Document:

exv4w1

    Exhibit 4.1

 

    CERTIFICATE
    OF DESIGNATION OF TERMS OF

    8.75% NON-CUMULATIVE MANDATORY CONVERTIBLE

    PREFERRED STOCK,
    SERIES 2008-1

 

    CUSIP:
    313586745

 

		
	
    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 “8.75% Non-Cumulative
    Mandatory Convertible Preferred Stock,
    Series 2008-1”
    (the
    “Series 2008-1
    Preferred Stock”), and the number of shares initially
    constituting the
    Series 2008-1
    Preferred Stock is 45,000,000*, which number may be increased by
    the Board of Directors of Fannie Mae, or a duly authorized
    committee thereof, in accordance with Section 9 below.
    Shares of
    Series 2008-1
    Preferred Stock will have no par value and will have a stated
    value and liquidation preference of $50 per share. Any
    outstanding shares of the
    Series 2008-1
    Preferred stock that remain outstanding after May 13, 2011
    will automatically convert into shares of common stock of Fannie
    Mae pursuant to the terms set forth herein. 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 2008-1
    Preferred Stock, provided such reduction is not below the number
    of shares of
    Series 2008-1
    Preferred Stock then outstanding.

 

		
	
    2.  
	
    Dividends.

 

    (a) Holders of record of
    Series 2008-1
    Preferred Stock (each individually a “Holder,”
    or collectively the “Holders”) will be entitled
    to receive, ratably, when, as and if declared by the Board of
    Directors, in its sole discretion out of funds legally available
    therefor, non-cumulative cash dividends at a rate of 8.75% per
    annum per share of
    Series 2008-1
    Preferred Stock. Dividends on the
    Series 2008-1
    Preferred Stock shall accrue from and including the Issue Date
    (as defined in Section 4A) and will be payable when, as and
    if declared by the Board of Directors (or a designated committee
    of the Board) quarterly on March 31, June 30,
    September 30 and December 31 of each year, commencing
    September 30, 2008 through March 31, 2011, and on
    May 13, 2011 (each, a “Dividend Payment
    Date”). 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 the Issue Date to but excluding
    September 30, 2008, will be $1.6528 per share and will be
    payable on September 30, 2008. Thereafter, if declared,
    quarterly dividends will be $1.09375 per share. The
    “Dividend Period” relating to a Dividend
    Payment Date will be the period from and including the preceding
    Dividend Payment Date (or in the case of the initial dividend,
    May 14, 2008) to but excluding such Dividend Payment
    Date. Dividends payable on the
    Series 2008-1
    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, with the dividend for such partial Dividend Period
    computed by dividing the per annum dividend rate by 360, and
    multiplying that amount by the number of days in such partial
    Dividend Period (using the 30 day month, 360 day year
    convention) and stated value of $50 per share, the product of
    which shall 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 by one).
    Unless converted prior to the Mandatory Conversion Date (defined
    below), if declared, the final dividend prior to mandatory
    conversion, which will be for the period from and including
    March 31, 2011 to but excluding May 13, 2011, will be
    $0.5104 per share and will be payable on May 13, 2011.
    Dividends payable on the
    Series 2008-1
    Preferred Stock for each full Dividend Period will be computed
    by dividing

 

 

    *  Plus up to 6,750,000 additional shares pursuant to
    the Underwriters’ option to purchase additional shares.

    

    1

 

    the per annum dividend rate by four, and multiplying the result
    by the stated value of $50 per share, the product of which shall
    be rounded to the fifth digit after the decimal point (if the
    sixth digit to the right of the decimal point is five or
    greater, the fifth digit will be rounded up by one).

 

    (b) No dividend (other than dividends or distributions paid
    in shares of, or options, warrants or rights to subscribe for or
    purchase shares of, the Common Stock (as defined in
    Section 4A) 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 2008-1
    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 2008-1
    Preferred Stock) unless dividends have been declared and paid or
    set apart (or ordered to be set apart) on the
    Series 2008-1
    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 2008-1
    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 2008-1
    Preferred Stock in respect of any prior Dividend Period. If the
    full dividend on the
    Series 2008-1
    Preferred Stock is not paid for any quarterly Dividend Period,
    the Holders of
    Series 2008-1
    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 2008-1
    Preferred Stock) for such Dividend Period.

 

    (c) The Board of Directors of Fannie Mae, or a duly
    authorized committee thereof, may, in its discretion, choose to
    pay dividends on the
    Series 2008-1
    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 2008-1
    Preferred Stock).

 

    (d) No full dividends shall be declared or paid or set
    apart for payment on any stock of Fannie Mae ranking, as to the
    payment of dividends, on a parity with the
    Series 2008-1
    Preferred Stock for any period unless full dividends have been
    declared and paid or set apart for payment on the
    Series 2008-1
    Preferred Stock for the then-current quarterly Dividend Period.
    When dividends are not paid in full upon the
    Series 2008-1
    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 2008-1
    Preferred Stock, all dividends declared upon shares of
    Series 2008-1
    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 2008-1
    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 2008-1
    Preferred Stock (but without, in the case of any non-cumulative
    preferred stock, accumulation of unpaid dividends for prior
    Dividend Periods) and such other stock bear to each other.

 

    (e) No dividends may be declared or paid or set apart for
    payment on any shares of
    Series 2008-1
    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 2008-1
    Preferred Stock.

 

    (f) Holders of
    Series 2008-1
    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.  
	
    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 2008-1
    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 2008-1
    Preferred Stock), the amount of $50 per share plus an amount
    equal to the dividend (whether or not declared) for the
    then-current quarterly Dividend Period accrued to but excluding
    the date of such liquidation payment, but without accumulation
    of unpaid dividends on the
    Series 2008-1
    Preferred Stock for prior Dividend Periods.

      

      2

 

    (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 2008-1
    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 2008-1
    Preferred Stock, the assets will be distributed to the Holders
    of
    Series 2008-1
    Preferred Stock and holders of all such other stock pro
    rata, based on the full respective preferential amounts to
    which they are entitled (but without, in the case of any
    non-cumulative preferred stock, accumulation of unpaid dividends
    for prior Dividend Periods).

 

    (c) Notwithstanding the foregoing, Holders of
    Series 2008-1
    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 2008-1
    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 entity or the merger, consolidation or
    combination of any other 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 3.

 

    (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 subsections (a),
    (b) and (c) of this Section 3, the Holders of
    Series 2008-1
    Preferred Stock will not be entitled to any further
    participation in any distribution of assets by Fannie Mae.

 

		
	
    4.  
	
    Conversion
    Rights.

 

		
	
    4A 
	
    Definitions.

 

    “Applicable Market Value” means the average of
    the Closing Prices per share of Common Stock over the 20
    consecutive Trading Day period ending on the third Trading Day
    immediately preceding the Mandatory Conversion Date.

 

    A “Cash Acquisition” will be deemed to have
    occurred at such time after the Issue Date that there is the
    consummation of any acquisition (whether by means of a
    liquidation, share exchange, tender offer, consolidation,
    recapitalization, reclassification, merger of Fannie Mae or any
    sale, lease or other transfer of Fannie Mae’s and its
    subsidiaries’ consolidated assets) or a series of related
    transactions or events pursuant to which 90% or more of the
    Common Stock is exchanged for, converted into or constitutes
    solely the right to receive cash, securities or other property,
    and more than 10% of the cash, securities or other property
    consists of cash, securities or other property that is not, or
    upon issuance shall not be, traded on the New York Stock
    Exchange or quoted on the Nasdaq Global Select Market or the
    Nasdaq Global Market (or their respective successors).

 

    “Cash Acquisition Conversion” shall have the
    meaning set forth in Section 4D(a).

 

    “Cash Acquisition Conversion Date” means the
    effective date of any Cash Acquisition Conversion of
    Series 2008-1
    Preferred Stock pursuant to Section 4D.

 

    “Cash Acquisition Conversion Period” shall have
    the meaning set forth in Section 4D(a).

 

    “Cash Acquisition Conversion Rate” means the
    conversion rate set forth in the table below for the applicable
    Effective Date and the applicable Stock Price applicable to Cash
    Acquisition Conversions during the Cash Acquisition Conversion
    Period:

 

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	

    Effective Date

	
 
	
    $10.00
	
 
	
 
	
    $20.00
	
 
	
 
	
    $25.00
	
 
	
 
	
    $27.50
	
 
	
 
	
    $32.45
	
 
	
 
	
    $45.00
	
 
	
 
	
    $55.00
	
 
	
 
	
    $65.00
	
 
	
 
	
    $75.00
	
 
	
 
	
    $95.00
	
 
	
 
	
    $115.00
	
 
	
 
	
    $135.00
	
 
	
 
	
    $155.00
	
 

	 

	

    May 14, 2008

	
 
	
 
	
    2.3847
	
 
	
 
	
 
	
    1.9192
	
 
	
 
	
 
	
    1.8187
	
 
	
 
	
 
	
    1.8182
	
 
	
 
	
 
	
    1.7332
	
 
	
 
	
 
	
    1.6669
	
 
	
 
	
 
	
    1.6423
	
 
	
 
	
 
	
    1.6277
	
 
	
 
	
 
	
    1.6180
	
 
	
 
	
 
	
    1.6052
	
 
	
 
	
 
	
    1.5965
	
 
	
 
	
 
	
    1.5900
	
 
	
 
	
 
	
    1.5847
	
 

	

    May 13, 2009

	
 
	
 
	
    2.2244
	
 
	
 
	
 
	
    1.8565
	
 
	
 
	
 
	
    1.8182
	
 
	
 
	
 
	
    1.8182
	
 
	
 
	
 
	
    1.6886
	
 
	
 
	
 
	
    1.6329
	
 
	
 
	
 
	
    1.6147
	
 
	
 
	
 
	
    1.6046
	
 
	
 
	
 
	
    1.5979
	
 
	
 
	
 
	
    1.5888
	
 
	
 
	
 
	
    1.5821
	
 
	
 
	
 
	
    1.5769
	
 
	
 
	
 
	
    1.5727
	
 

	

    May 13, 2010

	
 
	
 
	
    2.0470
	
 
	
 
	
 
	
    1.8182
	
 
	
 
	
 
	
    1.8182
	
 
	
 
	
 
	
    1.8182
	
 
	
 
	
 
	
    1.6462
	
 
	
 
	
 
	
    1.5956
	
 
	
 
	
 
	
    1.5837
	
 
	
 
	
 
	
    1.5780
	
 
	
 
	
 
	
    1.5741
	
 
	
 
	
 
	
    1.5681
	
 
	
 
	
 
	
    1.5637
	
 
	
 
	
 
	
    1.5604
	
 
	
 
	
 
	
    1.5580
	
 

	

    May 13, 2011

	
 
	
 
	
    1.8182
	
 
	
 
	
 
	
    1.8182
	
 
	
 
	
 
	
    1.8182
	
 
	
 
	
 
	
    1.8182
	
 
	
 
	
 
	
    1.5408
	
 
	
 
	
 
	
    1.5408
	
 
	
 
	
 
	
    1.5408
	
 
	
 
	
 
	
    1.5408
	
 
	
 
	
 
	
    1.5408
	
 
	
 
	
 
	
    1.5408
	
 
	
 
	
 
	
    1.5408
	
 
	
 
	
 
	
    1.5408
	
 
	
 
	
 
	
    1.5408
	
 

    

    3

 

    If the Stock Price falls between two Stock Prices set forth in
    the table above, or if the Effective Date falls between two
    Effective Dates set forth in the table above, the Cash
    Acquisition Conversion Rate shall be determined by straight-line
    interpolation between the Cash Acquisition Conversion Rates set
    forth for the higher and lower Stock Prices and Effective Dates,
    as applicable, based on a
    365-day year.

 

    If the Stock Price is in excess of $155.00 per share (subject to
    adjustment), then the Cash Acquisition Conversion Rate shall be
    the Minimum Conversion Rate. If the Stock Price is less than
    $10.00 per share (subject to adjustment) (the “Minimum
    Stock Price”), then the Cash Acquisition Conversion
    Rate shall be determined as if the Stock Price equaled the
    Minimum Stock Price, using the straight-line interpolation, as
    described above, if the Effective Date falls between two
    Effective Dates set forth in the table above.

 

    The Stock Prices in the column headings in the table above are
    subject to adjustment in accordance with the provisions of
    Section 7(c)(iii). The conversion rates set forth in the
    table above are each subject to adjustment in the same manner as
    each Fixed Conversion Rate as set forth in Section 7.

 

    “Cash Acquisition Notice” shall have the
    meaning set forth in Section 4D(b).

 

    “Closing Price” of the Common Stock or any
    securities distributed in a Spin-Off, as the case may be, means,
    as of any date of determination:

 

    (a) the closing price on that date or, if no closing price
    is reported, the last reported sale price, of shares of the
    Common Stock or such other securities on the New York Stock
    Exchange on that date; or

 

    (b) if the Common Stock or such other securities are not
    traded on the New York Stock Exchange, the closing price on that
    date as reported in composite transactions for the principal
    U.S. national or regional securities exchange on which the
    Common Stock or such other securities are so traded or, if no
    closing price is reported, the last reported sale price of
    shares of the Common Stock or such other securities on the
    principal U.S. national or regional securities exchange on
    which the Common Stock or such other securities are so traded on
    that date; or

 

    (c) if the Common Stock or such other securities are not
    traded on a U.S. national or regional securities exchange,
    the last quoted bid price on that date for the Common Stock or
    such other securities in the over-the-counter market as reported
    by Pink Sheets LLC or a similar organization; or

 

    (d) if the Common Stock or such other securities are not so
    quoted by Pink Sheets LLC or a similar organization, the market
    price of the Common Stock or such other securities on that date
    as determined by a nationally recognized independent investment
    banking firm retained by Fannie Mae for this purpose.

 

    For the purposes of this Certificate of Designation, all
    references herein to the closing price and the last reported
    sale price of the Common Stock on the New York Stock Exchange
    shall be such closing price and last reported sale price as
    reflected on the website of the New York Stock Exchange
    (www.nyse.com) and as reported by Bloomberg Professional
    Service; provided that in the event that there is a
    discrepancy between the closing price and the last reported sale
    price as reflected on the website of the New York Stock Exchange
    and as reported by Bloomberg Professional Service, the closing
    price and the last reported sale price on the website of the New
    York Stock Exchange shall govern.

 

    “Common Stock” as used in this Certificate of
    Designation means Fannie Mae’s common stock, no par value
    per share, as the same exists at the date of filing of this
    Certificate of Designation relating to the
    Series 2008-1
    Preferred Stock, or any other class of stock resulting from
    successive changes or reclassifications of such common stock
    consisting solely of changes in par value, or from no par value
    to par value, or from par value to no par value.

 

    “Conversion Agent” means Computershare
    Trust Company, N.A.

 

    “Conversion Date” means, as applicable, the
    Mandatory Conversion Date, the Cash Acquisition Conversion Date
    or the Early Conversion Date.

 

    “Current Market Price” per share of Common
    Stock on any date means for the purposes of determining an
    adjustment to the Fixed Conversion Rate:

 

    (a) for purposes of adjustments pursuant to
    Section 7(a)(ii), Section 7(a)(iv)(A) in the event of
    an adjustment not relating to a Spin-Off, and
    Section 7(a)(v), the average of the Closing Prices over the
    five consecutive Trading

      

      4

 

    Day period ending on the Trading Day preceding the Ex-Date with
    respect to the issuance or distribution requiring such
    computation;

 

    (b) for purposes of adjustments pursuant to
    Section 7(a)(iv)(B) in the event of an adjustment relating
    to a Spin-Off, the average of the Closing Prices over the first
    ten consecutive Trading Days commencing on and including the
    fifth Trading Day following the Ex-Date for such
    distribution; and

 

    (c) for purposes of adjustments pursuant to
    Section 7(a)(vi), the average of the Closing Prices over
    the five consecutive Trading Day period ending on the seventh
    Trading Day after the Expiration Date of the tender offer or
    exchange offer.

 

    “Dividend Threshold Amount” shall have the
    meaning set forth in Section 7(a)(v).

 

    “Early Conversion” shall have the meaning set
    forth in Section 4C.

 

    “Early Conversion Date” means the effective
    date of the Early Conversion.

 

    “Effective Date” shall have the meaning set
    forth in Section 4D(a).

 

    “Exchange Property” shall have the meaning set
    forth in Section 7(e).

 

    “Ex-Date” when used with respect to any
    issuance or distribution, means the first date on which shares
    of the Common Stock trade without the right to receive such
    issuance or distribution.

 

    “Expiration Date” shall have the meaning set
    forth in Section 7(a)(vi).

 

    “Expiration Time” shall have the meaning set
    forth in Section 7(a)(vi).

 

    “Fair Market Value” means the fair market value
    as determined in good faith by the Board of Directors, whose
    determination shall be conclusive and set forth in a resolution
    of the Board of Directors.

 

    “Fixed Conversion Rates” means the Maximum
    Conversion Rate and the Minimum Conversion Rate.

 

    “Issue Date” shall mean May 14, 2008, the
    original date of issuance of the
    Series 2008-1
    Preferred Stock.

 

    “Mandatory Conversion Date” means May 13,
    2011.

 

    “Mandatory Conversion Rate” shall have the
    meaning set forth in Section 4B(b).

 

    “Maximum Conversion Rate” shall have the
    meaning set forth in Section 4B(b)(iii).

 

    “Minimum Conversion Rate” shall have the
    meaning set forth in Section 4B(b)(i).

 

    “Officer’s Certificate” means a
    certificate of Fannie Mae, signed by the Chairman of the Board
    of Directors, the Chief Executive Officer, the Chief Financial
    Officer, any Vice President, the Treasurer, or the Secretary of
    Fannie Mae.

 

    “Person” means a legal person, including any
    individual, corporation, estate, partnership, joint venture,
    association, joint-stock company, limited liability company or
    trust.

 

    “Reference Price” shall have the meaning set
    forth in Section 4B(b)(ii).

 

    “Spin-Off” means a dividend or other
    distribution of shares to all or substantially all holders of
    Common Stock consisting of capital stock of, or similar equity
    interests in, or relating to a subsidiary or other business unit
    of Fannie Mae.

 

    “Stock Price” means the price paid per share of
    Common Stock in a Cash Acquisition. If the consideration paid
    consists only of cash, the Stock Price shall equal the amount of
    cash paid per share. In all other circumstances, the Stock Price
    shall be the average of the Closing Prices per share of the
    Common Stock over the 10 consecutive Trading Day period ending
    on the Trading Day preceding the Effective Date.

 

    “Threshold Appreciation Price” shall have the
    meaning set forth in Section 4B(b)(i).

       

       5

 

    “Trading Day” means a day on which the Common
    Stock:

 

    (a) is not suspended from trading on any U.S. national
    or regional securities exchange or association or
    over-the-counter market at the close of business; and

 

    (b) has traded at least once on the U.S. national or
    regional securities exchange or association or over-the-counter
    market that is the primary market for the trading of the Common
    Stock.

 

    4B Mandatory
    Conversion on the Mandatory Conversion Date.

 

    (a) Each share of
    Series 2008-1
    Preferred Stock shall automatically convert (unless previously
    converted at the option of the Holder in accordance with
    Section 4C or pursuant to an exercise of a Cash Acquisition
    Conversion right pursuant to Section 4D) on the Mandatory
    Conversion Date, into a number of shares of Common Stock equal
    to the Mandatory Conversion Rate.

 

    (b) The “Mandatory Conversion Rate” shall
    be as follows:

 

    (i) if the Applicable Market Value of the Common Stock is
    greater than $32.45 (the “Threshold Appreciation
    Price”), then the Mandatory Conversion Rate shall be
    equal to 1.5408 shares of Common Stock per share of
    Series 2008-1
    Preferred Stock (the “Minimum Conversion Rate”);

 

    (ii) if the Applicable Market Value of the Common Stock is
    less than or equal to the Threshold Appreciation Price but
    greater than or equal to $27.50 (the “Reference
    Price”), then the Mandatory Conversion Rate shall be
    equal to $50 divided by the Applicable Market Value of the
    Common Stock; or

 

    (iii) if the Applicable Market Value of the Common Stock is
    less than the Reference Price, then the Mandatory Conversion
    Rate shall be equal to 1.8182 shares of Common Stock per
    share of
    Series 2008-1
    Preferred Stock (the “Maximum Conversion Rate”).

 

    (c) The Fixed Conversion Rates, the Threshold Appreciation
    Price, the Reference Price and the Applicable Market Value are
    each subject to adjustment in accordance with the provisions of
    Section 7.

 

    4C Early
    Conversion at the Option of the Holder.

 

    Other than during a Cash Acquisition Conversion Period, the
    Holders of
    Series 2008-1
    Preferred Stock shall have the right to convert their shares of
    Series 2008-1
    Preferred Stock, in whole or in part, at any time prior to the
    Mandatory Conversion Date (“Early Conversion”),
    into shares of Common Stock at the Minimum Conversion Rate.

 

    If holders of
    Series 2008-1
    Preferred Stock elect to convert their shares of
    Series 2008-1
    Preferred Stock prior to the record date for any declared
    dividend for the Dividend Period in which such holders elect to
    convert, such holders will not receive any declared dividends
    for that Dividend Period. If holders of
    Series 2008-1
    Preferred Stock elect to convert their shares of
    Series 2008-1
    Preferred Stock after the record date for any declared dividend
    and prior to the Dividend Payment Date, such holders will
    receive that dividend on the relevant Dividend Payment Date if
    they were the holders of record on the record date for that
    dividend.

 

    4D Cash
    Acquisition Conversion.

 

    (a) If a Cash Acquisition occurs prior to the Mandatory
    Conversion Date, the Holders of the
    Series 2008-1
    Preferred Stock shall have the right to convert their shares of
    Series 2008-1
    Preferred Stock, in whole or in part (such right of the Holders
    to convert their shares pursuant to this Section 4D(a)
    being the “Cash Acquisition Conversion”) during
    a period (the “Cash Acquisition Conversion
    Period”) that begins on the effective date of such Cash
    Acquisition (the “Effective Date”) and ends at
    5:00 p.m., New York City time, on the date that is 15
    calendar days after the Effective Date (or, if earlier, the
    Mandatory Conversion Date) into shares of Common Stock at the
    Cash Acquisition Conversion Rate (as adjusted pursuant to
    Section 7).

        

        6

 

    (b) On or before the twentieth calendar day prior to the
    anticipated Effective Date of the Cash Acquisition, a written
    notice (the “Cash Acquisition Notice”) shall be
    sent by or on behalf of Fannie Mae, by first-class mail, postage
    prepaid, to the Holders of record as they appear on the stock
    register of Fannie Mae. Such notice shall state:

 

			
	 	    (i)   
	
    the anticipated effective date of the Cash Acquisition;

	 
	 	    (ii)  
	
    that Holders shall have to right to effect a Cash Acquisition
    Conversion in connection with such Cash Acquisition during the
    Cash Acquisition Conversion Period;

	 
	 	    (iii) 
	
    the Cash Acquisition Conversion Period; and

	 
	 	    (iv)  
	
    the instructions a Holder must follow to effect a Cash
    Acquisition Conversion in connection with such Cash Acquisition.

 

    4E
    Conversion Procedures.

 

    (a) Upon a Mandatory Conversion pursuant to Section 4B
    on the Mandatory Conversion Date, any outstanding shares of
    Series 2008-1
    Preferred Stock will automatically convert into shares of Common
    Stock on the Mandatory Conversion Date. The person or persons
    entitled to receive the shares of Common Stock issuable upon
    mandatory conversion of the
    Series 2008-1
    Preferred Stock will be treated as the record holder(s) of such
    shares of Common Stock as of 5:00 p.m., New York City time,
    on the Mandatory Conversion Date. Except as provided under
    Section 7(c)(ii), prior to 5:00 p.m., New York City
    time, on the Mandatory Conversion Date, the shares of Common
    Stock issuable upon conversion of the
    Series 2008-1
    Preferred Stock will not be deemed to be outstanding for any
    purpose and Holders shall have no rights with respect to such
    shares of Common Stock, including voting rights, rights to
    respond to tender offers and rights to receive any dividends or
    other distributions on the Common Stock, by virtue of holding
    the
    Series 2008-1
    Preferred Stock.

 

    (b) To effect an Early Conversion pursuant to
    Section 4C, a person who:

 

    (i) holds a beneficial interest in a global share of
    Series 2008-1
    Preferred Stock must deliver to The Depository
    Trust Company (“DTC”) the appropriate
    instruction form for conversion pursuant to DTC’s
    conversion program and, if required, pay all taxes or duties, if
    any; or

 

    (ii) holds shares of
    Series 2008-1
    Preferred Stock in certificated form must:

 

    (A) complete and manually sign the conversion notice on the
    back of the
    Series 2008-1
    Preferred Stock certificate or a facsimile of the conversion
    notice;

 

    (B) deliver the completed conversion notice and the
    certificated shares of
    Series 2008-1
    Preferred Stock to be converted to the Conversion Agent;

 

    (C) if required, furnish appropriate endorsements and
    transfer documents; and

 

    (D) if required, pay all transfer or similar taxes, if any.

 

    The Early Conversion Date will be the date on which a Holder has
    satisfied all of the foregoing requirements, to the extent
    applicable. Holders will not be required to pay any taxes or
    duties relating to the issuance or delivery of Common Stock if
    Holders exercise their conversion rights, but they will be
    required to pay any tax or duty that may be payable relating to
    any transfer involved in the issuance or delivery of Common
    Stock in a name other than the name of such Holder. Certificates
    representing Common Stock will be issued and delivered only
    after all applicable taxes and duties, if any, payable by
    Holders have been paid in full.

 

    The person or persons entitled to receive the Common Stock
    issuable upon Early Conversion shall be treated for all purposes
    as the record holder(s) of such shares of Common Stock as of
    5:00 p.m., New York City time, on the applicable Early
    Conversion Date. No allowance or adjustment, except as set forth
    in Section 7, shall be made in respect of dividends payable
    to holders of Common Stock of record as of any date prior to
    such applicable Conversion Date. Prior to 5:00 p.m., New
    York City time on the applicable Early Conversion Date, shares
    of Common Stock issuable upon conversion of any shares of
    Series 2008-1
    Preferred Stock shall not be deemed outstanding for any purpose,
    and Holders of shares of
    Series 2008-1
    Preferred Stock shall have no rights with respect to the Common
    Stock (including voting rights, rights to respond to tender
    offers for the Common Stock and

        

        7

 

    rights to receive any dividends or other distributions on the
    Common Stock) by virtue of holding shares of
    Series 2008-1
    Preferred Stock.

 

    In the event that an Early Conversion is effected with respect
    to shares of
    Series 2008-1
    Preferred Stock representing less than all the shares of
    Series 2008-1
    Preferred Stock held by a Holder, upon such Early Conversion
    Fannie Mae shall execute and the transfer agent shall
    countersign and deliver to the Holder thereof, at the expense of
    Fannie Mae, a certificate evidencing the shares of
    Series 2008-1
    Preferred Stock as to which Early Conversion was not effected.

 

    (c) To effect a Cash Acquisition Conversion pursuant to
    Section 4D, a Holder shall deliver to the Conversion Agent,
    no earlier than the Effective Date of the Cash Acquisition, and
    no later than 5:00 p.m., New York City time, on the date
    that is 15 calendar days after the Effective Date (as specified
    in the Cash Acquisition Notice), the certificate(s) (if such
    shares are held in certificated form) evidencing the shares of
    Series 2008-1
    Preferred Stock with respect to which the Cash Acquisition
    Conversion right is being exercised, duly assigned or endorsed
    for transfer to Fannie Mae, or accompanied by duly executed
    stock powers relating thereto, or in blank, with a written
    notice to Fannie Mae stating the Holder’s intention to
    convert early in connection with the Cash Acquisition containing
    the information set forth in Section 4E(b) and providing
    Fannie Mae with payment instructions. For the avoidance of
    doubt, Holders of
    Series 2008-1
    Preferred Stock who do not submit their conversion notice during
    the Cash Acquisition Conversion Period shall not be entitled to
    convert their shares of
    Series 2008-1
    Preferred Stock at the Cash Acquisition Conversion Rate.

 

    The person or persons entitled to receive the Common Stock
    issuable upon such conversion shall be treated for all purposes
    as the record holder(s) of such shares of Common Stock as of
    5:00 p.m., New York City time, on the applicable Cash
    Acquisition Conversion Date. No allowance or adjustment, except
    as set forth in Section 7, shall be made in respect of
    dividends payable to holders of Common Stock of record as of any
    date prior to such applicable Conversion Date. Prior to such
    applicable Cash Acquisition Conversion Date, shares of Common
    Stock issuable upon conversion of any shares of
    Series 2008-1
    Preferred Stock shall not be deemed outstanding for any purpose,
    and Holders of shares of
    Series 2008-1
    Preferred Stock shall have no rights with respect to the Common
    Stock (including voting rights, rights to respond to tender
    offers for the Common Stock and rights to receive any dividends
    or other distributions on the Common Stock) by virtue of holding
    shares of
    Series 2008-1
    Preferred Stock.

 

    In the event that a Cash Acquisition Conversion is effected with
    respect to shares of
    Series 2008-1
    Preferred Stock representing less than all the shares of
    Series 2008-1
    Preferred Stock held by a Holder, upon such Cash Acquisition
    Conversion Fannie Mae shall execute and the transfer agent shall
    countersign and deliver to the Holder thereof, at the expense of
    Fannie Mae, a certificate evidencing the shares of
    Series 2008-1
    Preferred Stock as to which Cash Acquisition Conversion was not
    effected.

 

    (d) Shares of
    Series 2008-1
    Preferred Stock shall cease to be outstanding on the applicable
    Conversion Date, subject to the right of Holders of such shares
    to receive shares of Common Stock issuable upon conversion of
    such shares of
    Series 2008-1
    Preferred Stock and other amounts and shares of Common Stock, if
    any, to which they are entitled pursuant to Section 4B,
    Section 4C or Section 4D, as applicable.

 

    (e) In the event that a Holder of shares of
    Series 2008-1
    Preferred Stock shall not by written notice designate the name
    in which shares of Common Stock to be issued upon conversion of
    such
    Series 2008-1
    Preferred Stock should be registered or the address to which the
    certificate or certificates representing such shares of Common
    Stock should be sent, Fannie Mae shall be entitled to register
    such shares, and make such payment, in the name of the Holder of
    such
    Series 2008-1
    Preferred Stock as shown on the records of Fannie Mae and to
    send the certificate or certificates representing such shares of
    Common Stock to the address of such Holder shown on the records
    of Fannie Mae.

 

		
	
    5.  
	
    Reservation
    of Common Stock.

 

    (a) Fannie Mae shall at all times reserve and keep
    available out of its authorized and unissued Common Stock or
    shares held in the treasury of Fannie Mae, solely for issuance
    upon the conversion of shares of
    Series 2008-1
    Preferred Stock as herein provided, free from any preemptive or
    other similar rights, such number of shares of Common Stock as
    shall from time to time be issuable upon the conversion of all
    the shares of
    Series 2008-1

         

         8

 

    Preferred Stock then outstanding. For purposes of this
    Section 5(a), the number of shares of Common Stock that
    shall be deliverable upon the conversion of all outstanding
    shares of
    Series 2008-1
    Preferred Stock shall be computed as if at the time of
    computation all such outstanding shares were held by a single
    Holder.

 

    (b) Notwithstanding the foregoing, Fannie Mae shall be
    entitled to deliver upon conversion of shares of
    Series 2008-1
    Preferred Stock, as herein provided, shares of Common Stock
    reacquired and held in the treasury of Fannie Mae (in lieu of
    the issuance of authorized and unissued shares of Common Stock),
    so long as any such treasury shares are free and clear of all
    liens, charges, security interests or encumbrances (other than
    liens, charges, security interests and other encumbrances
    created by the Holders).

 

    (c) All shares of Common Stock delivered upon conversion of
    the
    Series 2008-1
    Preferred Stock shall be duly authorized, validly issued, fully
    paid and non-assessable, free and clear of all liens, claims,
    security interests and other encumbrances (other than liens,
    charges, security interests and other encumbrances created by
    the Holders).

 

    (d) Prior to the delivery of any securities that Fannie Mae
    shall be obligated to deliver upon conversion of the
    Series 2008-1
    Preferred Stock, Fannie Mae shall use its reasonable best
    efforts to comply with all federal and state laws and
    regulations thereunder requiring the registration of such
    securities with, or any approval of or consent to the delivery
    thereof by, any governmental authority.

 

    (e) Fannie Mae hereby covenants and agrees that, if at any
    time the Common Stock shall be listed on the New York Stock
    Exchange or any other U.S. national securities exchange or
    automated quotation system, Fannie Mae shall, if permitted by
    the rules of such exchange or automated quotation system, list
    and keep listed, so long as the Common Stock shall be so listed
    on such exchange or automated quotation system, all Common Stock
    issuable upon conversion of the
    Series 2008-1
    Preferred Stock; provided, however, that if the rules of
    such exchange or automated quotation system permit Fannie Mae to
    defer the listing of such Common Stock until the first
    conversion of
    Series 2008-1
    Preferred Stock into Common Stock in accordance with the
    provisions hereof, Fannie Mae covenants to list such Common
    Stock issuable upon conversion of the
    Series 2008-1
    Preferred Stock in accordance with the requirements of such
    exchange or automated quotation system at such time.

 

		
	
    6.  
	
    Fractional
    Shares.

 

    (a) No fractional shares of Common Stock shall be issued as
    a result of any conversion of shares of
    Series 2008-1
    Preferred Stock.

 

    (b) In lieu of any fractional share of Common Stock
    otherwise issuable in respect of any Mandatory Conversion
    pursuant to Section 4B or a conversion at the option of the
    Holder pursuant to Section 4C or Section 4D, Fannie
    Mae shall pay an amount in cash (computed to the nearest cent)
    equal to the same fraction of:

 

    (i) in the case of a conversion pursuant to Section 4B
    or a Cash Acquisition Conversion pursuant to Section 4D,
    the average of the Closing Prices over the five consecutive
    Trading Day period preceding the Trading Day immediately
    preceding the Mandatory Conversion Date or Cash Acquisition
    Conversion Date, as applicable; or

 

    (ii) in the case of an Early Conversion pursuant to
    Section 4C, the Closing Price of the Common Stock on the
    second Trading Day immediately preceding the Early Conversion
    Date.

 

    (c) If more than one share of the
    Series 2008-1
    Preferred Stock is surrendered for conversion at one time by or
    for the same Holder, the number of full shares of Common Stock
    issuable upon conversion thereof shall be computed on the basis
    of the aggregate number of shares of the
    Series 2008-1
    Preferred Stock so surrendered.

 

		
	
    7.  
	
    Anti-dilution
    Adjustments to the Fixed Conversion Rates.

 

    (a) Each Fixed Conversion Rate shall be subject to the
    following adjustments:

 

    (i) Stock Dividends and Distributions.  If
    Fannie Mae issues Common Stock to all or substantially all of
    the holders of Common Stock as a dividend or other distribution,
    each Fixed Conversion Rate in effect at

         

         9

 

    5:00 p.m., New York City time, on the date fixed for
    determination of the holders of Common Stock entitled to receive
    such dividend or other distribution will be divided by a
    fraction:

 

    (A) the numerator of which is the number of shares of
    Common Stock outstanding at 5:00 p.m., New York City time,
    on the date fixed for such determination, and

 

    (B) the denominator of which is the sum of the number of
    shares of Common Stock outstanding at 5:00 p.m., New York
    City time, on the date fixed for such determination and the
    total number of shares of Common Stock constituting such
    dividend or other distribution.

 

    Any adjustment made pursuant to this clause (i) will become
    effective immediately after 5:00 p.m., New York City time,
    on the date fixed for such determination. If any dividend or
    distribution described in this clause (i) is declared but
    not so paid or made, each Fixed Conversion Rate shall be
    readjusted, effective as of the date the Board of Directors
    publicly announces its decision not to make such dividend or
    distribution, to such Fixed Conversion Rate that would then be
    in effect if such dividend or distribution had not been
    declared. For the purposes of this clause (i), the number of
    shares of Common Stock outstanding at 5:00 p.m., New York
    City time, on the date fixed for such determination shall not
    include shares held in treasury by Fannie Mae. Fannie Mae shall
    not pay any dividend or make any distribution on shares of
    Common Stock held in treasury by Fannie Mae.

 

    (ii) Issuance of Stock Purchase Rights. If Fannie
    Mae issues to all or substantially all holders of Common Stock
    rights or warrants (other than rights or warrants issued
    pursuant to a dividend reinvestment plan or share purchase plan
    or other similar plans), entitling such holders, for a period of
    up to 45 calendar days from the date of issuance of such rights
    or warrants, to subscribe for or purchase shares of Common Stock
    at a price per share less than the Current Market Price, each
    Fixed Conversion Rate in effect at 5:00 p.m., New York City
    time, on the date fixed for determination of the holders of
    Common Stock entitled to receive such rights or warrants will be
    increased by multiplying such Fixed Conversion Rate by a
    fraction:

 

    (A) the numerator of which is the sum of the number of
    shares of Common Stock outstanding at 5:00 p.m., New York
    City time, on the date fixed for such determination and the
    number of shares of Common Stock issuable pursuant to such
    rights or warrants, and

 

    (B) the denominator of which is the sum of the number of
    shares of Common Stock outstanding at 5:00 p.m., New York
    City time, on the date fixed for such determination and the
    number of shares of Common Stock equal to the quotient of the
    aggregate offering price payable to exercise such rights or
    warrants divided by the Current Market Price.

 

    Any adjustment made pursuant to this clause (ii) will
    become effective immediately after 5:00 p.m., New York City
    time, on the date fixed for such determination. In the event
    that such rights or warrants described in this clause (ii)
    are not so issued, each Fixed Conversion Rate shall be
    readjusted, effective as of the date the Board of Directors
    publicly announces its decision not to issue such rights or
    warrants, to such Fixed Conversion Rate that would then be in
    effect if such issuance had not been declared. To the extent
    that such rights or warrants are not exercised prior to their
    expiration or shares of Common Stock are otherwise not delivered
    pursuant to such rights or warrants upon the exercise of such
    rights or warrants, each Fixed Conversion Rate shall be
    readjusted to such Fixed Conversion Rate that would then be in
    effect had the adjustment made upon the issuance of such rights
    or warrants been made on the basis of the delivery of only the
    number of shares of Common Stock actually delivered. In
    determining the aggregate offering price payable for such shares
    of Common Stock, there shall be taken into account any
    consideration received for such rights or warrants and the value
    of such consideration (if other than cash, to be determined by
    the Board of Directors). For the purposes of this clause (ii),
    the number of shares of Common Stock at the time outstanding
    shall not include shares held in treasury by Fannie Mae. Fannie
    Mae shall not issue any such rights or warrants in respect of
    shares of Common Stock held in treasury by Fannie Mae.

 

    (iii) Subdivisions and Combinations of the Common
    Stock. If outstanding shares of Common Stock shall be
    subdivided into a greater number of shares of Common Stock or
    combined into a lesser number of shares of

          

          10

 

    Common Stock, each Fixed Conversion Rate in effect at
    5:00 p.m., New York City time, on the effective date of
    such subdivision or combination shall be multiplied by a
    fraction:

 

    (A) the numerator of which is the number of shares of
    Common Stock that would be outstanding immediately after such
    subdivision or combination, and

 

    (B) the denominator of which is the number of shares of
    Common Stock outstanding immediately prior to such subdivision
    or combination.

 

    Any adjustment made pursuant to this clause (iii) shall
    become effective immediately after 5:00 p.m., New York City
    time, on the effective date of such subdivision or combination.

 

    (iv) Debt or Asset Distribution. (A) If Fannie
    Mae distributes to all or substantially all holders of Common
    Stock evidences of its indebtedness, shares of capital stock,
    securities, cash or other assets (excluding (1) any
    dividend or distribution covered by Section 7(a)(i),
    (2) any rights or warrants covered by
    Section 7(a)(ii), (3) any dividend or distribution
    covered by, or expressed to be excluded under,
    Section 7(a)(v) and (4) any Spin-Off to which the
    provisions set forth in Section 7(a)(iv)(B) apply), each
    Fixed Conversion Rate in effect at 5:00 p.m., New York City
    time, on the date fixed for the determination of holders of
    Common Stock entitled to receive such distribution will be
    multiplied by a fraction:

 

			
	 	    1. 
	
    the numerator of which is the Current Market Price, and

	 
	 	    2. 
	
    the denominator of which is the Current Market Price minus the
    Fair Market Value on such date fixed for determination of the
    portion of the evidences of indebtedness, shares of capital
    stock, securities, cash or other assets so distributed
    applicable to one share of Common Stock.

 

    (B) In the case of a Spin-Off, each Fixed Conversion Rate
    in effect at 5:00 p.m., New York City time, on the date
    fixed for the determination of holders of Common Stock entitled
    to receive such distribution will be multiplied by a fraction:

 

			
	 	    1. 
	
    the numerator of which is the sum of the Current Market Price
    and the Fair Market Value of the portion of those shares of
    capital stock or similar equity interests so distributed
    applicable to one share of Common Stock as of the fifteenth
    Trading Day after the Ex-Date for such distribution (or, if such
    shares of capital stock or equity interests are listed on a
    U.S. national or regional securities exchange, the average
    of the Closing Prices of such securities for the 10 consecutive
    Trading Day period ending on such fifteenth Trading Day), and

	 
	 	    2. 
	
    the denominator of which is the Current Market Price.

 

    Any adjustment made pursuant to this clause (iv) shall
    become effective immediately after 5:00 p.m., New York City
    time, on the date fixed for the determination of the holders of
    Common Stock entitled to receive such distribution. In the event
    that such distribution described in this clause (iv) is not
    so made, each Fixed Conversion Rate shall be readjusted,
    effective as of the date the Board of Directors publicly
    announces its decision not to pay such dividend or distribution,
    to such Fixed Conversion Rate that would then be in effect if
    such distribution had not been declared. If an adjustment to
    each Fixed Conversion Rate is required under this
    clause (iv) during any conversion period in respect of
    shares of
    Series 2008-1
    Preferred Stock that have been tendered for conversion, delivery
    of the shares of Common Stock issuable upon conversion will be
    delayed to the extent necessary in order to complete the
    calculations provided for in this clause (iv).

 

    (v) Cash Distributions.  If Fannie Mae
    distributes cash to all or substantially all holders of Common
    Stock, excluding (1) any cash dividend on Common Stock to
    the extent that the aggregate cash dividend per share of Common
    Stock does not exceed $0.25 in any fiscal quarter (the
    “Dividend Threshold Amount”), (2) any cash
    that is distributed in a Reorganization Event to which
    Section 7(e) applies, (3) any dividend or distribution
    in connection with the liquidation, dissolution or winding up of
    Fannie Mae or (4) any consideration payable as part of a
    tender or exchange offer by Fannie Mae or any subsidiary of
    Fannie Mae), each Fixed Conversion Rate in effect at
    5:00 p.m., New York City time, on the date fixed for
    determination of the holders of Common Stock entitled to receive
    such distribution will be multiplied by a fraction:

 

    (A) the numerator of which is the Current Market
    Price, and

         

         11

 

    (B) the denominator of which is the Current Market Price
    minus the amount per share of such dividend or distribution
    determined in accordance with the following paragraph.

 

    If an adjustment is required to be made as set forth in this
    clause (v) as a result of a distribution (1) that is a
    regularly scheduled quarterly dividend, the amount per share of
    such dividend or distribution for purposes of the denominator
    above will be deemed to be the amount by which such dividend
    exceeds the applicable Dividend Threshold Amount or
    (2) that is not a regularly scheduled quarterly dividend,
    the amount per share of such dividend or distribution for
    purposes of the denominator above will be deemed to be the full
    amount of such distribution.

 

    The Dividend Threshold Amount is subject to adjustment on an
    inversely proportional basis whenever Fixed Conversion Rates are
    adjusted; provided that no adjustment will be made to the
    Dividend Threshold Amount for adjustments made to each Fixed
    Conversion Rate pursuant to this clause (v).

 

    Any adjustment made pursuant to this clause (v) shall
    become effective immediately after 5:00 p.m., New York City
    time, on the date fixed for the determination of the holders of
    Common Stock entitled to receive such distribution. In the event
    that any distribution described in this clause (v) is not
    so made, each Fixed Conversion Rate shall be readjusted,
    effective as of the date the Board of Directors publicly
    announces its decision not to pay such distribution, to such
    Fixed Conversion Rate which would then be in effect if such
    distribution had not been declared.

 

    (vi) Self Tender Offers and Exchange Offers. If
    Fannie Mae or any subsidiary of Fannie Mae successfully
    completes a tender or exchange offer for Common Stock (excluding
    any securities convertible or exchangeable for Common Stock),
    where the cash and the value of any other consideration included
    in the payment per share of Common Stock exceeds the Current
    Market Price, each Fixed Conversion Rate in effect at
    5:00 p.m., New York City time, on the date of expiration of
    the tender or exchange offer (the “Expiration
    Date”) will be multiplied by a fraction:

 

    (A) the numerator of which shall be equal to the sum of:

 

    a. the aggregate cash and Fair Market Value on the
    Expiration Date of any other consideration paid or payable for
    shares validly tendered or exchanged and not withdrawn as of the
    Expiration Date; and

 

    b. the product of the Current Market Price and the number
    of shares of Common Stock outstanding immediately after the last
    time tenders or exchanges may be made pursuant to such tender or
    exchange offer (the “ Expiration Time”) on the
    Expiration Date; and

 

    (B) the denominator of which shall be equal to the product
    of:

 

			
	 	    1. 
	
    the Current Market Price; and

	 
	 	    2. 
	
    the number of shares of Common Stock outstanding immediately
    prior to the Expiration Time on the Expiration Date.

 

    Any adjustment made pursuant to this clause (vi) shall
    become effective immediately after 5:00 p.m., New York City
    time, on the Expiration Date. In the event that the Company or
    one of its subsidiaries is obligated to purchase shares of
    Common Stock pursuant to any such tender offer or exchange
    offer, but the Company or such subsidiary is permanently
    prevented by applicable law from effecting any such purchases,
    or all such purchases are rescinded, then each Fixed Conversion
    Rate shall be readjusted to be such Fixed Conversion Rate that
    would then be in effect if such tender offer or exchange offer
    had not been made. Except as set forth in the preceding
    sentence, if the application of this clause (vi) to any
    tender offer or exchange offer would result in a decrease in
    each Fixed Conversion Rate, no adjustment shall be made for such
    tender offer or exchange offer under this clause (vi). If an
    adjustment to each Fixed Conversion Rate is required pursuant to
    this clause (vi) during any conversion period in respect of
    shares of
    Series 2008-1
    Preferred Stock that have been tendered for conversion, delivery
    of the related conversion consideration will be delayed to the
    extent necessary in order to complete the calculations provided
    for in this clause (vi).

         

         12

 

    (vii) In cases where the Fair Market Value of assets
    (including cash), debt securities or certain rights, warrants or
    options to purchase securities of Fannie Mae as to which
    Section 7(a)(iv)(A) and Section 7(a)(v) apply, applicable
    to one share of Common Stock, distributed to stockholders equals
    or exceeds the average of the Closing Prices of the Common Stock
    over the five consecutive Trading Day period ending on the
    Trading Day before the Ex-Date for such distribution, rather
    than being entitled to an adjustment in each Fixed Conversion
    Rate, Holders of
    Series 2008-1
    Preferred Stock shall be entitled to receive upon conversion, in
    addition to a number of shares of Common Stock equal to the
    applicable conversion rate in effect on the applicable
    Conversion Date, the kind and amount of assets (including cash),
    debt securities or rights, warrants or options comprising the
    distribution that such Holder would have received if such Holder
    had converted its shares of Series
    2008-1
    Preferred Stock immediately prior to the record date for
    determining the holders of Common Stock entitled to receive the
    distribution calculated by multiplying the kind and amount of
    assets (including cash), debt securities or rights, warrants or
    options comprising the distribution distributed in respect of
    each share of our Common Stock by the number of shares of Common
    Stock equal to the Minimum Conversion Rate in effect on the
    applicable Conversion Date.

 

    (viii) Rights Plans. To the extent that Fannie Mae
    has a rights plan in effect with respect to the Common Stock on
    any Conversion Date, upon conversion of any
    Series 2008-1
    Preferred Stock, Holders shall receive, in addition to the
    Common Stock, the rights under such rights plan, unless, prior
    to such Conversion Date, the rights have separated from the
    Common Stock, in which case each Fixed Conversion Rate shall be
    adjusted at the time of separation of such rights as if Fannie
    Mae made a distribution to all holders of the Common Stock as
    described in Section 7(a)(iv), subject to readjustment in the
    event of the expiration, termination or redemption of such
    rights.

 

    (b) Adjustment for Tax Reasons.  Fannie
    Mae may make such increases in each Fixed Conversion Rate, in
    addition to any other increases required by this Section 7,
    as the Board of Directors deems it advisable to avoid or
    diminish any income tax to holders of the Common Stock resulting
    from any dividend or distribution of Fannie Mae’s shares of
    Common Stock (or issuance of rights or warrants to acquire
    shares of Common Stock) or from any event treated as such for
    income tax purposes or for any other reasons; provided
    that the same proportionate adjustment must be made to each
    Fixed Conversion Rate.

 

    (c) Calculation of Adjustments; Adjustments to Threshold
    Appreciation Price and Reference Price.

 

    (i) All adjustments to each Fixed Conversion Rate shall be
    calculated to the nearest 1/10,000th of a share of Common
    Stock. Prior to the Mandatory Conversion Date, no adjustment in
    a Fixed Conversion Rate shall be required unless such adjustment
    would require an increase or decrease of at least one percent
    therein; provided, that any adjustments which by reason
    of this Section 7(c) are not required to be made shall be
    carried forward and taken into account in any subsequent
    adjustment; provided, however that with respect to
    adjustments to be made to the Fixed Conversion Rates in
    connection with cash dividends paid by Fannie Mae, the Fixed
    Conversion Rates shall be adjusted regardless of whether such
    aggregate adjustments amount to one percent or more of the Fixed
    Conversion Rates no later than March 15 of each calendar year
    provided, further that on the earlier of the Mandatory
    Conversion Date or the Effective Date of a Cash Acquisition,
    adjustments to each Fixed Conversion Rate shall be made with
    respect to any such adjustment carried forward and which has not
    been taken into account before such date.

 

    (ii) If an adjustment is made to the Fixed Conversion Rates
    pursuant to Sections 7(a)(i), 7(a)(ii), 7(a)(iii),
    7(a)(iv), 7(a)(v), 7(a)(vi) or 7(b), an inversely proportional
    adjustment shall also be made to the Threshold Appreciation
    Price and the Reference Price solely for purposes of determining
    which of clauses (i), (ii) and (iii) of
    Section 4B(b) shall apply on the Mandatory Conversion Date.
    Such adjustment shall be made by dividing each of the Threshold
    Appreciation Price and the Reference Price by a fraction, the
    numerator of which shall be either Fixed Conversion Rate
    immediately after such adjustment pursuant to
    Sections 7(a)(i), 7(a)(ii), 7(a)(iii), 7(a)(iv), 7(a)(v),
    7(a)(vi) or 7(b) and the denominator of which shall be such
    Fixed Conversion Rate immediately before such adjustment;
    provided, that if such adjustment to the Fixed Conversion
    Rates is required to be made pursuant to the occurrence of any
    of the events contemplated by Sections 7(a)(i), 7(a)(ii),
    7(a)(iii), 7(a)(iv), 7(a)(v), 7(a)(vi) or 7(b) during the period
    taken into consideration for determining the Applicable Market
    Value, appropriate and customary adjustments shall be made to
    the

         

         13

 

    Fixed Conversion Rates. Fannie Mae shall make appropriate
    adjustments to the Closing Prices prior to the relevant Ex-Date
    used to calculate the Applicable Market Value to account for any
    adjustments to the Reference Price, the Threshold Appreciation
    Price and the Fixed Conversion Rates that become effective
    during the period in which the Applicable Market Value is being
    calculated. If:

 

    (A) the record date for a dividend or distribution on
    Common Stock occurs after the end of the 20 consecutive Trading
    Day period used for calculating the Applicable Market Value and
    before the Mandatory Conversion Date, and

 

    (B) such dividend or distribution would have resulted in an
    adjustment of the number of shares issuable to the Holders of
    Series 2008-1
    Preferred Stock had such record date occurred on or before the
    last Trading Day of such 20 consecutive Trading Day period,

 

    then Fannie Mae shall deem the Holders of
    Series 2008-1
    Preferred Stock to be holders of record of Common Stock for
    purposes of that dividend or distribution. In this case, the
    Holders of the Series
    2008-1
    Preferred Stock would receive the dividend or distribution on
    Common Stock together with the number of shares of Common Stock
    issuable upon the Mandatory Conversion Date.

 

    (iii) If an adjustment is made to the Minimum Conversion
    Rate pursuant to Sections 7(a)(i), 7(a)(ii), 7(a)(iii),
    7(a)(iv), 7(a)(v), 7(a)(vi) or 7(b), a proportional adjustment
    shall be made to each Stock Price column heading set forth in
    the table included in the definition of “Cash
    Acquisition Conversion Rate.” Such adjustment
    shall be made by multiplying each Stock Price included in such
    table by a fraction, the numerator of which is the Minimum
    Conversion Rate immediately prior to such adjustment and the
    denominator of which is the Minimum Conversion Rate immediately
    after such adjustment.

 

    (iv) No adjustment to the conversion rate need be made if
    holders of
    Series 2008-1
    Preferred Stock may participate in the transaction that would
    otherwise give rise to such adjustment, so long as the
    distributed assets or securities the holders of
    Series 2008-1
    Preferred Stock would receive upon conversion of the
    Series 2008-1
    Preferred Stock — if such assets or securities are
    convertible, exchangeable, or exercisable — are
    convertible, exchangeable or exercisable, as applicable, without
    any loss of rights or privileges for a period of at least
    45 days following conversion of the
    Series 2008-1
    Preferred Stock. In addition, the applicable Conversion Rate
    shall not be adjusted:

 

    (A) upon the issuance of any shares of Common Stock
    pursuant to any present or future plan providing for the
    reinvestment of dividends or interest payable on Fannie
    Mae’s securities and the investment of additional optional
    amounts in shares of Common Stock under any plan;

 

    (B) upon the issuance of any shares of Common Stock or
    rights or warrants or options to purchase those shares pursuant
    to any present or future employee, director or consultant
    benefit plan or program of or assumed by Fannie Mae or any of
    its subsidiaries;

 

    (C) upon the issuance of any shares of Common Stock
    pursuant to any option, warrant, right or exercisable,
    exchangeable or convertible security outstanding as of the Issue
    Date; and

 

    (D) for a change in the par value or no par value of the
    Common Stock.

 

    (d) Notice of Adjustment.  Whenever the
    Fixed Conversion Rates are to be adjusted, Fannie Mae shall:

 

    (i) compute such adjusted Fixed Conversion Rates and Cash
    Acquisition Conversion Rates, and prepare and transmit to the
    transfer agent an Officer’s Certificate setting forth such
    adjusted Fixed Conversion Rates and Cash Acquisition Conversion
    Rates, the method of calculation thereof in reasonable detail
    and the facts requiring such adjustment and upon which such
    adjustment is based;

 

    (ii) as soon as practicable following the occurrence of an
    event that requires an adjustment to the Fixed Conversion Rates
    (or if Fannie Mae is not aware of such occurrence, as soon as
    practicable after becoming so aware), provide, or cause to be
    provided, a written notice to the Holders of
    Series 2008-1
    Preferred Stock of the occurrence of such event; and

          

          14

 

    (iii) as soon as practicable following the determination of
    such adjusted Fixed Conversion Rates and Cash Acquisition
    Conversion Rates, provide, or cause to be provided, to the
    Holders of
    Series 2008-1
    Preferred Stock a statement setting forth in reasonable detail
    the method by which the adjustment to such Fixed Conversion
    Rates and Cash Acquisition Conversion Rates was determined and
    setting forth such adjusted Fixed Conversion Rates and Cash
    Acquisition Conversion Rates.

 

    (e) Reorganization Events.  In the event
    of:

 

    (i) any consolidation or merger of Fannie Mae with or into
    another Person (other than a merger or consolidation in which
    Fannie Mae is the continuing corporation and in which the Common
    Stock outstanding immediately prior to the merger or
    consolidation is not exchanged for cash, securities or other
    property of Fannie Mae or another Person);

 

    (ii) any sale, transfer, lease or conveyance to another
    Person of all or substantially all of the property and assets of
    Fannie Mae in a transaction pursuant to which shares of our
    Common Stock outstanding immediately prior to such transaction
    are exchanged for cash, securities or other property;

 

    (iii) any reclassification of Common Stock into securities
    including securities other than Common Stock; or

 

    (iv) any statutory exchange of securities of Fannie Mae
    with another Person (other than in connection with a merger or
    acquisition),

 

    (each, a “Reorganization Event”), each share of
    Series 2008-1
    Preferred Stock outstanding immediately prior to such
    Reorganization Event shall, without the consent of Holders of
    Series 2008-1
    Preferred Stock, become convertible into the kind of securities,
    cash and other property (the “Exchange
    Property”) that such Holder would have been entitled to
    receive if such Holder had converted its
    Series 2008-1
    Preferred Stock into Common Stock immediately prior to such
    Reorganization Event. For purposes of the foregoing, the type
    and amount of consideration that a Holder of
    Series 2008-1
    Preferred Stock would have been entitled to receive as a holder
    of Common Stock in the case of any Reorganization Event that
    causes the Common Stock to be converted into the right to
    receive more than a single type of consideration determined
    based in part upon any form of shareholder election will be
    deemed to be the weighted average of the types and amounts of
    consideration received by the holders of Common Stock that
    affirmatively make such an election. In such event, on the
    applicable Conversion Date, the applicable conversion rate then
    in effect will be applied to the amount and value of securities,
    cash or property a holder of one share of Common Stock would
    have received in such transaction. The applicable Conversion
    Rate shall be determined based upon the Applicable Market Value
    of the Exchange Property.

 

    For purposes of this Section 7(e), “Applicable
    Market Value” shall be deemed to refer to the
    Applicable Market Value of the Exchange Property and such value
    shall be determined (A) with respect to any publicly traded
    securities that compose all or part of the Exchange Property,
    based on the Closing Price of such securities, (B) in the
    case of any cash that composes all or part of the Exchange
    Property, based on the amount of such cash and (C) in the
    case of any other property that composes all or part of the
    Exchange Property, based on the value of such property, as
    determined by a nationally recognized independent investment
    banking firm retained by Fannie Mae for this purpose. For
    purposes of this Section 7(e), the term “Closing
    Price” shall be deemed to refer to the closing sale
    price, last quoted bid price or mid-point of the last bid and
    ask prices, as the case may be, of any publicly traded
    securities that comprise all or part of the Exchange Property.
    For purposes of this Section 7(e), references to Common
    Stock in the definition of “Trading Day” shall
    be replaced by references to any publicly traded securities that
    comprise all or part of the Exchange Property.

 

    The above provisions of this Section 7(e) shall similarly
    apply to successive Reorganization Events and the provisions of
    Section 7 shall apply to any shares of capital stock of
    Fannie Mae (or any successor) received by the holders of Common
    Stock in any such Reorganization Event.

 

    Fannie Mae (or any successor) shall, within 20 days of the
    occurrence of any Reorganization Event, provide written notice
    to the Holders of such occurrence of such event and of the kind
    and amount of the cash, securities or other property that
    constitute the Exchange Property. Failure to deliver such notice
    shall not affect the operation of this Section 7(e).

         

         15

 

		
	
    8.  
	
    No
    Pre-Emptive Rights.

 

    No Holder of
    Series 2008-1
    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.

 

		
	
    9.  
	
    Voting
    Rights; Amendments.

 

    (a) Except as provided below, the Holders of
    Series 2008-1
    Preferred Stock will not be entitled to any voting rights,
    either general or special.

 

    (b) Without the consent of the Holders of
    Series 2008-1
    Preferred Stock, Fannie Mae will have the right to amend, alter,
    supplement or repeal any terms of this Certificate or the
    Series 2008-1
    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 2008-1
    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 2008-1
    Preferred Stock; provided, however, that any increase in the
    amount of authorized or issued
    Series 2008-1
    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 2008-1
    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 2008-1
    Preferred Stock.

 

    (c) Except as set forth in paragraph (c) of this
    Section 9, the terms of this Certificate or the
    Series 2008-1
    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 2008-1
    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 2008-1
    Preferred Stock shall vote separately as a class. On matters
    requiring their consent, Holders of
    Series 2008-1
    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 2008-1
    Preferred Stock are listed at the time.

 

		
	
    10.  
	
    Additional
    Classes or Series of Stock.

 

    The Board of Directors of Fannie Mae, or a duly authorized
    committee thereof, without the consent of the Holders of the
    Series 2008-1
    Preferred Stock, 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 2008-1
    Preferred Stock as to the payment of dividends or the
    distribution of assets upon dissolution, liquidation or winding
    up of Fannie Mae, or otherwise.

 

		
	
    11.  
	
    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 2008-1
    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

          

          16

 

    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 2008-1
    Preferred Stock.

 

    (b) On a parity with shares of
    Series 2008-1
    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 2008-1
    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 2008-1
    Preferred Stock.

 

    (c) Junior to shares of
    Series 2008-1
    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 2008-1
    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”), “5.125% Non-Cumulative Preferred Stock,
    Series L” (the “Series L Preferred
    Stock”), 4.75% Non-Cumulative Preferred Stock,
    Series M (“the Series M Preferred
    Stock”), “5.50% Non-Cumulative Preferred Stock,
    Series N” (the “Series N Preferred
    Stock”), “Non-Cumulative Preferred Stock,
    Series O” (the “Series O Preferred
    Stock”), “Non-Cumulative Convertible
    Series 2004-1
    Preferred Stock” (the
    “Series 2004-1
    Preferred Stock”), “Variable Rate Non-Cumulative
    Preferred Stock, Series P” (the “Series P
    Preferred Stock”), “6.75% Non-Cumulative Preferred
    Stock, Series Q” (the “Series Q Preferred
    Stock”), “7.625% Non-Cumulative Preferred Stock,
    Series R” (the “Series R Preferred
    Stock”) and Fixed-to-Floating Rate Non-Cumulative
    Preferred Stock, Series S” (the “Series S
    Preferred Stock”) shall be deemed to rank on a parity
    with shares of
    Series 2008-1
    Preferred Stock as to the payment of dividends and the
    distribution of assets upon dissolution, liquidation or winding
    up of Fannie Mae. Accordingly, the holders of record of
    Series D Preferred Stock, the holders of record of
    Series E Preferred Stock, the holders of record of
    Series F Preferred Stock, the holders of record of
    Series G Preferred Stock, the holders of record of
    Series H Preferred Stock, the holders of record of
    Series I Preferred Stock, the holders of record of
    Series L Preferred Stock, the holders of record of
    Series M Preferred Stock, the holders of record of
    Series N Preferred Stock, the holders of record of
    Series O Preferred Stock, the holders of record of
    Series 2004-1
    Preferred Stock, the holders of record of Series P
    Preferred Stock, the holders of record of Series Q
    Preferred Stock, the holders of record of Series R
    Preferred Stock, the holders of record of Series S
    Preferred Stock and the Holders of the
    Series 2008-1
    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.

 

		
	
    12.  
	
    Transfer
    Agent, Dividend Disbursing Agent and Registrar.

 

    Fannie Mae hereby appoints Computershare Trust Company,
    N.A., as its initial transfer agent, dividend disbursing agent,
    conversion agent and registrar for the
    Series 2008-1
    Preferred Stock. Fannie Mae may at any time designate an
    additional or substitute transfer agent, dividend disbursing
    agent and registrar for the
    Series 2008-1
    Preferred Stock.

 

		
	
    13.  
	
    Notices.

 

    Any notice provided or permitted by this Certificate of
    Designation to be made upon, or given or furnished to, the
    Holders of
    Series 2008-1
    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 or by other electronic
    means to

          

          17

 

    designated accounts of such Holders. Such notice shall be deemed
    to have been sufficiently made upon deposit thereof in the
    United States mail or electronic transmission to a designated
    account of the Holder. 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, or if Fannie Mae has reason to believe other notification
    means would be ineffective, 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 2008-1
    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).

          

          18exv10w1

Exhibit 10.1

AGREEMENT

     This Agreement, dated as of May 9, 2008 (the “Agreement”), is by and among Great Wolf
Resorts, Inc., a Delaware corporation (the “Company”), and the other parties signatory
hereto (collectively, the “Hovde Investors”).

     WHEREAS, prior to the date hereof the Hovde Investors, together with certain related parties,
(i) delivered a letter (the “Nomination Letter”) to the Company, dated as of January 30,
2008, nominating (the “Hovde Nomination”) three individuals for election to the Board of
Directors of the Company (the “Board”) and (ii) filed a preliminary proxy statement on
Schedule 14A (the “Proxy Statement”) with the Securities and Exchange Commission (the
“SEC”) related to the matters set forth in the Nomination Letter;

     WHEREAS, the Company and the Hovde Investors have agreed that it is in their mutual interests
to enter into this Agreement, which, among other things, terminates the pending proxy contest for
the election of directors at the 2008 Annual Meeting (as defined below);

     WHEREAS, the Company has agreed, at the request of the Hovde Investors, to increase the size
of the Board from eight to nine members and to cause Eric D. Hovde and Richard T. Murray III (each,
a “Hovde Investor Nominee”; together, and including any Replacement Hovde Nominee (as
defined below), the “Hovde Investor Nominees”) to be appointed and elected to fill the two
vacancies on the Board resulting from such increase;

     WHEREAS, the Company has agreed, at the request of the Hovde Investors, in connection with the
Company’s 2008 Annual Meeting of Stockholders (including any adjournment or postponement thereof in
accordance with this Agreement, the “2008 Annual Meeting”), to nominate for election as a
member of the Board, and recommend that the stockholders vote to elect as a director of the
Company, each of the Hovde Investor Nominees; and

     WHEREAS, the Board has agreed that, without further increasing the size of the Board, it will
take such action as may be necessary to ensure that Beth May (Ms. May) or such other person
reasonably acceptable to the Hovde Investors (the “Third Nominee”) will also be nominated
for election at the 2008 Annual Meeting as a member of the Board whose term shall expire at the
Company’s 2009 Annual Meeting of Stockholders;

     WHEREAS, provided the Company is not in breach of this Agreement, the Hovde Investors desire
to withdraw their Nomination Letter and to refrain from submitting any director nominations and to
vote for the election of the Company’s nominees for directors at the 2008 Annual Meeting.

     NOW, THEREFORE, in consideration of the mutual covenants and agreements contained herein, and
for other good and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto agree as follows:

ARTICLE I

DEFINITIONS

     Section 1.1 Defined Terms. For purposes of this Agreement:

	 	(a)	 	The term “Affiliate” shall have the meaning set forth
in Rule 12b-2 promulgated by the SEC under the Securities Exchange Act of 1934,
as amended (the “Exchange Act”).

 

 

	 	(b)	 	The terms “beneficial owner” and “beneficially
own” have the same meanings as set forth in Rule 13d-3 promulgated by the
SEC under the Exchange Act except that a person will also be deemed to
beneficially own and to be the beneficial owner of all shares of capital stock
of the Company which such person has the right to acquire pursuant to the
exercise of any rights in connection with any securities or any agreement,
regardless of when such rights may be exercised and whether they are
conditional.
	 
	 	(c)	 	The term “Restricted Period” means the period from the
date of this Agreement through the date that is 30 days prior to the first day
of the notice period specified in the Company’s advance notice bylaw (Section
10 of Article 2 of the Company’s Bylaws) applicable to the Company’s 2009
Annual Meeting of Stockholders; provided, that the Hovde Investors may
terminate the Restricted Period at any time by written notice to the Company if
(i) the Company refuses to grant its consent to a Replacement Hovde Nominee as
provided in clause (ii) to Section 2.1(c) within ten days following the request
therefor, (ii) the Hovde Investor Nominees are removed from the Board pursuant
to Section 2.1(i) hereof, or (iii) there is a material breach of this Agreement
by the Company that is not cured by the Company within ten days of the date on
which the Hovde Investors provide the Company with notice of such breach.

     Section 1.2 Interpretation. When reference is made in this Agreement to a Section,
such reference shall be to a Section of this Agreement unless otherwise indicated. Whenever the
words “include,” “includes” or “including” are used in this Agreement, they shall be deemed to be
followed by the words “without limitation.” The words “hereof,” “herein,” “hereby” and “hereunder”
and words of similar import when used in this Agreement shall refer to this Agreement as a whole
and not to any particular provision of this Agreement. The word “or” shall not be exclusive. This
Agreement shall be construed without regard to any presumption or rule requiring construction or
interpretation against the party drafting or causing any instrument to be drafted.

ARTICLE II

COVENANTS

     Section 2.1 Board of Directors, Annual Meeting and Related Matters.

	 	(a)	 	Board Expansion. Following the date hereof but prior
to the 2008 Annual Meeting, the Company shall increase the size of the Board
from eight to nine directors.
	 
	 	(b)	 	2008 Annual Meeting. The Company shall use all reasonable best
efforts to cause the 2008 Annual Meeting to be held and the election of
directors thereat to be conducted on the scheduled date of May 28, 2008 and
shall not delay or postpone such meeting date or election, unless a quorum is
not obtained, in which case as promptly thereafter as practicable; provided,
however, in the event the election of directors at the 2008 Annual Meeting
does not occur on May 28, 2008, then, not later than May 28, 2008, the
Company shall appoint and elect the Hovde Investor Nominees to the Board as
the first matter of business to be conducted at a meeting of the Board on
such date to enable the Hovde Investor Nominees to fully participate
thereafter in such meeting.
	 
	 	(c)	 	Replacement Directors. If at any time during the
Restricted Period any Hovde Investor Nominee refuses to serve, or is unable or
unwilling to serve as a director

2

 

	 	 	 	of the Company as a result of such Hovde Investor Nominee’s death,
incapacity, or otherwise, but specifically excluding failure to be elected
at the 2008 Annual Meeting, then the Hovde Investors shall be entitled to
designate another individual as a replacement Hovde Investor Nominee subject
to the consent of the Company, such consent not to be unreasonably withheld,
delayed or conditioned (any such replacement Hovde Investor Nominee, a
“Replacement Hovde Nominee”), and such Replacement Hovde Nominee
shall be deemed a Hovde Investor Nominee for all purposes of this Agreement;
provided, however, that the Company’s objection to a proposed Replacement
Hovde Nominee shall be deemed reasonable if, among other reasonable bases
for objection, (i) such individual is an officer or director of a company or
organization which derives more than twenty (20%) percent of its revenues or
profits, on a consolidated basis, from the development, ownership,
management or licensing of hotels, resorts, motels, theme parks, water
parks, or similar hospitality or entertainment-oriented enterprise, and (ii)
such individual does not meet all other criteria for board membership as
established by the Board’s Nominating and Governance Committee applicable to
all directors generally. In proposing an individual as a Replacement Hovde
Nominee pursuant to the immediately preceding sentence, the Hovde Investors
shall provide the Company with such information regarding such individual as
would be required to nominate such individual as a director pursuant to
Section 10 of Article 2 of the Company’s Bylaws. In the event of the death,
resignation or retirement from the Board of any Hovde Investor Nominee
during the Restricted Period, the Board shall, as promptly thereafter as
practicable, cause such Hovde Investor Nominee to be replaced with a
Replacement Hovde Nominee.
	 
	 	(d)	 	Committees of the Board. Concurrently with the
appointment and election of the Hovde Investor Nominees pursuant to Section
2.1, and throughout the Restricted Period, the Board shall ensure that at least
one Hovde Investor Nominee or Replacement Hovde Nominee shall be a member of at
least two of the existing three committees of the Board and of any additional
committee and subcommittee of the Board that may be created subsequent to the
date hereof; provided, however, that any such Hovde Investor Nominee or
Replacement Hovde Nominee meets any criteria for such position as required by
NASDAQ rules or rules and regulations established by the SEC.
	 
	 	(e)	 	Nomination of New Directors. The Company agrees that
at the 2008 Annual Meeting, the Board will:

	 	(1)	 	nominate each of the Hovde Investor Nominees
and the Third Nominee as a director of the Company whose term shall
expire at the Company’s 2009 Annual Meeting of Stockholders; and
	 
	 	(2)	 	solicit proxies for and vote in favor of the
Hovde Investor Nominees and the Third Nominee at the 2008 Annual
Meeting.

	 	(f)	 	Efforts. The Company shall use all reasonable best
efforts to ensure that each of the Hovde Investor Nominees and the Third
Nominee is elected by the stockholders at the 2008 Annual Meeting.

3

 

	 	(g)	 	Role of Hovde Investor Nominees. Each of the Hovde
Investor Nominees, upon election to the Board, will be governed by the same
protections and obligations regarding confidentiality, conflicts of interests,
fiduciary duties, trading and disclosure policies and other governance
guidelines (it being understood that such policies shall not restrict the
activities of the Hovde Investors other than any Hovde Investor Nominee) and
shall have the same rights and benefits, including with respect to insurance,
indemnification, compensation and fees, as are applicable to all independent
directors of the Company.
	 
	 	(h)	 	Proxy Solicitation Materials. The Company and the
Board agree that the Company’s Proxy Statement and proxy cards for the 2008
Annual Meeting and all other solicitation materials to be delivered to
stockholders in connection with the 2008 Annual Meeting (excepting any
materials delivered prior to the date hereof) shall be prepared in accordance
with, and in furtherance of, this Agreement. The Company will provide the
Hovde Investors with copies of any portion of proxy materials or other
solicitation materials that contain statements relating to the Hovde Investors,
the Hovde Investor Nominees or this Agreement a reasonable period (and, in any
event, at least one business day) in advance of filing such materials with the
SEC or disseminating the same in order to permit the Hovde Investors a
reasonable opportunity to review and comment on such materials. The Hovde
Investors will provide, as promptly as reasonably practicable, all information
relating to the Hovde Investor Nominees (and other information, if any) to the
extent required under applicable law to be included in the Company’s Proxy
Statement and any other solicitation materials to be delivered to stockholders
in connection with the 2008 Annual Meeting. The Company’s Proxy Statement for
the 2008 Annual Meeting shall contain the same type and tenor of information
concerning the Hovde Investor Nominees as provided for the Company’s other
director nominees.
	 
	 	(i)	 	Stock Ownership. If at any time during the Restricted
Period the Hovde Investors together with their Affiliates fail to collectively
beneficially own at least 60% of the number of shares of the Company they
beneficially owned as of the date hereof, the Hovde Investors shall cause one
Hovde Investor Nominee selected by the Hovde Investors to promptly tender his
resignation from the Board. If at any time during the Restricted Period the
Hovde Investors together with their Affiliates fail to collectively
beneficially own at least 40% of the number of shares of the Company they
beneficially owned as of the date hereof, the Hovde Investors shall cause each
Hovde Investor Nominee to promptly tender his resignation from the Board.

     Section 2.2 Voting Provisions. In connection with the 2008 Annual Meeting, subject to
the full compliance by the Company of this Agreement, the Hovde Investors, together with their
respective Affiliates, will cause all shares of Common Stock, $0.01 par value, of the Company (the
“Common Stock”) for which they have the right to vote as of the record date for the 2008
Annual Meeting to be present for quorum purposes and to be voted at such meeting or at any
adjournments or postponements thereof, (a) in favor of each director nominated and recommended by
the Board for election at such meeting and (b) against any stockholder nominations for director
which are not approved and recommended by the Board for election at such meeting.

     Section 2.3 Other Actions by the Hovde Investors. Each of the Hovde Investors agrees
that, subject to the full compliance by the Company of this Agreement, in connection with the 2008
Annual

4

 

Meeting and regarding nominees for director of the Company, neither it nor any of its
Affiliates will, without the written consent of the Company, directly or indirectly solicit proxies
or written consents of stockholders or make any shareholder proposals.

     Section 2.4 Additional Undertakings by the Hovde Investors. By executing this
Agreement, subject to the full compliance by the Company of this Agreement, the Hovde Investors
hereby irrevocably withdraw their Nomination Letter and agree to terminate the pending proxy
contest with respect to the election of directors at the 2008 Annual Meeting.

     Section 2.5 Publicity. Promptly after the execution of this Agreement, the Company and
the Hovde Investors will issue a joint press release in the form attached hereto as Schedule
B.

ARTICLE III

OTHER PROVISIONS

     Section 3.1 Representations and Warranties.

	 	(a)	 	Representations and Warranties of the Company. The Company
hereby represents and warrants that (i) this Agreement and the performance by
the Company of its obligations hereunder (A) has been duly authorized, executed
and delivered by it, and is a valid and binding obligation of the Company,
enforceable against the Company in accordance with its terms, (B) does not
require the approval of the stockholders of the Company and (C) does not and
will not violate any law, any order of any court or other agency of government,
the Certificate of Incorporation of the Company, as amended, or the Bylaws of
the Company, as amended, or any provision of any indenture, agreement or other
instrument to which the Company or any of its properties or assets is bound, or
conflict with, result in a breach of or constitute (with due notice or lapse of
time or both) a default under any such indenture, agreement or other
instrument, or result in the creation or imposition of, or give rise to, any
lien, charge, restriction, claim, encumbrance or adverse penalty of any nature
whatsoever pursuant to any such indenture, agreement or other instrument, (ii)
attached hereto as Exhibit 1 is a true and complete copy of the
Unanimous Written Consent of the Board approving this Agreement and appointing
and electing the Hovde Investor Nominees to the Board, and (iii) as of the date
hereof, there are only three committees of the Board and no subcommittees.
	 
	 	(b)	 	Representations and Warranties of the Hovde Investors. Each of
the Hovde Investors represents and warrants that this Agreement and the
performance by each such Hovde Investor of its obligations hereunder (i) has
been duly authorized, executed and delivered by such Hovde Investor, and is a
valid and binding obligation of such Hovde Investor, enforceable against such
Hovde Investor in accordance with its terms, (ii) does not require approval by
any owners or holders of any equity interest in such Hovde Investor (except as
has already been obtained) and (iii) does not and will not violate any law, any
order of any court or other agency of government, the charter or other
organizational documents of such Hovde Investor, as amended, or any provision
of any agreement or other instrument to which such Hovde Investor or any of its
properties or assets is bound, or conflict with, result in a breach of or
constitute (with due notice or lapse of time or both) a default under any such
agreement or

5

 

	 	 	 	other instrument, or result in the creation or imposition of, or give rise
to, any lien, charge, restriction, claim, encumbrance or adverse penalty of
any nature whatsoever pursuant to any such agreement or instrument. Each
Hovde Investor hereby further represents and warrants that, as of the date
hereof, it is the beneficial owner of such number of shares of Common Stock
as are set forth with respect to such Hovde Investor on Schedule A
of this Agreement.

     Section 3.2 Confidentiality. The Company has no obligation to furnish Confidential
Information to the Hovde Investors or its representatives by virtue of this Agreement except for
Confidential Information provided to the Hovde Investor Nominees in their capacity as directors
(and as nominees for director) of the Company. Each of the Hovde Investors hereby acknowledges
that it is aware that federal and state securities laws prohibit any person trading any security of
the Company on the basis of material, non-public information received from or on behalf of the
Company or from a source other than the Company known by you to be bound by a fiduciary
relationship with the Company or by a confidentiality agreement with or other contractual
obligation of confidentiality to the Company or another party or from communicating such
information to any other person under circumstances in which it is reasonably foreseeable that such
person is likely to trade in such securities. Each of the Hovde Investors agrees to comply with
such laws. The term “Confidential Information” shall mean any information that is
confidential to the Company; provided that Confidential Information will not include information
which (i) becomes lawfully available to the public other than as a result of a disclosure by the
Hovde Investors or its representatives, (ii) was lawfully available to the Hovde Investors on a
non-confidential basis prior to its disclosure to the Company or its representatives by the Company
or on its behalf or (iii) lawfully becomes available to the Hovde Investors on a non-confidential
basis from a source other than the Company or the Company’s representatives or agents, provided
that such source is not bound by a confidentiality agreement with the Company of which the Hovde
Investors have been made aware.

     Section 3.3 Remedies.

	 	(a)	 	Each party hereto hereby acknowledges and agrees, on behalf of
itself and its Affiliates, that irreparable harm would occur in the event any
of the provisions of this Agreement were not performed in accordance with their
specific terms or were otherwise breached. It is accordingly agreed that the
parties will be entitled to specific relief hereunder, including an injunction
or injunctions to prevent and enjoin breaches of the provisions of this
Agreement and to enforce specifically the terms and provisions hereof in
Chancery Court (or other state court with subject matter jurisdiction) or
federal court in the State of Delaware, in addition to any other remedy to
which they may be entitled at law or in equity. Any requirements for the
securing or posting of any bond with such remedy are hereby waived.
	 
	 	(b)	 	Each party hereto agrees, on behalf of itself and its
Affiliates, that any actions, suits or proceedings arising out of or relating
to this Agreement or the transactions contemplated hereby will be brought
solely and exclusively in Chancery Court (or other state court with subject
matter jurisdiction) or federal court in the State of Delaware (and the parties
agree not to commence any action, suit or proceeding relating thereto except in
such courts), and further agrees that service of any process, summons, notice
or document by U.S. registered mail to the respective addresses set forth in
Section 3.5 will be effective service of process for any such action, suit or
proceeding brought against any party in any such court. Each party, on behalf
of itself and its Affiliates, irrevocably and

6

 

	 	 	 	unconditionally waives any objection to the laying of venue of any action,
suit or proceeding arising out of this Agreement or the transactions
contemplated hereby, in the Chancery Court (or other state court with
subject matter jurisdiction) or federal courts the State of Delaware, and
hereby further irrevocably and unconditionally waives and agrees not to
plead or claim in any such court that any such action, suit or proceeding
brought in any such court has been brought in an improper or inconvenient
forum.

     Section 3.4 Entire Agreement. This Agreement contains the entire understanding of the
parties with respect to the subject matter hereof and may be amended only by an agreement in
writing executed by the parties hereto.

     Section 3.5 Notices. All notices, consents, requests, instructions, approvals and
other communications provided for herein and all legal process in regard hereto shall be in writing
and shall be deemed validly given, made or served, immediately (a) if delivered personally or given
by telecopy (which is confirmed) to the number provided in this subsection, or (b) within five
business days after being mailed by registered or certified mail (or such shorter time if delivered
by overnight carrier with evidence of delivery) at the address specified in this subsection:

	 	 	 
	   if to the Company:
	 	Great Wolf Resorts, Inc.
	 
	 	122 West Washington Avenue
	 
	 	Suite 600
	 
	 	Madison WI 53703
	 
	 	Facsimile:          (608) 251-6800
	 
	 	Attention:          General Counsel
	 
	 	 
	   with a copy to:
	 	Michael Best & Friedrich LLP
	 
	 	100 East Wisconsin Avenue
	 
	 	Suite 3300
	 
	 	Milwaukee, WI  53202
	 
	 	Facsimile:          (414) 277-0656
	 
	 	Attention:          Geoffrey R. Morgan
	 
	 	 
	   if to the Hovde Investors:
	 	             Hovde Capital Advisors LLC
	 
	 	1826 Jefferson Place, N.W.
	 
	 	Washington, D.C.  20036
	 
	 	Facsimile:          (202) 775-8365
	 
	 	Attention:          Richard J. Perry, Jr.
	 
	 	 
	   with a copy to:
	 	Bingham McCutchen LLP
	 
	 	355 South Grand Avenue
	 
	 	Suite 4400
	 
	 	Los Angeles, CA  90071-3106
	 
	 	Facsimile:          (213) 680-6499
	 
	 	Attention:          David K. Robbins

     Section 3.6 Governing Law. This Agreement shall be governed by and construed and
enforced in accordance with the laws of the State of Delaware.

     Section 3.7 Further Assurances. Each party agrees to take or cause to be taken such
further actions, and to execute, deliver and file or cause to be executed, delivered and filed such
further

7

 

documents and instruments, and to obtain such consents, as may be reasonably required or requested
by the other party in order to effectuate fully the purposes, terms and conditions of this
Agreement.

     Section 3.8 Third-Party Beneficiaries. This Agreement shall inure to the benefit of
and be binding upon the parties hereto and their respective successors and assigns, and nothing in
this Agreement is intended to confer on any person other than the parties hereto or their
respective successors and assigns, any rights, remedies, obligations or liabilities under or by
reason of this Agreement.

     Section 3.9 Counterparts. This Agreement may be executed in one or more counterparts,
each of which shall be deemed an original, but all of which together shall constitute one and the
same instrument. A facsimile copy of any executed counterpart hereof shall have the same legal
effect as the original.

     IN WITNESS WHEREOF, each of the parties hereto has executed this Agreement, or caused the same
to be executed by its duly authorized representative, as of the date first above written.

	 	 	 	 	 	 	 
	 	 	GREAT WOLF RESORTS, INC.	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 

	 	 	 	 

	 	 
	 

	 	Name:	 	 	 	 
	 

	 	 	 	 

	 	 
	 

	 	Title:	 	 	 	 
	 

	 	 	 	 

	 	 
	 
	 	 	 	 	 	 
	 	 	HOVDE INVESTORS:	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 

	 	 	 	 

Eric D. Hovde
	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 

	 	 	 	 

Richard J. Perry, Jr.
	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 

	 	 	 	 

Steven D. Hovde
	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	Hovde Capital Advisors LLC	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 

	 	 	 	 

Financial Institution Partners, L.P.
	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 

	 	 	 	 

Financial Institution Partners, Ltd.
	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 

	 	 	 	 

Financial Institution Partners III, L.P.
	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 

	 	 	 	 

Financial Institution Partners IV, L.P.
	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 

	 	 	 	 

	 	 

8

 

SCHEDULE A

     As of May 9, 2008, the Hovde Investors together with their Affiliates collectively
beneficially own an aggregate of 1,734,974 shares of Common Stock. The beneficial ownership of each
of the Hovde Investors is as follows:

	1.	 	Eric D. Hovde may be deemed to be the beneficial owner of 1,730,974 shares of Common Stock.

	2.	 	Richard J. Perry, Jr. may be deemed to be the beneficial owner of 1,666,478 shares of Common
Stock.

	3.	 	Steven D. Hovde may be deemed to be the beneficial owner of 28,140 shares of Common Stock.

	4.	 	Hovde Capital Advisors LLC may be deemed to be the beneficial owner of 1,643,163 shares of
Common Stock.

	5.	 	Financial Institution Partners, L.P. may be deemed to be the beneficial owner of 630,156
shares of Common Stock.

	6.	 	Financial Institution Partners, Ltd. may be deemed to be the beneficial owner of 307,570
shares of Common Stock.

	7.	 	Financial Institution Partners III, L.P. may be deemed to be the beneficial owner of 331,835
shares of Common Stock.

	8.	 	Financial Institution Partners IV, L.P. may be deemed to be the beneficial owner of 72,527
shares of Common Stock.

9

 

SCHEDULE B

[GREAT WOLF LETTERHEAD]

Press Release

	 	 	 
	Contacts:

	 	Great Wolf Resorts, Inc.
	 
	 	 
	 

	 	For Hovde Capital Advisors LLC

GREAT WOLF RESORTS, INC. AND HOVDE CAPITAL ADVISORS LLC

PARTNERS AGREE TO SETTLE PROXY CONTEST

Madison, Wisconsin, May 12, 2008 — Great Wolf Resorts, Inc. (the “Company”) announced today that
the Company and Hovde Capital Advisors LLC (“HCA”) have reached an agreement (the “Agreement”)
under which Eric D. Hovde and Richard T. Murray III wil be added to the Board of Directors of the
Company. Pursuant to the Agreement, the Company has agreed to include those two individuals as
nominees on its slate of director candidates to be nominated by the Board for election at the 2008
annual meetings of stockholders as well as a third nominee reasonably acceptable to HCA. The 2008
annual meeting of stockholders is currently scheduled for May 28, 2008. In connection with the
Agreement, HCA has agreed to cease its efforts to elect a slate of three nominees to the Board at
the 2008 annual meeting.

Randy Churchey, the Company’s interim Chief Executive Officer, said “We are pleased to have reached
an agreement with HCA. Management welcomes the perspectives and insights of our new directors.”

Eric D. Hovde stated, “Our nominees look forward to working with the other directors and management
to build and deliver value for all stockholders.”

About Great Wolf Resorts, Inc.

Great Wolf Resorts, Inc.® (NASDAQ: WOLF), Madison, Wis., is North America’s largest
family of indoor waterpark resorts, and, through its subsidiaries and affiliates, owns and operates
its family resorts under the Great Wolf Lodge® and Blue Harbor ResortTM
brands. Great Wolf Resorts is a fully integrated resort company and owns and/or manages Great Wolf
Lodge locations in: Wisconsin Dells, Wis.; Sandusky, Ohio; Traverse City, Mich.; Kansas City, Kan.;
Williamsburg, Va.; the Pocono Mountains, Pa.; Niagara Falls, Ontario; Mason, Ohio; Grapevine,
Texas; and Grand Mound, Wash.; and Blue Harbor Resort & Conference Center in Sheboygan, Wis. Great
Wolf Lodge in Concord, N.C. is currently under construction.

The company’s resorts are family-oriented destination facilities that generally feature 300 – 400
rooms and a large indoor entertainment area measuring 40,000 – 100,000 square feet. The all-suite

10

 

properties offer a variety of room styles, arcade/game rooms, fitness rooms, themed
restaurants, spas, supervised children’s activities and other amenities. Additional information
may be found on the company’s Web site at www.greatwolf.com.

About Hovde Capital Advisors LLC

Hovde Capital Advisors LLC provides specialized investment management services to a series of
proprietary long/short equity hedge funds. Hovde Capital Advisors LLC is registered as an
Investment Adviser with the Securities and Exchange Commission. Since 1994, the firm has invested
primarily in publicly traded and closely held companies in the financial services and real-estate
related sectors, utilizing the knowledge and experience of its principals and affiliates to
identify attractive investment opportunities and strategically position investment portfolios to
capitalize on changing market and economic trends in an effort to generate positive returns across
various economic and interest rate cycles.

11

 

EXHIBIT 1

UNANIMOUS WRITTEN CONSENT OF THE BOARD

APPROVING THIS AGREEMENT AND APPOINTING THE HOVDE INVESTOR NOMINEES

[Following this page]

12

 

UNANIMOUS WRITTEN CONSENT OF THE BOARD OF DIRECTORS

OF

GREAT WOLF RESORTS, INC.

     The undersigned, being all of the directors of the corporation (the “Company”), do hereby,
pursuant to Section 141(f) of the General Corporation Law of Delaware, take the following actions:

     1. Agreement with Hovde Capital Advisors.

     WHEREAS, Hovde Capital Advisors has initiated a Proxy contest with the Company and has
proposed three nominees to the Company’s Board of Directors to be elected at the 2008 Annual
Meeting of Shareholders (the “2008 Annual Meeting”);

     WHEREAS, the Company has reviewed the Proxy Statement and other materials filed by Hovde
Capital Advisors; and

     WHEREAS, the Company believes it is in the best interests of the Company to reach an agreement
with Hovde Capital Advisors to nominate two of Hovde Capital Advisors’ nominees to the Board.

     RESOLVED, that the agreement between the Company and Hovde Capital Advisors, et al. in the
form attached to this Consent (the “Hovde Agreement”) is hereby approved and adopted.

     FURTHER RESOLVED, that the proper officers of the Company be, and they are hereby, authorized
and directed to execute the Hovde Agreement and take whatever further action is required to give
full force and effect to the foregoing resolution.

     2. Amendment of Bylaws.

     WHEREAS, in connection with execution of the Hovde Agreement, the Company has agreed to amend
its Bylaws to provide that the number of directors of the Company shall be nine (9).

     RESOLVED, that pursuant to Article III, Section 2(a) of the Company’s Bylaws, the Board of
Directors does hereby fix the number of directors of the Company at nine (9).

13

 

     3. Acceptance of Nominating Committee’s Recommendations.

     RESOLVED, that the Board hereby accepts the Nominating Committee’s recommendation to nominate
Beth May as a director to be elected at the 2008 Annual Meeting to fill the seat being vacated by
John Emery.

     FURTHER RESOLVED that in connection with the Hovde Agreement, the Board has reviewed and
accepts the Nominating Committee’s evaluation and recommendation to nominate Eric D. Hovde and
Richard T. Murray to the Board of Directors to be elected at the 2008 Annual Meeting.

     FURTHER RESOLVED, that, in addition to Beth May and Messrs. Hovde and Murray, the Board of
Directors hereby nominates Joseph V. Vittoria, Elan Blutinger, Randy L. Churchey, Michael M.
Knetter, Edward H. Rensi and Howard A. Silver as directors of the Company to be elected at the 2008
Annual Meeting.

     4. Change of Date of Annual Meeting.

     RESOLVED, that the Board of Directors hereby designates May 28, 2008, as the date of the 2008
Annual Meeting. Such meeting will be held at 10:00 a.m. Central time at 122 West Washington
Avenue, Madison, Wisconsin 53703.

     Dated May 9, 2008.

	 	 	 	 	 	 	 
	 

	 	 	 	          /s/
 

Randy L. Churchey
	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	          /s/
 

Joseph V. Vittoria
	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	          /s/
 

Howard A. Silver
	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	          /s/
 

Edward H. Rensi
	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	          /s/
 

Michael M. Knetter
	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	          /s/
 

Elan Blutinger
	 	 

14

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