,232,983 (7)             9.831 %

      At January 24, 2003, no director or executive officer, nor all directors and executive officers as a group, owned as much as 1% of Fannie Mae’s outstanding common stock.

Notes to Beneficial Ownership Table

      (1) Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission for computing the number of shares of common stock beneficially owned by a person and the percentage ownership of that person. The amounts include beneficial ownership of restricted common stock with sole voting power (including the power to direct the voting of restricted common stock through an escrow agent) and no investment power, as follows: all nonemployee directors, each 697 shares; Mr. Mudd, 15,000 shares; and all directors and executive officers as a group, 87,158 shares.

      (2) The amount includes 1,200 shares held by Mr. Ashley’s spouse.

      (3) The amount includes 16,380 shares held jointly with Mr. Gerrity’s spouse.

      (4) The amount includes 24,000 shares held in trust for the benefit of Mr. Howard’s spouse and 161,783 shares held by the Timothy Howard Revocable Trust.

      (5) The amount includes 11,527 options held in separate trusts for the benefit of Mr. Howard’s children.

      (6) The amount includes 165,543 shares held jointly with Mr. Levin’s spouse and 24 shares held by his child.

      (7) FMR Corp. has informed Fannie Mae that it owns 97,232,983 shares of Fannie Mae common stock, including 91,586,582 shares held by Fidelity Management & Research Company, 3,020,516 shares held by Fidelity Management Trust Company, and 2,344,190 shares owned by Fidelity International Limited. FMR Corp. has sole voting power for 5,134,411 shares and sole dispositive power for 97,232,983 shares. All of the information regarding this stock ownership is as of December 31, 2002.

3


 

Item 5.     Directors and Executive Officers.

Directors Elected by Stockholders

      Our directors elected by stockholders have provided the following information about their principal occupation, business experience and other matters. The term of each director ends on the date of the Fannie Mae annual stockholders’ meeting to be held on May 20, 2003, or until his or her successor is elected and qualified.

      Stephen B. Ashley, age 63, has been Chairman and Chief Executive Officer of The Ashley Group, a group of commercial and multifamily real estate, brokerage, and investment companies, since January 1997. The Ashley Group is comprised of S.B. Ashley Management Corporation, S.B. Ashley Brokerage Corporation, and S.B. Ashley & Associates Venture Company, LLC. He also serves as a director of The Genesee Corporation and Exeter Fund, Inc. In addition, Mr. Ashley serves as a trustee of Cornell University. He is a past President of the Mortgage Bankers Association of America. Mr. Ashley has been a Fannie Mae director since 1995.

      Kenneth M. Duberstein, age 58, has been Chairman and Chief Executive Officer of The Duberstein Group, Inc., an independent strategic planning and consulting company, since July 1989. He served as Chief of Staff to the President of the United States from 1988 to 1989. Mr. Duberstein also serves as a director of The Boeing Company, Conoco, Inc., Fleming Companies, Inc., and St. Paul Companies, Inc. In addition, he serves as a member of the Board of Governors of the NASD, Inc. and the American Stock Exchange. Mr. Duberstein has been a Fannie Mae director since 1998.

      Thomas P. Gerrity, age 61, has been Professor of Management since 1990, and Director, Wharton Electronic Business Initiative since July 1999, and was Dean from July 1990 to July 1999, of The Wharton School of the University of Pennsylvania, an educational institution. He was President of CSC Consulting and Vice President of Computer Sciences Corporation from May 1989 to June 1990 and Chairman and Chief Executive Officer of Index Group, Inc., from March 1969 to April 1989. Mr. Gerrity also serves as a director of CVS Corporation, Internet Capital Group, Inc., Knight-Ridder, Inc., Sunoco, Inc., and Morgan Stanley Institutional Funds. Mr. Gerrity has been a Fannie Mae director since 1991.

      Jamie S. Gorelick, age 52, has been Vice Chair of the Board of Fannie Mae since May 1997. Before joining Fannie Mae, Ms. Gorelick was Deputy Attorney General of the United States, beginning in 1994. She served as General Counsel of the United States Department of Defense from May 1993 to March 1994 and was a partner at Miller, Cassidy, Larroca & Lewin, a law firm, from January 1981 to April 1993. Ms. Gorelick also serves as a director of United Technologies Corporation and Schlumberger Limited. In addition, Ms. Gorelick is a member of the Harvard Board of Overseers. Ms. Gorelick has been a Fannie Mae director since 1997. Ms. Gorelick will leave the Board as of the annual stockholders’ meeting to be held on May 20, 2003 and will leave Fannie Mae on June 30, 2003.

      Ann McLaughlin Korologos, age 61, has been Vice Chairman, RAND Board of Trustees, a nonprofit institution, since May 2001. Ms. McLaughlin Korologos has been Chairman Emeritus, since August 2000, Chairman from October 1996 to August 2000, and Vice Chairman from August 1993 to September 1996, of the Aspen Institute, a nonprofit organization. Ms. McLaughlin Korologos serves as Senior Advisor to Benedetto, Gartland and Company, Inc., an investment banking firm. Ms. McLaughlin Korologos also serves as a director of AMR Corporation (and its subsidiary, American Airlines), Harman International Industries, Inc., Host Marriott Corporation, Kellogg Company, Microsoft Corporation, and Vulcan Materials Company. Ms. McLaughlin Korologos has been a Fannie Mae director since 1994.

      Frederic V. Malek, age 66, has been Chairman of Thayer Capital Partners, a private equity investment firm, since 1993. He served as Co-Chairman of CB Commercial Real Estate Group from 1989 to 1996. He also served as President of Northwest Airlines, Inc., from 1989 to 1990 and Vice Chairman from 1990 to 1992. Mr. Malek also serves as a director of Automatic Data Processing Corp.,

4


 

FPL Group, Inc., Northwest Airlines, Inc., Aegis Communications Group, Inc., American Management Systems, Inc., CB Richard Ellis, Manor Care, Inc., and UBS Global Asset Management (US), Inc. Mr. Malek has been a Fannie Mae director since 2002.

      Donald B. Marron, age 68, has been Chairman of UBS America, a non-executive position, since January 2001. He has also been Managing Member of Lightyear Capital, an independent private equity firm, since November 2000. Mr. Marron was President of Paine Webber Group Inc. from 1977, Chief Executive Officer thereof from 1980, and Chairman and Chief Executive Officer thereof from 1981 until its merger with a subsidiary of UBS AG in November 2000, and Chief Executive Officer of UBS PaineWebber Inc. (formerly PaineWebber Incorporated), until January 2001. He also is a director of Shinsei Bank. He is a former director of the National Association of Securities Dealers and the New York Stock Exchange and former governor of the Securities Industries Association. Mr. Marron also is the Private Sector Co-Chairman, National Commission on Retirement Policy (Center for Strategic and International Studies) and Chairman of the Center for the Study of the Presidency. He is a member of the Board of Overseers and Managers, Memorial Sloan-Kettering Cancer Center, and Vice Chairman of the Board of Trustees of The Museum of Modern Art. Mr. Marron has been a Fannie Mae director since 2001.

      Daniel H. Mudd, age 44, has been Vice Chairman of the Board and Chief Operating Officer of Fannie Mae since February 2000. Prior to his employment with Fannie Mae, Mr. Mudd was President and Chief Executive Officer of GE Capital, Japan, a diversified financial services company and a wholly-owned subsidiary of the General Electric Company, from April 1999 to February 2000. He also served as President of GE Capital, Asia Pacific, from May 1996 to June 1999. Mr. Mudd also serves as a director of Ryder System, Inc. Mr. Mudd has been a Fannie Mae director since 2000.

      Anne M. Mulcahy, age 50, has been Chairman of Xerox Corporation since January 2002 and Chief Executive Officer since August 2001. Xerox Corporation is a global company serving document processing markets. Ms. Mulcahy served as President and Chief Operating Officer of Xerox from May 2000 through July 2001. She was Executive Vice President and President, General Markets Operations, from January 1999 to May 2000, and Senior Vice President, Chief Staff Officer from March 1997 to January 1999. Ms. Mulcahy also serves as a director of Target Corporation. Ms. Mulcahy has been a Fannie Mae director since 2000.

      Joe K. Pickett, age 57, retired from HomeSide International, Inc. on June 30, 2001, where he had served as Chairman from February 1996. He also served as Chief Executive Officer of HomeSide International, Inc. from February 1996 to February 2001. HomeSide International was the parent of HomeSide Lending, Inc., a mortgage banking company that was formerly known as BancBoston Mortgage Corporation. HomeSide International, Inc. was a wholly-owned subsidiary of National Australia Bank in 2001. Mr. Pickett also served as Chairman and Chief Executive Officer of HomeSide Lending from April 1990 to April 1999. Mr. Pickett is a past President of the Mortgage Bankers Association of America. Mr. Pickett has been a Fannie Mae director since 1996.

      Franklin D. Raines, age 54, has been Chairman of the Board and Chief Executive Officer of Fannie Mae since January 1999 and was Chairman of the Board and Chief Executive Officer—Designate of Fannie Mae from May 1998 to December 1998. Prior to his current position with Fannie Mae, Mr. Raines was Director of the United States Office of Management and Budget from September 1996 to May 1998. Previously, Mr. Raines had been Vice Chairman of the Board of Fannie Mae from September 1991 to September 1996. He joined Fannie Mae in July 1991 as Vice Chairman—Designate. Before joining Fannie Mae, Mr. Raines was with Lazard Freres & Co., an investment banking firm, which he joined in 1979 and in which he was a General Partner from January 1985 to December 1990 and a Limited Partner from January 1991 to June 1991. Mr. Raines also serves as a director of AOL Time Warner, PepsiCo, Inc., and Pfizer Inc. Mr. Raines was a Fannie Mae director from 1991 to 1996 and has been a Fannie Mae director since 1998.

5


 

      H. Patrick Swygert, age 60, has been President of Howard University, a Washington, D.C. educational institution, since 1995. He also serves as a director of Hartford Financial Services Group, Inc. and United Technologies Corporation. Mr. Swygert has been a Fannie Mae director since 2000.

Directors Appointed by the President of the United States

      Our directors appointed by President George W. Bush have provided the following information about their principal occupation, business experience and other matters. Each director’s term ends on the date of the Fannie Mae annual stockholders’ meeting to be held on May 20, 2003.

      Victor H. Ashe, age 58, has been Mayor of Knoxville, Tennessee since 1988. Mr. Ashe is a member of the U.S. Conference of Mayors Executive Committee. He is a past President of the U.S. Conference of Mayors. Mr. Ashe has been a Fannie Mae director since 2001.

      Molly H. Bordonaro, age 34, has been a principal at the Gallatin Group, a strategic consulting and public affairs firm, since May 2002. She was an associate at Norris, Beggs, & Simpson from 1999 to 2002 and was owner and President of The Bordonaro Group from 1995 to 1999. Ms. Bordonaro has been a Fannie Mae director since 2001.

      William R. Harvey, age 62, has been the President of Hampton University, a private educational institution, since 1978. He is the owner of the Pepsi-Cola Bottling Company of Houghton, Michigan. Mr. Harvey has been a Fannie Mae director since 2001.

      Manuel J. Justiz, age 54, has been Dean of the College of Education at the University of Texas at Austin, an educational institution, since 1990 and holds the A.M. Aikin Regents Chair in Education Leadership and the Lee Hage Jamail Regents Chair in Education. In addition, he serves as a director of Voyager Expanded Learning. Mr. Justiz has been a Fannie Mae director since 2001.

      Taylor C. Segue, III, age 48, has been with the Michigan law firm of Howard and Howard since June 2002. He served as Interim Director of the Detroit Housing Authority from August 2002 to December 2002 and was a partner at Butzel, Long, P.C. from February 1999 to May 2002. Mr. Segue was a partner at Segue, Fair, Adams, & Pope, P.L.C. from 1990 to 1999. Mr. Segue has been a Fannie Mae director since 2001.

Executive Officers

      Our executive officers who are not also members of the Board of Directors have provided the following information about their principal occupation, business experience and other matters.

      J. Timothy Howard, age 54, has been Executive Vice President and Chief Financial Officer since February 1990. Mr. Howard became a member of the Office of the Chairman in November 2000. He joined Fannie Mae in 1982. Mr. Howard serves on the Board of Directors of CarrAmerica Realty Corporation.

      Thomas E. Donilon, age 47, has been Executive Vice President— Law and Policy and Secretary since May 2000. He served as Senior Vice President, General Counsel and Secretary from September 1999 to May 2000. Mr. Donilon was a partner with the law firm of O’Melveny & Myers from February 1991 to March 1993 and November 1996 to September 1999 when he joined Fannie Mae. Mr. Donilon served as Assistant Secretary of State for Public Affairs and Chief of Staff to the Secretary of State from March 1993 to November 1996.

      Louis W. Hoyes, age 54, has been Executive Vice President— Single-Family Mortgage Business since May 2000. He served as Senior Vice President— Multifamily Lending and Investment from September 1995 to May 2000. Prior to his employment with Fannie Mae, Mr. Hoyes was a managing director of Citicorp Real Estate, holding various management positions over his 22-year career in their commercial real estate division and Latin American banking group. He also served as a Senior Credit Officer of Citibank, N.A., from 1982 until he joined Fannie Mae.

6


 

      Robert J. Levin, age 47, has been Executive Vice President— Housing and Community Development since June 1998. He was Executive Vice President— Marketing from June 1990 to June 1998. He joined Fannie Mae in 1981.

      Adolfo Marzol, age 42, has been Executive Vice President—Finance and Credit since November 2002. He was Executive Vice President and Chief Credit Officer from June 1998 to November 2002. He was Senior Vice President— Single-Family Business Management from July 1996 to June 1998. He was Senior Vice President— Capital Markets from February 1996 to July 1996. Prior to his employment with Fannie Mae, Mr. Marzol was Executive Vice President and Chief Financial Officer from July 1993 to January 1996 and Senior Vice President— Interest Rate Risk from January 1991 to June 1993 of Chase Manhattan Mortgage Corporation, a mortgage company.

      Peter S. Niculescu, age 43, has been Executive Vice President— Mortgage Portfolio Business since November 2002. He was Senior Vice President— Portfolio Strategy from March 1999 to November 2002. Prior to his employment with Fannie Mae, Mr. Niculescu was a Managing Director and Co-Head of Fixed Income Research for Goldman Sachs & Co. He joined Goldman Sachs in 1990 and held a variety of positions including Managing Director— Mortgage Research, Vice President— Mortgage Research and Corporate Bond Strategist.

      Julie St. John, age 51, has been Executive Vice President and Chief Technology Officer since July 2000. She served as Senior Vice President— Mortgage Business Technology from November 1999 to July 2000. She was Senior Vice President— Guaranty and Franchise Technologies from November 1993 to November 1999. Ms. St. John joined Fannie Mae in 1990.

      Michael J. Williams, age 45, has been President— Fannie Mae eBusiness since July 2000. He served as Senior Vice President— e-Commerce from March 2000 to July 2000. He was Senior Vice President— Customer Applications and Technology Integration from November 1993 to March 2000. Mr. Williams joined Fannie Mae in 1991.

      Under Fannie Mae’s bylaws, each officer holds office until his or her successor is chosen and qualified or until he or she dies, resigns, retires, or is removed from office by the Board of Directors, whichever occurs first.

Section 16(a) Beneficial Ownership Reporting Compliance.

      Fannie Mae is organized under the Federal National Mortgage Association Charter Act, 12 U.S.C., § 1716 et seq. (the “Charter Act”). Because the Charter Act provides that Fannie Mae common stock is an “exempted security” under the Securities Exchange Act of 1934, Fannie Mae’s executive officers and directors have not been subject to Section 16(a) beneficial ownership reporting. However, Fannie Mae has adopted reporting policies similar to the Section 16 requirements for its executive officers and directors. The reports are available on our Internet web site at www.fanniemae.com. During 2002, no Fannie Mae executive officer or director failed to file on a timely basis any report required under such policies.

      Upon effectiveness of this Registration Statement, our directors and officers will file Section 16(a) reports with the SEC. Those reports will be available at www.fanniemae.com.

Item 6.     Executive Compensation.

Directors’ Compensation

     Retainer Fees

      During 2002, Fannie Mae paid directors an annual retainer of $35,000, plus $1,000 for attending each Board or Board committee meeting. Committee chairmen received an additional $500 for each committee meeting they chaired. Directors who participated in telephone conference meetings of the Board or Board committees received $600 per meeting plus an additional $300 for each telephone conference committee meeting that they chaired. In addition, each nonmanagement director received or vested in restricted common stock and stock options under the Fannie Mae Stock Compensation

7


 

Plan of 1993, as discussed below. As of January 1, 2003, the annual retainer paid to Fannie Mae directors who are committee chairmen was increased to $45,000.

      Directors who are employees of Fannie Mae receive no compensation for their service as directors.

     Stock Options

      Each nonmanagement director is granted an annual nonqualified stock option to purchase 4,000 shares of Fannie Mae common stock at the fair market value on the date of grant. The date of grant is the date of the annual meeting of stockholders. A nonmanagement director appointed or elected as a mid-term replacement will receive a nonqualified stock option to purchase at the fair market value on the date of grant a pro rata number of shares equal to the fraction of the remainder of the term. In May 2002, each nonmanagement director received an option to purchase 4,000 shares of common stock, with a fair market value on the date of grant of $78.885. Each option granted in 2002 will expire 10 years after the date of grant and was exercisable immediately on the date of grant. The options held by nonmanagement directors who have served on the Board for at least 10 years may be exercised for a period of one year following their retirement from the Board.

     Restricted Stock

      Fannie Mae has a restricted stock award program for nonmanagement members of the Board of Directors. The shares currently are awarded under the Fannie Mae Stock Compensation Plan of 1993. The award program provides for consecutive five-year cycles of awards of restricted common stock to nonmanagement members of the Board of Directors. Restricted common stock is common stock that cannot be sold until it vests over an extended period of time, with vesting contingent on the director’s continued service on the Board. Restricted common stock issued to participants is held in an escrow account for each participant until it vests. At vesting, the restricted period ends and the escrow agent delivers stock certificates to participants.

      Each participant has all of the rights and privileges of a stockholder as to the restricted common stock, other than the ability to transfer it, including the right to receive any cash or stock dividends declared with respect to the stock and the right to instruct the escrow agent in voting the stock. Awards vest over five years at the rate of 20 percent per year, provided the participant is serving on the Board. If a director joins the Board during a five-year cycle, he or she receives the number of shares of restricted common stock that represents their pro rata portion of the grant for the cycle, based on the time remaining in the cycle. These grants vest in the same annual amounts as those of directors who participate in the full five-year cycle. Vesting accelerates upon departure from the Board due to death, disability, or the 70th birthday of an elected director.

      In May 2001, Fannie Mae granted 871 shares of restricted common stock for the 2001–2006 cycle to each nonmanagement director who was a member of the Board at that time. The full award for the 2001–2006 cycle had a fair market value on the grant date of $65,813. The current members of the Board who were not members in May 2001 received pro rata awards upon their appointment or election to the Board, as follows: 856 shares to Mr. Ashe, Ms. Bordonaro, Mr. Harvey and Mr. Segue in July 2001; 813 shares to Mr. Justiz in October 2001; and 697 shares to Mr. Malek in May 2002.

      In May 2002, the following nonmanagement directors vested in shares of restricted common stock as follows: 174 shares to Mr. Ashley, Mr. Duberstein, Mr. Gerrity, Ms. Korologos, Mr. Marron, Ms. Mulcahy, Mr. Pickett, and Mr. Swygert; 159 shares to Mr. Ashe, Ms. Bordonaro, Mr. Harvey, and Mr. Segue; and 116 shares to Mr. Justiz. In addition, in May 2002, Mr. Vincent Mai, who left the Board in May 2002, and Mr. Stephen Friedman, who left the Board in December 2002, each vested in 174 shares of restricted common stock.

8


 

     Fannie Mae Director’s Charitable Award Program

      In 1992, Fannie Mae established the Federal National Mortgage Association Director’s Charitable Award Program. The purpose of the program is to acknowledge the service of Fannie Mae’s directors, recognize the interest of Fannie Mae and its directors in supporting worthy institutions, and enhance Fannie Mae’s director benefit program to enable Fannie Mae to continue to attract and retain directors of the highest caliber. Under the program, when a director dies, Fannie Mae will donate up to an aggregate of $1,000,000 in $100,000 increments to a maximum of five charitable organizations or educational institutions of the director’s choice. To be eligible to receive a donation, a recommended organization must be an educational institution or charitable organization and must qualify to receive tax-deductible donations under the Internal Revenue Code. The program is funded by life insurance contracts on the lives of participating directors; the funding is structured in a manner that will allow Fannie Mae to recover the entire program cost through the receipt of life insurance benefits. The program has no direct compensation value to directors because they do not receive any direct cash or tax benefit.

Executive Compensation Tables

      The tables on pages 9 to 12 profile Fannie Mae’s compensation for the Chief Executive Officer and its four other most highly compensated executive officers (the “covered executives”), including salaries and bonuses paid during the last three years and 2002 option grants and exercises.

          Summary Compensation Table

      The following table shows the compensation of the covered executives for 2002, 2001 and 2000. Awards made in January 2003 are reported as compensation for 2002.

                                                         
Long Term Compensation

Awards Payouts


Annual Compensation(1) Securities

Restricted Underlying
Other Annual Stock Options/ LTIP
Name and Salary Bonus Compensation Award(s)(2) SARs Payouts
Principal Position Year ($) ($) ($) ($) (#) ($)








Franklin D. Raines
    2002     $ 992,250     $ 3,300,000     $ 78,692               311,731     $ 7,233,679  
Chairman of the Board
    2001       992,250       3,125,650       3,085               277,335       6,803,068  
and Chief Executive Officer
    2000       992,250       2,480,625       2,907               421,358       4,588,616  
 
Daniel H. Mudd
    2002       689,124       911,250       1,358               82,918       2,339,702  
Vice Chairman of the Board
    2001       656,429       1,083,109       1,320               87,194       1,188,846  
and Chief Operating Officer
    2000       537,063       735,130       265,052     $ 1,319,533       321,295       414,090  
 
Jamie S. Gorelick
    2002       689,124       911,250       1,583               0       3,049,012  
Vice Chair of the Board
    2001       656,429       1,083,109       1,837               87,194       2,791,087  
      2000       625,170       859,609       1,819               186,517       2,458,528  
 
J. Timothy Howard
    2002       498,614       781,250       1,169               81,661       1,947,368  
Executive Vice President
    2001       463,315       694,983       1,103               75,617       1,987,119  
and Chief Financial Officer
    2000       435,540       544,425       1,126               129,142       2,088,542  
 
Robert J. Levin
    2002       480,092       575,000       950               72,445       1,947,368  
Executive Vice President—
    2001       457,317       686,028       994               44,735       1,987,119  
Housing & Community
    2000       435,540       544,425       1,043               100,002       2,088,542  
Development
                                                       

[Additional columns below]

[Continued from above table, first column(s) repeated]

         
All Other
Name and Compensation(3)
Principal Position ($)


Franklin D. Raines
  $ 24,248  
Chairman of the Board
    25,215  
and Chief Executive Officer
    41,315  
 
Daniel H. Mudd
    9,569  
Vice Chairman of the Board
    8,412  
and Chief Operating Officer
    342,796  
 
Jamie S. Gorelick
    15,589  
Vice Chair of the Board
    15,420  
      22,015  
 
J. Timothy Howard
    12,213  
Executive Vice President
    12,150  
and Chief Financial Officer
    18,543  
 
Robert J. Levin
    9,811  
Executive Vice President—
    9,373  
Housing & Community
    12,877  
Development
       

Notes to Summary Compensation Table

  (1)  “Salary” includes annual salary deferred to later years. “Bonus” includes amounts accrued under the Annual Incentive Plan and, for 2001, the value of shares the covered executives received under the 2001 Special Award Program. “Other Annual Compensation” for Mr. Raines in 2002 includes $37,225 for tax counseling and financial planning services and

9


 

  $38,307 for the personal use of company transportation that has been imputed to Mr. Raines as income for tax purposes. For Mr. Mudd, “Other Annual Compensation” in 2000 includes $264,565 for reimbursement of taxes in connection with his relocation from Tokyo, Japan to Washington, D.C.
 
  (2)  Because restricted common stock is held in escrow until vested, as of December 31, 2002, Equiserve Trust Company, N.A., acting as escrow agent, held 15,000 shares of unvested restricted common stock for Mr. Mudd, subject to a vesting schedule through February 2005, with an aggregate value of $964,950. Dividends are paid on restricted common stock at the same rate as the dividends paid on Fannie Mae’s common stock.
 
  (3)  “All Other Compensation” for each covered executive in 2002 includes a $6,000 employer matching contribution under the Retirement Savings Plan for Employees. “All Other Compensation” for 2002 also includes an amount allocated to the premiums paid by Fannie Mae for the term life portion of split-dollar life insurance coverage and an amount equal to the estimated value of the total premiums paid by Fannie Mae for the split-dollar insurance coverage, as follows: Mr. Raines, $2,144 and $14,247; Mr. Mudd, $744 and $1,850; Ms. Gorelick, $1,254 and $7,360; Mr. Howard, $630 and $4,608; and Mr. Levin, $364 and $2,472. Each Fannie Mae officer (other than Mr. Raines, Mr. Mudd, and Ms. Gorelick) has coverage based on annual salary. The coverage for Mr. Raines, Mr. Mudd, and Ms. Gorelick equals approximately two times salary. Fannie Mae also has provided to Mr. Raines an additional term life insurance benefit in the amount of $900,000, with an annual premium allocated to Mr. Raines of $882. “All Other Compensation” also includes premiums of $975 paid on behalf of each covered executive in 2002 for excess liability insurance coverage. For Mr. Mudd, the 2000 amount includes $340,164 for hiring costs and reimbursement of expenses in connection with his relocation from Tokyo, Japan to Washington, D.C.

          Options Grants in Last Fiscal Year

      The following table shows stock option grants for 2002 to the covered executives. These options represent part of Fannie Mae’s variable long-term awards program for its officers, which also includes performance shares as described below in the Long-Term Incentive Plan Awards Table. The value of stock options depends upon a long-term increase in the market price of the common stock. If the stock price does not increase, the options will be worthless; if the stock price does increase, the increase will benefit all stockholders.

                                         
Individual Grants

% of Total
Number of Options Grant Date
Securities Granted to Exercise or Present
Underlying Options Employees for Base Price Expiration Value(2)
Name Granted(1) 2002(1) ($/Sh) Date ($)






Franklin D. Raines
    311,731       8.27 %   $ 69.43       1/21/13     $ 6,680,395  
Daniel H. Mudd
    82,918       2.20 %     69.43       1/21/13       1,776,933  
Jamie S. Gorelick(3)
    n/a       n/a       n/a       n/a       n/a  
J. Timothy Howard
    81,661       2.17 %     69.43       1/21/13       1,749,995  
Robert J. Levin
    72,445       1.92 %     69.43       1/21/13       1,552,496  

Notes to Option Grants Table

  (1)  Includes options granted on January 21, 2003. Options vest 25% per year beginning on the first anniversary of the grant date, or upon the optionee’s retirement (at age 65 or later), early retirement (from age 60 to 64, with at least five years of service), total disability, or death, and in certain cases upon a change in control, and expire 10 years after the date of grant. The options granted to officers at and above the level of executive vice president are subject to accelerated vesting under certain circumstances. Mr. Raines generally will have the right to exercise any vested nonqualified stock option, whenever granted, until it expires by its terms, regardless of whether he is a Fannie Mae employee.

10


 

  (2)  The “Grant Date Present Value” numbers in the table were derived by application of a variation of the Black-Scholes option pricing model. The following assumptions were used in the model:

  •  an exercise price on the option equal to the fair market value of the underlying stock on the date of grant;
 
  •  an option term of 10 years and an interest rate of 3.97%, which represents the interest rate on a U.S. Treasury security with a maturity date corresponding to that of the option term;
 
  •  volatility of 31.87%, calculated using 5-year weekly volatility prior to the grant date; and
 
  •  current dividends at the rate of $1.56 per share, representing the annualized dividends paid with respect to a share of common stock and representing a constant percentage of 2.25% at the date of grant.

  (3)  As announced by Fannie Mae on January 10, 2003, Ms. Gorelick will leave Fannie Mae on June 30, 2003.

          Aggregated Option Exercises in Last Fiscal Year and Fiscal Year End Option Values

      The following table shows the aggregate number of shares underlying options exercised in 2002 and the value at year-end 2002 of outstanding options, whether or not exercisable.

                                 
Number of
Securities Underlying Value of Unexercised
Unexercised Options In-the-Money Options
Shares December 31, 2002 December 31, 2002(2)
Acquired Value Exercisable/ Exercisable/
on Exercise Realized(1) Unexercisable Unexercisable
Name (#) ($) (#) ($)





 
Franklin D. Raines
    n/a     $ n/a       1,000,630/618,843     $ 1,441,600/$  390,793  
 
Daniel H. Mudd
    n/a       n/a       124,090/284,399       663,207/ 2,011,068  
 
Jamie S. Gorelick
    n/a       n/a       296,110/227,281       1,661,516/   177,120  
 
J. Timothy Howard
    20,000       1,246,362       408,624/161,395       9,899,535/   103,527  
 
Robert J. Levin
    20,900       1,025,314       386,333/123,664       9,899,535/   103,527  

Notes to Option Exercises/ Year End Values

      (1) “Value Realized” is the difference between the exercise price and the market price on the exercise date, multiplied by the number of options exercised. “Value Realized” numbers do not necessarily reflect what the executive might receive when he or she sells the shares acquired by the option exercise, since the market price of the shares at the time of sale may be higher or lower than the price on the exercise date of the option.

      (2) “Value of Unexercised In-the-Money Options” is the aggregate, calculated on a grant by grant basis, of the product of the number of unexercised options at the end of 2002 multiplied by the difference between the exercise price for the grant and the year-end market price ($64.33), excluding grants for which the difference is equal to or less than zero.

11


 

          Long-Term Incentive Plan Awards Table

                                                 
Performance or Other
Period Until Estimated Future Payouts Under
Maturation or Payout Non-Stock Price Based Plans
Number of

Performance Payout Period Threshold Target Maximum
Name Shares(1) Award Cycle (if any) (#) (#) (#)







Franklin D. Raines
    107,505       2003-2005       2006, 2007       43,002       107,505       161,258  
Daniel H. Mudd
    28,596       2003-2005       2006, 2007       11,438       28,596       42,894  
Jamie S. Gorelick
    n/a       n/a       n/a        n/a       n/a       n/a  
J. Timothy Howard
    28,162       2003-2005       2006, 2007       11,265       28,162       42,243  
Robert J. Levin
    24,984       2003-2005       2006, 2007       9,994       24,984       37,476  

Note to Long-Term Incentive Plan Awards Table

  (1)  Contingent grants of performance shares were made as part of Fannie Mae’s variable long- term awards program on January 21, 2003 for the 2003-2005 cycle, for which distributions will be made in 2006 and 2007. Actual awards range from 40 percent to 150 percent of a participant’s performance shares based on equally weighted goals for growth in earnings per share and performance in strategic areas. If Fannie Mae does not meet the requirement to achieve 40 percent awards, no award will be paid. The value of an actual award depends on the level of achievement and the value of Fannie Mae’s common stock at the end of the cycle. The fair value of a performance share for the 2003-2005 cycle is subject to a limit of three times the fair market value of Fannie Mae’s common stock on January 21, 2003, the date of grant. The fair market value of Fannie Mae’s common stock on the date of grant was $69.43.

Fannie Mae Retirement Plans

     Fannie Mae Retirement Plan

      The Federal National Mortgage Association Retirement Plan for Employees Not Covered Under Civil Service Retirement Law (the “Fannie Mae Retirement Plan”) provides benefits for those employees who are not covered by the federal Civil Service retirement law. Normal retirement benefits are computed on a single life basis using a formula based on final average annual earnings and years of credited service. Participants are fully vested when they complete five years of credited service. In addition, the Fannie Mae Retirement Plan is coordinated with Social Security Covered Compensation as defined in Internal Revenue Service regulations. Since 1989, Internal Revenue Code provisions have limited the amount of annual compensation that may be used for calculating pension benefits and the annual benefit that may be paid. For 2002, the statutory compensation and benefit caps were $200,000 and $160,000, respectively, and they remain unchanged for 2003. Before 1989, some employees accrued benefits based on higher income levels. For employees who retire before age 65, benefits are reduced by stated percentages for each year that they are younger than 65.

      The covered executives have approximately the following years of credited service: Mr. Levin, 22 years; Mr. Howard, 21 years; Mr. Raines, 11 years; Ms. Gorelick, 6 years; and Mr. Mudd, 3 years.

      The benefits under the Fannie Mae Retirement Plan are not subject to deductions for social security benefits or other offset amounts.

     Supplemental Pension Plans

      Fannie Mae adopted the Supplemental Pension Plan to provide supplemental retirement benefits to employees who do not participate in the Executive Pension Plan and whose salary exceeds the statutory compensation cap applicable to the Fannie Mae Retirement Plan or whose benefit under the Fannie Mae Retirement Plan is limited by the statutory benefit cap applicable to that Plan. Fannie Mae adopted the 2003 Supplemental Pension Plan to provide similar additional benefits to Fannie

12


 

Mae officers based on the annual cash bonus received by an officer, but limited to 50 percent of the officer’s salary.

      The benefits under the supplemental pension plans are not subject to deductions for social security benefits or other offset amounts.

      The following table shows the estimated annual benefits that are payable under the Fannie Mae Retirement Plan and, if applicable, the supplemental pension plans, to an employee who does not participate in the Executive Pension Plan and who turned 65 and retired on January 1, 2003, using years of service accrued through January 1, 2003.

      Fannie Mae Retirement Plan and Supplemental Pension Plans

                                                         
Estimated Annual Pension for Representative Years of Service
Final Average
Annual Earnings 10 15 20 25 30 35







    $ 50,000     $ 7,802       11,883       16,688       21,493       26,298       31,103  
      100,000       17,802       26,883       36,688       46,493       56,298       66,103  
      150,000       27,802       41,883       56,688       71,493       86,298       101,103  
      200,000       37,802       56,883       76,688       96,493       116,298       136,103  
      250,000       47,802       71,883       96,688       121,493       146,298       171,103  
      300,000       57,802       86,883       116,688       146,493       176,298       206,103  
      350,000       67,802       101,883       136,688       171,493       206,298       241,103  
      400,000       77,802       116,883       156,688       196,493       236,298       276,103  
      450,000       87,802       131,883       176,688       221,493       266,298       311,103  
      500,000       97,802       146,883       196,688       246,493       296,298       346,103  
      550,000       107,802       161,883       216,688       271,493       326,298       381,103  
      600,000       117,802       176,883       236,688       296,493       356,298       416,103  
      650,000       127,802       191,883       256,688       321,493       386,298       451,103  
      700,000       137,802       206,883       276,688       346,493       416,298       486,103  
      1,876,900       373,182       559,953       747,448       934,943       1,122,438       1,309,933  

     Executive Pension Plan

      Fannie Mae adopted an Executive Pension Plan to supplement the benefits payable to key officers under the Fannie Mae Retirement Plan. The Compensation Committee selects the participants and determines the pension benefits for each participant. The Board of Directors approves the pension benefits for participants who are at the level of executive vice president and above. Payments are reduced by any amounts payable under the Fannie Mae Retirement Plan, any amounts payable under the Civil Service retirement system attributable to Fannie Mae’s contributions for service with it, and, in certain circumstances, any amounts attributable to employer contributions payable under a prior employer’s tax-qualified plan.

      Participants are granted pension benefits ranging from 30 percent to 60 percent of the average total compensation for the three consecutive years of the participant’s last ten years of employment when total compensation was the highest. Total compensation generally is a participant’s average annual base salary, including deferred compensation, plus the participant’s other taxable compensation paid by Fannie Mae for the relevant year, up to 50 percent of annual base salary for that year. (Payments earned over multiyear periods are allocated equally over the years.)

      Participants who retire before age 60 generally receive a reduced benefit. Participants typically vest fully in their pension benefit after 10 years of Fannie Mae service as a participant in the Executive Pension Plan, with partial vesting usually beginning after 5 years. The benefit payment typically is a monthly amount equal to 1/12th of the participant’s annual retirement benefit payable during the lives of the participant and the participant’s surviving spouse. If a participant dies before receiving benefits under the Executive Pension Plan, generally his or her surviving spouse will be entitled to a death benefit that begins when the spouse reaches age 55, based on the participant’s pension benefit at the date of death.

13


 

      Estimated annual benefits payable upon retirement, assuming that Fannie Mae’s corporate performance causes a participant’s other compensation to equal or exceed 50 percent of annual base salary and full vesting at normal retirement age, for each of the covered executives are as follows: Mr. Raines (60 percent pension benefit), $1,037,727; Mr. Mudd (50 percent pension benefit), $537,098; Ms. Gorelick (50 percent pension benefit), $537,098; Mr. Howard (40 percent pension benefit), $375,000; and Mr. Levin (40 percent pension benefit), $345,000.

Employment Arrangements

      Fannie Mae’s employment agreements with Mr. Raines, Mr. Mudd, and Ms. Gorelick end on June 30, 2003, June 30, 2003, and April 30, 2003, respectively. Under the agreements, his or her current salary may not be reduced, and the agreements may be extended for additional periods. The Board expects to enter into new contracts with Mr. Raines and Mr. Mudd prior to June 30, 2003.

      Among other things, the agreements provide that if the officer is terminated other than for cause, is not nominated for election to the Board of Directors, is removed from his or her current position, if the agreement is not extended after the end of its term, if there is a material change in responsibilities or, if for any reason his or her employment is terminated within six months after a change in control of Fannie Mae, the officer will be entitled to receive his or her then current annual salary until the later of the close of the remaining term of the employment agreement or one year after its termination or nonextension (reduced, starting six months after termination, by amounts earned through other employment). Each employment agreement contains a similar provision if the officer’s employment terminates due to disability, except that the amount of annual salary will be reduced by any disability benefits received, to the extent that the benefits are attributable to payments made by Fannie Mae, and by any amounts earned through other employment, until the employment agreement expires.

      If Mr. Raines dies during the term of his employment agreement, his designated beneficiary will receive a cash sum equal to two times Mr. Raines’ annual salary at the time of death. His surviving spouse will begin to receive the Executive Pension Plan’s surviving spouse’s benefit immediately, regardless of her age, and the benefit will be reduced only if Mr. Raines dies before age 55. If Mr. Mudd or Ms. Gorelick dies during the term of his or her employment agreement, the designated beneficiary or estate will receive a cash sum equal to his or her annual salary in effect at death.

      For 2002, the Board of Directors set Mr. Raines’ cash base salary at $992,250, unchanged since 2000. For the purposes of calculating his pension benefits, life insurance benefits and bonus opportunity, however, the Board of Directors set Mr. Raines’ annual base salary at $1,093,956, reflecting a 5 percent merit increase over the prior year. Consistent with Fannie Mae’s “pay for performance” philosophy, the difference between Mr. Raines’ cash base salary and annual base salary is awarded as additional long-term, equity-based compensation.

      As announced by Fannie Mae on January 10, 2003, Ms. Gorelick will leave Fannie Mae later this year to devote substantial time to the bipartisan national commission investigating the attacks of September 11, 2001, and to pursue other interests. Ms. Gorelick will remain an employee of Fannie Mae through June 30, 2003. Until that date, Ms. Gorelick will continue to receive her current salary and benefits, including the vesting of stock-based compensation and pension benefits pursuant to her agreement.

      Fannie Mae has agreements with Mr. Howard and Mr. Levin, executive vice presidents of Fannie Mae. Each agreement provides that if the officer is terminated for reasons other than for cause, he will continue to receive his base salary for a period of 12 months from the date of termination and will continue to be covered by Fannie Mae’s life, medical, and long-term disability insurance plans for a 12-month period, or until re-employment that provides certain coverage, whichever occurs first. Any disability benefits that the officer receives during the 12-month period will reduce the amount otherwise payable by Fannie Mae, but only to the extent the benefits are attributable to payments made by Fannie Mae.

14


 

Item 7.     Certain Relationships and Related Transactions.

Board of Directors

      During 2002, 2001, and 2000, Fannie Mae was a party to certain business transactions with institutions related to directors. These transactions were done in the ordinary course of business, with terms and conditions substantially the same as those prevailing for comparable transactions with other persons. They represent an insignificant portion of Fannie Mae’s business.

2002

      Mr. Duberstein is Chairman and Chief Executive Officer of The Duberstein Group, an independent strategic planning and consulting company. The firm has provided services to Fannie Mae since 1991. From 2000 through 2002, the firm provided services on an annual fixed-fee basis of $375,000, and will continue to provide similar services during 2003.

      Mr. Swygert’s son is employed by Fannie Mae as a non-officer employee in Fannie Mae’s eBusiness Marketing area.

2001 and 2000

      Mr. Pickett retired from Homeside International, Inc. (“HomeSide”) on June 30, 2001, where he served as Chairman from February 1966. HomeSide, through its primary operating subsidiary, HomeSide Lending, Inc. (“HSL”), was active in the mortgage banking and servicing business during 2001 and 2000 and as such, regularly engaged with Fannie Mae in those types of transactions. During 2001 and 2000, respectively, HSL transferred $11,935 million and $5,995 million of mortgages pursuant to swap transactions involving Fannie Mae; Fannie Mae purchased mortgages with aggregate principal balances of $858 million and $66 million for its own portfolio from HSL; and serviced 818,679 and 742,138 mortgages in Fannie Mae’s mortgage-backed securities and portfolio with balances of $76,519 million and $66,521 million. Fees generated from such servicing in 2001 and 2000 were approximately $287 million and $216 million, respectively. After June 30, 2001, Mr. Pickett had no formal relationship with HomeSide.

      As part of Fannie Mae’s community revitalization efforts in many cities, Fannie Mae formed a strategic partnership with the District of Columbia Housing Finance Agency, Howard University and other community leaders to improve LeDroit Park, an area surrounding Howard University. As part of that initiative, Fannie Mae extended an $800,000 line of credit to Howard University, a non-profit educational institution of which Mr. Swygert is President. Amounts drawn under the line of credit carried an annual interest rate of 7.1%. During 2001 and 2000, the largest amount outstanding under the credit line was $800,000. The line of credit was repaid in full on June 29, 2001.

      Until January 22, 2001, prior to his election to Fannie Mae’s Board in May 2001, Mr. Marron served as Chief Executive Officer of UBS PaineWebber Inc., a wholly-owned subsidiary of UBS AG. During 2001, UBS AG, directly and through its subsidiaries, provided various investment banking services to Fannie Mae and may continue to provide similar or other services during 2003. Mr. Marron has served as Chairman of UBS America, a non-executive position, since January 2001.

Executive Officers

      Mr. Levin’s sister is employed by Fannie Mae as a non-officer employee in Fannie Mae’s Enterprise Systems Operations area.

Item 8.     Legal Proceedings.

      Information on Fannie Mae’s legal proceedings is set forth under Item 3 of the Annual Report on Form 10-K attached as Exhibit 99.1.

15


 

 
Item 9. Market Price of and Dividends on the Registrant’s Common Equity and Related Stockholder Matters.

      Fannie Mae’s common stock is publicly traded on the New York, Pacific, and Chicago stock exchanges and is identified by the ticker symbol “FNM.” The transfer agent and registrar for the common stock is EquiServe Trust Company, N.A., P.O. Box 43069, Providence, Rhode Island 02940. The following table shows, for the periods indicated, the high and low sales prices per share of Fannie Mae’s common stock on the New York Stock Exchange Composite Transactions as reported in the Bloomberg Financial Markets service and the dividends paid in each period.

Quarterly Common Stock Data

                                                 
2002 2001


Quarter High Low Dividend High Low Dividend







First
  $ 83.75     $ 75.08     $ .33     $ 87.94     $ 72.08     $ .30  
Second
    84.10       72.00       .33       87.87       74.00       .30  
Third
    77.55       58.85       .33       87.10       73.71       .30  
Fourth
    72.12       61.45       .33       85.14       75.19       .30  

      The closing price of Fannie Mae’s common stock on March 27, 2003, as so reported, was $66.77.

      At February 28, 2003, there were outstanding approximately 987 million shares of common stock. At December 31, 2002, there were approximately 26,000 stockholders of record and, based on the number of requests for proxies and quarterly reports, Fannie Mae estimates that there are approximately 380,000 additional stockholders who held shares through banks, brokers and nominees.

      Fannie Mae’s payment of dividends is subject to certain statutory restrictions, including approval by the Director of the Office of Federal Housing Enterprise Oversight, of any dividend payment that would cause Fannie Mae’s capital to fall below specified capital levels. See the information under Item 11 of this Registration Statement. Fannie Mae has exceeded the applicable capital standards since the adoption of these restrictions in 1992 and, consequently, has been making dividend payments without the need for such approval.

      Payment of dividends on common stock is also subject to payment of dividends on preferred stock outstanding.

Equity Compensation Plan Information

(as of December 31, 2002)
                           
Number of securities
remaining available
for future issuance
under equity
compensation plans
Number of securities to Weighted-average (excluding
be issued upon exercise exercise price of securities
of outstanding options, outstanding options, reflected in first
warrants and rights warrants and rights column)
Plan category (#) ($) (#)




Equity compensation plans approved by stockholders
    25,131,000     $ 59.16       16,297,084 (1)
Equity compensation plans not approved by stockholders
    n/a       n/a       n/a (2)
     
     
     
 
 
Total
    25,131,000     $ 59.16       16,297,084  
     
     
     
 

(1)  Stockholder Approved Plans: 4,727,809 shares under the 1985 Employee Stock Purchase Plan and 11,569,275 shares under the Stock Compensation Plan of 1993.
 
(2)  Fannie Mae has no equity compensation plans that have not received stockholder approval.

16


 

Item 10.     Recent Sales of Unregistered Securities.

      The securities Fannie Mae issues are “exempt securities” under laws administered by the SEC to the same extent as securities that are obligations of, or guaranteed as to principal and interest by, the United States. Registration statements with respect to offerings of Fannie Mae securities are not filed with the SEC, except for this voluntary filing of Form 10 with respect to Fannie Mae common stock. The following table indicates the securities sold by Fannie Mae through various underwriters over the last three years. All securities were sold for cash, except for $4,253 million aggregate principal amount of debt securities which were exchanged for $2,325 million aggregate principal amount of other debt securities. Fannie Mae used the cash proceeds from these sales for general corporate purposes.

                                 
Amount ($ in millions)

Security 2002 2001 2000 Total





Debt Securities(1)
  $ 1,773,185     $ 1,931,850     $ 1,227,163     $ 4,932,198  
Mortgage-backed Securities(2)
    723,299       525,321       210,311       1,458,931  
Non-Cumulative Preferred Stock
    1,000       400       978       2,378  

(1)  Includes all unsecured debt securities issued under Fannie Mae’s Universal Debt Facility.
(2)  Includes lender-originated MBS. Does not include MBS originated by Fannie Mae which amounted to $16,296 million, $3,101 million and $1,351 million for 2002, 2001 and 2000, respectively.

      In addition, Fannie Mae provided $2,670 million, $2,135 million and $1,812 million in 2002, 2001 and 2000, respectively, of credit enhancement and liquidity support for taxable or tax-exempt housing bonds issued by state and local governmental entities to finance multifamily housing.

Item 11.     Description of Registrant’s Securities to be Registered.

      Section 303(a) of the Charter Act provides that Fannie Mae shall have common stock, without par value. Each share of common stock is entitled to one vote at all elections of directors and on all other matters presented for common stockholder vote. The common stock has no conversion or pre-emptive rights or redemption or sinking fund provisions. The outstanding shares of common stock are fully paid and nonassessable. There is no prohibition against the purchase by Fannie Mae of its own common stock, holding such common stock in its treasury, and reselling such stock. In the event of liquidation of Fannie Mae, holders of common stock are entitled to share ratably, in accordance with their holdings, in the remaining assets of Fannie Mae after payment of all liabilities and amounts payable to the holders of preferred stock. The holders of the common stock elect thirteen directors, and the President of the United States appoints the remaining five directors. Holders of common stock have one vote for every share owned on the related record date. The Charter Act, Fannie Mae’s governing instrument, cannot be amended by the stockholders, but only by an Act of Congress.

      Fannie Mae also is authorized by the Charter Act to have preferred stock on such terms and conditions as the Board of Directors of Fannie Mae may prescribe. No common stockholder approval is required to issue preferred stock. As of March 27, 2003, Fannie Mae had outstanding $150 million of non-cumulative preferred stock issued in 1998, $150 million issued in 1999, $978 million issued in 2000, $400 million issued in 2001, $1 billion issued in 2002, and $400 million issued in 2003, all of which is redeemable at Fannie Mae’s option beginning in 1999, 2004, 2002, 2006, 2007 (for Series I preferred stock issued in 2002), 2004 (for Series J preferred stock issued in 2002), and 2005, respectively. Holders of these preferred stock issues are entitled to receive noncumulative, quarterly dividends when, and if, declared by Fannie Mae’s Board of Directors or a duly authorized committee of the Board. Payment of dividends on preferred stock is not mandatory, but has priority over payment of dividends on common stock. See “Notes to Financial Statements—Note 12” in Item 8 of the attached Form 10-K for additional information on preferred stock.

      The Charter Act contains no limitation on the amount of stock that may be issued.

17


 

      Holders of common and preferred stock are entitled to receive cash dividends if, as, and when declared by the Board of Directors. The Charter Act as amended by the Federal Housing Enterprises Financial Safety and Soundness Act (the “1992 Act”) restricts the ability of the Board of Directors to make capital distributions, including any dividends, in certain circumstances. The 1992 Act established risk-based capital, minimum capital and critical capital requirements for Fannie Mae. See “Government Regulation and Charter Act” in Item 1 of the attached Form 10-K and “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Capital Resources—Regulatory Environment” in Item 7 of the Annual Report on Form 10-K attached as Exhibit 99.1 regarding the capital standards applicable to Fannie Mae. Fannie Mae may not pay any dividend, without the approval of the Office of Federal Housing Enterprise Oversight (“OFHEO”), if the dividend payment would decrease its total capital below the risk-based capital level or its core capital below the minimum capital level. If Fannie Mae does not meet the risk-based capital standard but does meet the minimum capital standard, it may not make any dividend payment that would cause it to fail to meet the minimum capital standard. If Fannie Mae meets neither the risk-based capital standard nor the minimum capital standard but does meet the critical capital standard established under the 1992 Act, it may make a dividend payment only if it would not fail to meet the critical capital standard as a result of the payment and the Director of OFHEO approves the payment after finding that the payment satisfies certain statutory conditions. The Director has the authority to require Fannie Mae to submit a report to the Director regarding any capital distribution (including any dividend) declared by Fannie Mae before Fannie Mae makes the distribution.

      The payment of dividends on common stock also is subject to the payment of dividends on any preferred stock outstanding. No cash dividend may be declared or paid or set apart for payment on common stock unless cash dividends have been declared and paid or set apart (or ordered to be set apart) on preferred stock outstanding for the current dividend period. Dividends on common stock have been declared and paid for each quarter during Fannie Mae’s two most recent fiscal years. See Item 9 for quarterly dividends paid on common stock during 2002 and 2001.

      This description is summarized from the Charter Act, the 1992 Act, Fannie Mae’s bylaws and certain resolutions of the Board of Directors and stockholders of Fannie Mae. This description does not purport to be complete, and is qualified in its entirety by reference to the Charter Act, the 1992 Act, Fannie Mae’s bylaws and the resolutions.

Item 12.     Indemnification of Directors and Officers.

      Fannie Mae’s bylaws authorize the Board of Directors to indemnify Fannie Mae directors and officers and, in the circumstances set forth below, require such indemnification.

      Article 6 of Fannie Mae’s bylaws provides as follows:

      Section 6.01. General Indemnification. The Board of Directors may, in such cases or categories of cases as it deems appropriate, indemnify and hold harmless, or make provision for indemnifying and holding harmless, members of the Board of Directors, officers, employees, and agents of the corporation, and persons who formerly held such positions, and the estates of any of them against any or all claims and liabilities (including reasonable legal fees and other expenses incurred in connection with such claims or liabilities) to which any such person shall have become subject by reason of his or her having held such a position or having allegedly taken or omitted to take any action in connection with such position.

      Section 6.02. Indemnification of Board Members and Officers. Pursuant to a federal regulation, Fannie Mae designated Delaware General Corporation Law as the body of law to follow for its corporate governance practices and procedures, to be applicable to the extent not inconsistent with Fannie Mae’s Charter Act and other federal laws, rules, and regulations. Pursuant to Delaware General Corporation Law, a corporation may indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding,

18


 

whether civil, criminal, administrative or investigative (other than an action by or in the right of such corporation) by reason of the fact that the person is or was a director, officer, employee or agent of such corporation, or serving at the request of such corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement actually and reasonably incurred in connection with such action, suit or proceeding, if such person acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of such corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his or her conduct was unlawful.

      Delaware General Corporation Law also permits indemnification by a corporation under similar circumstances for expenses (including attorneys’ fees) actually and reasonably incurred by such persons in connection with the defense or settlement of a derivative action, except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to such corporation unless the Delaware Court of Chancery or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which such court shall deem proper.

      Delaware General Corporation Law provides that the indemnification described above shall not be deemed exclusive of other indemnification that may be granted by a corporation pursuant to its bylaws, disinterested directors’ vote, stockholders’ vote, agreement or otherwise.

      Delaware General Corporation Law also provides corporations with the power to purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against any liability asserted against him or her in any such capacity, or arising out of his or her status as such, whether or not the corporation would have the power to indemnify him or her against such liability as described above.

      Fannie Mae’s bylaws provide that, to the fullest extent permitted by Delaware statutory or decisional law, as amended or interpreted, no director shall be personally liable to Fannie Mae or its stockholders for monetary damages for breach of fiduciary duty as a director.

      Fannie Mae’s bylaws also provide that to the fullest extent permitted by Delaware General Corporation Law, as currently in effect or as subsequently amended to provide for increased (but not decreased) indemnification rights, Fannie Mae will indemnify and hold harmless each officer and member of the Board against any and all claims, liabilities and expenses actually and reasonably incurred arising out of any threatened, pending, or completed action, suit or proceeding (including civil, criminal, administrative, and investigative actions, suits or proceedings), to which such officer or director has become subject by reason of having held his or her position or having allegedly taken or omitted to take any action in connection with such position.

      In addition, Fannie Mae has entered into indemnification agreements that provide indemnification to directors and officers. These agreements provide a contractual right to indemnification for expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement actually and reasonably incurred in connection with any threatened, pending or completed investigation, claim, action, suit or proceeding, whether civil, administrative or investigative (including, to the extent permitted by law, any derivative action) by reason of the fact that such person is or was serving as a director, officer, employee or agent of Fannie Mae. The agreements also entitle the persons to be indemnified to have all expenses incurred in advance of the final disposition of a proceeding paid by Fannie Mae, upon receipt of an undertaking to repay any amounts advanced if it is ultimately determined that such person is not entitled to indemnification.

19


 

      Policies of insurance are maintained by Fannie Mae under which its directors and officers are insured, within the limits and subject to the exclusions of the policies, against certain expenses in connection with the defense of, and certain liabilities which might be imposed as a result of, actions, suits or proceedings to which they are party by reason of being or having been directors or officers.

Item 13.     Financial Statements and Supplementary Data.

      Information on Fannie Mae’s financial statements is set forth under Item 8 of the Annual Report on Form 10-K attached as Exhibit 99.1.

 
Item 14. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

      There were no changes in or disagreements with accountants on accounting and financial disclosure during the last two fiscal years.

Item 15.     Financial Statements and Exhibits.

      (a) Fannie Mae’s financial statements are listed under Item 15 of the Annual Report on Form 10-K attached as Exhibit 99.1.

      (b) Exhibits.

      An exhibit index has been filed as part of this Registration Statement beginning on page E-1 and is incorporated herein by reference.

20


 

SIGNATURES

      Pursuant to the requirements of Section 12 of the Securities Exchange Act of 1934, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized.

  FEDERAL NATIONAL MORTGAGE ASSOCIATION

Date:            March 31, 2003

  By:  /s/ FRANKLIN D. RAINES

  Name: Franklin D. Raines
  Title:    Chairman of the Board and
Chief Executive Officer


 



SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

EXHIBITS

TO

FORM 10

Federal National Mortgage Association

Fannie Mae




 

Exhibit Index

         
Exhibit
No. Description


  3.1     Fannie Mae Charter Act (12 U.S.C. § 1716 et seq.)
  3.2     Fannie Mae Bylaws, effective as of January 21, 2003
  4.1     Certificate of Designation of Terms of Fannie Mae Preferred Stock, Series D
  4.2     Certificate of Designation of Terms of Fannie Mae Preferred Stock, Series E
  4.3     Certificate of Designation of Terms of Fannie Mae Preferred Stock, Series F
  4.4     Certificate of Designation of Terms of Fannie Mae Preferred Stock, Series G
  4.5     Certificate of Designation of Terms of Fannie Mae Preferred Stock, Series H
  4.6     Certificate of Designation of Terms of Fannie Mae Preferred Stock, Series I
  4.7     Certificate of Designation of Terms of Fannie Mae Preferred Stock, Series J
  4.8     Certificate of Designation of Terms of Fannie Mae Preferred Stock, Series K
  10.1     Employment Agreement between Fannie Mae and Franklin D. Raines
  10.2     Employment Agreement between Fannie Mae and Daniel H. Mudd
  10.3     Employment Agreement between Fannie Mae and Jamie S. Gorelick
  10.4     Letter Agreement between Fannie Mae and J. Timothy Howard
  10.5     Letter Agreement between Fannie Mae and Robert J. Levin
  10.6     Letter Agreement between Fannie Mae and Adolfo Marzol
  10.7     Form of Indemnification Agreement for Non-Management Directors of Fannie Mae
  10.8     Form of Indemnification Agreement for Officers of Fannie Mae
  10.9     Federal National Mortgage Association Supplemental Pension Plan
  10.10     Executive Pension Plan of the Federal National Mortgage Association
  10.11     Fannie Mae Annual Incentive Plan
  10.12     Fannie Mae Stock Compensation Plan of 1993
  10.13     Fannie Mae Elective Deferred Compensation Plan
  10.14     Fannie Mae Procedures for Deferral and Diversification of Awards
  10.15     Fannie Mae Stock Option Gain Deferral Plan
  10.16     Description of 2003 Supplemental Pension Plan
  10.17     Director’s Charitable Award Program
  12.1     Statement re computation of ratios of earnings to fixed charges
  12.2     Statement re computation of ratios of earnings to combined fixed charges and preferred stock dividends
  99.1     Annual Report on Form 10-K for the Year Ended December 31, 2002
exv3w1
 

EXHIBIT 3.1

Title 12 – Banks and Banking

Chapter 13 – National Housing

Subchapter III – National Mortgage Associations

Section 1716. Declaration of purposes of subchapter {Section 301}

The Congress declares that the purposes of this subchapter are to establish secondary market facilities for residential mortgages, to provide that the operations thereof shall be financed by private capital to the maximum extent feasible, and to authorize such facilities to –

  (1)   provide stability in the secondary market for residential mortgages;
 
  (2)   respond appropriately to the private capital market;
 
  (3)   provide ongoing assistance to the secondary market for residential mortgages (including activities relating to mortgages on housing for low- and moderate-income families involving a reasonable economic return that may be less than the return earned on other activities) by increasing the liquidity of mortgage investments and improving the distribution of investment capital available for residential mortgage financing;
 
  (4)   promote access to mortgage credit throughout the Nation (including central cities, rural areas, and underserved areas) by increasing the liquidity of mortgage investments and improving the distribution of investment capital available for residential mortgage financing; and
 
  (5)   manage and liquidate federally owned mortgage portfolios in an orderly manner, with a minimum of adverse effect upon the residential mortgage market and minimum loss to the Federal Government.

Section 1717. Federal National Mortgage Association and Government National Mortgage Association {Section 302}

(a)   Creation; succession; principal and other offices

  (1)   There is created a body corporate to be known as the “Federal National Mortgage Association’’, which shall be in the Department of Housing and Urban Development. The Association shall have succession until dissolved by Act of Congress. It shall maintain its principal office in the District of Columbia and shall be deemed, for purposes of venue in civil actions, to be a resident thereof. Agencies or offices may be established by the Association in such other place or places as it may deem necessary or appropriate in the conduct of its business.
 
  (2)   On September 1, 1968, the body corporate described in the foregoing paragraph shall cease to exist in that form and is hereby partitioned into two separate and distinct bodies corporate, each of which shall have continuity and corporate succession as a separated portion of the previously existing body corporate, as follows:
 
        (A) One of such separated portions shall be a body corporate without capital stock to be known as Government National Mortgage Association (hereinafter referred to as the “Association’’), which shall be in the Department of Housing and Urban Development and which shall retain the assets and liabilities acquired and incurred under sections 1720 and 1721 of this title prior to such date, including any and all liabilities incurred pursuant to subsection (c) of this section. The Association shall have succession until dissolved by Act of Congress. It shall maintain its principal office in the District of Columbia and shall be deemed, for purposes of venue in civil actions, to be a resident thereof. Agencies or offices may be established by

 


 

          the Association in such other place or places as it may deem necessary or appropriate in the conduct of its business.
 
        (B) The other such separated portion shall be a body corporate to be known as Federal National Mortgage Association (hereinafter referred to as the “corporation’’), which shall retain the assets and liabilities acquired and incurred under sections 1718 and 1719 of this title prior to such date. The corporation shall have succession until dissolved by Act of Congress. It shall maintain its principal office in the District of Columbia or the metropolitan area thereof and shall be deemed, for purposes of jurisdiction and venue in civil actions, to be a District of Columbia corporation.
 
  (3)   The partition transaction effected pursuant to the foregoing paragraph constitutes a reorganization within the meaning section 368(a)(1)(E) of title 26; and for the purposes of such title 26, no gain or loss is recognized by the previously existing body corporate by reason of the partition, and the basis and holding period of the assets of the corporation immediately following such partition are the same as the basis and holding period of such assets immediately prior to such partition.

(b)  Purchase and sale of insured and conventional mortgages; transactions in loans and advances of credit

  (1)   For the purposes set forth in section 1716 of this title and subject to the limitations and restrictions of this subchapter, each of the bodies corporate named in subsection (a)(2) of this section is authorized pursuant to commitments or otherwise, to purchase, service, sell, or otherwise deal in any mortgages which are insured under this chapter or title V of the Housing Act of 1949 (42 U.S.C. 1471 et seq.), or which are insured or guaranteed under the Servicemen’s Readjustment Act of 1944 or chapter 37 of title 38; and to purchase, service, sell, or otherwise deal in any loans made or guaranteed under part B of title VI of the Public Health Service Act (42 U.S.C. 291j-1 et seq.); and the corporation is authorized to lend on the security of any such mortgages and to purchase, sell, or otherwise deal in any securities guaranteed by the Association under section 1721(g) of this title: Provided, That (1) the Association may not purchase any mortgage at a price exceeding 100 per centum of the unpaid principal amount thereof at the time of purchase, with adjustments for interest and any comparable items; (2) the Association may not purchase any mortgage, except a mortgage insured under title V of the Housing Act of 1949 (42 U.S.C. 1471 et seq.), if it is offered by, or covers property held by, a State, territorial, or municipal instrumentality; and (3) the Association may not purchase any mortgage under section 1720 of this title, except a mortgage insured under section 1715k of this title or subchapter VIII of this chapter or section 1709(k) of this title, or under subchapter IX-A of this chapter with respect to a new community approved under section 1749cc-1 of this title, or insured under section 1715e of this title and covering property located in an urban renewal area, or a mortgage covering property located in Alaska, Guam, or Hawaii, if the original principal obligation thereof exceeds or exceeded $55,000 in the case of property upon which is located a dwelling designed principally for a one-family residence; or $60,000 in the case of a two- or three-family residence; or $68,750 in the case of a four-family residence; or, in the case of a property containing more than four dwelling units, $38,000 per dwelling unit (or such higher amount not in excess of $45,000 per dwelling unit as the Secretary may by regulation specify in any geographical area where the Secretary finds that cost levels so require) for that part of the property attributable to dwelling use. Notwithstanding the provisions of clause (3) of the preceding sentence, the Association may purchase a mortgage under section 1720 of this title with an original principal obligation which exceeds the otherwise applicable maximum amount per dwelling unit if the mortgage is insured under section 1713(c)(3), 1715e(b)(2), 1715k(d)(3)(B)(iii), 1715l(d)(3)(ii), 1715l(d)(4)(ii), 1715v(c)(2), 1715y(e)(3), or 1715z-1 of this title. For the purposes of this subchapter, the terms “mortgages’’ and “home mortgages’’ shall be inclusive of any mortgages or other loans insured under any of the provisions of this chapter or title V of the Housing Act of 1949 (42 U.S.C. 1471 et seq.).

 


 

  (2)   For the purposes set forth in section 1716(a) of this title, the corporation is authorized, pursuant to commitments or otherwise, to purchase, service, sell, lend on the security of, or otherwise deal in mortgages which are not insured or guaranteed as provided in paragraph (1) (such mortgages referred to hereinafter as “conventional mortgages’’). No such purchase of a conventional mortgage secured by a property comprising one- to four-family dwelling units shall be made if the outstanding principal balance of the mortgage at the time of purchase exceeds 80 per centum of the value of the property securing the mortgage, unless (A) the seller retains a participation of not less than 10 per centum in the mortgage; (B) for such period and under such circumstances as the corporation may require, the seller agrees to repurchase or replace the mortgage upon demand of the corporation in the event that the mortgage is in default; or (C) that portion of the unpaid principal balance of the mortgage which is in excess of such 80 per centum is guaranteed or insured by a qualified insurer as determined by the corporation. The corporation shall not issue a commitment to purchase a conventional mortgage prior to the date the mortgage is originated, if such mortgage is eligible for purchase under the preceding sentence only by reason of compliance with the requirements of clause (A) of such sentence. The corporation may purchase a conventional mortgage which was originated more than one year prior to the purchase date only if the seller is the Federal Deposit Insurance Corporation, the Resolution Trust Corporation, the National Credit Union Administration, or any other seller currently engaged in mortgage lending or investing activities. For the purpose of this section, the term “conventional mortgages’’ shall include a mortgage, lien, or other security interest on the stock or membership certificate issued to a tenant-stockholder or resident-member of a cooperative housing corporation, as defined in section 216 of title 26, and on the proprietary lease, occupancy agreement, or right of tenancy in the dwelling unit of the tenant-stockholder or resident-member in such cooperative housing corporation. The corporation shall establish limitations governing the maximum original principal obligation of conventional mortgages that are purchased by it; in any case in which the corporation purchases a participation interest in such a mortgage, the limitation shall be calculated with respect to the total original principal obligation of the mortgage and not merely with respect to the interest purchased by the corporation. Such limitations shall not exceed $93,750 for a mortgage secured by a single-family residence, $120,000 for a mortgage secured by a two-family residence, $145,000 for a mortgage secured by a three-family residence, and $180,000 for a mortgage secured by a four-family residence, except that such maximum limitations shall be adjusted effective January 1 of each year beginning with 1981. Each such adjustment shall be made by adding to each such amount (as it may have been previously adjusted) a percentage thereof equal to the percentage increase during the twelve-month period ending with the previous October in the national average one-family house price in the monthly survey of all major lenders conducted by the Federal Housing Finance Board. The foregoing limitations may be increased by not to exceed 50 per centum with respect to properties located in Alaska, Guam, Hawaii, and the Virgin Islands.
 
  (3)   The corporation is authorized to purchase, service, sell, lend on the security of, and otherwise deal in loans or advances of credit for the purchase and installation of home improvements, including energy conserving improvements or solar energy systems described in the last paragraph of section 1703(a) of this title and residential energy conservation measures as described in section 210(11) of the National Energy Conservation Policy Act (42 U.S.C. 8211(11)) and financed by a public utility in accordance with the requirements of title II of such Act (42 U.S.C. 8211 et seq.). To be eligible for purchase, any such loan or advance of credit (other than a loan or advance made with respect to energy conserving improvements or solar energy systems or residential energy conservation measures) not insured under subchapter I of this chapter shall be secured by a lien against the property to be improved.
 
  (4)   The corporation is authorized to purchase, service, sell, lend on the security of, and otherwise deal in loans or advances of credit secured by mortgages or other liens against manufactured homes.
 
  (5)     (A) The corporation is authorized to purchase, service, sell, lend on the security of, and otherwise deal in (i) conventional mortgages that are secured by a subordinate lien

 


 

          against a one- to four-family residence that is the principal residence of the mortgagor; and (ii) conventional mortgages that are secured by a subordinate lien against a property comprising five or more family dwelling units. If the corporation, pursuant to paragraphs (1) through (4), shall have purchased, serviced, sold, or otherwise dealt with any other outstanding mortgage secured by the same residence, the aggregate original amount of such other mortgage and the mortgage authorized to be purchased, serviced, sold, or otherwise dealt with under this paragraph shall not exceed the applicable limitation determined under paragraph (2).
 
        (B) The corporation shall establish limitations governing the maximum original principal obligation of conventional mortgages described in subparagraph (A). In any case in which the corporation purchases a participation interest in such a mortgage, the limitation shall be calculated with respect to the total original principal obligation of such mortgage described in subparagraph (A) and not merely with respect to the interest purchased by the corporation. Such limitations shall not exceed (i) with respect to mortgages described in subparagraph (A)(i), 50 per centum of the single-family residence mortgage limitation determined under paragraph (2); and (ii) with respect to mortgages described in subparagraph (A)(ii), the applicable limitation determined under paragraph (2).
 
        (C) No subordinate mortgage against a one- to four-family residence shall be purchased by the corporation if the total outstanding indebtedness secured by the property as a result of such mortgage exceeds 80 per centum of the value of such property unless (i) that portion of such total outstanding indebtedness that exceeds such 80 per centum is guaranteed or insured by a qualified insurer as determined by the corporation; (ii) the seller retains a participation of not less than 10 per centum in the mortgage; or (iii) for such period and under such circumstances as the corporation may require, the seller agrees to repurchase or replace the mortgage upon demand of the corporation in the event that the mortgage is in default. The corporation shall not issue a commitment to purchase a subordinate mortgage prior to the date the mortgage is originated, if such mortgage is eligible for purchase under the preceding sentence only by reason of compliance with the requirements of clause (ii) of such sentence.
 
  (6)   The corporation may not implement any new program (as such term is defined in section 4502 of this title) before obtaining the approval of the Secretary under section 4542 of this title.

(c)  Administration of trusts; obligations of departments and agencies of the United States; exemption of interest income from taxation; authorization of appropriations for differential reimbursements

  (1)   Notwithstanding any other provision of this chapter or of any other law, the Association is authorized under section 1721 of this title to create, accept, execute, and otherwise administer in all respects such trusts, receiverships, conservatorships, liquidating or other agencies, or other fiduciary and representative undertakings and activities, hereinafter in this subsection called “trusts’’, as might be appropriate for financing purposes; and in relation thereto the Association may acquire, hold and manage, dispose of, and otherwise deal in any mortgages or other types of obligations in which any department or agency of the United States listed in paragraph (2) of this subsection may have a financial interest. The Association may join in any such undertakings and activities, hereinafter in this subsection called “trusts’’; notwithstanding that it is also serving in a fiduciary or representative capacity; and is authorized to guarantee any participations or other instruments, whether evidence of property rights or debt, issued for such financing purposes. Participations or other instruments issued by the Association pursuant to this subsection shall to the same extent as securities which are direct obligations of or obligations guaranteed as to principal or interest by the United States be deemed to be exempt securities within the meaning of laws administered by the Securities and Exchange Commission. The amounts of any mortgages and their obligations acquired by the

 


 

    Association under section 1721 of this title, pursuant to this subsection, shall not be included in the total amounts set forth in section 1721(c) of this title.
 
(2)   Subject to the limitations provided in paragraph (4) of this subsection, one or more trusts may be established as provided in this subsection by each of the following departments or agencies:
 
        (A) The Farmers Home Administration of the Department of Agriculture, but only with respect to operating loans, direct farm ownership loans, direct housing loans, and direct soil and water loans. Such trusts may not be established with respect to loans for housing for the elderly under sections 502 and 515(a) of the Housing Act of 1949 (42 U.S.C. 1472 and 1485(a)), nor with respect to loans for nonfarm recreational development.
 
        (B) The Department of Education, but only with respect to loans made by the Secretary of Education for construction of academic facilities, and loans to help finance student loan programs.
 
        (C) The Department of Housing and Urban Development.
 
        (D) The Department of Veterans Affairs.
 
        (E) The Export-Import Bank.
 
        (F) The Small Business Administration.

    The head of each such department or agency, hereinafter in this subsection called the “trustor,’’ is authorized to set aside a part or all of any obligations held by the trustor and subject them to a trust or trusts and, incident thereto, shall guarantee to the trustee timely payment thereof. The trust instrument may provide for the issuance and sale of beneficial interests or participations, by the trustee, in such obligations or in the right to receive interest and principal collections therefrom; and may provide for the substitution or withdrawal of such obligations, or for the substitution of cash for obligations. The trust or trusts shall be exempt from all taxation. The trust instrument may also contain other appropriate provisions in keeping with the purposes of this subsection. The Association shall be named and shall act as trustee of any such trusts and, for the purposes thereof, the title to such obligations shall be deemed to have passed to the Association in trust. The trust instrument shall provide that custody, control, and administration of the obligations shall remain in the trustor subjecting the obligations to the trust, subject to transfer to the trustee in event of default or probable default, as determined by the trustee, in the payment of principal and interest of the beneficial interests or participations. Collections from obligations subject to the trust shall be dealt with as provided in the instrument creating the trust. The trust instrument shall provide that the trustee will promptly pay to the trustor the full net proceeds of any sale of beneficial interests or participations to the extent they are based upon such obligations or collections. Such proceeds shall be dealt with as otherwise provided by law for sales or repayment of such obligations. The effect of both past and future sales of any issue of beneficial interests or participations shall be the same, to the extent of the principal of such issue, as the direct sale with recourse of the obligations subject to the trust. Any trustor creating a trust or trusts hereunder is authorized to purchase, through the facilities of the trustee, outstanding beneficial interests or participations to the extent of the amount of the trustor’s responsibility to the trustee on beneficial interests or participations outstanding, and to pay the trustor’s proper share of the costs and expenses incurred by the Association as trustee pursuant to the trust instrument.
 
(3)   When any trustor guarantees to the trustee the timely payment of obligations the trustor subjects to a trust pursuant to this subsection, and it becomes necessary for such trustor to meet his responsibilities under such guaranty, the trustor is authorized to fulfill such guaranty.
 
(4)   Beneficial interests or participations shall not be issued for the account of any trustor in an aggregate principal amount greater than is authorized with respect to such trustor in an appropriation Act. Any such authorization shall remain available only for the fiscal year for which it is granted and for the succeeding fiscal year.
 
(5)   The Association, as trustee, is authorized to issue and sell beneficial interests or participations under this subsection, notwithstanding that there may be an insufficiency in aggregate receipts from obligations subject to the related trust to provide for the payment by the trustee (on a timely basis out of current receipts or otherwise) of all interest or principal on such interests or

 


 

    participations (after provision for all costs and expenses incurred by the trustee, fairly prorated among trustors). There are authorized to be appropriated without fiscal year limitation such sums as may be necessary to enable any trustor to pay the trustee such insufficiency as the trustee may require on account of outstanding beneficial interests or participations authorized to be issued pursuant to paragraph (4) of this subsection. Such trustor shall make timely payments to the trustee from such appropriations, subject to and in accord with the trust instrument. In the event that the insufficiency required by the trustee is on account of principal maturities of outstanding beneficial interests or participations authorized to be issued pursuant to paragraph (4) of this subsection, or pursuant hereto, the trustee is authorized to elect to issue additional beneficial interests or participations for refinancing purposes in lieu of requiring any trustor or trustors to make payments to the trustee from appropriated funds or other sources. Each such issue of beneficial interests or participations shall be in an amount determined by the trustee but not in excess of the aggregate amount which the trustee would otherwise require the trustor or trustors to pay from appropriated funds or other sources, and may be issued without regard to the provisions of paragraph (4) of this subsection. All refinancing issues of beneficial interests or participations shall be deemed to have been issued pursuant to the authority contained in the appropriation Act or Acts under which the beneficial interests or participations were originally issued.

Section 1718. Capitalization of Federal National Mortgage Association {Section 303}

(a)  Common stock; preferred stock; transferability of shares

The corporation shall have common stock, without par value, which shall be vested with all voting rights, each share being entitled to one vote with rights of cumulative voting at all elections of directors. The corporation may eliminate such rights of cumulative voting by a resolution adopted by its board of directors and approved by the holders of a majority of the shares of common stock voting in person or by proxy at the annual meeting, or other special meeting, at which such resolution is considered. The corporation may have preferred stock on such terms and conditions as the board of directors shall prescribe. The free transferability of the stock at all times to any person, firm, corporation, or other entity shall not be restricted except that, as to the corporation, it shall be transferable only on the books of the corporation. The corporation may issue shares of common stock in return for appropriate payments into capital or capital and surplus.

(b)  Fees and charges; annual transfer of earnings to general surplus account

  (1)   The corporation may impose charges or fees, which may be regarded as elements of pricing, with the objective that all costs and expenses of the operations of the corporation should be within its income derived from such operations and that such operations should be fully self-supporting.
 
  (2)   All earnings from the operations of the corporation shall annually be transferred to the general surplus account of the corporation. At any time, funds of the general surplus account may, in the discretion of the board of directors, be transferred to reserves.

(c)  Capital distributions from general surplus account; minimum capitalization levels

  (1)   Except as provided in paragraph (2), the corporation may make such capital distributions (as such term is defined in section 4502 of this title) as may be declared by the board of directors. All capital distributions shall be charged against the general surplus account of the corporation.
 
  (2)   The corporation may not make any capital distribution that would decrease the total capital of the corporation (as such term is defined in section 4502 of this title) to an amount less than the risk-based capital level for the corporation established under section 4611 of this title or that would decrease the core capital of the corporation (as such term is defined in section 4502 of this title) to an amount less than the minimum capital level for the corporation established under section 4612 of this title, without prior written approval of the distribution by the

 


 

      Director of the Office of Federal Housing Enterprise Oversight of the Department of Housing and Urban Development.

(d)  Institutions eligible to purchase stock

Notwithstanding any other provision of law, any institution, including a national bank or State member bank of the Federal Reserve System or any member of the Federal Deposit Insurance Corporation, trust company, or other banking organization, organized under any law of the United States, including the laws relating to the District of Columbia, shall be authorized to purchase shares of common stock of the corporation and to hold or dispose of such stock, subject to the provisions of this subchapter.

Section 1719. Secondary market operations {Section 304}

(a)  Purchase and sale of mortgages; secondary market operations; advance of funds or origination of loans; settlement or extinguishment of borrower’s rights

  (1)   To carry out the purposes set forth in paragraph (a) of section 1716 of this title, the operations of the corporation under this section shall be confined, so far as practicable, to mortgages which are deemed by the corporation to be of such quality, type, and class as to meet, generally, the purchase standards imposed by private institutional mortgage investors. In the interest of assuring sound operation, the prices to be paid by the corporation for mortgages purchased in its secondary market operations under this section, should be established, from time to time, within the range of market prices for the particular class of mortgages involved, as determined by the corporation. The volume of the corporation’s purchases and sales, and the establishment of the purchase prices, sale prices, and charges or fees, in its secondary market operations under this section, should be determined by the corporation from time to time, and such determinations should be consistent with the objectives that such purchases and sales should be effected only at such prices and on such terms as will reasonably prevent excessive use of the corporation’s facilities, and that the operations of the corporation under this section should be within its income derived from such operations and that such operations should be fully self-supporting. Nothing in this subchapter shall prohibit the corporation from purchasing, and making commitments to purchase, any mortgage with respect to which the Secretary of Housing and Urban Development has entered into a contract with the corporation to make interest subsidy payments under section 1715z-8 of this title.
 
  (2)   The volume of the corporation’s lending activities and the establishment of its loan ratios, interest rates, maturities, and charges or fees, in its secondary market operations under this section, should be determined by the corporation from time to time; and such determinations, in conjunction with determinations made under paragraph (1), should be consistent with the objectives that the lending activities should be conducted on such terms as will reasonably prevent excessive use of the corporation’s facilities, and that the operations of the corporation under this section should be within its income derived from such operations and that such operations should be fully self-supporting. The corporation shall not be permitted to use its lending authority (A) to advance funds to a mortgage seller on an interim basis, using mortgage loans as collateral, pending the sale of the mortgages in the secondary market; or (B) to originate mortgage loans. Notwithstanding any Federal, State, or other law to the contrary, the corporation is empowered, in connection with any loan under this section, whether before or after any default, to provide by contract with the borrower for the settlement or extinguishment, upon default, of any redemption, equitable, legal, or other right, title, or interest of the borrower in any mortgage or mortgages that constitute the security for the loan; and with respect to any such loan, in the event of default and pursuant otherwise to the terms of the contract, the mortgages that constitute such security shall become the absolute property of the corporation.

(b) Obligations of the Corporation

 


 

For the purposes of this section, the corporation is authorized to issue, upon the approval of the Secretary of the Treasury, and have outstanding at any one time obligations having such maturities and bearing such rate or rates of interest as may be determined by the corporation with the approval of the Secretary of the Treasury, to be redeemable at the option of the corporation before maturity in such manner as may be stipulated in such obligations. The corporation shall insert appropriate language in all of its obligations issued under this subsection clearly indicating that such obligations, together with the interest thereon, are not guaranteed by the United States and do not constitute a debt or obligation of the United States or any agency or instrumentality thereof other than the corporation. The corporation is authorized to purchase in the open market any of its obligations outstanding under this subsection at any time and at any price.

(c)  Purchase of obligations by Treasury; conditions and restrictions

The Secretary of the Treasury is authorized in the Secretary’s discretion to purchase any obligations issued pursuant to subsection (b) of this section, as now or hereafter in force, and for such purpose the Secretary of the Treasury is authorized to use as a public debt transaction the proceeds of the sale of any securities hereafter issued under chapter 31 of title 31, and the purposes for which securities may be issued under chapter 31 of title 31 are extended to include such purchases. The Secretary of the Treasury shall not at any time purchase any obligations under this subsection if such purchase would increase the aggregate principal amount of the Secretary’s then outstanding holdings of such obligations under this subsection to an amount greater than $2,250,000,000. Each purchase of obligations by the Secretary of the Treasury under this subsection shall be upon such terms and conditions as to yield a return at a rate determined by the Secretary of the Treasury, taking into consideration the current average rate on outstanding marketable obligations of the United States as of the last day of the month preceding the making of such purchase. The Secretary of the Treasury may, at any time, sell, upon such terms and conditions and at such price or prices as the Secretary shall determine, any of the obligations acquired by the Secretary under this subsection. All redemptions, purchases, and sales by the Secretary of the Treasury of such obligations under this subsection shall be treated as public debt transactions of the United States.

(d)  Mortgage-backed securities; issuance; maturities; rates of interest; exempt securities; adequacy of mortgages to permit principal and interest payments; statement in securities

To provide a greater degree of liquidity to the mortgage investment market and an additional means of financing its operations under this section, the corporation is authorized to set aside any mortgages held by it under this section, and, upon approval of the Secretary of the Treasury, to issue and sell securities based upon the mortgages so set aside. Securities issued under this subsection may be in the form of debt obligations or trust certificates of beneficial interest, or both. Securities issued under this subsection shall have such maturities and bear such rate or rates of interest as may be determined by the corporation with the approval of the Secretary of the Treasury. Securities issued by the corporation under this subsection shall, to the same extent as securities which are direct obligations of or obligations guaranteed as to principal and interest by the United States, be deemed to be exempt securities within the meaning of laws administered by the Securities and Exchange Commission. Mortgages set aside pursuant to this subsection shall at all times be adequate to enable the corporation to make timely principal and interest payments on the securities issued and sold pursuant to this subsection. The corporation shall insert appropriate language in all of the securities issued under this subsection clearly indicating that such securities, together with the interest thereon, are not guaranteed by the United States and do not constitute a debt or obligation of the United States or any agency or instrumentality thereof other than the corporation.

(e)  Subordinated or convertible obligations; issuance; maturities; rate of interest; redemption; exempt securities; debt or obligation of United States; purchases in open market

For the purposes of this section, the corporation is authorized to issue, upon the approval of the Secretary of the Treasury, obligations which are subordinated to any or all other obligations of the corporation, including subsequent obligations. The obligations issued under this subsection shall have such maturities and bear such rate or rates of interest as may be determined by the corporation with the approval of the Secretary of the Treasury and may be made redeemable at the option of the corporation before maturity in such manner as may be stipulated in such obligations. Any of such obligations may be made convertible

 


 

into shares of common stock in such manner, at such price or prices, and at such time or times as may be stipulated therein. Obligations issued by the corporation under this subsection shall, to the same extent as securities which are direct obligations of or obligations guaranteed as to principal or interest by the United States, be deemed to be exempt securities within the meaning of laws administered by the Securities and Exchange Commission. The corporation shall insert appropriate language in all of its obligations issued under this subsection clearly indicating that such obligations, together with the interest thereon, are not guaranteed by the United States and do not constitute a debt or obligation of the United States or of any agency or instrumentality thereof other than the corporation. The corporation is authorized to purchase in the open market any of its obligations outstanding under this subsection at any time and at any price.

(f)  Prohibition on assessment or collection of fee or charge by United States

Except for fees paid pursuant to section 1723a(g) of this title and assessments pursuant to section 4516 of this title, no fee or charge may be assessed or collected by the United States (including any executive department, agency, or independent establishment of the United States) on or with regard to the purchase, acquisition, sale, pledge, issuance, guarantee, or redemption of any mortgage, asset, obligation, trust certificate of beneficial interest, or other security by the corporation. No provision of this subsection shall affect the purchase of any obligation by the Secretary of the Treasury pursuant to subsection (c) of this section.

Section 1720. Repealed {Section 305}

Section 1721. Management and liquidation functions of Government National Mortgage Association {Section 306}

(a)  Separate accountability of assets and liabilities

To carry out the purposes set forth in paragraph (c) of section 1716 of this title, the Association is authorized and directed, as of the close of the cutoff date determined by the Association pursuant to section 1718(d) of this title, to establish separate accountability for all of its assets and liabilities (exclusive of capital, surplus, surplus reserves, and undistributed earnings to be evidenced by preferred stock as provided in section 1718(d) of this title, but inclusive of all rights and obligations under any outstanding contracts), and to maintain such separate accountability for the management and orderly liquidation of such assets and liabilities as provided in this section.

(b)  Issuance of obligations to expedite substitution of private financing

For the purposes of this section and to assure that, to the maximum extent, and as rapidly as possible, private financing will be substituted for Treasury borrowings otherwise required to carry mortgages held under the aforesaid separate accountability, the Association is authorized to issue, upon the approval of the Secretary of the Treasury, and have outstanding at any one time obligations having such maturities and bearing such rate or rates of interest as may be determined by the Association with the approval of the Secretary of the Treasury, to be redeemable at the option of the Association before maturity in such manner as may be stipulated in such obligations; but in no event shall any such obligations be issued if, at the time of such proposed issuance, and as a consequence thereof, the resulting aggregate amount of its outstanding obligations under this subsection would exceed the amount of the Association’s ownership under the aforesaid separate accountability, free from any liens or encumbrances, of cash, mortgages, and obligations of the United States or guaranteed hereby, or obligations, participations, or other instruments which re lawful investments for fiduciary, trust or public funds. The proceeds of any private financing effected under this subsection shall be paid to the Secretary of the Treasury in reduction of the indebtedness of the Association to the Secretary of the Treasury under the aforesaid separate accountability. The Association shall insert appropriate language in all of its obligations issued under this subsection clearly indicating that such obligations, together with the interest thereon, are not guaranteed by the United States and do not constitute a debt or obligation of the United States or of any agency or instrumentality thereof other than the Association. The Association is authorized to purchase in the open market any of its obligations outstanding under this subsection at any time and at any price.

 


 

(c)  Cutoff date as controlling purchases; total amount of mortgages and commitments

No mortgage shall be purchased by the Association in its operations under this section except pursuant to and in accordance with the terms of a contract or commitment to purchase the same made prior to the cutoff date provided for in section 1718(d) of this title, which contract or commitment became a part of the aforesaid separate accountability, and the total amount of mortgages and commitments held by the Association under this section shall not, in any event, exceed $3,350,000,000: Provided, that such maximum amount shall be progressively reduced by the amount of cash realizations on account of principal of mortgages held under the aforesaid separate accountability and by cancellation of any commitments to purchase mortgages thereunder, as reflected by the books of the Association, with the objective that the entire aforesaid maximum amount shall be eliminated with the orderly liquidation of all mortgages held under the aforesaid separate accountability: And provided further, That nothing in this subsection shall preclude the Association from granting such usual and customary increases in the amounts of outstanding commitments (resulting from increased costs or otherwise) as have theretofore been covered by like increases in commitments granted by the agencies of the Federal Government insuring or guaranteeing the mortgages. There shall be excluded from the total amounts set forth in this subsection the amounts of any mortgages which, subsequent to May 31, 1954, are transferred by law to the Association and held under the aforesaid separate accountability.

(d)  Issuance of obligations sufficient to carry out functions; character; purchase

The Association may issue to the Secretary of the Treasury its obligations in an amount outstanding at any one time sufficient to enable the Association to carry out its functions under this section, such obligations to mature not more than five years from their respective dates of issue, to be redeemable at the option of the Association before maturity in such manner as may be stipulated in such obligations. Each such obligation shall bear interest at a rate determined by the Secretary of the Treasury, taking into consideration the current average rate on outstanding marketable obligations of the United States as of the last day of the month preceding the issuance of the obligation of the Association. The Secretary of the Treasury is authorized to purchase any obligations of the Association to be issued under this section, and for such purpose the Secretary of the Treasury is authorized to use as a public debt transaction the proceeds from the sale of any securities issued under chapter 31 of title 31, and the purposes for which securities may be issued under chapter 31 of title 31 are extended to include any purchases of the Association’s obligations hereunder.

(e)  Acquisition of mortgages offered by Secretary of Housing and Urban Development

Notwithstanding any other provision of law, the Association is authorized, under the aforesaid separate accountability, to make commitments to purchase, and to purchase, service, or sell any obligations offered to it by the Secretary of Housing and Urban Development, or any mortgages covering residential property offered to it by any Federal instrumentality, or the head thereof. These shall be excluded from the total amounts set forth in subsection (c) of this section the amounts of any obligations or mortgages purchased by the Association pursuant to this subsection.

(f)  Transfer of funds

Notwithstanding any of the provisions of this chapter or of any other law, an amount equal to the net decrease for the preceding fiscal year in the aggregate principal amount of all mortgages owned by the Association under this section shall, as of July 1 of each of the years 1961 through 1964, be transferred to and merged with the authority provided under section 1720(a) of this title, and the amount of such authority as specified in section 1720(c) of this title shall be increased by any amounts so transferred.

(g)  Guarantee of principal and interest on trust certificates and other securities; fees and charges; subrogation; contract for extinguishment of right, title, or interest in mortgages; protection of interests; full faith and credit; commitments limited; limitation on fees or charges

 


 

  (1)   The Association is authorized, upon such terms and conditions as it may deem appropriate, to guarantee the timely payment of principal of and interest on such trust certificates or other securities as shall (i) be issued by the corporation under section 1719(d) of this title, or by any other issuer approved for the purposes of this subsection by the Association, and (ii) be based on and backed by a trust or pool composed of mortgages which are insured under this chapter or title V of the Housing Act of 1949 (42 U.S.C. 1471 et seq.), or which are insured or guaranteed under the Servicemen’s Readjustment Act of 1944 or chapter 37 of title 38, or which are guaranteed under title XIII of the Public Health Service Act (42 U.S.C. 300e et seq.); or guaranteed under section 1715z-13a of this title. The Association shall collect from the issuer a reasonable fee for any guaranty under this subsection and shall make such charges as it may determine to be reasonable for the analysis of any trust or other security arrangement proposed by the issuer. In the event the issuer is unable to make any payment of principal of or interest on any security guaranteed under this subsection, the Association shall make such payment as and when due in cash, and thereupon shall be subrogated fully to the rights satisfied by such payment. In any case in which (I) Federal law requires the reduction of the interest rate on any mortgage backing a security guaranteed under this subsection, (II) the mortgagor under the mortgage is a person in the military service, and (III) the issuer of such security fails to receive from the mortgagor the full amount of interest payment due, the Association may make payments of interest on the security in amounts not exceeding the difference between the amount payable under the interest rate on the mortgage and the amount of interest actually paid by the mortgagor. The Association is hereby empowered, in connection with any guaranty under this subsection, whether before or after any default, to provide by contract with the issuer for the extinguishment, upon default by the issuer, of any redemption, equitable, legal, or other right, title, or interest of the issuer in any mortgage or mortgages constituting the trust or pool against which the guaranteed securities are issued; and with respect to any issue of guaranteed securities, in the event of default and pursuant otherwise to the terms of the contract, the mortgages that constitute such trust or pool shall become the absolute property of the Association subject only to the unsatisfied rights of the holders of the securities based on and backed by such trust or pool. No State or local law, and no Federal law (except Federal law enacted expressly in limitation of this subsection after October 8, 1980), shall preclude or limit the exercise by the Association of (A) its power to contract with the issuer on the terms stated in the preceding sentence, (B) its rights to enforce any such contract with the issuer, or (C) its ownership rights, as provided in the preceding sentence, in the mortgages constituting the trust or pool against which the guaranteed securities are issued. The full faith and credit of the United States is pledged to the payment of all amounts which may be required to be paid under any guaranty under this subsection. There shall be excluded from the total amounts set forth in subsection (c) of this section the amounts of any mortgages acquired by the Association as a result of its operations under this subsection.
 
  (2)   Notwithstanding any other provision of law and subject only to the absence of qualified requests for guarantees, to the authority provided in this subsection, and to the extent of or in such amounts as any funding limitation approved in appropriation Acts, the Association shall enter into commitments to issue guarantees under this subsection in an aggregate amount of $110,000,000,000 during fiscal year 1996. There are authorized to be appropriated to cover the costs (as such term is defined in section 661a of title 2) of guarantees issued under this chapter by the Association such sums as may be necessary for fiscal year 1996.
 
  (3)     (A) No fee or charge in excess of 6 basis points may be assessed or collected by the United States (including any executive department, agency, or independent establishment of the United States) on or with regard to any guaranty of the timely payment of principal or interest on securities or notes based on or backed by mortgages that are secured by 1- to 4-family dwellings and (i) insured by the Federal Housing Administration under subchapter II of this chapter; or (ii) insured or guaranteed under the Serviceman’s Readjustment Act of 1944, chapter 37 of title 38, or title V of the Housing Act of 1949 (42 U.S.C. 1471 et seq.).

 


 

        (B) The fees charged for the guaranty of securities or on notes based on or backed by mortgages not referred to in subparagraph (A), as authorized by other provisions of law, shall be set by the Association at a level not more than necessary to create reserves sufficient to meet anticipated claims based upon actuarial analysis, and for no other purpose.
 
        (C) Fees or charges for the issuance of commitments or miscellaneous administrative fees of the Association shall not be on a competitive auction basis and shall remain at the level set for such fees or charges as of September 1, 1985, except that such fees or charges may be increased if reasonably related to the cost of administering the program, and for no other purpose.
 
        (D) Not less than 90 days before increasing any fee or charge under subparagraph (B) or (C), the Secretary shall submit to the Congress a certification that such increase is solely for the purpose specified in such subparagraph.
 
        (E)
          (i)   Notwithstanding subparagraphs (A) through (D), fees charged for the guarantee of, or commitment to guarantee, multiclass securities backed by a trust or pool of securities or notes guaranteed by the Association under this subsection, and other related fees shall be charged by the Association in an amount the Association deems appropriate. The Association shall take such action as may be necessary to reasonably assure that such portion of the benefit, resulting from the Association’s multiclass securities program, as the Association determines is appropriate accrues to mortgagors who execute eligible mortgages after August 10, 1993.
 
          (ii)   The Association shall provide for the initial implementation of the program for which fees are charged under the first sentence of clause (i) by notice published in the Federal Register. The notice shall be effective upon publication and shall provide an opportunity for public comment. Not later than 12 months after publication of the notice, the Association shall issue regulations for such program based on the notice, comments received, and the experience of the Association in carrying out the program during such period.
 
          (iii)   The Association shall consult with persons or entities in such manner as the Association deems appropriate to ensure the efficient commencement and operation of the multiclass securities program.
 
          (iv)   No State or local law, and no Federal law (except Federal law enacted expressly in limitation of this clause after August 10, 1993) shall preclude or limit the exercise by the Association of its power to contract with persons or entities, and its rights to enforce such contracts, for the purpose of ensuring the efficient commencement and continued operation of the multiclass securities program.

Section 1722. Benefits and burdens incident to administration of functions and operations under sections 1720 and 1721 {Section 307}

All of the benefits and burdens incident to the administration of the functions and operations of the Association under sections 1720 and 1721, respectively, of this title, after allowance for related obligations of the Association, its prorated expenses, and the like, including amounts required for the establishment of such reserves as the Secretary of Housing and Urban Development shall deem appropriate, shall inure solely to the Secretary of the Treasury, and such related earnings or other amounts as become available shall be paid annually by the Association to the Secretary of the Treasury for covering into miscellaneous receipts.

Section 1723. Management {Section 308}

(a)  Government National Mortgage Association

All the powers and duties of the Government National Mortgage Association shall be vested in the Secretary of Housing and Urban Development and the Association shall be administered under the

 


 

direction of the Secretary. Within the limitations of law, the Secretary shall determine the general policies which shall govern the operations of the Association, and shall have power to adopt, amend, and repeal bylaws governing the performance of the powers and duties granted to or imposed upon it by law. There is hereby established in the Department of Housing and Urban Development the position of President, Government National Mortgage Association, who shall be appointed by the President, by and with the advice and consent of the Senate. The Secretary shall select and effect the appointment of qualified persons to fill the offices of vice president, and such other offices as may be provided for in the bylaws. Persons appointed under the preceding sentence shall perform such executive functions, powers, and duties as may be prescribed by the bylaws or by the Secretary, and such persons shall be executive officers of the Association and shall discharge all such executive functions, powers, and duties.

(b)  Federal National Mortgage Association

The Federal National Mortgage Association shall have a board of directors, which shall consist of eighteen persons, five of whom shall be appointed annually by the President of the United States, and the remainder of whom shall be elected annually by the common stockholders. The board shall at all times have as members appointed by the President at least one person from the homebuilding industry, at least one person from the mortgage lending industry, at least one person from the real estate industry, and at least one person from an organization that has represented consumer or community interests for not less than 2 years or one person who has demonstrated a career commitment to the provision of housing for low-income households. Each member of the board of directors shall be appointed or elected for a term ending on the date of the next annual meeting of the stockholders, except that any such appointed member may be removed from office by the President for good cause. Any elective seat on the board which becomes vacant after the annual election of the directors shall be filled by the board, but only for the unexpired portion of the term. Any appointive seat which becomes vacant shall be filled by appointment of the President, but only for the unexpired portion of the term. Within the limitations of law and regulation, the board shall determine the general policies which shall govern the operations of the corporation, and shall have power to adopt, amend, and repeal bylaws governing the performance of the powers and duties granted to or imposed upon it by law. The board of directors shall select and effect the appointment of qualified persons to fill the offices of president and vice president, and such other offices as may be provided for in the bylaws. Any member of the board who is a full-time officer or employee of the Federal Government shall not, as such member, receive compensation for his services.

Section 1723a. General powers of Government National Mortgage Association and Federal National Mortgage Association {Section 309}

(a)  Seal, and other matters incident to operation

Each of the bodies corporate named in section 1717(a)(2) of this title shall have power to adopt, alter, and use a corporate seal, which shall be judicially noticed; to enter into and perform contracts, leases, cooperative agreements, or other transactions, on such terms as it may deem appropriate, with any agency or instrumentality of the United States, or with any State, Territory, or possession, or the Commonwealth of Puerto Rico, or with any political subdivision thereof, or with any person, firm, association, or corporation; to execute, in accordance with its bylaws, all instruments necessary or appropriate in the exercise of any of its powers; in its corporate name, to sue and to be sued, and to complain and to defend, in any court of competent jurisdiction, State or Federal, but no attachment, injunction, or other similar process, mesne or final, shall be issued against the property of the Association or against the Association with respect to its property; to conduct its business without regard to any qualification or similar statute in any State of the United States, including the District of Columbia, the Commonwealth of Puerto Rico, and the Territories and possessions of the United States; to lease, purchase, or acquire any property, real, personal, or mixed, or any interest therein, to hold, rent, maintain, modernize, renovate, improve, use, and operate such property, and to sell, for cash or credit, lease, or otherwise dispose of the same, at such time and in such manner as and to the extent that it may deem necessary or appropriate; to prescribe, repeal, and amend or modify, rules, regulations, or requirements governing the manner in which its general business may be conducted; to accept gifts or donations of services, or of property, real, personal, or mixed, tangible, or

 


 

intangible, in aid of any of its purposes; and to do all things as are necessary or incidental to the proper management of its affairs and the proper conduct of its business.

(b)  Determination with respect to obligations and expenditures

Except as may be otherwise provided in this subchapter, in chapter 91 of title 31, or in other laws specifically applicable to Government corporations, the Association shall determine the necessity for and the character and amount of its obligations and expenditures and the manner in which they shall be incurred, allowed, paid, and accounted for.

(c)  Exemption from taxation

  (1)   The Association, including its franchise, capital, reserves, surplus, mortgages or other security holdings, and income shall be exempt from all taxation now or hereafter imposed by the United States, by any territory, dependency, or possession thereof, or by any State, county, municipality, or local taxing authority, except that any real property of the Association shall be subject to State, territorial, county, municipal, or local taxation to the same extent according to its value as other real property is taxed.
 
  (2)   The corporation, including its franchise, capital, reserves, surplus, mortgages or other security holdings, and income, shall be exempt from all taxation now or hereafter imposed by any State, territory, possession, Commonwealth, or dependency of the United States, or by the District of Columbia, or by any county, municipality, or local taxing authority, except that any real property of the corporation shall be subject to State, territorial, county, municipal, or local taxation to the same extent as other real property is taxed.

(d)  Appointment and compensation of personnel; use of services of other agencies

  (1)   Subject to the provisions of section 1723(a) of this title, the Secretary of Housing and Urban Development shall have power to select and appoint or employ such officers, attorneys, employees, and agents of the Association, to vest them with such powers and duties, and to fix and to cause the Association to pay such compensation to them for their services, as he may determine, subject to the civil service and classification laws. With the consent of any Government corporation or Federal Reserve bank, or of any board, commission, independent establishment, or executive department of the Government, the Association may avail itself on a reimbursable basis of the use of information, services, facilities, officers, and employees thereof, including any field service thereof, in carrying out the provisions of the subchapter.
 
  (2)   The board of directors of the corporation shall have the power to select and appoint or employ such officers, attorneys, employees, and agents, to vest them with such powers and duties, and to fix and to cause the corporation to pay such compensation to them for their services, as the board of directors determines reasonable and comparable with compensation for employment in other similar businesses (including other publicly held financial institutions or major financial services companies) involving similar duties and responsibilities, except that a significant portion of potential compensation of all executive officers (as such term is defined in paragraph (3)(C)) of the corporation shall be based on the performance of the corporation; and any such action shall be without regard to the Federal civil service and classification laws. Appointments, promotions, and separations so made shall be based on merit and efficiency, and no political tests or qualifications shall be permitted or given consideration. Each officer and employee of the corporation who is employed by the corporation prior to January 31, 1972, and who on the day previous to the beginning of such employment will have been subject to the civil service retirement law (subch. III of ch. 83 of title 5) shall, so long as the employment of such officer or employee by the corporation continues without a break in continuity of service, continue to be subject to such law; and for the purpose of such law the employment of such officer or employee by the corporation without a break in continuity of service shall be deemed to be employment by the Government of the United States. The corporation shall contribute to

 


 

      the Civil Service Retirement and Disability Fund a sum as provided by section 8334(a) of title 5, except that such sum shall be determined by applying to the total basic pay (as defined in section 8331(3) of title 5 and except as hereinafter provided) paid to the employees of the corporation who are covered by the civil service retirement law, the per centum rate determined annually by the Director of the Office of Personnel Management to be the excess of the total normal cost per centum rate of the civil service retirement system over the employee deduction rate specified in section 8334(a) of title 5. The corporation shall also pay into the Civil Service Retirement and Disability Fund such portion of the cost of administration of the fund as is determined by the Director of the Office of Personnel Management to be attributable to its employees. Notwithstanding the foregoing provisions, there shall not be considered for the purposes of the civil service retirement law that portion of the basic pay in any one year of any officer or employee of the corporation which exceeds the basic pay provided for positions listed in section 5312 of title 5 on the last day of such year: Provided, That with respect to any person whose employment is made subject to the civil service retirement law by section 806 of the Housing and Community Development Act of 1974, there shall not be considered for the purposes of such law that portion of the basic pay of such person in any one year which exceeds the basic pay provided for positions listed in section 5316 of such title 5 on the last day of such year. Except as provided in this subsection , the corporation shall not be subject to the provisions of title 5.
 
  (3)     (A) Not later than June 30, 1993, and annually thereafter, the corporation shall submit a report to the Committee on Banking, Finance and Urban Affairs of the House of Representatives and the Committee on Banking, Housing, and Urban Affairs of the Senate on (i) the comparability of the compensation policies of the corporation with the compensation policies of other similar businesses, (ii) in the aggregate, the percentage of total cash compensation and payments under employee benefit plans (which shall be defined in a manner consistent with the corporation’s proxy statement for the annual meeting of shareholders for the preceding year) earned by executive officers of the corporation during the preceding year that was based on the corporation’s performance, and (iii) the comparability of the corporation’s financial performance with the performance of other similar businesses. The report shall include a copy of the corporation’s proxy statement for the annual meeting of shareholders for the preceding year.
 
        (B) Notwithstanding the first sentence of paragraph (2), after October 28, 1992, the corporation may not enter into any agreement or contract to provide any payment of money or other thing of current or potential value in connection with the termination of employment of any executive officer of the corporation, unless such agreement or contract is approved in advance by the Director of the Office of Federal Housing Enterprise Oversight of the Department of Housing and Urban Development. The Director may not approve any such agreement or contract unless the Director determines that the benefits provided under the agreement or contract are comparable to benefits under such agreements for officers of other public and private entities involved in financial services and housing interests who have comparable duties and responsibilities. For purposes of this subparagraph, any renegotiation, amendment, or change after October 28, 1992, to any such agreement or contract entered into on or before October 28, 1992, shall be considered entering into an agreement or contract.
 
        (C) For purposes of this paragraph, the term “executive officer’’ has the meaning given the term in section 1303 of the Federal Housing Enterprises Financial Safety and Soundness Act of 1992 (12 U.S.C. 4502).

(e)  Prohibition against use of names; injunction; damages

No individual, association, partnership, or corporation, except the bodies corporate named in section 1717(a)(2) of this title, shall hereafter use the words “Federal National Mortgage Association,’’ “Government National Mortgage Association,’’ or any combination of such words, as the name or a part

 


 

thereof under which the individual, association, partnership, or corporation shall do business. Violations of the foregoing sentence may be enjoined by any court of general jurisdiction at the suit of the proper body corporate. In any such suit, the plaintiff may recover any actual damages flowing from such violation, and, in addition, shall be entitled to punitive damages (regardless of the existence or nonexistence of actual damages) of not exceeding $100 for each day during which such violation is committed or repeated.

(f)  Preparation of forms of obligations and certificates

In order that the Association may be supplied with such forms of obligations or certificates as it may need for issuance under this subchapter, the Secretary of the Treasury is authorized, upon request of the Association, to prepare such forms as shall be suitable and approved by the Association, to be held in the Treasury subject to delivery, upon order of the Association. The engraved plates, dies, bed pieces, and other material executed in connection therewith shall remain in the custody of the Secretary of the Treasury. The Association shall reimburse the Secretary of the Treasury for any expenses incurred in the preparation, custody, and delivery of such forms.

(g)  Depositaries, custodians, and fiscal agents

The Federal Reserve banks are authorized and directed to act as depositaries, custodians, and fiscal agents for each of the bodies corporate named in section 1717(a)(2) of this title, for its own account or as fiduciary, and such banks shall be reimbursed for such services in such manner as may be agreed upon; and each of such bodies corporate may itself act in such capacities, for its own account or as fiduciary, and for the account of others.

(h)  Repealed.

(i)  Repealed.

(j)  Audit; access to books, etc.; report of audit

    (1) The programs, activities, receipts, expenditures, and financial transactions of the corporation shall be subject to audit by the Comptroller General of the United States under such rules and regulations as may be prescribed by the Comptroller General. The representatives of the General Accounting Office shall have access to such books, accounts, financial records, reports, files, and such other papers, things, or property belonging to or in use by the corporation and necessary to facilitate the audit, and they shall be afforded full facilities for verifying transactions with the balances or securities held by depositories, fiscal agents, and custodians. A report on each such audit shall be made by the Comptroller General to the Congress. The corporation shall reimburse the General Accounting Office for the full cost of any such audit as billed therefor by the Comptroller General.
 
    (2) To carry out this subsection, the representatives of the General Accounting Office shall have access, upon request to the corporation or any auditor for an audit of the corporation under subsection (l) of this section, to any books, accounts, financial records, reports, files, or other papers, things, or property belonging to or in use by the corporation and used in any such audit and to any papers, records, files, and reports of the auditor used in such an audit.

(k)  Financial reports; submission to Director; contents

    (1) The corporation shall submit to the Director of the Office of Federal Housing Enterprise Oversight of the Department of Housing and Urban Development annual and quarterly reports of the financial condition and operations of the corporation which shall be in such form, contain such information, and be submitted on such dates as the Director shall require.
 
    (2) Each such annual report shall include -
 
        (A) financial statements prepared in accordance with generally accepted accounting principles;

 


 

        (B) any supplemental information or alternative presentation that the Director may require; and
 
        (C) an assessment (as of the end of the corporation’s most recent fiscal year), signed by the chief executive officer and chief accounting or financial officer of the corporation, of –
 
          (i)   the effectiveness of the internal control structure and procedures of the corporation; and
 
          (ii)   the compliance of the corporation with designated safety and soundness laws.
 
    (3) The corporation shall also submit to the Director any other reports required by the Director pursuant to section 1314 of the Federal Housing Enterprises Financial Safety and Soundness Act of 1992 (12 U.S.C. 4514).
 
    (4) Each report of financial condition shall contain a declaration by the president, vice president, treasurer, or any other officer designated by the board of directors of the corporation to make such declaration, that the report is true and correct to the best of such officer’s knowledge and belief.

(l)  Independent audits of financial statements

    (1) The corporation shall have an annual independent audit made of its financial statements by an independent public accountant in accordance with generally accepted auditing standards.
 
    (2) In conducting an audit under this subsection, the independent public accountant shall determine and report on whether the financial statements of the corporation (A) are presented fairly in accordance with generally accepted accounting principles, and (B) to the extent determined necessary by the Director, comply with any disclosure requirements imposed under subsection (k)(2)(B) of this section.

(m)  Mortgage data collection and reporting requirements

    (1) The corporation shall collect, maintain, and provide to the Secretary, in a form determined by the Secretary, data relating to its mortgages on housing consisting of 1 to 4 dwelling units. Such data shall include –
 
        (A) the income, census tract location, race, and gender of mortgagors under such mortgages;
 
        (B) the loan-to-value ratios of purchased mortgages at the time of origination;
 
        (C) whether a particular mortgage purchased is newly originated or seasoned;
 
        (D) the number of units in the housing subject to the mortgage and whether the units are owner-occupied; and
 
        (E) any other characteristics that the Secretary considers appropriate, to the extent practicable.
 
    (2) The corporation shall collect, maintain, and provide to the Secretary, in a form determined by the Secretary, data relating to its mortgages on housing consisting of more than 4 dwelling units. Such data shall include –
 
        (A) census tract location of the housing;
 
        (B) income levels and characteristics of tenants of the housing (to the extent practicable);
 
        (C) rent levels for units in the housing;
 
        (D) mortgage characteristics (such as the number of units financed per mortgage and the amount of loans);
 
        (E) mortgagor characteristics (such as nonprofit, for-profit, limited equity cooperatives);
 
        (F) use of funds (such as new construction, rehabilitation, refinancing);
 
        (G) type of originating institution; and
 
        (H) any other information that the Secretary considers appropriate, to the extent practicable.
 
    (3)   (A) Except as provided in subparagraph (B), this subsection shall apply only to mortgages purchased by the corporation after December 31, 1992

 


 

        (B) This subsection shall apply to any mortgage purchased by the corporation after the date determined under subparagraph (A) if the mortgage was originated before such date, but only to the extent that the data referred in paragraph (1) or (2), as applicable, is available to the corporation.

(n)  Report on housing activities; contents; public disclosure

  (1)   The corporation shall submit to the Committee on Banking, Finance and Urban Affairs of the House of Representatives, the Committee on Banking, Housing, and Urban Affairs of the Senate, and the Secretary a report on its activities under subpart B of part 2 of subtitle A of the Federal Housing Enterprises Financial Safety and Soundness Act of 1992 (12 U.S.C. 4561 et seq.).
 
  (2)   The report under this subsection shall -
 
        (A) include, in aggregate form and by appropriate category, statements of the dollar volume and number of mortgages on owner-occupied and rental properties purchased which relate to each of the annual housing goals established under such subpart;
 
        (B) include, in aggregate form and by appropriate category, statements of the number of families served by the corporation, the income class, race, and gender of homebuyers served, the income class of tenants of rental housing (to the extent such information is available), the characteristics of the census tracts, and the geographic distribution of the housing financed;
 
        (C) include a statement of the extent to which the mortgages purchased by the corporation have been used in conjunction with public subsidy programs under Federal law;
 
        (D) include statements of the proportion of mortgages on housing consisting of 1 to 4 dwelling units purchased by the corporation that have been made to first-time homebuyers, as soon as providing such data is practicable, and identifying any special programs (or revisions to conventional practices) facilitating homeownership opportunities for first-time homebuyers;
 
        (E) include, in aggregate form and by appropriate category, the data provided to the Secretary under subsection (m)(1)(B) of this section;
 
        (F) compare the level of securitization versus portfolio activity;
 
        (G) assess underwriting standards, business practices, repurchase requirements, pricing, fees, and procedures, that affect the purchase of mortgages for low- and moderate-income families, or that may yield disparate results based on the race of the borrower, including revisions thereto to promote affordable housing or fair lending;
 
        (H) describe trends in both the primary and secondary multifamily housing mortgage markets, including a description of the progress made, and any factors impeding progress toward standardization and securitization of mortgage products for multifamily housing;
 
        (I) describe trends in the delinquency and default rates of mortgages secured by housing for low- and moderate-income families that have been purchased by the corporation, including a comparison of such trends with delinquency and default information for mortgage products serving households with incomes above the median level that have been purchased by the corporation, and evaluate the impact of such trends on the standards and levels of risk of mortgage products serving low- and moderate-income families;
 
        (J) describe in the aggregate the seller and servicer network of the corporation, including the volume of mortgages purchased from minority-owned, women-owned, and community-oriented lenders, and any efforts to facilitate relationships with such lenders;
 
        (K) describe the activities undertaken by the corporation with nonprofit and for-profit organizations and with State and local governments and housing finance agencies, including how the corporation’s activities support the objectives of comprehensive housing affordability strategies under section 12705 of title 42; and

 


 

        (L) include any other information that the Secretary considers appropriate.
 
  (3)     (A) The corporation shall make each report under this subsection available to the public at the principal and regional offices of the corporation.
 
        (B) Before making a report under this subsection available to the public, the corporation may exclude from the report information that the Secretary has determined is proprietary information under section 1326 of the Federal Housing Enterprises Financial Safety and Soundness Act of 1992 (12 U.S.C. 4546).

(o)   Affordable Housing Advisory Council

  (1)   Not later than 4 months after October 28, 1992, the corporation shall appoint an Affordable Housing Advisory Council to advise the corporation regarding possible methods for promoting affordable housing for low- and moderate-income families.
 
  (2)   The Affordable Housing Advisory Council shall consist of 15 individuals, who shall include representatives of community-based and other nonprofit and for-profit organizations and State and local government agencies actively engaged in the promotion, development, or financing of housing for low- and moderate-income families.

Section 1723b. Investment of funds {Section 310}

Moneys of the Association not invested in mortgages or other security holdings or in operating facilities shall be kept in cash on hand or on deposit, or invested in obligations of the United States or guaranteed thereby, or in obligations, participations, or other instruments which are lawful investments for fiduciary, trust, or public funds.

Section 1723c. Obligations, participations, or other instruments as lawful investments; acceptance as security; exempt securities {Section 311}

All obligations, participations, or other instruments issued by either of the bodies corporate named in section 1717(a)(2) of this title shall be lawful investments, and may be accepted as security for all fiduciary, trust, and public funds, the investment or deposit of which shall be under the authority and control of the United States or any officer or officers thereof. All stock, obligations, securities, participations, or other instruments issued pursuant to this subchapter shall, to the same extent as securities which are direct obligations of or obligations guaranteed as to principal or interest by the United States, be deemed to be exempt securities within the meaning of laws administered by the Securities and Exchange Commission.

Section 1723d. Transfer of certain functions to Association {Section 312}

The functions of the Housing and Home Finance Administrator (including the function of making payments to the Secretary of the Treasury) under section 2 of Reorganization Plan Numbered 22 of 1950, together with the notes and capital stock of the Federal National Mortgage Association held by said Administrator thereunder, are transferred to the Federal National Mortgage Association.

Section 1723e. Repealed {Section 313}

Section 1723f. Repealed {Section 314}

Section 1723g. Repealed {Section 315}

Section 1723h. Repealed {Section 316}

Section 1723i. Civil money penalties against issuers {Section 317}

(a)  In general

 


 

  (1)   Whenever an issuer or custodian approved under section 1721(g) of this title knowingly and materially violates any provisions of subsection (b) of this section, the Secretary of Housing and Urban Development may impose a civil money penalty on the issuer or the custodian in accordance with the provisions of this section. The penalty shall be in addition to any other available civil remedy or any available criminal penalty and may be imposed whether or not the Secretary imposes other administrative sanctions.
 
  (2)   The amount of the penalty, as determined by the Secretary, may not exceed $5,000 for each violation, except that the maximum penalty for all violations by a particular issuer or custodian during any one-year period shall not exceed $1,000,000. Each violation of a provision of subsection (b)(1) of this section shall constitute a separate violation with respect to each pool of mortgages. In the case of a continuing violation, as determined by the Secretary, each day shall constitute a separate violation.

(b)   Violations for which penalty may be imposed

  (1)   The violations by an issuer or a custodian for which the Secretary may impose a civil money penalty under subsection (a) of this section are the following:
 
        (A) Failure to make timely payments of principal and interest to holders of securities guaranteed under section 1721(g) of this title.
 
        (B) Failure to segregate cash flow from pooled mortgages or to deposit either principal and interest funds or escrow funds into special accounts with a depository institution whose accounts are insured by the National Credit Union Administration or by the Federal Deposit Insurance Corporation through the Bank Insurance Fund for banks or through the Savings Association Insurance Fund for savings associations.
 
        (C) Use of escrow funds for any purpose other than that for which they were received.
 
        (D) Transfer of servicing for a pool of mortgages to an issuer not approved under this subchapter, unless expressly permitted by statute, regulation, or contract approved by the Secretary.
 
        (E) Failure to maintain a minimum net worth in accordance with requirements prescribed by the Association;
 
        (F) Failure to promptly notify the Association in writing of any changes that materially affect the business status of an issuer.
 
        (G) Submission to the Association of false information in connection with any securities guaranteed, or mortgages pooled, under section 1721(g) of this title.
 
        (H) Hiring, or retaining in employment, an officer, director, principal, or employee whose duties involve, directly or indirectly, programs administered by the Association while such person was under suspension or debarment by the Secretary.
 
        (I) Submission to the Association of a false certification either on its own behalf or on behalf of another person or entity.
 
        (J) Failure to comply with an agreement, certification, or condition of approval set forth on, or applicable to, the application for approval as an issuer of securities under section 1721(g) of this title.
 
        (K) Violation of any provisions of this subchapter or any implementing regulation, handbook, or participant letter issued under authority of this subchapter.
 
  (2)   Before taking action to impose a civil money penalty for a violation under paragraph (1)(G) or paragraph (1)(I), the Secretary shall inform the Attorney General of the United States.

(c)   Agency procedures

  (1)   The Secretary shall establish standards and procedures governing the imposition of civil money penalties under subsection (a) of this section. The standards and procedures –
 
        (A) shall provide for the Secretary to make the determination to impose the penalty;
 
        (B) shall provide for the imposition of a penalty only after an issuer or a custodian has been given notice of, and opportunity for, a hearing on the record; and

 


 

        (C) may provide for review by the Secretary of any determination or order, or interlocutory ruling, arising from a hearing.
 
  (2)   If no hearing is requested within 15 days of receipt of a notice of opportunity for hearing, the imposition of a penalty shall constitute a final and unappealable determination. If the Secretary reviews the determination or order, the Secretary may affirm, modify, or reverse that determination or order. If the Secretary does not review the determination or order within 90 days of the issuance of the determination or order, the determination or order shall be final.
 
  (3)   In determining the amount of a penalty under subsection (a) of this section, consideration shall be given to such factors as the gravity of the offense, any history of prior offenses (including offenses occurring before December 15, 1989), ability to pay the penalty, injury to the public, benefits received, deterrence of future violations, and such other factors as the Secretary may determine by regulations.
 
  (4)   The Secretary’s determination or order imposing a penalty under subsection (a) of this section shall not be subject to review, except as provided in subsection (d) of this section.

(d)   Judicial review of agency determination

  (1)   After exhausting all administrative remedies established by the Secretary under subsection (c)(1) of this section, an issuer or a custodian against which the Secretary has imposed a civil money penalty under subsection (a) of this section may obtain a review of the penalty and such ancillary issues as may be addressed in the notice provided under subsection (c)(1)(A) of this section in the appropriate court of appeals of the United States, by filing in such court, within 20 days after the entry of such order or determination, a written petition praying that the Secretary’s order or determination be modified or be set aside in whole or in part.
 
  (2)   A court shall not consider any objection that was not raised in the hearing conducted pursuant to subsection (c)(1) of this section unless a demonstration is made of extraordinary circumstances causing the failure to raise the objection. If any party demonstrates to the satisfaction of the court that additional evidence, which was not presented at such hearing, is material and that there were reasonable grounds for the failure to present such evidence at the hearing, the court shall remand the matter to the Secretary for consideration of such additional evidence.
 
  (3)   The decisions, findings, and determinations of the Secretary shall be reviewed pursuant to section 706 of title 5.
 
  (4)   Notwithstanding any other provision of law, the court shall have the power in any such review to order payment of the penalty imposed by the Secretary.

(e)   Action to collect penalty

If any issuer or custodian fails to comply with the Secretary’s determination or order imposing a civil money penalty under subsection (a) of this section, after the determination or order is no longer subject to review as provided by subsections (c)(1) and (d) of this section, the Secretary may request the Attorney General of the United States to bring an action in an appropriate United States district court to obtain a monetary judgment against the issuer or custodian and such other relief as may be available. The monetary judgment may, in the discretion of the court, include any attorneys fees and other expenses incurred by the United States in connection with the action. In an action under this subsection, the validity and appropriateness of the Secretary’s determination or order imposing the penalty shall not be subject to review.

(f)   Settlement by Secretary

The Secretary may compromise, modify, or remit any civil money penalty which may be, or has been, imposed under this section.

(g)   “Knowingly’’ defined

 


 

The term “knowingly’’ means having actual knowledge of or acting with deliberate ignorance of or reckless disregard for the prohibitions under this section.

(h)   Regulations

The Secretary shall issue such regulations as the Secretary deems appropriate to implement this section.

(i)   Deposit of penalties

The Secretary shall deposit all civil money penalties collected under this section into moneys of the Association pursuant to section 1722 of this title.

 

exv3w2
 

EXHIBIT 3.2

FANNIE MAE BYLAWS
As Amended Through January 21, 2003

ARTICLE 1

General Provisions

     Section 1.01. Name. The name of the corporation is Federal National Mortgage Association. The corporation may also do business under the name Fannie Mae.

     Section 1.02. Principal Office and Other Offices. The principal office of the corporation shall be in the District of Columbia. Other offices of the corporation shall be in such places as may be deemed by the Board of Directors or the Chairman of the Board to be necessary or appropriate.

     Section 1.03. Seal. The seal of the corporation shall be of such design as shall be approved and adopted from time to time by the Board of Directors, and the seal or a facsimile thereof may be affixed by any person authorized by the Board of Directors or these Bylaws by impression, by printing, by rubber stamp, or otherwise.

     Section 1.04. Fiscal Year. The fiscal year of the corporation shall end on the thirty-first day of December of each year.

     Section 1.05. Corporate Governance Practices and Procedures. Pursuant to Section 1710.10(b) of the Office of Federal Housing Enterprise Oversight (“OFHEO”) corporate governance regulation, 12 CFR 1710.1 et seq., to the extent not inconsistent with the Charter Act and other Federal law, rules, and regulations, the corporation has elected to follow the applicable corporate governance practices and procedures of the Delaware General Corporation Law, as the same may be amended from time to time. The inclusion of provisions in these Bylaws shall constitute inclusion in the corporation’s “certificate of incorporation” for all purposes of the Delaware General Corporation Law.

ARTICLE 2

Capital Stock

     Section 2.01. Common Stock. The common stock, all of which is voting and has no par value, shall have a stated value per share as determined from time to time by the Board of Directors. Shares of the corporation may be acquired and held in the treasury of the corporation, and may be disposed of by the corporation for such consideration and for such purposes as may be determined from time to time by the Board of Directors.

     Section 2.02. Preferred Stock. The corporation shall have authority to issue up to 100,000,000 shares of preferred stock having no par value. The preferred stock may be issued from time to time in one or more series upon approval by the Board of Directors, or a committee thereof appointed for such purpose, and the Board of Directors or such committee may, by resolution providing for the issuance of such preferred stock, designate with respect to such shares: (a) their voting powers; (b) their rights of redemption; (c) their right to receive dividends (which may be cumulative or non-cumulative) including the dividend rate or rates, conditions to payment, and the relative preferences in relation to the dividends payable on any other class or classes or series of stock; (d) their rights upon the dissolution of, or upon any distribution of the assets of, the corporation; (e) their rights to convert into, or exchange for, shares of

18


 

any other class or classes of stock of the corporation, including the price or prices or the rate of exchange; and (f) other relative, participating, optional or special rights, qualifications, limitations or restrictions. Notwithstanding Sections 4.12(a)(6) and 4.15 of these Bylaws, the Board of Directors may authorize a committee of the Board to declare dividends on preferred stock.

     Section 2.03. Payment for Shares. The consideration to be received by the corporation for the issuance of common shares shall be fixed from time to time by the Board of Directors. A subscriber shall be entitled to issuance of shares upon receipt by the corporation of the consideration for which the shares are to be issued. No certificates shall be issued for any share until the share is fully paid, and, when issued, such shares shall be nonassessable.

     Section 2.04. Certificates Representing Shares. Each registered holder of the capital stock of the corporation shall be entitled to a certificate or certificates signed by the Chairman of the Board of Directors or the President and by the Secretary or an Assistant Secretary of the corporation, and sealed with the seal of the corporation certifying the number of shares owned by him in the corporation. The certificates shall be in such form as the Board, from time to time, may approve. If any certificate is manually signed (i) by a transfer agent other than the corporation or its employee, or (ii) by a registrar other than the corporation or its employee, any other signature on the certificate, including those of the aforesaid officers of the corporation, may be a facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the corporation with the same effect as if he or she were such officer, transfer agent or registrar at the date of issue.

     Section 2.05. Transfers of Stock. Transfers of stock shall be made upon the books of the corporation (i) upon presentation of the certificates by the registered holder in person or by duly authorized attorney, or (ii) upon presentation of proper evidence of succession, assignment or authority to transfer the stock, and upon surrender of the appropriate certificate(s).

     Section 2.06. Holder of Record. The corporation shall be entitled to treat the holder of record of any share or shares of stock as the holder in fact thereof and accordingly shall not be bound to recognize any equitable or other claim to or interest in such share on the part of any other person whether or not it shall have express or other notice thereof, save as expressly provided by the laws of the State of Delaware insofar as they are applicable to the stock of stock corporations organized under the Delaware General Corporation Law.

     Section 2.07. Loss or Destruction of Certificate of Stock. In case of loss or destruction of any certificate of stock, another may be issued in its place, pursuant to such requirements and procedures as may be established by the Secretary of the corporation with the concurrence of the General Counsel (including, without limitation, requiring provision of a surety bond).

     Section 2.08. Stockholder Records.

     (a)  The corporation shall keep at its principal place of business, or at the office of its transfer agent or registrar, a record of its stockholders, giving the names and addresses of all stockholders and the number of shares held by each.

     (b)  The officer who has charge of the stock ledger of the corporation shall prepare and make, at least ten days before every meeting of stockholders, a complete list of the stockholders entitled to vote at said meeting, arranged in alphabetical order, showing the address of and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any

3


 

purpose germane to the meeting, for a period of at least ten days prior to the meeting, during ordinary business hours, at the principal place of business of the corporation or as may otherwise be permitted by the Delaware General Corporation Law. The list shall be produced and kept at the time and place of the meeting during the whole time thereof and may be inspected by any stockholder who is present.

     Section 2.09. Registration of Common Stock. The corporation shall register its common stock with the Securities and Exchange Commission pursuant to Section 12(g) of the Securities Exchange Act of 1934, as amended, and shall take appropriate steps to maintain such registration. Notwithstanding anything to the contrary contained in Article 7 of these Bylaws, this Section 2.09 may be altered, amended, or repealed only by the unanimous vote or consent of all the then incumbent Members of the Board then in office.

ARTICLE 3

The Stockholders

     Section 3.01. Place of Meetings. Meetings of the stockholders of the corporation shall be held at such place or places, within or without the District of Columbia, as shall be determined by the Board of Directors; and the Chairman of the Board shall preside at all such meetings.

     Section 3.02. Annual Meeting. The annual meeting of the stockholders shall be held at ten o’clock in the morning of the third Thursday in May of each year, if that day is not a legal holiday, and if a holiday, then on the first following day that is not a legal holiday. If any annual meeting is not held at the designated time, the meeting shall be held as promptly as practicable thereafter at a time to be determined by the Board of Directors.

     Section 3.03. Special Meetings. Special meetings of the stockholders may be called by the Board of Directors or the Chairman of the Board, or at the request of the holders of not less than one-third of all the shares entitled to vote, to be determined as of the close of the first day of the month preceding the month in which the request is presented to the Secretary. Business transacted at all special meetings shall be confined to the subjects stated in the notice of special meeting.

     Section 3.04. Notice of Meetings—Waiver and Adjourned Meetings. Written notice stating the place, date and hour of the meeting, and the purpose or purposes for which the meeting is called, shall be delivered not less than 20, nor more than 55, days before the date of the meeting, by the Secretary of the corporation, to each registered holder entitled to vote at such meeting. If mailed, such notice shall be deemed to be delivered when deposited in the United States mail addressed to the registered holder at his address as it appears on the stock transfer books of the corporation, with first class postage prepaid. Waiver by a stockholder in writing of notice of a stockholders’ meeting, signed by him either before or after the time of the meeting, shall be equivalent to the giving of such notice. Attendance by a stockholder at a stockholders’ meeting, whether in person or by proxy, without objection to the notice or lack thereof, shall constitute a waiver of notice of the meeting. Any meeting of stockholders may be adjourned by the chair of the meeting to reconvene at another time or place. When a meeting is adjourned to another time or place, notice need not be given of the adjourned meeting if the time and place thereof are announced at the meeting at which the adjournment is taken. At the adjourned meeting the corporation may transact any business which might have been transacted at the original meeting. If the adjournment is for more than thirty days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting.

4


 

     Section 3.05. Fixing Record Date.

     (a)  For the purpose of determining stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, the Board of Directors may fix a date as the record date. Such date, in any case, shall not precede the date upon which the resolution fixing the record date is adopted by the Board of Directors and shall be not more than 55 days and not less than 20 days prior to the date of such meeting. If no such record date is fixed, the close of business on the day next preceding the day on which notice is given, or, if notice is waived, the close of business on the day next preceding the date on which the meeting is held shall be the record date for the determination of stockholders entitled to notice of or to vote at a meeting of stockholders. When a determination of stockholders entitled to vote at any meeting of stockholders has been made, as provided in this section, the determination shall apply to any adjournment thereof, provided, however, that the Board of Directors may fix a new record date for the adjourned meeting.

     (b)  For the purpose of determining stockholders entitled to receive payment of any dividend, or in order to make a determination of stockholders for any other purpose (except as provided in section 3.05 (a)), the Board of Directors or a duly authorized Committee thereof may fix a date as the record date. Such date, in any case, shall not precede the date upon which the resolution fixing the record date is adopted and shall be not more than 55 days prior to the date on which the particular action is to be taken. If no such record date is fixed, the close of business on the day on which the resolution relating thereto is adopted shall be the record date for the determination of stockholders.

     Section 3.06. Quorum. A majority of the shares entitled to vote, represented in person or by proxy, shall constitute a quorum at a meeting of stockholders. The stockholders present at a duly organized meeting may continue to do business until adjournment, notwithstanding the withdrawal of the holders of enough shares to leave less than a quorum. If a meeting cannot be organized because a quorum has not attended, either the chair of the meeting, or those stockholders present, in person or by proxy, by a majority of the votes cast by such stockholders so present, may adjourn the meeting from time to time until a quorum is present when any business may be transacted that may have been transacted at the meeting as originally called.

     Section 3.07. Proxies. A stockholder may vote either in person or by proxy executed in writing by the stockholder or his duly authorized representative. No proxy shall be valid after 11 months from the date of its execution, unless otherwise expressly provided in the proxy.

     Section 3.08. Voting. At every meeting of the stockholders, every holder of the common stock shall be entitled to one vote for each share of common stock registered in the name of such holder on the stock transfer books of the corporation at the close of the record date. A proxy purporting to be executed by a corporation shall be presumed to be valid and the burden of proving invalidity shall rest on any challenger. A proxy purporting to be executed by a partnership shall be presumed to be valid and the burden of proving invalidity shall rest on any challenger. At each election for Members of the Board of Directors, every such holder of the common stock shall have the right to cast, for each Board position to be filled, a number of votes equal to the number of shares held by such holder. Such holders shall have no right to cumulate their votes for directors. Unless a higher percentage of affirmative votes is required by the Charter Act, these Bylaws, applicable stock exchange rules or regulations, or other applicable Federal law, rules, or regulations, the stockholders will have approved any matter if, at a meeting at which a quorum is present, the votes cast by the stockholders present, either in person or by proxy and entitled to vote thereon, in favor of such matter exceed the votes cast by such stockholders against such matter. Members of the Board of Directors shall be elected by a plurality of the votes cast.

5


 

     Section 3.09. Inspectors of Votes. The Board of Directors, in advance of any meeting of stockholders, shall appoint one or more Inspectors of Votes to act at the meeting or any adjournment thereof and make a written report thereof. One or more persons may be designated as alternates to replace any Inspector of Votes who fails to act. In case any person so appointed Inspector of Votes or alternate resigns or fails to act, the vacancy shall be filled by appointment made by the chairman of the meeting. The Inspectors of Votes shall (a) ascertain the number of shares outstanding and the voting power of each and determine all questions concerning the qualification of voters; (b) determine the shares represented at the meeting and the validity of proxies and ballots; (c) determine all questions concerning the acceptance or rejection of votes and, with respect to each vote by ballot, shall collect and count all votes and ballots (d) determine and retain for a reasonable period a record of the disposition of any challenges made to any determination by the Inspectors of Votes; and (e) report in writing to the secretary of the meeting their determination of the number of shares represented at the meeting, and their count of all votes and ballots. The Inspectors of Votes need not be stockholders of the corporation. No person who is an officer or Member of the Board of Directors of the corporation, or who is a candidate for election as a Member of the Board of Directors, shall be eligible to be an Inspector of Votes. Any report or certificate by the Inspectors of Votes shall be prima facie evidence of the facts stated and of the votes as certified by them.

     Section 3.10. Stockholder Notices to the Corporation. Whenever notice is to be given to the corporation by a stockholder under any provision of law or of these Bylaws, such notice shall be delivered to the Secretary at the principal executive offices of the corporation. If delivered by electronic mail or facsimile, the stockholder’s notice shall be directed to the Secretary at the electronic mail address or facsimile number, as the case may be, specified in the corporation’s most recent proxy statement.

     Section 3.11. Conduct of Meetings. The date and time of the opening and the closing of the polls for each matter upon which the stockholders will vote at a meeting shall be announced at such meeting by the person presiding over the meeting. The Board of Directors may adopt by resolution such rules or regulations for the conduct of meetings of stockholders as it shall deem appropriate. Except to the extent inconsistent with such rules and regulations as adopted by the Board of Directors, the chair of any meeting of stockholders shall have the right and authority to prescribe such rules, regulations and procedures and to do all such acts as, in the judgment of such chair, are appropriate for the proper conduct of the meeting. Such rules, regulations or procedures, whether adopted by the Board of Directors or prescribed by the chair of the meeting, may include, without limitation, the following: (a) the establishment of an agenda or order of business for the meeting; (b) rules and procedures for maintaining order at the meeting and the safety of those present; (c) limitations on attendance at or participation in the meeting to stockholders of record of the corporation, their duly authorized and constituted proxies, or such other persons as the chair shall permit; (d) restrictions on entry to the meeting after the time fixed for the commencement thereof, and (e) limitations on the time allotted to questions or comments by participants. Meetings of stockholders shall not be required to be held in accordance with rules of parliamentary procedure.

     Section 3.12. Notice of Stockholder Proposal. At an annual meeting of the stockholders, only such business shall be conducted as shall have been properly brought before the meeting. To be properly brought before an annual meeting, business must be (a) specified in the notice of meeting (or any supplement thereto) given by or at the direction of the Board of Directors, (b) otherwise properly brought before the meeting by or at the direction of the Board of Directors, or (c) otherwise properly brought before the meeting by a stockholder. For business to be properly brought before an annual meeting by a stockholder (other than the nomination of a person for election as a director, which is governed by Section 4.19 of these Bylaws), the stockholder must have given timely notice thereof in writing to the Secretary of the corporation. To be timely, a stockholder’s notice must be delivered to or mailed and received at the principal executive offices of the corporation not later than the following dates (1) 60 days in advance of such meeting if such meeting is to be held on a day which is within 30 days preceding the anniversary of

6


 

the previous year’s annual meeting, or 90 days in advance of such meeting if such meeting is to be held on or after the anniversary of the previous year’s annual meeting; and (2) with respect to an annual meeting of stockholders held on any other date, the close of business on the tenth day following the date of public disclosure of the date of such meeting. (For purposes of these Bylaws, public disclosure shall be deemed to include a disclosure made in a press release reported by the Dow Jones News Services, Associated Press or a comparable national news service or in a document filed by the corporation with the Securities and Exchange Commission pursuant to Section 13 of the Securities Exchange Act of 1934, as amended). A stockholder’s notice to the Secretary shall set forth as to each matter the stockholder proposes to bring before the annual meeting (A) a brief description of the business desired to be brought before the annual meeting and the reasons for conducting such business at the annual meeting, (B) the name and address, as they appear on the corporation’s books, of the stockholder proposing such business, (C) the class and number of shares of the corporation that are beneficially owned by the stockholder, and (D) any material interest of the stockholder in such business. Notwithstanding anything in these Bylaws to the contrary, no business shall be conducted at any annual meeting except in accordance with the procedures set forth in this Section 3.12. The chair of the annual meeting shall, if the facts warrant, determine and declare to the meeting that business was not properly brought before the meeting in accordance with the provisions of this Section 3.12, and if he or she should so determine, he or she shall so declare to the meeting and any such business not properly brought before the meeting shall not be transacted.

ARTICLE 4

The Board of Directors

     Section 4.01. General Policies. General policies governing the operations of the corporation shall be determined by the Board of Directors.

     Section 4.02. Membership. The Board of Directors shall consist of those Members appointed and elected as provided by law.

     Section 4.03. Term of Members. Each Member shall hold office for the term for which he is elected or appointed and until his successor is chosen and qualified, or his death, resignation, retirement, or removal in accordance with law, whichever event shall first occur.

     Section 4.04. Regular Meetings. The Board of Directors shall meet in regular meeting at such times as shall be determined by the Board from time to time, except as provided in section 4.05 and except when the Chairman of the Board shall notify the Secretary of a different date prior to a scheduled regular meeting. Each regular meeting shall be held at the principal office of the corporation in the District of Columbia, unless special provision is made by the Board, in advance of any such regular meeting, to hold that meeting at another place, either within or without the District of Columbia.

     Section 4.05. Annual Meeting. Immediately following the annual meeting of the stockholders, the Board of Directors shall meet each year for the purpose of considering any business that may properly be brought before the meeting, and such annual meeting of the Board shall be a regular meeting.

     Section 4.06. Special Meetings. Other meetings of the Board of Directors may be held upon the call of the Chairman of the Board of Directors, or of a majority of the then incumbent Members of the Board. Each special meeting shall be held at the principal office in the District of Columbia unless the Chairman of the Board prescribes and the notice specifies another place.

7


 

     Section 4.07. Notice of Meetings—Waiver. No notice of any kind to Members of the Board of Directors shall be necessary for any regular meeting which is held on a date determined by the Board, or for the annual meeting. In the case of a regular meeting on a different date, notice shall be given to each Member by the Secretary; in the case of a special meeting, notice shall be given to each Member by the Secretary at the direction of the calling authority. Such notice shall be in writing and sent to the address on file with the Secretary of the corporation not later than during the third day immediately preceding the day for the meeting; or by word of mouth, telephone, facsimile or electronic mail, directed to the telephone number, facsimile number or electronic mail address, as the case may be, on file with the Secretary of the corporation, not later than during the second day immediately preceding the day for the meeting. Notice of any such meeting may be waived in writing signed by the person or persons entitled thereto, either before or after the time of the meeting. Neither the business to be transacted at, nor the purpose of, any meeting of the Board of Directors need be specified in the notice or waiver of notice of the meeting.

     Section 4.08. The Chairman of the Board of Directors. The Chairman of the Board of Directors may be chosen by the Board at any meeting of the Board from among the Members, and his tenure shall commence immediately and continue until the next succeeding annual meeting of the Board, or until his successor is chosen, whichever first occurs. The Chairman of the Board shall be the Chief Executive Officer of the corporation, and shall have such powers and perform such duties as the Board may prescribe. Except as otherwise provided by law, the corporate charter, these Bylaws, or the Board, the Chairman shall have plenary authority to perform all duties ordinarily incident to the office and such other duties as may be assigned to him from time to time by the Board. The Chairman may prescribe, amend and rescind requirements and procedures governing the manner in which the general business of the corporation shall be conducted. The officers, agents and employees, other than the principal officers, shall be appointed by the Chairman or by any other principal officer to whom the Chairman shall have delegated the authority. During the Chairman’s absence or inability to act or during the vacancy of the office, the Vice Chairman and Chief Operating Officer shall perform the duties and exercise the authority of the Chairman.

     Section 4.08a. The Vice Chairman of the Board of Directors. The Board of Directors may from time to time elect from among the Members of the Board one or more Vice Chairmen of the Board. Any such Vice Chairman shall have such powers and shall perform such duties as the Board of Directors may prescribe or as the Chairman of the Board shall delegate to him.

     Section 4.09. Quorum. The presence, in person or otherwise in accordance with section 4.16 hereof, of a majority of the then incumbent Members of the Board of Directors or of a Board Committee, as applicable, at the time of any meeting of the Board or such Committee, shall constitute a quorum for the transaction of business. The act of the majority of such Members present at a meeting at which a quorum is present shall be the act of the Board of Directors unless the act of a greater number is required by these Bylaws. Members may not be represented by proxy at any meeting of the Board of Directors.

     Section 4.10. Action Without a Meeting. Any policy or action that may be approved or taken at a meeting of the Board or of any Board Committee may be approved or taken without a meeting if all incumbent Members of the Board or the Committee, as the case may be, consent thereto in writing and the writings are filed with the minutes of the proceedings of the Board or the Committee.

     Section 4.11. Facsimile Signatures. The Board of Directors, the Chairman of the Board or the President may authorize the use of facsimile signatures in lieu of manual signatures.

8


 

     Section 4.12. Executive Committee.

          (a) The Executive Committee of the Board shall consist of at least five Members who shall be designated by the Board and serve at the pleasure of the Board. One of the members of the Executive Committee shall be the Chief Executive Officer of the corporation who may also, but is not required to, be chair of the Committee. The designation of such Committee and the delegation thereto of authority shall not alone relieve any director of any duty he owes the corporation. The Executive Committee, during the interim between Board meetings, shall have all the authority of the Board, except that it shall not have the authority to take any of the following actions:

  (1)    The submission to stockholders of any action requiring stockholders’ authorization.
 
  (2)    The filling of vacancies on the Board of Directors or on the Executive Committee.
 
  (3)    The fixing of compensation of the directors for serving on the Board or on the Executive Committee.
 
  (4)    The appointment or removal of the Chairman of the Board, President, any Vice Chairman, and any Executive Vice President, except that vacancies in established positions may be filled subject to ratification by the Board of Directors.
 
  (5)    The amendment or repeal of these Bylaws or the adoption of new bylaws.
 
  (6)    The declaration of dividends or the authorizing of the issuance of the corporation’s stock.
 
  (7)    The amendment or repeal of any resolution of the Board which by its terms is not so amendable or repealable.
 
  (8)    The adoption of an agreement of merger or consolidation or the adoption of a certificate of ownership and merger.
 
  (9)    The recommendation to stockholders of the sale, lease or exchange of all or substantially all of the corporation’s property and assets.
 
  (10)    The recommendation to stockholders of a dissolution of the corporation or a revocation of a dissolution.

          (b) The Executive Committee shall meet at the call of its chairman or of a majority of its members, and a majority shall constitute a quorum. The action of the majority of the members of the Committee shall be the action of the Committee. Members of the Committee may not be represented by proxy at any meeting of the Committee.

          (c) Unless otherwise expressly provided by resolution of the Board of Directors, members of the Executive Committee shall be compensated and shall be reimbursed for travel and expenses on the same basis and at the same rate as is provided for Members of the Board of Directors for attendance at meetings of the Board.

9


 

           (d) The Executive Committee shall, at each regular meeting of the Board of Directors, present to the Board its report and such recommendations as are in its judgment necessary for the proper operation of the corporation.

          Section 4.13. Audit Committee. The Board of Directors shall have an Audit Committee and, as required by Section 1710.11(b)(1) of the OFHEO corporate governance regulation, the Audit Committee shall comply with the charter, independence, composition, expertise and other requirements of the New York Stock Exchange, as the same may be amended from time to time, unless otherwise required by OFHEO.

          Section 4.14. Compensation Committee. The Board of Directors shall have a Compensation Committee and, as required by Section 1710.11(b)(2) of the OFHEO corporate governance regulation, the Compensation Committee shall include at least three independent directors. The duties of the Compensation Committee shall include overseeing the corporation’s compensation policies and plans for executive officers and employees and approving the compensation of senior executive officers of the corporation.

          Section 4.15. Other Committees. In addition to the Executive, Audit and Compensation committees, the Board of Directors may by resolution designate from among its Members such other committees as it deems appropriate, each of which, to the extent provided by resolution of the Board, may exercise all authority of the Board except those actions outside the authority of the Executive Committee. The designation of any such committee and the delegation thereto of authority shall not alone relieve any director of any duty he owes the corporation.

          Section 4.16. Remote Meetings. Any meeting of the Board of Directors or any meeting of a Board Committee may be held with the Members of the Board or members of such Committee participating in such meeting by telephone or by any other means of communication by which all such persons participating in the meeting are able to speak to and hear one another.

          Section 4.17. Limitation on Liability. To the fullest extent permitted by Delaware statutory or decisional law, as amended or interpreted, no director of this corporation shall be personally liable to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director. This Section 4.17 does not affect the availability of equitable remedies for breach of fiduciary duties.

          Section 4.18. Eligibility to Make Nominations. Nominations of candidates for election as directors at an annual meeting of stockholders called for election of directors may be made (i) by any stockholder entitled to vote at such meeting only in accordance with the procedures established by Section 4.19 of these Bylaws, or (ii) by the Board of Directors or by a duly authorized Committee thereof. In order to be eligible for election as a director, any director nominee must first be nominated in accordance with the provisions of these Bylaws.

          Section 4.19. Procedure for Nominations by Stockholders. Any stockholder entitled to vote for the election of a director at an annual meeting may nominate one or more persons for such election only if written notice of such stockholder’s intent to make such nomination is delivered to or mailed and received by the Secretary of the corporation. Such notice must be received by the Secretary not later than the following dates: (a) with respect to an annual meeting of stockholders, 60 days in advance of such meeting if such meeting is to be held on a day which is within 30 days preceding the anniversary of the previous year’s annual meeting or 90 days in advance of such meeting if such meeting is to be held on or after the anniversary of the previous year’s annual meeting; and (b) with respect to an annual meeting of stockholders held on any other date, the close of business on the tenth day following the date of public disclosure of the date of such meeting. The written notice shall set forth: (1) the name, age, business

10


 

address and residence address of each nominee proposed in such notice, (2) the principal occupation or employment of each such nominee, (3) the number of shares of capital stock of the corporation which are beneficially owned by each such nominee, and (4) such other information concerning each such nominee as would be required, under the rules of the Securities and Exchange Commission in a proxy statement soliciting proxies for the election of such nominee as a director. Such notice shall include a signed consent of each such nominee to serve as a director of the corporation, if elected.

          Section 4.20. Compliance with Procedures. If the chair of the stockholders’ annual meeting determines that a nomination of any candidate for election as a director was not made in accordance with the applicable provisions of these Bylaws, such nomination shall be void.

ARTICLE 5

The Officers

     Section 5.01. Number. The principal officers of the corporation shall consist of the Chairman of the Board of Directors, a President, one or more Vice Chairmen of the Board if the Board has elected to fill such position or positions, one or more Executive Vice Presidents and Senior Vice Presidents, a General Counsel, a Controller, a Treasurer, and a Secretary. There shall be such assistant officers, agents, and employees as may be deemed necessary. Any two or more offices may be held by the same person.

     Section 5.02. General Authority and Duties. All officers, agents, and employees of the corporation shall have such authority and perform such duties in the management and conduct of the business of the corporation as may be provided for in these Bylaws, as may be established by resolution of the Board of Directors not inconsistent with these Bylaws, or as may be delegated to them in a manner not inconsistent with these Bylaws.

     Section 5.03. Election, Tenure, and Qualifications. The principal officers shall be selected by the Board of Directors. Each officer shall hold office until his successor is chosen and qualified, or his death, resignation, retirement, or removal from office, whichever event shall first occur. Selection or appointment without express tenure, of an officer, agent, or employee shall not of itself create contract rights.

     Section 5.04. Removal. Any officer, agent, or employee may be removed by the Board of Directors. Any removal shall be in accordance with such procedures and safeguards as the corporation may establish and shall be without prejudice to the contract rights, if any, of the person so removed.

     Section 5.05. Vacancies. Any vacancy in any office shall be filled in the manner prescribed in these Bylaws for selection or appointment to the office.

     Section 5.06. The President. The President shall have such powers and perform such duties as the Board of Directors may prescribe, or as the Chairman of the Board may delegate to him.

     Section 5.07. The Vice Presidents. Each Vice President shall have such powers and perform such duties as the Board of Directors may prescribe or as the Chairman of the Board may delegate to him.

     Section 5.08. The Treasurer. The Treasurer shall, in general, perform all the duties ordinarily incident to the office of Treasurer and such other duties as may be assigned to him by the Board of Directors or by the Chairman of the Board. The Treasurer shall render to the Chairman and the Board,

11


 

whenever the same shall be required, an account of all his transactions as Treasurer. The Treasurer shall, if required to do so by the Board, give the corporation a bond in such amount and with such surety or sureties as may be ordered by the Board for the faithful performance of the duties of his office and for the restoration to the corporation, in case of his death, resignation, retirement, or removal from office, of all books, papers, vouchers, money, and other property of whatever kind in his possession or under his control belonging to the corporation. The premium for any such bond shall be paid by the corporation.

     Section 5.09. The General Counsel. The General Counsel shall be the principal consulting officer of the corporation in all matters of legal significance or import; shall be responsible for and direct all counsel, attorneys, employees, and agents in the performance of all legal duties and services for and on behalf of the corporation; shall perform such other duties and have such other powers as are ordinarily incident to the office of the General Counsel; and shall perform such other duties as, from time to time, may be assigned to him by the Board of Directors or by the Chairman of the Board.

     Section 5.10. The Secretary. The Secretary shall keep or cause to be kept in books provided for the purpose the minutes of the meetings of the Board of Directors and the minutes or transcripts of the meetings of the stockholders; shall see that all notices are duly given as required by law and in accordance with the provisions of these Bylaws; shall be responsible for the custody and maintenance of all related records and the blank stock certificates of the corporation; shall be custodian of the records and of the seal of the corporation; and, in general, shall perform all the duties ordinarily incident to the office of Secretary and such other duties as may be assigned to him by the Board or by the Chairman of the Board. The Secretary and any Assistant Secretary are expressly empowered to attest signatures of officers of the corporation and to affix the seal of the corporation to documents.

     Section 5.11. The Controller. The Controller shall keep full and accurate accounts of all assets, liabilities, commitments, receipts, disbursements, and other financial transactions of the corporation; shall certify vouchers for payment by the Treasurer or the Treasurer’s designee, and shall designate, with the written concurrence of the Chairman of the Board, such other officers, agents, and employees, severally, who may so certify; and in general, shall perform all the duties ordinarily incident to the office of Controller and such other duties as may be assigned to him by the Board of Directors or by the Chairman of the Board.

     Section 5.12. Assistant Officers. Each assistant to an officer, including but not limited to any Assistant Vice President, any Assistant Treasurer, any Assistant General Counsel, and any Assistant Secretary, and any other such assistant to any officer, shall perform such duties as are, from time to time, delegated to him by the officer to whom he is an assistant, by the Chairman of the Board of Directors or by the Board. At the request of the officer to whom he is an assistant, an assistant officer may temporarily perform the duties of that officer, and when so acting shall have the powers of and be subject to the restrictions imposed upon that officer.

     Section 5.13. Compensation. The compensation of the Chairman, President, any Vice Chairman, and any Executive Vice President shall be fixed, from time to time, by the Board of Directors.

     Section 5.14. Repealed

ARTICLE 6

Indemnification

     Section 6.01. General Indemnification. The Board of Directors may, in such cases or categories of cases as it deems appropriate, indemnify and hold harmless, or make provision for indemnifying and

12


 

holding harmless, Members of the Board of Directors, officers, employees, and agents of the corporation, and persons who formerly held such positions, and the estates of any of them against any or all claims and liabilities (including reasonable legal fees and other expenses incurred in connection with such claims or liabilities) to which any such person shall have become subject by reason of his having held such a position or having allegedly taken or omitted to take any action in connection with such position.

     Section 6.02. Indemnification of Board Members and Officers.

   
           (a)     To the fullest extent permitted by the Delaware General Corporation Law for a corporation subject to such law, as the same exists or may hereafter be amended (but, in the case of any such amendment, only to the extent that such amendment permits a Delaware corporation to provide broader indemnification rights than said law permitted such corporation to provide prior to such amendment), the corporation will indemnify and hold harmless each Member of the Board and officer of the corporation or any subsidiary against any and all claims, liabilities, and expenses (including attorneys’ fees, judgments, fines, and amounts paid in settlement) actually and reasonably incurred and arising from any threatened, pending, or completed action, suit or proceeding, whether civil, criminal, administrative, or investigative, to which any such person shall have become subject by reason of having held such a position or having allegedly taken or omitted to take any action in connection with any such position. However, the foregoing shall not apply to:

  (i)       any breach of such person’s duty of loyalty to the corporation or its stockholders;
 
  (ii)       any act or omission by such person not in good faith or which involves intentional misconduct or where such person had reasonable cause to believe his conduct was unlawful; or
 
  (iii)       any transaction from which such person derived any improper personal benefit.
   
           (b)     The decision concerning whether a particular indemnitee has satisfied the foregoing shall be made by (i) the Board of Directors by a majority vote of a quorum consisting of Members who are not parties to the action, suit, or proceeding giving rise to the claim for indemnity (“Disinterested Directors”), whether or not such majority constitutes a quorum; (ii) a committee of Disinterested Directors designated by a majority vote of Disinterested Directors, whether or not such majority constitutes a quorum; (iii) if there are no Disinterested Directors, or if the Disinterested Directors so direct, by independent legal counsel in a written opinion; or (iv) a vote of the stockholders.
   
           (c)     The Board of Directors may authorize the advancement of expenses to any Member of the Board or officer, subject to a written undertaking to repay such advance if it is later determined that the indemnitee does not satisfy the standard of conduct required for indemnification. The Chairman of the Board is authorized to enter into contracts of indemnification with each Member and officer of the corporation with respect to the indemnification provided in the Bylaws and to renegotiate such contracts as necessary to reflect changing laws and business circumstances.

13


 

ARTICLE 7

Amendments

     The power to alter, amend, or repeal these Bylaws, or to adopt new bylaws, is vested in the Board of Directors, but the affirmative vote of two-thirds of the then full number of authorized Members of the Board of Directors shall be necessary to effect any such action; or such action may be effected in the manner provided in Section 4.10 of these Bylaws. Except by unanimous consent of all the then incumbent Members of the Board, no such action shall be undertaken until at least one week shall have elapsed from either (i) the introduction of the proposal at a meeting of the Board of Directors at which a quorum shall have attended, or (ii) the circulation of such proposed action to all the then incumbent Members of the Board.

ARTICLE 8

Regulatory Powers

     Nothing in these Bylaws shall be deemed to affect the regulatory powers of the Secretary of Housing and Urban Development pursuant to the Charter Act, as amended.

14

exv4w1
 

EXHIBIT 4.1

CERTIFICATE OF DESIGNATION OF TERMS OF
5.25% NON-CUMULATIVE PREFERRED STOCK, SERIES D

1.   Designation, Par Value and Number of Shares.

     The designation of the series of preferred stock of the Federal National Mortgage Association (the “Corporation”) created by this resolution shall be “5.25% Non-Cumulative Preferred Stock, Series D” (the “Series D Preferred Stock”), and the number of shares constituting the Series D Preferred Stock is Three Million (3,000,000). Shares of Series D Preferred Stock will have no par value and a stated value and liquidation preference of $50 per share. The Board of Directors of the Corporation, or a duly authorized committee thereof, in its sole discretion, may increase the number of shares of Series D Preferred Stock and may reduce the number of shares of Series D Preferred Stock, provided such reduction is not below the number of shares of Series D Preferred Stock then outstanding.

2.   Dividends.

     (a)   Holders of record of Series D Preferred Stock (each individually a “Holder”, or collectively the “Holders”) will be entitled to receive, when, as and if declared by the Board of Directors of the Corporation, or a duly authorized committee thereof, in its sole discretion out of funds legally available therefor, non-cumulative, quarterly cash dividends which will accrue from and including September 30, 1998, and will be payable on March 31, June 30, September 30 and December 31 of each year (each, a “Dividend Payment Date”), commencing December 31, 1998, at the annual rate of $2.625 per share or 5.25% of the stated value and liquidation preference of $50 per share (without taking into account any adjustments referred to in clause (b) below). Dividends on the Series D Preferred Stock will be payable to the Holders as they appear on the books and records of the Corporation on the relevant record date fixed by the Board of Directors, or a duly authorized committee thereof, which may not be earlier than 45 days or later than 10 days prior to the applicable Dividend Payment Date.

     If declared, the initial dividend, which will be for the period from and including September 30, 1998 to but excluding December 31, 1998, will be $0.65625 per share. Thereafter, the dividend period relating to a Dividend Payment Date will be the period from and including the preceding Dividend Payment Date to but excluding such Dividend Payment Date. If a Dividend Payment Date is not a Business Day, dividends (if declared) on the Series D Preferred Stock will be paid on the succeeding Business Day, without interest. A “Business Day” shall mean any day other than a Saturday, Sunday or other day on which banking institutions in New York, New York are authorized or required by law to close. Dividends payable on the Series D Preferred Stock for any period greater or less than a full dividend period will be computed on the basis of a 360-day year consisting of twelve 30-day months and the actual number of days elapsed in any period of less than one month. Dividends payable on the Series D Preferred Stock for each full dividend period will be computed by dividing the per annum dividend rate by four.

     (b)   No dividend (other than dividends or distributions paid in shares of, or options, warrants or rights to subscribe for or purchase shares of, the common stock of the Corporation or any other stock of the Corporation ranking, as to the payment of dividends and the distribution of assets upon dissolution, liquidation or winding up of the Corporation, junior to the Series D Preferred Stock) may be declared or paid or set apart for payment on the Corporation’s common stock (or on any other stock of the Corporation ranking, as to the payment of dividends, junior to the Series D Preferred Stock) unless dividends have been declared and paid or set apart (or ordered to be set apart) on the Series D Preferred Stock for the then-current quarterly dividend period; provided, however, that the foregoing dividend preference shall not be cumulative and shall not in any way create any claim or right in favor of the Holders of Series D Preferred Stock in the event that dividends have not been declared or paid or set apart (or ordered to be set apart) on the Series D Preferred Stock in respect of any prior dividend period. If the full dividend on the Series D Preferred Stock is not paid for any quarterly dividend period, the Holders of Series D Preferred Stock will have no claim in respect of the unpaid amount so long as no dividend (other than those referred to above) is

1


 

paid on the Corporation’s common stock (or any other stock of the Corporation ranking, as to the payment of dividends, junior to the Series D Preferred Stock) for such dividend period.

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

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

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

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

3.   Optional Redemption.

     (a)   On or after September 30, 1999, the Corporation, at its option, may redeem the Series D Preferred Stock, in whole or in part, at any time or from time to time, out of funds legally available therefor, at the redemption price of $50.00 per share plus an amount equal to the dividend (whether or not declared) for the then-current quarterly dividend period accrued to but excluding the date of such redemption, but without accumulation of unpaid dividends on the Series D Preferred Stock for prior dividend periods. If less than all of the outstanding shares of Series D Preferred Stock are to be redeemed, the Corporation will select the shares to be redeemed from the outstanding shares not previously called for redemption by lot or pro rata (as nearly as possible) or by any other method that the Board of Directors of the Corporation, or a duly authorized committee thereof, in its sole discretion deems equitable.

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

     (c)   Notice having been given as herein provided, from and after the redemption date, dividends on the Series D Preferred Stock called for redemption shall cease to accrue and such Series D Preferred Stock called for redemption will no longer be deemed outstanding, and all rights of the Holders thereof as registered holders of such shares of Series D Preferred Stock will cease. Upon surrender in accordance with

2


 

said notice of the certificate(s) representing shares of Series D Preferred Stock so redeemed (properly endorsed or assigned for transfer, if the Board of Directors of the Corporation, or a duly authorized committee thereof, shall so require and the notice shall so state), such shares shall be redeemed by the Corporation at the redemption price aforesaid. Any shares of Series D Preferred Stock that shall at any time have been redeemed shall, after such redemption, be cancelled and not reissued. In case fewer than all the shares represented by any such certificate are redeemed, a new certificate shall be issued representing the unredeemed shares without cost to the Holder thereof.

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

4.   Liquidation Rights.

     (a)   Upon any voluntary or involuntary dissolution, liquidation or winding up of the Corporation, after payment or provision for the liabilities of the Corporation and the expenses of such dissolution, liquidation or winding up, the Holders of outstanding shares of the Series D Preferred Stock will be entitled to receive out of the assets of the Corporation or proceeds thereof available for distribution to stockholders, before any payment or distribution of assets is made to holders of the Corporation’s common stock (or any other stock of the Corporation ranking, as to the distribution of assets upon dissolution, liquidation or winding up of the Corporation, junior to the Series D Preferred Stock), the amount of $50.00 per share plus an amount equal to the dividend (whether or not declared) for the then-current quarterly dividend period accrued to but excluding the date of such liquidation payment, but without accumulation of unpaid dividends on the Series D Preferred Stock for prior dividend periods.

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

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

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

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

5.   No Conversion or Exchange Rights.

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

3


 

6.   No Pre-emptive Rights.

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

7.   Voting Rights; Amendments.

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

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

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

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

8.   Additional Classes or Series of Stock.

     The Board of Directors of the Corporation, or a duly authorized committee thereof, shall have the right at any time in the future to authorize, create and issue, by resolution or resolutions, one or more additional classes or series of stock of the Corporation, and to determine and fix the distinguishing characteristics and the relative rights, preferences, privileges and other terms of the shares thereof. Any such class or series of stock may rank prior to, on a parity with or junior to the Series D Preferred Stock as to the payment of dividends or the distribution of assets upon dissolution, liquidation or winding up of the Corporation, or otherwise.

9.   Priority.

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

4


 

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

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

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

     (d)   The shares of Preferred Stock of the Corporation designated “6.41% Non-Cumulative Preferred Stock, Series A” (the “Series A Preferred Stock”), “6.50% Non-Cumulative Preferred Stock, Series B” (the “Series B Preferred Stock”) and “6.45% Non-Cumulative Preferred Stock, Series C” (“the Series C Preferred Stock”) shall be deemed to rank on a parity with shares of Series D Preferred Stock as to the payment of dividends and the distribution of assets upon dissolution, liquidation or winding up of the Corporation. Accordingly, the holders of record of Series A Preferred Stock, the holders of record of Series B Preferred Stock, the holders of record of Series C Preferred Stock and the Holders of Series D Preferred Stock shall be entitled to the receipt of dividends and of amounts distributable upon dissolution, liquidation or winding up of the Corporation, as the case may be, in proportion to their respective dividend rates or amounts or liquidation prices, without preference or priority, one over the other.

10.   Transfer Agent, Dividend Disbursing Agent and Registrar.

     The Corporation hereby appoints First Chicago Trust Company of New York as its initial transfer agent, dividend disbursing agent and registrar for the Series D Preferred Stock. The Corporation may at any time designate an additional or substitute transfer agent, dividend disbursing agent and registrar for the Series D Preferred Stock.

11.   Notices.

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

     RECEIPT AND ACCEPTANCE OF A SHARE OR SHARES OF THE SERIES D PREFERRED STOCK BY OR ON BEHALF OF A HOLDER SHALL CONSTITUTE THE UNCONDITIONAL ACCEPTANCE BY SUCH HOLDER (AND ALL OTHERS HAVING BENEFICIAL OWNERSHIP OF SUCH SHARE OR SHARES) OF ALL OF THE TERMS AND PROVISIONS OF THIS CERTIFICATE OF DESIGNATION. NO SIGNATURE OR OTHER FURTHER MANIFESTATION OF ASSENT TO

5


 

THE TERMS AND PROVISIONS OF THIS CERTIFICATE OF DESIGNATION SHALL BE NECESSARY FOR ITS OPERATION OR EFFECT AS BETWEEN THE CORPORATION AND THE HOLDER (AND ALL SUCH OTHERS).

6

exv4w2
 

EXHIBIT 4.2

CERTIFICATE OF DESIGNATION OF TERMS OF
5.10% NON-CUMULATIVE PREFERRED STOCK, SERIES E

1.   Designation, Par Value and Number of Shares.

     The designation of the series of preferred stock of the Federal National Mortgage Association (the “Corporation”) created by this resolution shall be “5.10% Non-Cumulative Preferred Stock, Series E” (the “Series E Preferred Stock”), and the number of shares constituting the Series E Preferred Stock is Three Million (3,000,000). Shares of Series E Preferred Stock will have no par value and a stated value and liquidation preference of $50 per share. The Board of Directors of the Corporation, or a duly authorized committee thereof, in its sole discretion, may increase the number of shares of Series E Preferred Stock and may reduce the number of shares of Series E Preferred Stock, provided such reduction is not below the number of shares of Series E Preferred Stock then outstanding.

2.   Dividends.

     (a)   Holders of record of Series E Preferred Stock (each individually a “Holder”, or collectively the “Holders”) will be entitled to receive, when, as and if declared by the Board of Directors of the Corporation, or a duly authorized committee thereof, in its sole discretion out of funds legally available therefor, non-cumulative, quarterly cash dividends which will accrue from and including April 15, 1999, and will be payable on March 31, June 30, September 30 and December 31 of each year (each, a “Dividend Payment Date”), commencing June 30, 1999, at the annual rate of $2.55 per share or 5.10% of the stated value and liquidation preference of $50 per share (without taking into account any adjustments referred to in paragraphs (b)and (c) of this Section 2). Dividends on the Series E Preferred Stock will be payable to the Holders as they appear on the books and records of the Corporation on the relevant record date fixed by the Board of Directors, or a duly authorized committee thereof, which may not be earlier than 45 days or later than 10 days prior to the applicable Dividend Payment Date. If declared, the initial dividend, which will be for the period from and including April 15, 1999 to but excluding June 30, 1999, will be $.53125 per share. Thereafter, the dividend period relating to a Dividend Payment Date will be the period from and including the preceding Dividend Payment Date to but excluding such Dividend Payment Date. If a Dividend Payment Date is not a Business Day, dividends (if declared) on the Series E Preferred Stock will be paid on the succeeding Business Day, without interest. A “Business Day” shall mean any day other than a Saturday, Sunday or other day on which banking institutions in New York, New York are authorized or required by law to close. Dividends payable on the Series E Preferred Stock for any period greater or less than a full dividend period will be computed on the basis of a 360-day year consisting of twelve 30-day months and the actual number of days elapsed in any period of less than one month. Dividends payable on the Series E Preferred Stock for each full dividend period will be computed by dividing the per annum dividend rate by four.

     (b)(i)   If, prior to 18 months after the date of original issuance of the Series E Preferred Stock, one or more amendments to the Internal Revenue Code of 1986, as amended (the “Code”), are enacted that reduce the percentage of the dividends-received deduction applicable to the Series E Preferred Stock (a “Dividends-Received Reduction Amendment”) as specified in section 243(a)(1) of the Code or any successor provision thereto (the “Dividends-Received Percentage”), the adjustments set forth in this paragraph (b) shall be made in respect of the dividends payable by the Corporation.

     (ii)   Subject to subclauses (v) and (vi) of this paragraph (b), the amount of each dividend payable (if declared) per share of Series E Preferred Stock for dividend payments made on or after the effective date of a Dividends-Received Reduction Amendment will be adjusted by multiplying the amount of the dividend payable pursuant to paragraph (a) of this Section 2 (before adjustment) by a factor, which will be the number determined in accordance with the following formula (the “DRD Formula”), and rounding the result to the nearest cent (with one-half cent rounded up):

1


 

1–.35(1–.70)


1–.35(1–DRP)

For the purposes of the DRD Formula, “DRP” means the Dividends-Received Percentage (expressed as a decimal) applicable to the dividend in question; provided, however, that if the Dividends-Received Percentage applicable to the dividend in question shall be less than 50%, then the DRP shall equal .50. No amendment to the Code, other than a change in the percentage of the dividends-received deduction applicable to the Series E Preferred Stock as set forth in section 243(a)(1) of the Code or any successor provision thereto, will give rise to an adjustment.

     (iii)   Notwithstanding the foregoing and subject to subclauses (v) and (vi) of this paragraph (b), if any Dividends-Received Reduction Amendment is enacted after the dividend payable on a Dividend Payment Date has been declared, the amount of the dividend payable on such Dividend Payment Date will not be increased; instead, additional dividends (the “Post Declaration Date Dividends”), equal to the excess, if any, of (x) the product of the dividend paid by the Corporation on such Divided Payment Date and the DRD Formula (where the DRP used in the DRD Formula would be equal to the greater of the Dividends-Received Percentage applicable to the dividend in question and .50) over (y) the dividend paid by the Corporation on such Dividend Payment Date, will be payable (if declared) to Holders on the record date applicable to the next succeeding Dividend Payment Date or, if the Series E Preferred Stock is called for redemption prior to such record date, to Holders on the applicable redemption date, as the case may be, in addition to any other amounts payable on such date.

     (iv)   Subject to subclauses (v) and (vi) of this paragraph (b), if any Dividends-Received Reduction Amendment is enacted and the reduction in the Dividends-Received Percentage retroactively applies to a Dividend Payment Date as to which the Corporation previously paid dividends on the Series E Preferred Stock (each, an “Affected Dividend Payment Date”), the Corporation will pay (if declared) additional dividends (the “Retroactive Dividends”) to Holders on the record date applicable to the next succeeding Dividend Payment Date (or, if such amendment is enacted after the dividend payable on such Dividend Payment Date has been declared, to Holders on the record date applicable to the second succeeding Dividend Payment Date following the date of enactment) or, if the Series E Preferred Stock is called for redemption prior to such record date, to Holders on the applicable redemption date, as the case may be, in an amount equal to the excess of (x) the product of the dividend paid by the Corporation on each Affected Dividend Payment Date and the DRD Formula (where the DRP used in the DRD Formula would be equal to the greater of the Dividends-Received Percentage and .50 applied to each Affected Dividend Payment Date) over (y) the sum of the dividend paid by the Corporation on each Affected Dividend Payment Date. The Corporation will only make one payment of Retroactive Dividends for any such amendment. Notwithstanding the foregoing provisions, if, with respect to any such amendment, the Corporation receives either an unqualified opinion of nationally recognized independent tax counsel selected by the Corporation or a private letter ruling or similar form of authorization from the IRS to the effect that such amendment does not apply to a dividend payable on an Affected Dividend Payment Date for the Series E Preferred Stock, then such amendment will not result in the payment of Retroactive Dividends with respect to such Affected Dividend Payment Date. The opinion referenced in the previous sentence shall be based upon legislation amending or establishing the DRP or upon a published pronouncement of the IRS addressing such legislation.

     (v)   Notwithstanding the foregoing provisions, if, with respect to any Dividends-Received Reduction Amendment, the Corporation receives either an unqualified opinion (which opinion shall be based on the Dividends-Received Reduction Amendment or upon a published pronouncement of the IRS addressing such legislation) of nationally recognized independent tax counsel selected by the Corporation or a private letter ruling or similar form of authorization from the Internal Revenue Service (the “IRS”) to the effect that such an amendment does not apply to a dividend payable on the Series E Preferred Stock, then such amendment will not result in the adjustment provided for pursuant to the DRD Formula with respect to such dividend. Unless the context otherwise requires, references to dividends herein will mean dividends as

2


 

adjusted by the DRD Formula. The Corporation’s calculation of the dividends payable as so adjusted shall be final and not subject to review.

     (vi)   Notwithstanding the foregoing, no adjustment in the dividends payable by the Corporation shall be made, and no Post Declaration Date Dividends or Retroactive Dividends shall be payable by the Corporation, in respect of the enactment of any Dividends-Received Reduction Amendment occurring 18 months or more after the date of original issuance of the Series E Preferred Stock.

     (vii)   In the event that the amount of dividends payable per share of Series E Preferred Stock is adjusted pursuant to the DRD Formula and/or Post Declaration Date Dividends or Retroactive Dividends are to be paid, the Corporation will cause notice of each such adjustment and, if applicable, Post Declaration Date Dividends and Retroactive Dividends to be given as soon as practicable to the Holders of Series E Preferred Stock.

     (c)(i)   If one or more amendments to the Code (the “Debt Financed Purchase Amendments”) are enacted in substantially the form that was proposed by the President of the United States in a budget plan released on February 1, 1999 (the determination of which shall be in the Corporation’s sole discretion) and that (1) would deny a percentage of a corporation’s dividends-received deduction attributable to the percentage of Series E Preferred Stock that is indirectly financed by indebtedness (including using a pro-rata allocation of interest expense similar to the one used in section 264(f) of the Code) and (2) would be effective for Series E Preferred Stock acquired on or after the effective date of such changes to the Code, the adjustments set forth in this paragraph (c) (the “Debt Financed Purchase Adjustments”) shall be made in respect of dividends payable by the Corporation; provided, however, that no Debt Financed Purchase Adjustments shall be made unless the Corporation has been offered the right to purchase the affected shares of Series E Preferred Stock pursuant to subclause (vi) of this paragraph (c).

     (ii)   Subject to subclauses (iv) through (vi) of this paragraph (c), upon any transfer of shares of Series E Preferred Stock that closes on or after the effective date of the Debt Financed Purchase Amendments, the dividends payable on the transferred shares of Series E Preferred Stock for the period beginning on the date of transfer shall be equal to (1) the amount of the dividend that would be payable for such period on such shares if the shares were not entitled to adjustment multiplied by (2) 1.08485 (the “Sale Factor”), rounded to the nearest cent (with one-half cent rounded upwards).

     (iii)   Notwithstanding the foregoing, if a Debt Financed Purchase Adjustment is required after the dividend payable on a Dividend Payment Date has been declared, the amount of the dividend payable on such Dividend Payment Date will not be increased; instead, additional dividends (the “Second Post Declaration Date Dividends”), equal to the excess, if any, of (x) the amount of the dividend that would have been payable if the adjustment described in subclause (ii) of this paragraph (c) had been made over (y) the dividend paid by the Corporation on such Dividend Payment Date, will be payable (if declared) to the Holders of the affected shares of Series E Preferred Stock on the record date applicable to the next succeeding Dividend Payment Date or, if the Series E Preferred Stock is called for redemption prior to such record date, to Holders of the affected shares of Series E Preferred Stock on the applicable redemption date, as the case may be, in addition to any other amounts payable on such date.

     (iv)   Notwithstanding the foregoing provisions, if, with respect to the Debt Financed Purchase Amendments, the Corporation receives either an unqualified opinion (which shall be based upon the Debt Financed Purchase Amendments or upon a published pronouncement of the IRS addressing such amendments) of a nationally recognized independent tax counsel selected by the Corporation or a private letter ruling or similar form of authorization from the IRS to the effect that such amendments do not apply to a dividend payable on the Series E Preferred Stock, then such amendments will not result in a Debt Financed Purchase Adjustment.

     (v)   Notwithstanding the foregoing, no adjustment in the dividends payable by the Corporation shall be made, and no Second Post Declaration Date Dividends shall be payable by the Corporation, in respect of the enactment of any Debt Financed Purchase Amendment occurring 18 months or more after the date of original issuance of the Series E Preferred Stock.

3


 

     (vi)   No Debt Financed Purchase Adjustment shall be made, or Second Post Declaration Date Dividends paid, to any Holder of shares of Series E Preferred Stock unless, after the date of enactment of the Debt Financed Purchase Amendment and prior to any transfer to the Holder that gives rise to the rights to such adjustment, the Corporation is offered the right to purchase such shares upon reasonable terms and at a fair market price (which determination shall be in the sole discretion of the Corporation). If the Corporation has not notified the Holder of its intent to exercise such right in writing within three trading days of receipt of written notice from the Holder, the Corporation will be deemed to have declined to exercise such right.

     (vii)   If a Debt Financed Purchase Adjustment is made, or Second Post Declaration Date Dividends are to be paid, with respect to certain shares of Series E Preferred Stock, the Corporation will give notice of each such occurrence to the applicable Holders of such shares of Series E Preferred Stock.

     (d)   No dividend (other than dividends or distributions paid in shares of, or options, warrants or rights to subscribe for or purchase shares of, the common stock of the Corporation or any other stock of the Corporation ranking, as to the payment of dividends and the distribution of assets upon dissolution, liquidation or winding up of the Corporation, junior to the Series E Preferred Stock) may be declared or paid or set apart for payment on the Corporation’s common stock (or on any other stock of the Corporation ranking, as to the payment of dividends, junior to the Series E Preferred Stock) unless dividends have been declared and paid or set apart (or ordered to be set apart) on the Series E Preferred Stock for the then-current quarterly dividend period; provided, however, that the foregoing dividend preference shall not be cumulative and shall not in any way create any claim or right in favor of the Holders of Series E Preferred Stock in the event that dividends have not been declared or paid or set apart (or ordered to be set apart) on the Series E Preferred Stock in respect of any prior dividend period. If the full dividend on the Series E Preferred Stock is not paid for any quarterly dividend period, the Holders of Series E Preferred Stock will have no claim in respect of the unpaid amount so long as no dividend (other than those referred to above) is paid on the Corporation’s common stock (or any other stock of the Corporation ranking, as to the payment of dividends, junior to the Series E Preferred Stock) for such dividend period.

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

     (f)   No full dividends shall be declared or paid or set apart for payment on any stock of the Corporation ranking, as to the payment of dividends, on a parity with the Series E Preferred Stock for any period unless full dividends have been declared and paid or set apart for payment on the Series E Preferred Stock for the then-current quarterly dividend period. When dividends are not paid in full upon the Series E Preferred Stock and all other classes or series of stock of the Corporation, if any, ranking, as to the payment of dividends, on a parity with the Series E Preferred Stock, all dividends declared upon shares of Series E Preferred Stock and all such other stock of the Corporation will be declared pro rata so that the amount of dividends declared per share of Series E Preferred Stock and all such other stock will in all cases bear to each other the same ratio that accrued dividends per share of Series E Preferred Stock (including any adjustments in dividends payable pursuant to Sections 2(b) and 2(c) but without accumulation of unpaid dividends on the Series E Preferred Stock for prior dividend periods) and such other stock bear to each other.

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

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

4


 

3.   Optional Redemption.

     (a)   On or after April 15, 2004, the Corporation, at its option, may redeem the Series E Preferred Stock, in whole or in part, at any time or from time to time, out of funds legally available therefor, at the redemption price of $50.00 per share plus an amount equal to the dividend (whether or not declared) for the then-current quarterly dividend period accrued to but excluding the date of such redemption, including any adjustments in dividends payable pursuant to Sections 2(b) and 2(c) but without accumulation of unpaid dividends on the Series E Preferred Stock for prior dividend periods. If less than all of the outstanding shares of Series E Preferred Stock are to be redeemed, the Corporation will select the shares to be redeemed from the outstanding shares not previously called for redemption by lot or pro rata (as nearly as possible) or by any other method that the Board of Directors of the Corporation, or a duly authorized committee thereof, in its sole discretion deems equitable.

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

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

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

4.   Liquidation Rights.

     (a)   Upon any voluntary or involuntary dissolution, liquidation or winding up of the Corporation, after payment or provision for the liabilities of the Corporation and the expenses of such dissolution, liquidation or winding up, the Holders of outstanding shares of the Series E Preferred Stock will be entitled to receive out of the assets of the Corporation or proceeds thereof available for distribution to stockholders, before any payment or distribution of assets is made to holders of the Corporation’s common stock (or any other stock of the Corporation ranking, as to the distribution of assets upon dissolution, liquidation or winding up of the Corporation, junior to the Series E Preferred Stock), the amount of $50.00 per share plus an amount equal to the dividend (whether or not declared) for the then-current quarterly dividend period accrued to but excluding the date of such liquidation payment, including any adjustments in dividends payable pursuant to Sections 2(b) and 2(c) but without accumulation of unpaid dividends on the Series E Preferred Stock for prior dividend periods.

     (b)   If the assets of the Corporation available for distribution in such event are insufficient to pay in full the aggregate amount payable to Holders of Series E Preferred Stock and holders of all other classes or

5


 

series of stock of the Corporation, if any, ranking, as to the distribution of assets upon dissolution, liquidation or winding up of the Corporation, on a parity with the Series E Preferred Stock, the assets will be distributed to the Holders of Series E Preferred Stock and holders of all such other stock pro rata, based on the full respective preferential amounts to which they are entitled, including any adjustments in dividends payable pursuant to Sections 2(b) and 2(c) but without accumulation of unpaid dividends on the Series E Preferred Stock for prior dividend periods.

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

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

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

5.   No Conversion or Exchange Rights.

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

6.   No Pre-emptive Rights.

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

7.   Voting Rights; Amendments.

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

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

6


 

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

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

8.   Additional Classes or Series of Stock.

     The Board of Directors of the Corporation, or a duly authorized committee thereof, shall have the right at any time in the future to authorize, create and issue, by resolution or resolutions, one or more additional classes or series of stock of the Corporation, and to determine and fix the distinguishing characteristics and the relative rights, preferences, privileges and other terms of the shares thereof. Any such class or series of stock may rank prior to, on a parity with or junior to the Series E Preferred Stock as to the payment of dividends or the distribution of assets upon dissolution, liquidation or winding up of the Corporation, or otherwise.

9.   Priority.

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

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

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

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

     (d)   The shares of Preferred Stock of the Corporation designated “6.41% Non-Cumulative Preferred Stock, Series A” (the “Series A Preferred Stock”), “6.50% Non-Cumulative Preferred Stock, Series B” (the “Series B Preferred Stock”), “6.45% Non-Cumulative Preferred Stock, Series C” (“the Series C Preferred Stock”) and “5.25% Non-Cumulative Preferred Stock, Series D” (the “Series D Preferred Stock”) shall be

7


 

deemed to rank on a parity with shares of Series E Preferred Stock as to the payment of dividends and the distribution of assets upon dissolution, liquidation or winding up of the Corporation. Accordingly, the holders of record of Series A Preferred Stock, the holders of record of Series B Preferred Stock, the holders of record of Series C Preferred Stock, the holders of record of Series D Preferred Stock and the Holders of Series E Preferred Stock shall be entitled to the receipt of dividends and of amounts distributable upon dissolution, liquidation or winding up of the Corporation, as the case may be, in proportion to their respective dividend rates or amounts or liquidation prices, without preference or priority, one over the other.

10.   Transfer Agent, Dividend Disbursing Agent and Registrar.

     The Corporation hereby appoints First Chicago Trust Company of New York, a division of EquiServe, as its initial transfer agent, dividend disbursing agent and registrar for the Series E Preferred Stock. The Corporation may at any time designate an additional or substitute transfer agent, dividend disbursing agent and registrar for the Series E Preferred Stock.

11.   Notices.

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

     With respect to any right to purchase shares of the Series E Preferred Stock afforded the Corporation under Section 2(c)(vi) hereof, a Holder must submit notice via facsimile transmission of the terms and price of the offer to each of the following persons at the Corporation:

  Facsimile number: (202) 752-5980
Attention: Executive Vice President and Chief Financial Officer

  Facsimile number: (202) 752-4948
Attention: General Counsel

  Facsimile number: (202) 752-0410
Attention: Vice President – Corporate Finance

     The notice also must contain the name, title, address, telephone number and facsimile transmission number of an authorized representative of the Holder to whom the Corporation should respond.

     RECEIPT AND ACCEPTANCE OF A SHARE OR SHARES OF THE SERIES E PREFERRED STOCK BY OR ON BEHALF OF A HOLDER SHALL CONSTITUTE THE UNCONDITIONAL ACCEPTANCE BY SUCH HOLDER (AND ALL OTHERS HAVING BENEFICIAL OWNERSHIP OF SUCH SHARE OR SHARES) OF ALL OF THE TERMS AND PROVISIONS OF THIS CERTIFICATE OF DESIGNATION. NO SIGNATURE OR OTHER FURTHER MANIFESTATION OF ASSENT TO THE TERMS AND PROVISIONS OF THIS CERTIFICATE OF DESIGNATION SHALL BE NECESSARY FOR ITS OPERATION OR EFFECT AS BETWEEN THE CORPORATION AND THE HOLDER (AND ALL SUCH OTHERS).

8

exv4w3
 

EXHIBIT 4.3

CERTIFICATE OF DESIGNATION OF TERMS OF
VARIABLE RATE NON-CUMULATIVE PREFERRED STOCK, SERIES F

1.   Designation, Par Value and Number of Shares.

     The designation of the series of preferred stock of the Federal National Mortgage Association (“Fannie Mae”) created by this resolution shall be “Variable Rate Non-Cumulative Preferred Stock, Series F” (the “Series F Preferred Stock”), and the number of shares initially constituting the Series F Preferred Stock is Twelve Million (12,000,000)1. Shares of Series F Preferred Stock will have no par value and a stated value and liquidation preference of $50.00 per share. The Board of Directors of Fannie Mae, or a duly authorized committee thereof, in its sole discretion, may reduce the number of shares of Series F Preferred Stock, provided such reduction is not below the number of shares of Series F Preferred Stock then outstanding.

2.   Dividends.

     (a)   Holders of record of Series F Preferred Stock (each individually a “Holder”, or collectively the “Holders”) will be entitled to receive, when, as and if declared by the Board of Directors of Fannie Mae, or a duly authorized committee thereof, in its sole discretion out of funds legally available therefor, non-cumulative quarterly cash dividends which will accrue from and including March 20, 2000 and will be payable on March 31, June 30, September 30 and December 31 of each year (each, a “Dividend Payment Date”), commencing June 30, 2000. If a Dividend Payment Date is not a Business Day, the related dividend (if declared) will be paid on the next succeeding Business Day with the same force and effect as though paid on the Dividend Payment Date, without any increase to account for the period from such Dividend Payment Date through the date of actual payment. A “Business Day” shall mean any day other than a Saturday, Sunday, or a day on which banking institutions in New York, New York are authorized by law to close. Dividends will be paid to Holders on the record date fixed by the Board of Directors or a duly authorized committee thereof, which may not be earlier than 45 days or later than 10 days prior to the applicable Dividend Payment Date.

     If declared, the dividend rate for the period from and including March 20, 2000 to but excluding March 31, 2002 will be 6.295% per annum. Thereafter, dividends will accrue at a variable per annum rate (not greater than 11%) equal to the “CMT Rate” (as defined below) minus 0.16%, without taking into account any adjustments pursuant to clause (c) of this Section 2. On March 31, 2002, and on March 31 every two years thereafter, the previous dividend rate will be replaced by the then current CMT Rate minus 0.16%. The CMT Rate for each two-year period will be determined by Fannie Mae on the second Business Day immediately preceding the first day of such period (each, a “CMT Determination Date”). If declared, the initial dividend, which will be for the “Dividend Period” from and including March 20, 2000 to but excluding June 30, 2000, will be $0.8830 per share and will be payable on June 30, 2000. Thereafter, the Dividend Period relating to a Dividend Payment Date will be the period from and including the preceding Dividend Payment Date to but excluding the related Dividend Payment Date. If Fannie Mae redeems the Series F Preferred Stock, the dividend that would otherwise be payable for the Dividend Period ending on the date of redemption will be included in the redemption price of the shares redeemed and will not be separately payable.

     Dividends payable on the Series F Preferred Stock for any period greater or less than a full Dividend Period will be computed on the basis of a 360-day year consisting of twelve 30-day months. Dividends payable on the Series F Preferred Stock for each full Dividend Period will be computed by dividing the per annum dividend rate by four. The amount of quarterly dividends per share will be rounded to the fourth digit after the decimal point. (If the fifth digit to the right of the decimal point is five or greater, the fourth digit will be rounded up by one.)


1 Plus up to 1,800,000 additional shares pursuant to the Underwriters’ overallotment option.

1


 

     (b)   The “CMT Rate” for any CMT Determination Date with respect to any Dividend Period will be the rate equal to (in the following order of priority):

       (1)   the one-week average yield on 2-year United States Treasury securities at “constant maturity” as estimated from the United States Department of the Treasury’s weekly yield curve, as published in the latest H.15(519) (as defined below) available on the applicable CMT Determination Date with respect to such Dividend Period, provided that such H.15(519) was first available not earlier than ten calendar days before such CMT Determination Date, under the column “Week Ending” for the week most recently ended opposite the heading “U.S. government securities-Treasury Constant Maturities, 2-year.”

       (2)   if the latest H.15(519) available on the applicable CMT Determination Date with respect to such Dividend Period was first available prior to ten calendar days before such CMT Determination Date, the CMT Rate will be such 2-year United States Treasury constant maturity rate (or other 2-year United States Treasury rate) for such CMT Determination Date as may then be published by either the Board of Governors of the Federal Reserve System or the United States Department of the Treasury that Fannie Mae determines to be comparable to the rate formerly published in H.15(519).

       (3)   if the CMT Rate as described in clause (2) is not published by 10:00 a.m. (New York City time) on the applicable CMT Determination Date, the CMT Rate will be calculated by Fannie Mae and will be a yield to maturity (expressed as a bond equivalent as a decimal on the basis of a year of 365 or 366 days, as applicable, and applied on a daily basis) based on the arithmetic mean of the secondary market bid prices as of approximately 3:30 p.m. (New York City time) on such CMT Determination Date of three leading primary United States government securities dealers in The City of New York selected by Fannie Mae (from five such dealers and eliminating the highest quotation (or, in the event of equality, one of the highest) and the lowest quotation (or, in the event of equality, one of the lowest)) for direct noncallable fixed rate obligations of the United States (“Treasury Notes”) most recently issued with an original maturity of approximately two years and a remaining term to maturity of not less than one year. If three or four (and not five) of such dealers are quoting as described in this clause (iii), then the CMT Rate will be based on the arithmetic mean of the bid prices obtained and neither the highest nor lowest of such quotations will be eliminated.

       (4)   if fewer than three dealers selected by Fannie Mae are quoting as described in clause (3), the CMT Rate will be calculated by Fannie Mae and will be a yield to maturity (expressed as a bond equivalent and as a decimal on the basis of a year of 365 or 366 days, as applicable, and applied on a daily basis) based on the arithmetic mean of the secondary market bid prices as of approximately 3:30 p.m. (New York City time) on the applicable CMT Determination Date of three leading primary United States government securities dealers in The City of New York selected by Fannie Mae (from five such dealers and eliminating the highest quotation (or, in the event of equality, one of the highest) and the lowest quotation (or, in the event of equality, one of the lowest)) for Treasury Notes with an original maturity of approximately ten years and a remaining term to maturity closest to two years. If three or four (and not five) of such dealers are quoting as described in this clause (4), then the CMT Rate will be based on the arithmetic mean of the bid prices obtained and neither the highest nor lowest of such quotations will be eliminated.

       (5)   if fewer than three dealers selected by Fannie Mae are quoting as described in clause (4), the CMT Rate will be the CMT Rate in effect for the prior Dividend Period.

     In the case of clause (4), if two Treasury Notes with an original maturity of approximately ten years have remaining terms to maturity equally close to two years, the quotes for the Treasury Note with the shorter remaining term to maturity will be used.

     “H.15(519)” means the weekly statistical release designated as the H.15(519), as officially published by the Board of Governors of the Federal Reserve System.

     Fannie Mae’s determination of the CMT Rate and the dividend rate will be final and binding.

2


 

     (c)   If, prior to September 20, 2001, one or more amendments to the Internal Revenue Code of 1986, as amended (the “Code”), are enacted that eliminate or reduce the percentage of the dividends-received deduction applicable to the Series F Preferred Stock as specified in section 243(a)(1) of the Code or any successor provision thereto (the “Dividends-Received Percentage”), certain adjustments may be made in respect of the dividends payable by Fannie Mae, and Post Declaration Date Dividends and Retroactive Dividends (as such terms are defined below) may become payable, as described below.

     The amount of each dividend payable (if declared) per share of Series F Preferred Stock for dividend payments made on or after the effective date of such change in the Code will be adjusted by multiplying the amount of the dividend payable pursuant to clause (a) of this Section 2 (before adjustment) by a factor, which will be the number determined in accordance with the following formula (the “DRD Formula”), and rounding the result to the nearest cent (with one-half cent rounded up):

1–.35(1–.70)


1–.35(1–DRP)

     For the purposes of the DRD Formula, “DRP” means the Dividends-Received Percentage (expressed as a decimal) applicable to the dividend in question; provided, however, that if the Dividends- Received Percentage applicable to the dividend in question shall be less than 50%, then the DRP shall equal .50. No amendment to the Code, other than a change in the percentage of the dividends-received deduction applicable to the Series F Preferred Stock as set forth in section 243(a)(1) of the Code or any successor provision thereto, will give rise to an adjustment. Notwithstanding the foregoing provisions, if, with respect to any such amendment, Fannie Mae receives either an unqualified opinion of nationally recognized independent tax counsel selected by Fannie Mae or a private letter ruling or similar form of assurance from the Internal Revenue Service (the “IRS”) to the effect that such an amendment does not apply to a dividend payable on the Series F Preferred Stock, then such amendment will not result in the adjustment provided for pursuant to the DRD Formula with respect to such dividend. The opinion referenced in the previous sentence shall be based upon the legislation amending or establishing the DRP or upon a published pronouncement of the IRS addressing such legislation. Unless the context otherwise requires, references to dividends herein will mean dividends as adjusted by the DRD Formula. Fannie Mae’s calculation of the dividends payable as so adjusted shall be final and not subject to review.

     Notwithstanding the foregoing, if any such amendment to the Code is enacted after the dividend payable on a Dividend Payment Date has been declared but before such dividend is paid, the amount of the dividend payable on such Dividend Payment Date will not be increased; instead, additional dividends (the “Post Declaration Date Dividends”), equal to the excess, if any, of (1) the product of the dividend paid by Fannie Mae on such Dividend Payment Date and the DRD Formula (where the DRP used in the DRD Formula would be equal to the greater of the Dividends-Received Percentage applicable to the dividend in question and .50) over (2) the dividend paid by Fannie Mae on such Dividend Payment Date, will be payable (if declared) to Holders on the record date applicable to the next succeeding Dividend Payment Date.

     If any such amendment to the Code is enacted and the reduction in the Dividends-Received Percentage retroactively applies to a Dividend Payment Date as to which Fannie Mae previously paid dividends on the Series F Preferred Stock (each, an “Affected Dividend Payment Date”), Fannie Mae will pay (if declared) additional dividends (the “Retroactive Dividends”) to Holders on the record date applicable to the next succeeding Dividend Payment Date (or, if such amendment is enacted after the dividend payable on such Dividend Payment Date has been declared, to Holders on the record date applicable to the second succeeding Dividend Payment Date following the date of enactment) or, if the Series F Preferred Stock is called for redemption prior to such record date, to Holders on the applicable redemption date, as the case may be, in an amount equal to the excess of (1) the product of the dividend paid by Fannie Mae on each Affected Dividend Payment Date and the DRD Formula (where the DRP used in the DRD Formula would be equal to the greater of the Dividends-Received Percentage and .50 applied to each Affected Dividend Payment Date) over (2) the sum of the dividend paid by Fannie Mae on each Affected Dividend Payment Date. Fannie Mae will only make one payment of Retroactive Dividends for any such amendment.

3


 

Notwithstanding the foregoing provisions, if, with respect to any such amendment, Fannie Mae receives either an unqualified opinion of nationally recognized independent tax counsel selected by Fannie Mae or a private letter ruling or similar form of assurance from the IRS to the effect that such amendment does not apply to a dividend payable on an Affected Dividend Payment Date for the Series F Preferred Stock, then such amendment will not result in the payment of Retroactive Dividends with respect to such Affected Dividend Payment Date. The opinion referenced in the previous sentence shall be based upon legislation amending or establishing the DRP or upon a published pronouncement of the IRS addressing such legislation.

     Notwithstanding the foregoing, no adjustment in the dividends payable by Fannie Mae shall be made, and no Post Declaration Date Dividends or Retroactive Dividends shall be payable by Fannie Mae, in respect of the enactment of any amendment to the Code after September 20, 2001 that eliminates or reduces the Dividends-Received Percentage.

     In the event that the amount of dividends payable per share of Series F Preferred Stock is adjusted pursuant to the DRD Formula and/or Post Declaration Date Dividends or Retroactive Dividends are to be paid, Fannie Mae will cause notice of each such adjustment and, if applicable, Post Declaration Date Dividends and Retroactive Dividends to be given as soon as practicable to the Holders of Series F Preferred Stock.

     (d)   No dividend (other than dividends or distributions paid in shares of, or options, warrants or rights to subscribe for or purchase shares of, the common stock of Fannie Mae or any other stock of Fannie Mae ranking, as to the payment of dividends and the distribution of assets upon dissolution, liquidation or winding up of Fannie Mae, junior to the Series F Preferred Stock) may be declared or paid or set apart for payment on Fannie Mae’s common stock (or on any other stock of Fannie Mae ranking, as to the payment of dividends, junior to the Series F Preferred Stock) unless dividends have been declared and paid or set apart (or ordered to be set apart) on the Series F Preferred Stock for the then current quarterly Dividend Period; provided, however, that the foregoing dividend preference shall not be cumulative and shall not in any way create any claim or right in favor of the Holders of Series F Preferred Stock in the event that dividends have not been declared or paid or set apart (or ordered to be set apart) on the Series F Preferred Stock in respect of any prior dividend period. If the full dividend on the Series F Preferred Stock is not paid for any quarterly dividend period, the Holders of Series F Preferred Stock will have no claim in respect of the unpaid amount so long as no dividend (other than those referred to above) is paid on Fannie Mae’s common stock (or any other stock of Fannie Mae ranking, as to the payment of dividends, junior to the Series F Preferred Stock) for such Dividend Period.

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

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

     (g)   No dividends may be declared or paid or set apart for payment on any shares of Series F Preferred Stock if at the same time any arrears exist or default exists in the payment of dividends on any outstanding

4


 

class or series of stock of Fannie Mae ranking, as to the payment of dividends, prior to the Series F Preferred Stock.

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

3.   Optional Redemption.

     (a)   The Series F Preferred Stock shall not be redeemable prior to March 31, 2002. On that date and on March 31 every two years thereafter, subject to the notice provisions set forth in Section 3(b) below and subject to any further limitations which may be imposed by law, Fannie Mae may redeem the Series F Preferred Stock, in whole or in part, out of funds legally available therefor, at the redemption price of $50.00 per share plus an amount, determined in accordance with Section 2 above, equal to the amount of the dividend (whether or not declared) for the then-current quarterly Dividend Period accrued to but excluding the date of such redemption, including any adjustments in dividends payable due to changes in the Dividends-Received Percentage but without accumulation of unpaid dividends on the Series F Preferred Stock for prior Dividend Periods. If less than all of the outstanding shares of Series F Preferred Stock are to be redeemed, Fannie Mae will select the shares to be redeemed from the outstanding shares not previously called for redemption by lot or pro rata (as nearly as possible) or by any other method that the Board of Directors of Fannie Mae, or a duly authorized committee thereof, in its sole discretion deems equitable.

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

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

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

4.   Liquidation Rights.

     (a)   Upon any voluntary or involuntary dissolution, liquidation or winding up of Fannie Mae, after payment or provision for the liabilities of Fannie Mae and the expenses of such dissolution, liquidation or winding up, the Holders of outstanding shares of the Series F Preferred Stock will be entitled to receive out of the assets of Fannie Mae or proceeds thereof available for distribution to stockholders, before any payment or distribution of assets is made to holders of Fannie Mae’s common stock (or any other stock of

5


 

Fannie Mae ranking, as to the distribution of assets upon dissolution, liquidation or winding up of Fannie Mae, junior to the Series F Preferred Stock), the amount of $50.00 per share plus an amount, determined in accordance with Section 2 above, equal to the dividend (whether or not declared) for the then-current quarterly dividend period accrued to but excluding the date of such liquidation payment, including any adjustments in dividends payable due to changes in the Dividends-Received Percentage but without accumulation of unpaid dividends on the Series F Preferred Stock for prior Dividend Periods.

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

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

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

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

5.   No Conversion Or Exchange Rights.

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

6.   No Pre-Emptive Rights.

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

7.   Voting Rights; Amendments.

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

     (b)   Without the consent of the Holders of Series F Preferred Stock, Fannie Mae will have the right to amend, alter, supplement or repeal any terms of this Certificate or the Series F Preferred Stock (1) to cure any ambiguity, or to cure, correct or supplement any provision contained in this Certificate of Designation

6


 

that may be defective or inconsistent with any other provision herein or (2) to make any other provision with respect to matters or questions arising with respect to the Series F Preferred Stock that is not inconsistent with the provisions of this Certificate of Designation so long as such action does not materially and adversely affect the interests of the Holders of Series F Preferred Stock; provided, however, that any increase in the amount of authorized or issued Series F Preferred Stock or the creation and issuance, or an increase in the authorized or issued amount, of any other class or series of stock of Fannie Mae, whether ranking prior to, on a parity with or junior to the Series F Preferred Stock, as to the payment of dividends or the distribution of assets upon dissolution, liquidation or winding up of Fannie Mae, or otherwise, will not be deemed to materially and adversely affect the interests of the Holders of Series F Preferred Stock.

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

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

8.   Additional Classes or Series of Stock.

     The Board of Directors of Fannie Mae, or a duly authorized committee thereof, shall have the right at any time in the future to authorize, create and issue, by resolution or resolutions, one or more additional classes or series of stock of Fannie Mae, and to determine and fix the distinguishing characteristics and the relative rights, preferences, privileges and other terms of the shares thereof. Any such class or series of stock may rank prior to, on a parity with or junior to the Series F Preferred Stock as to the payment of dividends or the distribution of assets upon dissolution, liquidation or winding up of Fannie Mae, or otherwise.

9.   Priority.

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

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

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

7


 

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

     (d)   The shares of Preferred Stock of Fannie Mae designated “6.41% Non-Cumulative Preferred Stock, Series A” (the “Series A Preferred Stock”), “6.50% Non-Cumulative Preferred Stock, Series B” (the “Series B Preferred Stock”), “6.45% Non-Cumulative Preferred Stock, Series C” (“the Series C Preferred Stock”), “5.25% Non-Cumulative Preferred Stock, Series D” (“the Series D Preferred Stock”) and “5.10% Non-Cumulative Preferred Stock, Series E” (“the Series E Preferred Stock”) shall be deemed to rank on a parity with shares of Series F Preferred Stock as to the payment of dividends and the distribution of assets upon dissolution, liquidation or winding up of Fannie Mae. Accordingly, the holders of record of Series A Preferred Stock, the holders of record of Series B Preferred Stock, the holders of record of Series C Preferred Stock, the holders of record of Series D Preferred Stock, the holders of record of Series E Preferred Stock and the Holders of Series F Preferred Stock shall be entitled to the receipt of dividends and of amounts distributable upon dissolution, liquidation or winding up of Fannie Mae, as the case may be, in proportion to their respective dividend rates or amounts or liquidation prices, without preference or priority, one over the other.

10.   Transfer Agent, Dividend Disbursing Agent and Registrar.

     Fannie Mae hereby appoints First Chicago Trust Company a division of EquiServe as its initial transfer agent, dividend disbursing agent and registrar for the Series F Preferred Stock. Fannie Mae may at any time designate an additional or substitute transfer agent, dividend disbursing agent and registrar for the Series F Preferred Stock.

11.   Notices.

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

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

8

exv4w4
 

EXHIBIT 4.4

CERTIFICATE OF DESIGNATION OF TERMS OF
VARIABLE RATE NON-CUMULATIVE PREFERRED STOCK, SERIES G

1.   Designation, Par Value and Number of Shares.

     The designation of the series of preferred stock of the Federal National Mortgage Association (“Fannie Mae”) created by this resolution shall be “Variable Rate Non-Cumulative Preferred Stock, Series G” (the “Series G Preferred Stock”), and the number of shares initially constituting the Series G Preferred Stock is Five Million (5,000,000)1. Shares of Series G Preferred Stock will have no par value and a stated value and liquidation preference of $50.00 per share. The Board of Directors of Fannie Mae, or a duly authorized committee thereof, in its sole discretion, may reduce the number of shares of Series G Preferred Stock, provided such reduction is not below the number of shares of Series G Preferred Stock then outstanding.

2.   Dividends.

     (a)   Holders of record of Series G Preferred Stock (each individually a “Holder”, or collectively the “Holders”) will be entitled to receive, when, as and if declared by the Board of Directors of Fannie Mae, or a duly authorized committee thereof, in its sole discretion out of funds legally available therefor, non-cumulative quarterly cash dividends which will accrue from and including August 8, 2000 and will be payable on March 31, June 30, September 30 and December 31 of each year (each, a “Dividend Payment Date”), commencing September 30, 2000. If a Dividend Payment Date is not a Business Day, the related dividend (if declared) will be paid on the next succeeding Business Day with the same force and effect as though paid on the Dividend Payment Date, without any increase to account for the period from such Dividend Payment Date through the date of actual payment. A “Business Day” shall mean any day other than a Saturday, Sunday, or a day on which banking institutions in New York, New York are authorized by law to close. Dividends will be paid to Holders on the record date fixed by the Board of Directors or a duly authorized committee thereof, which may not be earlier than 45 days or later than 10 days prior to the applicable Dividend Payment Date.

     If declared, the dividend rate for the period from and including August 8, 2000 to but excluding September 30, 2002 will be 6.023% per annum. Thereafter, dividends will accrue at a variable per annum rate (not greater than 11%) equal to the “CMT Rate” (as defined below) minus 0.18%, without taking into account any adjustments pursuant to clause (c) of this Section 2. On September 30, 2002 and on September 30 every two years thereafter until redemption, the previous dividend rate will be replaced by the then-current CMT Rate minus 0.18%. The CMT Rate for each two-year period will be determined by Fannie Mae on the second Business Day immediately preceding the first day of such period (each, a “CMT Determination Date”). If declared, the initial dividend, which will be for the “Dividend Period” from and including August 8, 2000 to but excluding September 30, 2000, will be $0.4350 per share and will be payable on September 30, 2000. Thereafter, the Dividend Period relating to a Dividend Payment Date will be the period from and including the preceding Dividend Payment Date to but excluding the related Dividend Payment Date. If Fannie Mae redeems the Series G Preferred Stock, the dividend that would otherwise be payable for the Dividend Period ending on the date of redemption will be included in the redemption price of the shares redeemed and will not be separately payable.

     Dividends payable on the Series G Preferred Stock for any period greater or less than a full Dividend Period will be computed on the basis of a 360-day year consisting of twelve 30-day months. Dividends payable on the Series G Preferred Stock for each full Dividend Period will be computed by dividing the per annum dividend rate by four. The amount of quarterly dividends per share will be calculated by multiplying the preceding rate by the stated value per share of $50, the product of which will be rounded to the fourth digit after the decimal point. (If the fifth digit to the right of the decimal point is five or greater, the fourth digit will be rounded up by one.)


1 Plus up to 750,000 additional shares pursuant to the Underwriters’ overallotment option.

1


 

     (b)   The “CMT Rate” for any CMT Determination Date with respect to any Dividend Period will be the rate equal to (in the following order of priority):

       (1)   the one-week average yield on 2-year United States Treasury securities at “constant maturity” as estimated from the United States Department of the Treasury’s weekly yield curve, as published in the latest H.15(519) (as defined below) available on the applicable CMT Determination Date with respect to such Dividend Period, provided that such H.15(519) was first available not earlier than ten calendar days before such CMT Determination Date, under the column “Week Ending” for the week most recently ended opposite the heading “U.S. government securities-Treasury Constant Maturities, 2-year.”

       (2)   if the latest H.15(519) available on the applicable CMT Determination Date with respect to such Dividend Period was first available prior to ten calendar days before such CMT Determination Date, the CMT Rate will be such 2-year United States Treasury constant maturity rate (or other 2-year United States Treasury rate) for such CMT Determination Date as may then be published by either the Board of Governors of the Federal Reserve System or the United States Department of the Treasury that Fannie Mae determines to be comparable to the rate formerly published in H.15(519).

       (3)   if the CMT Rate as described in clause (2) is not published by 10:00 a.m. (New York City time) on the applicable CMT Determination Date, the CMT Rate will be calculated by Fannie Mae and will be a yield to maturity (expressed as a bond equivalent as a decimal on the basis of a year of 365 or 366 days, as applicable, and applied on a daily basis) based on the arithmetic mean of the secondary market bid prices as of approximately 3:30 p.m. (New York City time) on such CMT Determination Date of three leading primary United States government securities dealers in The City of New York selected by Fannie Mae (from five such dealers and eliminating the highest quotation (or, in the event of equality, one of the highest) and the lowest quotation (or, in the event of equality, one of the lowest)) for direct noncallable fixed rate obligations of the United States (“Treasury Notes”) most recently issued with an original maturity of approximately two years and a remaining term to maturity of not less than one year. If three or four (and not five) of such dealers are quoting as described in this clause (iii), then the CMT Rate will be based on the arithmetic mean of the bid prices obtained and neither the highest nor lowest of such quotations will be eliminated.

       (4)   if fewer than three dealers selected by Fannie Mae are quoting as described in clause (3), the CMT Rate will be calculated by Fannie Mae and will be a yield to maturity (expressed as a bond equivalent and as a decimal on the basis of a year of 365 or 366 days, as applicable, and applied on a daily basis) based on the arithmetic mean of the secondary market bid prices as of approximately 3:30 p.m. (New York City time) on the applicable CMT Determination Date of three leading primary United States government securities dealers in The City of New York selected by Fannie Mae (from five such dealers and eliminating the highest quotation (or, in the event of equality, one of the highest) and the lowest quotation (or, in the event of equality, one of the lowest)) for Treasury Notes with an original maturity of approximately ten years and a remaining term to maturity closest to two years. If three or four (and not five) of such dealers are quoting as described in this clause (4), then the CMT Rate will be based on the arithmetic mean of the bid prices obtained and neither the highest nor lowest of such quotations will be eliminated.

       (5)   if fewer than three dealers selected by Fannie Mae are quoting as described in clause (4), the CMT Rate will be the CMT Rate determined on the immediately preceding CMT Determination Date.

     In the case of clause (4), if two Treasury Notes with an original maturity of approximately ten years have remaining terms to maturity equally close to two years, the quotes for the Treasury Note with the shorter remaining term to maturity will be used.

     “H.15(519)” means the weekly statistical release designated as the H.15(519), as officially published by the Board of Governors of the Federal Reserve System.

2


 

     Fannie Mae’s determination of the CMT Rate and the dividend rate will be final and binding.

     (c)   If, prior to February 8, 2002, one or more amendments to the Internal Revenue Code of 1986, as amended (the “Code”), are enacted that eliminate or reduce the percentage of the dividends-received deduction applicable to the Series G Preferred Stock as specified in section 243(a)(1) of the Code or any successor provision thereto (the “Dividends-Received Percentage”), certain adjustments may be made in respect of the dividends payable by Fannie Mae, and Post Declaration Date Dividends and Retroactive Dividends (as such terms are defined below) may become payable, as described below.

     The amount of each dividend payable (if declared) per share of Series G Preferred Stock for dividend payments made on or after the effective date of such change in the Code will be adjusted by multiplying the amount of the dividend payable pursuant to clause (a) of this Section 2 (before adjustment) by a factor, which will be the number determined in accordance with the following formula (the “DRD Formula”), and rounding the result to the nearest cent (with one-half cent rounded up):

1–.35(1–.70)


1–.35(1–DRP)

For purposes of the DRD Formula, “DRP” means the Dividends-Received Percentage (expressed as a decimal) applicable to the dividend in question; provided, however, that if the Dividends-Received Percentage applicable to the dividend in question shall be less than 50%, then the DRP shall equal .50. No amendment to the Code, other than a change in the percentage of the dividends-received deduction applicable to the Series G Preferred Stock as set forth in section 243(a)(1) of the Code or any successor provision thereto, will give rise to an adjustment. Notwithstanding the foregoing provisions, if, with respect to any such amendment, Fannie Mae receives either an unqualified opinion of nationally recognized independent tax counsel selected by Fannie Mae or a private letter ruling or similar form of assurance from the Internal Revenue Service (the “IRS”) to the effect that such an amendment does not apply to a dividend payable on the Series G Preferred Stock, then such amendment will not result in the adjustment provided for pursuant to the DRD Formula with respect to such dividend. The opinion referenced in the previous sentence shall be based upon the legislation amending or establishing the DRP or upon a published pronouncement of the IRS addressing such legislation. Unless the context otherwise requires, references to dividends herein will mean dividends as adjusted by the DRD Formula. Fannie Mae’s calculation of the dividends payable as so adjusted shall be final and not subject to review.

     Notwithstanding the foregoing, if any such amendment to the Code is enacted after the dividend payable on a Dividend Payment Date has been declared but before such dividend is paid, the amount of the dividend payable on such Dividend Payment Date will not be increased; instead, additional dividends (the “Post Declaration Date Dividends”), equal to the excess, if any, of (1) the product of the dividend paid by Fannie Mae on such Dividend Payment Date and the DRD Formula (where the DRP used in the DRD Formula would be equal to the greater of the Dividends-Received Percentage applicable to the dividend in question and .50) over (2) the dividend paid by Fannie Mae on such Dividend Payment Date, will be payable (if declared) to Holders on the record date applicable to the next succeeding Dividend Payment Date.

     If any such amendment to the Code is enacted and the reduction in the Dividends-Received Percentage retroactively applies to a Dividend Payment Date as to which Fannie Mae previously paid dividends on the Series G Preferred Stock (each, an “Affected Dividend Payment Date”), Fannie Mae will pay (if declared) additional dividends (the “Retroactive Dividends”) to Holders on the record date applicable to the next succeeding Dividend Payment Date (or, if such amendment is enacted after the dividend payable on such Dividend Payment Date has been declared, to Holders on the record date applicable to the second succeeding Dividend Payment Date following the date of enactment) or, if the Series G Preferred Stock is called for redemption prior to such record date, to Holders on the applicable redemption date, as the case may be, in an amount equal to the excess of (1) the product of the dividend paid by Fannie Mae on each Affected Dividend Payment Date and the DRD Formula (where the DRP used in the DRD Formula would be equal to the greater of the Dividends-Received Percentage and .50 applied to each Affected Dividend

3


 

Payment Date) over (2) the sum of the dividend paid by Fannie Mae on each Affected Dividend Payment Date. Fannie Mae will only make one payment of Retroactive Dividends for any such amendment. Notwithstanding the foregoing provisions, if, with respect to any such amendment, Fannie Mae receives either an unqualified opinion of nationally recognized independent tax counsel selected by Fannie Mae or a private letter ruling or similar form of assurance from the IRS to the effect that such amendment does not apply to a dividend payable on an Affected Dividend Payment Date for the Series G Preferred Stock, then such amendment will not result in the payment of Retroactive Dividends with respect to such Affected Dividend Payment Date. The opinion referenced in the previous sentence shall be based upon legislation amending or establishing the DRP or upon a published pronouncement of the IRS addressing such legislation.

     Notwithstanding the foregoing, no adjustment in the dividends payable by Fannie Mae shall be made, and no Post Declaration Date Dividends or Retroactive Dividends shall be payable by Fannie Mae, in respect of the enactment of any amendment to the Code after February 8, 2002 that eliminates or reduces the Dividends-Received Percentage.

     In the event that the amount of dividends payable per share of Series G Preferred Stock is adjusted pursuant to the DRD Formula and/or Post Declaration Date Dividends or Retroactive Dividends are to be paid, Fannie Mae will cause notice of each such adjustment and, if applicable, Post Declaration Date Dividends and Retroactive Dividends to be given as soon as practicable to the Holders of Series G Preferred Stock.

     (d)   No dividend (other than dividends or distributions paid in shares of, or options, warrants or rights to subscribe for or purchase shares of, the common stock of Fannie Mae or any other stock of Fannie Mae ranking, as to the payment of dividends and the distribution of assets upon dissolution, liquidation or winding up of Fannie Mae, junior to the Series G Preferred Stock) may be declared or paid or set apart for payment on Fannie Mae’s common stock (or on any other stock of Fannie Mae ranking, as to the payment of dividends, junior to the Series G Preferred Stock) unless dividends have been declared and paid or set apart (or ordered to be set apart) on the Series G Preferred Stock for the then current quarterly Dividend Period; provided, however, that the foregoing dividend preference shall not be cumulative and shall not in any way create any claim or right in favor of the Holders of Series G Preferred Stock in the event that dividends have not been declared or paid or set apart (or ordered to be set apart) on the Series G Preferred Stock in respect of any prior dividend period. If the full dividend on the Series G Preferred Stock is not paid for any quarterly dividend period, the Holders of Series G Preferred Stock will have no claim in respect of the unpaid amount so long as no dividend (other than those referred to above) is paid on Fannie Mae’s common stock (or any other stock of Fannie Mae ranking, as to the payment of dividends, junior to the Series G Preferred Stock) for such Dividend Period.

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

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

4


 

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

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

3.   Optional Redemption.

     (a)   The Series G Preferred Stock shall not be redeemable prior to September 30, 2002. On that date and on September 30 every two years thereafter, subject to the notice provisions set forth in Section 3(b) below and subject to any further limitations which may be imposed by law, Fannie Mae may redeem the Series G Preferred Stock, in whole or in part, out of funds legally available therefor, at the redemption price of $50.00 per share plus an amount, determined in accordance with Section 2 above, equal to the amount of the dividend (whether or not declared) for the then-current quarterly Dividend Period accrued to but excluding the date of such redemption, including any adjustments in dividends payable due to changes in the Dividends-Received Percentage but without accumulation of unpaid dividends on the Series G Preferred Stock for prior Dividend Periods. If less than all of the outstanding shares of Series G Preferred Stock are to be redeemed, Fannie Mae will select the shares to be redeemed from the outstanding shares not previously called for redemption by lot or pro rata (as nearly as possible) or by any other method that the Board of Directors of Fannie Mae, or a duly authorized committee thereof, in its sole discretion deems equitable.

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

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

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

4.   Liquidation Rights.

     (a)   Upon any voluntary or involuntary dissolution, liquidation or winding up of Fannie Mae, after payment or provision for the liabilities of Fannie Mae and the expenses of such dissolution, liquidation or

5


 

winding up, the Holders of outstanding shares of the Series G Preferred Stock will be entitled to receive out of the assets of Fannie Mae or proceeds thereof available for distribution to stockholders, before any payment or distribution of assets is made to holders of Fannie Mae’s common stock (or any other stock of Fannie Mae ranking, as to the distribution of assets upon dissolution, liquidation or winding up of Fannie Mae, junior to the Series G Preferred Stock), the amount of $50.00 per share plus an amount, determined in accordance with Section 2 above, equal to the dividend (whether or not declared) for the then-current quarterly dividend period accrued to but excluding the date of such liquidation payment, including any adjustments in dividends payable due to changes in the Dividends-Received Percentage but without accumulation of unpaid dividends on the Series G Preferred Stock for prior Dividend Periods.

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

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

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

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

5.   No Conversion Or Exchange Rights.

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

6.   No Pre-Emptive Rights.

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

7.   Voting Rights; Amendments.

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

6


 

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

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

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

8.   Additional Classes or Series of Stock.

     The Board of Directors of Fannie Mae, or a duly authorized committee thereof, shall have the right at any time in the future to authorize, create and issue, by resolution or resolutions, one or more additional classes or series of stock of Fannie Mae, and to determine and fix the distinguishing characteristics and the relative rights, preferences, privileges and other terms of the shares thereof. Any such class or series of stock may rank prior to, on a parity with or junior to the Series G Preferred Stock as to the payment of dividends or the distribution of assets upon dissolution, liquidation or winding up of Fannie Mae, or otherwise.

9.   Priority.

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

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

     (b)   On a parity with shares of Series G Preferred Stock, either as to the payment of dividends or the distribution of assets upon dissolution, liquidation or winding up of Fannie Mae, whether or not the dividend rates or amounts, dividend payment dates or redemption or liquidation prices per share, if any, be different from those of the Series G Preferred Stock, if the holders of such class or series shall be entitled to the receipt of dividends or of amounts distributable upon dissolution, liquidation or winding up of Fannie Mae, as the case may be, in proportion to their respective dividend rates or amounts or liquidation prices,

7


 

without preference or priority, one over the other, as between the holders of such class or series and the Holders of shares of Series G Preferred Stock.

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

     (d)   The shares of Preferred Stock of Fannie Mae designated “6.41% Non-Cumulative Preferred Stock, Series A” (the “Series A Preferred Stock”), “6.50% Non-Cumulative Preferred Stock, Series B” (the “Series B Preferred Stock”), “6.45% Non-Cumulative Preferred Stock, Series C” (the “Series C Preferred Stock”), “5.25% Non-Cumulative Preferred Stock, Series D” (the “Series D Preferred Stock”), “5.10% Non-Cumulative Preferred Stock, Series E” (the “Series E Preferred Stock”) and “Variable Rate Non-Cumulative Preferred Stock, Series F” (the “Series F Preferred Stock”) shall be deemed to rank on a parity with shares of Series G Preferred Stock as to the payment of dividends and the distribution of assets upon dissolution, liquidation or winding up of Fannie Mae. Accordingly, the holders of record of Series A Preferred Stock, the holders of record of Series B Preferred Stock, the holders of record of Series C Preferred Stock, the holders of record of Series D Preferred Stock, the holders of record of Series E Preferred Stock, the holders of record of Series F Preferred Stock and the Holders of Series G Preferred Stock shall be entitled to the receipt of dividends and of amounts distributable upon dissolution, liquidation or winding up of Fannie Mae, as the case may be, in proportion to their respective dividend rates or amounts or liquidation prices, without preference or priority, one over the other.

10.   Transfer Agent, Dividend Disbursing Agent and Registrar.

     Fannie Mae hereby appoints First Chicago Trust Company a division of EquiServe as its initial transfer agent, dividend disbursing agent and registrar for the Series G Preferred Stock. Fannie Mae may at any time designate an additional or substitute transfer agent, dividend disbursing agent and registrar for the Series G Preferred Stock.

11.   Notices.

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

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

8

exv4w5
 

EXHIBIT 4.5

CERTIFICATE OF DESIGNATION OF TERMS OF
5.81% NON-CUMULATIVE PREFERRED STOCK, SERIES H

1.   Designation, Par Value and Number of Shares.

     The designation of the series of preferred stock of the Federal National Mortgage Association (“Fannie Mae”) created by this resolution shall be “5.81% Non-Cumulative Preferred Stock, Series H” (the “Series H Preferred Stock”), and the number of shares initially constituting the Series H Preferred Stock is Eight Million (8,000,000). Shares of Series H Preferred Stock will have no par value and a stated value and liquidation preference of $50 per share. The Board of Directors of Fannie Mae, or a duly authorized committee thereof, in its sole discretion, may reduce the number of shares of Series H Preferred Stock, provided such reduction is not below the number of shares of Series H Preferred Stock then outstanding.

2.   Dividends.

     (a)   Holders of record of Series H Preferred Stock (each individually a “Holder”, or collectively the “Holders”) will be entitled to receive, when, as and if declared by the Board of Directors of Fannie Mae, or a duly authorized committee thereof, in its sole discretion out of funds legally available therefor, non-cumulative quarterly cash dividends which will accrue from and including April 6, 2001 and will be payable on March 31, June 30, September 30 and December 31 of each year (each, a “Dividend Payment Date”), commencing June 30, 2001 at the annual rate of $2.9052 per share or 5.81% of the stated value and liquidation preference of $50 per share (without taking into account any adjustments referred to in clause (b) below). If a Dividend Payment Date is not a Business Day, the related dividend (if declared) will be paid on the next succeeding Business Day with the same force and effect as though paid on the Dividend Payment Date, without any increase to account for the period from such Dividend Payment Date through the date of actual payment. A “Business Day” shall mean any day other than a Saturday, Sunday, or a day on which banking institutions in New York, New York are authorized by law to close. Dividends will be paid to Holders on the record date fixed by the Board of Directors or a duly authorized committee thereof, which may not be earlier than 45 days or later than 10 days prior to the applicable Dividend Payment Date. If declared, the initial dividend, which will be for the period from and including April 6, 2001 to but excluding June 30, 2001, will be $0.6778 per share and will be payable on June 30, 2001 and, thereafter, if declared, quarterly dividends will be $0.7263 per share. After the initial dividend, the dividend period relating to a Dividend Payment Date will be the period from and including the preceding Dividend Payment Date to but excluding the related Dividend Payment Date. If Fannie Mae redeems the Series H Preferred Stock, the dividend that would otherwise be payable for the then-current quarterly dividend period accrued to but excluding the date of redemption will be included in the redemption price of the shares redeemed and will not be separately payable. Dividends payable on the Series H Preferred Stock for any period greater or less than a full dividend period will be computed on the basis of a 360-day year consisting of twelve 30-day months. The amount of dividends per share payable at redemption will be rounded to the fourth digit after the decimal point. (If the fifth digit to the right of the decimal point is five or greater, the fourth digit will be rounded up by one.)

     (b)   If, prior to October 6, 2002, one or more amendments to the Internal Revenue Code of 1986, as amended (the “Code”), are enacted that eliminate or reduce the percentage of the dividends-received deduction applicable to the Series H Preferred Stock as specified in section 243(a)(1) of the Code or any successor provision thereto (the “Dividends-Received Percentage”), certain adjustments may be made in respect of the dividends payable by Fannie Mae, and Post Declaration Date Dividends and Retroactive Dividends (as such terms are defined below) may become payable, as described below. The amount of each dividend payable (if declared) per share of Series H Preferred Stock for dividend payments made on or after the effective date of such change in the Code will be adjusted by multiplying the amount of the dividend payable pursuant to clause (a) of this Section 2 (before adjustment) by a factor, which will be the number determined in accordance with the following formula (the “DRD Formula”), and rounding the result to the nearest cent (with one-half cent rounded up):

1


 

1–.35(1–.70)


1–.35(1–DRP)

For purposes of the DRD Formula, “DRP” means the Dividends-Received Percentage (expressed as a decimal) applicable to the dividend in question; provided, however, that if the Dividends-Received Percentage applicable to the dividend in question shall be less than 50%, then the DRP shall equal .50. No amendment to the Code, other than a change in the percentage of the dividends-received deduction applicable to the Series H Preferred Stock as set forth in section 243(a)(1) of the Code or any successor provision thereto, will give rise to an adjustment. Notwithstanding the foregoing provisions, if, with respect to any such amendment, Fannie Mae receives either an unqualified opinion of nationally recognized independent tax counsel selected by Fannie Mae or a private letter ruling or similar form of assurance from the Internal Revenue Service (the “IRS”) to the effect that such an amendment does not apply to a dividend payable on the Series H Preferred Stock, then such amendment will not result in the adjustment provided for pursuant to the DRD Formula with respect to such dividend. The opinion referenced in the previous sentence shall be based upon the legislation amending or establishing the DRP or upon a published pronouncement of the IRS addressing such legislation. Unless the context otherwise requires, references to dividends herein will mean dividends as adjusted by the DRD Formula. Fannie Mae’s calculation of the dividends payable as so adjusted shall be final and not subject to review.

     Notwithstanding the foregoing, if any such amendment to the Code is enacted after the dividend payable on a Dividend Payment Date has been declared but before such dividend is paid, the amount of the dividend payable on such Dividend Payment Date will not be increased; instead, additional dividends (the “Post Declaration Date Dividends”), equal to the excess, if any, of (1) the product of the dividend paid by Fannie Mae on such Dividend Payment Date and the DRD Formula (where the DRP used in the DRD Formula would be equal to the greater of the Dividends-Received Percentage applicable to the dividend in question and .50) over (2) the dividend paid by Fannie Mae on such Dividend Payment Date, will be payable (if declared) to Holders on the record date applicable to the next succeeding Dividend Payment Date.

     If any such amendment to the Code is enacted and the reduction in the Dividends-Received Percentage retroactively applies to a Dividend Payment Date as to which Fannie Mae previously paid dividends on the Series H Preferred Stock (each, an “Affected Dividend Payment Date”), Fannie Mae will pay (if declared) additional dividends (the “Retroactive Dividends”) to Holders on the record date applicable to the next succeeding Dividend Payment Date (or, if such amendment is enacted after the dividend payable on such Dividend Payment Date has been declared, to Holders on the record date applicable to the second succeeding Dividend Payment Date following the date of enactment), in an amount equal to the excess of (1) the product of the dividend paid by Fannie Mae on each Affected Dividend Payment Date and the DRD Formula (where the DRP used in the DRD Formula would be equal to the greater of the Dividends-Received Percentage and .50 applied to each Affected Dividend Payment Date) over (2) the sum of the dividend paid by Fannie Mae on each Affected Dividend Payment Date. Fannie Mae will only make one payment of Retroactive Dividends for any such amendment. Notwithstanding the foregoing provisions, if, with respect to any such amendment, Fannie Mae receives either an unqualified opinion of nationally recognized independent tax counsel selected by Fannie Mae or a private letter ruling or similar form of assurance from the IRS to the effect that such amendment does not apply to a dividend payable on an Affected Dividend Payment Date for the Series H Preferred Stock, then such amendment will not result in the payment of Retroactive Dividends with respect to such Affected Dividend Payment Date. The opinion referenced in the previous sentence shall be based upon legislation amending or establishing the DRP or upon a published pronouncement of the IRS addressing such legislation.

     Notwithstanding the foregoing, no adjustment in the dividends payable by Fannie Mae shall be made, and no Post Declaration Date Dividends or Retroactive Dividends shall be payable by Fannie Mae, in respect of the enactment of any amendment to the Code on or after October 6, 2002 that eliminates or reduces the Dividends-Received Percentage.

2


 

     In the event that the amount of dividends payable per share of Series H Preferred Stock is adjusted pursuant to the DRD Formula and/or Post Declaration Date Dividends or Retroactive Dividends are to be paid, Fannie Mae will cause notice of each such adjustment and, if applicable, Post Declaration Date Dividends and Retroactive Dividends to be given as soon as practicable to the Holders of Series H Preferred Stock.

     (c)   No dividend (other than dividends or distributions paid in shares of, or options, warrants or rights to subscribe for or purchase shares of, the common stock of Fannie Mae or any other stock of Fannie Mae ranking, as to the payment of dividends and the distribution of assets upon dissolution, liquidation or winding up of Fannie Mae, junior to the Series H Preferred Stock) may be declared or paid or set apart for payment on Fannie Mae’s common stock (or on any other stock of Fannie Mae ranking, as to the payment of dividends, junior to the Series H Preferred Stock) unless dividends have been declared and paid or set apart (or ordered to be set apart) on the Series H Preferred Stock for the then-current quarterly dividend period; provided, however, that the foregoing dividend preference shall not be cumulative and shall not in any way create any claim or right in favor of the Holders of Series H Preferred Stock in the event that dividends have not been declared or paid or set apart (or ordered to be set apart) on the Series H Preferred Stock in respect of any prior dividend period. If the full dividend on the Series H Preferred Stock is not paid for any quarterly dividend period, the Holders of Series H Preferred Stock will have no claim in respect of the unpaid amount so long as no dividend (other than those referred to above) is paid on Fannie Mae’s common stock (or any other stock of Fannie Mae ranking, as to the payment of dividends, junior to the Series H Preferred Stock) for such dividend period.

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

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

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

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

3.   Optional Redemption.

     (a)   The Series H Preferred Stock shall not be redeemable prior to April 6, 2006. On or after that date, subject to the notice provisions set forth in Section 3(b) below and subject to any further limitations which may be imposed by law, Fannie Mae may redeem the Series H Preferred Stock, in whole or in part, at any time or from time to time, out of funds legally available therefor, at the redemption price of $50 per share plus an amount equal to the amount of the dividend (whether or not declared) for the then-current quarterly

3


 

dividend period accrued to but excluding the date of such redemption, including any adjustments in dividends payable due to changes in the Dividends-Received Percentage but without accumulation of unpaid dividends on the Series H Preferred Stock for prior dividend periods. If less than all of the outstanding shares of Series H Preferred Stock are to be redeemed, Fannie Mae will select the shares to be redeemed from the outstanding shares not previously called for redemption by lot or pro rata (as nearly as possible) or by any other method that the Board of Directors of Fannie Mae, or a duly authorized committee thereof, in its sole discretion deems equitable.

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

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

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

4.   Liquidation Rights.

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

     (b)   If the assets of Fannie Mae available for distribution in such event are insufficient to pay in full the aggregate amount payable to Holders of Series H Preferred Stock and holders of all other classes or series of stock of Fannie Mae, if any, ranking, as to the distribution of assets upon dissolution, liquidation or winding up of Fannie Mae, on a parity with the Series H Preferred Stock, the assets will be distributed to the Holders of Series H Preferred Stock and holders of all such other stock pro rata, based on the full respective preferential amounts to which they are entitled (including any adjustments in dividends payable

4


 

due to changes in the Dividends-Received Percentage but without, in the case of any noncumulative preferred stock, accumulation of unpaid dividends for prior dividend periods).

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

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

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

5.   No Conversion Or Exchange Rights.

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

6.   No Pre-Emptive Rights.

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

7.   Voting Rights; Amendments.

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

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

     (c)   Except as set forth in paragraph (b) of this Section 7, the terms of this Certificate or the Series H Preferred Stock may be amended, altered, supplemented, or repealed only with the consent of the Holders of at least two-thirds of the shares of Series H Preferred Stock then outstanding, given in person or by

5


 

proxy, either in writing or at a meeting of stockholders at which the Holders of Series H Preferred Stock shall vote separately as a class. On matters requiring their consent, Holders of Series H Preferred Stock will be entitled to one vote per share.

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

8.   Additional Classes or Series of Stock.

     The Board of Directors of Fannie Mae, or a duly authorized committee thereof, shall have the right at any time in the future to authorize, create and issue, by resolution or resolutions, one or more additional classes or series of stock of Fannie Mae, and to determine and fix the distinguishing characteristics and the relative rights, preferences, privileges and other terms of the shares thereof. Any such class or series of stock may rank prior to, on a parity with or junior to the Series H Preferred Stock as to the payment of dividends or the distribution of assets upon dissolution, liquidation or winding up of Fannie Mae, or otherwise.

9.   Priority.

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

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

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

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

     (d)   The shares of Preferred Stock of Fannie Mae designated “6.50% Non-Cumulative Preferred Stock, Series B” (the “Series B Preferred Stock”), “6.45% Non-Cumulative Preferred Stock, Series C” (the “Series C Preferred Stock”), “5.25% Non-Cumulative Preferred Stock, Series D” (the “Series D Preferred Stock”), “5.10% Non-Cumulative Preferred Stock, Series E” (the “Series E Preferred Stock”), “Variable Rate Non-Cumulative Preferred Stock, Series F” (the “Series F Preferred Stock”) and “Variable Rate Non-Cumulative Preferred Stock, Series G” (the “Series G Preferred Stock”) shall be deemed to rank on a parity with shares of Series H Preferred Stock as to the payment of dividends and the distribution of assets upon

6


 

dissolution, liquidation or winding up of Fannie Mae. Accordingly, the holders of record of Series B Preferred Stock, the holders of record of Series C Preferred Stock, the holders of record of Series D Preferred Stock, the holders of record of Series E Preferred Stock, the holders of record of Series F Preferred Stock, the holders of record of Series G Preferred Stock and the Holders of Series H Preferred Stock shall be entitled to the receipt of dividends and of amounts distributable upon dissolution, liquidation or winding up of Fannie Mae, as the case may be, in proportion to their respective dividend rates or amounts or liquidation prices, without preference or priority, one over the other.

10.   Transfer Agent, Dividend Disbursing Agent and Registrar.

     Fannie Mae hereby appoints First Chicago Trust Company a division of EquiServe as its initial transfer agent, dividend disbursing agent and registrar for the Series H Preferred Stock. Fannie Mae may at any time designate an additional or substitute transfer agent, dividend disbursing agent and registrar for the Series H Preferred Stock.

11.   Notices.

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

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

7

exv4w6
 

EXHIBIT 4.6

CERTIFICATE OF DESIGNATION OF TERMS OF
5.375% NON-CUMULATIVE PREFERRED STOCK, SERIES I

1.   Designation, Par Value and Number of Shares.

     The designation of the series of preferred stock of the Federal National Mortgage Association (“Fannie Mae”) created by this resolution shall be “5.375% Non-Cumulative Preferred Stock, Series I” (the “Series I Preferred Stock”), and the number of shares initially constituting the Series I Preferred Stock is 6,000,000*. Shares of Series I Preferred Stock will have no par value and a stated value and liquidation preference of $50 per share. The Board of Directors of Fannie Mae, or a duly authorized committee thereof, in its sole discretion, may reduce the number of shares of Series I Preferred Stock, provided such reduction is not below the number of shares of Series I Preferred Stock then outstanding.

2.   Dividends.

     (a)   Holders of record of Series I Preferred Stock (each individually a “Holder”, or collectively the “Holders”) will be entitled to receive, when, as and if declared by the Board of Directors of Fannie Mae, or a duly authorized committee thereof, in its sole discretion out of funds legally available therefor, non-cumulative quarterly cash dividends which will accrue from and including October 28, 2002 and will be payable on March 31, June 30, September 30 and December 31 of each year (each, a “Dividend Payment Date”), commencing December 31, 2002 at the annual rate of $2.6875 per share or 5.375% of the stated value and liquidation preference of $50 per share (without taking into account any adjustments referred to in clause (b) below). If a Dividend Payment Date is not a Business Day, the related dividend (if declared) will be paid on the next succeeding Business Day with the same force and effect as though paid on the Dividend Payment Date, without any increase to account for the period from such Dividend Payment Date through the date of actual payment. A “Business Day” shall mean any day other than a Saturday, Sunday, or a day on which banking institutions in New York, New York are authorized by law to close. Dividends will be paid to Holders on the record date fixed by the Board of Directors or a duly authorized committee thereof, which may not be earlier than 45 days or later than 10 days prior to the applicable Dividend Payment Date. If declared, the initial dividend, which will be for the period from and including October 28, 2002 to but excluding December 31, 2002, will be $0.4703 per share and will be payable on December 31, 2002 and, thereafter, if declared, quarterly dividends will be $0.6719 per share. After the initial dividend, the dividend period relating to a Dividend Payment Date will be the period from and including the preceding Dividend Payment Date to but excluding the related Dividend Payment Date. If Fannie Mae redeems the Series I Preferred Stock, the dividend that would otherwise be payable for the then-current quarterly dividend period accrued to but excluding the date of redemption will be included in the redemption price of the shares redeemed and will not be separately payable. Dividends payable on the Series I Preferred Stock for any period greater or less than a full dividend period will be computed on the basis of a 360-day year consisting of twelve 30-day months. The amount of dividends per share payable at redemption will be rounded to the fourth digit after the decimal point. (If the fifth digit to the right of the decimal point is five or greater, the fourth digit will be rounded up by one.)

     (b)   If, prior to April 28, 2004, one or more amendments to the Internal Revenue Code of 1986, as amended (the “Code”), are enacted that eliminate or reduce the percentage of the dividends-received deduction applicable to the Series I Preferred Stock as specified in section 243(a)(1) of the Code or any successor provision thereto (the “Dividends-Received Percentage”), certain adjustments may be made in respect of the dividends payable by Fannie Mae, and Post Declaration Date Dividends and Retroactive Dividends (as such terms are defined below) may become payable, as described below.


* Plus up to 900,000 additional shares pursuant to the Underwriters’ overallotment option.

1


 

     The amount of each dividend payable (if declared) per share of Series I Preferred Stock for dividend payments made on or after the effective date of such change in the Code will be adjusted by multiplying the amount of the dividend payable pursuant to clause (a) of this Section 2 (before adjustment) by a factor, which will be the number determined in accordance with the following formula (the “DRD Formula”), and rounding the result to the nearest cent (with one-half cent rounded up):

1–.35(1–.70)


1–.35(1–DRP)

For purposes of the DRD Formula, “DRP” means the Dividends-Received Percentage (expressed as a decimal) applicable to the dividend in question; provided, however, that if the Dividends-Received Percentage applicable to the dividend in question shall be less than 50%, then the DRP shall equal .50. No amendment to the Code, other than a change in the percentage of the dividends-received deduction applicable to the Series I Preferred Stock as set forth in section 243(a)(1) of the Code or any successor provision thereto, will give rise to an adjustment. Notwithstanding the foregoing provisions, if, with respect to any such amendment, Fannie Mae receives either an unqualified opinion of nationally recognized independent tax counsel selected by Fannie Mae or a private letter ruling or similar form of assurance from the Internal Revenue Service (the “IRS”) to the effect that such an amendment does not apply to a dividend payable on the Series I Preferred Stock, then such amendment will not result in the adjustment provided for pursuant to the DRD Formula with respect to such dividend. The opinion referenced in the previous sentence shall be based upon the legislation amending or establishing the DRP or upon a published pronouncement of the IRS addressing such legislation. Unless the context otherwise requires, references to dividends herein will mean dividends as adjusted by the DRD Formula. Fannie Mae’s calculation of the dividends payable as so adjusted shall be final and not subject to review.

     Notwithstanding the foregoing, if any such amendment to the Code is enacted after the dividend payable on a Dividend Payment Date has been declared but before such dividend is paid, the amount of the dividend payable on such Dividend Payment Date will not be increased; instead, additional dividends (the “Post Declaration Date Dividends”), equal to the excess, if any, of (1) the product of the dividend paid by Fannie Mae on such Dividend Payment Date and the DRD Formula (where the DRP used in the DRD Formula would be equal to the greater of the Dividends-Received Percentage applicable to the dividend in question and .50) over (2) the dividend paid by Fannie Mae on such Dividend Payment Date, will be payable (if declared) to Holders on the record date applicable to the next succeeding Dividend Payment Date. If any such amendment to the Code is enacted and the reduction in the Dividends-Received Percentage retroactively applies to a Dividend Payment Date as to which Fannie Mae previously paid dividends on the Series I Preferred Stock (each, an “Affected Dividend Payment Date”), Fannie Mae will pay (if declared) additional dividends (the “Retroactive Dividends”) to Holders on the record date applicable to the next succeeding Dividend Payment Date (or, if such amendment is enacted after the dividend payable on such Dividend Payment Date has been declared, to Holders on the record date applicable to the second succeeding Dividend Payment Date following the date of enactment), in an amount equal to the excess of (1) the product of the dividend paid by Fannie Mae on each Affected Dividend Payment Date and the DRD Formula (where the DRP used in the DRD Formula would be equal to the greater of the Dividends-Received Percentage and .50 applied to each Affected Dividend Payment Date) over (2) the sum of the dividend paid by Fannie Mae on each Affected Dividend Payment Date. Fannie Mae will only make one payment of Retroactive Dividends for any such amendment. Notwithstanding the foregoing provisions, if, with respect to any such amendment, Fannie Mae receives either an unqualified opinion of nationally recognized independent tax counsel selected by Fannie Mae or a private letter ruling or similar form of assurance from the IRS to the effect that such amendment does not apply to a dividend payable on an Affected Dividend Payment Date for the Series I Preferred Stock, then such amendment will not result in the payment of Retroactive Dividends with respect to such Affected Dividend Payment Date. The opinion referenced in the previous sentence shall be based upon legislation amending or establishing the DRP or upon a published pronouncement of the IRS addressing such legislation.

2


 

     Notwithstanding the foregoing, no adjustment in the dividends payable by Fannie Mae shall be made, and no Post Declaration Date Dividends or Retroactive Dividends shall be payable by Fannie Mae, in respect of the enactment of any amendment to the Code on or after April 28, 2004 that eliminates or reduces the Dividends- Received Percentage.

     In the event that the amount of dividends payable per share of Series I Preferred Stock is adjusted pursuant to the DRD Formula and/or Post Declaration Date Dividends or Retroactive Dividends are to be paid, Fannie Mae will cause notice of each such adjustment and, if applicable, Post Declaration Date Dividends and Retroactive Dividends to be given as soon as practicable to the Holders of Series I Preferred Stock.

     (c)   No dividend (other than dividends or distributions paid in shares of, or options, warrants or rights to subscribe for or purchase shares of, the common stock of Fannie Mae or any other stock of Fannie Mae ranking, as to the payment of dividends and the distribution of assets upon dissolution, liquidation or winding up of Fannie Mae, junior to the Series I Preferred Stock) may be declared or paid or set apart for payment on Fannie Mae’s common stock (or on any other stock of Fannie Mae ranking, as to the payment of dividends, junior to the Series I Preferred Stock) unless dividends have been declared and paid or set apart (or ordered to be set apart) on the Series I Preferred Stock for the then-current quarterly dividend period; provided, however, that the foregoing dividend preference shall not be cumulative and shall not in any way create any claim or right in favor of the Holders of Series I Preferred Stock in the event that dividends have not been declared or paid or set apart (or ordered to be set apart) on the Series I Preferred Stock in respect of any prior dividend period. If the full dividend on the Series I Preferred Stock is not paid for any quarterly dividend period, the Holders of Series I Preferred Stock will have no claim in respect of the unpaid amount so long as no dividend (other than those referred to above) is paid on Fannie Mae’s common stock (or any other stock of Fannie Mae ranking, as to the payment of dividends, junior to the Series I Preferred Stock) for such dividend period.

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

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

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

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

3


 

3.   Optional Redemption.

     (a)   The Series I Preferred Stock shall not be redeemable prior to October 28, 2007. On or after that date, subject to the notice provisions set forth in Section 3(b) below and subject to any further limitations which may be imposed by law, Fannie Mae may redeem the Series I Preferred Stock, in whole or in part, at any time or from time to time, out of funds legally available therefor, at the redemption price of $50 per share plus an amount equal to the amount of the dividend (whether or not declared) for the then-current quarterly dividend period accrued to but excluding the date of such redemption, including any adjustments in dividends payable due to changes in the Dividends-Received Percentage but without accumulation of unpaid dividends on the Series I Preferred Stock for prior dividend periods. If less than all of the outstanding shares of Series I Preferred Stock are to be redeemed, Fannie Mae will select the shares to be redeemed from the outstanding shares not previously called for redemption by lot or pro rata (as nearly as possible) or by any other method that the Board of Directors of Fannie Mae, or a duly authorized committee thereof, in its sole discretion deems equitable.

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

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

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

4.   Liquidation Rights.

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

4


 

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

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

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

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

5.   No Conversion or Exchange Rights.

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

6.   No Pre-Emptive Rights.

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

7.   Voting Rights; Amendments.

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

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

5


 

the distribution of assets upon dissolution, liquidation or winding up of Fannie Mae, or otherwise, will not be deemed to materially and adversely affect the interests of the Holders of Series I Preferred Stock.

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

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

8.   Additional Classes or Series of Stock.

     The Board of Directors of Fannie Mae, or a duly authorized committee thereof, shall have the right at any time in the future to authorize, create and issue, by resolution or resolutions, one or more additional classes or series of stock of Fannie Mae, and to determine and fix the distinguishing characteristics and the relative rights, preferences, privileges and other terms of the shares thereof. Any such class or series of stock may rank prior to, on a parity with or junior to the Series I Preferred Stock as to the payment of dividends or the distribution of assets upon dissolution, liquidation or winding up of Fannie Mae, or otherwise.

9.   Priority.

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

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

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

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

6


 

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

10.   Transfer Agent, Dividend Disbursing Agent and Registrar.

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

11.   Notices.

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

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

7

exv4w7
 

EXHIBIT 4.7

CERTIFICATE OF DESIGNATION OF TERMS OF
VARIABLE RATE NON-CUMULATIVE PREFERRED STOCK, SERIES J

1.   Designation, Par Value and Number of Shares.

     The designation of the series of preferred stock of the Federal National Mortgage Association (“Fannie Mae”) created by this resolution shall be “Variable Rate Non-Cumulative Preferred Stock, Series J” (the “Series J Preferred Stock”), and the number of shares initially constituting the Series J Preferred Stock is 12,500,000*. Shares of Series J Preferred Stock will have no par value and a stated value and liquidation preference of $50 per share. The Board of Directors of Fannie Mae, or a duly authorized committee thereof, in its sole discretion, may reduce the number of shares of Series J Preferred Stock, provided such reduction is not below the number of shares of Series J Preferred Stock then outstanding.

2.   Dividends.

     (a)   Holders of record of Series J Preferred Stock (each individually a “Holder”, or collectively the “Holders”) will be entitled to receive, when, as and if declared by the Board of Directors of Fannie Mae, or a duly authorized committee thereof, in its sole discretion out of funds legally available therefor, non-cumulative quarterly cash dividends which will accrue from and including November 26, 2002 and will be payable on March 31, June 30, September 30 and December 31 of each year (each, a “Dividend Payment Date”), commencing March 31, 2003. If a Dividend Payment Date is not a Business Day, the related dividend (if declared) will be paid on the next succeeding Business Day with the same force and effect as though paid on the Dividend Payment Date, without any increase to account for the period from such Dividend Payment Date through the date of actual payment. A “Business Day” shall mean any day other than a Saturday, Sunday, or a day on which banking institutions in New York, New York are authorized by law to close. Dividends will be paid to Holders on the record date fixed by the Board of Directors or a duly authorized committee thereof, which may not be earlier than 45 days or later than 10 days prior to the applicable Dividend Payment Date.

     If declared, the dividend rate for the period from and including November 26, 2002 to but excluding November 26, 2004 will be 3.78% per annum. Thereafter, dividends will accrue at a per annum rate equal to the “Swap Rate” (as defined below) plus 1.38% without taking into account any adjustments described below, subject to a cap of 8.00% per annum. On November 26, 2004 and every two years thereafter until any redemption, the previous dividend rate will be replaced by the applicable Swap Rate plus 1.38%, subject to a cap of 8.00% per annum. The Swap Rate for each two-year period will be determined by Fannie Mae on the second Business Day immediately preceding the first day of such period (each, a “Swap Determination Date”). If declared, the initial dividend for the dividend period from and including November 26, 2002 to but excluding March 31, 2003, will be $0.6563 per share and will be payable on March 31, 2003. Thereafter, the dividend period related to a Dividend Payment Date will be the period from and including the preceding Dividend Payment Date to but excluding the applicable Dividend Payment Date. If Fannie Mae redeems the Series J Preferred Stock, the dividend that would otherwise be payable for the then-current quarterly dividend period accrued to but excluding the date of redemption will be included in the redemption price of the shares redeemed and will not be separately payable.

     Dividends payable on the Series J Preferred Stock for any period greater or less than a full dividend period will be computed on the basis of a 360-day year consisting of twelve 30-day months. Dividends payable on the Series J Preferred Stock for each full dividend period will be computed by dividing the per annum dividend rate by four. The amount of dividends per share payable at redemption will be rounded to the fourth digit after the decimal point. (If the fifth digit to the right of the decimal point is five or greater, the fourth digit will be rounded up by one.)


* Plus up to 1,500,000 additional shares pursuant to the Underwriters’ overallotment option.

1


 

     (b)   The “Swap Rate” for any Swap Determination Date will be the rate equal to (in the following order of priority):

       (1)   the average rate for two-year U.S. Dollar swaps, expressed as a percentage, which appears on the Reuters Screen ISDAFIX3 Page at 11:30 a.m., New York City time, available on the applicable Swap Determination Date, with respect to such dividend period;

       (2)   if the average rate for two-year U.S. Dollar swaps described in clause (1) does not appear on the Reuters Screen ISDAFIX3 Page at 11:30 a.m. on the applicable Swap Determination Date, the Swap Rate will be the mid-market rate for two-year U.S. Dollar swaps, expressed as a percentage, which appears on the Moneyline Telerate Page 19901 at 11:30 a.m., New York City time, available on the applicable Swap Determination Date with respect to such dividend period;

       (3)   if the mid-market rate for two year U.S. Dollar swaps described in clause (2) does not appear on the Moneyline Telerate Page 19901 at 11:30 a.m. on the applicable Swap Determination Date, the Swap Rate will be a percentage determined by Fannie Mae, based on the arithmetic mean of the mid-market rate for two-year U.S. Dollar swap quotations provided by five leading primary securities dealers in The City of New York selected by Fannie Mae, at approximately 3:00 p.m., New York City time, on the applicable Swap Determination Date with respect to such dividend period. If four or five of such dealers are quoting as described in this clause, the Swap Rate will be the arithmetic mean of the quotations, without regard to the quotations having the highest and lowest values. If exactly three such quotations are provided, the Swap Rate will be the quotation remaining after disregarding the highest and lowest quotations. For this purpose, if more than one quotation has the same highest value or lowest value, then one of such quotations shall be disregarded. The Swap Rate determined pursuant to clause (3) will be rounded to the third digit after the decimal (if the fourth digit is five or greater, the third digit will be rounded up by one); or

       (4)   if fewer than three dealers selected by Fannie Mae are quoting as described in clause (3), the Swap Rate will be the Swap Rate determined on the immediately preceding Swap Determination Date, which will be replaced by the applicable Swap Rate on the first day on which it can be determined as described above in clause (1), clause (2) or clause (3) (in that order of priority).

     If the rate of interest will reset within a dividend period, accrued dividends will be calculated by multiplying the stated value of the Preferred Stock by an accrual factor. This accrual factor will be computed by the totaling of the factors calculated for each day in the dividend period. The daily dividend period factor for each day will be computed by dividing the annual dividend rate applicable for that day by 360. If the same annual dividend rate is applicable for all days of a calendar month, the daily dividend period factor is multiplied by 30. If different annual dividend rates are applicable for one or more days in a calendar month and the entire calendar month is within the dividend period, a weighted average is to be calculated for the sum of the daily dividend period factors in that month divided by the actual number of days in that month. The weighted average daily dividend period factor then is multiplied by 30.

     If the format of a page, screen, display, press release or other source related to an index to be used in determining the dividend rate of the Preferred Stock changes but, in the discretion of Fannie Mae, the source continues to disclose the information necessary to determine the rate substantially as described in this section, then the procedure for obtaining information from the source shall be deemed to be amended by Fannie Mae.

     Fannie Mae’s determination of the Swap Rate and dividend rate will be final and binding on all parties, absent manifest error.

     “Moneyline Telerate” means, when used in connection with any designated page and any Swap Rate, the display page so designated on Moneyline Telerate (or such other page as may replace that page on that service, or such other service as may be nominated as the information vendor, for the purpose of displaying rates or prices comparable to that Swap Rate).

2


 

     “Moneyline Telerate Page 19901” means page 19901 (or any other page as may replace such page) on the display of Moneyline Telerate (or any successor service).

     “Reuters Screen” means, when used in connection with any designated page and any Swap Rate, the display page so designated on the Reuters Money 3000 Service (or such other page as may replace that page on that service, or such other service as may be nominated as the information vendor, for the purpose of displaying rates or prices comparable to that Swap Rate).

     “Reuters Screen ISDAFIX3 Page” means page ISDAFIX3 (or any other page as may replace such page) on the display of Reuters Screen (or any successor service);

     (c)   If, prior to May 26, 2004, one or more amendments to the Internal Revenue Code of 1986, as amended (the “Code”), are enacted that eliminate or reduce the percentage of the dividends-received deduction applicable to the Series J Preferred Stock as specified in section 243(a)(1) of the Code or any successor provision thereto (the “Dividends-Received Percentage”), certain adjustments may be made in respect of the dividends payable by Fannie Mae, and Post Declaration Date Dividends and Retroactive Dividends (as such terms are defined below) may become payable, as described below.

     The amount of each dividend payable (if declared) per share of Series J Preferred Stock for dividend payments made on or after the effective date of such change in the Code will be adjusted by multiplying the amount of the dividend payable pursuant to clause (a) of this Section 2 (before adjustment) by a factor, which will be the number determined in accordance with the following formula (the “DRD Formula”), and rounding the result to the nearest cent (with one-half cent rounded up):

1–.35(1–.70)


1–.35(1–DRP)

For purposes of the DRD Formula, “DRP” means the Dividends-Received Percentage (expressed as a decimal) applicable to the dividend in question; provided, however, that if the Dividends-Received Percentage applicable to the dividend in question shall be less than 50%, then the DRP shall equal .50. No amendment to the Code, other than a change in the percentage of the dividends-received deduction applicable to the Series J Preferred Stock as set forth in section 243(a)(1) of the Code or any successor provision thereto, will give rise to an adjustment. Notwithstanding the foregoing provisions, if, with respect to any such amendment, Fannie Mae receives either an unqualified opinion of nationally recognized independent tax counsel selected by Fannie Mae or a private letter ruling or similar form of assurance from the Internal Revenue Service (the “IRS”) to the effect that such an amendment does not apply to a dividend payable on the Series J Preferred Stock, then such amendment will not result in the adjustment provided for pursuant to the DRD Formula with respect to such dividend. The opinion referenced in the previous sentence shall be based upon the legislation amending or establishing the DRP or upon a published pronouncement of the IRS addressing such legislation. Unless the context otherwise requires, references to dividends herein will mean dividends as adjusted by the DRD Formula. Fannie Mae’s calculation of the dividends payable as so adjusted shall be final and not subject to review.

     Notwithstanding the foregoing, if any such amendment to the Code is enacted after the dividend payable on a Dividend Payment Date has been declared but before such dividend is paid, the amount of the dividend payable on such Dividend Payment Date will not be increased; instead, additional dividends (the “Post Declaration Date Dividends”), equal to the excess, if any, of (1) the product of the dividend paid by Fannie Mae on such Dividend Payment Date and the DRD Formula (where the DRP used in the DRD Formula would be equal to the greater of the Dividends-Received Percentage applicable to the dividend in question and .50) over (2) the dividend paid by Fannie Mae on such Dividend Payment Date, will be payable (if declared) to Holders on the record date applicable to the next succeeding Dividend Payment Date.

     If any such amendment to the Code is enacted and the reduction in the Dividends-Received Percentage retroactively applies to a Dividend Payment Date as to which Fannie Mae previously paid dividends on the

3


 

Series J Preferred Stock (each, an “Affected Dividend Payment Date”), Fannie Mae will pay (if declared) additional dividends (the “Retroactive Dividends”) to Holders on the record date applicable to the next succeeding Dividend Payment Date (or, if such amendment is enacted after the dividend payable on such Dividend Payment Date has been declared, to Holders on the record date applicable to the second succeeding Dividend Payment Date following the date of enactment), in an amount equal to the excess of (1) the product of the dividend paid by Fannie Mae on each Affected Dividend Payment Date and the DRD Formula (where the DRP used in the DRD Formula would be equal to the greater of the Dividends-Received Percentage and .50 applied to each Affected Dividend Payment Date) over (2) the sum of the dividend paid by Fannie Mae on each Affected Dividend Payment Date. Fannie Mae will only make one payment of Retroactive Dividends for any such amendment. Notwithstanding the foregoing provisions, if, with respect to any such amendment, Fannie Mae receives either an unqualified opinion of nationally recognized independent tax counsel selected by Fannie Mae or a private letter ruling or similar form of assurance from the IRS to the effect that such amendment does not apply to a dividend payable on an Affected Dividend Payment Date for the Series J Preferred Stock, then such amendment will not result in the payment of Retroactive Dividends with respect to such Affected Dividend Payment Date. The opinion referenced in the previous sentence shall be based upon legislation amending or establishing the DRP or upon a published pronouncement of the IRS addressing such legislation.

     Notwithstanding the foregoing, no adjustment in the dividends payable by Fannie Mae shall be made, and no Post Declaration Date Dividends or Retroactive Dividends shall be payable by Fannie Mae, in respect of the enactment of any amendment to the Code on or after May 26, 2004 that eliminates or reduces the Dividends-Received Percentage.

     In the event that the amount of dividends payable per share of Series J Preferred Stock is adjusted pursuant to the DRD Formula and/or Post Declaration Date Dividends or Retroactive Dividends are to be paid, Fannie Mae will cause notice of each such adjustment and, if applicable, Post Declaration Date Dividends and Retroactive Dividends to be given as soon as practicable to the Holders of Series J Preferred Stock.

     (d)   No dividend (other than dividends or distributions paid in shares of, or options, warrants or rights to subscribe for or purchase shares of, the common stock of Fannie Mae or any other stock of Fannie Mae ranking, as to the payment of dividends and the distribution of assets upon dissolution, liquidation or winding up of Fannie Mae, junior to the Series J Preferred Stock) may be declared or paid or set apart for payment on Fannie Mae’s common stock (or on any other stock of Fannie Mae ranking, as to the payment of dividends, junior to the Series J Preferred Stock) unless dividends have been declared and paid or set apart (or ordered to be set apart) on the Series J Preferred Stock for the then-current quarterly dividend period; provided, however, that the foregoing dividend preference shall not be cumulative and shall not in any way create any claim or right in favor of the Holders of Series J Preferred Stock in the event that dividends have not been declared or paid or set apart (or ordered to be set apart) on the Series J Preferred Stock in respect of any prior dividend period. If the full dividend on the Series J Preferred Stock is not paid for any quarterly dividend period, the Holders of Series J Preferred Stock will have no claim in respect of the unpaid amount so long as no dividend (other than those referred to above) is paid on Fannie Mae’s common stock (or any other stock of Fannie Mae ranking, as to the payment of dividends, junior to the Series J Preferred Stock) for such dividend period.

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

     (f)   No full dividends shall be declared or paid or set apart for payment on any stock of Fannie Mae ranking, as to the payment of dividends, on a parity with the Series J Preferred Stock for any period unless full dividends have been declared and paid or set apart for payment on the Series J Preferred Stock for the then-current quarterly dividend period. When dividends are not paid in full upon the Series J Preferred Stock and all other classes or series of stock of Fannie Mae, if any, ranking, as to the payment of dividends, on a parity with the Series J Preferred Stock, all dividends declared upon shares of Series J Preferred Stock

4


 

and all such other stock of Fannie Mae will be declared pro rata so that the amount of dividends declared per share of Series J Preferred Stock and all such other stock will in all cases bear to each other the same ratio that accrued dividends per share of Series J Preferred Stock (including any adjustments in dividends payable due to changes in the Dividends-Received Percentage but without, in the case of any noncumulative preferred stock, accumulation of unpaid dividends for prior dividend periods) and such other stock bear to each other.

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

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

3.   Optional Redemption.

     (a)   The Series J Preferred Stock shall not be redeemable prior to November 26, 2004. On or after that date, subject to the notice provisions set forth in Section 3(b) below and subject to any further limitations which may be imposed by law, Fannie Mae may redeem the Series J Preferred Stock, in whole or in part, at any time or from time to time, out of funds legally available therefor, at the redemption price of $50 per share plus an amount equal to the amount of the dividend (whether or not declared) for the then-current quarterly dividend period accrued to but excluding the date of such redemption, including any adjustments in dividends payable due to changes in the Dividends-Received Percentage but without accumulation of unpaid dividends on the Series J Preferred Stock for prior dividend periods. If less than all of the outstanding shares of Series J Preferred Stock are to be redeemed, Fannie Mae will select the shares to be redeemed from the outstanding shares not previously called for redemption by lot or pro rata (as nearly as possible) or by any other method that the Board of Directors of Fannie Mae, or a duly authorized committee thereof, in its sole discretion deems equitable.

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

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

5


 

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

4.   Liquidation Rights.

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

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

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

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

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

5.   No Conversion or Exchange Rights.

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

6.   No Pre-Emptive Rights.

     No Holder of Series J Preferred Stock shall be entitled as a matter of right to subscribe for or purchase, or have any pre-emptive right with respect to, any part of any new or additional issue of stock of any class whatsoever, or of securities convertible into any stock of any class whatsoever, or any other shares, rights,

6


 

options or other securities of any class whatsoever, whether now or hereafter authorized and whether issued for cash or other consideration or by way of dividend.

7.   Voting Rights; Amendments.

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

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

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

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

8.   Additional Classes or Series of Stock.

     The Board of Directors of Fannie Mae, or a duly authorized committee thereof, shall have the right at any time in the future to authorize, create and issue, by resolution or resolutions, one or more additional classes or series of stock of Fannie Mae, and to determine and fix the distinguishing characteristics and the relative rights, preferences, privileges and other terms of the shares thereof. Any such class or series of stock may rank prior to, on a parity with or junior to the Series J Preferred Stock as to the payment of dividends or the distribution of assets upon dissolution, liquidation or winding up of Fannie Mae, or otherwise.

9.   Priority.

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

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

7


 

liquidation or winding up of Fannie Mae, as the case maybe, in preference or priority to the Holders of shares of Series J Preferred Stock.

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

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

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

10.   Transfer Agent, Dividend Disbursing Agent and Registrar.

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

11.   Notices.

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

8


 

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

9

exv4w8
 

EXHIBIT 4.8

CERTIFICATE OF DESIGNATION OF TERMS OF
VARIABLE RATE NON-CUMULATIVE PREFERRED STOCK, SERIES K

1.     Designation, Par Value and Number of Shares.

     The designation of the series of preferred stock of the Federal National Mortgage Association (“Fannie Mae”) created by this resolution shall be “Variable Rate Non-Cumulative Preferred Stock, Series K” (the “Series K Preferred Stock”), and the number of shares initially constituting the Series K Preferred Stock is 7,000,000*. Shares of Series K Preferred Stock will have no par value and a stated value and liquidation preference of $50 per share. The Board of Directors of Fannie Mae, or a duly authorized committee thereof, in its sole discretion, may reduce the number of shares of Series K Preferred Stock, provided such reduction is not below the number of shares of Series K Preferred Stock then outstanding.

2.     Dividends.

     (a)  Holders of record of Series K Preferred Stock (each individually a “Holder”, or collectively the “Holders”) will be entitled to receive, when, as and if declared by the Board of Directors of Fannie Mae, or a duly authorized committee thereof, in its sole discretion out of funds legally available therefor, non-cumulative quarterly cash dividends which will accrue from and including March 18, 2003 and will be payable on March 31, June 30, September 30 and December 31 of each year (each, a “Dividend Payment Date”), commencing June 30, 2003. If a Dividend Payment Date is not a Business Day, the related dividend (if declared) will be paid on the next succeeding Business Day with the same force and effect as though paid on the Dividend Payment Date, without any increase to account for the period from such Dividend Payment Date through the date of actual payment. A “Business Day” shall mean any day other than a Saturday, Sunday, or a day on which banking institutions in New York, New York are authorized by law to close. Dividends will be paid to Holders on the record date fixed by the Board of Directors or a duly authorized committee thereof, which may not be earlier than 45 days or later than 10 days prior to the applicable Dividend Payment Date. If declared, the dividend rate for the period from and including March 18, 2003 to but excluding March 18, 2005 will be 3.00% per annum. Thereafter, dividends will accrue at a per annum rate equal to the “Swap Rate” (as defined below) plus 1.33% without taking into account any adjustments described below, subject to a cap of 8.00% per annum. On March 18, 2005 and every two years thereafter until any redemption, the previous dividend rate will be replaced by the applicable Swap Rate plus 1.33%, subject to a cap of 8.00% per annum. The Swap Rate for each two-year period will be determined by Fannie Mae on the second Business Day immediately preceding the first day of such period (each, a “Swap Determination Date”). If declared, the initial dividend for the dividend period from and including March 18, 2003 to but excluding June 30, 2003, will be $0.4250 per share and will be payable on June 30, 2003. Thereafter, the dividend period related to a Dividend Payment Date will be the period from and including the preceding Dividend Payment Date to but excluding the applicable Dividend Payment Date. If Fannie Mae redeems the Series K Preferred Stock, the dividend that would otherwise be payable for the then-current quarterly dividend period accrued to but excluding the date of redemption will be included in the redemption price of the shares redeemed and will not be separately payable. Dividends payable on the Series K Preferred Stock for any period greater or less than a full dividend period will be computed on the basis of a 360-day year consisting of twelve 30-day months. Dividends payable on the Series K Preferred Stock for each full dividend period will be computed by dividing the per annum dividend rate by four. The amount of dividends per share payable at redemption will be rounded to the fourth digit after the decimal point. (If the fifth digit to the right of the decimal point is five or greater, the fourth digit will be rounded up by one.)

     (b)  The “Swap Rate” for any Swap Determination Date will be the rate equal to (in the following order of priority):


* Plus up to 1,050,000 additional shares pursuant to the Underwriters’ overallotment option.

1


 

  (1) the average rate for two-year U.S. Dollar swaps, expressed as a percentage, which appears on the Reuters Screen ISDAFIX3 Page at 11:30 a.m., New York City time, available on the applicable Swap Determination Date, with respect to such dividend period;
 
  (2) if the average rate for two-year U.S. Dollar swaps described in clause (1) does not appear on the Reuters Screen ISDAFIX3 Page at 11:30 a.m. on the applicable Swap Determination Date, the Swap Rate will be the mid-market rate for two-year U.S. Dollar swaps, expressed as a percentage, which appears on the Moneyline Telerate Page 19901 at 11:30 a.m., New York City time, available on the applicable Swap Determination Date with respect to such dividend period;
 
  (3) if the mid-market rate for two year U.S. Dollar swaps described in clause (2) does not appear on the Moneyline Telerate Page 19901 at 11:30 a.m. on the applicable Swap Determination Date, the Swap Rate will be a percentage determined by Fannie Mae, based on the arithmetic mean of the mid-market rate for two-year U.S. Dollar swap quotations provided by five leading primary securities dealers in The City of New York selected by Fannie Mae, at approximately 3:00 p.m., New York City time, on the applicable Swap Determination Date with respect to such dividend period. If four or five of such dealers are quoting as described in this clause, the Swap Rate will be the arithmetic mean of the quotations, without regard to the quotations having the highest and lowest values. If exactly three such quotations are provided, the Swap Rate will be the quotation remaining after disregarding the highest and lowest quotations. For this purpose, if more than one quotation has the same highest value or lowest value, then one of such quotations shall be disregarded. The Swap Rate determined pursuant to clause (3) will be rounded to the third digit after the decimal (if the fourth digit is five or greater, the third digit will be rounded up by one); or
 
  (4) if fewer than three dealers selected by Fannie Mae are quoting as described in clause (3), the Swap Rate will be the Swap Rate determined on the immediately preceding Swap Determination Date, which will be replaced by the applicable Swap Rate on the first day on which it can be determined as described above in clause (1), clause (2) or clause (3) (in that order of priority). If the rate of interest will reset within a dividend period, accrued dividends will be calculated by multiplying the stated value of the Preferred Stock by an accrual factor. This accrual factor will be computed by the totaling of the factors calculated for each day in the dividend period. The daily dividend period factor for each day will be computed by dividing the annual dividend rate applicable for that day by 360. If the same annual dividend rate is applicable for all days of a calendar month, the daily dividend period factor is multiplied by 30. If different annual dividend rates are applicable for one or more days in a calendar month and the entire calendar month is within the dividend period, a weighted average is to be calculated for the sum of the daily dividend period factors in that month divided by the actual number of days in that month. The weighted average daily dividend period factor then is multiplied by 30.

     If the format of a page, screen, display, press release or other source related to an index to be used in determining the dividend rate of the Preferred Stock changes but, in the discretion of Fannie Mae, the source continues to disclose the information necessary to determine the rate substantially as described in this section, then the procedure for obtaining information from the source shall be deemed to be amended by Fannie Mae.

     Fannie Mae’s determination of the Swap Rate and dividend rate will be final and binding on all parties, absent manifest error.

     “Moneyline Telerate” means, when used in connection with any designated page and any Swap Rate, the display page so designated on Moneyline Telerate (or such other page as may replace that page on that service, or such other service as may be nominated as the information vendor, for the purpose of displaying rates or prices comparable to that Swap Rate).

     “Moneyline Telerate Page 19901” means page 19901 (or any other page as may replace such page) on the display of Moneyline Telerate (or any successor service).

2


 

     “Reuters Screen” means, when used in connection with any designated page and any Swap Rate, the display page so designated on the Reuters Money 3000 Service (or such other page as may replace that page on that service, or such other service as may be nominated as the information vendor, for the purpose of displaying rates or prices comparable to that Swap Rate).

     “Reuters Screen ISDAFIX3 Page” means page ISDAFIX3 (or any other page as may replace such page) on the display of Reuters Screen (or any successor service);

     (c)  If, prior to September 18, 2004, one or more amendments to the Internal Revenue Code of 1986, as amended (the “Code”), are enacted that eliminate or reduce the percentage of the dividends-received deduction applicable to the Series K Preferred Stock as specified in section 243(a)(1) of the Code or any successor provision thereto (the “Dividends-Received Percentage”), certain adjustments may be made in respect of the dividends payable by Fannie Mae, and Post Declaration Date Dividends and Retroactive Dividends (as such terms are defined below) may become payable, as described below. The amount of each dividend payable (if declared) per share of Series K Preferred Stock for dividend payments made on or after the effective date of such change in the Code will be adjusted by multiplying the amount of the dividend payable pursuant to clause (a) of this Section 2 (before adjustment) by a factor, which will be the number determined in accordance with the following formula (the “DRD Formula”), and rounding the result to the nearest cent (with one-half cent rounded up):

1–.35(1–.70)


1–.35(1–DRP)

For purposes of the DRD Formula, “DRP” means the Dividends-Received Percentage (expressed as a decimal) applicable to the dividend in question; provided, however, that if the Dividends-Received Percentage applicable to the dividend in question shall be less than 50%, then the DRP shall equal .50. No amendment to the Code, other than a change in the percentage of the dividends-received deduction applicable to the Series K Preferred Stock as set forth in section 243(a)(1) of the Code or any successor provision thereto, will give rise to an adjustment. Notwithstanding the foregoing provisions, if, with respect to any such amendment, Fannie Mae receives either an unqualified opinion of nationally recognized independent tax counsel selected by Fannie Mae or a private letter ruling or similar form of assurance from the Internal Revenue Service (the “IRS”) to the effect that such an amendment does not apply to a dividend payable on the Series K Preferred Stock, then such amendment will not result in the adjustment provided for pursuant to the DRD Formula with respect to such dividend. The opinion referenced in the previous sentence shall be based upon the legislation amending or establishing the DRP or upon a published pronouncement of the IRS addressing such legislation. Unless the context otherwise requires, references to dividends herein will mean dividends as adjusted by the DRD Formula. Fannie Mae’s calculation of the dividends payable as so adjusted shall be final and not subject to review. Notwithstanding the foregoing, if any such amendment to the Code is enacted after the dividend payable on a Dividend Payment Date has been declared but before such dividend is paid, the amount of the dividend payable on such Dividend Payment Date will not be increased; instead, additional dividends (the “Post Declaration Date Dividends”), equal to the excess, if any, of (1) the product of the dividend paid by Fannie Mae on such Dividend Payment Date and the DRD Formula (where the DRP used in the DRD Formula would be equal to the greater of the Dividends-Received Percentage applicable to the dividend in question and .50) over (2) the dividend paid by Fannie Mae on such Dividend Payment Date, will be payable (if declared) to Holders on the record date applicable to the next succeeding Dividend Payment Date. If any such amendment to the Code is enacted and the reduction in the Dividends-Received Percentage retroactively applies to a Dividend Payment Date as to which Fannie Mae previously paid dividends on the Series K Preferred Stock (each, an “Affected Dividend Payment Date”), Fannie Mae will pay (if declared) additional dividends (the “Retroactive Dividends”) to Holders on the record date applicable to the next succeeding Dividend Payment Date (or, if such amendment is enacted after the dividend payable on such Dividend Payment Date has been declared, to Holders on the record date applicable to the second succeeding Dividend Payment Date following the date of enactment), in an amount equal to the excess of (1) the product of the dividend paid by Fannie Mae on each Affected Dividend Payment Date and the DRD Formula (where the DRP used in the DRD Formula would be equal to the greater of the Dividends-Received Percentage and

3


 

.50 applied to each Affected Dividend Payment Date) over (2) the sum of the dividend paid by Fannie Mae on each Affected Dividend Payment Date. Fannie Mae will only make one payment of Retroactive Dividends for any such amendment. Notwithstanding the foregoing provisions, if, with respect to any such amendment, Fannie Mae receives either an unqualified opinion of nationally recognized independent tax counsel selected by Fannie Mae or a private letter ruling or similar form of assurance from the IRS to the effect that such amendment does not apply to a dividend payable on an Affected Dividend Payment Date for the Series K Preferred Stock, then such amendment will not result in the payment of Retroactive Dividends with respect to such Affected Dividend Payment Date. The opinion referenced in the previous sentence shall be based upon legislation amending or establishing the DRP or upon a published pronouncement of the IRS addressing such legislation.

     Notwithstanding the foregoing, no adjustment in the dividends payable by Fannie Mae shall be made, and no Post Declaration Date Dividends or Retroactive Dividends shall be payable by Fannie Mae, in respect of the enactment of any amendment to the Code on or after September 18, 2004 that eliminates or reduces the Dividends-Received Percentage. In the event that the amount of dividends payable per share of Series K Preferred Stock is adjusted pursuant to the DRD Formula and/or Post Declaration Date Dividends or Retroactive Dividends are to be paid, Fannie Mae will cause notice of each such adjustment and, if applicable, Post Declaration Date Dividends and Retroactive Dividends to be given as soon as practicable to the Holders of Series K Preferred Stock.

     (d)  No dividend (other than dividends or distributions paid in shares of, or options, warrants or rights to subscribe for or purchase shares of, the common stock of Fannie Mae or any other stock of Fannie Mae ranking, as to the payment of dividends and the distribution of assets upon dissolution, liquidation or winding up of Fannie Mae, junior to the Series K Preferred Stock) may be declared or paid or set apart for payment on Fannie Mae’s common stock (or on any other stock of Fannie Mae ranking, as to the payment of dividends, junior to the Series K Preferred Stock) unless dividends have been declared and paid or set apart (or ordered to be set apart) on the Series K Preferred Stock for the then-current quarterly dividend period; provided, however, that the foregoing dividend preference shall not be cumulative and shall not in any way create any claim or right in favor of the Holders of Series K Preferred Stock in the event that dividends have not been declared or paid or set apart (or ordered to be set apart) on the Series K Preferred Stock in respect of any prior dividend period. If the full dividend on the Series K Preferred Stock is not paid for any quarterly dividend period, the Holders of Series K Preferred Stock will have no claim in respect of the unpaid amount so long as no dividend (other than those referred to above) is paid on Fannie Mae’s common stock (or any other stock of Fannie Mae ranking, as to the payment of dividends, junior to the Series K Preferred Stock) for such dividend period.

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

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

4


 

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

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

3.     Optional Redemption.

     (a)  The Series K Preferred Stock shall not be redeemable prior to March 18, 2005. On or after that date, subject to the notice provisions set forth in Section 3(b) below and subject to any further limitations which may be imposed by law, Fannie Mae may redeem the Series K Preferred Stock, in whole or in part, at any time or from time to time, out of funds legally available therefor, at the redemption price of $50 per share plus an amount equal to the amount of the dividend (whether or not declared) for the then-current quarterly dividend period accrued to but excluding the date of such redemption, including any adjustments in dividends payable due to changes in the Dividends-Received Percentage but without accumulation of unpaid dividends on the Series K Preferred Stock for prior dividend periods. If less than all of the outstanding shares of Series K Preferred Stock are to be redeemed, Fannie Mae will select the shares to be redeemed from the outstanding shares not previously called for redemption by lot or pro rata (as nearly as possible) or by any other method that the Board of Directors of Fannie Mae, or a duly authorized committee thereof, in its sole discretion deems equitable.

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

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

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

4.     Liquidation Rights.

     (a)  Upon any voluntary or involuntary dissolution, liquidation or winding up of Fannie Mae, after payment or provision for the liabilities of Fannie Mae and the expenses of such dissolution, liquidation or winding up, the Holders of outstanding shares of the Series K Preferred Stock will be entitled to receive out

5


 

of the assets of Fannie Mae or proceeds thereof available for distribution to stockholders, before any payment or distribution of assets is made to holders of Fannie Mae’s common stock (or any other stock of Fannie Mae ranking, as to the distribution of assets upon dissolution, liquidation or winding up of Fannie Mae, junior to the Series K Preferred Stock), the amount of $50 per share plus an amount equal to the dividend (whether or not declared) for the then-current quarterly dividend period accrued to but excluding the date of such liquidation payment, including any adjustments in dividends payable due to changes in the Dividends-Received Percentage but without accumulation of unpaid dividends on the Series K Preferred Stock for prior dividend periods.

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

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

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

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

5.     No Conversion or Exchange Rights.

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

6.     No Pre-Emptive Rights.

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

7.     Voting Rights; Amendments.

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

6


 

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

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

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

8.     Additional Classes or Series of Stock.

     The Board of Directors of Fannie Mae, or a duly authorized committee thereof, shall have the right at any time in the future to authorize, create and issue, by resolution or resolutions, one or more additional classes or series of stock of Fannie Mae, and to determine and fix the distinguishing characteristics and the relative rights, preferences, privileges and other terms of the shares thereof. Any such class or series of stock may rank prior to, on a parity with or junior to the Series K Preferred Stock as to the payment of dividends or the distribution of assets upon dissolution, liquidation or winding up of Fannie Mae, or otherwise.

9.     Priority.

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

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

     (b)  On a parity with shares of Series K Preferred Stock, either as to the payment of dividends or the distribution of assets upon dissolution, liquidation or winding up of Fannie Mae, whether or not the dividend rates or amounts, dividend payment dates or redemption or liquidation prices per share, if any, be different from those of the Series K Preferred Stock, if the holders of such class or series shall be entitled to the receipt of dividends or of amounts distributable upon dissolution, liquidation or winding up of Fannie Mae, as the case may be, in proportion to their respective dividend rates or amounts or liquidation prices,

7


 

without preference or priority, one over the other, as between the holders of such class or series and the Holders of shares of Series K Preferred Stock.

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

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

10.     Transfer Agent, Dividend Disbursing Agent and Registrar.

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

11.     Notices.

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

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

8

exv10w1
 

EXHIBIT 10.1

EMPLOYMENT AGREEMENT

between

FANNIE MAE

and

FRANKLIN D. RAINES

INCLUDING ALL
AMENDMENTS TO DATE

 


 

TABLE OF CONTENTS

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

 


 

                 
    19   Benefit     43  
    20.   Entire Agreement     44  
    21.   Arbitration     44  
    22.   Interpretation     45  
    23.   Severability     45  

- ii -


 

EMPLOYMENT AGREEMENT

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

WITNESSETH THAT:

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

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

     WHEREAS, the Board of Directors of the Corporation (the “Board”) duly approved and authorized the terms of this Agreement for and on behalf of the Corporation at a meeting held on July 21, 1998, at which meeting a quorum was present, and the Board authorized the Chairman of the

 


 

Board to finalize and enter into this Agreement with Employee on behalf of the Corporation;

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

A.   EMPLOYMENT TERM

1.   Term and Duties

     (a)  The Corporation hereby agrees to employ Employee, and Employee hereby agrees to serve, as Chairman of the Board-Designate and Chief Executive Officer-Designate of the Corporation, upon the terms and conditions herein contained, for a term commencing on May 21, 1998 (the “Effective Date”) and, subject to the terms hereof, terminating on December 31, 1998, and, as Chairman of the Board and Chief Executive Officer of the Corporation, upon the terms and conditions herein contained, for a term commencing on January 1, 1999 and, subject to the terms hereof, terminating on June 30, 2003 (the “Termination Date”). As used in this Agreement, “Employment Term” shall mean the period from the Effective Date through the Termination Date, plus any extension of such period pursuant to the written agreement of the parties.

- 2 -


 

     (b)  During the Employment Term, Employee shall be nominated for election to the Board, and shall be identified as a nominee recommended for election by the Board, at each annual meeting of the stockholders of the Corporation, beginning with the annual meeting held in 1998.

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

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

- 3 -


 

2.   Annual Salary

     (a)  Commencing on the Effective Date and, subject to Paragraphs 4, 5, 7 and 8 below, during the remainder of the Employment Term, the Corporation shall pay to Employee an annual base salary of not less than $900,000 (such amount to be prorated for 1998), payable in equal biweekly installments on the same dates the other senior officers of the Corporation are paid. Employee’s annual base salary payable pursuant to this Paragraph 2 (including any increases in such salary approved by the Board pursuant to this Paragraph 2) is hereinafter referred to as “Employee’s Basic Compensation.”

     (b)  The Board shall, from time to time, review Employee’s Basic Compensation and may increase (but in no event decrease) such compensation for any year after 1999 by such amounts as the Board deems proper. The criteria that the Board may take into consideration in providing for any such increases are the base compensation payable to chairmen and chief executive officers and other comparable officers of comparable financial institutions and corporations, Employee’s ability and performance, any increases in the responsibilities assumed by Employee, the success achieved by the Corporation, any increase or change

- 4 -


 

in the volume, character or variety of the business of the Corporation, increases in the cost of living and any other criteria the Board may deem relevant.

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

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

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

- 5 -


 

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

- 6 -


 

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

- 7 -


 

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

- 8 -


 

      terminated employment on the day prior to the date of his death and had he attained at least age 55 prior to his death. There shall be no age-based actuarial reduction in the preretirement surviving spouse’s benefit, except that, where Employee dies before reaching the age of 55, there shall be an age-based actuarial reduction based solely on the number of years, if any, that Employee’s age at the date of his death is less than 55.
 
  (vii)   The Corporation may amend the Executive Pension Plan from time to time; provided, however, that no such amendment shall adversely modify the vesting schedule or decrease Employee’s Pension Goal or the vested benefits to which Employee or his Surviving Spouse, if any, would have been entitled under such plan, as modified in this Agreement, as in effect on the date hereof or, if benefits are improved, as of the date of such improvement.

- 9 -


 

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

- 10 -


 

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

- 11 -


 

      exercisable from and after the date of such termination only as provided in the 1993 Stock Compensation Plan.
 
  (iii)   Any additional Nonqualified Stock Option or any Incentive Stock Option granted to Employee shall become exercisable as provided in the 1993 Stock Compensation Plan or any successor plan, or earlier as provided in (iv) below, provided, however, that in the case of termination pursuant to Paragraph 5(a) or 5(b) below, any portion of such Nonqualified Stock Option or Incentive Stock Option not exercisable on the date of such termination shall become exercisable from and after the date of such termination only as provided in the 1993 Stock Compensation Plan or any successor plan.
 
  (iv)   In the event that (v) Employee is terminated without Cause pursuant to Paragraph 4(a) below, (w) Employee is terminated or resigns within six (6) months following a Change of Control (as defined in Paragraph 4(d) below), (x) the Employment Term expires

- 12 -


 

      because of the failure of the Corporation to extend this Agreement as set forth in Paragraph 4(a) below, (y) Employee is terminated by reason of serious illness or disability pursuant to Paragraph 7(a) below, or (z) Employee dies while employed under this Agreement, all of Employee’s Incentive Stock Options and Nonqualified Stock Options, including the May 1998 Option and the January 1999 Option specified above in this Paragraph 3(b), shall become immediately exercisable.
 
  (v)   Employee (or, in the case of serious illness, disability or death, the person or persons to whom Employee’s rights under any Incentive Stock Option or any Nonqualified Stock Option pass by will or applicable law or, if no such person has such rights, Employee’s executors or administrators) shall have the right to exercise any exercisable Incentive Stock Option and any exercisable Nonqualified Stock Option, until it expires by its terms, regardless of

- 13 -


 

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

     (c)  Annual Incentive Plan. Employee’s Maximum Potential Award (as defined in the Federal National Mortgage Association Annual Incentive Plan (the “Annual Incentive Plan”)) for each year during the Employment Term shall be at least 200% of Employee’s Basic Compensation. The amount to be paid with respect to such award for each such year shall be determined by the extent to which any Corporate Goals (as defined in the Annual Incentive Plan) are attained. Employee shall be entitled to participate in the Annual Incentive Plan for 1998 on a pro rata basis. Notwithstanding any provision of the

- 14 -


 

Annual Incentive Plan to the contrary, the following provisions shall apply to Employee:

  (i)   In the event that (w) Employee is terminated without Cause pursuant to Paragraph 4(a) below, (x) Employee is terminated or resigns within six (6) months following a Change of Control (as defined in Paragraph 4(d) below), (y) Employee is terminated by reason of serious illness or disability pursuant to Paragraph 7(a) below or (z) Employee dies while employed under this Agreement, the Corporation shall pay to Employee at the time of payment of awards to other participants in the Annual Incentive Plan (regardless of whether Employee is employed by the Corporation on the date of payment) (A) the amount of any bonus earned by and payable to Employee pursuant to the Annual Incentive Plan for a completed calendar year (with the period May 21-December 31, 1998 being considered a completed calendar year for

- 15 -


 

      such purposes) but not yet paid by the Corporation for such year and (B) a pro rata award calculated assuming 100% attainment of the target Corporate Goal specified by the Board for the Annual Incentive Plan for the year in which such termination or resignation occurred.
 
  (ii)   In the event that the Employment Term expires because of the failure of the Corporation to extend this Agreement, the Corporation shall pay to Employee the amount of any bonus earned by and payable to Employee pursuant to the Annual Incentive Plan for a completed calendar year (with the period May 21-December 31, 1998 being considered a completed calendar year for such purposes) but not yet paid by the Corporation for such year.

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

- 16 -


 

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

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

- 17 -


 

      by reason of serious illness or disability pursuant to Paragraph 7(a) below, the Corporation shall pay to Employee, after the end of each such Award Period, Actual Awards with respect to Performance Shares awarded for each Award Period of the Performance Share Plan in which Employee has completed at least 18 months of service, in each case on a pro rata basis reflecting Employee’s completed months of service in the Award Period, based on the actual achievement of Program Targets for the Award Period and using as the Valuation Date (as defined in the 1993 Stock Compensation Plan) (A) in the case of a termination upon a Change in Control, the date of such Change in Control, and (B) in the case of a termination without Cause, the failure of the Corporation to extend the Employment Term or a termination because of serious illness or disability, the last day of the Award Period.

- 18 -


 

  (ii)   In the event that Employee dies while employed under this Agreement, the Corporation shall pay to Employee’s designated beneficiary or, if none, Employee’s estate as soon as is practicable after the date of Employee’s death, Actual Awards with respect to Performance Shares awarded for each Award Period of the Performance Share Plan, in each case on a pro rata basis reflecting the Board’s determination of the likelihood of the Corporation’s achievement of Program Targets for the Award Period and using the date of death as the Valuation Date (as defined in the 1993 Stock Compensation Plan).

     (e)  Restricted Stock. In the event that (i) Employee is terminated without Cause pursuant to Paragraph 4(a) below, (ii) Employee is terminated or resigns within six (6) months following a Change of Control (as defined in Paragraph 4(d) below), (iii) the Employment Term expires because of the failure of the Corporation to extend this Agreement or (iv) Employee is terminated by reason of

- 19 -


 

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

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

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

- 20 -


 

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

- 21 -


 

      Employee, at its own expense, term life insurance in the face amount of $900,000.
 
  (vii)   If Employee incurs a Reimbursable Expense, as described below, and the Corporation includes the amount of any reimbursement for that expense on Employee’s Wage and Tax Statement, the Corporation agrees to pay to Employee, in addition to reimbursement for the amount of the expense, any additional amount necessary to make Employee whole on an after-tax basis. Reimbursable Expense means any expense for travel (including travel expenses of Employee’s spouse as described in this Paragraph 3(f)), entertainment or other activity undertaken in connection with the performance of Employee’s duties for the Corporation.
 
  (viii)   In the event that (w) Employee is terminated without Cause pursuant to Paragraph 4(a) below, (x) Employee is terminated or resigns within six (6)

- 22 -


 

      months following a Change of Control (as defined in Paragraph 4(d) below), (y) the Employment Term expires because of the failure of the Corporation to extend this Agreement or (z) Employee is terminated by reason of serious illness or disability pursuant to Paragraph 7(a) below, the Corporation shall continue to provide to Employee, until the later of (A) the expiration of the Employment Term or (B) one year following the date of such termination, resignation or expiration, an office and secretary and job assistance services, as appropriate to his position held on the last date of his employment under this Agreement.

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

- 23 -


 

insurance, expense reimbursement or similar plans of the Corporation now or hereafter in effect. Employee shall at all times during the Employment Term be entitled to participate in all long- or short-term bonus, stock option, restricted stock, and other executive compensation plans, and in all perquisite programs and disability, retirement, stock purchase, thrift and savings, health, medical, life insurance, expense reimbursement and similar plans of the Corporation which are from time to time in effect and in which other senior officers of the Corporation generally are entitled to participate. Except as otherwise provided in this Agreement, Employee’s participation in such plans and programs shall be in accordance with the provisions of such plans and programs applicable from time to time, it being the intent of the parties hereto that nothing in this Agreement shall decrease the rights and benefits of Employee under any such plans and programs as may be in effect from time to time. Except as specifically set forth in this Agreement, or as specifically permitted by the terms of any such plan or program, no right or benefit under any such plan or program shall become vested or exercisable after the termination of Employee’s employment by the Corporation. If for any reason any benefits payable

- 24 -


 

pursuant to this Agreement cannot be paid under the Corporation’s employee benefit or executive compensation plans, such payments shall be made out of the general assets of the Corporation.

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

     (a)  Notwithstanding any other provision hereunder, the Corporation shall have the right to terminate Employee’s employment hereunder without Cause (as defined in Paragraph 5(b) below) at any time for any reason in its sole discretion on not less than thirty (30) days’ prior written notice to Employee. In the event that (i) the Corporation terminates Employee’s employment pursuant to the immediately preceding sentence, (ii) Employee is terminated or resigns within six (6) months following a Change of Control (as defined in Paragraph 4(d) below) or (iii) the Employment Term expires because of the failure of the Corporation to extend this Agreement, the Corporation shall, subject to Paragraph 4(b) below, continue to pay Employee’s Basic Compensation to Employee at the rate in effect at the time of such termination, resignation or expiration until the later of (A) the expiration of the Employment Term or (B) one year following the date of such

- 25 -


 

termination, resignation or expiration. Employee shall, subject to Paragraph 4(b) below, continue to participate in all Employee Welfare Benefit Plans (as such term is defined in Section 3(1) of the Employee Retirement Income Security Act of 1974, as amended, and the regulations promulgated thereunder) maintained by the Corporation during the remainder of the Employment Term or until such later date as may be expressly provided under the terms of any such plan.

     (b)  Following a termination or resignation pursuant to Paragraph 4(a) above or the expiration of the Employment Term because of the failure of the Corporation to extend this Agreement, Employee shall have the duty, commencing on the date six (6) months after the date of such termination, resignation or expiration, to seek other employment or to become self-employed; provided, however, that Employee shall not be required to accept other employment or to become self-employed in any position not at least substantially equivalent (in terms of importance, dignity and responsibilities) to his position last held pursuant to this Agreement. Any income received from such employment (including self-employment but excluding service on boards of directors) after such six-month period shall reduce, on

- 26 -


 

a dollar-for-dollar basis (but not below zero), the Corporation’s obligation to pay Employee’s Basic Compensation. Any employee benefits provided to Employee in consideration of such employment after such six (6) month period shall relieve the Corporation of its obligation to provide comparable benefits hereunder to the extent of the benefits so provided; provided, however, that Employee’s retirement benefit, if any, pursuant to Paragraph 3(a) above shall not be reduced on account of any such income or benefits resulting from such employment.

     (c)  If at any time during the Employment Term, (i) there is a material reduction of Employee’s authority or any material change in Employee’s functions, duties or responsibilities which would in any material way cause Employee’s position to become less important, (ii) the Corporation shall require Employee to relocate his office outside the Washington, D.C. area, or (iii) the Corporation shall breach materially any other material obligation under this Agreement, Employee shall have the right, upon not less than thirty (30) days’ written notice to the Corporation, which notice must be given within four calendar months after the event giving rise to said right, to treat such event as a termination by the Corporation of

- 27 -


 

his employment without Cause pursuant to Paragraph 4(a) above for all purposes under this Agreement, and all of the provisions of this Agreement applicable to such a termination without Cause shall be operative with respect to such termination.

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

5.   Termination by Employee; Breach by Employee

     (a)  Notwithstanding any other provision hereunder, Employee shall have the right to terminate his employment by the Corporation at any time for any reason in his sole discretion on not less than thirty (30) days’ prior written notice to the Corporation. Upon receipt of any such notice from Employee, the Corporation shall have the option,

- 28 -


 

exercisable by giving Employee written notice within thirty (30) days of such receipt, to designate any date after the date of such notice to Employee and prior to the expiration of the aforesaid notice period as the date on which Employee shall cease to be an officer and employee of the Corporation, and the effective date of termination hereunder shall be any such earlier date so designated by the Corporation. In no event shall the termination of Employee’s employment by the Corporation without Cause pursuant to Paragraph 4(a) above, Employee’s termination or resignation within six (6) months following a Change of Control pursuant to Paragraph 4(a) above or the expiration of the Employment Term because of the failure of the Corporation to extend this Agreement be deemed to be a termination by Employee pursuant to this Paragraph 5(a).

     (b)  Notwithstanding any other provision hereunder, the Corporation may terminate Employee’s employment hereunder for “Cause,” which shall mean that Employee has materially harmed the Corporation by, in connection with his service under this Agreement, engaging in dishonest or fraudulent actions or willful misconduct, or performing his duties in a negligent manner. Notwithstanding the foregoing, Employee shall not be deemed to have been

- 29 -


 

terminated for Cause unless the Corporation shall have provided (i) reasonable notice to Employee setting forth the reasons for the Corporation’s intention to terminate for Cause, (ii) where remedial action is feasible, a reasonable opportunity for such action, (iii) an opportunity for Employee, together with his counsel, to be heard before the Board and (iv) Employee with a notice of termination stating that Employee was guilty of the conduct set forth in this Paragraph 5(b) and specifying the particulars thereof in detail. No act or failure to act will be considered “willful” unless it is done, or omitted to be done, by Employee in bad faith or without reasonable belief that his action or omission was in the best interests of the Corporation.

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

          (d)  In the event of a termination by Employee pursuant to Paragraph 5(a) above, during the period from

- 30 -


 

the effective date of termination to the earlier of (i) the first anniversary thereof and (ii) the expiration of the Employment Term, Employee shall not, directly or indirectly (x) Compete with the Corporation in the United States, (y) solicit any officer or employee of the Corporation or any of its affiliates to engage in any conduct prohibited hereby for Employee or to terminate any existing relationship with the Corporation or such affiliate or (z) assist any other person to engage in any activity in any manner prohibited hereby to Employee. As used herein, “Compete” shall mean to engage directly or indirectly in any business, or to become connected directly or indirectly with any business or firm, if a substantial part of such business or the business of any such firm involves transactions in what is commonly known as the secondary market in residential mortgages; provided, however, that Employee shall not be deemed, directly or indirectly, to Compete with the Corporation solely by virtue of Employee’s employment with any corporation or firm involved in transactions in what is commonly known as the secondary market in residential mortgages so long as Employee himself does not participate in such corporation’s or firm’s involvement in such transactions.

- 31 -


 

     (e)  The need to protect the Corporation against Employee’s competition, as well as the nature and scope of such protection, has been carefully considered by the parties hereto in light of the uniqueness of Employee’s talent and his importance to the Corporation. Accordingly, Employee agrees that, in addition to any other relief to which the Corporation may be entitled, the Corporation shall be entitled to seek and obtain injunctive relief (without the requirement of a bond) from a court of competent jurisdiction for the purpose of restraining Employee from any actual or threatened breach of the covenant contained in Paragraph 5(d) above. If for any reason a final decision of any court determines that the restrictions under Paragraph 5(d) above are not reasonable or that consideration therefor is inadequate, such restrictions shall be interpreted, modified or rewritten by such court to include as much of the duration, scope and geographic area identified in Paragraph 5(d) above as will render such restrictions valid and enforceable.

6.   Resignation as Board Member

     In the event Employee ceases to be employed by the Corporation and Employee is then a member of the Board, Employee hereby agrees that, unless otherwise requested by

- 32 -


 

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

B.   DISABILITY

7.   Disability

     (a)  In the event that, while employed under this Agreement, Employee is prevented from performing his duties hereunder by reason of serious illness or disability, the Corporation may, on sixty (60) days’ prior written notice to Employee, terminate Employee’s employment. If, within sixty (60) days of such notice, Employee recovers and is again able to perform his duties hereunder, such notice shall be void, and the Employee’s employment shall not be terminated thereby. Upon the termination of Employee’s employment pursuant to this Paragraph 7(a), the Corporation shall, subject to Paragraphs 7(b) and (c) below, continue

- 33 -


 

to pay Employee’s Basic Compensation at the rate in effect at the time of such termination until the later of (A) the expiration of the Employment Term or (B) one year following the date of such termination. Employee shall, subject to Paragraph 7(b) below, continue to participate in all Employee Welfare Benefit Plans maintained by the Corporation and receive benefits to which he is entitled under such plans during the remainder of the Employment Term or until such later date as may be expressly provided under the terms of any such plan.

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

- 34 -


 

benefits, if any, pursuant to Paragraph 3(a) above shall not be reduced on account of any such income or benefits resulting from such employment.

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

C. DEATH

8.   Death

     (a)  In the event Employee dies while employed under this Agreement, the Corporation shall pay Employee’s designated beneficiary or, if none, Employee’s estate, in one cash payment an amount equal to 200% of Employee’s Basic Compensation in effect on the date of his death.

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

- 35 -


 

a whole life insurance policy in a face amount equal to 200% of Employee’s Basic Compensation. In order to eliminate the income tax burden on Employee by reason of the imputation of income as a result of such insurance coverage, the Corporation shall pay to Employee an amount equal to the income taxes imposed on such imputed income plus the income taxes imposed on such payment. In the event this Agreement terminates or expires other than pursuant to Paragraph 5(a) or 5(b) above, Employee may, pursuant to the terms of the insurance policy through which such benefits are provided and the agreement between the Corporation and Employee entered into thereunder, acquire such insurance policy by paying the Corporation an amount equal to the sum of all premium payments made by the Corporation on such policy, and the Corporation shall pay to Employee an amount equal to the income taxes imposed on Employee with respect to such acquisition plus the income taxes imposed on such payment. In the event Employee completes thirteen (13) years of service with the Corporation pursuant to this Agreement, such insurance policy shall automatically be transferred to Employee pursuant to the terms of such policy and the agreement between the Corporation and Employee entered into

- 36 -


 

thereunder. In the event of any such transfer, in order to eliminate the income tax burden on Employee by reason of the income arising from such transfer, the Corporation shall pay to Employee an amount equal to the income taxes imposed on such income plus the income taxes imposed on such payment. Nothing contained herein shall reduce any benefit payable pursuant to Paragraph 3(a) above or under the terms of any other qualified or nonqualified pension, executive compensation or welfare plan of the Corporation.

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

D. MISCELLANEOUS

9.   Payment of Certain Expenses

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

- 37 -


 

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

10.   Secretary and Office

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

11.   Assignment by Employee

- 38 -


 

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

12.   Funding Prohibitions

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

- 39 -


 

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

13.   Disclosure of Information to the Corporation

     In the event Paragraph 4 or 7 above becomes applicable, Employee or, in the event of Employee’s incapacity or death, his personal representative shall make available to the Corporation on a confidential basis such records, documents and other information reasonably necessary to enable the Corporation to verify the amount of income available to offset the payments otherwise due Employee pursuant to Paragraph 4 or 7 above.

14.   Nondisclosure of Confidential Information

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

- 40 -


 

business of the Corporation, or by any administrative body or legislative body (including a committee thereof) with purported or apparent jurisdiction to order Employee to divulge, disclose or make accessible such information. For purposes of this Paragraph 14, “Confidential Information” shall mean nonpublic information concerning the Corporation’s financial data, strategic business plans, product development (or other proprietary product data), marketing plans and other nonpublic, proprietary and confidential information of the Corporation that is not otherwise available to the public. Confidential Information, however, shall not include information the disclosure of which cannot reasonably be expected to affect adversely the business of the Corporation to a material degree.

15.   Waiver

     The failure of either party hereto to insist upon strict compliance by the other party with any term, covenant or condition hereof shall not be deemed a waiver of such term, covenant or condition, nor shall any waiver or relinquishment or failure to insist upon strict compliance of any right or power hereunder at any one time

- 41 -


 

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

16.   Notice

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

17.   Applicable Law

     This Agreement shall be governed by the laws of the District of Columbia without regard to any otherwise applicable conflict of laws principles.

- 42 -


 

18.   Taxes

     The Corporation shall deduct from all amounts payable under this Agreement all federal, state, local and other taxes required by law to be withheld with respect to such payments.

19.   Benefit

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

- 43 -


 

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

20.   Entire Agreement

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

21.   Arbitration

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

- 44 -


 

The award of the arbitrator(s) shall be binding upon the parties. Judgment upon the award rendered by the arbitrator(s) may be entered in any court having jurisdiction.

22.   Interpretation

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

23.   Severability

     It is the intent and understanding of each party hereto that, if any term, restriction, covenant, or promise is found to be invalid or otherwise unenforceable, then

- 45 -


 

such term, restriction, covenant, or promise shall not thereby be terminated but shall be deemed modified to the extent necessary to make it enforceable and, if it cannot be so modified, shall be deemed amended to delete therefrom such provision or portion found to be invalid or unenforceable, such modification or amendment in any event to apply only with respect to the operation of this Agreement in the particular jurisdiction in which such finding is made.

- 46 -


 

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

       
Attest:   FANNIE MAE
3900 Wisconsin Avenue, N.W.
Washington, D.C. 20016
 
/s/ Elizabeth Berg

 
  By: /s/ James A. Johnson

Chairman of the Board
     of Directors
 
Witness:
 
/s/ Equilla Ford

  /s/ Franklin D. Raines

FRANKLIN D. RAINES

- 47 -

exv10w2
 

EXHIBIT 10.2

EMPLOYMENT AGREEMENT

between

FANNIE MAE

and

DANIEL H. MUDD

INCLUDING ALL
AMENDMENTS TO DATE

 


 

TABLE OF CONTENTS

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

 


 

             
20.   Severability     25  
21.   Regulatory Approval     26  

- ii -


 

EMPLOYMENT AGREEMENT

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

WITNESSETH THAT:

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

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

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

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

 


 

A.     EMPLOYMENT TERM

1.   Term and Duties

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

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

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

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

- 2 -


 

2.   Annual Salary; Certain Reimbursements and Fringe Benefits

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

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

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

- 3 -


 

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

3.   Employee’s Rights Under Certain Plans

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

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

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

- 4 -


 

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

- 5 -


 

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

- 6 -


 

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

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

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

- 7 -


 

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

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

- 8 -


 

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

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

- 9 -


 

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

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

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

- 10 -


 

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

- 11 -


 

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

     (f)     General Rights Under Benefit Plans. Nothing contained herein is intended to or shall be deemed to affect adversely any of Employee’s rights as a participant under any long- or short-term bonus, stock option, restricted stock or other executive compensation plans, or under any program of perquisites or disability, retirement, stock purchase, retirement savings, health, medical, life insurance, or similar plans of the Corporation now or hereafter in effect. Employee shall at all times during the Employment Term be entitled to participate in all long- or short-term bonus, stock option, restricted stock, and other executive compensation plans, and in all perquisite programs and disability, retirement stock purchase, thrift and savings, health, medical, life insurance, and similar plans of the Corporation which are from time to time in effect and in which other senior officers of the Corporation generally are entitled to participate. Except as otherwise provided in this Agreement, Employee’s participation in such plans and programs shall be in accordance with the provisions of such plans and programs applicable from time to time, it being the intent of the parties hereto that nothing in this Agreement shall decrease the rights and benefits of Employee under any such plans and programs as may be in effect from time to time. Except as specifically set forth in this Agreement, or as specifically permitted by the terms of any such plan or program, no

- 12 -


 

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

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

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

- 13 -


 

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

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

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

- 14 -


 

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

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

- 15 -


 

5.   Termination by Employee; Breach by Employee

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

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

- 16 -


 

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

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

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

- 17 -


 

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

     (e)     The need to protect the Corporation against Employee’s competition, as well as the nature and scope of such protection, has been carefully considered by the parties hereto in light of the uniqueness of Employee’s talent and his importance to the Corporation. Accordingly, Employee agrees that, in addition to any other relief to which the Corporation may be entitled, the Corporation shall be entitled to seek and obtain injunctive relief (without the requirement of a bond) from a court of competent jurisdiction for the purpose of restraining Employee from any actual or threatened breach of the covenant contained in Paragraph 5(d) above. If for any reason a final decision of any court determines that the restrictions under Paragraph 5(d) above are not reasonable or that consideration therefor is inadequate, such restrictions shall be interpreted, modified or rewritten by such court to include as much of the duration, scope and geographic area identified in Paragraph 5(d) above as will render such restrictions valid and enforceable.

6.   Resignation as Board Member

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

- 18 -


 

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

B.  DISABILITY

7.   Disability

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

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

- 19 -


 

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

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

C.  DEATH

8.   Death

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

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

- 20 -


 

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

D.  MISCELLANEOUS

9.   Assignment by Employee

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

- 21 -


 

10.   Funding Prohibitions

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

11.   Disclosure of Information to the Corporation

     In the event Paragraph 4 or 7 above becomes applicable, Employee or, in the event of Employee’s incapacity or death, his personal representative shall make available to the Corporation on a confidential basis such records, documents and other information reasonably necessary to enable the Corporation to verify the amount of income available to offset the payments otherwise due Employee pursuant to Paragraph 4 or 7 above.

- 22 -


 

12.   Nondisclosure of Confidential Information

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

13.   Waiver

     The failure of either party hereto to insist upon strict compliance by the other party with any term, covenant or condition hereof shall not be deemed a waiver of such term, covenant or condition, nor shall any waiver or relinquishment or failure to insist upon strict compliance of any right or power hereunder at any one time or more times be deemed a waiver or relinquishment of such right or power at any other time or times.

- 23 -


 

14.   Notice

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

15.   Applicable Law

     This Agreement shall be governed by the laws of the District of Columbia without regard to any otherwise applicable conflict of laws principles.

16.   Taxes

     The Corporation shall deduct from all amounts payable under this Agreement all federal, state, local and other taxes required by law to be withheld with respect to such payments.

17.   Benefit

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

- 24 -


 

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

18.   Entire Agreement

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

19.   Interpretation

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

20.   Severability

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

- 25 -


 

otherwise unenforceable, then such term, restriction, covenant, or promise shall not thereby be terminated but shall be deemed modified to the extent necessary to make it enforceable and, if it cannot be so modified, shall be deemed amended to delete therefrom such provision or portion found to be invalid or unenforceable, such modification or amendment in any event to apply only with respect to the operation of this Agreement in the particular jurisdiction in which such finding is made.

21.   Regulatory Approved

     The parties hereto acknowledge and agree that pursuant to Section 309(d) of the Federal National Mortgage Association Charter Act, as amended by the Federal Housing Enterprises Financial Safety and Soundness Act of 1992 (as so amended, the “Act”), 12 U.S.C. 1723a(d), no provision of this Agreement relating to the terms of Employee’s termination of employment shall be effective unless and until such provision has been reviewed and approved by the Director (the “Director”) of the Office of Federal Housing Enterprise Oversight (“OFHEO”). The parties therefore agree as follows:

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

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

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

- 26 -


 

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

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

     
Attest:   FANNIE MAE
3900 Wisconsin Avenue, N.W.
Washington, D.C. 20016
 
/s/ Rebecca Culverson

  By: /s/ Franklin D. Raines

       Chairman of the Board of
       Directors
 
Witness:    
 
/s/ Thomas R. Nides

  /s/ Daniel H. Mudd

DANIEL H. MUDD

- 27 -

exv10w3
 

EXHIBIT 10.3

EMPLOYMENT AGREEMENT

between

FANNIE MAE

and

JAMIE S. GORELICK

INCLUDING ALL
AMENDMENTS TO DATE

 


 

TABLE OF CONTENTS

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

 


 

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

 

- ii -


 

EMPLOYMENT AGREEMENT

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

WITNESSETH THAT:

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

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

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

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

 


 

A.      EMPLOYMENT TERM

1.   Term and Duties

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

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

- 2 -


 

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

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

2.   Annual Salary; Certain Reimbursements and Fringe Benefits

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

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

- 3 -


 

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

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

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

- 4 -


 

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

3.   Employee’s Rights Under Certain Plans

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

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

- 5 -


 

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

- 6 -


 

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

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

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

- 7 -


 

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

- 8 -


 

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

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

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

- 9 -


 

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

- 10 -


 

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

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

- 11 -


 

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

- 12 -


 

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

- 13 -


 

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

     (f)     General Rights Under Benefit Plans. Nothing contained herein is intended to or shall be deemed to affect adversely any of Employee’s rights as a participant under any long- or short-term bonus, stock option, restricted stock or other executive compensation plans, or under any program of perquisites or disability, retirement, stock purchase, retirement savings, health, medical, life insurance, or similar plans of the Corporation now or hereafter in effect. Employee shall at all times during the Employment Term be entitled to participate in all long- or short-term bonus, stock option, restricted stock, and other executive compensation plans, and in all perquisite programs and disability, retirement stock purchase, thrift and savings, health, medical, life insurance, and similar plans of the Corporation which are from time to time in effect and in which other senior officers of the Corporation generally are entitled to participate. Except as otherwise provided in this Agreement, Employee’s

- 14 -


 

participation in such plans and programs shall be in accordance with the provisions of such plans and programs applicable from time to time, it being the intent of the parties hereto that nothing in this Agreement shall decrease the rights and benefits of Employee under any such plans and programs as may be in effect from time to time. Except as specifically set forth in this Agreement, or as specifically permitted by the terms of any such plan or program, no right or benefit under any such plan or program shall become vested or exercisable after the termination of Employee’s employment by the Corporation. If for any reason any benefits payable pursuant to this Agreement cannot be paid under the Corporation’s employee benefit or executive compensation plans, such payments shall be made out of the general assets of the Corporation.

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

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

- 15 -


 

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

- 16 -


 

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

- 17 -


 

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

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

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

- 18 -


 

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

5.   Termination by Employee; Breach by Employee

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

- 19 -


 

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

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

- 20 -


 

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

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

- 21 -


 

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

     (e)     The need to protect the Corporation against Employee’s competition, as well as the nature and scope of such protection, has been carefully considered by the parties hereto in light of the uniqueness of Employee’s talent and her importance to the Corporation. Accordingly, Employee agrees that, in addition to any other relief to which the Corporation may be entitled, the Corporation shall be entitled to seek and obtain injunctive relief (without the requirement of a bond) from a court of competent jurisdiction for the purpose of restraining Employee from any actual or threatened breach of the covenant contained in Paragraph 5(d) above. If for any reason a final decision of any court determines that the restrictions under Paragraph 5(d) above are not reasonable

- 22 -


 

or that consideration therefor is inadequate, such restrictions shall be interpreted, modified or rewritten by such court to include as much of the duration, scope and geographic area identified in Paragraph 5(d) above as will render such restrictions valid and enforceable.

6.   Resignation as Board Member

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

B.    DISABILITY

7.   Disability

- 23 -


 

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

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

- 24 -


 

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

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

C.      DEATH

8.   Death

- 25 -


 

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

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

- 26 -


 

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

- 27 -


 

D.      MISCELLANEOUS

9.   Assignment by Employee

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

10.   Funding Prohibitions

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

- 28 -


 

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

11.   Disclosure of Information to the Corporation

     In the event Paragraph 4 or 7 above becomes applicable, Employee or, in the event of Employee’s incapacity or death, her personal representative shall make available to the Corporation on a confidential basis such records, documents and other information reasonably necessary to enable the Corporation to verify the amount of income available to offset the payments otherwise due Employee pursuant to Paragraph 4 or 7 above.

12.   Nondisclosure of Confidential Information

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

- 29 -


 

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

13.   Waiver

     The failure of either party hereto to insist upon strict compliance by the other party with any term, covenant or condition hereof shall not be deemed a waiver of such term, covenant or condition, nor shall any waiver or relinquishment or failure to insist upon strict compliance of any right or power hereunder at any one time

- 30 -


 

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

14.   Notice

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

15.   Applicable Law

     This Agreement shall be governed by the laws of the District of Columbia without regard to any otherwise applicable conflict of laws principles.

- 31 -


 

16.   Taxes

     The Corporation shall deduct from all amounts payable under this Agreement all federal, state, local and other taxes required by law to be withheld with respect to such payments.

17.   Benefit

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

18.   Entire Agreement

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

19.   Interpretation

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

- 32 -


 

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

20.   Severability

     It is the intent and understanding of each party hereto that, if any term, restriction, covenant, or promise is found to be invalid or otherwise unenforceable, then such term, restriction, covenant, or promise shall not thereby be terminated but shall be deemed modified to the extent necessary to make it enforceable and, if it cannot be so modified, shall be deemed amended to delete therefrom such provision or portion found to be invalid or unenforceable, such modification or amendment in any event

- 33 -


 

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

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

         
Attest:   FANNIE MAE
    3900 Wisconsin Avenue, N.W.
    Washington, D.C. 20016
         
/s/ Ann Marie Wheelock   By: /s/ James A. Johnson  

   
 
      Chairman of the Board of Directors  
     
Witness:    
     
/s/ Carol Banks   /s/ Jamie S. Gorelick

 
    JAMIE S. GORELICK

- 34 -

exv10w4
 

EXHIBIT 10.4

[LOGO]

September 18, 1987

Mr. John Timothy Howard
Executive Vice President—Economics,
Strategic Planning, and Financial Analysis
Federal National Mortgage Association
3900 Wisconsin Avenue, N.W.
Washington, DC 20016

Dear Tim:

This will confirm our understanding that you are an employee-at-will of the Federal National Mortgage Association (the “Corporation”) and hence the Corporation shall have the right to terminate your employment at any time for any reason in the sole discretion of the Corporation by not less than ten days prior written notice to you. However, if such termination is other than for “cause,” as defined herein, the Corporation shall continue your base salary for a period of twelve months from the date of such termination. For this purpose, a termination will be for cause if it is based upon reasonable evidence presented in writing to you that you have materially breached your duties as an officer of the Corporation by engaging in dishonest or fraudulent actions or willful misconduct. If during such twelve-month period you become entitled to and receive disability benefits under any disability payment plan paid for by the Corporation, including disability insurance, the amount otherwise payable by the Corporation to you hereunder shall be reduced (but not below zero) by the amount of any such disability benefits received by you, but only to the extent such benefits are attributable to payments made by the Corporation. Except as specifically noted below, the payments hereunder shall be in full satisfaction of all and any rights you may have and the receipt thereof shall constitute a general release to the Corporation.

 


 

Nothing herein shall adversely affect any rights you may have on the date of termination under any employee benefit plan or executive compensation arrangement maintained by the Corporation. Your coverage under the Corporation’s life, medical, and long-term disability insurance plans shall be continued until the end of the twelve-month period noted above or, if earlier, until you are reemployed by a new employer that provides coverage for benefits. If this conforms to your understanding of our agreement, please countersign the duplicate copy of this letter and return it to me.

Sincerely,

/s/ David O. Maxwell

I agree with the terms of this letter.

     
/s/ John Timothy Howard

John Timothy Howard
  September 18, 1987

Date
Executive Vice President—Economics,
Strategic Planning, and Financial
Analysis
   

 

exv10w5
 

EXHIBIT 10.5

[LOGO]

June 19, 1990

Mr. Robert J. Levin
Executive Vice President—Marketing
Federal National Mortgage Association
3900 Wisconsin Avenue, N.W.
Washington, DC 20016

Dear Rob:

This will confirm our understanding that you are an employee-at-will of the Federal National Mortgage Association (the “Corporation”) and hence the Corporation shall have the right to terminate your employment at any time for any reason in the sole discretion of the Corporation by not less than ten days prior written notice to you. However, if such termination is other than for “cause,” as defined herein, the Corporation shall continue your base salary for a period of twelve months from the date of such termination. For this purpose, a termination will be for cause if it is based upon reasonable evidence presented in writing to you that you have materially breached your duties as an officer of the Corporation by engaging in dishonest or fraudulent actions or willful misconduct. If during such twelve-month period you become entitled to and receive disability benefits under any disability payment plan paid for by the Corporation, including disability insurance, the amount otherwise payable by the Corporation to you hereunder shall be reduced (but not below zero) by the amount of any such disability benefits received by you, but only to the extent such benefits are attributable to payments made by the Corporation. Except as specifically noted below, the payments hereunder shall be in full satisfaction of all and any rights you may have and the receipt thereof shall constitute a general release to the Corporation.

 


 

Nothing herein shall adversely affect any rights you may have on the date of termination under any employee benefit plan of executive compensation arrangement maintained by the Corporation. Your coverage under the Corporation’s life, medical, and long-term disability insurance plans shall be continued until the end of the twelve-month period noted above or, if earlier, until you are employed by a new employer that provides coverage for benefits. If this conforms to your understanding of our agreement, please countersign the duplicate copy of this letter and return it to me.

Sincerely,

/s/ David O. Maxwell

I agree with the terms of this letter.

     
/s/ Robert J. Levin

Robert J. Levin