EMPLOYMENT AGREEMENT

This Employment Agreement (the “Agreement”) is made and entered into, effective as of January 1, 2015, by and between National Rural Utilities Cooperative Finance Corporation, a District of Columbia cooperative corporation (“CFC”), and Sheldon C. Petersen (the “Executive”).

WHEREAS, CFC and the Executive previously entered into an Employment Agreement, dated as of January 1, 2008 and as further amended (the “Prior Employment Agreement”) and hereby desire, through execution of this Agreement, to supersede such Prior Employment Agreement; and

WHEREAS, CFC desires to retain the Executive as its Governor and Chief Executive Officer under this Agreement for the period provided for in this Agreement, and the Executive is willing to serve in the employ of CFC on a full-time basis for such period, upon such terms and conditions as are provided herein.

NOW, THEREFORE, in consideration of the premises and mutual covenants herein contained and for other good and valuable consideration, the parties hereby agree as follows:

During the Term of Employment, except as hereinafter provided and except for vacation, holidays observed by CFC, and periods of illness, the Executive agrees to devote substantially all of his business time and attention to carrying out his duties and responsibilities under this Agreement and shall use his best efforts, skills, and abilities to further the interests of CFC. The Executive shall be permitted, to the extent such activities do not substantially interfere with the performance of the Executive’s responsibilities and duties hereunder, (i) to manage his personal, financial, and legal affairs and (ii) to serve on civic, charitable, religious, or educational boards or committees. However, the Executive may not serve on the board of directors of any other business entities without the prior express written consent of the Board and subject to such reasonable limitations as may be imposed by the Board in granting such consent.    

terminated as provided in Section 6 below or extended as provided in the following sentence (the “Initial Term of Employment”). The Initial Term of Employment shall automatically be extended on June 1, 2017 and each subsequent June 1st thereafter for an additional year (each such extension, an “Extended Term of Employment”) unless, not later than six (6) months prior to any such June 1st, either party to this Agreement shall have given written notice to the other party that he or it does not wish to extend or further extend the Term of Employment. For purposes of this Agreement, “Term of Employment” shall mean the Initial Term of Employment and, if applicable, each subsequent Extended Term of Employment.

5.1.CFC Plans. The Executive shall be entitled to participate in all CFC health, accident, life insurance, savings, retirement, disability, and other benefit plans, programs, or practices from time to time in effect for senior executives of CFC at least to the same extent as other senior executives (or, where applicable, retired senior executives) of CFC, including, without limitation, CFC’s Annual Incentive Plan, Long-Term Incentive Plan, and Pension Restoration Deferred Compensation Plan.

5.2.Vacation. The Executive shall be entitled to seven (7) weeks of paid vacation granted on January 1st of each year, plus such holidays, sick leave, and other time off as are established by the policies of CFC. Unused days of vacation may be carried over to subsequent years; provided, however, that amounts of unused vacation in excess of three hundred twenty (320) hours at the close of each such twelve (12)-month period shall be settled in cash at the Executive’s current rate of pay. The Executive shall receive, within thirty (30) days after his employment terminates, a payment (based on the Executive’s Base Salary in effect on the date the Executive terminated employment with CFC) for any accrued but unused vacation at the termination but not in excess of fifteen (15) weeks (which represents the maximum accrued vacation based on the year in which the termination occurs and the maximum accrued vacation which may be carried over from the year prior to the year in which such termination occurs), regardless of the reason for such termination of employment of the Executive.

5.3.Perquisites; Expenses. During the Term of Employment, the Executive shall be entitled to receive such perquisites as CFC may determine to provide to its senior executive officers, and CFC shall reimburse the Executive for all reasonable and documented expenses

incurred by the Executive in connection with the performance of the Executive’s duties hereunder, including, an annual allowance approved by the Board to cover expenses incurred as a result of the attendance by the Executive’s wife at a function or meeting where the Executive determines that her attendance is appropriate.

5.4.Automobile. During the Term of Employment, CFC shall provide the Executive with an annual allowance approved by the Board to cover all reasonable expenses (including, insurance, repairs, maintenance, fuel, and oil) for an automobile selected by the Executive.

5.5.Executive Health Physical. During the Term of Employment, the Executive shall be entitled to have an executive health physical on an annual basis, at a medical institution of his choice within the continental United States. The health physical shall be comprehensive and consistent with the standards that are established practice within the medical profession at the time. All diagnostic and ancillary fees that qualify will be submitted by the Executive for insurance reimbursement, and all remaining fees for the health physical will be either paid directly by CFC or reimbursed to the Executive.

5.6.Supplemental Executive Retirement Plan. During the Term of Employment, the Executive shall be eligible to participate in CFC’s Supplemental Executive Retirement Plan (the “SERP”). CFC may, from time to time and in its sole discretion, make contributions to the SERP on the Executive’s behalf and establish vesting and other conditions applicable thereto.

6.1.Termination by CFC.

a.CFC shall have the right to terminate the Executive’s employment at any time during the Term of Employment with or without “Cause,” as defined in Section 6.5.a. If, during the Term of Employment, CFC terminates the employment of the Executive under this Section 6 without Cause, the Term of Employment shall terminate immediately thereafter, and:

i.CFC shall pay the Executive such Base Salary provided herein as he may be entitled to receive for services rendered prior to the date of such termination;

ii.CFC shall pay the Executive for any accrued but unused vacation as set forth in Section 5.2 and for any properly-documented unreimbursed expenses;

    

iii.CFC shall pay the Executive the benefits which the Executive is, or may become, entitled to receive under the terms and conditions of such CFC plans as are in effect from time to time;

iv.CFC shall pay the Executive a single lump-sum payment equal to the product of (A) three (3) and (B) the sum of (1) his annual Base Salary at the rate in effect on the date of such termination, and (2) the Executive’s Short-Term Incentive award, if any, for the year prior to the year in which such termination occurs; and

v.CFC shall pay the Executive the benefits, if any, accrued under the Supplemental Executive Retirement Plan as set forth in Section 5.6.

b.If, during the Term of Employment, CFC terminates the employment of the Executive for Cause, the Term of Employment shall terminate immediately thereafter, and CFC shall pay the Executive such compensation as is set forth in Sections 6.1.a.i, 6.1.a.ii, and 6.1.a.iii herein.

6.2.Termination by the Executive.

 

a.The Executive has the right to terminate his employment hereunder at any time during the Term of Employment upon not less than ninety (90) days prior written notice to CFC; provided, however, that if the Executive wishes to terminate his employment for “Good Reason” as defined in Section 6.5.b, the Executive must notify CFC in writing of such intent within thirty (30) days of the event or events that he believes constitute Good Reason, and such notice must specify such event or events in reasonable detail. If during the Term of Employment the Executive’s employment is terminated for Good Reason, the Term of Employment shall terminate immediately thereafter, and CFC shall pay the Executive such compensation as is set forth in Section 6.1.a.

b.If during the Term of Employment the Executive terminates his employment for other than Good Reason, the Term of Employment shall terminate immediately thereafter, and CFC shall pay the Executive such compensation as is set forth in Section 6.1.b.

6.3.Disability. Upon the Disability, as defined in Section 6.5.c, of the Executive during the Term of Employment, and for the period of Disability, in addition to any other benefits to which he may be entitled pursuant to this Agreement, but in lieu of his Base Salary and any Short-Term Incentive award, the Executive shall receive, through the earliest of (a) the end of the Term of Employment, (b) the Executive’s date of recovery, (c) the Executive’s actual termination of employment (in which case the applicable provisions of Section 6.1 or Section 6.2 shall apply and this Section 6.3 shall cease to apply), or (d) the Executive’s death (in which case Section 6.4 and any other relevant provisions shall apply and this Section 6.3 shall cease to apply), an annual “Disability Benefit” equal to sixty percent (60%) of the Base Salary the Executive was receiving at the commencement of the Disability and sixty percent (60%) of his target Short-Term Incentive award, if any, under CFC’s Annual Incentive Plan for the year in which the Executive became disabled. Payment of the Disability Benefit shall be in equal monthly installments, and such payments shall be reduced by the monthly payments received by the Executive under any other CFC-sponsored disability plan or program and the monthly disability benefits received by the Executive pursuant to the applicable provisions of the Social Security Act. During the period that Disability Benefits are payable to the Executive, he shall continue to participate in CFC’s plans described in Section 5.1 (other than the Annual Incentive Plan and the Long-Term Incentive Plan) as if he had continued to be an active CFC employee and as if he had received sixty percent (60%) of the Base Salary then in

effect under Section 4 (and sixty percent (60%) of his target award, if any, under CFC’s Annual Incentive Plan for the year in which he became disabled).

6.4.Death. In the event of the termination of the Executive’s employment by reason of death during the Term of Employment, the Executive’s “Designated Beneficiary,” as defined in Section 6.5.d, shall be entitled to receive:

a.payment of the Executive’s unpaid Base Salary through the date of death;

b.payment of a pro-rated Short-Term Incentive award, if any, for the year of the Executive’s death (at one hundred percent (100%) of the target award);

c.the lesser of (i) a lump sum payment equal to one year’s Base Salary at the rate in effect on the date of death or (ii) the Base Salary that would have been paid to the Executive in the remaining period of the Term of Employment prior to death (but in no case less than the Base Salary that would have been paid to the Executive for a six (6)-month period);

d.reimbursement for any properly-documented, unreimbursed expenses; and

e.such survivor benefits and payments for the Executive’s family or with respect to the Executive that are provided, or may be provided, under CFC’s plans described in Section 5.1, determined in accordance with the then-applicable provisions of such plans, programs, or arrangements.

6.5.Definitions.

a.Cause. For purposes of this Agreement, Cause shall mean (i) the willful and continued failure by the Executive, as determined in good faith by two-thirds (2/3) of the members of the Board (after notice to the Executive and providing the Executive an opportunity to meet with the Board), to perform his duties under this Agreement or comply with written policies of CFC; (ii) willful conduct materially injurious to CFC; or (iii) conviction of a felony involving moral turpitude; provided, however, that any act or omission by the Executive shall not fall within the scope of this Section 6.5.a(i) and (ii) if it was done or omitted to be done by the Executive in good faith and with a reasonable belief that such action or omission was in the best interests of CFC.

b.Good Reason. For purposes of this Agreement, Good Reason shall mean, without the prior written consent of the Executive, (i) a reduction in the rate of the Executive’s Base Salary, (ii) a decrease in the Executive’s titles, duties, or responsibilities hereunder or the assignment of new responsibilities hereunder which, in either case, is materially less favorable to the Executive when compared to the Executive’s titles, duties, and responsibilities which were in effect immediately prior to such assignment, or (iii) the relocation of CFC’s principal office or the relocation of the Executive to a location more than fifty (50) miles from the principal office of CFC on the date of this Agreement; provided,

however, that the term Good Reason shall not include the occurrence of any of the above if such occurrence is remedied by CFC within twenty (20) business days after receipt by CFC of the Executive’s written notice of resignation for Good Reason under Section 6.2.a setting forth in specific detail the facts and circumstances resulting in the Good Reason upon which his resignation is based.

c.Disability. For purposes of this Agreement, Disability shall mean that the Executive has not performed his full-time duties with CFC for three (3) consecutive months as a result of his incapacity due to physical or mental illness and within thirty (30) days after written notice of such incapacity is given to the Executive he shall not have returned to the full-time performance of his duties hereunder.

d.Designated Beneficiary. For purposes of this Agreement, the Designated Beneficiary shall be any person designated by the Executive in a written instrument signed by the Executive and delivered to CFC to be the beneficiary of payments to be made by CFC hereunder upon the death of the Executive, if such person survives the Executive. Any Designated Beneficiary may be changed by the Executive at any time and from time to time by a written instrument signed by the Executive and delivered to CFC. If no Designated Beneficiary survives the Executive, the Designated Beneficiary shall be the estate of the Executive.

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date and year first above written.