Washington Mutual (WMI) - Attachments/Exhibits To The Final Report of The Examiner (Part 10/10)

Asset Trust I Custodian holds the notes, mortgages and other legal documents related
t
o the HELs
(collectively, the Asset Trust I Loan Documents)
f
o
r
the benefit
o
f
the Asset Trust I Trustee. The
Asset Trust I Custodian maintains the Asset Trust I Loan Documents
i
n secure and fire resistant
facilities. The mortgage files held
b
y
the Asset Trust I Servicer have not been physically segregated
from Asset Trust I Loan Documents
i
n the Asset Trust I Custodians custody but are kept
i
n shared
facilities. The Asset Trust I Custodian has reviewed the Asset Trust I Loan Documents related
t
o each
HEL and delivered
t
o the Asset Trust I Trustee a certification
t
o the effect that, except
a
s
noted
i
n
such certification,
a
l
l
required documents have been executed and received.
I
n the event
o
f
the termination
o
f
the Asset Trust I Custody Agreement, the Asset Trust I
Custodian will
b
e
required
t
o deliver the Asset Trust I Loan Documents
i
n the Asset Trust I Custodians
custody
t
o the Asset Trust I Trustee
o
r
any successor Asset Trust I Custodian appointed
b
y
the
Company.
The Asset Trust I Servicer may, but does not currently, pay the Asset Trust I Custodian a fee for
i
t
s services under the Asset Trust I Custody Agreement from time
t
o time. Payment
o
f
this fee will not
affect dividends
t
o the Company.
56
CONFIDENTIAL
Restricted For Use in Connection with Plan Confirmation Only WMIPC_500002168.00069
Return
ASSET TRUST
I
I
General
WAMU 2006- OA1
(
Asset Trust
I
I
)
i
s a statutory trust formed under the laws
o
f
the State
o
f
Delaware pursuant
t
o a trust agreement between the Company,
a
s
depositor, and Deutsche Bank
Trust Company Delaware,
a
s
Delaware trustee. The Asset Trust
I
I
Pooling and Servicing Agreement,
dated
a
s
o
f
December 13, 2006 (the Asset Trust
I
I
Pooling and Servicing Agreement), among the
Company,
a
s
depositor, WMB,
a
s
servicer ( the Asset Trust
I
I
Servicer), Deutsche Bank Trust
Company Delaware,
a
s
Delaware trustee (the Asset Trust
I
I
Delaware Trustee) and Deutsche Bank
National Trust Company,
a
s
trustee (the Asset Trust
I
I
Trustee), restates the initial trust agreement
and
i
s the governing instrument
o
f
Asset Trust
I
I
.
Asset Trust
I
I does not own any assets other than the Option ARMs and a
d
e
minimis number
o
f
other mortgage assets. Asset Trust
I
I does not have any liabilities other than those incurred
i
n
connection with the Asset Trust
I
I Pooling and Servicing Agreement and any related agreement. Asset
Trust
I
I does not have any directors, officers
o
r
other employees. No equity contribution has been
made
t
o Asset Trust
I
I
b
y
WMB, the Company
o
r
any other party, except for a
d
e
minimis contribution
made
b
y
the Company,
a
s
depositor, pursuant
t
o the initial trust agreement, and Asset Trust
I
I does
not have any other capital. The fiscal year end
o
f
Asset Trust
I
I
i
s December 31. Asset Trust
I
I acts
through the Asset Trust
I
I Trustee and the Asset Trust
I
I Delaware Trustee, whose fees and reasonable
expenses are paid
o
r
reimbursed
b
y
the Asset Trust
I
I Servicer.
For purposes
o
f
this offering circular with respect
t
o the underwriting, origination and servicing
o
f
the Option ARMs
i
n Asset Trust
I
I
,
references
t
o WMB include WMB, originators acquired
b
y
WMB
and WMBs subsidiaries.
General Description
o
f
Assets
The assets
o
f
Asset Trust
I
I are substantially
a
l
l
Option ARMs that had, as
o
f
November 14,
2006, a value and aggregate unpaid principal balance
o
f
approximately $2,899,877,211, together with
payments received thereon and certain other investments. The Option ARMs were originated
b
y
WMB. A portion
o
f
the Option ARMs were contributed
t
o the Company by University Street, the owner
o
f
a
l
l
the Companys common interests. As
o
f
April
1
,
2007, the Option ARMs transferred into Asset
Trust
I
I had an aggregate unpaid principal balance
o
f
approximately $2,204,305,471.
The interest rate for each Option ARM
i
s fixed for a specified initial period, and
i
s then adjusted
on a monthly basis based on
i
t
s
index. The index for the Option ARMs
i
s a per annum rate equal
t
o
the twelve- month moving average monthly yield on United States Treasury Securities adjusted
t
o a
constant maturity
o
f
one year
(
One- Year MTA

o
r
the Index), as published by the Board
o
f
Governors
o
f
the Federal Reserve System
i
n the Federal Reserve Statistical Release Selected
Interest Rates (
H
.
15), determined by averaging the monthly yields for the most recently available
twelve months. The One- Year MTA figure used for each interest rate adjustment date
i
s the most
recent One- Year MTA figure available as
o
f
fifteen days before that date.
I
f One- Year MTA
i
s no longer available, the Asset Trust
I
I Servicer will choose a new index that
i
s based on comparable information. When the Asset Trust
I
I Servicer chooses a new index,
i
t will
increase
o
r
decrease the margin on each Option ARM
b
y
the difference between the average
o
f
One-
Year MTA for the final three years
i
t was
i
n effect and the average
o
f
the replacement index for the
most recent three years. The margin will
b
e
increased
b
y
that difference
i
f the average
o
f
One- Year
MTA
i
s greater than the average
o
f
the replacement index, and the margin will
b
e
decreased
b
y
that
difference
i
f the average
o
f
the replacement index
i
s greater than the average
o
f
One- Year MTA. The
new margin will be rounded up as provided
i
n the related mortgage note.
After an initial fixed-rate period
o
f
one, three
o
r
twelve months, the mortgage interest rate on
each Option ARM
i
s adjusted monthly
t
o equal the sum
o
f
the applicable index and the per annum
57
CONFIDENTIAL
Return
rate (the Margin) specified
i
n the applicable mortgage note. As
o
f
April
1
,
2007, the Margin rates
applicable
t
o the mortgage loans
i
n the Asset Trust
I
I had a weighted average
o
f
approximately 2.67%
and range from 1.80%
t
o 4.50% per annum. The mortgage loans
i
n the Asset Trust
I
I are subject
t
o
Lifetime Rate Caps, with a weighted average
o
f
approximately 10.02% and ranging from 8.95%
t
o
14.35% per annum. During the initial fixed rate period
o
f
a
n
Option ARM, mortgagors are required
t
o
pay a minimum monthly payment that,
i
n some cases, will not fully amortize the mortgage loan. Each
month thereafter, mortgagors are given one
o
r
more payment options, which may include a payment
amount less than, equal
t
o
o
r
greater than a fully amortizing monthly payment. Whether an Option
ARM
i
s repaid
o
n
a fully- amortizing basis depends
o
n
the payment option selected
b
y
the mortgagor
o
n
each monthly payment date.
I
f the minimum monthly payment
i
n a given month
i
s less than the
amount
o
f
accrued and unpaid interest
o
n
the mortgage loan, the excess interest will
b
e
added
t
o the
outstanding principal balance
o
f
the mortgage loan
i
n the form
o
f
negative amortization
(
Negative
Amortization). The maximum Negative Amortization ( the Negative Amortization Cap)
o
f
the Option
ARMs
i
n Asset Trust
I
I ranges from 110%
t
o 125%
o
f
the original principal balance. On the earlier
o
f
the sixty- first month
o
r
the month
i
n which the Negative Amortization Cap
i
s reached, mortgagors are
required
t
o make fully amortizing payments.
As
o
f
April
1
,
2007, the average current, unpaid principal balance
o
f
the Option ARMs was
approximately $448,485, with a minimum current, unpaid principal balance
o
f
approximately $4,582
and a maximum current, unpaid principal balance
o
f
approximately $9,195,089. The Option ARMs
have various original maturities ranging from
1
5
years
t
o 40 years and were, on average, originated
within the last 29 months. The majority
o
f
the Option ARMs were underwritten under WMBs reduced
documentation program (described below);
a
s
o
f
April
1
,
2007, approximately 28.34%
o
f
the Option
ARMs were underwritten under WMBs full documentation program (described below). As
o
f
April
1
,
2007, the current weighted average loan- to-value ratio was approximately 68.65% and the weighted
average loan- to-value ratio
a
t
origination was approximately 68.79%. The mortgage loans
i
n the Asset
Trust
I
I have a weighted average Credit Score
o
f
approximately 746. The majority
o
f
the properties
underlying the Option ARMs are owner occupied with approximately 27.98%
o
f
the properties non-
owner occupied. Of the Option ARMs
i
n Asset Trust
I
I
,
approximately 45.63% are cash- out refinances,
approximately 40.37% are purchase loans and approximately 14.00% are rate/ term refinances. The
Option ARMs are geographically concentrated
i
n California (approximately 74.94%).
Acquisition
o
f
the Option ARMs and Related Transactions
Contemporaneously with the issuance
o
f
the Series 2006- C Company Preferred Securities,
WMB contributed a pool
o
f
Option ARMs
t
o the Company
i
n exchange for the Series 2006-C
Company Preferred Securities.
I
n addition, University Street contributed a pool
o
f
Option ARMs
t
o the
Company
a
s
a capital contribution. The aggregate value
o
f
these contributions was $2,899,877,211,
calculated as
o
f
November 14, 2006.
The Company contributed
t
o Asset Trust
I
I
a
l
l
o
f
the Option ARMs
i
t received from WMB and
University Street. This contribution was made
i
n exchange for the Class
A
-
1 2006- OA1 Certificate (the
Asset Trust
I
I Class A Trust Certificate
) and the Class R 2006- OA1 Certificate (the Asset Trust

I
I
Class R Trust Certificate). For United States federal income tax purposes, the Asset Trust
I
I Class A
Trust Certificate represented the sole class
o
f
regular interests
i
n Asset Trust
I
I
,
and the Asset Trust
I
I
Class R Trust Certificate represented the sole class
o
f
residual interests
i
n Asset Trust
I
I
.
The
Company retained the Asset Trust
I
I Class A Trust Certificate and transferred the Asset Trust
I
I Class R
Trust Certificate
t
o WMB.
Asset Trust
I
I
owns the right
t
o receive
a
l
l
payments
o
f
principal and interest
o
n
the Option ARMs
due after November 30, 2006. A schedule
t
o the Asset Trust
I
I
Pooling and Servicing Agreement
included information about each
o
f
the Option ARMs, including:
the outstanding principal balance
a
s
o
f
the close
o
f
business on November 30, 2006;
58
CONFIDENTIAL
Return
the term
o
f
the Option ARM; and
the applicable interest rate
a
s
o
f
the close
o
f
business on November 30, 2006.
The notes relating
t
o the Option ARMs have not been endorsed
t
o Asset Trust
I
I
and
n
o
assignments
t
o Asset Trust
I
I
o
f
the mortgages securing the Option ARMs were prepared. WMB,
i
n
i
t
s
capacity
a
s
initial Asset Trust
I
I
Custodian, has possession
o
f
and reviews such notes and the Option
ARMs
a
s
custodian
f
o
r
Asset Trust
I
I
and financing statements were filed evidencing Asset Trust IIs
interest
i
n the Option ARMs.
I
n exchange
f
o
r
the Option ARMs and the other assets described above, the Asset Trust
I
I
Trustee authenticated and delivered the Asset Trust
I
I
Class A Trust Certificate and the Asset Trust
I
I
Class R Trust Certificate pursuant
t
o the Companys order.
Description
o
f
the Portfolio
General
The Option ARMs
i
n the portfolio
o
f
Asset Trust
I
I consist
o
f
payment-option adjustable rate
mortgage loans with a negative amortization feature secured
b
y
a first lien, fee simple
o
r
leasehold
interest
i
n a one- to-four-family residential property
o
r
shares
o
f
stock relating
t
o cooperative apart-
ments. Such residences include detached homes, duplexes, triplexes, fourplexes, townhomes, individ-
ual condominium units, individual units
i
n planned unit developments and other attached dwelling units
that are part
o
f
buildings consisting
o
f
n
o
more than four units. As
o
f
April
1
,
2007, 53
o
f
the Option
ARMs were delinquent
i
n payments for a period
o
f
30 days
o
r
more; however, there can be no
assurance that Option ARMs held
i
n the portfolio
o
f
Asset Trust
I
I will not become delinquent
i
n the
future.
The tables
i
n Appendix C
t
o this offering circular represent information
a
s
o
f
April
1
,
2007 with
respect
t
o the Option ARMs included
i
n the portfolio
o
f
Asset Trust
I
I
.
Underwriting
General
The Option ARMs owned
b
y
Asset Trust
I
I were,
i
n
a
l
l
material respects, originated
i
n
accordance with the underwriting guidelines
o
f
WMB
a
s
described herein. The Option ARMs were
underwritten
b
y
WMB.
WMBs underwriting guidelines generally are intended
t
o evaluate the prospective borrowers
credit standing and repayment ability and the value and adequacy
o
f
the mortgaged property
a
s
collateral. Some Option ARMs are manually underwritten,
i
n which case an underwriter reviews
information submitted
b
y
the borrower and supporting documentation,
i
f required, and a credit report
o
f
the borrower, and based on that review determines whether
t
o originate a loan
i
n the amount and
with the terms requested
b
y
the borrower. Some Option ARMs are underwritten through WMBs
automated underwriting system, described below.
Evaluation
o
f
the Borrowers Credit Standing
To evaluate a prospective borrowers credit history, the loan underwriter obtains a credit report
relating
t
o the borrower from one
o
r
more credit reporting agencies. The credit report typically contains
information relating
t
o such matters
a
s
credit history with local and national merchants and lenders,
installment debt payments and any record
o
f
defaults, bankruptcy, repossession, suits
o
r
judgments.
I
n most cases the credit report provides a Credit Score for the borrower. Credit Scores are designed
t
o assess a borrowers creditworthiness and likelihood
t
o default on an obligation over a defined period
(usually two
t
o three years) based on a borrowers credit history. Credit Scores do not necessarily
correspond
t
o the probability
o
f
default over the life
o
f
an Option ARM because they reflect past credit
history, rather than
a
n
assessment
o
f
future payment performance. Credit Scores range from
59
CONFIDENTIAL
Return
approximately 350
t
o approximately 850, with higher scores indicating more favorable credit history.
I
f
the loan underwriter obtains credit scores from three credit reporting companies, the middle score
generally
i
s used, and
i
f two credit scores are obtained, the lower score generally
i
s used.
I
n the case
o
f
co- borrowers, the credit score
f
o
r
the borrower with the lowest credit score generally
i
s used
(determined
f
o
r
each borrower
a
s
described
i
n the immediately preceding sentence). Minimum credit
scores are required
f
o
r
some loan products and loan programs. For borrowers
f
o
r
which credit scores
are not available, the loan underwriter will require alternative documentation indicating the borrowers
creditworthiness, such
a
s
rental
o
r
utility payment history
o
r
payment history on other debt.
Evaluation
o
f
the Borrowers Repayment Ability
I
n evaluating a prospective borrowers ability
t
o repay an Option ARM, the loan underwriter
considers the ratio
o
f
the borrowers total monthly debt (including non- housing expenses)
t
o the
borrowers gross income (referred
t
o
a
s
the debt- to-income ratio
o
r
back- end ratio). The maximum
acceptable ratios may vary depending on other loan factors, such as loan amount and loan purpose,
loan- to-value ratio, credit score and the availability
o
f
other liquid assets. Exceptions
t
o the ratio
guidelines may be made when compensating factors are present.
For purposes
o
f
calculating the front end and back end ratios
f
o
r
certain Option ARMs, the
borrowers monthly mortgage debt
i
s determined based
o
n
the fully indexed rate and a predetermined
factor
a
s
set
b
y
WMBs credit department from time
t
o time (which rate may
b
e
greater than the rate
i
n effect for the Option ARM during the initial fixed- rate period).
I
n addition, for purposes
o
f
calculating
these ratios for
a
n
Option ARM with a 40- year term, the borrowers monthly mortgage debt
i
s
determined based on 30- year term.
Evaluation
o
f
the Adequacy
o
f
the Collateral
The adequacy
o
f
the Option ARM
a
s
collateral generally was determined
b
y
a
n
appraisal made
i
n accordance with pre-established appraisal guidelines.
A
t
origination,
a
l
l
appraisals are required
t
o
conform
t
o the Uniform Standards
o
f
Professional Appraisal Practice adopted
b
y
the Appraisal
Standards Board
o
f
the Appraisal Foundation, and are made
o
n
forms acceptable
t
o Fannie Mae
and/
o
r
Freddie Mac. Appraisers may
b
e
staff appraisers employed
b
y
WMB
o
r
independent appraisers
selected
i
n accordance with the pre- established appraisal guidelines. Such guidelines generally
require that the appraiser,
o
r
a
n
agent
o
n
i
t
s behalf, personally inspect the property and verify whether
the property
i
s
i
n adequate condition and,
i
f the property
i
s new construction, whether
i
t
i
s
substantially completed. However,
i
n the case
o
f
Option ARMs underwritten through WMBs auto-
mated underwriting system,
a
n
automated valuation method may
b
e
used, under which the appraiser
does not personally inspect the property but instead relies on public records regarding the mortgaged
property and/
o
r
neighboring properties.
I
n either case, the appraisal normally
i
s based upon a market
data analysis
o
f
recent sales
o
f
comparable properties and, when deemed applicable, a replacement
cost analysis based
o
n
the current cost
o
f
constructing
o
r
purchasing a similar property. For Option
ARMs underwritten under WMBs streamline documentation programs, the appraisal guidelines
i
n
some cases permit the appraisal obtained
f
o
r
a
n
existing Option ARM
t
o
b
e
used. Title insurance
i
s
required
f
o
r
a
l
l
Option ARMs, except that for Option ARMs secured
b
y
shares
o
f
cooperative
apartments, title insurance
i
s not required for the cooperative apartment building (but a lien search
i
s
provided
b
y
the title company). Specific additional title insurance coverage
i
s required
f
o
r
some types
o
f
Option ARMs.
Documentation Programs
Each Option ARM owned by Asset Trust
I
I was underwritten under one
o
f
WMBs documentation
guidelines for verification
o
f
the borrowers stated income and assets. Under WMBs full/ alternative
documentation program, the prospective borrowers stated income
i
s verified through receipt
o
f
the
borrowers most recent pay stub and most recent W- 2 form, or,
i
n the case
o
f
self- employed borrowers
o
r
borrowers with more than 25%
o
f
their income from commissions, two years
o
f
personal (and,
i
f
60
CONFIDENTIAL
Return
applicable, business) tax returns. For self- employed borrowers, profit and loss statements may also
b
e
required. Under the full/ alternative documentation program, the borrowers stated assets are verified
through receipt
o
f
the borrowers two most recent bank
o
r
brokerage statements.
I
n addition, the
borrowers employment may
b
e
verified with the employer
b
y
telephone
o
r
b
y
other independent
means.
The WMB low documentation program places increased reliance on the value and adequacy
o
f
the mortgaged property as collateral, the borrowers credit standing and (
i
n some cases) the
borrowers assets.
I
t
i
s available
t
o borrowers with certain loan- to-value ratios, loan amounts and credit
scores. Under this program, the income as stated
i
n the borrowers loan application
i
s not verified,
although the borrowers employment may be verified
b
y
telephone. The borrowers stated income must
be reasonable for the borrowers occupation and assets (as determined
i
n the underwriters discre-
tion). Assets may be verified for higher risk transactions and when exceptions are approved, such as
when specific loan-to-value ratios
o
r
loan amount limits are exceeded.
A credit report for the borrower generally
i
s required
f
o
r
a
l
l
mortgage loans underwritten under
WMBs full/ alternative and low documentation programs.
Exceptions
t
o Program Parameters
Exceptions
t
o WMBs loan program parameters may
b
e
made
o
n
a case- by-case basis
i
f
compensating factors are present.
I
n those cases, the basis
f
o
r
the exception
i
s documented, and
i
n
some cases the approval
o
f
a senior underwriter (who
i
s
a
n
employee
o
f
WMB)
i
s required.
Compensating factors may include, but are not limited
t
o
,
low loan- to-value ratio, low debt-
t
o
-
income
ratio, good credit standing, the availability
o
f
other liquid assets, stable employment and time
i
n
residence
a
t
the prospective borrowers current address.
Automated Underwriting System
Some mortgage loans originated through WMB have been underwritten
i
n whole
o
r
i
n part
through WMBs proprietary automated underwriting system, known
a
s
Enterprise Decision Engine
o
r
EDE. Based
o
n
the borrowers credit report and the information
i
n the borrowers loan application,
the system either (
a
)
approves the loan subject
t
o the satisfaction
o
f
specified conditions, which may
include the receipt
o
f
additional documentation,
o
r
(
b
)
refers the loan application
t
o an underwriter
f
o
r
manual underwriting.
I
n making the underwriting decision, EDE distinguishes between ten different
levels
o
f
credit standing, based
o
n
both the credit score and characteristics
o
f
the loan. WMB has
developed these ten levels
o
f
credit standing based
o
n
a statistical analysis
o
f
the past performance
o
f
approximately 193,000 mortgage loans originated
b
y
the sponsor for
i
t
s
own portfolio between 1998
and 2001. WMB has been using EDE
f
o
r
underwriting
o
f
mortgage loans since January 2005. WMB
has also used
i
n the past, and currently uses, other automated underwriting systems.
A
l
l
o
r
some
o
f
the mortgage loans owed
b
y
Asset Trust
I
I
may have been underwritten through EDE
o
r
other
automated underwriting systems.
Quality Control Review
WMBs credit risk oversight department conducts quality control reviews
o
f
statistical samplings
o
f
previously originated Option ARMs on a regular basis.
Credit Risk Management Policies
Credit risk within the WMI Group
i
s managed by means
o
f
a broad set
o
f
policies and principles
contained
i
n
i
t
s
credit policy. The Chief Credit Officer
i
s responsible for overseeing the work
o
f
a credit
policy committee, monitoring the quality
o
f
the WMI Groups credit portfolio, determining the reason-
ableness
o
f
the WMI Groups allowance for loan losses, reviewing and approving large credit
exposures and setting underwriting criteria for credit- related products and programs. Credit risk
management
i
s based on analyzing the creditworthiness
o
f
the borrower, the adequacy
o
f
the
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underlying collateral given current events and conditions and the existence and strength
o
f
any
guarantor support.
Credit risk assessment
i
s a process that requires the evaluation
o
f
numerous factors, many
o
f
which are qualitative. Process integrity relies
o
n
the ability
o
f
the WMI Groups lending personnel
t
o
analyze
a
l
l
risk elements.
I
t also depends on maintaining risk rating accuracy
b
y
recognizing changing
elements
o
f
credit risk and promptly initiating risk rating changes.
Conflicts
o
f
Interest Policies
Pursuant
t
o WMBs code
o
f
ethics ( the Code
o
f
Ethics), WMB extends credit
t
o borrowers only
when the extension
o
f
credit
i
s financially reasonable for both WMB and the borrower
i
n question.
Pursuant
t
o the Code
o
f
Ethics, lending personnel cannot permit personal relationships
o
r
other
considerations
t
o influence lending decisions, and cannot approve extensions
o
f
credit
t
o
,
o
r
b
e
involved
i
n the funding
o
r
auditing
o
f
any loans made
t
o family
o
r
friends.
Servicing and the Asset Trust
I
I
Servicer
General
All
o
f
the Option ARMs owned by Asset Trust
I
I are serviced
b
y
WMB,
a
s
the Asset Trust
I
I
Servicer, pursuant
t
o the Asset Trust
I
I Pooling and Servicing Agreement. WMB has possession
o
f
the
mortgage files (
i
.
e
.
,
the credit reports, servicing documents, etc.)
i
n
i
t
s
capacity
a
s
Asset Trust
I
I
Servicer and the Asset Trust
I
I Loan Documents (as defined below)
i
n
i
t
s
capacity
a
s
Asset Trust
I
I
Custodian.
The Asset Trust
I
I
Pooling and Servicing Agreement provides that WMB may not resign from
i
t
s
obligations and duties thereunder
a
s
Asset Trust
I
I
Servicer except upon a determination that
i
t
s
duties
thereunder are
n
o
longer permissible under applicable law. No such resignation will become effective
until a successor Asset Trust
I
I
Servicer has assumed WMBs servicing obligations and duties under
the Asset Trust
I
I
Pooling and Servicing Agreement.
I
f
the Asset Trust
I
I
Servicer resigns, the
Company, subject
t
o the terms
o
f
the Asset Trust
I
I
Pooling and Servicing Agreement, will appoint a
successor Asset Trust
I
I
Servicer.
The Asset Trust
I
I Servicer receives a fee for
i
t
s
services
a
s
Asset Trust
I
I Servicer under the
Asset Trust
I
I Pooling and Servicing Agreement. The servicing fee
i
s calculated as a per annum
percentage for each Option ARM based on the principal balance for such Option ARM. The servicing
fee with respect
t
o each Option ARM equals 0.375%per annum and
i
s paid monthly. The Asset Trust
I
I
Servicer
i
s entitled
t
o retain certain ancillary fees and charges, including, but not limited
t
o
,
any
prepayment fees, insufficient funds fees, modification fees, payoff statement fees and late charges
with respect
t
o the Option ARMs as additional servicing compensation and
i
s also entitled
t
o certain
income generated by permitted investments made with collections
o
n
the Option ARMs. The Asset
Trust
I
I Servicer generally pays
a
l
l
expenses incurred
i
n connection with
i
t
s
responsibilities
a
s
Asset
Trust
I
I Servicer under the Asset Trust
I
I Pooling and Servicing Agreement (subject
t
o reimbursement
for certain expenses and advances, including those incurred
b
y
i
t
i
n connection with the liquidation
o
f
defaulted Option ARMs, the restoration
o
f
damaged mortgaged properties, and payments by the Asset
Trust
I
I Servicer for taxes and insurance premiums with respect
t
o mortgaged properties).
Any person into which the Asset Trust
I
I Servicer may
b
e
merged, converted
o
r
consolidated,
o
r
any person resulting from any merger, conversion
o
r
consolidation
t
o which the Asset Trust
I
I Servicer
i
s a party will
b
e
the successor Asset Trust
I
I
I Pooling and Servicing
Agreement.
The Asset Trust
I
I Servicer may outsource
t
o third party vendors some servicing functions,
a
s
described under The Asset Trust
I
I ServicerServicing ProceduresThe Asset Trust
I
I
Servicers Third Party Vendors and Service Providers below.
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CONFIDENTIAL
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The Asset Trust
I
I Servicer
The Asset Trust
I
I
Servicers Servicing Experience
WMB has been servicing loans secured by real estate
o
r
other property for over 100 years. The
Option ARMs
i
n WMBs portfolio were originated
b
y
WMB.
The following table shows the number and aggregate principal balance
o
f
prime single-family
residential mortgage loans, including conforming and nonconforming mortgage loans and fixed rate
and adjustable rate mortgage loans, serviced by the Asset Trust
I
I Servicer as
o
f
the specified date.
Single- Family Residential Prime Mortgage Loans Serviced by the Asset Trust
I
I
Servicer
December 31,
2006
December 31,
2005
December 31,
2004
(Dollar Amounts
i
n Millions)
Number
o
f
Mortgage Loans Serviced
for WMB
o
r
Its Affiliates (
o
r
Their
Securitization Trusts) . . . . . . . . . . . . 707,497 766,384 798,269
Aggregate Principal Balance . . . . . . . . $ 232,607 266,334 213,525
Number
o
f
for Unaffiliated Third Parties . . . . . . 2,800,162 3,527,670 3,820,696
Aggregate Principal Balance . . . . . . . . $ 373,679 429,944 444,595
Servicing Procedures
Servicing Functions. The functions performed
b
y
the Asset Trust
I
I
Servicer under the Asset
Trust
I
I
Pooling and Servicing Agreement include, among other servicing functions, payment collection,
payment application, investor reporting and other investor services, default management and escrow
administration. The Asset Trust
I
I
Servicer performs
i
t
s
servicing functions
a
t
loan servicing centers
located
i
n Florence, South Carolina; Milwaukee, Wisconsin; Northridge/ Chatsworth, California; and
Jacksonville, Florida.
Servicing Standard; Waivers and Modifications. Pursuant
t
o the Asset Trust
I
I Pooling and
Servicing Agreement, the Asset Trust
I
I Servicer
i
s required
t
o service the Option ARMs owned by
Asset Trust
I
I consistent with prudent mortgage loan servicing practices and (unless inconsistent with
those servicing practices)
i
n the same manner
i
n which, and with the same care, skill, prudence and
diligence with which,
i
t services and administers similar mortgage loans for other portfolios. The Asset
Trust
I
I Servicer
i
s required
t
o make reasonable efforts
t
o collect
o
r
cause
t
o be collected
a
l
l
payments
under the mortgage loans and,
t
o the extent consistent with the Asset Trust
I
Agreement and applicable insurance policies, follow such collection procedures as are followed with
respect
t
o comparable mortgage loans that are held
i
n portfolios
o
f
responsible mortgage lenders
i
n
the local areas where each mortgaged property
i
s located. Under the terms
o
f
the Asset Trust
I
I
Pooling and Servicing Agreement, the servicing standard applicable
t
o the Asset Trust
I
I Servicer may
only be modified with the consent
o
f
the Company.
Under the terms
o
f
the Asset Trust
I
I Pooling and Servicing Agreement, the Asset Trust
I
I
Servicer (subject
t
o certain conditions) may waive, modify
o
r
vary any term
o
f
any mortgage loan
o
r
consent
t
o the postponement
o
f
strict compliance with any such term
o
r
i
n any manner grant
indulgence
t
o the applicable obligor
i
f
i
t has determined, exercising
i
t
s
good faith business judgment
i
n
the same manner
a
s
i
t would
i
f
i
t were the owner
o
f
the related Option ARM, that the security for, and
the timely and full collectability of, such Option ARM would not be adversely affected by such waiver,
modification, postponement
o
r
indulgence, and may make certain other modifications with respect
t
o
the Option ARMs and the related property
i
n accordance with the terms
o
f
the Asset Trust
I
I Pooling
and Servicing Agreement.
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CONFIDENTIAL
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Mortgage Loan Servicing System.
I
n performing
i
t
s servicing functions, the Asset Trust
I
I
Servicer generally uses computerized mortgage loan servicing systems that
i
t leases from Fidelity
Information Services, a division
o
f
Fidelity National Financial
(
Fidelity), a third party vendor (collec-
tively, the Fidelity System). The Fidelity System produces detailed information about the financial
status
o
f
each mortgage loan, including outstanding principal balance, current interest rate and the
amount
o
f
any advances, unapplied payments, outstanding fees, escrow deposits
o
r
escrow account
overdrafts, and about transactions that affect the mortgage loan, including the amount and due date
o
f
each payment, the date
o
f
receipt
o
f
each payment (including scheduled payments and prepayments),
and how the payment was applied. The Fidelity System also produces additional information about
mortgage loans that are
i
n default, including the amount
o
f
any insurance and liquidation proceeds
received. The Asset Trust
I
I Servicer began using the Fidelity System
i
n 1996. Prior
t
o July 2004, the
Asset Trust
I
I Servicer serviced some mortgage loans using a proprietary mortgage loan servicing
system;
i
n July 2004, the Asset Trust
I
I Servicer consolidated servicing into a single servicing platform
b
y
converting approximately 1.2 million loan records from the proprietary mortgage loan servicing
system
t
o the Fidelity System.
Collections and Distributions. Under the terms
o
f
the Asset Trust
I
Agreement, collections with respect
t
o the Option ARMs are collected
b
y
the Asset Trust
I
I Servicer
and aggregated into a Payment Clearing Account controlled by the Asset Trust
I
I Servicer; such
collections are deposited into accounts controlled by the Asset Trust
I
I Servicer and may be
commingled with funds with respect
t
o other Option ARMs
o
r
mortgage loans serviced
o
r
owned by
the Asset Trust
I
I Servicer. The Asset Trust
I
I Servicer
i
s required
t
o deposit collections received with
respect
t
o the Option ARMs owned
b
y
Asset Trust
I
I into a certificate account controlled by the Asset
Trust
I
I Trustee under the Asset Trust
I
I Pooling and Servicing Agreement on a monthly basis. The
amount
o
f
collections required
t
o be remitted
t
o the Asset Trust
I
I Trustee
i
n any given monthly deposit
i
s determined
b
y
the timing
o
f
the Asset Trust
I
I Servicers receipt
o
f
collections and the type
o
f
collections they represent.
I
o
f
the Asset Trust
I
Agreement, the Asset Trust
I
I Servicer
i
s allowed
t
o retain certain amounts with respect
t
o expenses
and advances from collections
o
r
apply them towards the costs
o
f
certain costs and permitted
expenses connected with the servicing
o
f
the Option ARMs. The Asset Trust
I
I Servicer
i
s neither be
permitted nor required
t
o make servicer advances
t
o cover any gap between scheduled payments on
the Option ARMs and the actual collections thereon
i
n any given period.
Subject
t
o the terms and conditions set forth
i
n the Asset Trust
I
Agreement, on a monthly basis the Asset Trust
I
I Trustee distributes collections deposited
i
n the
certificate account
t
o the Company, as holder
o
f
the Asset Trust
I
I Class A Trust Certificate, less
(
a
)
fees, expenses and indemnities payable
t
o the Asset Trust
I
I
I
Delaware Trustee and (
b
)
fees and certain other amounts payable
t
o the Asset Trust
I
I Servicer. No
amounts are payable from collections with respect
t
o the Asset Trust
I
I Class R Trust Certificate.
Under the terms
o
f
the Asset Trust
I
I
Pooling and Servicing Agreement, collections with respect
t
o the Option ARMs may be invested
i
n certain permitted investments prior
t
o their distribution
t
o the
Company,
a
s
holder
o
f
the Asset Trust
I
I
Class A Trust Certificate. The Asset Trust
I
I
Servicer shall
b
e
entitled
t
o retain any investment income produced
b
y
such investment
a
s
additional servicing
compensation.
Servicing
o
f
Delinquent Option ARMs; Foreclosure. The Asset Trust
I
I
Servicer
i
s required
under the terms
o
f
the Asset Trust
I
I
t
o make reasonable efforts
t
o
collect
o
r
cause
t
o
b
e
collected
a
l
l
payments
o
n
the Option ARMs owned
b
y
Asset Trust
I
I
that are
3
0
o
r
more days delinquent. Such efforts may include payment reminder telephone calls
t
o the
mortgagor, letter campaigns, drive-
b
y
property inspections and other collection activities permissible
under the Asset Trust
I
I
Loan Documents and applicable law.
The Asset Trust
I
I Servicer
i
s required under the Asset Trust
I
I Pooling and Servicing Agreement
t
o foreclose upon the mortgaged property related
t
o each defaulted Option ARM as
t
o which no
64
CONFIDENTIAL
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satisfactory arrangements can
b
e
made
f
o
r
collection
o
f
delinquent payments. Under the Asset Trust
I
I
Pooling and Servicing Agreement, the Asset Trust
I
I Servicer
i
s permitted,
i
n lieu
o
f
foreclosure,
i
f
prudent
t
o
d
o
s
o
and taking into account the desirability
o
f
maximizing net liquidation proceeds,
t
o
accept a payment
o
f
less than the outstanding principal balance
o
f
the defaulted Option ARM. The
Asset Trust
I
I Servicer
i
s not permitted
t
o foreclose upon a mortgaged property
i
f
i
t
i
s aware
o
f
evidence
o
f
toxic waste
o
r
other environmental contamination
o
n
the mortgaged property and
i
t
determines that
i
t would
b
e
imprudent
t
o foreclose.
Insurance. For each Option ARM with
a
n
original loan-
t
o
-
value ratio greater than 80%, the
Asset Trust
I
I
Pooling and Servicing Agreement generally requires the Asset Trust
I
I
Servicer
t
o keep
i
n full force and effect a primary mortgage insurance policy. The Asset Trust
I
I
Servicer generally
i
s
not required
t
o maintain such policy
i
f the outstanding principal balance
o
f
the Option ARM
i
s 80%
o
r
less
o
f
the original appraised value
o
f
the related mortgaged property, unless required
b
y
applicable
law.
Limitations on the Asset Trust
I
I
Servicers Liability
The Asset Trust
I
I Pooling and Servicing Agreement provides that neither the Asset Trust
I
I
Servicer nor any director, officer, employee
o
r
agent
o
f
the Asset Trust
I
I Servicer (the Asset Trust
I
I
Servicer Indemnified Parties)
i
s under any liability
t
o Asset Trust
I
I
,
the Company
o
r
the holders
o
f
the Asset Trust
I
I Class A Trust Certificate and the Asset Trust
I
I Class R Trust Certificate
o
r
others for
any action taken (
o
r
not taken)
b
y
any Asset Trust
I
I Servicer Indemnified Party
i
n good faith pursuant
t
o the Asset Trust
I
I Pooling and Servicing Agreement,
o
r
for errors
i
n judgment; provided, however,
that the Asset Trust
I
I Servicer
i
s not protected against any liability that would otherwise be imposed
by reason
o
f
willful misfeasance, bad faith
o
r
gross negligence
i
n the performance
o
f
duties
o
r
b
y
reason
o
f
reckless disregard
o
f
obligations and duties thereunder. The Asset Trust
I
I Pooling and
Servicing Agreement further provides that any Asset Trust
I
I Servicer Indemnified Party
i
s entitled
t
o
indemnification
b
y
Asset Trust
I
I and will be held harmless against any loss, liability
o
r
expense
incurred
i
n connection with any legal action relating
t
o the Asset Trust
I
Agreement
o
r
the certificates issued thereunder (except any such loss, liability,
o
r
expense otherwise
reimbursable pursuant
t
o the Asset Trust
I
I Pooling and Servicing Agreement) and any loss, liability
o
r
expense incurred
b
y
reason
o
f
willful misfeasance, bad faith
o
r
gross negligence
i
n the performance
o
f
duties thereunder
o
r
b
y
reason
o
f
reckless disregard
o
f
obligations and duties thereunder.
I
n addition,
the Asset Trust
I
I Pooling and Servicing Agreement provides that the Asset Trust
I
I Servicer
i
s not
under any obligation
t
o appear in, prosecute
o
r
defend any legal action that
i
s not incidental
t
o
i
t
s
responsibilities under the Asset Trust
I
I Pooling and Servicing Agreement and that
i
n
i
t
s
opinion may
involve
i
t
i
n any expense
o
r
liability. The Asset Trust
I
I Servicer may, however,
i
n
i
t
s
discretion
undertake any such action that
i
t may deem necessary
o
r
desirable with respect
t
o the Asset Trust
I
I
Pooling and Servicing Agreement and the rights and duties
o
f
the parties thereto and the interests
o
f
the holders
o
f
the Asset Trust
I
I
I Class R Trust Certifi-
cate.
I
n such event, the legal expenses and costs
o
f
such action and any liability resulting therefrom
will be expenses, costs and liabilities
o
f
Asset Trust
I
I
,
and the Asset Trust
I
I Servicer will
b
e
entitled
t
o be reimbursed therefor and
t
o charge the certificate account.
Asset Trust
I
I Servicer Termination and Replacement. Under the terms
o
f
the Asset Trust
I
I
Pooling and Servicing Agreement, after the occurrence
o
f
any one
o
f
several typical Asset Trust
I
I
Servicer termination events, including but not limited
t
o a receivership with respect
t
o the Asset Trust
I
I
Servicer
o
r
(subject
t
o the expiration
o
f
typical grace periods and materiality requirements) the failure
by the Asset Trust
I
I Servicer
t
o make required deposits
t
o the certificate account, the Company may
remove the Asset Trust
I
I Servicer.
I
f the Asset Trust
I
I Servicer
i
s removed
b
y
the Company, the
Company shall have the sole power
t
o appoint a replacement Asset Trust
I
I Servicer.
The Asset Trust
I
I Servicers Third Party Vendors and Service Providers. Under the Asset
Trust
I
I Pooling and Servicing Agreement, the Asset Trust
I
I Servicer may perform
i
t
s
servicing
responsibilities through agents
o
r
independent contractors, but will not thereby
b
e
released from any
65
CONFIDENTIAL
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o
f
i
t
s responsibilities thereunder. The Asset Trust
I
I Servicer currently outsources certain
o
f
i
t
s
responsibilities and may
i
n the future outsource other
o
f
i
t
s responsibilities pursuant
t
o these
provisions, which services may include some
o
r
a
l
l
o
f
the following: (
i
) collections
o
n
early stage
delinquent loans, (
i
i
) processing and monitoring
o
f
foreclosure actions, (
i
i
i
) processing and monitoring
o
f
mortgagors bankruptcy proceedings, (
i
v
)
preservation
o
f
properties related
t
o delinquent loans,
(
v
)
maintenance, marketing and sale
o
f
real-estate-owned properties, (
v
i
)
assuring that hazard
insurance coverage
i
s maintained, (vii) determining whether flood insurance coverage
i
s required and
assuring that any required coverage
i
s maintained, (viii) tax bill procurement and tracking
o
f
delinquent
tax payments, (
i
x
)
printing and mailing billing statements, Option ARM notices and default notices and
(
x
)
depositing mortgagor payments into a lockbox account. From time
t
o time, the Asset Trust
I
I
Servicer may cease
t
o outsource one
o
r
more
o
f
the foregoing servicing functions
o
r
may choose
t
o
outsource additional servicing functions. Some vendors may perform more than one function, and
some functions may
b
e
performed
b
y
more than one vendor.
The Asset Trust
I
I Servicer has entered into service level agreements with some
o
f
i
t
s
vendors,
which set forth detailed performance criteria, including
i
n some cases minimum time requirements for
completing specified tasks and maximum error rates, and which
i
n some cases impose penalties for
non- compliance with such criteria. The Asset Trust
I
I Servicer monitors vendor compliance with
applicable servicing criteria through procedures that may include reviews
o
f
o
f
Option ARMs and reviews
o
f
reports on vendor performance prepared by the vendor
o
r
the Asset
Trust
I
I Servicer.
The Asset Trust
I
I
Servicers Quality Control Procedures
The Asset Trust
I
I
Servicer uses a combination
o
f
management controls and technology controls
t
o ensure the accuracy and integrity
o
f
servicing records. Management controls include the use
o
f
approval levels, the segregation
o
f
duties, and reconciliations
o
f
servicing data and accounts, among
others. Technology controls include the use
o
f
data security controls and interface controls
t
o ensure
that only authorized persons have the ability
t
o access and change system data
o
r
t
o submit data
t
o
o
r
receive data from vendors and investors. Specific security profiles
f
o
r
each job function include a
predetermined set
o
f
data security controls that are appropriate for that job function. The regional data
center
f
o
r
the Fidelity System, which
i
s located
i
n Jacksonville, Florida,
i
s kept
i
n a fire resistant
environment, and commercial electrical power
i
s backed
u
p
b
y
generators.
I
n addition, the Asset Trust
I
I
Servicer conducts periodic internal audits
o
f
critical servicing and
technology functions. External audits
b
y
entities such
a
s
the Fannie Mae, Freddie Mac and Ginnie
Mae and the annual examination
b
y
WMIs independent accountants
i
n connection with their audit
o
f
WMI and
i
t
s
subsidiaries may provide independent verification
o
f
the adequacy
o
f
such functions.
Periodic examination
b
y
the Asset Trust
I
I
Servicers regulatory authorities may provide additional
independent review
o
f
the Asset Trust
I
I
Servicers management controls.
Both the Asset Trust
I
I
Servicer and Fidelity maintain detailed business continuity plans
s
o
that
each entity can resume critical business functions
i
n the event
o
f
a disaster
o
r
other serious system
outage, which plans are reviewed and updated periodically. Fidelity
i
s contractually obligated
t
o return
the Asset Trust
I
I Servicer
t
o full functionality within
4
8
hours
o
f
a reported system outage. The Asset
Trust
I
I Servicer and Fidelity perform annual disaster recovery tests
i
n which they reroute data and
servicing system operations
t
o Fidelitys backup site, and then process sample transactions from
a
l
l
servicing locations
t
o ensure the functionality
o
f
such backup site.
I
t
i
s the Asset Trust
I
I Servicers policy
t
o require
i
t
s other third party vendors
t
o implement
measures similar
t
o those described above
t
o ensure the accuracy and integrity
o
f
servicing records.
The Asset Trust
I
I Custodian
Washington Mutual Bank acts as custodian (the Asset Trust
I
I Custodian) for Asset Trust
I
I
pursuant
t
o a Custody Agreement, dated
a
s
o
f
I
I Custody
66
CONFIDENTIAL
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Agreement), among the Asset Trust
I
I Trustee, the Asset Trust
I
I Servicer and the Asset Trust
I
I
Custodian. The Asset Trust
I
I Custodian holds the notes, mortgages and other legal documents
related
t
o the Option ARMs (collectively, the Asset Trust
I
I Loan Documents) for the benefit
o
f
the
Asset Trust
I
I Trustee. The Asset Trust
I
I Custodian
i
s required
t
o maintain the Asset Trust
I
I Loan
Documents
i
n secure and fire resistant facilities. The mortgage files held
b
y
the Asset Trust
I
I Servicer
are not required
t
o
b
e
physically segregated from Asset Trust
I
I Loan Documents
i
n the Asset Trust
I
I
Custodians custody but are kept
i
n shared facilities. The Asset Trust
I
I Custodian
i
s required
t
o review
the Asset Trust
I
I Loan Documents related
t
o each Option ARM and deliver
t
o the Asset Trust
I
I
Trustee a certification
t
o the effect that, except
a
s
noted
i
n the certification,
a
l
l
required documents
have been executed and received.
I
n the event
o
f
the termination
o
f
the Asset Trust
I
I Custody Agreement, the Asset Trust
I
I
Custodian will
b
e
required
t
o deliver the Asset Trust
I
I Loan Documents
i
n the Asset Trust
I
I
Custodians custody
t
o the Asset Trust
I
I Trustee
o
r
any successor Asset Trust
I
I Custodian appointed
b
y
the Company.
The Asset Trust
I
I Servicer may, but does not currently, pay the Asset Trust
I
I Custodian a fee for
i
t
s services under the Asset Trust
I
I Custody Agreement from time
t
o time. Payment
o
f
this fee will not
affect dividends
t
o the Company.
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WMI
General
WMI
i
s a Washington corporation.
I
t owns two federal savings associations
a
s
well
a
s
numerous
nonbank subsidiaries. WMI
i
s a multiple savings and loan holding company. As a savings and loan
holding company, WMI
i
s subject
t
o regulation
b
y
the OTS.
WMIs federal savings associations are subject
t
o extensive regulation and examination
b
y
the
OTS, their primary federal regulator,
a
s
well
a
s
the Federal Deposit Insurance Corporation
(
FDIC).
WMIs nonbank financial subsidiaries are also subject
t
o various federal and state laws and
regulations.
A
l
l
o
f
WMIs banking subsidiaries are under the common control
o
f
WMI and are insured
b
y
the
FDIC.
I
f
a
n
insured institution fails, claims
f
o
r
administrative expenses
o
f
the receiver and for deposits
i
n
U
.
S
.
branches (including claims
o
f
the FDIC
a
s
subrogee
o
f
the failed institution) have priority over
the claims
o
f
general unsecured creditors.
I
n addition, the FDIC has authority
t
o require any
o
f
WMIs
banking subsidiaries
t
o reimburse
i
t
f
o
r
losses
i
t incurs
i
n connection either with the failure
o
f
another
o
f
WMIs banking subsidiaries
o
r
with the FDICs provision
o
f
assistance
t
o one
o
f
WMIs banking
subsidiaries that
i
s
i
n danger
o
f
failure.
Holding Company Status and Acquisitions
WMI
i
s a multiple savings and loan holding company,
a
s
defined
b
y
federal law, because
i
t owns
more than one savings association. WMI
i
s regulated
a
s
a unitary savings and loan holding company,
however, because the OTS deems WMIs federal savings associations
t
o have been acquired
i
n
supervisory transactions. Therefore, WMI
i
s exempt from certain restrictions that would otherwise
apply under federal law
t
o the activities and investments
o
f
a multiple savings and loan holding
company. These restrictions will apply
t
o WMI
i
f any
o
f
WMIs banking institutions fails
t
o meet a
qualified thrift lender test established
b
y
federal law. As
o
f
December 31, 2006, WMIs banking
subsidiaries were
i
n compliance with qualified thrift lender standards.
WMI may not acquire control
o
f
another savings association without the prior approval
o
f
the
OTS. WMI may not
b
e
acquired
b
y
a company, other than a bank holding company, unless the OTS
approves such
a
n
acquisition,
o
r
b
y
a
n
individual unless the OTS does not object after receiving
notice. WMI may not
b
e
acquired
b
y
a bank holding company unless the Board
o
f
Governors
o
f
the
Federal Reserve System (the Federal Reserve) approves.
I
n any case, the public must have
a
n
opportunity
t
o comment
o
n
the proposed acquisition, and the OTS
o
r
Federal Reserve must complete
a
n
application review. Without prior approval from the OTS, WMI may not acquire more than 5%
o
f
the voting stock
o
f
any savings institution that
i
s not one
o
f
WMIs subsidiaries.
The Gramm-Leach- Bliley Act generally restricts any non- financial entity from acquiring WMI
unless such non- financial entity was,
o
r
had submitted
a
n
application
t
o become, a savings and loan
holding company
a
s
o
f
May
4
,
1999. Because WMI was treated
a
s
a unitary savings and loan holding
company prior
t
o that date, WMI may engage
i
n non- financial activities and acquire non- financial
subsidiaries.
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CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
WMB
i
s the Asset Trust I Servicer, the Asset Trust
I
I Servicer and the originator
o
f
the HELs
held
b
y
the Company through Asset Trust I and the Option ARMs held
b
y
the Company through Asset
Trust
I
I
.
WMB
i
s expected
t
o
b
e
the servicer and may
b
e
the originator with respect
t
o any Additional
Assets. University Street
i
s
a
n
indirect subsidiary
o
f
WMB. The Company
i
s a subsidiary
o
f
University
Street.
There
i
s not currently, and there was not during the past two years, any material business
relationship, agreement, arrangement, transaction
o
r
understanding that
i
s
o
r
was entered into outside
the ordinary course
o
f
business
o
r
i
s
o
r
was
o
n
terms other than would be obtained
i
n
a
n
arms-length
transaction with
a
n
unrelated third party, between (
i
) any
o
f
WMB
o
r
University Street
o
n
the one hand
and (
i
i
) any
o
f
the Company, Asset Trust
I
, Asset Trust
I
I
o
r
the Trust
o
n
the other hand.
The Company will periodically reimburse WMB for general overhead expenses incurred
b
y
WMB
o
n
behalf
o
f
the Company . The Company expects that the amount
o
f
such reimbursements will be
d
e
minimis.
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DESCRIPTION OF THE TRUST SECURITIES
The following summary describes the material terms and provisions
o
f
the Trust Securities, which
will represent undivided beneficial ownership interests
i
n a like amount
o
f
Series 2007- A Company
Preferred Securities held
b
y
the Trust. This description
i
s qualified
i
n
i
t
s
entirety
b
y
reference
t
o the
terms and provisions
o
f
the Trust Agreement. A copy
o
f
the Trust Agreement may be obtained upon
request
t
o WMI.
General
The Fixed-to-Floating Rate Perpetual Non- cumulative Trust Securities, liquidation preference
$100,000 per security (the Trust Securities),
o
f
the Trust are beneficial ownership interests
i
n the
Trust, the terms
o
f
which are set forth
i
n the Trust Agreement. The aggregate liquidation preference
o
f
the Trust Securities
i
s $500,000,000.
The funds
o
f
the Trust available for distribution
t
o the holders
o
f
the Trust Securities will be
limited solely
t
o payments received
b
y
the Trust from the Company as dividends on,
o
r
upon
redemption of, the Series 2007- A Company Preferred Securities, which payments will be passed
through upon receipt by the Trust
t
o the holders
o
f
the Trust Securities. Consequently,
i
f the Company
does not pay any dividend
o
r
make any redemption payment on the Series 2007- A Company
Preferred Securities, the Trust will not have funds
t
o make the related distribution
o
r
redemption
payment on the Trust Securities. Distributions on and the redemption price
o
f
each Trust Security will
be passed through
t
o the holders
o
f
the Trust Securities on the same dates and
i
n the same amounts
as the corresponding dividends and redemption price,
a
s
applicable, that are paid by the Company
t
o
the Trust on a like amount
o
f
Series 2007- A Company Preferred Securities; provided that
i
f any such
payment
o
f
dividends
o
r
redemption price
i
s received
b
y
the Trust after
2
:
00
P
.
M. New York time, such
payment will instead be passed through
t
o the holders
o
f
the Trust Securities on the next day that
i
s a
Business Day. The Dividend Payment Dates and related Dividend Periods are the same for the
Trust Securities and the Series 2007-A Company Preferred Securities, and, accordingly, the terms
Dividend Payment Date, Dividend Period and Business Day have the same meanings as applied
t
o each
o
f
those securities.
The Trust Securities are automatically exchangeable under certain circumstances into a like
amount
o
f
Depositary Shares. See Conditional Exchange.
Under the Trust Agreement, the Trust
i
s prohibited from issuing any securities other than the
Trust Securities.
The Trust Securities are not obligations of,
o
r
guaranteed by, WMI, WMB, Marion, the Company,
University Street,
o
r
any
o
f
their respective affiliates
o
r
any other entity. The Trust Securities represent
equity interests solely
i
n the Trust and do not represent
a
n
interest
i
n any
o
f
the foregoing entities.
Distributions
Distributions
o
n
the Trust Securities will
b
e
passed through
o
n
each date
o
n
which the Company
pays
t
o the Trust dividends
o
n
the Series 2007- A Company Preferred Securities owned
b
y
the Trust,
i
n
a
n
amount per Trust Security equal
t
o the amount
o
f
dividends received
b
y
the Trust
o
n
such date
o
n
a like amount
o
f
Series 2007- A Company Preferred Securities (including Additional Amounts,
i
f
any); provided that
i
f any such payment
o
f
dividends
i
s received
b
y
the Trust after
2
:
0
0
P
.
M
.
New York
time, such payment will instead be passed through
t
o the holders
o
f
o
n
the next
day that
i
s a Business Day. Accordingly:
i
f the Company pays full dividends
o
n
a Dividend Payment Date for the Series 2007- A
Company Preferred Securities, the Trust will pass through corresponding full distributions on
the Trust Securities on such Dividend Payment Date;
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CONFIDENTIAL
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i
f the Company pays partial dividends
o
n
a Dividend Payment Date for the Series 2007-A
Company Preferred Securities, the Trust will pass through partial distributions
i
n the same
proportionate amount
o
n
the Trust Securities on such Dividend Payment Date; and
i
f the Company pays
n
o
dividends
o
n
a Dividend Payment Date for the Series 2007- A
Company Preferred Securities, the Trust will not pass through any distributions
o
n
the
Trust Securities
o
n
such Dividend Payment Date.
See Description
o
f
the Series 2007- A Company Preferred SecuritiesDividends.
The record date for distributions on the Trust Securities will be the first day
o
f
the month
i
n which
the relevant Dividend Payment Date occurs or,
i
f any such day
i
s not a Business Day, the next day
that
i
s a Business Day.
Dividends on the Series 2007- A Company Preferred Securities are noncumulative. Accordingly,
distributions on the Trust Securities are noncumulative.
I
f the Trust passes through no distributions
o
r
less than full distributions on the Trust Securities
o
n
a Dividend Payment Date because
i
t received no
dividend
o
r
less than full dividends on the Series 2007- A Company Preferred Securities, holders
o
f
Trust Securities will have no right
t
o receive, and the Trust will have
n
o
obligation
t
o pass through,
such unpaid distributions
a
t
a future date, whether
o
r
not dividends
o
r
distributions are paid on a
future Dividend Payment Date on the Company Common Securities
o
r
the Trust Securities.
Restrictions on Dividends
Under certain circumstances,
i
f the OTS determines that WMB
i
s operating with
a
n
insufficient
level
o
f
capital
o
r
i
s engaged
i
n
,
o
r
i
t
s
relationship with the Company results
i
n
,
a
n
unsafe and
unsound banking practice, the OTS could restrict payment
o
f
dividends
b
y
the Company
o
n
the
Series 2007- A Company Preferred Securities, resulting
i
n a corresponding restriction
i
n the distribu-
tions passed through
b
y
the Trust
t
o the holders
o
f
Restrictions on Dividends by WMI
WMI will covenant
i
n the Exchange Agreement for the benefit
o
f
the holders
o
f
the Trust Securi-
ties that
i
f
f
o
r
any Dividend Period full dividends
o
n
(
i
) the Series 2007-A Company Preferred
Securities
o
r
(
i
i
)
the Trust Securities have not been declared and paid, then,
a
s
described under
Description
o
f
the Series 2007- A Company Preferred SecuritiesRestrictions
o
n
Dividends
b
y
WMI, WMI will not declare
o
r
pay dividends with respect
t
o
,
o
r
redeem, purchase
o
r
acquire, any
o
f
i
t
s
equity capital securities during the next succeeding Dividend Period, except dividends
i
n connection
with a shareholders rights plan,
i
f any,
o
r
dividends
i
n connection with benefits plans.
Redemption
The Trust Securities will not be redeemable
a
t
the option
o
f
the holders thereof. On each day on
which the Company redeems Series 2007- A Company Preferred Securities, the Trust will redeem a
like amount
o
f
Trust Securities for a redemption price
i
n the same amount as the corresponding
redemption price paid
t
o the Trust on a like amount
o
f
Series 2007- A Company Preferred Securities;
provided that
i
f any such payment
o
f
the redemption price
i
s received by the Trust after
2
:
00
P
.
M. New
York time, the Trust will redeem the like amount
o
f
Trust Securities on the next day that
i
s a Business
Day. See Description
o
f
the Series 2007- A Company Preferred SecuritiesRedemption.
I
f the redemption
o
f
the Series 2007-A Company Preferred Securities
i
s
i
n part instead
o
f
i
n
whole on any redemption date, then the particular Trust Securities
t
o be redeemed will be selected
not more than 60 days prior
t
o the redemption date
b
y
the Property Trustee from the outstanding
Trust Securities not previously called for redemption, by such method
a
s
the Property Trustee deems
fair and appropriate.
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A notice
o
f
redemption
o
f
b
e
mailed
b
y
first class mail, postage prepaid,
addressed
t
o the holders
o
f
record
o
f
the securities
t
o
b
e
redeemed
a
t
their respective last addresses
appearing
o
n
the books and records
o
f
the Trust. Such mailing will
b
e
a
t
least
3
0
days but not more
than
6
0
days before the date fixed
f
o
r
redemption.
Restriction on Redemption
o
r
Purchases
A
t
o
r
prior
t
o the initial issuance
o
f
the Trust Securities, WMI will enter into a Replacement
Capital Covenant relating
t
o the Trust Securities, the Series 2007- A Company Preferred Securities,
the Depository Shares and the Series M WMI Preferred Stock that may
b
e
issued upon a Conditional
Exchange (collectively the Replacement Covenant Covered Securities). The Replacement Capital
Covenant will only benefit holders
o
f
Covered Debt (as defined below) and will not be enforceable by
holders
o
f
Trust Securities
o
r
any other Replacement Covenant Covered Securities. However, the
Replacement Capital Covenant could preclude WMI from redeeming
o
r
purchasing Replacement
Covenant Covered Securities
a
t
a time WMI might otherwise wish
t
o do so.
I
n the Replacement Capital Covenant, WMI will covenant
t
o redeem
o
r
purchase Replacement
Covenant Covered Securities only
i
f and
t
o the extent that the total redemption
o
r
purchase price
i
s
equal
t
o
o
r
less than designated percentages
o
f
the net cash proceeds that WMI
o
r
i
t
s
subsidiaries
have received during the 180 days prior
t
o the redemption
o
r
purchase from the issuance
o
f
WMI
common stock, noncumulative perpetual preferred stock
o
r
certain other securities
o
r
combinations
o
f
securities satisfying the requirements
o
f
the Replacement Capital Covenant.
WMIs ability
t
o raise proceeds from qualifying securities during the 180 days prior
t
o a proposed
redemption
o
r
purchase will depend on, among other things, market conditions
a
t
such times as well
as the acceptability
t
o prospective investors
o
f
the terms
o
f
such qualifying securities.
WMIs covenants
i
n the Replacement Capital Covenant will run
i
n favor
o
f
persons that buy, hold
o
r
sell WMIs indebtedness during the period that such indebtedness
i
s Covered Debt, which
i
s
currently comprised
o
f
WMIs 4.625% Subordinated Notes due 2014, bearing CUSIP No. 939322AN3.
Other debt will replace WMIs Covered Debt under the Replacement Capital Covenant
o
n
the earlier
t
o occur
o
f
(
i
) the date two years prior
t
o the maturity
o
f
the existing Covered Debt, (
i
i
)
the date
o
f
a
redemption
o
r
purchase
o
f
the existing Covered Debt
i
n an amount such that the outstanding principal
amount
o
f
the existing Covered Debt
i
s
o
r
will become less than $100 million.
The Replacement Capital Covenant will
b
e
subject
t
o various additional terms and conditions
and this description
i
s qualified
i
n
i
t
s
entirety
b
y
reference
t
o the Replacement Capital Covenant, a
copy
o
f
the form
o
f
which
i
s available upon request from WMI. The Replacement Capital Covenant
may
b
e
terminated
i
f the holders
o
f
a
t
least 51%
o
f
the principal amount
o
f
the Covered Debt
s
o
agree,
o
r
i
f WMI
n
o
longer has outstanding any long- term indebtedness that qualifies
a
s
Covered
Debt, without regard
t
o whether such indebtedness
i
s rated
b
y
a nationally recognized statistical rating
organization. The Replacement Capital Covenant will terminate
o
n
May 24, 2017 without any action
b
y
WMI
o
r
any other person.
Subject
t
o the limitations described above and the terms
o
f
any preferred stock ranking senior
t
o
o
r
o
f
any outstanding debt instruments, WMI
o
r
i
t
s
affiliates may from time
t
o time
purchase any outstanding shares
o
f
Series M WMI Preferred Stock
b
y
tender,
i
n the open market
o
r
by private agreement.
Voting Rights
Except
a
s
set forth below, the holders
o
f
Trust Securities will have
n
o
voting rights.
I
n the event that the Trust
i
s entitled
t
o exercise
i
t
s
voting rights with respect
t
o the Series 2007- A
Company Preferred Securities, each holder
o
f
Trust Securities will have the right
t
o direct the manner
i
n which the Property Trustee on behalf
o
f
the Trust exercises such voting rights with respect
t
o a like
amount
o
f
Series 2007- A Company Preferred Securities on a proportionate basis.
I
f the Property
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CONFIDENTIAL
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Trustee receives notice from the Company that the Trust
a
s
holder
o
f
Preferred Securities
i
s entitled
t
o vote
o
n
any matter, promptly after learning
o
f
such entitlement, the
Property Trustee shall cause
t
o
b
e
mailed
t
o each holder
o
f
Trust Securities, notice
o
f
such vote
(including a description
o
f
the subject matter
o
f
the vote and related circumstances
t
o the extent
known
t
o the Property Trustee), along with a copy
o
f
any notice
o
r
other written communication
received
b
y
the Property Trustee from the Company with respect
t
o such vote and related matters.
I
n
each such notice, the Property Trustee shall request direction from each holder
o
f
Trust Securities
a
s
t
o how the Trust
a
s
a holder
o
f
Series 2007- A Company Preferred Securities shall vote
o
n
the matter
a
t
issue. Each holder
o
f
Trust Securities shall have the right
t
o direct the manner
i
n which the Property
Trustee
o
n
behalf
o
f
the Trust exercises such voting rights with respect
t
o a like amount
o
f
Series 2007- A Company Preferred Securities.
Notwithstanding the description above
o
f
the voting rights available
t
o holders
o
f
the Trust Secu-
rities under the Trust Agreement, such voting rights may be exercised only
b
y
a beneficial owner
o
f
a
Trust Security that
i
s a
U
.
S
.
Person
o
r
b
y
a
U
.
S
.
Person acting
a
s
irrevocable agent with discretionary
powers for the beneficial owner
o
f
a Trust Security that
i
s not a
U
.
S
.
Person. Beneficial owners
o
f
Trust Securities that are not
U
.
S
.
Persons must irrevocably appoint a
U
.
S
.
Person with discretionary
powers
t
o act
a
s
their agent with respect
t
o such voting rights. As used
i
n this paragraph, the term
U
.
S
.
Person means, for United States federal income tax purposes, a citizen
o
r
resident
o
f
the
United States, a corporation created
o
r
organized
i
n
o
r
under the laws
o
f
the United States
o
r
any
state,
a
n
estate the income
o
f
which
i
s includible
i
n gross income for United States federal income tax
purposes regardless
o
f
i
t
s
source,
o
r
a trust
i
f a court within the United States
i
s able
t
o exercise
primary supervision over
i
t
s
administration and one
o
r
more United States persons have authority
t
o
control
a
l
l
substantial decisions
o
f
the trust.
I
n the case where the Company, the Property Trustee and the Delaware Trustee wish
t
o enter
into one
o
r
more agreements supplemental
t
o the Trust Agreement, they may do
s
o
without the
consent
o
f
the holders
o
f
the Trust Securities for the following purposes: (
i
)
t
o evidence the succession
o
f
another entity
t
o the Company and the assumption by any such successor
o
f
the covenants
o
f
the
Company contained
i
n the Trust Agreement; (
i
i
)
t
o add
t
o the covenants
o
f
the Company for the
benefit
o
f
the holders
o
f
the Trust Securities,
o
r
t
o surrender any right
o
r
power conferred upon the
Company; (iii)(
A
)
t
o correct
o
r
supplement any provision
o
f
the Trust Agreement which may be
defective
o
r
inconsistent with any other provision therein
o
r
(
B
)
t
o make any other provisions with
respect
t
o matters
o
r
questions arising under the Trust Agreement, provided that any such action
taken under this clause (
i
i
i
)
shall not materially adversely affect the interests
o
f
the holders
o
f
the
Trust Securities;
o
r
(iv)
t
o cure any ambiguity
o
r
correct any manifest error. Any other amendment
o
r
agreement supplemental
t
o the Trust Agreement must be
i
n writing and approved
b
y
a majority
o
f
the
holders (
b
y
aggregate liquidation preference)
o
f
the Trust Securities then outstanding, provided that,
for the purpose
o
f
such approval, any Series 2007- A Company Preferred Securities that are directly
o
r
indirectly held
o
r
beneficially owned by any member
o
f
the WMI Group will be treated as
i
f they were
not outstanding.
Conditional Exchange
Each Trust Security will be exchanged automatically for a like amount
o
f
newly issued
Fixed-to-Floating Rate Depositary Shares, each representing a
1
/
1000th interest
i
n one share
o
f
Series M WMI Preferred Stock,
i
f the OTS so directs
i
n writing upon
o
r
after the occurrence
o
f
an
Exchange Event. An Exchange Event will occur when:
WMB becomes undercapitalized under the OTSs prompt corrective action regulations;
WMB
i
s placed into conservatorship
o
r
receivership;
o
r
the OTS,
i
n
i
t
s
sole discretion, anticipates WMB becoming undercapitalized
i
n the near term
o
r
takes a supervisory action that limits the payment
o
f
dividends
b
y
WMB and
i
n connection
therewith, directs an exchange.
73
CONFIDENTIAL
Return
For purposes
o
f
this offering circular, this exchange
i
s referred
t
o
a
s
the Conditional Exchange.
I
f the OTS so directs following the occurrence
o
f
an Exchange Event, each holder
o
f
Trust Secu-
rities will be unconditionally obligated
t
o surrender
t
o WMI
o
r
i
t
s
agent any certificates representing
the Trust Securities owned by such holder, and WMI will be unconditionally obligated
t
o issue
t
o such
holder,
i
n exchange for each such Trust Security, a depositary receipt representing a like amount
o
f
Depositary Shares. Any Trust Securities purchased
o
r
redeemed
b
y
WMI
o
r
any
o
f
i
t
s
affiliates prior
t
o
the time
o
f
exchange will not be deemed outstanding and will not be subject
t
o the Conditional
Exchange.
The Conditional Exchange will occur
a
s
o
f
8
:
00
A
.
M. New York time, on the date for such
exchange set forth
i
n the applicable OTS directive,
o
r
i
f such date
i
s not set forth
i
n the directive, as
o
f
8
:
00
A
.
M., New York time, on the earliest possible date such exchange could occur consistent with
the directive,
a
s
evidenced
b
y
the issuance
b
y
WMI
o
f
a press release prior
t
o such time. As
o
f
the
time
o
f
exchange,
a
l
l
o
f
b
e
transferred
t
o WMI without any further action
b
y
the Trust,
a
l
l
rights
o
f
the holders
o
f
Trust Securities
a
s
holders
o
f
beneficial interests
i
n the Trust will
cease, and such persons will be, for
a
l
l
purposes, the holders
o
f
Depositary Shares.
WMI will mail notice
o
f
the issuance
o
f
a
n
OTS directive after the occurrence
o
f
a
n
Exchange
Event
t
o each holder
o
f
Trust Securities within
3
0
days, and WMI will deliver (
o
r
cause
t
o
b
e
delivered)
t
o each such holder depositary receipts
f
o
r
Depositary Shares upon surrender
o
f
Until such depositary receipts are delivered
o
r
i
n the event such depositary receipts are not delivered,
any certificates previously representing Trust Securities will be deemed
f
o
r
a
l
l
purposes
t
o represent
Depositary Shares. All corporate authorization necessary for WMI
t
o issue the Depositary Shares and
the Series M WMI Preferred Stock
a
s
o
f
the time
o
f
exchange will
b
e
completed prior
t
o
o
r
upon
completion
o
f
this Offering. Accordingly, once the OTS directs a Conditional Exchange after the
occurrence
o
f
a
n
Exchange Event, no action will
b
e
required
t
o
b
e
taken
b
y
holders
o
f
Trust Securities,
b
y
WMI,
b
y
WMB (other than
t
o inform the OTS),
b
y
the Company
o
r
b
y
the Trust
i
n order
t
o effect
the automatic exchange
a
s
o
f
the time
o
f
exchange. After the occurrence
o
f
the Conditional Exchange,
b
e
owned
b
y
WMI.
Holders
o
f
Trust Securities,
b
y
purchasing such securities, whether
i
n this Offering
o
r
i
n the
secondary market after this Offering, will be deemed
t
o have agreed
t
o be bound
b
y
the unconditional
obligation
t
o exchange such Trust Securities for Depositary Shares
i
f the OTS
s
o
directs following the
occurrence
o
f
an Exchange Event. The Trust Agreement provides that the holders
o
f
Trust Securities
will be unconditionally obligated
t
o surrender such Trust Securities. Prior
t
o issuance
o
f
the Trust Secu-
rities, WMI will enter into an Exchange Agreement ( the Exchange Agreement) among WMI, the Trust
and Mellon Investor Services LLC, as depositary ( the Depositary),
t
o implement the Conditional
Exchange.
Holders
o
f
Trust Securities cannot exchange their Trust Securities
f
o
r
Depositary Shares
voluntarily. Absent
a
n
OTS directive after the occurrence
o
f
a
n
Exchange Event,
n
o
exchange
o
f
the
Trust Securities for Depositary Shares will occur. Upon the issuance
o
f
a
n
OTS directive
o
n
o
r
following the occurrence
o
f
an Exchange Event, the Series M WMI Preferred Stock and the related
Depositary Shares
t
o
b
e
issued
i
n the Conditional Exchange will constitute a newly issued series
o
f
preferred stock
o
f
WMI and will have substantially similar terms and provisions with respect
t
o
dividends, liquidation, and redemption
a
s
the Series 2007- A Company Preferred Securities, except
that the Depositary Shares:
will not have the benefit
o
f
the covenants, including with respect
t
o any additional taxes,
described under Description
o
f
the Series 2007-A Company Preferred SecuritiesVoting
Rights and Covenants;
will be redeemable prior
t
o the Dividend Payment Date occurring
i
n June 2012 only upon the
occurrence
o
f
a Regulatory Capital Event
o
r
a Rating Agency Event
o
r
payment
o
f
a
U
.
S
.
Treasury- based make- whole amount; and
74
CONFIDENTIAL
Return
Additional Amounts will not
b
e
payable with respect
t
o the Series M WMI Preferred Stock
a
s
o
f
the Series 2007-A Company Preferred SecuritiesAdditional
Amounts.
I
n addition,
i
f WMI fails
t
o pay,
o
r
declare and set aside
f
o
r
payment, full dividends
o
n
the
o
r
other Voting Parity Stock for six Dividend Periods, the authorized
number
o
f
WMIs directors will increase by two, and the holders
o
f
voting together with the holders
o
f
any other Voting Parity Stock, will have the right
t
o elect two
directors
i
n addition
t
o the directors then
i
n office
a
t
the next annual meeting
o
f
shareholders.
WMI will covenant
i
n the Exchange Agreement
i
n favor
o
f
the holders
o
f
the Trust Securities that,
prior
t
o the issuance
o
f
the Series M WMI Preferred Stock upon a Conditional Exchange, WMI will not
issue any preferred stock that would rank senior
t
o the Series M WMI Preferred Stock upon
i
t
s
issuance. Each share
o
f
Series M WMI Preferred Stock will upon issuance rank
a
t
least pari passu
with the most senior preferred stock
o
f
WMI,
i
f any, then outstanding. The Initial Purchasers are under
n
o
obligation
t
o and
d
o
not intend
t
o make a market
i
n the Depositary Shares. Absent the occurrence
o
f
a Conditional Exchange, holders
o
f
Trust Securities will have
n
o
dividend, liquidation preference,
redemption
o
r
other rights with respect
t
o any security
o
f
WMI, WMB
o
r
University Street.
Form, Transfer and Book- Entry Procedures
The Trust Securities will be issued only
i
n book- entry form. See Book-Entry Issuance.
Payments and Paying Agent
Payments
i
n respect
o
f
i
n the form
o
f
Global Securities will be made
t
o the
address
o
f
the holder entitled thereto
a
s
such address will appear on the register. The DTC nominee
(the Nominee) will be the registered holder
o
f
i
n the form
o
f
Global Securities.
Payments made
t
o the order
o
f
the Nominee will
b
e
made
b
y
wire transfer
t
o DTC and DTC will credit
the relevant accounts
o
f
the DTC Participants.
I
n the event that the circumstances described under
Book- Entry IssuanceForm, Denomination, Transfer and Book- Entry ProceduresSpecial Situa-
tions When the Global Security Will Be Terminated apply and the Trust Securities are not
i
n the form
o
f
Global Securities, payments
i
n respect
o
f
the Trust Securities will be made
b
y
wire transfer, direct
deposit
o
r
check mailed
t
o the address
o
f
the holder entitled thereto as such address will appear on
the securities register. The paying agent (the Paying Agent) for the Trust Securities initially will be
Wilmington Trust Company (
i
n
i
t
s
individual capacity, WTC) and any co- paying agent will be
appointed
b
y
the Trust. The Paying Agent and any co- paying agent (collectively, the Paying Agents)
will be permitted
t
o resign as Paying Agents upon 30 days written notice
t
o the Company.
I
n the event
that WTC will
n
o
longer be the Paying Agent, the Company will appoint a successor
t
o act
a
s
Paying
Agent.
Registrar and Transfer Agent
WTC will act
a
s
Registrar (the Registrar) and Transfer Agent (the Transfer Agent)
f
o
r
the
Trust Securities.
Registration
o
f
transfers
o
f
Trust Securities will be effected without charge by
o
r
o
n
behalf
o
f
the
Trust, but the Property Trustee
o
r
the Registrar and Transfer Agent will require, prior
t
o registration,
payment (
o
r
the giving
o
f
such indemnity
a
s
the Registrar and Transfer Agent may require)
o
f
a sum
sufficient
t
o cover any tax
o
r
other governmental charges that may be imposed
i
n connection with any
transfer
o
f
definitive Trust Securities. The Trust will not be required
t
o register
o
r
cause
t
o be
registered the transfer
o
f
definitive Trust Securities during the period
o
f
15 days before the day
o
f
selection for redemption
o
f
such Trust Securities and ending
a
t
the close
o
f
business on the day
o
f
mailing
o
f
the notice
o
f
redemption for the Trust Securities that have been called for redemption.
75
CONFIDENTIAL
Return
Expenses
o
f
the Paying Agent, Transfer Agent and Registrar
I
f the Paying Agent, Transfer Agent
o
r
Registrar incurs fees, charges
o
r
expenses, for which
i
t
i
s
not otherwise liable under the Agency Agreement,
t
o
b
e
entered into
o
n
o
r
before the closing date,
among WTC,
a
s
Registrar, Transfer Agent and Paying Agent, and the Trust acting through the
Property Trustee
a
t
the request
o
f
a holder
o
f
Trust Securities
o
r
other person, such holder
o
r
other
person will
b
e
liable for such fees, charges
o
r
expenses.
Notices
Notices
t
o the holders
o
f
b
e
given
b
y
delivery
o
f
the relevant notice
t
o
DTC and any other relevant securities clearing system identified
i
n writing
b
y
the Trust
f
o
r
communi-
cation
b
y
each
o
f
them
t
o entitled participants.
Listing
The Trust Securities will not
b
e
listed
o
n
any securities exchange
o
r
automated dealer quotation
system.
Governing Law
The Trust Agreement and the Trust Securities will
b
e
governed
b
y
and construed
i
n accordance
with the laws
o
f
the State
o
f
Delaware.
Restrictions on Transfer
For information regarding restrictions
o
n
ownership and transfer
o
f
the Trust Securities, see
Notice
t
o Investors.
76
CONFIDENTIAL
Return
DESCRIPTION OF THE SERIES 2007- A COMPANY PREFERRED SECURITIES
o
f
the Series 2007- A
Company Preferred Securities. This description
i
s qualified
i
n
i
t
s
entirety
b
y
reference
t
o the terms
and provisions
o
f
the LLC Agreement. A copy
o
f
the LLC Agreement may
b
e
obtained upon request
t
o
WMI.
General
The Fixed-to-Floating Rate Perpetual Non- cumulative Preferred Securities, Series 2007-
A
,
liqui-
dation preference $1,000 per security and $500,000,000
i
n the aggregate (the Series 2007- A
Company Preferred Securities), are limited liability company interests
i
n the Company, the terms
o
f
which are set forth
i
n the LLC Agreement. When issued, the Series 2007- A Company Preferred
Securities will
b
e
validly issued, and
n
o
additional payments will
b
e
required pursuant
t
o the LLC Act
f
o
r
such securities
t
o represent limited liability company interests
i
n the Company. The holders
o
f
the
Series 2007- A Company Preferred Securities will have
n
o
pre-emptive rights with respect
t
o any
limited liability company interests
i
n the Company
o
r
any other securities
o
f
the Company convertible
into
o
r
carrying rights
o
r
options
t
o purchase any such securities. The Series 2007-A Company
Preferred Securities are perpetual and will not
b
e
convertible into Company Common Securities
o
r
any other class
o
r
series
o
f
limited liability company interests
i
n the Company and will not
b
e
subject
t
o any sinking fund
o
r
other obligation
o
f
the Company for their repurchase
o
r
retirement.
The Series 2007- A Company Preferred Securities will
b
e
issued
i
n certificated form only.
The Series 2007- A Company Preferred Securities are not obligations
o
f
,
o
r
guaranteed by, WMI,
WMB, Marion, University Street
o
r
any
o
f
their respective affiliates
o
r
any other entity. The
Series 2007- A Company Preferred Securities solely represent an interest
i
n the Company and do not
represent an interest
i
n any
o
f
The Series 2007- A Company Preferred Securities are not insured
o
r
guaranteed by the FDIC
o
r
any other insurer
o
r
governmental agency
o
r
instrumentality.
Ranking
The Series 2007- A Company Preferred Securities will rank senior
t
o the Company Common
Securities and will rank pari passu with any other series
o
f
Company Preferred Securities, including
the Outstanding Company Preferred Securities,
i
n terms
o
f
payment
o
f
dividends and on liquidation.
The Companys Board
o
f
Managers has the power
t
o create and issue Junior Equity Securities
and additional equity securities ranking pari passu with the Series 2007- A Company Preferred
Securities
i
n terms
o
f
payment
o
f
dividends
o
r
on liquidation
o
r
redemption (any such securities, the
Parity Equity Securities) without the consent
o
f
the holders
o
f
the Series 2007- A Company Preferred
Securities, provided that (
i
) after giving effect
t
o the issuance
o
f
any Parity Equity Securities, the pro
forma net book value
o
f
the Companys assets (after giving effect
t
o any assets acquired
b
y
the
Company
i
n connection with the issuance
o
f
such Parity Equity Securities
(
New Assets)) will equal

o
r
exceed 1.5 times the sum
o
f
the aggregate liquidation preference
o
f
the preferred securities
o
f
the
Company then outstanding and any such Parity Equity Securities that the Company proposes
t
o issue,
(
i
i
) after giving effect
t
o such issuance, the Companys pro forma FFO for the four fiscal quarters
beginning with the fiscal quarter
i
n which such Parity Equity Securities are proposed
t
o be issued
(calculated (
A
)
assuming that such proposed Parity Equity Securities are issued and that,
i
f outstand-
ing
o
r
proposed new Parity Equity Securities bear dividends based on a floating rate, the applicable
dividend rate will not change during such four fiscal quarters from the rate
i
n effect on the applicable
date
o
f
determination, (
B
)
assuming for each Option ARM directly
o
r
indirectly owned
b
y
the Company
that the interest rate
i
n the applicable mortgage note and the then effective minimum monthly payment
determined
i
n accordance with such mortgage note will not change during such four quarters from the
rate and minimum monthly payment
i
n effect on the applicable date
o
f
determination, and (C) as
77
CONFIDENTIAL
Return
adjusted
t
o reflect any New Assets) equals
o
r
exceeds 150%
o
f
the amount that would
b
e
required
t
o
pay full annual dividends
o
n
a
l
l
preferred securities
o
f
the Company then outstanding and any such
Parity Equity Securities that the Company proposes
t
o issue and (
i
i
i
) the Company
i
s not otherwise
i
n
breach
o
f
any
o
f
i
t
s covenants set forth
i
n the LLC Agreement. Funds from operations,
o
r
FFO,
means net income (excluding gains (
o
r
losses) from sales
o
f
property and taking into account with
respect
t
o each Option ARM directly
o
r
indirectly owned
b
y
the Company only the cash payment
o
f
interest
o
n
the related mortgage note, but otherwise computed
i
n accordance with GAAP), plus
depreciation and amortization, and after adjustments
f
o
r
unconsolidated partnerships and joint
ventures. Adjustments for unconsolidated partnerships and joint ventures will
b
e
calculated
t
o reflect
funds from operations on the same basis.
The Series 2007- A Company Preferred Securities are Parity Equity Securities with respect
t
o the
Outstanding Company Preferred Securities, and are being offered without the consent
o
f
the holders
o
f
the Outstanding Company Preferred Securities because the Company will comply with the tests
outlined above. After giving effect
t
o the issuance
o
f
the Series 2007- A Company Preferred Securities:
the pro forma net book value
o
f
the Companys assets will be $7,279,380,658, less dividends
declared, but unpaid,
i
f any, the aggregate liquidation preference
o
f
the Series 2007- A
Company Preferred Securities and the Outstanding Company Preferred Securities, taken
together, will be $3,000,000,000, and the ratio
o
f
the pro forma net book value
o
f
the
Companys assets
t
o such aggregate liquidation preference will be 2.43; and
(
i
) the Companys pro forma FFO
f
o
r
the four fiscal quarters beginning
o
n
April
1
,
2007,
calculated
i
n the manner above,
i
s $361,534,073.29
(
X), (
i
i
)
the amount required
t
o pay full
dividends
f
o
r
one year
o
n
the Series 2007- A Company Preferred Securities and the Outstand-
ing Company Preferred Securities calculated
i
n the manner set forth above
i
s
$203,830,000 and 150%
o
f
that amount
i
s $305,775,000
(
Y), and (
i
i
i
)

X
exceeds
Y
b
y
$55,759,073.29.
The LLC Agreement provides that,
s
o
long
a
s
any Company Preferred Securities
o
f
any series
remain outstanding, the Company may not, except with the consent
o
f
a
t
least two- thirds
o
f
a
l
l
series
o
f
Company Preferred Securities, voting together
a
s
a single class, issue Senior Equity Securities.
Dividends
For purposes
o
f
this offering circular, we refer
t
o distributions payable
b
y
the Company
o
n
i
t
s
securities
a
s
dividends. Dividends
o
n
the Series 2007-A Company Preferred Securities will
b
e
payable
i
f
, when and
a
s
declared
b
y
the Companys Board
o
f
Managers out
o
f
i
t
s legally available
funds,
o
n
a noncumulative basis
a
t
a
n
annual rate
o
f
6.895%
t
o
,
but not including, June 15, 2012,
and
3
-
month USD LIBOR plus 1.755% for the period starting
o
n
June 15, 2012 and each Dividend
Period thereafter,
i
n each case,
o
n
the liquidation preference thereof, which
i
s $1,000 per security.
Dividends on the Series 2007- A Company Preferred Securities,
i
f
,
when and as declared by the
Companys Board
o
f
Managers, will be payable quarterly
i
n arrears on March 15, June 15, Septem-
ber 15, and December 15
o
f
each year, commencing on September 15, 2007, or,
i
f any such day
i
s
not a Business Day, the next Business Day ( each such date, a Dividend Payment Date). Each
period from and including a Dividend Payment Date (
o
r
the date
o
f
issuance
o
f
the Series 2007- A
Company Preferred Securities)
t
o but excluding the following Dividend Payment Date
i
s referred
t
o
herein
a
s
a Dividend Period. Dividends on the Series 2007-A Company Preferred Securities will
accrue from May 24, 2007. The record date for the payment
o
f
dividends,
i
f declared, will be the first
day
o
f
the month
i
n which the relevant dividend payment occurs or,
i
f any such day
i
s not a Business
Day, the next day that
i
s a Business Day. Dividends payable on the Series 2007- A Company Preferred
Securities for any period greater
o
r
less than a full Dividend Period will be computed on the basis
o
f
(
x
)
f
o
r
any Dividend Period ending prior
t
o the Dividend Payment Date
i
n June 2012, twelve 30-day
months, a 360- day year, and the actual number
o
f
days elapsed
i
n the period, and (
y
)
for any Dividend
Period thereafter, the actual number
o
f
days
i
n the relevant period divided by 360. No interest will be
78
CONFIDENTIAL
Return
paid
o
n
any dividend payment made
o
n
the Series 2007- A Company Preferred Securities, Trust Secu-
rities
o
r
Depositary Shares.
Business Day means any day other than a Saturday, Sunday
o
r
any other day on which banks
i
n New York, New York, London, England, Seattle, Washington
o
r
Wilmington, Delaware are generally
required
o
r
authorized by law
t
o be closed.
3
-
Month USD LIBOR means, with respect
t
o any Dividend Period, a rate determined
o
n
the
basis
o
f
the offered rates for three-month
U
.
S
.
dollar deposits
o
f
not less than a principal amount
equal
t
o that which
i
s representative for a single transaction
i
n such market
a
t
such time, commencing
on the first day
o
f
such Dividend Period, which appears on Reuters Screen LIBOR01 Page
a
s
o
f
approximately 11: 00
A
.
M., London time, on the LIBOR Determination Date for such Dividend Period.
I
f
on any LIBOR Determination Date no rate appears on Reuters Screen LIBOR01 Page
a
s
o
f
A
.
M., London time, the Company
o
r
another affiliate
o
f
WMI
o
n
behalf
o
f
the
Company will
o
n
such LIBOR Determination Date request four major reference banks
i
n the London
interbank market selected by the Company
t
o provide the Company with a quotation
o
f
the rate
a
t
which three- month deposits
i
n
U
.
S
.
dollars, commencing on the first day
o
f
such Dividend Period, are
offered
b
y
them
t
o prime banks
i
n the London interbank market
a
s
o
f
A
.
M.,
London time, on such LIBOR Determination Date and
i
n a principal amount equal
t
o that which
i
s
representative for a single transaction
i
n such market
a
t
such time.
I
f
a
t
least two such quotations are
provided,
3
-
Month USD LIBOR for such Dividend Period will be the arithmetic mean (rounded upward
i
f necessary
t
o the nearest .00001
o
f
1%)
o
f
such quotations
a
s
calculated
b
y
the Company.
I
f fewer
than two quotations are provided,
3
-
Month USD LIBOR for such Dividend Period will be the arithmetic
mean (rounded upward
i
f necessary
t
o the nearest .00001
o
f
1%)
o
f
the rates quoted as
o
f
A
.
M., New York time, on the first day
o
f
such Dividend Period
b
y
three major
banks
i
n New York, New York selected
b
y
the Company for loans
i
n
U
.
S
.
dollars
t
o leading European
banks, for a three-month period commencing on the first day
o
f
such Dividend Period and
i
n a
principal amount
o
f
not less than $1,000,000.
LIBOR Business Day means any day on which commercial banks are open for general
business (including dealings
i
n deposits
i
n
U
.
S
.
dollars)
i
n London.
LIBOR Determination Date means,
a
s
t
o each Dividend Period, the date that
i
s two LIBOR
Business Days prior
t
o the first day
o
f
such Dividend Period.
Reuters Screen LIBOR01 Page means the display so designated on the Reuters 3000 Xtra (
o
r
such other page as may replace that page on that service,
o
r
such other service as may be nominated
as the information vendor, for the purpose
o
f
displaying rates
o
r
prices comparable
t
o the London
Interbank Offered rate for
U
.
S
.
dollar deposits).
Dividends on the Series 2007- A Company Preferred Securities are noncumulative.
I
f the
Companys Board
o
f
Managers does not declare a dividend on the Series 2007- A Company Preferred
Securities
o
r
declares less than a full dividend
i
n respect
o
f
any Dividend Period, holders
o
f
the
Series 2007- A Company Preferred Securities will have no right
t
o receive any dividend
o
r
a full
dividend, as the case may be, for that Dividend Period, and the Company will have no obligation
t
o
pay any dividends
o
r
full dividends on the Series 2007- A Company Preferred Securities for that
Dividend Period, whether
o
r
not dividends are declared and paid for any future Dividend Period with
respect
t
o any series
o
f
the Company Preferred Securities, the Company Common Securities
o
r
any
other Junior Equity Securities.
During a Dividend Period,
n
o
dividends will be declared
o
r
paid on any securities
o
f
the Company
ranking junior
t
o the Company Preferred Securities
i
n respect
o
f
payments
o
f
dividends
o
r
on
liquidation
(
Junior Equity Securities), other than dividends payable

i
n Junior Equity Securities
o
f
the
same class
o
r
series,
o
r
Junior Equity Securities ranking junior
t
o that class
o
r
series, and no Junior
79
CONFIDENTIAL
Return
Equity Securities will
b
e
purchased, redeemed
o
r
otherwise acquired
f
o
r
consideration, directly
o
r
indirectly (other than
a
s
a result
o
f
reclassification
o
f
Junior Equity Securities for
o
r
into other Junior
Equity Securities,
o
r
the exchange
o
r
conversion
o
f
Junior Equity Securities
f
o
r
o
r
into other Junior
Equity Securities), unless dividends for such Dividend Period
o
n
a
l
l
series
o
f
Company Preferred
Securities have been declared and paid
i
n full,
o
r
declared and set aside for payment,
a
s
the case
may be.
When dividends are not paid
i
n full on,
o
r
a sum sufficient for such full payment
i
s not set apart
for,
a
l
l
series
o
f
the Company Preferred Securities,
a
l
l
dividends declared upon
a
l
l
series
o
f
the
Company Preferred Securities will be declared pro rata. Thus, the amount
o
f
dividends declared per
Company Preferred Security
o
f
each series will
i
n
a
l
l
cases bear
t
o each other the same ratio that
(
i
) full dividends per Company Preferred Security
o
f
such series for the then- current Dividend Period,
which will not include any accumulation
i
n respect
o
f
unpaid dividends for prior Dividend Periods, and
(
i
i
) full dividends, which will not include any accumulation
i
n respect
o
f
unpaid dividends for prior
Dividend Periods, on
a
l
l
other series
o
f
Company Preferred Securities, bear
t
o each other.
i
i
s operating with
a
n
insufficient
level
o
f
capital
o
r
i
s engaged
i
n
,
o
r
i
t
s
relationship with the Company results
i
n
,
a
n
unsafe and
unsound banking practice, the OTS could restrict the Companys ability
t
o pay dividends, including
dividends
t
o the holders
o
f
the Series 2007- A Company Preferred Securities. See The Company
Business
o
f
the Company.
WMI will covenant
i
n the Exchange Agreement for the benefit
o
f
the holders
o
f
the Trust Securi-
ties that
i
f full dividends on (
i
) any series
o
f
Company Preferred Securities,
o
r
(
i
i
) the Trust Securities,
Trust I Securities
o
r
WaMu Cayman Securities for any Dividend Period have not been declared and
paid, WMI will not declare
o
r
pay dividends with respect
t
o
,
o
r
redeem, purchase
o
r
acquire any
o
f
i
t
s
equity capital securities during the next succeeding Dividend Period, except dividends
i
n connection
with a shareholders rights plan,
i
f any,
o
r
dividends
i
n connection with benefits plans.
Redemption
The Series 2007- A Company Preferred Securities will not be redeemable
a
t
the option
o
f
the
holders, prior
t
o May 24, 2017, thereof. Subject
t
o the Replacement Capital Covenant
i
n favor
o
f
certain
o
f
WMIs debtholders limiting WMIs and
i
t
s
subsidiaries right
t
o purchase
o
r
redeem the
Series 2007- A Company Preferred Securities
o
r
the Trust Securities (among others)
a
s
described
under Description
o
f
the Trust SecuritiesRestriction on Redemption
o
r
Purchases, and subject
t
o
the Company having received the prior approval
o
f
the OTS for any proposed redemption
o
f
Series 2007- A Company Preferred Securities, the Company may,
a
t
i
t
s
option, redeem the
Series 2007- A Company Preferred Securities:
i
n whole but not
i
n part,
o
n
any Dividend Payment Date prior
t
i
n
June 2012 upon the occurrence
o
f
a Tax Event, an Investment Company Act Event, a Rating
Agency Event
o
r
a Regulatory Capital Event,
a
t
a cash redemption price equal
t
o
:
the greater of:
(
i
) $1,000 per Series 2007- A Company Preferred Security,
o
r
(
i
i
) the sum
o
f
the present value
o
f
$1,000 per Series 2007- A Company Preferred Security,
discounted from the Dividend Payment Date
i
n June 2012
t
o the redemption date, and
the present values
o
f
a
l
l
undeclared dividends for each Dividend Period from the
redemption date
t
o and including the Dividend Payment Date
i
n June 2012, discounted
from their applicable Dividend Payment Dates
t
o the redemption date,
i
n each case on a
quarterly basis (assuming a 360- day year consisting
o
f
twelve 30-day months)
a
t
the
Treasury Rate,
a
s
calculated by an Independent Investment Banker, plus 0.50%, plus
80
CONFIDENTIAL
Return
any declared but unpaid dividends
t
o the redemption date;
i
n whole but not
i
n part, on any Dividend Payment Date prior
t
i
n
June 2012 for any reason other than the occurrence
o
f
a Tax Event, an Investment Company
Act Event, a Rating Agency Event
o
r
a
t
a cash redemption price
equal to:
the greater of:
(
i
o
r
(
i
i
) the sum
o
f
the present value
o
f
i
n June 2012
t
the present values
o
f
a
l
l
redemption date
t
i
t
i
n each case on a
o
f
a
t
the
Treasury Rate,
a
s
calculated by an Independent Investment Banker, plus 0.35%; plus
t
i
n whole but not
i
n part,
o
n
any Dividend Payment Date after the Dividend Payment Date
i
n
June 2012 that
i
s not a Five- Year Date, upon the occurrence
o
f
a Tax Event,
a
n
Investment
Company Act Event, a Rating Agency Event
o
r
a
t
a cash
redemption price equal
t
o $1,000 per Series 2007- A Company Preferred Securities, plus any
declared and unpaid dividends
t
i
n whole
o
r
i
n part,
o
n
each Dividend Payment Date that
i
s a Five- Year Date
a
t
a cash
redemption price
o
f
$1,000 per Series 2007- A Company Preferred Security, plus any declared
and unpaid dividends
t
o the redemption date; and
i
n whole but not
i
n part,
o
n
i
n
June 2012 that
i
s not a Five- Year Date
f
o
r
any reason other than the occurrence
o
f
a Tax
Event,
a
n
Investment Company Act Event, a Rating Agency Event
o
r
a Regulatory Capital
Event,
a
t
t
o
:
the greater of:
(
i
o
r
(
i
i
) the sum
o
f
the present value
o
f
discounted from the next succeeding Five- Year Date
t
o the redemption date, and the
present values
o
f
a
l
l
undeclared dividends for each Dividend Period from the redemption
date
t
o and including the next succeeding Five- Year Date, discounted from their applica-
ble Dividend Payment Dates
t
i
n each case on a quarterly basis
(assuming a 360- day year consisting
o
f
twelve 30- day months)
a
t
the
3
-
month USD
LIBOR Rate applicable
t
o the Dividend Period immediately preceding such redemption
date (which
3
-
month USD LIBOR Rate will also, for purposes
o
f
calculating such
redemption price,
b
e
the rate used
i
n calculating the amount for each such undeclared
dividend), as calculated by an Independent Investment Banker; plus
t
i
n each case, without accumulation
o
f
any undeclared dividends with respect
t
o Dividend Payment
Dates prior
t
o the redemption date.
Comparable Treasury Issue means the United States Treasury security selected
b
y
the
Independent Investment Banker as having a maturity comparable
t
o the term remaining
t
o the
Dividend Payment Date
i
n June 2012 that would be utilized,
a
t
the time
o
f
selection and
i
n accordance
with customary financial practice,
i
n pricing new issues
o
f
perpetual preferred securities having terms
81
CONFIDENTIAL
Return
similar
t
o those
o
f
the Series 2007- A Company Preferred Securities with respect
t
o the payment
o
f
dividends and distributions
o
f
assets upon liquidation, dissolution
o
r
winding
u
p
o
f
the issuer
o
f
such
preferred stock.
Comparable Treasury Price means, with respect
t
o any redemption date for the Series 2007- A
Company Preferred Securities, the average
o
f
the Reference Treasury Dealer Quotations
f
o
r
such
redemption date, after excluding the highest and lowest
o
f
such Reference Treasury Dealer Quota-
tions,
o
r
i
f the Independent Investment Banker obtains fewer than five such Reference Treasury
Dealer Quotations, the average
o
f
a
l
l
such quotations.
Independent Investment Banker means an independent investment banking institution
o
f
national standing appointed
b
y
the Company.
An Investment Company Act Event occurs with respect
t
o the Series 2007- A Company
Preferred Securities when the Company determines, based upon receipt
o
f
an opinion
o
f
counsel, that
there
i
s a significant risk that the Company, the Trust, Asset Trust
I
, Asset Trust
I
I
o
r
any other Asset
Subsidiary will be considered an investment company that
i
s required
t
o be registered under the
Investment Company Act, as a result
o
f
a change
i
n applicable laws, regulations
o
r
related
interpretations.
A Rating Agency Event occurs when the Company reasonably determines that
a
n
amendment,
clarification
o
r
change has occurred
i
n the equity criteria for securities such
a
s
the Series 2007- A
Company Preferred Securities
o
f
any Rating Agency that then publishes a rating for WMI which
amendment, clarification
o
r
change results
i
n a lower equity credit
f
o
r
WMI than the respective equity
credit assigned
b
y
such Rating Agency
t
o the Company Preferred Securities
o
n
the closing date
o
f
this Offering.
Reference Treasury Dealer means each
o
f
three primary
U
.
S
.
government securities dealers
(each a Primary Treasury Dealer),
a
s
specified
b
y
the Company; provided that
i
f any Primary
Treasury Dealer specified
b
y
the Company ceases
t
o
b
e
a Primary Treasury Dealer, the Company will
substitute
f
o
r
such Primary Treasury Dealer another Primary Treasury Dealer and
i
f the Company fails
t
o select a substitute within a reasonable period
o
f
time, then the substitute will
b
e
a Primary Treasury
Dealer selected
b
y
the Independent Investment Banker after consultation with the Company.
Reference Treasury Dealer Quotations means, with respect
t
o each Reference Treasury Dealer
and any redemption date, the average,
a
s
determined
b
y
the Independent Investment Banker,
o
f
the
bid and asked prices
f
o
r
the Comparable Treasury Issue (expressed,
i
n each case,
a
s
a percentage
o
f
i
t
s
principal amount) quoted
i
n writing
t
o the Independent Investment Banker
b
y
such Reference
Treasury Dealer
a
t
5
:
0
0
P
.
M., New York City time,
o
n
the third Business Day preceding such
redemption date.
A Regulatory Capital Event occurs with respect
t
o the Series 2007- A Company Preferred
Securities when the Company determines, based upon receipt
o
f
an opinion
o
f
counsel, that there
i
s a
significant risk that the Series 2007- A Company Preferred Securities will
n
o
longer constitute core
capital
o
f
WMB for purposes
o
f
the capital adequacy regulations issued
b
y
the OTS
a
s
a result
o
f
a
change
i
o
r
related interpretations after issuance
o
f
the Series 2007-A
A Tax Event occurs with respect
t
o the Series 2007- A Company Preferred Securities when the
Company determines, based upon receipt
o
f
a
n
opinion
o
f
counsel, that there
i
s a significant risk that
(
i
) the Company will be required
b
y
a relevant jurisdiction
t
o withhold amounts from payments
t
o the
holders
o
f
any Series 2007- A Company Preferred Securities for taxes
o
r
any other governmental
charges, (
i
i
) the Trust will be required by a relevant jurisdiction
t
t
o
the holders
o
f
the Trust Securities for taxes
o
r
any other governmental charges
o
r
(
i
i
i
)
the Company
i
s
o
r
will be treated as a publicly traded partnership taxable
a
s
a corporation
o
r
as
a
n
association taxable
as a corporation for United States federal income tax purposes, as a result
o
f
any change
i
n law
o
r
82
CONFIDENTIAL
Return
regulation,
o
r
any judicial
o
r
regulatory action, that
i
s effective
o
r
announced after the issuance
o
f
the
Series 2007- A Company Preferred Securities.
Treasury Rate means the rate per year equal
t
o the quarterly equivalent yield
t
o maturity
o
f
the
Comparable Treasury Issue, calculated using a price for the Comparable Treasury Issue (expressed
as a percentage
o
f
i
t
s
principal amount) equal
t
o the Comparable Treasury Price for such redemption
date. The Treasury Rate will be calculated on the third Business Day preceding the redemption date.
A notice
o
f
redemption
o
f
the Series 2007-A Company Preferred Securities will be mailed
b
y
first- class mail, postage prepaid, addressed
t
o the holders
o
f
record
o
f
the securities
t
o
b
e
redeemed
a
t
their respective last addresses appearing
o
n
the books and records
o
f
the Company. Such mailing
will
b
e
a
t
least
3
5
days but not more than
6
5
days before the date fixed
f
o
r
redemption.
The Companys ability
t
o redeem any Company Preferred Security
i
s subject
t
o compliance with
applicable regulatory requirements, including the prior approval
o
f
the OTS, relating
t
o the redemption
o
f
capital instruments. Under current policies
o
f
the OTS, such approval would
b
e
granted only
i
f the
redemption were
t
o
b
e
made out
o
f
the proceeds
o
f
the issuance
o
f
another capital instrument
o
r
i
f
the OTS were
t
o determine that the conditions and circumstances
o
f
WMB warrant the reduction
o
f
a
source
o
f
permanent capital.
Restrictions on Redemption
o
r
Purchases
A
t
o
r
prior
t
o issuance
o
f
the Series 2007- A Company Preferred Securities and the Trust Securi-
ties, WMI will enter into the Replacement Capital Covenant described under Description
o
f
the
Trust SecuritiesRestriction on Redemption
o
r
Purchases, limiting WMIs and
i
t
s
subsidiaries,
including the Companys, ability
t
o redeem
o
r
purchase prior
t
o May 24, 2017 certain securities,
including the Series 2007- A Company Preferred Securities
o
r
the Trust Preferred Securities, among
others.
Rights upon Liquidation
I
n the event the Company voluntarily
o
r
involuntarily dissolves and winds up, the holders
o
f
a
t
the time outstanding will be entitled
t
o receive
liquidating dividends
i
n the amount
o
f
$1,000 per security, plus any authorized, declared, but unpaid
dividends
t
o the date
o
f
liquidation, out
o
f
the Companys assets legally available for distribution,
before any distribution
o
f
assets
i
s made
t
o holders
o
f
Junior Equity Securities and subject
t
o the
rights
o
f
general creditors.
After payment
o
f
the full amount
o
f
the liquidating distributions
t
o which they are entitled, the
holders
o
f
Series 2007- A Company Preferred Securities will have no right
o
r
claim
t
o any
o
f
the
Companys remaining assets.
I
n the event that, upon any such voluntary
o
r
involuntary dissolution and
winding up, the available assets are insufficient
t
o pay the amount
o
f
the liquidation distributions
o
n
a
l
l
series
o
f
Company Preferred Securities, then the holders
o
f
a
l
l
the series
o
f
Company Preferred
Securities will share ratably
i
n any such distribution
o
f
assets
i
n proportion
t
o the full liquidating
distributions
t
o which they would otherwise
b
e
respectively entitled.
For such purposes, the Companys consolidation
o
r
merger with
o
r
into any other entity, the
consolidation
o
r
merger
o
f
any other entity with
o
r
into the Company,
o
r
the sale
o
f
a
l
l
o
r
substantially
a
l
l
o
f
the Companys property
o
r
business, will not
b
e
deemed
t
o constitute the Companys dissolution
and winding up.
Voting Rights and Covenants
Except
a
s
set forth below, holders
o
f
Series 2007- A Company Preferred Securities will not have
voting rights. The LLC Agreement provides that, so long
a
s
any Company Preferred Securities
o
f
any
series are outstanding, the Company will not, except with the consent
o
r
affirmative vote
o
f
the holders
o
f
a
t
least two- thirds
o
f
a
l
l
series
o
f
the Company Preferred Securities, voting together
a
s
a single
83
CONFIDENTIAL
Return
class (provided that for the purpose
o
f
such approval, a like amount
o
f
a
s
any Trust Securities, Trust I Securities
o
r
WaMu Cayman Securities that are directly
o
r
indirectly
held
o
r
beneficially owned
b
y
any member
o
f
WMI Group will
b
e
treated
a
s
i
f they were not
outstanding):
effect a consolidation, merger
o
r
share exchange with
o
r
into another entity provided that the
Company may consolidate
o
r
merge with
o
r
into,
o
r
enter into a share exchange with, another
entity without the consent
o
f
the holders
o
f
the Company Preferred Securities
i
f (
A
)
the other
entity
i
s controlled by,
o
r
under common control with, WMI, (
B
)
the other entity elects
t
o
b
e
treated
a
s
a partnership
f
o
r
U
.
S
.
federal income tax purposes and
i
s not required
t
o register
a
s
a
n
investment company under the 1940 Act, (
C
)
the other entity expressly assumes
a
l
l
o
f
the
Companys obligations and commitments pursuant
t
o the consolidation, merger,
o
r
share
exchange, (
D
)
the outstanding Company Preferred Securities are exchanged
f
o
r
o
r
converted
into shares
o
f
the surviving entity having preferences, limitations, and relative voting and other
rights substantially identical
t
o those
o
f
the Company Preferred Securities, including limitations
o
n
personal liability
o
f
the Company Preferred Securityholders, (
E
)
after giving effect
t
o the
merger, consolidation,
o
r
share exchange,
n
o
breach,
o
r
event which, with the giving
o
f
notice
o
r
passage
o
f
time
o
r
both, could become a breach,
b
y
the Company
o
f
obligations under the
LLC Agreement shall have occurred and
b
e
continuing, and (
F
)
the Company has received
written confirmation that the Rating Agency Condition has been satisfied;
issue any Senior Equity Securities;
incur any indebtedness for borrowed money;
pay dividends on the Companys Junior Equity Securities unless the Companys FFO for the
four prior fiscal quarters, equals
o
r
exceeds 150%
o
f
the amount that would be required
t
o pay
full annual dividends on
a
l
l
series
o
f
Company Preferred Securities;
fail
t
o invest the proceeds
o
f
the Companys assets such that the Companys FFO over any
period
o
f
four fiscal quarters will equal
o
r
exceed 150%
o
f
the amount that would
b
e
required
t
o pay full annual dividends
o
n
a
l
l
series
o
f
issue any additional Company Common Securities
t
o any person, other than University Street
o
r
another affiliate
o
f
WMI;
amend
o
r
otherwise change the terms
o
f
any Asset Documentation
i
n a manner which
i
s
materially adverse
o
f
the Trust,
o
r
t
o any other Trust Holder
o
r
t
o the holders
o
f
that Trust
Holders securities;
remove
o
r
cause
t
o be removed,
a
s
applicable, Washington Mutual from the Companys
o
r
the Trusts name unless the name
o
f
WMI changes and the Company makes a change
t
o the
Companys
o
r
the name
o
f
any other Trust Holder, the Trusts
o
r
such other Trust Holders
name
t
o be consistent with the new group name;
take
o
r
fail
t
o take any action that would cause the Company
t
o fail
t
o
b
e
treated
a
s
a
partnership (other than a publicly traded partnership taxable as a corporation) for United States
federal income tax purposes;
engage
i
n a
U
.
S
.
trade
o
r
business for United States federal income tax purposes;
fail
t
o hold only assets that qualify
f
o
r
the portfolio interest exemption under the Code
o
r
are
otherwise exempt from United States federal withholding taxes;
fail
t
o manage
i
t
s affairs such that
i
t
s income does not constitute unrelated business taxable
income for United States federal income tax purposes;
take any action that could reasonably be expected
t
o cause a Tax Event, an Investment
Company Act Event, a Rating Agency Event
o
r
a Regulatory Capital Event;
o
r
amend
i
t
s
Certificate
o
f
Formation
o
r
LLC Agreement
i
n a manner that materially and
adversely affects the terms
o
f
any series
o
f
Company Preferred Securities; provided, however,
that,
i
f such amendment affects fewer than
a
l
l
classes
o
f
preferred securities issued
b
y
the
84
CONFIDENTIAL
Return
Company, such amendment will require only a vote
o
f
the holders
o
f
such affected class
o
r
classes
o
f
Company Preferred Securities, voting together
a
s
a separate class.
I
n addition, the LLC Agreement provides that, except with the consent
o
f
a
l
l
o
f
the Companys
Managers, including
i
t
s
Independent Manager, the Company will not:
terminate, amend
o
r
otherwise change any Asset Documentation;
o
r
o
r
share exchange (excluding the Conditional Exchange) that
i
s
not tax- free
t
o the holders
o
f
any series
o
f
the Company Preferred Securities and the related
Trust Securities, Trust I Securities
o
r
WaMu Cayman Securities, as applicable, unless such
transaction was approved
b
y
the consent
o
r
affirmative vote
o
f
the holders
o
f
a
t
least two- thirds
o
f
a
l
l
series
o
f
a
s
a single class.
I
n addition, the LLC Agreement will provide that
i
f (
i
) the Company fails
t
o pay full dividends
o
n
any series
o
f
o
n
any Dividend Payment Date, (
i
i
) the Trust fails
t
o
pass through full dividends paid
b
y
the Company
o
n
the Series 2007-A Company Preferred Securities
t
o the holders
o
f
o
r
any other Trust Holder fails
t
o pass through full dividends paid
b
y
the Company
o
n
the series
o
f
Company Preferred Securities held
b
y
that Trust Holder,
o
n
any
o
r
(
i
i
i
) a Bankruptcy Event occurs, the holders
o
f
a
l
l
the series
o
f
Company
Preferred Securities, voting together
a
s
a single class,
b
y
majority vote, are entitled
t
o remove the
initial
o
r
any succeeding Independent Manager and
t
o
f
i
l
l the vacancy created
b
y
such removal
o
r
any
other vacancy existing
i
n the office
o
f
the Independent Manager.
The LLC Agreement requires that,
i
n assessing the benefits
t
o the Company
o
f
any proposed
action requiring his
o
r
her consent, the Companys Independent Manager take into account the
interests
o
f
holders
o
f
both Company Common Securities and
a
l
l
series
o
f
the Company Preferred
Securities. The LLC Agreement provides that
i
n considering the interests
o
f
the holders
o
f
the
Company Preferred Securities, the Companys Independent Manager owes the same duties
t
o such
holders which the Independent Manager owes
t
o the holders
o
f
Company Common Securities.
As a condition
t
o effecting any consolidation, merger
o
r
share exchange described above, the
Company will mail
t
o the holders
o
f
record
o
f
the Company Preferred Securities a notice
o
f
such
consolidation, merger
o
r
share exchange. The notice will
b
e
mailed
a
t
least
1
5
days prior
t
o such
transaction becoming effective and will contain a description
o
f
such transaction together with a
certificate
o
f
one
o
f
the Companys officers stating that such transaction complies with the require-
ments set forth
i
n the LLC Agreement and that
a
l
l
conditions precedent provided therein relating
t
o
such transaction have been fulfilled.
As described under Description
o
f
the Trust SecuritiesVoting Rights, each holder
o
f
Trust Securities will have the right
t
o direct the manner
i
n which Property Trustee
o
n
behalf
o
f
the
Trust exercises
i
t
s
voting rights
a
s
t
o a like amount
o
f
held
b
y
the Trust with respect
t
o any
o
f
the matters
o
n
which a holder
o
f
i
s entitled
t
o vote.
WMIs articles
o
f
incorporation do not contain similar covenants regarding the Series M WMI
Preferred Stock following an exchange
o
f
the Trust Securities. Therefore, following a Conditional
Exchange, holders
o
f
the Depositary Shares would no longer have any voting rights, except as
provided by Washington law
o
r
i
n connection with the right
t
o elect directors
i
f dividends are skipped
o
r
not paid
i
n full. See below under Description
o
f
the Series M WMI Preferred Stock Voting
Rights.
Additional Amounts
I
f the Company
o
r
the Trust
i
s required
t
o pay any Additional Taxes as a result
o
f
a
n
Additional
Tax Event, the Company will pay
a
s
additional amounts on the Series 2007- A Company Preferred
Securities such amounts
a
s
will be required so that dividends on the Series 2007- A Company
o
r
a
s
applicable, will not be reduced as a result
o
f
any such
Additional Taxes
(
Additional Amounts).
85
CONFIDENTIAL
Return
Additional Taxes means the sum
o
f
any additional taxes, duties and other governmental
charges
t
o which the Company
o
r
the Trust has become subject from time
t
o time
a
s
a result
o
f
a
n
Additional Tax Event.
An Additional Tax Event means the determination
b
y
the Company, based upon receipt
o
f
a
n
opinion
o
f
counsel, rendered
b
y
a law firmexperienced
i
n such matters,
i
n form and substance
reasonably satisfactory
t
o the Company and WMI,
t
o the effect that,
a
s
a result
o
f
any amendment
t
o
,
o
r
change (including any announced proposed change)
i
n
,
the laws (
o
r
any regulations thereunder)
o
f
the United States
o
r
o
f
any political subdivision
o
r
taxing authority thereof
o
r
therein,
o
r
a
s
a result
o
f
any official administrative pronouncement
o
r
judicial decision interpreting
o
r
applying such laws
o
r
regulations, which amendment
o
r
change
i
s effective
o
r
which proposed change, pronouncement
o
r
decision
i
s announced on
o
r
after the date
o
f
issuance
o
f
the Trust Securities, there
i
s a significant
risk that (
i
) the Company
o
r
the Trust
i
s
,
o
r
will
b
e
within
9
0
days
o
f
the date
o
f
such opinion
o
f
counsel, required
b
y
a relevant jurisdiction
t
t
o the holders
o
f
the
o
r
Trust Securities, respectively, for any taxes, duties
and other governmental charges, (
i
i
)
the Trust
i
s
,
o
r
will
b
e
within
9
0
days
o
f
the date
o
f
such opinion
o
f
counsel, subject
t
o United States federal income tax with respect
t
o income received
o
r
accrued
o
n
the like amount
o
f
Series 2007- A Company Preferred Securities held
b
y
i
t
o
r
(
i
i
i
)
the Trust
i
s
,
o
r
will
b
e
within
9
0
days
o
f
the date
o
f
such opinion
o
f
counsel, subject
t
o more than a
d
e
minimis amount
o
f
other taxes, duties
o
r
other governmental charges.
Amendments and Termination
o
f
the LLC Agreement
University Street may,
a
t
any time and from time
t
o time, without the consent
o
f
the holders
o
f
o
f
any series, amend the LLC Agreement: (
i
)
t
o correct
o
r
supplement any provision
i
n the LLC Agreement that may
b
e
defective
o
r
inconsistent with any other
provision therein,
o
r
t
o make any other provisions with respect
t
o matters
o
r
questions arising under
the LLC Agreement, provided that any such action taken under this clause will not materially adversely
affect the interests
o
f
the holders
o
f
any series
o
f
the Company Preferred Securities and provided
further that any such amendment shall not cause the Company, the Trust
o
r
any other Trust Holder
t
o
b
e
required
t
o be registered under the 1940 Act,
b
e
taxable
a
s
a corporation
f
o
r
United States Federal
income tax purposes,
o
r
b
e
treated
a
s
engaged
i
n a trade
o
r
business within the United States,
a
s
determined for United States Federal income tax purposes; (
i
i
)
t
o cure any ambiguity
o
r
inconsistency
o
r
correct any manifest error;
o
r
(
i
i
i
)
t
o give effect
t
o the future issuance
o
f
Parity Equity Securities
o
r
Junior Equity Securities and
t
o set the designations, preferences, and rights
o
f
any such Parity Equity
Security
o
r
Junior Equity Security. Any other amendment
o
f
the LLC Agreement must
b
e
approved
b
y
vote
o
f
holders
o
f
two- thirds (
b
y
aggregate liquidation preference)
o
f
any series
o
f
the Company
a
s
a single class (see Voting Rights and Covenants);
provided that for the purpose
o
f
such approval,
i
f any member
o
f
WMI Group directly
o
r
indirectly
holds
o
r
beneficially owns any Trust Securities
o
r
securities
o
f
any other Trust Holder, then a like
amount
o
f
the applicable series
o
f
Company Preferred Securities will
b
e
treated
a
s
i
f they were not
outstanding. The Company will notify the Paying Agents and the holders
o
f
o
f
any
such amendment
o
f
the LLC Agreement within a reasonable period
o
f
time.
The LLC Agreement will terminate upon the termination
o
f
the Company under the LLC Act.
Governing Law
The LLC Agreement and the Series 2007- A Company Preferred Securities will
b
e
governed by,
and construed
i
n accordance with, the laws
o
f
the State
o
f
Delaware.
86
CONFIDENTIAL
Return
DESCRIPTION OF OTHER COMPANY SECURITIES
The following summary
o
f
the terms
o
f
the other Company securities does not purport
t
o
b
e
complete and
i
s subject
i
n
a
l
l
respects
t
o the applicable provisions
o
f
the LLC Act and the LLC
Agreement. A copy
o
f
the LLC Agreement may be obtained upon request
t
o WMI.
Common Securities
General
The Company has outstanding, and will continue
t
o have outstanding upon consummation
o
f
this
offering, 1,000 Company Common Securities,
a
l
l
o
f
which will be held
b
y
University Street.
The Company Common Securities may be sold, assigned
o
r
otherwise transferred by University
Street
t
o another entity, subject
t
o WMI maintaining direct
o
r
indirect ownership
o
f
100%
o
f
the
outstanding Company Common Securities and receipt
b
y
University Street
o
f
an opinion
o
f
counsel
t
o
the effect that as a result
o
f
any such sale, transfer
o
r
assignment the Company will not be taxable
a
s
a corporation for United States federal income tax purposes.
Pursuant
t
o the LLC Agreement, except with the consent
o
r
the affirmative vote
o
f
the holders
o
f
a
t
least two- thirds
o
f
a
l
l
series
o
f
a
s
a single class,
the Company will not issue any additional Company Common Securities
o
r
other Junior Equity
Securities
t
o any person, other than University Street
o
r
another affiliate
o
f
WMI.
No additional payments will
b
e
required pursuant
t
o the LLC Act for Company Common
Securities
t
o represent limited liability company interests
i
n the Company upon issuance against full
payment
o
f
the purchase price therefor.
Voting
Subject
t
o the limited rights
o
f
the holders
o
f
the Series 2007- A Company Preferred Securities,
a
s
o
f
the Series 2007-A Company Preferred SecuritiesVoting Rights
and Covenants, and any voting rights granted
t
o holders
o
f
the Outstanding Company Preferred
Securities and any other Parity Equity Securities,
a
l
l
voting rights
o
f
the Companys security holders
are vested
i
n the Company Common Securities.
Dividends
The Company Common Securities rank junior
t
o
a
l
l
the Company Preferred Securities as
t
o
payment
o
f
dividends. No dividends will be declared
o
r
paid
i
n any Dividend Period on the Company
Common Securities, other than dividends payable
i
n Company Common Securities, and no Company
Common Securities will be purchased, redeemed
o
r
otherwise acquired for consideration, directly
o
r
indirectly (other than
a
s
a result
o
f
reclassification
o
f
Company Common Securities for
o
r
into
Company Common Securities,
o
r
the exchange
o
r
conversion
o
f
Company Common Securities for
o
r
into Company Common Securities), unless dividends
i
n such Dividend Period on
a
l
l
series
o
f
the
Company Preferred Securities have been declared and paid
i
n full,
o
r
set aside for payment, as the
case may be. Pursuant
t
o the LLC Agreement, except with the consent
o
r
the affirmative vote
o
f
the
holders
o
f
a
t
least two- thirds
o
f
a
l
l
series
o
f
a
s
a
single class, the Company will not pay any dividends on the Company Common Securities
o
r
other
Junior Equity Securities unless the Companys FFO for the four prior fiscal quarters equals
o
r
exceeds
150%
o
f
the amount that would be required
t
o pay full annual dividends
o
n
a
l
l
series
o
f
the Company
Preferred Securities; provided that for the purpose
o
f
such approval, a like amount
o
f
the applicable
series
o
f
a
s
any Trust Securities, Trust I Securities, Trust
I
I Securities
o
r
WaMu Cayman Securities that are directly
o
r
indirectly held
o
r
beneficially owned by any member
o
f
WMI Group will be treated
a
s
i
f they were not outstanding.
87
CONFIDENTIAL
Return
Liquidation Rights
The Company Common Securities will rank junior
t
o
a
l
l
series
o
f
Securities upon liquidation.
I
n the event
o
f
any voluntary
o
r
involuntary dissolution
o
f
the Company,
after
a
l
l
o
f
the Companys debts and liabilities have been satisfied and there have been paid
o
r
set
aside
f
o
r
the holders
o
f
a
l
l
series
o
f
the Company Preferred Securities the full preferential amounts
t
o
which such holders are entitled, the holders
o
f
Company Common Securities will
b
e
entitled
t
o share
equally and ratably
i
n any assets remaining.
Outstanding Company Preferred Securities
The Outstanding Company Preferred Securities will rank pari passu with the Series 2007-A
a
s
t
o dividends and upon liquidation
o
f
the Company. The terms
o
f
the
Series 2007- A Company Preferred Securities will
b
e
substantially identical
t
o the Outstanding
Company Preferred Securities except
f
o
r
the dividend rates and redemption dates and prices. The
Series 2006- A Company Preferred Securities will,
i
f
, when and
a
s
declared
b
y
the Companys Board
o
f
Managers, pay dividends
a
t
an annual rate
o
f
6.534% until March 15, 2011, and
3
-
month USD
LIBOR plus 1.4825% thereafter. The Series 2006- A Company Preferred Securities are held
b
y
Trust
I
,
which issued a like amount
o
f
Trust I Securities
t
o investors
o
n
March
7
,
2006. The Series 2006-B
Company Preferred Securities will,
i
f
, when and
a
s
declared
b
y
the Companys Board
o
f
Managers,
pay dividends
a
t
a
n
annual rate
o
f
7.25%. The Series 2006-B Company Preferred Securities are held
b
y
WaMu Cayman, which issued a like amount
o
f
WaMu Cayman Securities
t
o investors
o
n
March
7
,
2006. The Series 2006-C Company Preferred Securities will,
i
f
, when and
a
s
declared
b
y
the
Companys Board
o
f
Managers, pay dividends
a
t
a
n
annual rate
o
f
6.665% until December 15, 2016,
and
3
-
month USD LIBOR plus 1.7925% thereafter. The Series 2006- A Company Preferred Securities
are held
b
y
Trust
I
I
,
which issued a like amount
o
f
Trust
I
I Securities
t
o investors
o
n
December 13,
2006. The Outstanding Company Preferred Securities are not listed
o
n
o
r
automated dealer quotation system.
Ability
t
o Issue Additional Preferred Securities
Pursuant
t
o the LLC Agreement, the Company may not issue any Senior Equity Securities
o
r
incur any indebtedness except with the consent
o
r
affirmative vote
o
f
holders
o
f
a
t
least two- thirds
o
f
a
l
l
series
o
f
a
s
a single class,
a
s
described under
Description
o
f
the Series 2007- A Company Preferred SecuritiesVoting Rights and Covenants.
The Company may issue additional Parity Equity Securities without the consent
o
f
the holders
o
f
Company Preferred Securities only
i
f the tests described under Description
o
f
the Series 2007- A
Company Preferred SecuritiesRanking are satisfied.
88
CONFIDENTIAL
Return
DESCRIPTION OF THE SERIES M WMI PREFERRED STOCK
o
f
the Series M WMI
Preferred Stock. The description
i
s qualified
i
n
i
t
s
entirety
b
y
reference
t
o the terms and provisions
o
f
WMIs articles
o
f
incorporation and the articles
o
f
amendment establishing the Series M WMI
Preferred Stock. A copy
o
f
WMIs articles
o
f
incorporation and such articles
o
f
amendment can be
obtained upon request
t
o WMI.
General
WMI has authorized and reserved for issuance upon a Conditional Exchange,
a
s
described
under Description
o
f
the Trust SecuritiesConditional Exchange, 500 shares
o
f
i
t
s
Series M
Perpetual Non- cumulative Fixed- to-Floating Rate Preferred Stock,
n
o
par value and liquidation prefer-
ence $1,000,000 per share ( the Series M WMI Preferred Stock). The shares
o
f
Series M WMI
Preferred Stock,
i
f and when issued upon a Conditional Exchange, will
b
e
represented
b
y
depositary
shares (the Depositary Shares), each representing
1
/
1000th
o
f
a share
o
f
Series M WMI Preferred
Stock. The holders
o
f
the Series M WMI Preferred Stock will have
n
o
pre-emptive rights with respect
t
o any shares
o
f
WMIs capital stock
o
r
any
o
f
i
t
s
other securities convertible into
o
r
carrying rights
o
r
options
t
o purchase any such capital stock. The Series M WMI Preferred Stock
i
s perpetual and will
not
b
e
convertible into shares
o
f
WMI common stock
o
r
any other class
o
r
series
o
f
i
t
s
capital stock,
and will not
b
e
subject
t
o any sinking fund
o
r
other obligation
f
o
r
i
t
s
purchase
o
r
retirement.
The Series M WMI Preferred Stock, upon issuance, will have substantially equivalent terms
a
s
t
o
dividends, redemption, liquidation preference and redemption preference
a
s
the Series 2007- A Com-
pany Preferred Securities and Trust Securities for which they may
b
e
exchanged, except that the
Series M WMI Preferred Stock: (
i
) will not have the benefit
o
f
the covenants described under
Description
o
f
Series 2007- A Company Preferred SecuritiesVoting Rights and Covenants
o
r
Additional Amounts and (
i
i
) will
b
e
redeemable prior
t
i
n
June 2012 and
o
n
any Dividend Payment Date thereafter that
i
s not a Five-Year Date only upon the
occurrence
o
f
o
r
o
r
payment
o
f
the applicable
make- whole amount
a
s
described under Redemption below.
I
n addition,
i
f WMI fails
t
o pay,
o
r
f
o
r
o
n
the
Series M WMI Preferred Stock after
i
t
s
issuance
o
r
any other class
o
r
series
o
f
WMI Parity Stock (
a
s
defined below) having similar voting rights
(
Voting Parity Securities)

f
o
r
six Dividend Periods
o
r
their
equivalent, the authorized number
o
f
directors
o
n
WMIs board will
b
e
increased
b
y
two. Subject
t
o
compliance with any requirement
f
o
r
regulatory approval
o
f
,
o
r
non- objection
t
o
,
persons serving
a
s
directors, the holders
o
f
Series M WMI Preferred Stock, voting together
a
s
a single and separate class
with the holders
o
f
any outstanding Voting Parity Securities, will have the right
t
o elect two directors
i
n
addition
t
i
n office
a
t
WMIs next annual meeting
o
f
shareholders.
The Dividend Payment Dates and related Dividend Periods for the Series M WMI Preferred
Stock, once issued, will be the same
a
s
the Dividend Payment Dates and related Dividend Periods for
the Trust Securities and Company Preferred Stock, and the terms Dividend Payment Date and
Dividend Period will have the same meanings
a
s
applied
t
o the Series M WMI Preferred Stock
a
s
applied
t
o those securities,
i
t being understood that
i
f the Series M WMI Preferred Stock
i
s not issued
prior
t
i
n June 2012, a Dividend Payment Date will
b
e
deemed
t
o occur
o
n
such date with respect
t
o the Series M WMI Preferred Stock for the purposes
o
f
determining the interest rate and the terms
o
f
redemption thereof. The term Business Day, when
used with reference
t
o the Series M WMI Preferred Stock, means any day other than a Saturday,
Sunday
o
r
any other day
o
n
which banks
i
n New York, New York
o
r
Seattle, Washington are generally
required
o
r
authorized by law
t
o be closed.
The Series M WMI Preferred Stock will
b
e
subject
t
o the Replacement Capital Covenant
o
f
the Trust SecuritiesRestriction on Redemption
o
r
Purchases.
89
CONFIDENTIAL
Return
Ranking
WMI will covenant
i
i
n favor
o
f
the holders
o
f
prior
t
o the issuance
o
f
the Series M WMI Preferred Stock upon a Conditional Exchange, WMI will not
issue any preferred stock that would rank senior
t
o the Series M WMI Preferred Stock upon
i
t
s
issuance.
The Series M WMI Preferred Stock will, upon issuance, rank
a
t
least pari passu with the most
senior preferred stock
o
f
WMI,
i
f any, then outstanding, and
t
o any other preferred stock that WMI
may issue
i
n the future. The Series M WMI Preferred Stock will, with respect
t
o dividend rights and
rights
o
n
liquidation, winding-
u
p
and dissolution, rank (
i
)
o
n
a parity with WMIs Series I WMI Preferred
Stock, Series J WMI Preferred Stock, Series K WMI Preferred Stock, Series L WMI Preferred Stock
(each
a
s
defined below) and each other class
o
r
series
o
f
preferred stock WMI may issue
i
n the
future, the terms
o
f
which expressly provide that such class
o
r
series will rank
o
n
a parity with the
a
s
t
o dividend rights and rights on WMIs liquidation, winding- up and
dissolution (collectively referred
t
o as WMI Parity Stock) and (
i
i
) senior
t
o WMIs common stock,
i
t
s
Series RP Preferred Stock and each other class
o
f
capital stock WMI may issue
i
n the future, the
terms
o
f
which
d
o
not expressly provide that
i
t ranks
o
n
a parity with
o
r
senior
t
o the Series M WMI
Preferred Stock
a
s
t
o dividend rights and rights
o
n
WMIs liquidation, winding-
u
p
and dissolution
(collectively referred
t
o
a
s
Junior Securities). WMI may authorize and issue additional shares
o
f
preferred stock that may rank junior
t
o
o
r
pari passu with the Series M WMI Preferred Stock
a
s
t
o
dividends and upon liquidation, winding up
o
r
dissolution without the consent
o
f
the holders
o
f
the
Series M WMI Preferred Stock. See Description
o
f
the Other WMI Capital Stock below.
Dividends
Dividends on the Series M WMI Preferred Stock will be payable
i
f
,
when and as declared
b
y
WMIs Board
o
f
Directors out
o
f
i
t
s
legally available funds, on a noncumulative basis
a
t
an annual
rate
o
f
6.895%
t
o
,
but not including, June 15, 2012 (whether
o
r
not a Business Day) and
3
-
Month
USD LIBOR plus 1.755% thereafter
o
n
the liquidation preference thereof, which
i
s $1,000,000 per
share, from and including the Dividend Payment Date on
o
r
prior
t
o their date
o
f
issuance. Dividends
o
n
the Series M WMI Preferred Stock,
i
f
,
when and
a
s
declared
b
y
WMIs Board
o
f
Directors, will be
payable quarterly
i
n arrears
o
n
each Dividend Payment Date, commencing
o
n
the first such day after
issuance
o
f
the Series M WMI Preferred Stock. The record date for the payment
o
f
dividends,
i
f
declared, will be the first day
o
f
the month
i
n which the relevant Dividend Payment Date occurs or,
i
f
any such day
i
s not a Business Day, the next day that
i
s a Business Day. Dividends payable on the
f
o
r
any period greater
o
r
less than a full Dividend Period will
b
e
computed
o
n
the basis
o
f
(
i
) for any Dividend Periods ending prior
t
o
o
r
i
n June 2012, twelve 30- day
months, a 360- day year, and the actual number
o
f
days elapsed
i
n the period and (
i
i
) for any Dividend
Periods thereafter, the actual number
o
f
days elapsed
i
n the relevant dividend period divided
b
y
360.
No interest will
b
e
paid
o
n
any dividend payment made on the Series M WMI Preferred Stock
o
r
Depositary Shares. Holders
o
f
Depositary Shares will receive for each Depositary Share
1
/
1000th
o
f
any such dividend payment made
o
n
a single share
o
f
the Series M WMI Preferred Stock.
Dividends on the Series M WMI Preferred Stock will be noncumulative.
I
f WMIs Board
o
f
Directors does not declare a dividend on the Series M WMI Preferred Stock
o
r
declares less than a
full dividend
i
n respect
o
f
any Dividend Period, the holders
o
f
the Series M WMI Preferred Stock will
have no right
t
o receive any dividend
o
r
a full dividend,
a
s
the case may be,
f
o
r
the Dividend Period,
and WMI will have
n
o
obligation
t
o pay a dividend
o
r
t
o pay full dividends for that Dividend Period,
whether
o
r
not dividends are declared and paid
f
o
r
any future Dividend Period with respect
t
o the
Series M WMI Preferred Stock, WMIs common stock
o
r
any other class
o
r
series
o
f
WMIs preferred
stock.
90
CONFIDENTIAL
Return
Redemption
The Series M WMI Preferred Stock will not
b
e
redeemable
a
t
the option
o
f
the holders thereof.
Subject
t
o a covenant
i
n favor
o
f
certain
o
f
WMIs debtholders limiting WMIs and
i
t
s
subsidiaries right
t
o purchase
o
r
redeem the Series M WMI Preferred Stock ( among others)
a
s
described under
Description
o
f
the Trust SecuritiesRestriction
o
n
Redemption
o
r
Purchases, WMI may,
a
t
i
t
s
option redeem the Series M WMI Preferred Stock:
i
n whole but not
i
n part, prior
t
i
n June 2012, upon the occurrence
o
f
o
r
a Rating Agency Event,
a
t
t
o
the sum
o
f
:
the greater of:
(
i
) $1,000,000 per share
o
f
Series M WMI Preferred Stock, and
(
i
i
) the sum
o
f
the present value
o
f
$1,000,000 per share
o
f
i
n June 2012
t
the present values
o
f
a
l
l
redemption date
t
i
t
i
n each case on a
o
f
a
t
the
Treasury Rate,
a
s
calculated by an Independent Investment Banker, plus 0.50%,
plus any declared but unpaid dividends
t
i
n whole but not
i
n part,
o
n
any Dividend Payment Date prior
t
i
n
June 2012 for any reason other than the occurrence
o
f
o
r
a Regulatory
Capital Event,
a
t
a cash redemption price equal to:
the greater of:
(
i
) $1,000,000 per share
o
f
o
r
(
i
i
) the sum
o
f
the present value
o
f
o
f
i
n June 2012
t
the present values
o
f
a
l
l
undeclared dividends for the Dividend Periods from the
redemption date
t
i
t
i
n each case
o
n
a
o
f
a
t
the
Treasury Rate,
a
s
calculated
b
y
a
n
Independent Investment Banker, plus 0.35%; plus
t
i
n whole but not
i
n part,
o
n
i
n
June 2012 that
i
s not a Five- Year Date, upon the occurrence
o
f
o
r
a Rating Agency Event,
a
t
t
o $1,000,000 per share
o
f
Series M
WMI Preferred Stock, plus any declared and unpaid dividends
t
i
n whole
o
r
i
n part,
o
n
each Dividend Payment Date that
i
s a Five- Year Date,
a
t
a cash
redemption price
o
f
o
f
Series M WMI Preferred Stock, plus any declared
t
i
n whole but not
i
n part,
o
n
i
n
June 2012 that
i
s not a Five- Year Date
f
o
r
any reason other than the occurrence
o
f
a Rating
Agency Event
o
r
a
t
a cash redemption price equal to:
the greater of:
(
i
) $1,000,000 per share
o
f
o
r
91
CONFIDENTIAL
Return
(
i
i
) the sum
o
f
the present value
o
f
o
f
discounted from the next succeeding Five- Year Date
t
o the redemption date, and the
present values
o
f
a
l
l
undeclared dividends for each Dividend Period from the redemption
date
t
o and including the next succeeding Five- Year Date, discounted from their applica-
ble Dividend Payment Dates
t
i
n each case
o
n
a quarterly basis
o
f
a
t
the
3
-
month USD
LIBOR Rate applicable
t
o the Dividend Period immediately preceding such redemption
date (which
3
-
month USD LIBOR Rate will also,
f
o
r
purposes
o
f
calculating such
redemption price,
b
e
the rate used
i
n calculating the amount
f
o
r
each undeclared
dividend),
a
s
calculated
b
y
a
n
Independent Investment Banker; plus
t
i
o
f
any undeclared dividends with respect
t
o Dividend Payment
Dates prior
t
o the redemption date.
Dividends will cease
t
o accrue
o
n
the Series M WMI Preferred Stock called for redemption
o
n
and
a
s
o
f
the date fixed for redemption and such Series M WMI Preferred Stock will be deemed
t
o
cease
t
o be outstanding, provided that the redemption price, including any authorized and declared
but unpaid dividends for the current Dividend Period,
i
f any,
t
o the date fixed
f
o
r
redemption, has been
duly paid
o
r
provision has been made for such payment.
Notice
o
f
any redemption will
b
e
mailed
a
t
least
3
0
days, but not more than
6
0
days, prior
t
o any
redemption date
t
o each holder
o
f
t
o
b
e
redeemed,
a
t
such
holders registered address.
Replacement
A
t
o
r
prior
t
o issuance
o
f
the Series 2007- A Company Preferred Securities and the Trust Securi-
ties, WMI will enter into the Replacement Capital Covenant described under Description
o
f
the
Trust SecuritiesRestriction on Redemption
o
r
Purchases, limiting WMIs ability
t
o redeem
o
r
purchase prior
t
o May 24, 2017 certain securities, including the Series M WMI Preferred Stock,
among others.
I
f
WMI voluntarily
o
r
involuntarily liquidates, dissolves
o
r
winds up, the holders
o
f
Series M WMI
Preferred Stock
a
t
the time outstanding will
b
e
entitled
t
o receive liquidating distributions
i
n the amount
o
f
$1,000,000 per share,
o
r
$1,000 per Depositary Share representing a
1
/
1000th interest
i
n the
Series M WMI Preferred Stock, plus
a
n
amount equal
t
o declared but unpaid dividends
f
o
r
the current
Dividend Period
t
o the date
o
f
liquidation, out
o
f
WMIs assets legally available for distribution
t
o
i
t
s
shareholders, before any distribution
o
f
assets
i
s made
t
o holders
o
f
WMIs common stock
o
r
any
securities ranking junior
t
o the Series M WMI Preferred Stock, subject
t
o the rights
o
f
the holders
o
f
any class
o
r
series
o
f
securities ranking
o
n
a parity upon liquidation with the Series M WMI Preferred
Stock upon liquidation and the rights
o
f
i
t
s
depositors and creditors.
After payment
o
f
the full amount
o
f
the liquidating distributions
t
o which they are entitled, the
holders
o
f
the Series M WMI Preferred Stock will have no right
o
r
claim
t
o any
o
f
WMIs remaining
assets.
I
n the event that, upon any such voluntary
o
r
involuntary liquidation, dissolution,
o
r
winding up,
WMIs available assets are insufficient
t
o pay the amount
o
f
the liquidation distributions on
a
l
l
outstanding Series M WMI Preferred Stock and the corresponding amounts payable on any other
securities
o
f
equal ranking, then the holders
o
f
the Series M WMI Preferred Stock and any other
securities
o
f
equal ranking will share ratably
i
n any such distribution
o
f
assets
i
n proportion
t
o the full
liquidating distributions
t
o which they would otherwise be respectively entitled.
92
CONFIDENTIAL
Return
For such purposes, WMIs consolidation
o
r
merger with
o
r
into any other entity, the consolidation
o
r
merger
o
f
any other entity with
o
r
into
i
t
,
o
r
the sale
o
f
a
l
l
o
r
substantially
a
l
l
o
f
WMIs property
o
r
business, will not
b
e
deemed
t
o constitute
i
t
s liquidation, dissolution,
o
r
winding up.
Voting Rights
Holders
o
f
Series M WMI Preferred Stock will not have any voting rights, including the right
t
o
elect any directors, except upon issuance
a
s
required by law,
o
r
as set forth below.
Washington law attaches mandatory voting rights
t
o classes
o
r
series
o
f
shares that are affected
by certain amendments
t
o the articles
o
f
incorporation. The holders
o
f
the outstanding shares
o
f
a
class
o
r
series are entitled
t
o vote as a separate voting group
i
f shareholder voting
i
s otherwise
required
b
y
Washington law and
i
f the amendment would:
increase the aggregate number
o
f
authorized shares
o
f
the class
o
r
series;
effect an exchange
o
r
reclassification
o
f
a
l
l
o
r
part
o
f
the issued and outstanding shares
o
f
the
class
o
r
series into shares
o
f
another class
o
r
series, thereby adversely affecting the holders
o
f
the shares
s
o
exchanged
o
r
reclassified;
change the rights, preferences,
o
r
limitations
o
f
a
l
l
o
r
part
o
f
o
f
the class
o
r
o
f
shares
o
f
the class
o
r
series;
change
a
l
l
o
r
part
o
f
o
f
the class
o
r
series into a different
number
o
f
shares
o
f
the same class
o
r
o
f
shares
o
f
the class
o
r
series;
create a new class
o
r
series
o
f
shares having rights
o
r
preferences with respect
t
o dividends
o
r
other distributions
o
r
t
o dissolution that are,
o
r
upon designation
b
y
the board
o
f
directors
may be, prior, superior,
o
r
substantially equal
t
o the shares
o
f
the class
o
r
series;
increase the rights
o
r
t
o distributions,
o
r
o
n
liquidations
o
r
dissolution,
o
r
the number
o
f
authorized shares
o
f
any class
o
r
series that, after giving effect
t
o the
amendment, has rights
o
r
t
o distributions,
o
r
o
n
liquidations
o
r
dissolution that are,
o
r
upon designation
b
y
the board
o
f
directors may be, prior, superior,
o
r
substantially equal
t
o the shares
o
f
the class
o
r
series;
limit
o
r
deny
a
n
existing pre-emptive right
o
f
a
l
l
o
r
part
o
f
the shares
o
f
the class
o
r
series;
cancel
o
r
otherwise adversely affect rights
t
o distributions that have accumulated but not yet
been declared
o
n
a
l
l
o
r
part
o
f
the shares
o
f
the class
o
r
series;
o
r
effect a redemption
o
r
cancellation
o
f
a
l
l
o
r
part
o
f
the shares
o
f
the class
o
r
series
i
n
exchange
f
o
r
cash
o
r
any other form
o
f
consideration other than shares
o
f
the corporation.
Holders
o
f
the outstanding shares
o
f
a class
o
r
series
o
f
stock are entitled under Washington law
t
o vote
a
s
a separate voting group with respect
t
o a merger
o
r
share exchange
i
f shareholder voting
i
s
otherwise required
b
y
Washington law and
i
f
,
a
s
a result
o
f
the merger
o
r
share exchange, holders
o
f
a part
o
r
a
l
l
o
f
the class
o
r
series would hold
o
r
receive:
shares
o
f
any class
o
r
series
o
f
the surviving
o
r
acquiring corporation,
o
r
o
f
any parent
corporation
o
f
the surviving corporation, and either (
i
) that class
o
r
series has a greater
number
o
f
authorized shares than the class
o
r
series held
b
y
the holders,
o
r
(
i
i
) there
i
s a
change
i
n the number
o
f
shares held
b
y
the holders
o
r
i
n the rights, preferences
o
r
limitations
o
f
the shares
o
r
the class
o
r
series and the change adversely affects the holders;
shares
o
f
any class
o
r
series
o
f
the surviving
o
r
acquiring corporation,
o
r
o
f
any parent
corporation
o
f
the surviving corporation, and such holders would be,
a
s
compared
t
o their
circumstances prior
t
o the merger
o
r
exchange, adversely affected by the creation, existence,
93
CONFIDENTIAL
Return
number
o
f
authorized shares
o
r
rights
o
r
preferences
o
f
another series that may
b
e
prior,
superior
o
r
substantially equal
t
o the shares
t
o be received
b
y
such holders;
o
r
cash
o
r
any other property other than shares
o
f
the surviving
o
r
acquiring corporation
o
r
o
f
any
parent corporation
o
f
the surviving corporation.
Under Washington law,
i
f any class
o
r
series
o
f
shares
i
s entitled
t
o vote
a
s
a group
i
n
connection with an amendment
o
f
the articles, a merger
o
r
a share exchange, such class
o
r
series
and any other classes
o
r
series affected
i
n a substantially similar way will vote together as a single
voting group unless otherwise provided
b
y
the articles
o
r
b
y
the board
o
f
directors.
Washington law permits these statutory voting rights
t
o
b
e
expanded
o
r
,
i
n certain circum-
stances, limited
i
n the designation
o
f
the terms
o
f
a class
o
r
series. The statutory voting rights
o
f
the
holders
o
f
Series M WMI Preferred Stock will
b
e
expanded and,
i
n certain circumstances, limited
a
s
described below.
I
f
after issuance
o
f
the Series M WMI Preferred Stock WMI fails
t
o pay,
o
r
f
o
r
o
n
o
r
any other class
o
r
series
o
f
Voting
Parity Securities
f
o
r
six Dividend Periods
o
r
their equivalent, the authorized number
o
f
WMIs directors
will
b
e
increased
b
y
two. Subject
t
o compliance with any requirement for regulatory approval
o
f
,
o
r
non- objection
t
o
,
persons serving
a
s
o
f
Series M WMI Preferred Stock, voting
together
a
s
a single and separate class with the holders
o
f
any outstanding Voting Parity Securities,
will have the right
t
o elect two directors
i
n addition
t
i
n office
a
t
WMIs next annual
meeting
o
f
shareholders. This right will continue
a
t
each subsequent annual meeting until WMI pays
dividends
i
n full
o
n
the Series M WMI Preferred Stock and any Voting Parity Securities for three
consecutive Dividend Periods
o
r
their equivalent and pays
o
r
declares and sets aside for payment
dividends
i
n full
f
o
r
the fourth consecutive Dividend Period
o
r
i
t
s
equivalent.
The term
o
f
such additional directors will terminate, and the total number
o
f
directors will be
decreased
b
y
two after WMI pays dividends
i
n full for three consecutive Dividend Periods
o
r
their
equivalent and declares and pays
o
r
sets aside for payment dividends
i
n full on the Series M WMI
Preferred Stock and any Voting Parity Securities for the fourth consecutive Dividend Period
o
r
i
t
s
equivalent or,
i
f earlier, upon the redemption
o
f
a
l
l
Series M WMI Preferred Stock. After the term
o
f
such additional directors terminates, the holders
o
f
the Series M WMI Preferred Stock will not be
entitled
t
o elect additional directors unless full dividends on the Series M WMI Preferred Stock have
again not been paid
o
r
declared and set aside for payment for six future Dividend Periods.
Any additional director elected
b
y
the holders
o
f
the Series M WMI Preferred Stock and the
Voting Parity Securities may
b
e
removed only
b
y
the vote
o
f
the holders
o
f
record
o
f
the outstanding
Series M WMI Preferred Stock and Voting Parity Securities, voting together
a
s
a single and separate
class,
a
t
a meeting
o
f
WMIs shareholders called
f
o
r
that purpose. Any vacancy created
b
y
the
removal
o
f
any such director may
b
e
filled only
b
y
the vote
o
f
the holders
o
f
the outstanding Series M
WMI Preferred Stock and Voting Parity Securities, voting together
a
s
a single and separate class.
So long
a
s
any shares
o
f
Series M WMI Preferred Stock are outstanding, the vote
o
r
consent
o
f
the holders
o
f
a
t
least 662/ 3%
o
f
the shares
o
f
a
t
the time outstanding,
voting
a
s
a class with
a
l
l
other series
o
f
preferred stock ranking equal with the Series M WMI
Preferred Stock and entitled
t
o vote thereon, given
i
n person
o
r
b
y
proxy, either
i
n writing without a
meeting
o
r
b
y
vote
a
t
any meeting called
f
o
r
the purpose, will
b
e
necessary
f
o
r
effecting
o
r
validating
any
o
f
the following actions, whether
o
r
not such approval
i
s required
b
y
Washington law:
any amendment, alteration
o
r
repeal
o
f
any provision
o
f
WMIs amended and restated Articles
o
f
Incorporation (including the Articles
o
f
Amendment creating the Series M WMI Preferred
Stock)
o
r
WMIs bylaws that would alter
o
r
change the voting powers, preferences
o
r
special
rights
o
f
the Series M WMI Preferred Stock so as
t
o affect them adversely;
94
CONFIDENTIAL
Return
any amendment
o
r
alteration
o
f
o
f
Incorporation
t
o
authorize
o
r
create,
o
r
increase the authorized amount
o
f
,
any shares
o
f
,
o
r
any securities
convertible into shares
o
f
,
any class
o
r
series
o
f
WMIs capital stock ranking prior
t
o the
i
n the payment
o
f
dividends
o
r
i
n the distribution
o
f
assets
o
n
any liquidation, dissolution
o
r
WMIs winding- up;
o
r
the consummation
o
f
a binding share exchange
o
r
reclassification involving the Series M WMI
Preferred Stock
o
r
a merger
o
r
consolidation
o
f
WMI with another entity, except holders
o
f
Series M WMI Preferred Stock will have no right
t
o vote under this provision
o
r
otherwise
under Washington law
i
f
i
n each case (
i
) the Series M WMI Preferred Stock remains
outstanding
o
r
,
i
n the case
o
f
any such merger
o
r
consolidation with respect
t
o which WMI
i
s
not the surviving
o
r
resulting entity,
i
s converted into
o
r
exchanged for preference securities
o
f
the surviving
o
r
resulting entity
o
r
i
t
s ultimate parent, and (
i
i
) such Series M WMI Preferred
Stock remaining outstanding
o
r
such preference securities,
a
s
the case may be, have such
rights, preferences, privileges and voting powers, taken
a
s
a whole,
a
s
are not materially less
favorable
t
o the holders thereof than the rights, preferences, privileges and voting powers
o
f
the Series M WMI Preferred Stock, taken
a
s
a whole;
provided, however, that any increase
i
n the amount
o
f
the authorized
o
r
issued Series M WMI
Preferred Stock
o
r
authorized preferred stock
o
r
any securities convertible into preferred stock
o
r
the
creation and issuance,
o
r
an increase
i
n the authorized
o
r
issued amount,
o
f
other series
o
f
preferred
stock
o
r
any securities convertible into preferred stock ranking equally with and/
o
r
junior
t
o the
Series M WMI Preferred Stock with respect
t
o the payment
o
f
dividends (whether such dividends are
cumulative
o
r
noncumulative) and/
o
r
the distribution
o
f
assets upon WMIs liquidation, dissolution
o
r
winding- up will not be deemed
t
o adversely affect the voting powers, preferences
o
r
special rights
o
f
the Series M WMI Preferred Stock and, notwithstanding any provision
o
f
Washington law, holders
o
f
Series M WMI Preferred Stock will have no right
t
o vote on such an increase.
I
f
a
n
amendment, alteration, repeal, share exchange, reclassification, merger
o
r
consolidation
described above would adversely affect one
o
r
more but not
a
l
l
series
o
f
Voting Parity Securities
(including the Series M WMI Preferred Stock for this purpose), then only those series affected and
entitled
t
o vote shall vote
a
s
a class
i
n lieu
o
f
a
l
l
such series
o
f
preferred stock.
The foregoing voting provisions will not apply
i
f
,
a
t
o
r
prior
t
o the time when the act with respect
t
o which such vote would otherwise
b
e
required
i
s effected,
a
l
l
outstanding shares
o
f
Series M WMI
Preferred Stock have been redeemed
o
r
called
f
o
r
redemption upon proper notice and sufficient funds
have been set aside
b
y
WMI
f
o
r
the benefit
o
f
the holders
o
f
t
o
effect such redemption.
WMI will covenant
i
n the Exchange Agreement that
i
n the event WMI, prior
t
o the Conditional
Exchange, effects,
o
r
i
s
,
the subject
o
f
a merger, consolidation, statutory share exchange, sale
o
f
a
l
l
o
r
substantially
a
l
l
o
f
i
t
s
assets
o
r
other form
o
f
business combination, (
i
)
i
n which WMI
i
s not the
surviving, resulting
o
r
receiving corporation thereof
o
r
(
i
i
)
i
f WMI
i
s the surviving
o
r
resulting
corporation, shares representing a majority
o
f
WMIs total voting power are either converted
o
r
exchanged into securities
o
f
another person
o
r
into cash
o
r
other property (any such transaction
i
n
either (
i
)
o
r
(
i
i
) being a Business Combination), then WMI (
i
) will not enter into such Business
Combination unless the Successor Entity agrees, effective upon the consummation
o
f
such Business
Combination,
t
o abide
b
y
a
l
l
o
f
WMIs obligations under the provisions
o
f
the Exchange Agreement
restricting the payment
o
f
dividends
b
y
WMI
i
n the event dividends are not paid with respect
t
o the
Company Preferred Securities and (
i
i
) may,
a
t
the election
o
f
the Board
o
f
Directors
o
f
WMI prior
t
o
the effectiveness
o
f
such Business Combination, assign, effective upon the consummation
o
f
such
Business Combination,
a
l
l
o
f
i
t
s
other obligations under the Exchange Agreement
t
o a Successor
Entity that has Fixed-to-Floating Rate Substitute Preferred Stock and, as a result
o
f
such assignment,
a
l
l
references
t
o WMI, Series M WMI Preferred Stock and Depositary Shares shall become and be
95
CONFIDENTIAL
Return
deemed
t
o
b
e
references
t
o such Successor Entity,
t
o such Fixed-to-Floating Rate Substitute
Preferred Stock and
t
o a Fixed- to-Floating Rate Successor Depositary Share, respectively.
Successor Entity means a corporation designated
b
y
the Board
o
f
Directors
o
f
WMI (
i
) that
i
s
the surviving, resulting
o
r
receiving corporation,
a
s
applicable,
i
n any Business Combination, (
i
i
) the
securities
o
f
which are received
i
n a Business Combination
b
y
some
o
r
a
l
l
holders
o
f
WMI voting
shares
o
r
(
i
i
i
) that the Board
o
f
Directors
o
f
WMI determines
t
o be
a
n
acquirer
o
f
WMI
i
n a Business
Combination.
Fixed-to-Floating Rate Substitute Preferred Stock means a class
o
r
series
o
f
equity securities
o
f
a Successor Entity having the preferences, limitations and relative rights
i
n
i
t
s articles
o
r
certificate
o
f
incorporation
o
r
other constituent documents that are substantially similar
t
o those set forth
i
n the
articles
o
f
amendment establishing the Series M WMI Preferred Stock.
Fixed-to-Floating Rate Successor Depositary Share means a depositary share substantially
similar
t
o a Depositary Share representing
a
n
interest
i
n the Fixed-to-Floating Rate Substitute
Preferred Stock.
Conditional Exchange
For a description
o
f
how
a
n
exchange
o
f
the Trust Securities into Depositary Shares may occur
upon
a
n
Exchange Event, purchasers should read Description
o
f
the Trust SecuritiesConditional
Exchange.
96
CONFIDENTIAL
Return
DESCRIPTION OF THE DEPOSITARY SHARES
o
f
the Depositary Shares.
This description
i
s qualified
i
n
i
t
s
entirety by reference
t
o the terms and provisions
o
f
the Deposit
Agreement, the form
o
f
depositary receipts, which contain the terms and provisions
o
f
the Depositary
Shares, and WMIs articles
o
f
incorporation and articles
o
f
amendment. Copies
o
f
each
o
f
the
foregoing documents may be obtained upon request
t
o WMI.
General
Each depositary share will represent a
1
/
1000th interest
i
n one share
o
f
Series M WMI Preferred
Stock (the Depositary Shares). The Depositary Shares will be evidenced
b
y
depositary receipts
issued
i
n definitive registered form. The shares
o
f
Series M WMI Preferred Stock underlying the
Depositary Shares will, upon an exchange
a
s
a result
o
f
an Exchange Event,
b
e
deposited with Mellon
Investor Series LLC, as depositary (the Depositary), under a Deposit Agreement,
t
o be entered into
on
o
r
before the closing date (the Deposit Agreement), among WMI, the Depositary, the registrar
appointed thereunder and
a
l
l
holders from time
t
o time
o
f
depositary receipts issued
b
y
the Depositary
thereunder. WMI does not intend
t
o list
o
r
quote the Depositary Shares
o
r
the Series M WMI Preferred
Stock on any securities exchange
o
r
automated dealer quotation system. Accordingly, there will be
n
o
public trading market for the Depositary Shares
o
r
the Series M WMI Preferred Stock. The Initial
Purchasers are under no obligation
t
o and do not intend
t
o make a market
i
n the Depositary Shares.
Subject
t
o the terms
o
f
the Deposit Agreement, each owner
o
f
a Depositary Share will
b
e
entitled, through the Depositary,
t
o
a
l
l
the rights, preferences and privileges
o
f
1
/
1000th
o
f
a share
o
f
Series M WMI Preferred Stock. Owners
o
f
a single Depositary Share, representing a
1
/
1000th interest
i
n one share
o
f
Series M WMI Preferred Stock, will
b
e
subject
t
o
a
l
l
o
f
the limitations
o
f
the fractional
share represented thereby, which are summarized above under Description
o
f
the Series M WMI
Preferred Stock.
The Depositary will act
a
s
transfer agent, registrar and paying agent with respect
t
o the
Depositary Shares.
The Depositarys office
a
t
which the depositary receipts will
b
e
administered
i
s located
a
t
480 Washington Boulevard, Jersey City, New Jersey 07310.
Purchasers may hold Depositary Shares either directly
o
r
indirectly through their broker
o
r
other
financial institution.
I
f
purchasers hold Depositary Shares directly,
b
y
having Depositary Shares
registered
i
n their name
o
n
the books
o
f
the Depositary, the purchaser
i
s a depositary receipt holder.
I
f
purchasers hold the Depositary Shares through their broker
o
r
financial institution nominee, the
purchasers must rely on the procedures
o
f
such broker
o
r
financial institution
t
o assert the rights
o
f
a
depositary receipt holder described
i
n this section. Purchasers should consult with their broker
o
r
financial institution
t
o find out what those procedures are.
Issuance
o
f
Depositary Receipts
Automatically upon a Conditional Exchange, WMI will issue the shares
o
f
Series M WMI
Preferred Stock, and deposit those shares with the Depositary, which will then issue and deliver the
depositary receipts
t
o WMI. WMI will,
i
n turn, deliver the depositary receipts
t
o the holders
o
f
Trust Securities as
o
f
the date
o
f
the Conditional Exchange. Depositary receipts will be issued
evidencing only whole Depositary Shares. Each Trust Security will then be exchanged for a like
amount
o
f
depositary receipts
a
s
o
f
the Trust SecuritiesConditional
Exchange.
Dividends and Other Distributions
The Depositary will distribute
a
l
l
cash dividends, dividends paid
i
n Depositary Shares represent-
ing paid-
u
p
and nonassessable shares
o
f
o
r
other cash distributions
97
CONFIDENTIAL
Return
received
i
n respect
o
f
t
o the record holders
o
f
Depositary Shares
i
n proportion
t
o the numbers
o
f
such Depositary Shares owned
b
y
such holders
o
n
the relevant record
date.
I
n the event
o
f
a distribution other than
i
n cash, the Depositary will distribute property received
b
y
i
t
t
o the record holders
o
f
Depositary Shares entitled thereto, unless the Depositary determines
that
i
t
i
s not feasible
t
o make such a distribution,
i
n which case the Depositary may, after consultation
with WMI, sell such property and distribute the net proceeds from such sale
t
o such holders.
Redemption
o
f
Depositary Shares
I
f
the shares
o
f
Series M WMI Preferred Stock underlying the Depositary Shares are redeemed,
i
n whole
o
r
i
n part, Depositary Shares will
b
e
redeemed with the proceeds received
b
y
the Depositary
resulting from the redemption
o
f
the Series M WMI Preferred Stock held
b
y
the Depositary. The
redemption price per Depositary Share will
b
e
equal
t
o
1
/
1000th
o
f
the redemption price per share
payable with respect
t
o such Series M WMI Preferred Stock.
I
f
less than
a
l
l
the shares
o
f
Series M
WMI Preferred Stock are
t
o
b
e
redeemed, a corresponding proportion
o
f
the Depositary Shares will
b
e
redeemed and the Depositary Shares
t
o
b
e
redeemed will
b
e
selected
b
y
l
o
t
o
r
pro rata,
i
n WMIs
sole discretion.
After the date fixed for redemption (which will be the same date as the redemption date
f
o
r
the
Series M WMI Preferred Stock), the Depositary Shares
s
o
called for redemption will no longer be
deemed
t
o
b
e
outstanding and
a
l
l
rights
o
f
the holders
o
f
the Depositary Shares will cease, except the
right
t
o receive the moneys payable upon such redemption and any money
o
r
other property
t
o which
the holders
o
f
such Depositary Shares were entitled upon such redemption upon surrender
t
o the
Depositary
o
f
the depositary receipts evidencing such Depositary Shares.
Amendment
o
f
Deposit Agreement
The form
o
f
depositary receipt evidencing the Depositary Shares and any provision
o
f
the
Deposit Agreement may
a
t
any time
b
e
amended
b
y
agreement between WMI and the Depositary.
However, any amendment that materially and adversely alters the rights
o
f
the holders
o
f
depositary
receipts will not
b
e
effective unless such amendment has been approved
b
y
the holders
o
f
a
t
least a
majority
o
f
the Depositary Shares then outstanding. Every holder
o
f
an outstanding depositary receipt
a
t
the time any amendment becomes effective will
b
e
deemed,
b
y
continuing
t
o hold such depositary
receipt,
t
o consent and agree
t
o such amendment and
t
o
b
e
bound
b
y
the Deposit Agreement
a
s
amended thereby.
Charges
o
f
Depositary
WMI will pay the charges
o
f
the Depositary
i
n connection with the initial deposit
o
f
the Series M
WMI Preferred Stock and the initial issuance
o
f
the Depositary Shares upon a Conditional Exchange,
and any redemption
o
f
the Series M WMI Preferred Stock. Holders
o
f
Depositary Shares will pay
a
l
l
other transfer and other taxes and governmental charges and,
i
n addition, such other charges
a
s
are
expressly provided
i
n the Deposit Agreement
t
o
b
e
f
o
r
their accounts.
A
l
l
other charges and expenses
o
f
the Depositary and
o
f
any registrar incident
t
o the performance
o
f
their respective obligations
arising from the depositary arrangements will be paid
b
y
WMI only after prior consultation and
agreement between the Depositary and WMI and consent
b
y
WMI
t
o the incurrence
o
f
such
expenses, which consent will not
b
e
unreasonably withheld.
Miscellaneous
The Depositary will forward
t
o the holders
o
f
the Depositary Shares
a
l
l
reports and communica-
tions from WMI that WMI would
b
e
required
t
o furnish
t
o the holders
o
f
Stock.
Neither the Depositary nor WMI will be liable
i
f
i
t
i
s prevented
o
r
delayed by law
o
r
any
circumstances beyond
i
t
s
control
i
n performing
i
t
s
obligations under the Deposit Agreement. The
98
CONFIDENTIAL
Return
obligations
o
f
WMI and the Depositary under the Deposit Agreement will
b
e
limited
t
o performance
i
n
good faith
o
f
their duties thereunder, and they will not be obligated
t
o prosecute
o
r
defend any legal
proceedings
i
n respect
o
f
any Depositary Shares
o
r
the Series M WMI Preferred Stock unless
satisfactory indemnity
i
s furnished. They may rely upon written advice
o
f
counsel
o
r
independent
accountants,
o
r
information provided
b
y
persons presenting Series M WMI Preferred Stock for deposit,
holders
o
f
Depositary Shares
o
r
other persons believed
t
o
b
e
competent and
o
n
documents believed
t
o
b
e
genuine.
Resignation and Removal
o
f
Depositary; Termination
o
f
Deposit Agreement
The Depositary may resign
a
t
any time
b
y
delivering
t
o WMI notice
o
f
i
t
s election
t
o
d
o
so, and
WMI may
a
t
any time remove the Depositary, with any such resignation
o
r
removal taking effect upon
the appointment
o
f
a successor depositary and
i
t
s acceptance
o
f
such appointment. Such successor
depositary will
b
e
appointed
b
y
WMI within 60 days after delivery
o
f
the notice
o
f
resignation
o
r
removal. Upon termination
o
f
the Deposit Agreement, the Depositary will discontinue the transfer
o
f
depositary receipts, will suspend the distribution
o
f
dividends
t
o the holders thereof and will not give
any further notices (other than notice
o
f
such termination)
o
r
perform any further acts under the
Deposit Agreement, except that the Depositary will continue
t
o collect dividends and other distributions
pertaining
t
o Series M WMI Preferred Stock and will continue
t
o deliver Series M WMI Preferred Stock
certificates together with such dividends and distributions and the net proceeds
o
f
any sales
o
f
rights,
preferences, privileges,
o
r
other property
i
n exchange
f
o
r
depositary receipts surrendered.
A
t
any time
after the expiration
o
f
three years from the date
o
f
termination, the Depositary may sell the Series M
WMI Preferred Stock and hold the proceeds
o
f
such sale, without interest,
f
o
r
the benefit
o
f
the
holders
o
f
depositary receipts who have not then surrendered their depositary receipts. After making
such sale, the Depositary will be discharged from
a
l
l
obligations under the Deposit Agreement except
t
o account
f
o
r
such proceeds.
99
CONFIDENTIAL
Return
DESCRIPTION OF THE OTHER WMI CAPITAL STOCK
As
o
f
the date hereof, the authorized capital stock
o
f
WMI consists
o
f
1,600,000,000 shares
o
f
WMI common stock and 10,000,000 shares
o
f
preferred stock, no par value. As
o
f
the close
o
f
business on May 18, 2007, there were 888,383,743 shares
o
f
WMI common stock outstanding and
500 shares
o
f
WMIs Series K Perpetual Non- Cumulative Floating Rate Preferred Stock outstanding.
As
o
f
the close
o
f
business on May 18, 2007, 700,000 shares
o
f
preferred stock
o
f
WMI were
authorized, but unissued,
a
s
contemplated
b
y
WMIs Rights Agreement, dated
a
s
o
f
December 20,
2000, entered into by and between WMI and Mellon Investor Services LLC.
I
n addition, 2,500 shares
o
f
WMI preferred stock were authorized
f
o
r
issuance
i
o
f
the Trust I
Securities, WaMu Cayman Securities and Trust
I
I
Securities
a
s
described below. The shares
o
f
WMI
preferred stock
t
o be issued upon the occurrence
o
f
a Conditional Exchange have been duly
authorized and when and
i
f issued will
b
e
validly issued, fully paid, nonassessable and free
o
f
preemptive rights, with no personal liability attaching
t
o the ownership thereof.
WMI authorized and reserved for issuance
i
n connection with the offering
o
f
the Trust I Securities
and the related issuance by the Company
o
f
the Series 2006- A Company Preferred Securities up
t
o
1,250 shares
o
f
i
t
s Series I Perpetual Non- cumulative Fixed-
t
o
-
Floating Rate Preferred Stock,
n
o
par
value, and liquidation preference
o
f
$1,000,000 per share (the Series I WMI Preferred Stock). WMI
also authorized for issuance
i
o
f
the WaMu Cayman Securities and the
related issuance
b
y
the Company
o
f
the Series 2006- B Company Preferred Securities up
t
o 750 shares
o
f
i
t
s
Series J Perpetual Non- cumulative Fixed Rate Preferred Stock, no par value, and liquidation
preference
o
f
$1,000,000 per share (the Series J WMI Preferred Stock). WMI authorized and
reserved for issuance
i
o
f
the Trust
I
I Securities and the related issuance
b
y
the Company
o
f
the Series 2007- A Company Preferred Securities
u
p
t
o 500 shares
o
f
i
t
s
Series L
Perpetual Non- cumulative Fixed- to-Floating Rate Preferred Stock,
n
o
par value, and liquidation
preference
o
f
$1,000,000 per share (the Series L WMI Preferred Stock). The shares
o
f
Series I WMI
Preferred Stock, Series J WMI Preferred Stock and the Series L WMI Preferred Stock will
b
e
issued
by WMI solely upon the occurrence
o
f
a Conditional Exchange with respect
t
o the Trust I Securities
and WaMu Cayman Securities, respectively.
I
f and when the shares
o
f
Series I WMI Preferred Stock,
Series J WMI Preferred Stock and the Series L WMI Preferred Stock are issued upon the occurrence
o
f
a Conditional Exchange, they will be represented
b
y
depositary shares
o
f
WMI, each
o
f
which will
represent
1
/
1000th
o
f
a share
o
f
such preferred stock. The Series I WMI Preferred Stock, Series J
WMI Preferred Stock, Series L WMI Preferred Stock rank, and the Series M WMI Preferred Stock
when issued will rank, pari passu with one another
a
s
t
o dividends and upon liquidation
o
f
WMI. None
o
f
these series
o
f
WMI preferred stock will
b
e
listed
o
n
o
r
automated dealer
quotation system.
I
n September 2006, WMI issued 20,000,000 depositary shares, each
o
f
which represented a
1
/
40,000th interest
i
n a share
o
f
WMIs Series K Perpetual Non- Cumulative Floating Rate Preferred
Stock (the Series K WMI Preferred Stock). 500 shares
o
f
Series K WMI Preferred Stock were
issued. The Series K WMI Preferred Stock has a liquidation preference
o
f
$1,000,000 per share.
Dividends
o
n
the Series K WMI Preferred Stock are noncumulative and,
i
f declared
b
y
the board
o
f
directors, are paid quarterly
a
t
a per annum rate equal
t
o the greater
o
f
(
i
)
3
-
month USD LIBOR for
the related dividend period, plus 0.70%,
o
r
(
i
i
)
4.00%. The Series K WMI Preferred Stock has
n
o
stated maturity. Beginning
i
n September 2011, WMI may
a
t
i
t
s
option redeem the Series K WMI
Preferred Stock
i
n whole
o
r
i
n part
a
t
any time
o
r
from time
t
o time
a
t
a price equal
t
o $1,000,000 per
share plus any declared and unpaid dividends. The Series K WMI Preferred Stock has
n
o
voting rights
except
i
n certain specific circumstances. The Series I WMI Preferred Stock, the Series J WMI
Preferred Stock and the Series L WMI Preferred Stock rank, and the Series M WMI Preferred Stock
will rank,
o
n
a parity with Series K WMI Preferred Stock
a
s
t
o dividends rights and rights
o
n
liquidation, winding up and dissolution
o
f
WMI.
100
CONFIDENTIAL
Return
BOOK- ENTRY ISSUANCE
Form, Denomination, Transfer and Book- Entry Procedures
General
The Trust Securities will be issued only
i
n fully registered form. Each purchaser
i
n this Offering
and each account for which
i
t
i
s purchasing will hold
a
t
least $300,000 liquidation preference
o
f
Trust Securities (
i
. e.,
a
t
least three Trust Securities) and,
i
f
i
t transfers any interest
i
n any Trust Security,
will transfer
a
t
o
f
Trust Securities (
i
. e.,
a
t
least one Trust Security)
and each subsequent purchaser and each account for which
i
t
i
s purchasing will hold and transfer
a
t
o
f
Trust Securities (
i
. e.,
a
t
least one Trust Security). Any transfer,
sale
o
r
other disposition
o
f
Trust Securities having a liquidation preference
o
f
less than $100,000
o
r
that results
i
n a beneficial owner holding Trust Securities having an aggregate liquidation preference
o
f
less than $100,000, will be deemed
t
o be null and void ab initio and
o
f
no legal effect whatsoever.
Any such transferee will be deemed not
t
o be the beneficial owner
o
f
such Trust Securities for any
purpose, including, but not limited
t
o
,
the receipt
o
f
dividends on such Trust Securities, and such
transferee will be deemed
t
o have no interest whatsoever
i
n such Trust Securities.
Global Security
The Trust Securities initially will be represented
b
y
one
o
r
more securities
i
n registered, global
form (collectively, the Global Security). The Global Security will be deposited upon issuance with the
Registrar
a
s
custodian for The Depository Trust Company
(
DTC)
i
n New York, New York, and
registered
i
n the name
o
f
DTC
o
r
i
t
s nominee (the Nominee),
i
n each case
f
o
r
credit
t
o an account
o
f
a DTC Participant,
a
s
described below.
Special Considerations for Global Securities
As
a
n
indirect holder, a purchasers rights relating
t
o a Global Security will
b
e
governed
b
y
the
account rules
o
f
the purchasers financial institution and
o
f
DTC,
a
s
well
a
s
the general laws relating
t
o securities transfers. The Trust will not recognize the purchaser
a
s
a holder
o
f
Trust Securities and
instead will deal only with DTC
o
r
i
t
s nominee. See The DTC System.
Purchasers should be aware that because Trust Securities are issued only
i
n the form
o
f
a
Global Security:
they cannot get Trust Securities registered
i
n their name;
they cannot receive physical certificates
f
o
r
their interest
i
n the Trust Securities;
they will be Street Name holders and must look
t
o their own bank
o
r
broker for payments on
the Trust Securities and the protection
o
f
their legal rights relating
t
o the Trust Securities;
they may not be able
t
o sell interests
i
n the Trust Securities
t
o some insurance companies and
other institutions that are required
b
y
law
t
o own securities
i
n the form
o
f
physical
certificates; and
DTCs policies will govern payments, transfers, exchanges and other matters relating
t
o the
purchasers interest
i
n the Global Security. See The DTC System. The Trust, the Company
and the Registrar have no responsibility for any aspect
o
f
DTCs actions
o
r
for
i
t
s
records
o
f
ownership interests
i
n the Global Security. The Trust, the Company and the Registrar also do
not supervise DTC
i
n any way.
Special Situations When the Global Security Will Be Terminated
I
n a few special situations, interests
i
n the Global Security will be exchanged for definitive
physical certificates representing Trust Securities. After that exchange, the choice
o
f
whether
t
o hold
101
CONFIDENTIAL
Return
Trust Securities directly
o
r
i
n Street Name will
b
e
u
p
t
o the beneficial owner. Purchasers must
consult their own bank
o
r
broker
t
o find out how
t
o have their interests
i
n Trust Securities transferred
t
o their own name,
s
o
that they will
b
e
direct holders.
The special situations
f
o
r
exchange
o
f
the Global Security
f
o
r
definitive physical certificates are:
DTC notifies the Trust that
i
t
i
s unwilling, unable
o
r
n
o
longer qualified
t
o continue as the
depositary for the Trust Securities;
o
r
the Trust
i
n
i
t
s
sole discretion determines that the Global Security will be exchangeable for
certificated Trust Securities.
When the Global Security
i
s exchanged, DTC (and not the Trust, the Company
o
r
the Registrar)
will be responsible for deciding the names
o
f
the institutions that will be the initial direct holders.
I
f Trust Securities are issued
i
n certificated form, dividends,
i
f any, will
b
e
payable, and
Trust Securities may be transferred
o
r
exchanged,
a
t
the corporate trust office
o
f
the Registrar
i
n New
York, New York, provided that payment
o
f
interest on certificated Trust Securities may be made
a
t
the
option
o
f
the Trust
b
y
check mailed
t
o the address
o
f
the persons entitled thereto.
The DTC System
DTC
i
s a limited-purpose trust company created
t
o hold securities
f
o
r
i
t
s participating organiza-
tions (the DTC Participants). DTC also facilitates the clearance and settlement between DTC
Participants
o
f
transactions
i
n securities deposited with DTC through changes
i
n the account records
o
f
DTC Participants. DTC Participants include securities brokers and dealers (including the Initial
Purchasers), banks, trust companies, clearing corporations and certain other organizations. Access
t
o
DTCs system
i
s also available
t
o other entities such
a
s
securities brokers and dealers, banks and
trust companies that work through a DTC Participant (the Indirect DTC Participants).
When the Trust Securities are purchased through the DTC system, the purchase must
b
e
made
b
y
o
r
through a DTC Participant, who will receive credit for the Trust Securities
o
n
DTCs records. The
purchasers ownership interest will only
b
e
recorded
o
n
the DTC Participants (
o
r
Indirect DTC
Participants) records. DTC has
n
o
knowledge
o
f
a purchasers individual ownership
o
f
the Trust Secu-
rities. DTCs records show only the identity
o
f
the DTC Participants and the amount
o
f
the Trust Secu-
rities held
b
y
o
r
through them. A purchaser will not receive a written confirmation
o
f
i
t
s
purchase
o
r
sale
o
r
any periodic statement directly from DTC;
i
t will receive these from the DTC Participant
o
r
Indirect DTC Participant
a
t
which
i
t maintains
i
t
s
account. Thus, the DTC Participants (
o
r
Indirect DTC
Participants) are responsible for keeping
a
n
accurate account
o
f
the holdings
o
f
their customers.
Any redemption notices with respect
t
o the Trust Securities will be sent by the Company and the
Trust directly
t
o DTC, who will
i
n turn inform the DTC Participants, who will then contact the beneficial
owners.
I
f less than
a
l
l
o
f
the Trust Securities are being redeemed, DTCs current practice
i
s
t
o choose
by
l
o
t
the amount
o
f
the interest
o
f
each DTC Participant
t
o
b
e
redeemed. Each DTC Participant will
then use an appropriate method
t
o allocate the redemption among
i
t
s
beneficial holders.
I
t
i
s DTCs current practice, upon receipt
o
f
any payment
i
n respect
o
f
the Global Security
t
o
credit DTC Participants accounts on the payment date based on their holdings
o
f
i
n the Global Security
a
s
shown on DTCs records.
I
n addition,
i
t
i
s DTCs current practice
t
o assign
any consenting
o
r
voting rights
t
o DTC Participants whose accounts are credited beneficial interests
i
n
the Global Security on a record date,
b
y
using an omnibus proxy. Payments
b
y
DTC Participants
t
o
owners
o
f
i
n the Global Security, and voting by DTC Participants, will be based on
the customary practices between the DTC Participants and owners
o
f
beneficial interests,
a
s
i
s the
case with securities held for the account
o
f
customers registered
i
n Street Name. However,
payments will
b
e
the responsibility
o
f
the DTC Participants and not
o
f
DTC, the Registrar, the Trust
o
r
the Company.
102
CONFIDENTIAL
Return
Interests
i
n the Trust Securities will trade
i
n DTCs same- day funds settlement system, and
secondary market trading activity
i
n such interests will therefore settle
i
n immediately available funds,
subject
i
n
a
l
l
cases
t
o the rules and procedures
o
f
DTC and
i
t
s participants.
DTC has advised the Trust that
i
t will take any action permitted
t
o be taken by a holder
o
f
the
Trust Securities only
a
t
the direction
o
f
one
o
r
more DTC Participants
t
o whose account with DTC
interests
i
n the Global Security are credited and only
i
n respect
o
f
such portion
o
f
the aggregate
principal amount
o
f
a
s
t
o which such participant
o
r
participants has
o
r
have given
such direction.
Although DTC has agreed
t
o the foregoing procedures
i
n order
t
o facilitate transfers
o
f
beneficial
ownership interests
i
n the Global Security among participants
o
f
DTC
i
t
i
s under no obligation
t
o
perform
o
r
continue
t
o perform such procedures, and such procedures may be discontinued
a
t
any
time. Neither the Company, the Trust, the Registrar
o
r
any
o
f
their representative agents will have any
responsibility for the performance
b
y
DTC, the DTC Participants
o
r
the Indirect DTC Participants
o
f
i
t
s
obligations under the rules and procedures governing their operations, including maintaining, supervis-
ing
o
r
reviewing the records relating
t
o
,
o
r
payments made on account of, beneficial ownership
interests
i
n the Global Security.
Euroclear and Clearstream
Clearstream Banking, socit anonyme, 42 Avenue JF Kennedy,
L
-
1855, Luxembourg
(
Clearstream),
i
s a subsidiary
o
f
Clearstream International
(
Clearstream International), a Luxem-

bourg limited liability company formed
i
n January 2000 through the merger
o
f
Cedel International and
Deutsche Boerse Clearing, a subsidiary
o
f
Deutsche Boerse AG.
I
n July 2002, Deutsche Boerse AG
acquired Cedel International and
i
t
s
50% ownership
o
f
Clearstream International.
Clearstream
i
s registered as a bank
i
n Luxembourg, and as such
i
s subject
t
o supervision
b
y
the
Luxembourg Financial Sector Supervisory Commission, which supervises Luxembourg banks.
Clearstream holds securities
f
o
r
i
t
s
customers
(
Clearstream Participants) and facilitates the

clearance and settlement
o
f
securities transactions
b
y
electronic book- entry transfers between their
accounts. Clearstream provides various services, including safekeeping, administration, clearance and
settlement
o
f
internationally traded securities and securities lending and borrowing. Clearstream also
deals with domestic securities markets
i
n several countries through established depository and
custodial relationships. Clearstream has established
a
n
electronic bridge with Euroclear Bank
S
.
A./
N
.
V
.
a
s
the Euroclear Operator
i
n Brussels
t
o facilitate settlement
o
f
trades between systems.
Clearstream currently accepts over 200,000 securities for clearance.
Clearstream Internationals customers are worldwide financial institutions including underwriters,
securities brokers and dealers, banks, trust companies and clearing corporations. Clearstream
Internationals United States customers are limited
t
o securities brokers and dealers and banks.
Currently, Clearstream International has over 2,500 customers located
i
n over 94 countries, including
a
l
l
major European countries, Canada and the United States. Indirect access
t
o Clearstream
i
s
available
t
o other institutions which clear through
o
r
maintain a custodial relationship with an account
holder
o
f
Clearstream.
The Euroclear System
(
Euroclear) was created

i
n 1968
t
o hold securities for
i
t
s
participants
(
Euroclear Participants) and

t
o clear and settle transactions between Euroclear Participants through
simultaneous electronic book- entry delivery against payment, thereby eliminating the need for physical
movement
o
f
certificates and any risk from lack
o
f
simultaneous transfers
o
f
securities and cash.
Transactions may
b
e
settled
i
n a variety
o
f
currencies, including United States dollars. Euroclear
includes various other securities, including securities lending and borrowing and interfaces with
domestic markets
i
n several countries generally similar
t
o the arrangements for cross-market transfers
with DTC described above. Euroclear
i
s operated by Euroclear Bank
S
.
A./
N
.
V
.
(the Euroclear
Operator). All operations are conducted
b
y
the Euroclear Operator, and
a
l
l
Euroclear securities
103
CONFIDENTIAL
Return
clearance accounts and Euroclear cash accounts are accounts with the Euroclear Operator. Euroclear
plc establishes policy for Euroclear
o
n
behalf
o
f
Euroclear Participants. Euroclear Participants include
banks (including central banks), securities brokers and dealers and other professional financial
intermediaries. Indirect access
t
o Euroclear
i
s also available
t
o other firms that clear through
o
r
maintain a custodial relationship with a Euroclear Participant, either directly
o
r
indirectly.
Securities clearance accounts and cash accounts with the Euroclear Operator are governed
b
y
the Terms and Conditions Governing Use
o
f
Euroclear and the related Operating Procedures
o
f
the
Euroclear System and applicable Belgian law (collectively, the Euroclear Terms and Conditions). The
Euroclear Terms and Conditions govern transfers
o
f
securities and cash within Euroclear, withdrawals
o
f
securities and cash from Euroclear, and receipts
o
f
payments with respect
t
o securities
i
n Euroclear.
A
l
l
securities
i
n Euroclear are held
o
n
a fungible basis without attribution
o
f
specific certificates
t
o
specific securities clearance accounts. The Euroclear Operator acts under the Euroclear Terms and
Conditions only
o
n
behalf
o
f
Euroclear Participants, and has
n
o
record
o
f
,
o
r
relationship with, persons
holding through Euroclear Participants.
104
CONFIDENTIAL
Return
CERTAIN
U
.
S
.
FEDERAL INCOME TAX CONSIDERATIONS
United States Internal Revenue Service Circular 230 Notice:
T
o
ensure compliance with
Internal Revenue Service Circular 230, prospective investors are hereby notified that: (
i
) any
discussion
o
f
U
.
S
.
federal tax issues contained
o
r
referred
t
o
i
n this offering circular
o
r
any
document referred
t
o herein
i
s not intended
o
r
written
t
o be used, and cannot be used, by
prospective investors for the purpose
o
f
avoiding penalties that may
b
e
imposed on them
under the
U
.
S
.
Internal Revenue Code; (
i
i
) such discussion
i
s written for use
i
n connection
with the promotion
o
r
marketing
o
f
the transactions
o
r
matters addressed herein; and (iii) pro-
spective investors should seek advice based on their particular circumstances from an
independent tax advisor.
General
The following discussion summarizes the principal United States federal income tax treatment
o
f
the Trust and the Company, and the principal United States federal income tax consequences
t
o
holders
o
f
the Trust Securities. This discussion
i
s
o
f
a general nature and
i
s not intended
t
o be, nor
should
i
t be construed as, tax advice
t
o any holder. Purchasers should consult their own tax advisors
regarding the tax consequences
o
f
acquiring, owning and disposing
o
f
Trust Securities.
The discussion
i
s addressed only
t
o holders that beneficially own Trust Securities
a
s
capital
assets and does not purport
t
o be a comprehensive description
o
f
a
l
l
the tax considerations that may
b
e
relevant
t
o particular holders
i
n light
o
f
their personal circumstances. The discussion also does not
describe
a
l
l
aspects
o
f
taxation that may
b
e
relevant
t
o certain types
o
f
holders
t
o which special
provisions
o
f
United States federal income tax law may apply, including:
dealers
i
n securities and currencies;
regulated investment companies;
traders
i
n securities;
tax- exempt organizations;
banks and insurance companies;
persons that hold Trust Securities
a
s
part
o
f
a hedge, straddle
o
r
conversion transaction;
persons whose functional currency
i
s not the United States dollar; and
U
.
S
.
expatriates.
The summary
i
s based
o
n
United States federal income tax law, including the Code, existing and
proposed
U
.
S
.
Treasury regulations, administrative rulings and judicial decisions
a
l
l
a
s
currently
i
n
effect. These legal sources are subject
t
o change
o
r
differing interpretations
a
t
any time, which change
o
r
interpretation could apply retroactively and could affect the validity
o
f
the discussion below. There
can
b
e
n
o
assurance that the Internal Revenue Service
(
IRS) will take the same view
o
f
the United
States federal income tax consequences
o
f
an investment
i
a
s
described herein.
Each purchaser
i
s urged
t
o consult its own tax advisor
a
s
t
o the tax consequences
o
f
o
f
Trust Securities, including the United States federal, state,
local and any other tax consequences
o
f
o
f
Depositary
Shares.
As used
i
n this discussion, the term
U
.
S
.
Holder means a beneficial owner
o
f
a Trust Security
that
i
s
,
f
o
r
United States federal income tax purposes, a citizen
o
r
resident
o
f
the United States, a
corporation
o
r
partnership created
o
r
organized
i
n
o
r
under the laws
o
f
the United States
o
r
any state,
an estate the income
o
f
which
i
s includible
i
n gross income for United States federal income tax
purposes regardless
o
f
i
t
s
source,
o
r
a trust
i
i
s able
t
o exercise
primary supervision over
i
t
s
administration and one
o
r
more United States persons have authority
t
o
105
CONFIDENTIAL
Return
control
a
l
l
substantial decisions
o
f
the trust. The term Foreign Holder means a beneficial owner
o
f
Trust Securities that
i
s not a
U
.
S
.
Holder.
United States Federal Income Tax Consequences
Tax Treatment
o
f
the Trust and
i
t
s Investment
i
n Series 2007-A Company Preferred Securities
Classification
o
f
the Trust and the Company. The Trust intends
t
o take the position that
i
t
will be treated for United States federal income tax purposes
a
s
a grantor trust. Informal guidance
recently issued by the IRS has created some uncertainty as
t
o whether certain arrangements such as
those involving the Trust and
i
t
s
investment
i
n Company Preferred Securities will be treated
a
s
a
grantor trust for United States federal income tax purposes.
I
n the absence
o
f
further guidance,
however, the Trust intends
t
o take the position that
i
t will be treated
a
s
a grantor trust.
I
f the Trust
were not treated as a grantor trust for United States federal income tax purposes,
i
t would most likely
be treated
a
s
a partnership which, among other things, would change the nature
o
f
and the manner
i
n
which the Trust would be required
t
o comply with
i
t
s
United States federal tax reporting obligations,
including
i
t
s
tax reporting obligations
t
o holders
o
f
Trust Securities. By purchasing a Trust Security, a
holder agrees that
i
t will treat the Trust
a
s
a grantor trust
f
o
r
U
.
S
.
Federal income tax purposes and
will treat the Trust Securities
a
s
an undivided beneficial ownership interest
i
n the Company Preferred
Securities, and that
i
t will report income from
i
t
s
investment
i
i
n a manner
consistent with the information provided
t
o
i
t on behalf
o
f
o
r
with respect
t
o the Trust.
Provided that the Trust
i
s treated
a
s
a grantor trust, each holder
o
f
a Trust Security will
b
e
treated
a
s
i
f
i
t owns directly the Series 2007- A Company Preferred Securities allocable
t
o such
Trust Security.
A
l
l
o
f
the Trusts assets are expected
t
o consist
o
f
Series 2007- A Company Preferred
Securities. The Company intends
t
o
b
e
classified
a
s
a
U
.
S
.
domestic partnership for United States
federal income tax purposes, and the Series 2007- A Company Preferred Securities acquired
b
y
the
Trust are intended
t
o constitute equity interests
i
n such partnership.
An entity that
i
s classified
a
s
a partnership
f
o
r
United States federal income tax purposes
generally
i
s not a taxable entity and incurs no United States federal income tax liability. Instead, each
partner
i
s required
t
o take into account
i
t
s
allocable share
o
f
income, gains, losses, deductions and
credits
o
f
the partnership
i
n computing
i
t
s
United States federal income tax liability,
i
f any, even
i
f
n
o
cash distributions are made
b
y
the partnership
t
o the partner. An entity that
i
s classified
a
s
a
partnership for United States federal income tax purposes nevertheless will
b
e
taxable
a
s
a corpora-
tion
i
f
i
t
i
s a publicly traded partnership and fails
t
o satisfy a 90% qualifying income test, within the
meaning
o
f
Code Section 7704.
On the date
o
f
the initial issuance
o
f
the Trust Securities, the Company will receive an opinion
from Mayer, Brown, Rowe &Maw LLP
t
o the effect that, for United States federal income tax
purposes, although no activities closely comparable
t
o those contemplated
b
y
the Company have
been the subject
o
f
any
U
.
S
.
Treasury regulation, revenue ruling
o
r
judicial decision, the Company will
not be treated
a
s
an association
o
r
publicly traded partnership taxable
a
s
a corporation. The opinions
are based on certain assumptions and on certain representations and agreements regarding restric-
tions on the future conduct
o
f
the activities
o
f
the Company. Although the Company intends
t
o conduct
i
t
s
activities
i
n accordance with such assumptions, representations and agreements,
i
f
i
t were
nonetheless determined that the Company was taxable
a
s
a corporation for United States federal
income tax purposes, then cash available for distribution
i
n respect
o
f
the Series 2007- A Company
Preferred Securities would be reduced on account
o
f
taxes payable by the Company. A determination
by the Company, based on receipt
o
f
an opinion
o
f
counsel, that there
i
s a significant risk that the
Company
i
s
o
r
will be treated
a
s
a
n
association
o
r
publicly traded partnership taxable as a corporation
as a result
o
f
a change
i
n law would constitute a Tax Event. See Description
o
f
the Series 2007- A
Company Preferred SecuritiesRedemption. The remainder
o
f
this discussion assumes that the
Company
i
s treated as a partnership, and not as
a
n
association
o
r
publicly traded partnership taxable
106
CONFIDENTIAL
Return
a
s
a corporation, for
U
.
S
.
federal income tax purposes, and that the Series 2007- A Company
Preferred Securities will constitute equity interests
i
n such partnership.
Tax Consequences
t
o
U
.
S
.
Holders
o
f
Trust Securities
Income and Deductions
i
n General. Each
U
.
S
.
Holder
o
f
Trust Securities will
b
e
required
t
o
report
o
n
i
t
s United States federal income tax return
i
t
s share
o
f
income, gains, losses, deductions
and credits
o
f
the Company that are allocable
t
o the Trust, even
i
f such holder has not received any
cash distributions from the Trust.
Distributions on Trust Securities. Distributions
o
f
money
b
y
the Trust
t
o a
U
.
S
.
Holder
o
f
Trust Securities generally will not result
i
n taxable gain
t
o the
U
.
S
.
Holder. A
U
.
S
.
Holder
o
f
Trust Securities will recognize taxable gain upon a distribution
o
f
money by the Company
t
o the Trust
with respect
t
o the Series 2007- A Company Preferred Securities
i
f and
t
o the extent that the
U
.
S
.
Holders share
o
f
such distribution exceeds the
U
.
S
.
Holders adjusted tax basis
i
n the
Series 2007- A Company Preferred Securities allocable
t
o such
U
.
S
.
Holders Trust Securities immedi-
ately before the distribution.
I
n general, each
U
.
S
.
Holder
o
f
Trust Securities will have an initial tax
basis
i
n the Series 2007-A Company Preferred Securities allocable
t
o such
U
.
S
.
Holders Trust Secu-
rities equal
t
o the amount paid
b
y
the Trust
t
o purchase such Series 2007- A Company Preferred
Securities. A
U
.
S
.
Holders tax basis
i
n such Series 2007-A Company Preferred Securities generally
will be increased
b
y
the
U
.
S
.
Holders proportionate share
o
f
the Companys income and gain
allocated
t
o the holder and decreased, but not below zero,
b
y
the holders proportionate share
o
f
any
cash and the tax basis
o
f
any property distributed
b
y
the Company and Company losses, deductions
and nondeductible expenditures that are not chargeable
t
o capital.
Allocations
o
f
Company Income, Gain, Loss and Deductions. Each holder
o
f
Trust Securi-
ties must report
i
t
s
proportionate share
o
f
the Companys income, gain, loss and deduction allocated
t
o the Trust
f
o
r
each year. Under Section 704(
b
)
o
f
the Code, a partnerships allocation
o
f
any item
o
f
income, gain, loss
o
r
deduction
t
o a partner will
b
e
given effect
f
o
r
United States federal income tax
purposes
s
o
long
a
s
i
t has substantial economic effect,
o
r
i
s otherwise
i
n accordance with the
partners interest
i
n the partnership.
I
f
a
n
allocation
o
f
a
n
item does not satisfy this standard,
i
t will
b
e
reallocated among the partners
o
n
the basis
o
f
their respective interests
i
n the partnership, taking
into account
a
l
l
facts and circumstances. The Company believes that the allocations
o
f
items
o
f
income, gain, loss and deduction under the LLC Agreement will
b
e
considered
t
o have substantial
economic effect under the applicable Treasury regulations.
U
.
S
.
Holders are not expected
t
o
b
e
allocated any losses
f
o
r
United States federal income tax purposes with respect
t
o their indirect
interests
i
n the Company. The deductibility
o
f
expenses and other losses arising from a partnership
such
a
s
the Company
i
s subject
t
o certain limitations under the Code.
I
n the event expenses
o
r
losses
are allocated
t
o
U
.
S
.
Holders
o
f
the Trust Securities, such
U
.
S
.
Holders should consult their tax
advisors
t
o determine the deductibility
o
f
such losses.
Sale, Exchange
o
r
Other Disposition
o
f
Trust Securities.
I
n general, a
U
.
S
.
Holder will
recognize gain
o
r
loss upon the sale
o
r
exchange
o
f
such
U
.
S
.
Holders Trust Securities equal
t
o the
difference between the amount realized and such
U
.
S
.
i
n the Series 2007- A
Company Preferred Securities allocable
t
o such
U
.
S
.
Holders Trust Securities. Initially, the tax basis
o
f
a
U
.
S
.
Holder should equal the amount paid
f
o
r
i
t
s Trust Securities. Such basis will
b
e
increased
o
r
decreased
a
s
described above and,
a
s
a general matter,
a
t
a
l
l
times
i
s expected
t
o equal the face
value
o
f
the
U
.
S
.
Holders Trust Securities.
I
f a holders Trust Securities are exchanged
f
o
r
Depositary
Shares
f
o
r
Series M WMI Preferred Stock, the transaction would most likely
b
e
a taxable event
t
o the
holder. The holder would recognize gain
o
r
loss measured
b
y
the difference between the fair market
value
o
f
the Depositary Shares received and the holders adjusted tax basis
i
n
i
t
s relinquished
Trust Securities.
Company Audits. The tax treatment
o
f
Company-related items
i
s determined
a
t
the Company
level. University Street will be appointed
a
s
tax matters partner with the authority
t
o determine the
107
CONFIDENTIAL
Return
Companys response
t
o
a
n
audit. The limitations period
f
o
r
assessment
o
f
deficiencies and claims
f
o
r
refunds with respect
t
o items related
t
o the Company
i
s three years after the Companys return
f
o
r
the
taxable year
i
n question
i
s filed, and the tax matters partner has the authority
t
o
,
and may, extend
such period with respect
t
o
a
l
l
members
o
f
the Company.
I
f
a
n
audit results
i
n
a
n
adjustment, the
holders
o
f
a
s
the deemed owners
o
f
the Series 2007- A Company Preferred
Securities, may
b
e
required
t
o restate their taxable income, which could cause holders
o
f
Trust Secu-
rities
t
o pay additional taxes, interest and possibly penalties and such holders may themselves also
b
e
subject
t
o audits. There can
b
e
no assurance that the Companys
o
r
a
U
.
S
.
Holders tax return will not
b
e
audited
b
y
the IRS
o
r
that
n
o
adjustments
t
o their returns will
b
e
made
a
s
a result
o
f
such an
audit.
Series M WMI Preferred Stock Received
i
n a Conditional Exchange.
I
f
,
a
s
a result
o
f
a
Conditional Exchange, a
U
.
S
.
Holder receives Depositary Shares for Series M WMI Preferred Stock,
any distributions made
o
n
the Depositary Shares generally will
b
e
included
i
n the holders income
a
s
ordinary dividend income
t
o the extent
o
f
WMIs current and accumulated earnings and profits.
Distributions
i
n excess
o
f
WMIs current and accumulated earnings and profits will
b
e
treated
a
s
a
return
o
f
capital
t
o the extent
o
f
the
U
.
S
.
i
n the Depositary Shares and
thereafter
a
s
capital gain from the sale
o
r
exchange
o
f
the Depositary Shares. Dividends received
b
y
a corporate
U
.
S
.
Holder may
b
e
eligible for a dividends received deduction, subject
t
o applicable
limitations. The sale, exchange
o
r
redemption
o
f
any Depositary Shares for Series M WMI Preferred
Stock will
b
e
subject
t
o tax under the rules described above under Sale, Exchange
o
r
Other
Disposition
o
f
Trust Securities.
Tax Treatment
o
f
Tax- Exempt
U
.
S
.
Holders
o
f
Trust Securities
For purposes
o
f
this discussion, a Tax- Exempt
U
.
S
.
Holder means any United States domestic
organization qualified under Code Section 501(
c
)
(
3), any trust
o
r
governmental plan qualified under
Code Section 401( a), any individual retirement account and any other non- governmental
U
.
S
.
Holder
generally exempt from United States federal income taxation. A Tax- Exempt
U
.
S
.
Holder
i
s not
expected
t
o
b
e
subject
t
o the tax
o
n
unrelated business taxable income
(
UBTI) with respect

t
o
i
t
s
share
o
f
Company income and gain allocable
t
o the Trust
o
r
any capital gains derived from
a
n
investment
i
n the Trust Securities. However, notwithstanding the foregoing, a Tax- Exempt
U
.
S
.
Holder
that incurs acquisition indebtedness (
a
s
defined
i
n Code Section 514( c)) with respect
t
o
i
t
s
Trust Securities may
b
e
subject
t
o the tax
o
n
UBTI
i
n respect
o
f
any income
o
r
gains derived
i
n
respect
o
f
t
o the extent that such Trust Securities constitute debt- financed
property
o
f
the Tax- Exempt
U
.
S
.
Holder within the meaning
o
f
Code Section 514( b).
Tax- Exempt
U
.
S
.
Holders should consult their own tax advisors regarding the tax consequences
t
o them
o
f
an investment
i
n the Trust Securities.
Tax Treatment
o
f
Foreign Holders
o
f
Trust Securities
U
.
S
.
Trade
o
r
Business Status. The Company intends
t
o conduct
i
t
s
affairs
s
o
as
t
o not be
engaged
i
n a trade
o
r
business
i
n the United States. On the date
o
f
o
f
the
Trust Securities, the Company will receive an opinion from Mayer, Brown, Rowe & Maw LLP
t
o the
effect that, for United States federal income tax purposes, although no activities closely comparable
t
o
those contemplated
b
y
the Company have been the subject
o
f
any
U
.
S
.
Treasury regulation, revenue
ruling
o
r
judicial decision,
i
t will not be treated as engaged
i
n the conduct
o
f
a trade
o
r
business within
the United States. Mayer, Brown, Rowe &Maw LLPs opinion
i
s not binding on the IRS
o
r
the courts,
and no ruling will be sought from the IRS regarding this,
o
r
any other, aspect
o
f
the Companys United
States federal income tax treatment. Accordingly, no assurance can be given that the IRS will not
assert positions contrary
t
o those stated
i
n Mayer, Brown, Rowe & Maw LLPs opinion
o
r
that a court
would not entertain any such assertions.
108
CONFIDENTIAL
Return
Mayer, Brown, Rowe & Maw LLPs opinion
i
s based
o
n
certain assumptions and
o
n
certain
representations and agreements regarding restrictions
o
n
the future conduct
o
f
the Companys
activities. Although the Company intends
t
o conduct
i
t
s activities
i
n accordance with such assump-
tions, representations and agreements,
i
f
i
t were nonetheless determined
t
o
b
e
engaged
i
n a trade
o
r
business
i
n the United States and had taxable income that was effectively connected with such United
States trade
o
r
business, then each Foreign Holder would
b
e
subject
t
o United States federal income
tax
o
n
such Foreign Holders share
o
f
the Companys effectively connected taxable income allocable
t
o the Trust
a
t
regular United States corporate income tax rates and possibly
t
o a 30% United States
branch profits tax
a
s
well. Moreover,
i
n the event a Foreign Holder were
t
o derive effectively connected
income
i
n respect
o
f
i
t
s ownership
o
f
Trust Securities the United States, corporate income tax imposed
thereon would
b
e
required
t
o
b
e
collected
i
n the first instance through a withholding
b
y
the Company
o
f
such tax
a
t
a rate
o
f
35%
o
n
such Foreign Holders distributive share
o
f
the income. A determination
b
y
the Company, based
o
n
receipt
o
f
a
n
opinion
o
f
counsel, that there
i
i
t
i
s
o
r
will
b
e
treated
a
s
engaged
i
n a trade
o
r
business within the United States would constitute a Tax
Event. See Description
o
f
the Series 2007- A Company Preferred SecuritiesRedemption. The
remainder
o
f
this discussion assumes that the Company will not
b
e
considered
t
o
b
e
engaged
i
n a
trade
o
r
business
i
n the United States.
United States Withholding Tax. Interest that constitutes portfolio interest within the meaning
o
f
the Code
i
s generally exempt from United States withholding tax. A Foreign Holder will be treated
a
s
earning directly
i
t
s
share
o
f
the income earned
b
y
the Company. Immediately following the completion
o
f
this Offering, the Companys material assets will consist
o
f
the regular interests issued
i
n registered
form
b
y
the Asset Trusts (
i
. e., the Asset Trust I Class A Trust Certificate and the Asset Trust
I
I Class A
Trust Certificate), each
o
f
which will be treated
a
s
a real estate mortgage investment conduit under the
Code (a REMIC)
a
s
well
a
s
cash and permitted investments. REMIC regular interests are generally
treated
a
s
indebtedness for United States federal income tax purposes that qualifies for the portfolio
interest exemption.
I
n addition, during the term
o
f
the transaction, the Company expects, pursuant
t
o
i
t
s
investment guidelines,
t
o invest cash proceeds from the offering
o
f
i
n short term debt instruments and other debt securities that qualify
f
o
r
the portfolio
interest exemption.
Accordingly,
i
t
i
s expected that a Foreign Holders share
o
f
the Trusts distributive share
o
f
the
Companys interest income will constitute portfolio interest, and thus, will not
b
e
subject
t
o
U
.
S
.
with-
holding tax,
s
o
long
a
s
the Foreign Holder has certified
i
t
s
status
a
s
a Foreign Holder under penalties
o
f
perjury
o
n
a
n
appropriate IRS Form W-
8
.
I
n addition, gain realized
o
n
the sale, exchange
o
r
redemption
o
f
the Trust Securities held
b
y
a Foreign Holder generally will not
b
e
subject
t
o United
States federal income
o
r
withholding tax,
a
s
the case may be, unless such Foreign Holder
i
s a
nonresident alien individual who holds the Trust Securities
a
s
a capital asset and who
i
s present
i
n the
United States more than 182 days
i
n the taxable year
o
f
the sale and certain other conditions are met.
Series M WMI Preferred Stock Received
i
n a Conditional Exchange.
I
f a Conditional
Exchange
o
f
the Trust Securities were
t
o occur, any dividends paid
t
o a Foreign Holder
o
f
the
Depositary Shares
f
o
r
Series M WMI Preferred Stock received upon such Conditional Exchange
generally would be subject
t
o a 30%
U
.
S
.
withholding tax unless the holder qualifies for an exemption
o
r
a reduced rate under the
U
.
S
.
Internal Revenue Code
o
r
applicable
U
.
S
.
tax treaty.
Information Reporting and Backup Withholding
Under regulations applicable starting with calendar year 2007, a widely held fixed investment
trust such as the Trust must report
t
o the IRS on IRS Form 1099 for each calendar year any interest
allocable
t
o an investor
i
n the trust that
i
s a partnership
o
r
that otherwise generally receives Form 1099s.
I
n addition, the regulations provide that such investors
i
n a trust will receive a written statement that
includes the information provided
o
n
the Form 1099, as well as information relating
t
o any expenses
o
r
deductions allocable
t
o the investor and any other information necessary for the investor
t
o accurately
prepare
i
t
s
tax return. This written statement must be provided
t
o an investor not later than the March 15
109
CONFIDENTIAL
Return
following the end
o
f
the year. These rules
d
o
not specifically address how
t
o report income derived
b
y
a
trust from
a
n
investment
i
n a partnership such
a
s
the Company, and
i
t
i
s possible that the IRS would
take a different view
a
s
t
o how the Trust and the Company should provide tax reporting than that
described herein. Unless
i
t
i
s advised
t
o use a different method
o
f
tax reporting, the Trust intends
t
o
report such information under the trust reporting rules. Accordingly, the Trust will comply with
i
t
s
obligations under these regulations, including
b
y
timely providing any broker through which a holder
holds
i
t
s Trust Securities with the information necessary for the holder
t
o receive the written statement
described above. The Trust will prepare
i
t
s reports using the accrual method
o
f
tax accounting. A Holder
may obtain a copy
o
f
such information directly from the Trust
a
t
Rodney Square North, 1100 North
Market Street, Wilmington, Delaware 19890 upon reasonable request.
Payments
t
o non- corporate holders
o
f
Trust Securities may be subject
i
n certain circumstances
t
o backup withholding
i
f such holders do not furnish their correct taxpayer identification number and
certain certifications,
o
r
are otherwise subject
t
o backup withholding. Backup withholding
i
s not an
additional tax. Any amounts withheld from payments made
t
o investors may be refunded
o
r
credited
against your
U
.
S
.
Federal income tax liability,
i
f any, provided, that the required information
i
s timely
furnished
t
o the IRS.
The payment
o
f
the proceeds from the disposition
o
f
a Trust Security
b
y
a Foreign Holder
generally will not
b
e
subject
t
o information reporting and backup withholding
i
f the Foreign Holder
certifies
i
t
s
status
a
s
a Foreign Holder (and,
i
f applicable,
i
t
s
beneficial owners also certify their status
a
s
non- United States persons) under penalties
o
f
perjury
o
n
the appropriate IRS Form W-
8
,
satisfies
certain documentary evidence requirements for establishing that
i
t
i
s a Foreign Holder
o
r
otherwise
establishes
a
n
exemption.
Tax Return Disclosure Requirements
Recently issued Treasury Regulations and other administrative guidance promulgated by the IRS
prescribe certain circumstances under which holders
o
f
the Trust Securities could be required
t
o file
information returns with the IRS (the New Reporting Rules).
The New Reporting Rules could apply
t
o a
U
.
S
.
Holder (and
t
o certain Foreign Holders who hold
their Trust Securities
i
n connection with a United States trade
o
r
business)
i
f the Trust
o
r
the Company
were
t
o enter into one
o
r
more reportable transactions. The definition
o
f
reportable transaction
i
s
highly technical.
I
t
i
s not expected that the Trust
o
r
the Company will engage
i
n activities that would
give rise
t
o any reportable transactions.
I
f the Trust
o
r
the Company were
t
o engage
i
n any reportable
transaction, then, subject
t
o certain exceptions and threshold limitations, a
U
.
S
.
Holder
o
r
Foreign
Holder may
b
e
required
t
o file IRS Form 8886 with such holders United States federal income tax
return for each taxable year
i
n which such reportable transaction affects such holders taxable
income, and
t
o file a copy
o
f
such form with the IRSs Office
o
f
Tax Shelter Analysis. The Trust intends
t
o provide
t
o the holders
o
f
Trust Securities any information necessary
t
o complete such form.
I
n addition, subject
t
o certain significant exceptions, any holder
o
f
Trust Securities that recognizes
a loss on a sale
o
r
exchange
o
f
such holders Trust Securities may be required
t
o file IRS Form 8886
i
n
the manner described above
i
f the loss exceeds certain thresholds and no exception applies.
Prospective purchasers
o
f
Trust Securities are urged
t
o consult their own tax advisors
regarding the application
t
o them
o
f
the New Reporting Rules with respect
t
o an investment
i
n
Foreign, State, and Local Taxes
Holders may be liable for foreign, state, and local taxes
i
n the country, state,
o
r
locality
i
n which
they are resident
o
r
doing business
o
r
i
n a state
o
r
locality
i
n which the Trust
o
r
the Company
conducts
o
r
i
s deemed
t
o conduct business. Because the tax laws
o
f
each country, state, and locality
may differ, each prospective purchaser should consult
i
t
s
own tax advisors with respect
t
o any taxes
that may be payable
a
s
a result
o
f
an investment
i
110
CONFIDENTIAL
Return
ERISA CONSIDERATIONS
Section 406
o
f
the Employee Retirement Income Security Act
o
f
1974,
a
s
amended
(
ERISA)
and Section 4975
o
f
the Code prohibit pension, profit- sharing
o
r
other retirement plans and accounts
subject
t
o ERISA
o
r
Section 4975
o
f
the Code and entities that are deemed
t
o hold plan assets
o
f
any
o
f
the foregoing (each, a Plan) from engaging
i
n certain transactions with persons that are
parties
i
n interest under ERISA
o
r
disqualified persons under the Code with respect
t
o such Plan.
A violation
o
f
these prohibited transaction rules may result
i
n
a
n
excise tax
o
r
other penalties and
liabilities under ERISA and the Code for such persons
o
r
the fiduciaries
o
f
the Plan.
I
n addition, Title I
o
f
ERISA also requires fiduciaries
o
f
a Plan subject
t
o ERISA
t
o make investments that are prudent,
diversified and
i
n accordance with the governing plan documents.
Certain transactions involving the Trust might
b
e
deemed
t
o constitute prohibited transactions
under ERISA and the Code with respect
t
o a Plan that purchased Trust Securities
o
r
Series 2007- A
i
f assets
o
f
the Trust were deemed
t
o
b
e
assets
o
f
the Plan. Under a
regulation issued
b
y
the United States Department
o
f
Labor (the Regulation), the assets
o
f
the Trust
would
b
e
treated
a
s
plan assets
o
f
a Plan for the purposes
o
f
ERISA and the Code only
i
f the Plan
acquired
a
n
equity interest
i
n the Trust and none
o
f
the exceptions
t
o plan assets contained
i
n the
Regulation was applicable. An equity interest
i
s defined under the Regulation
a
s
a
n
interest other than
a
n
instrument that
i
s treated
a
s
indebtedness under applicable local law and that has
n
o
substantial
equity features. The Series 2007- A Company Preferred Securities are not likely
t
o
b
e
treated
a
s
indebtedness for purposes
o
f
the Regulation.
A
s
such, the Trust intends
t
o prohibit the acquisition and
holding
o
f
any Trust Security
o
r
o
r
any interest
i
n a Trust Security
o
r
b
y
o
r
o
n
behalf
o
f
a Benefit Plan Investor (
a
s
defined below).
The term Benefit Plan Investor
i
s defined
i
n Section
3
(
42)
o
f
ERISA
t
o include
a
l
l
employee
benefit plans that are subject
t
o Title I
o
f
ERISA, individual retirement accounts, Keogh Plans and
other plans subject
t
o Section 4975
o
f
the Code, and entities whose underlying assets are deemed
t
o
include plan assets
b
y
reason
o
f
the investment
i
n that entity
b
y
Benefit Plan Investors, such
a
s
group
trusts, bank collective investment trusts, insurance company separate accounts, and certain insurance
company general accounts.
By acquiring a Trust Security
o
r
Company Preferred Security (
o
r
any interest therein), each
purchaser and transferee will be deemed
t
o represent, warrant and covenant that, from the date
o
f
acquisition throughout the period
o
f
holding such Trust Security
o
r
o
r
interest therein),
i
t
i
s not, and
i
t
i
s not acquiring such Trust Security
o
r
o
r
interest therein) with the assets
o
f
a Benefit Plan Investor, except for an insurance company general
account that represents, warrants and covenants that,
a
t
the time
o
f
acquisition and throughout the
period
i
t holds the securities, (
i
)
i
t
i
s eligible for and meets the requirements
o
f
Department
o
f
Labor
Prohibited Transaction Class Exemption 95-60, (
i
i
) less than 25%
o
f
the assets
o
f
such general
account are (
o
r
represent) assets
o
f
a Benefit Plan Investor and (
i
i
i
)
i
t
i
s not a person who has
discretionary authority
o
r
control with respect
t
o the assets
o
f
the Trust
o
r
any person who provides
investment advice for a fee ( direct
o
r
indirect) with respect
t
o such assets,
o
r
any affiliate
o
f
such a
person and would not otherwise be excluded under
2
9
C
.
F
.
R
.
2510.3- 101(
f
)
(
1).
Government sponsored plans are not subject
t
o the fiduciary provisions
o
f
ERISA, and are also
not subject
t
o the prohibited transaction provisions under Section 4975
o
f
the Code. However, federal,
state
o
r
local laws
o
r
regulations governing the investment and management
o
f
the assets
o
f
such
plans may contain fiduciary and prohibited transaction requirements similar
t
o those under ERISA and
the Code discussed above and may include other limitations on permissible investments. Accordingly,
fiduciaries
o
f
governmental plans,
i
n consultation with their advisors, should consider the requirements
o
f
their respective pension codes with respect
t
o purchase
o
f
a Trust Security
o
r
Company Preferred
Security, as well
a
s
general fiduciary considerations.
Each purchaser and transferee
o
f
a Trust Security
o
r
Company Preferred Security will be
required
t
o represent and warrant (or,
i
n certain circumstances, will be deemed
t
o represent and
111
CONFIDENTIAL
Return
warrant) that, from the date
o
f
acquisition throughout the period
o
f
holding such Trust Security
o
r
o
r
interest therein), either (
a
)
i
t
i
s not a governmental plan, foreign plan,
church plan
o
r
other plan subject
t
o law that
i
s substantially similar
t
o the Section 406
o
f
ERISA
o
r
Section 4975
o
f
the Code
(
Similar Law)
o
r
(
b
)
i
t
s purchase and holding
o
f
the Trust Security
o
r
Company Preferred Security will not constitute
o
r
result
i
n a non- exempt violation
o
f
Similar Law.
RATINGS
I
t
i
s expected that the Trust Securities will
b
e
rated Baa1
b
y
Moodys Investors Service, Inc.
(
Moodys), BBB
b
y
Standard &Poors Rating Services, a Division
o
f
The McGraw- Hill Companies,
Inc.
(
S&P) and A
b
y
Fitch, Inc.
(
Fitch). The ratings
o
f
the Trust Securities are not recommen-
dations
t
o purchase, hold
o
r
sell the Trust Securities, inasmuch
a
s
the ratings
d
o
not comment
a
s
t
o
the market price
o
r
suitability
f
o
r
a particular purchaser. Nor
d
o
the ratings described above address
the likelihood that a holder
o
f
b
e
able
t
o sell such securities. The ratings are
based
o
n
current information furnished
t
o Moodys, S&P and Fitch
b
y
WMI, WMB, the Company and
the Trust and information obtained from other sources. The ratings may
b
e
changed, suspended
o
r
withdrawn
a
t
any time
a
s
a result
o
f
changes
i
n
,
o
r
the unavailability
o
f
,
such information. See Risk
FactorsRisks Relating
t
o the Terms
o
f
the Trust Securities and the Series 2007-A Company
Preferred SecuritiesRating agencies may change rating methodologies.
112
CONFIDENTIAL
Return
PLAN OF DISTRIBUTION
The Company, the Trust, WMI and the initial purchasers listed
i
n the table below (the Initial
Purchasers) have entered into a purchase agreement with respect
t
o the Trust Securities. Subject
t
o
certain conditions, each Initial Purchaser has severally agreed
t
o purchase the amount (
b
y
liquidation
preference)
o
f
Trust Securities indicated
i
n the following table.
Initial Purchasers
Liquidation Preference
o
f
Trust Securities
Goldman, Sachs &Co. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $200,000,000
Lehman Brothers Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 125,000,000
UBS Securities LLC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 125,000,000
Credit Suisse Securities (USA) LLC . . . . . . . . . . . . . . . . . . . . . . 10,000,000
Keefe, Bruyette &Woods Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,000,000
J
.
P
.
Morgan Securities Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,000,000
Morgan Stanley &Co. Incorporated. . . . . . . . . . . . . . . . . . . . . . . 10,000,000
Wachovia Capital Markets, LLC. . . . . . . . . . . . . . . . . . . . . . . . . . 10,000,000
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $500,000,000
The Initial Purchasers are committed
t
o take and pay
f
o
r
a
l
l
o
f
the securities being offered
hereby,
i
f any are taken. The initial offering price
i
s set forth
o
n
the cover page
o
f
this offering circular.
After the securities are released for sale, the Initial Purchasers may change the offering price and
other selling terms.
The securities offered hereby have not been and will not be registered under the Securities Act.
The Initial Purchasers have agreed that they will offer
o
r
sell the Trust Securities only
t
o persons who
are both qualified institutional buyers within the meaning
o
f
Rule 144A under the Securities Act and
qualified purchasers within the meaning
o
f
Section
2
(
a)(51) under the Investment Company Act
i
n
transactions meeting the requirements
o
f
Rule 144A.
I
n connection with this Offering, the Initial Purchasers may purchase and sell securities
i
n the
open market. These transactions may include short sales, stabilizing transactions and purchases
t
o
cover positions created
b
y
short sales. Short sales involve the sale
b
y
the Initial Purchasers
o
f
a
greater number
o
f
securities than they are required
t
o purchase
i
n this Offering. Stabilizing transac-
tions consist
o
f
certain bids
o
r
purchases made for the purpose
o
f
preventing
o
r
retarding a decline
i
n
the market price
o
f
the securities while this Offering
i
s
i
n progress.
These activities by the Initial Purchasers may stabilize, maintain
o
r
otherwise affect the market
price
o
f
the securities. As a result, the price
o
f
the securities may be higher than the price that
otherwise might exist
i
n the open market.
I
f these activities are commenced, they may be discontinued
by the Initial Purchasers
a
t
any time. These transactions may be effected
i
n the over- the- counter
market
o
r
otherwise.
Each
o
f
the Initial Purchasers has represented and agreed that:
I
t
has only communicated
o
r
caused
t
o
b
e
communicated and will only communicate
o
r
cause
t
o
b
e
communicated
a
n
invitation
o
r
inducement
t
o engage
i
n investment activity ( within the
meaning
o
f
section
2
1
o
f
the Financial Services and Markets Act 2000 (
a
s
amended) (the
FSMA)
t
o persons who have professional experience
i
n matters relating
t
o investments falling
within Article 19(
5
)
o
f
the Financial Services and Markets Act 2000 (Financial Promotion)
Order 2005
o
r
i
n circumstances
i
n which section
2
1
o
f
FSMA does not apply
t
o the Trust; and
I
t has complied, and will comply, with
a
l
l
applicable provisions
o
f
FSMA with respect
t
o
anything done
b
y
i
t
i
n relation
t
o the Trust Securities
i
n
,
from
o
r
otherwise involving the United
Kingdom.
113
CONFIDENTIAL
Return
I
n relation
t
o each Member State
o
f
the European Economic Area which has implemented the
Prospectus Directive (each, a Relevant Member State), each Initial Purchaser has represented and
agreed that with effect from and including the date on which the Prospectus Directive
i
s implemented
i
n that Relevant Member State (the Relevant Implementation Date)
i
t has not made and will not
make an offer
o
f
the securities being offered hereby
t
o the public
i
n that Relevant Member State prior
t
o the publication
o
f
a prospectus
i
n relation
t
o the Trust Securities which has been approved
b
y
the
competent authority
i
n that Relevant Member State or, where appropriate, approved
i
n another
Relevant Member State and notified
t
o the competent authority
i
n that Relevant Member State,
a
l
l
i
n
accordance with the Prospectus Directive, except that
i
t may, with effect from and including the
Relevant Implementation Date, make
a
n
offer
o
f
securities
t
o the public
i
n that Relevant Member State
a
t
any time:
t
o legal entities which are authorized
o
r
regulated
t
o operate
i
n the financial markets
o
r
,
i
f not
s
o
authorized
o
r
regulated, whose corporate purpose
i
s solely
t
o invest
i
n securities;
t
o any legal entity which has two
o
r
more
o
f
(
i
)
a
n
average
o
f
a
t
least 250 employees during
the last financial year; (
i
i
) a total balance sheet
o
f
more than e 43,000,000; and (
i
i
i
)
a
n
annual
net turnover
o
f
more than e 50,000,000,
a
s
shown
i
n
i
t
s last annual
o
r
consolidated
accounts;
o
r
i
n any other circumstances which
d
o
not require the publication
b
y
the Trust
o
f
a prospectus
pursuant
t
o Article 3
o
f
the Prospectus Directive.
For the purposes
o
f
this provision, the expression an offer
o
f
securities
t
o the public
i
n relation
t
o any securities
i
n any Relevant Member State means the communication
i
n any form and
b
y
any
means
o
f
sufficient information on the terms
o
f
the offer and the securities
t
o
b
e
offered
s
o
a
s
t
o
enable
a
n
investor
t
o decide
t
o purchase
o
r
subscribe the securities, as the same may be varied
i
n
that Relevant Member State by any measure implementing the Prospectus Directive
i
n that Relevant
Member State and the expression Prospectus Directive means Directive 2003/ 71/ EC and includes any
relevant implementing measure
i
n each Relevant Member State.
The Trust Securities offered hereby may not be offered
o
r
sold
b
y
means
o
f
any document other
than (
i
)
i
n circumstances which do not constitute an offer
t
o the public within the meaning
o
f
the
Companies Ordinance (Cap 32, Laws
o
f
Hong Kong),
o
r
(
i
i
)
t
o professional investors within the
meaning
o
f
the Securities and Futures Ordinance (Cap. 571, Laws
o
f
Hong Kong) and any rules made
thereunder,
o
r
(
i
i
i
)
i
n other circumstances which do not result
i
n the document being a prospectus
within the meaning
o
f
the Companies Ordinance (Cap 32, Laws
o
f
Hong Kong), and no advertisement,
invitation
o
r
document relating
t
o the Trust Securities may be issued
o
r
may be
i
n the possession
o
f
any person for the purpose
o
f
issue (
i
n each case whether
i
n Hong Kong
o
r
elsewhere), which
i
s
directed at,
o
r
the contents
o
f
which are likely
t
o be accessed
o
r
read by, the public
i
n Hong Kong
(except
i
f permitted
t
o do
s
o
under the laws
o
f
Hong Kong) other than with respect
t
o securities which
are
o
r
are intended
t
o be disposed
o
f
only
t
o persons outside Hong Kong
o
r
only
t
o professional
investors within the meaning
o
f
o
f
Hong Kong)
and any rules made thereunder.
This offering circular has not been registered
a
s
a prospectus with the Monetary Authority
o
f
Singapore. Accordingly, this offering circular and any other document
o
r
material
i
n connection with
the offer
o
r
sale,
o
r
invitation for subscription
o
r
purchase,
o
f
the Trust Securities may not
b
e
circulated
o
r
distributed, nor may the Trust Securities be offered
o
r
sold,
o
r
be made the subject
o
f
an invitation
for subscription
o
r
purchase, whether directly
o
r
indirectly,
t
o persons
i
n Singapore other than (
i
)
t
o an
institutional investor under Section 274
o
f
the Securities and Futures Act, Chapter 289
o
f
Singapore
(the SFA), (
i
i
)
t
o a relevant person,
o
r
any person pursuant
t
o Section 275( 1A), and
i
n accordance
with the conditions, specified
i
n Section 275
o
f
the SFA
o
r
(
i
i
i
)
otherwise pursuant to, and
i
n
accordance with the conditions
o
f
,
any other applicable provision
o
f
the SFA.
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Where the Trust Securities are subscribed
o
r
purchased under Section 275
b
y
a relevant person
which
i
s
:
(
a
)
a corporation (which
i
s not
a
n
accredited investor) the sole business
o
f
which
i
s
t
o hold
investments and the entire share capital
o
f
which
i
s owned
b
y
one
o
r
more individuals, each
o
f
whom
i
s an accredited investor;
o
r
(
b
)
a trust (where the trustee
i
s not an accredited investor) whose sole
purpose
i
s
t
o hold investments and each beneficiary
i
s
a
n
accredited investor, shares, debentures and
units
o
f
shares and debentures
o
f
that corporation
o
r
the beneficiaries rights and interest
i
n that trust
shall not
b
e
transferable for 6 months after that corporation
o
r
that trust has acquired the shares
under Section 275 except: (
1
)
t
o
a
n
institutional investor under Section 274
o
f
the SFA
o
r
t
o a relevant
person,
o
r
any person pursuant
t
o Section 275( 1A), and
i
n accordance with the conditions, specified
i
n Section 275
o
f
the SFA; (
2
)
where
n
o
consideration
i
s given
f
o
r
the transfer;
o
r
(
3
)
b
y
operation
o
f
law.
The Trust Securities offered hereby have not been and will not be registered under the Securities
and Exchange Law
o
f
Japan ( the Japan Securities and Exchange Law) and each Initial Purchaser
has agreed that
i
t will not offer
o
r
sell any Trust Securities, directly
o
r
indirectly,
i
n Japan
o
r
t
o
,
o
r
for
the benefit
o
f
,
any resident
o
f
Japan (which term
a
s
used herein means any person resident
i
n Japan,
including any corporation
o
r
other entity organized under the laws
o
f
Japan),
o
r
t
o others for re-
offering
o
r
resale, directly
o
r
indirectly,
i
n Japan
o
r
t
o a resident
o
f
Japan, except pursuant
t
o
a
n
exemption from the registration requirements
o
f
,
and otherwise
i
n compliance with, the Japan
Securities and Exchange Law and any other applicable laws, regulations and ministerial guidelines
o
f
Japan.
WMI, the Company and the Trust have agreed
i
n the purchase agreement, subject
t
o certain
exceptions, that for a period
o
f
180 days after the date
o
f
this offering circular, neither they, nor any
o
f
their subsidiaries
o
r
other affiliates over which they exercise management
o
r
voting control, nor any
person acting
o
n
their behalf will, without the prior written consent
o
f
Goldman, Sachs &Co., offer,
sell, contract
t
o sell
o
r
otherwise dispose
o
f
any securities that are substantially similar
t
o the
Trust Securities.
WMI and the Company have agreed
t
o indemnify the Initial Purchasers against certain liabilities,
including liabilities under the Securities Act.
Certain
o
f
the Initial Purchasers and their respective affiliates have, from time
t
o time, performed,
and may
i
n the future perform, various financial advisory and investment banking services
f
o
r
the
Company,
f
o
r
which they received
o
r
will receive customary fees and expenses.
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NOTICE TO CANADIAN RESIDENTS
Resale Restrictions
The distribution
o
f
i
n Canada
i
s being made only
o
n
a private placement
basis exempt from the requirement that we prepare and file a prospectus with the securities regulatory
authorities
i
n each province where trades
o
f
Trust Securities are made. Any resale
o
f
the Trust Secu-
rities
i
n Canada must
b
e
made under applicable securities laws which will vary depending
o
n
the
relevant jurisdiction, and which may require resales
t
o
b
e
made under available statutory exemptions
o
r
under a discretionary exemption granted
b
y
the applicable Canadian securities regulatory authority.
Purchasers are advised
t
o seek legal advice prior
t
o any resale
o
f
Representations
o
f
Purchasers
By purchasing Trust Securities
i
n Canada and accepting a purchase confirmation a purchaser
i
s
representing
t
o
u
s
and the dealer from whom the purchase confirmation
i
s received that:
the purchaser
i
s entitled under applicable provincial securities laws
t
o purchase the Trust Secu-
rities without the benefit
o
f
a prospectus qualified under those securities laws,
where required by law, that the purchaser
i
s purchasing as principal and not
a
s
agent,
the purchaser has reviewed the text above under Resale Restrictions, and
the purchaser acknowledges and consents
t
o the provision
o
f
specified information concerning
i
t
s
purchase
o
f
t
o the regulatory authority that
b
y
law
i
s entitled
t
o collect
the information.
Further details concerning the legal authority for this information
i
s available on request.
Rights
o
f
Action Ontario Purchasers Only
Under Ontario securities legislation, certain purchasers who purchase a security offered
b
y
this
Offering Circular during the period
o
f
distribution will have a statutory right
o
f
action for damages,
o
r
while still the owner
o
f
the Trust Securities, for rescission against
u
s
i
n the event that this Offering
Circular contains a misrepresentation without regard
t
o whether the purchaser relied on the misrepre-
sentation. The right
o
f
action for damages
i
s exercisable not later than the earlier
o
f
180 days from the
date the purchaser first had knowledge
o
f
the facts giving rise
t
o the cause
o
f
action and three years
from the date
o
n
which payment
i
s made for the Trust Securities. The right
o
f
action for rescission
i
s
exercisable not later than 180 days from the date on which payment
i
s made
f
o
r
I
f a purchaser elects
t
o exercise the right
o
f
action for rescission, the purchaser will have no right
o
f
action for damages against us.
I
n no case will the amount recoverable
i
n any action exceed the price
a
t
which the Trust Securities were offered
t
o the purchaser and
i
f the purchaser
i
s shown
t
o have
purchased the securities with knowledge
o
f
the misrepresentation, we will have no liability.
I
n the case
o
f
an action for damages, we will not be liable for
a
l
l
o
r
any portion
o
f
the damages that are proven
t
o
not represent the depreciation
i
n value
o
f
a
s
a result
o
f
the misrepresentation
relied upon. These rights are
i
n addition
t
o
,
and without derogation from, any other rights
o
r
remedies
available
a
t
law
t
o an Ontario purchaser. The foregoing
i
s a summary
o
f
the rights available
t
o an
Ontario purchaser. Ontario purchasers should refer
t
o the complete text
o
f
the relevant statutory
provisions.
Enforcement
o
f
Legal Rights
All
o
f
our directors and officers
a
s
well
a
s
the experts named herein may
b
e
located outside
o
f
Canada and,
a
s
a result,
i
t may not be possible for Canadian purchasers
t
o effect service
o
f
process
within Canada upon
u
s
o
r
those persons. All
o
r
a substantial portion
o
f
our assets and the assets
o
f
those persons may be located outside
o
f
Canada and, as a result,
i
t may not
b
e
possible
t
o satisfy a
116
CONFIDENTIAL
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judgment against
u
s
o
r
those persons
i
n Canada
o
r
t
o enforce a judgment obtained
i
n Canadian
courts against
u
s
o
r
those persons outside
o
f
Canada.
Taxation and Eligibility for Investment
Canadian purchasers
o
f
Trust Securities should consult their own legal and tax advisors with
respect
t
o the tax consequences
o
f
a
n
investment
i
i
n their particular circum-
stances and about the eligibility
o
f
f
o
r
investment
b
y
the purchaser under relevant
Canadian legislation.
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VALIDITY OF SECURITIES
The validity
o
f
b
e
passed upon
f
o
r
WMI and the Initial Purchasers
b
y
Richards, Layton &Finger,
P
.
A., Wilmington, Delaware. The validity
o
f
Preferred Securities will be passed upon for the Company
b
y
Richards, Layton & Finger,
P
.
A., special
Delaware counsel for the Company, for WMI
b
y
Mayer, Brown, Rowe & Maw LLP, New York, New
York, and for the Initial Purchasers
b
y
Sullivan & Cromwell LLP, New York, New York. The validity
o
f
the Depositary Shares and
o
f
the Series M WMI Preferred Stock will
b
e
passed upon for WMI
b
y
Mayer, Brown, Rowe & Maw LLP and
b
y
Heller Ehrman LLP, Seattle, Washington, and for the Initial
Purchasers
b
y
Sullivan &Cromwell LLP. Mayer, Brown, Rowe &Maw LLP and Sullivan &Cromwell
LLP will rely upon the opinion
o
f
Richards, Layton &Finger,
P
.
A.,
a
s
t
o matters
o
f
Delaware law, and
upon the opinion
o
f
Heller Ehrman LLP
a
s
t
o matters
o
f
Washington law.
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ADDITIONAL INFORMATION
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The financial statements
o
f
WMI and WMB
a
s
o
f
and
f
o
r
the years ended December 31, 2006
and 2005, and managements reports
o
n
the effectiveness
o
f
internal control over financial reporting
a
s
o
f
December 31, 2006
f
o
r
both WMI and WMB, incorporated
b
y
reference
i
have been audited
b
y
Deloitte &Touche LLP,
a
n
independent registered public accounting firm,
a
s
stated
i
n their reports appearing therein.
INDEPENDENT AUDITORS
o
f
the Company as
o
f
and for the year ended December 31, 2006,
included
i
n this offering circular have been audited by Deloitte &Touche LLP, independent auditors,
a
s
stated
i
n their reports appearing herein.
No Material Adverse Change
Except
a
s
disclosed
i
n this offering circular, there has been
n
o
adverse change
i
n the financial
position
o
f
the Company, the Trust, WMB
o
r
WMI since December 31, 2006
o
r
their respective dates
o
f
establishment (which was December
4
,
2006
i
n the case
o
f
the Trust), that would
b
e
deemed
material
i
n the context
o
f
the issue and sale
o
f
i
n this Offering.
Legal Proceedings
The following litigation
i
s
i
n relation
t
o WMI. WMB, the Company, Asset Trust
I
,
Asset Trust
I
I
and the Trust have not been named
a
s
defendants
i
n any
o
f
the following lawsuits and,
o
n
that basis,
they
d
o
not expect such lawsuits materially affect their respective operations
o
r
financial results.
I
n the ordinary course
o
f
business, WMI and
i
t
s
subsidiaries are routinely defendants
i
n
o
r
parties
t
o a number
o
f
pending and threatened legal actions and proceedings, including actions
brought on behalf
o
f
various classes
o
f
claimants.
I
n certain
o
f
these actions and proceedings, claims
for substantial monetary damages are asserted against WMI and
i
t
s
subsidiaries. Certain
o
f
these
actions and proceedings are based on alleged violations
o
f
consumer protection, banking and other
laws.
I
n July 2004, WMI and a number
o
f
i
t
s officers were named
a
s
defendants
i
n a series
o
f
cases
alleging violations
o
f
Section 10(
b
)
o
f
the Securities Exchange Act
o
f
1934 (the Exchange Act),
Rule 10b- 5 thereunder and Section 20(
a
)
o
f
the Exchange Act.
B
y
stipulation, those cases were
consolidated into a single case currently pending
i
n the
U
.
S
.
District Court for the Western Division
o
f
Washington South Ferry
L
.
P
.
#2
v
.
Killinger
e
t
al., No. CV04-1599C (W.
D
.
Wa., Filed Jul. 19, 2004)
(the Securities Action).
I
n brief, the plaintiffs
i
n the Securities Action allege,
o
n
behalf
o
f
a putative
class
o
f
purchasers
o
f
Washington Mutual, Inc., securities from April 15, 2003, through June 28, 2004,
that,
i
n various public statements, the defendants purportedly made misrepresentations and failed
t
o
disclose material facts concerning, among other things, alleged internal systems problems and
hedging issues.
The defendants moved
t
o dismiss the Securities Action on May 17, 2005. After briefing, but
without oral argument, the Court on November 17, 2005, denied the motion
i
n principal part; however,
the Court dismissed the claims against certain
o
f
the individual defendants, dismissed claims pleaded
on behalf
o
f
sellers
o
f
put options on Washington Mutual stock, and concluded that the plaintiffs could
not rely on supposed violations
o
f
accounting standards
t
o support their claims. The remaining
defendants subsequently moved
f
o
r
reconsideration or,
i
n the alternative, certification
o
f
the opinion
for interlocutory appeal
t
o the United States Court
o
f
Appeals for the Ninth Circuit. The District Court
denied the motion for reconsideration, but
o
n
March
6
,
2006, granted the motion for certification.
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The defendants thereafter moved
t
o have the Ninth Circuit Court
o
f
Appeals accept the case
f
o
r
interlocutory review
o
f
the District Courts original order denying the motion
t
o dismiss. On June
9
,
2006, the Ninth Circuit granted the defendants motion, indicating that
i
t will hear the merits
o
f
the
defendants appeal. The defendants filed their initial brief
o
n
September 25, 2006. Pursuant
t
o
a
n
updated, stipulated briefing schedule, the plaintiffs filed their responsive brief
o
n
January 10, 2007,
and the defendants reply
i
s set
t
o
b
e
filed
o
n
March 12, 2007.
On November 29, 2005,
1
2
days after the Court denied the motion
t
o dismiss the Securities
Action, a separate plaintiff filed
i
n Washington State Superior Court a derivative shareholder lawsuit
purportedly asserting claims
f
o
r
the benefit
o
f
WMI. The case was removed
t
o federal court, where
i
t
i
s now pending. Lee Family Investments,
b
y
and through
i
t
s Trustee
W
.
B
.
Lee, Derivatively and
o
n
behalf
o
f
Nominal Defendant Washington Mutual, Inc.
v
.
Killinger
e
t
al., No. CV05-2121C (W.
D
.
Wa.,
Filed Nov. 29, 2005) ( the Derivative Action). The defendants
i
n the Derivative Action include those
individuals remaining
a
s
defendants
i
n the Securities Action,
a
s
well
a
s
those
o
f
WMIs current
independent directors who were directors
a
t
any time from April 15, 2003, through June 2004. The
allegations
i
n the Derivative Action mirror those
i
n the Securities Action, but seek relief based
o
n
claims that the independent director defendants failed properly
t
o respond
t
o the misrepresentations
alleged
i
n the Securities Action and that the filing
o
f
that action has caused WMI
t
o expend sums
t
o
defend itself and the individual defendants and
t
o conduct internal investigations related
t
o the
underlying claims.
A
t
the end
o
f
February 2006, the parties submitted a stipulation
t
o the Court that
the matter
b
e
stayed pending the outcome
o
f
the Securities Action. On March
2
,
2006, the Court
entered
a
n
Order pursuant
t
o that stipulation, staying the Derivative Action
i
n
i
t
s entirety.
Governing Law
The LLC Agreement, the Trust Agreement, the Trust Securities and the Series 2007- A Company
Preferred Securities will be governed by, and construed
i
n accordance with, the laws
o
f
the State
o
f
Delaware. The Series M WMI Preferred Stock will
b
e
governed by, and construed
i
n accordance with,
the laws
o
f
the State
o
f
Washington. The Depositary Shares will
b
e
governed by, and construed
i
n
accordance with, the laws
o
f
the State
o
f
New York.
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Deloitte & Touche LLP

Suite 3300
925 Fourth Avenue
Seattle, WA 98104- 1126
USA
Tel: +1 206 716 7000
Fax: +1 206 965 7000
www. deloitte. com
INDEPENDENT AUDITORS REPORT
T
o
the Board
o
f
Managers
o
f
Washington Mutual Preferred Funding
LLC Seattle, Washington
We have audited the accompanying statement
o
f
financial condition
o
f
Washington Mutual
Preferred Funding LLC (the Company)
a
s
o
f
December 31, 2006, and the related statements
o
f
income, member interests, and cash flows for the period February
3
,
2006 ( date
o
f
inception)
t
o
December 31, 2006. These financial statements are the responsibility
o
f
the Companys management.
Our responsibility
i
s
t
o express an opinion
o
n
these financial statements based
o
n
our audit.
We conducted our audit
i
n accordance with generally accepted auditing standards
a
s
established
by the Auditing Standards Board (United States) and
i
n accordance with the auditing standards
o
f
the
Public Company Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit
t
o obtain reasonable assurance about whether the financial statements are free
o
f
material misstatement. The Company
i
s not required
t
o have, nor were we engaged
t
o perform, an
audit
o
f
i
t
s
internal control over financial reporting. Our audit included consideration
o
f
internal control
over financial reporting
a
s
a basis for designing audit procedures that are appropriate
i
n the
circumstances, but not for the purpose
o
f
expressing
a
n
opinion on the effectiveness
o
f
the Companys
internal control over financial reporting. Accordingly, we express no such opinion. An audit also
includes examining, on a test basis, evidence supporting the amounts and disclosures
i
n the financial
statements, assessing the accounting principles used and significant estimates made
b
y
management,
as well
a
s
evaluating the overall financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
I
n our opinion, such financial statements present fairly,
i
n
a
l
l
material respects, the financial
position
o
f
Washington Mutual Preferred Funding LLC
a
t
December 31, 2006, and the results
o
f
i
t
s
operations and
i
t
s
cash flows for the above- stated period,
i
n conformity with accounting principles
generally accepted
i
n the United States
o
f
America.
Seattle, Washington
March 21, 2007
Member
o
f
Deloitte Touche Tohmatsu
A
-
1
APPENDIXA
CONFIDENTIAL
Return
Statement
o
f
Income
From Inception
(February
3
,
2006) through
December 31,
2006
Interest Income
Interest income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $250,796,200
Recovery
o
f
reserve for loan losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (9,460,790)
Interest income after recovery
o
f
reserve for loan losses . . . . . . . . . . . . . 260,256,990
Expense
Loan servicing fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,625,659
Other expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 114,889
Total expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,740,548
Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $253,516,442
See Notes
t
o Financial Statements
A
-
2
CONFIDENTIAL
Return
Statement
o
f
Financial Condition
December 31,
2006
ASSETS
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 43,165,776
Loans held
i
n portfolio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,281,604,640
Allowance for loan losses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (24,994,354)
Total loans held
i
n portfolio, net
o
f
o
f
reserve
f
o
r
loan losses . . . . . . . . . . . . 7,256,610,286
Receivable from affiliates for collections related
t
o the servicing
o
f
loans . . . . . . . . 218,575,543
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27,217,293
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $7,545,568,898
LIABILITIES
Payable
t
o affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 23,545,756
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 205,242
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23,750,998
Member Interests
Common securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,049,306,234
Preferred securities
n
o
par value: 2,500,000 securities authorized, issued and
outstanding
(
$ 1,000 per security liquidation preference) . . . . . . . . . . . . . . . . . . . 2,446,240,411
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26,271,255
Total member interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,521,817,900
Total Liabilities and Member Interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $7,545,568,898
See Notes
t
A
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3
CONFIDENTIAL
Return
Statement
o
f
Member Interests
Common
Securities
Preferred
Securities
Retained
Earnings Total
BALANCE, February
3
,
2006 . . .$ $ $ $
Net income . . . . . . . . . . . . . . . . 253,516,442 253,516,442
Common securities issued . . . . 5,695,621,428 5,695,621,428
Preferred securities issued net
o
f
capitalized costs . . . . . . . . 2,446,240,411 2,446,240,411
Cash dividends paid
o
n
common securities . . . . . . . . . (122,184,355) (122,184,355)
Cash dividends paid
o
n
preferred securities . . . . . . . . (105,060,832) (105,060,832)
Common securities redeemed . . ( 646,315,194) (646,315,194)
BALANCE, December 31, 2006. . $5,049,306,234 $2,446,240,411 $ 26,271,255 $7,521,817,900
See Notes
t
A
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4
CONFIDENTIAL
Return
Statement
o
f
Cash Flows
FromInception
(February
3
,
2006)
through
December 31,
2006
CASH FLOWS FROM OPERATING ACTIVITIES
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 253,516,442
Adjustments
t
o reconcile net income
t
o net cash provided
b
y
operating activities:
Recovery
o
f
reserve for loan losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (9,460,790)
Increase
i
n receivable from affiliates. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (218,575,543)
Increase
i
n other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (4,224,332)
Increase
i
n payable
t
o affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23,545,756
Increase
i
n other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 205,242
Net cash provided
b
y
operating activities . . . . . . . . . . . . . . . . . . . . . . . . . . . 45,006,775
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase
o
f
loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ( 33,021,548)
Principal payments
o
n
loans held
i
n portfolio . . . . . . . . . . . . . . . . . . . . . . . . . . 798,467,624
Net cash provided
b
y
investing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . 765,446,076
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from the issuance
o
f
common securities . . . . . . . . . . . . . . . . . . . . . . 113,283,332
o
f
preferred securities . . . . . . . . . . . . . . . . . . . . . 46,749,564
Payment
o
f
capitalized costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ( 53,759,590)
Redemption
o
f
common securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (646,315,194)
Dividends paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (227,245,187)
Net cash used
i
n financing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (767,287,075)
Increase
i
n cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43,165,776
CASH, beginning
o
f
period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
CASH, end
o
f
period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 43,165,776
SUPPLEMENTAL SCHEDULE OF NONCASH FINANCING ACTIVITIES:
The Company issued common and preferred securities
i
n exchange for cash,
loans and other assets
a
s
follows:
Loans received
i
n exchange
f
o
r
common and preferred securities . . . . . . . . . . $8,012,774,740
Other assets received
i
n exchange
f
o
r
common and preferred securities . . . . . 22,813,792
See Notes
t
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5
CONFIDENTIAL
Return
WASHINGTON MUTUAL PREFERRED FUNDING LLC
NOTES TO FINANCIAL STATEMENTS
PERIOD ENDED DECEMBER 31, 2006
NOTE
1
:
DESCRIPTION OF THE COMPANY
Washington Mutual Preferred Funding LLC (the Company)
i
s a Delaware limited liability
company formed
o
n
February
3
,
2006 for the purpose
o
f
(
i
) issuing preferred and common securities,
(
i
i
) acquiring and holding eligible assets, and (
i
i
i
) performing functions necessary
o
r
incidental
t
o the
foregoing. The Company
i
s classified
a
s
a partnership
f
o
r
U
.
S
.
federal income tax purposes. No
provision
f
o
r
income taxes
i
s recognized
i
n the accompanying financial statements.
The assets owned
b
y
the Company provide cash flows for payment by the Company
t
o holders
o
f
the securities.
On March
6
,
2006, a pool
o
f
closed end, first lien home equity loans
(
HELs) was contributed

b
y
Washington Mutual Bank
(
WMB) and University Street Inc.

(
University Street),
a
n
indirect subsid-
iary
o
f
WMB,
t
o the Company
i
n exchange
f
o
r
the Companys common securities and the
Series 2006- A and Series 2006- B Preferred Securities. Subsequently, and
o
n
the same day, the
Company transferred the HELs
t
o Washington Mutual Home Equity Trust I ( the Asset Trust I), a
statutory trust formed under the laws
o
f
the State
o
f
Delaware,
i
n exchange for Class
A
-
1 Washington
Mutual Home Equity Trust I Certificates.
On December 12, 2006, a pool
o
f
payment option adjustable rate mortgages
(
Option ARMs)
was contributed by WMB and University Street
t
o the Company
i
n exchange for the additional
common securities and the Series 2006- C Preferred Securities. Subsequently, and on the same day,
the Company transferred the Option ARMs
t
o WAMU 2006 OA-1 (the Asset Trust II), a statutory
trust formed under the laws
o
f
the State
o
f
Delaware,
i
n exchange for Class
A
-
1 WAMU 2006 OA- 1
Certificates.
Asset Trust I and Asset Trust
I
I hold only HEL and Option ARM assets, respectively. The trusts
d
o
not have any liabilities other than those incurred
i
n connection with the Pooling and Servicing
Agreements (PSAs) and any related agreements. The trusts
d
o
not have any directors, officers
o
r
other employees.
A
t
December 31, 2006, Asset Trust I and Asset Trust
I
I had total assets
o
f
$4.7 billion and $2.8 billion, respectively.
As the transfers
o
f
assets from the Company
t
o the Asset Trust I and Asset Trust
I
I did not meet
the definition
o
f
a sale within the scope
o
f
Statement
o
f
Financial Accounting Standards 140,
Accounting for Transfers and Servicing
o
f
Financial Assets and Extinguishments
o
f
Liabilities, the
assets continue
t
o be recorded as loans on the Statement
o
f
Financial Condition.
NOTE
2
:
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash
Cash includes amounts due from banks.
Use
o
f
Estimates
The Companys reporting and accounting policies conform
t
o accounting principles generally
accepted
i
n the United States
o
f
America
(
GAAP). The preparation

o
f
financial statements
i
n
conformity with GAAP requires management
t
o make estimates and assumptions that affect the
reported amounts
o
f
assets and liabilities and disclosure
o
f
contingent assets and liabilities
a
t
the date
o
f
the financial statements and the reported amounts
o
f
revenues and expenses during the reporting
period. Management has made significant estimates
i
n certain areas, including the allowance for loan
losses. Actual results could differ from those estimates.
A
-
6
CONFIDENTIAL
Return
Loans Held
i
n Portfolio
Loans held
i
n portfolio are recorded
a
t
the principal amount outstanding, net
o
f
deferred loan
costs
o
r
fees and any discounts received
o
r
premiums paid on purchased loans. Deferred costs
o
r
fees, discounts and premiums are amortized over the contractual term
o
f
the loan, adjusted for actual
prepayments, using the interest method. The Company uses contractual payment terms
t
o determine
the constant yield needed
t
o apply the interest method.
Allowance for Loan Losses
The allowance for loan losses represents managements estimate
o
f
incurred credit losses
inherent
i
n
i
t
s
loan portfolio
a
s
o
f
the reporting date. The Companys estimate
o
f
the allowance
i
s
based on a variety
o
f
factors, including past loan loss experience, the current credit profile
o
f
i
t
s
borrowers, adverse situations that have occurred that may affect the borrowers ability
t
o repay, the
estimated value
o
f
underlying collateral, the impact that changes
i
n interest rates has on a borrowers
ability
t
o repay adjustable-rate loans and general economic conditions.
The Company accounts for the allowance for loan losses on portfolios
o
f
loans that are evaluated
for collective impairment
i
n accordance with Financial Accounting Standards Board
(
FASB) State-
ment No.
5
,
Accounting for Contingencies
(
Statement No. 5) when available information indicates

that
i
t
i
s probable that a loss has been incurred and the amount
o
f
the loss can be reasonably
estimated. The allowance comprises both an allocated and an unallocated component.
The Company determines the allocated portion
o
f
the allowance based
o
n
analyses
o
f
pools
o
f
loans with similar attributes. The allocated allowance
i
s determined using statistical forecasting models
that estimate default and loss outcomes based
o
n
a
n
evaluation
o
f
past performance
o
f
similar pools
o
f
loans
i
n our portfolio, and other factors affecting default and loss factors,
a
s
well
a
s
industry
historical loan loss data.
The unallocated portion
o
f
the allowance reflects managements assessment
o
f
various risk
factors that are not fully reflected
i
n the models used
t
o determine the allocated component
o
f
the
allowance. These factors include general economic and business conditions specific
t
o the Companys
key lending products and markets, credit quality and collateral value trends, loan concentrations,
specific industry conditions within portfolio segments, recent loss experience
i
n particular segments
o
f
the portfolio, duration
o
f
the current business cycle and the impact
o
f
other such variables for which
recent historical data
d
o
not provide a high level
o
f
precision for risk evaluation.
Nonaccrual Loans
When a loan
i
s placed
o
n
Nonaccrual status,
a
l
l
interest accrued, but not collected,
i
s reversed
against interest income. Loans are placed
i
n nonaccrual status when they are 90 days past due. The
Company accounts
f
o
r
these loans
o
n
the cash
o
r
cost recovery method, until they qualify for return
t
o
accrual status. Loans are returned
t
o accrual status when the borrower brings the loans
t
o less than
3
0
days past due. Loans are generally written down
t
o the fair value
o
f
the underlying collateral (less
estimated costs
t
o sell) when those loans are 180 days past due.
Other Assets
Other assets include foreclosed assets and interest receivable on loans. Foreclosed assets are
accounted for
a
t
the lower
o
f
cost
o
r
fair value (less estimated costs
t
o sell). The amount the
Company ultimately recovers from foreclosed assets may differ substantially from the net carrying
value
o
f
these assets because
o
f
future market factors beyond
i
t
s
control
o
r
because
o
f
changes
i
n
i
t
s
A
-
7
NOTES TO FINANCIAL STATEMENTS Continued
CONFIDENTIAL
Return
strategy for sale
o
f
the property.
A
t
December 31, 2006, the Company had foreclosed assets
o
f
$179,168.
Recently Issued Accounting Standards Not Yet Adopted
I
n September 2006, the FASB issued Statement No. 157, Fair Value Measurements
(
Statement
No. 157). Statement No. 157 prescribes a definition
o
f
the term fair value, establishes a framework
f
o
r
measuring fair value and expands disclosure about fair value measurements. Statement No. 157
i
s
effective
f
o
r
fiscal years beginning after November 15, 2007, with early adoption permitted
a
s
o
f
January
1
,
2007. The Company does not expect the application
o
f
Statement No. 157
t
o have a
material effect
o
n
the Statement
o
f
Income and the Statement
o
f
I
n February 2007, the FASB issued Statement No. 159, The Fair Value Option for Financial
Assets and Financial Liabilities
(
Statement No. 159). Statement No. 159 permits

a
n
instrument
b
y
instrument election
t
o account for selected financial assets and liabilities
a
t
fair value. Statement
No. 159
i
s effective
f
o
r
fiscal years beginning after November 15, 2007, with early adoption permitted
a
s
o
f
January
1
,
2007. The Company
i
s currently evaluating the impact Statement No. 159 will have
o
n
i
t
s
Statement
o
f
Income and Statement
o
f
NOTE
3
:
LOANS AND ALLOWANCE FOR LOAN LOSSES
Loans held
i
n portfolio consisted
o
f
the following:
December 31,
2006
Loans held
i
n portfolio:
Option ARMs home loans(
1
)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $2,638,560,716
Home equity loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,643,043,924
Total loans held
i
n portfolio(
2
)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $7,281,604,640
(
1
)
The total amount
b
y
which the unpaid principal balance
o
f
Option ARM loans exceeded their origi-
nal principal amount was $6.2 million
a
t
December 31, 2006.
(
2
)
Includes net unamortized deferred loan origination costs
o
f
$67.7 million
a
t
December 31, 2006.
Features
o
f
residential loans
Certain residential loans have features that may result
i
n increased credit risk when compared
with residential loans without those features. Categories
o
f
loans within the Companys portfolio that
have such features include loans with
a
n
option
t
o defer the payment
o
f
interest (
i
.
e
.
,
Option ARM
home loans). The portfolio
o
f
Option ARM loans largely consisted
o
f
loans with properties residing
i
n
the state
o
f
California.
A
t
December 31, 2006
a
l
l
loans held
i
n portfolio were pledged
a
s
collateral
f
o
r
issued securities.
Fair value
o
f
loans held
i
n portfolio
The following estimated fair value amount has been determined by the Company using quoted
market prices, internal estimates and the pricing
o
f
similar instruments. These estimates do not reflect
any premium
o
r
discount that could result from offering for sale
a
t
one time the Companys entire
holdings
o
f
loans held
i
n portfolio. Fair value estimates were based on managements judgment
concerning current economic conditions, risk characteristic
o
f
the loans held
i
n portfolio and other
A
-
8
CONFIDENTIAL
Return
factors.
I
n addition, considerable judgment was required
t
o interpret market data
t
o develop the
estimates
o
f
fair value. Accordingly, the estimates presented herein are not necessarily indicative
o
f
the amounts the Company could realize
i
n a current market exchange. The use
o
f
different market
assumptions and/
o
r
estimation methodologies may have a material effect on the estimated fair value
amount.
The net carrying amount and the fair value
o
f
the loans held
i
n portfolio
a
t
December 31, 2006
was $7,256,610,286 and $6,962,489,000, respectively.
Changes
i
n the allowance for loan losses were
a
s
follows:
FromInception
through
December 31,
2006
Balance, February
3
,
2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Allowance acquired from loans transferred . . . . . . . . . . . . . . . . . . . . . . . . . . . 34,573,575
Recovery
o
f
reserve for loan losses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (9,460,790)
25,112,785
Loans charged off:
Home equity loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (118,450)
Total loans charged off . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (118,450)
Recoveries
o
f
loans previously charged off:
Home equity loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Total recoveries
o
f
loans previously charged off . . . . . . . . . . . . . . . . . . . . 19
Net chargeoffs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (118,431)
Balance, end
o
f
year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $24,994,354
The amount
o
f
Nonaccrual loans held
i
n portfolio
a
t
December 31, 2006 was $3,996,795.
Note
4
:
Common Securities
A
t
December 31, 2006, the Company had $5,049,306,234
o
f
common securities issued and
outstanding. The Company,
a
t
i
t
s
discretion, may pay distributions on the Companys common
securities out
o
f
legally available funds.
During the year, the Company declared and paid dividends
i
n the amount
o
f
$122,184,355
t
o
University Street after paying dividends on the Companys preferred securities. The Company also
redeemed common securities
i
n the amount
o
f
$646,315,194 from University Street during the year.
Note
5
:
A
t
December 31, 2006, the Company had (
i
) 1,250,000
o
f
Securities, (
i
i
) 750,000
o
f
Series 2006-B Company Preferred Securities, and (
i
i
i
)
500,000
o
f
Series 2006- C Company Preferred Securities issued and outstanding. The preferred securities
d
o
not
have any voting rights.
When and
i
f declared, dividends
o
n
the Series 2006- A Company Preferred Securities will
b
e
payable on a noncumulative basis
a
t
a fixed rate per annum equal
t
o 6.534% (calculated on a 30/ 360
Basis), and on and after March 15, 2011
a
t
a variable rate per annum equal
t
o three-month LIBOR for
the related dividends period plus 1.485% (calculated
o
n
an Actual/ 360 Basis),
i
n each case, on the
A
-
9
CONFIDENTIAL
Return
liquidation preference
o
f
$1,000 per security.
I
f declared, dividends on the Series 2006- A Company
Preferred Securities will be payable quarterly
i
n arrears on March 15, June 15, September 15 and
December 15
o
f
each year commencing June 15, 2006.
A
t
i
t
s
discretion, the Company may redeem
the Series 2006- A Company Preferred Securities on March 15, 2011
o
r
thereafter.
When and
i
o
n
the Series 2006- B Company Preferred Securities will
b
e
payable
o
n
a noncumulative basis
a
t
t
o 7.25% (calculated
o
n
a 30/ 360
basis)
o
n
the liquidation preference
o
f
I
f
declared, dividends
o
n
the Series 2006- B
Company Preferred Securities will
b
e
payable quarterly
i
n arrears
o
n
March 15, June 15, September
1
5
and December
1
5
o
f
each year commencing June 15, 2006.
A
t
i
t
s
discretion, the Company may
redeem the Series 2006- B Company Preferred Securities
o
n
March 15, 2011
o
r
thereafter.
When and
i
o
n
the Series 2006- C Company Preferred Securities will
b
e
payable on a noncumulative basis
a
t
t
o 6.665% (calculated on a 30/ 360
Basis), and on and after December 15, 2016
a
t
a variable rate per annum equal
t
o three- month
LIBOR for the related dividends period plus 1.7925% (calculated on an Actual/ 360 Basis),
i
n each
case,
o
n
the liquidation preference
o
f
I
o
n
the Series 2006- C
Company Preferred Securities will be payable quarterly
i
n arrears on March 15, June 15, September
15 and December 15
o
f
each year commencing March 15, 2007.
A
t
i
t
s
discretion, the Company may
redeem the Series 2006- C Company Preferred Securities on December 15, 2016
o
r
thereafter.
i
n the amounts
o
f
$63,071,250 and
$41,989,582
t
o holders
o
f
the Series 2006- A Company Preferred Securities and Series 2006- B
Company Preferred Securities, respectively.
During the year, the Company incurred and capitalized costs associated with the issuance
o
f
preferred securities. These costs, totaling $53,759,590, related
t
o legal, underwriting and other
professional fees.
Note
6
:
Certain Relationships And Related Party Transactions
WMB
i
s the servicer
o
f
the HELs and Option ARMs that were conveyed
t
o the Company
i
n
exchange for Companys common securities and the Companys preferred securities. WMB
i
s entitled
t
o a servicing fee from the Company equal
t
o the beginning balance
o
f
the HELs loan portfolio and
Option ARMs loan portfolio
f
o
r
any given period multiplied
b
y
a
n
annualized rate equal
t
o 0.125% and
0.375%, respectively. Since
i
t
s inception, the Company has paid $6,625,659
t
o WMB
a
s
part
o
f
the
servicing agreement.
A
t
December 31, 2006, the Company had a payable
t
o WMB
i
n the amount
o
f
$23,545,756,
which represented costs paid by WMB on behalf
o
f
the Company as well
a
s
excess asset
contributions made
b
y
WMB
t
o the Company.
A
t
December 31, 2006, the Company had a receivable from WMB
i
n the amount
o
f
$218,575,543, which represented principal and interest collections
b
y
WMB
a
s
the servicer
o
f
the
HELs and Option ARMs.
The Second Amended and Restated Limited Liability Company Agreement
o
f
Washington Mutual
Preferred Funding LLC (the LLC Agreement) provides that the Company be managed by a Board
o
f
Managers consisting
o
f
three members (Managers), one
o
f
whom
i
s not and has not been during the
preceding five years
a
n
officer
o
r
employee
o
f
Washington Mutual Inc.
(
WMI)
o
r
any affiliate
o
f
WMI,
other than a financing subsidiary (the Independent Manager). The Independent Manager
i
s paid a
nominal fee for his services which
i
s recorded
i
n other expenses. The remaining two managers are
employees
o
f
Washington Mutual Inc. and are not directly paid compensation
b
y
the Company for
services rendered.
A
-
10
CONFIDENTIAL
Return
WMI and
i
t
s
affiliates do not allocate overhead expenses
t
o the Company. Such expenses are
considered de minimis
t
o the Companys financial statements taken as a whole. The Company
reimburses WMB for costs paid on the Companys behalf.
There
i
s no material business relationship, agreement, arrangement, transaction
o
r
understand-
ing that
i
s
o
r
was entered into outside the ordinary course
o
f
business
o
r
i
s
o
r
was on terms other
than would be obtained
i
n an arms-length transaction with an unrelated third party, between WMB
o
r
University Street and the Company.
A
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11
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Return
APPENDIX B
Portfolio Data for Asset Trust
I
*
Distribution by Principal Balance
Distribution by Current
Principal Balance
Number
o
f
Mortgage Loans
Aggregate Unpaid
Principal Balance
Percentage
o
f
Principal
Balance
a
s
o
f
the HELs
Information Cut-Off Date
$ 0.00$49,999 . . . . . . 11,619 $ 422,905,803 9.56%
50,000 74,999. . . . . . . 12,116 759,717,752 17.17
75,000 99,999. . . . . . . 9,377 813,828,432 18.39
100,000 199,999 . . . . . . 13,574 1,824,672,354 41.23
200,000 299,999 . . . . . . 1,686 391,662,661 8.85
300,000 499,999 . . . . . . 505 184,040,974 4.16
Greater than $500,000 . . . . . .
4
7
28,644,586 0.65
Total: . . . . . . . . . . . . . . . . . . 48,924 $4,425,472,561 100.00%
Distribution by Gross Rate
Gross Rate
Number
o
f
Mortgage Loans
Aggregate Unpaid
Principal Balance
Percentage
o
f
Principal
Balance
a
s
o
f
the HELs
4.00%4.99%. . . . . . . . . . .
1
5
$ 1,846,604 0.04%
5.00 5.99 . . . . . . . . . . . . 22,975 2,187,243,685 49.42
6.00 6.99 . . . . . . . . . . . . 23,638 2,075,075,362 46.89
7.00 7.99 . . . . . . . . . . . . 2,050 145,577,247 3.29
Greater than 7.99% . . . . . . . . 246 15,729,662 0.36
Total: . . . . . . . . . . . . . . . . . . 48,924 $4,425,472,561 100.00%
Distribution by Remaining Months
t
o Maturity
Distribution
b
y
Remaining
Months
t
o Maturity
Number
o
f
Mortgage Loans
Aggregate Unpaid
Principal Balance
Percentage
o
f
Principal
Balance
a
s
o
f
the HELs
Less than
6
1
. . . . . . . . . . . . . 1,084 $ 34,255,585 0.77%
61120 . . . . . . . . . . . . . . . 5,082 266,347,879 6.02
121180 . . . . . . . . . . . . . . . 11,737 872,517,367 19.72
181240 . . . . . . . . . . . . . . . 24,003 2,413,098,915 54.53
241300 . . . . . . . . . . . . . . . 302 32,158,062 0.73
301360 . . . . . . . . . . . . . . . 6,716 807,094,753 18.24
Total: . . . . . . . . . . . . . . . . . . 48,924 $4,425,472,561 100.00%
* All information
i
n this Appendix B
i
s as
o
f
April
1
,
2007 (the HELs Information Cut-off Date). Due
t
o rounding, the percent-
ages shown may not precisely total 100.00%.
B
-
1
CONFIDENTIAL
Return
Distribution by Year
o
f
Origination
Distribution by
Year
o
f
Origination
Number
o
f
Mortgage Loans
Aggregate Unpaid
Principal Balance
Percentage
o
f
Principal
Balance
a
s
o
f
the HELs
19982001 . . . . . . . . . . . . . 248 $ 17,982,467 0.41%
2002 . . . . . . . . . . . . . . . . . . . 4,776 434,468,182 9.82
2003 . . . . . . . . . . . . . . . . . . . 23,444 2,177,283,818 49.20
2004 . . . . . . . . . . . . . . . . . . . 14,024 1,287,121,767 29.08
2005 . . . . . . . . . . . . . . . . . . . 6,369 504,341,235 11.40
2006 . . . . . . . . . . . . . . . . . . .
6
3
4,275,092 0.10
Total: . . . . . . . . . . . . . . . . . . 48,924 $4,425,472,561 100.00%
Distribution by FICO Score( 1
)
Distribution by
Credit Score
Number
o
f
Mortgage Loans
Aggregate Unpaid
Principal Balance
Percentage
o
f
Principal
Balance
a
s
o
f
the HELs
Not Available . . . . . . . . . . . . . 1 $ 100,564 0.00%
Less Than 600. . . . . . . . . . . . 1,006 85,580,043 1.93
600649 . . . . . . . . . . . . . . . 1,498 128,319,808 2.90
650699 . . . . . . . . . . . . . . . 4,959 452,931,024 10.23
700749 . . . . . . . . . . . . . . . 9,617 906,229,686 20.48
750799 . . . . . . . . . . . . . . . 18,517 1,727,747,836 39.04
800849 . . . . . . . . . . . . . . . 13,326 1,124,563,600 25.41
Total: . . . . . . . . . . . . . . . . . . 48,924 $4,425,472,561 100.00%
(
1
)
FICO Score means a statistical credit score obtained
b
y
WMB and many other mortgage lenders
i
n connection with a loan
application
t
o help assess a borrowers creditworthiness. A FICO Score
i
s generated
b
y
models developed
b
y
a third party,
Fair, Isaac &Co., and made available
t
o WMB through three national consumer reporting agencies. The FICO Score
i
s
based on a borrowers historical credit data, including, among other things, payment history, delinquencies on accounts, lev-
els
o
f
outstanding indebtedness, length
o
f
credit history, types
o
f
credit and bankruptcy experience. A higher FICO Score
indicates a more favorable credit rating.
Distribution by Property Type
Distribution by
Property Type
Number
o
f
Mortgage Loans
Aggregate Unpaid
Principal Balance
Percentage
o
f
Principal
Balance
a
s
o
f
the HELs
Single Family . . . . . . . . . . . . . 45,101 $4,073,677,770 92.05%
Townhouse . . . . . . . . . . . . . . 1,789 206,797,731 4.67
Manufactured Housing . . . . . .
7
6
5,796,671 0.13
Condominium . . . . . . . . . . . . 1,958 139,200,389 3.15
Total: . . . . . . . . . . . . . . . . . . 48,924 $4,425,472,561 100.00%
B
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2
CONFIDENTIAL
Return
Distribution by State
Number
o
f
Mortgage Loans
Aggregate Unpaid
Principal Balance
Percentage
o
f
Principal
Balance
a
s
o
f
the HELs
Texas. . . . . . . . . . . . . . . . . . . 25,585 $2,230,840,507 50.41%
California . . . . . . . . . . . . . . . . 12,850 1,298,771,347 29.35
Florida . . . . . . . . . . . . . . . . . . 4,215 312,331,366 7.06
New York . . . . . . . . . . . . . . . . 2,198 225,744,016 5.10
Washington . . . . . . . . . . . . . . 1,008 89,111,028 2.01
New Jersey . . . . . . . . . . . . . . 617 63,549,753 1.44
Oregon . . . . . . . . . . . . . . . . . 669 59,538,552 1.35
Georgia . . . . . . . . . . . . . . . . . 396 32,545,771 0.74
Idaho . . . . . . . . . . . . . . . . . . . 292 22,475,693 0.51
Arizona . . . . . . . . . . . . . . . . . 263 21,426,810 0.48
Other . . . . . . . . . . . . . . . . . . . 831 69,137,717 1.56
Total: . . . . . . . . . . . . . . . . . . 48,924 $4,425,472,561 100.00%
Distribution by Current Loan- to-Value Ratio( 1
)
Distribution by
Current LTV
Number
o
f
Mortgage Loans
Aggregate Unpaid
Principal Balance
Percentage
o
f
Principal
Balance
a
s
o
f
the HELs
Not available . . . . . . . . . . . . . 3 $ 575,567 0.01%
Less than 10.01% . . . . . . . . . 1,268 40,570,713 0.92
10.01 20.00 . . . . . . . . . . . 4,060 204,363,511 4.62
20.01 30.00 . . . . . . . . . . . 5,640 381,260,693 8.62
30.01 40.00 . . . . . . . . . . . 7,323 589,124,742 13.31
40.01 50.00 . . . . . . . . . . . 7,824 710,580,491 16.06
50.01 60.00 . . . . . . . . . . . 8,313 853,811,248 19.29
60.01 70.00 . . . . . . . . . . . 8,008 868,179,385 19.62
70.01 80.00 . . . . . . . . . . . 6,122 735,390,113 16.62
80.01 90.00 . . . . . . . . . . . 361 41,396,606 0.94
90.01100.00% . . . . . . . . . 2 219,492 0.00
Total: . . . . . . . . . . . . . . . . . . 48,924 $4,425,472,561 100.00%
(
1
)
The Current Loan-To-Value Ratio
o
f
a mortgage loan
i
s a fraction, the numerator
o
f
which
i
s the outstanding principal bal-
ance
o
f
the mortgage loan and the denominator
o
f
which
i
s the collateral value, generally
a
t
a time
o
f
origination
o
f
the
related mortgage property, expressed
a
s
a percentage.
B
-
3
CONFIDENTIAL
Return
APPENDIX C
I
I
*
Principal Balance
Number
o
f
Mortgage Loans
Aggregate Unpaid
Principal Balance
Percentage
o
f
Principal Balance
a
s
o
f
the Option
ARMs Information
Cut- Off Date
$ 0$49,999 . . . . . . . . . . . . 8 $ 233,006 0.01%
50,000 74,999 . . . . . . . . . . . . 3 174,840 0.01
75,000 99,999 . . . . . . . . . . . .
1
8
1,658,085 0.08
100,000 199,999 . . . . . . . . . . . . 1,194 178,812,994 8.11
200,000 299,999 . . . . . . . . . . . . 890 220,618,730 10.01
300,000 499,999 . . . . . . . . . . . . 1,352 541,090,459 24.55
500,000 999,999 . . . . . . . . . . . . 1,122 743,502,016 33.73
Greater than $1,000,000 . . . . . . . . . 328 518,215,341 23.51
Total: . . . . . . . . . . . . . . . . . . . . . . . . 4,915 $2,204,305,471 100.00%
Gross Rate
Number
o
f
Mortgage Loans
Aggregate Unpaid
Principal Balance
Percentage
o
f
Principal Balance
a
s
o
f
the Option
ARMs Information
Cut- Off Date
6.00%6.99% . . . . . . . . . . . . . . . . 190 $ 102,203,509 4.64%
7.00 7.99 . . . . . . . . . . . . . . . . . 3,723 1,682,391,316 76.32
8.00 8.99 . . . . . . . . . . . . . . . . . 997 417,272,077 18.93
Greater than 8.99 . . . . . . . . . . . . . . . 5 2,438,570 0.11
Total: . . . . . . . . . . . . . . . . . . . . . . . . 4,915 $2,204,305,471 100.00%
t
o Maturity
Distribution by Remaining
Months
t
o Maturity
Number
o
f
Mortgage Loans
Aggregate Unpaid
Principal Balance
Percentage
o
f
Principal Balance
a
s
o
f
the Option
ARMs Information
Cut- Off Date
121180 . . . . . . . . . . . . . . . . . . . . 2 $ 397,906 0.02%
241300 . . . . . . . . . . . . . . . . . . . . 275 83,246,572 3.78
301360 . . . . . . . . . . . . . . . . . . . . 4,009 1,776,586,067 80.60
Greater than 360 . . . . . . . . . . . . . . . 629 344,074,927 15.61
Total: . . . . . . . . . . . . . . . . . . . . . . . . 4,915 $2,204,305,471 100.00%
* All information
i
n this Appendix C
i
s as April
1
,
2007 (the Option ARMs Information Cut-off Date). Due
t
o rounding, the per-
centages shown may not precisely total 100.00%.
C-1
CONFIDENTIAL
Return
o
f
Origination
Distribution
b
y
Year
o
f
Origination
Number
o
f
Mortgage Loans
Aggregate Unpaid
Principal Balance
Percentage
o
f
Principal Balance
a
s
o
f
the Option
ARMs Information
Cut- Off Date
19972001 . . . . . . . . . . . . . . . . . . 273 $ 81,511,904 3.70%
2002. . . . . . . . . . . . . . . . . . . . . . . . .
7
3
31,676,242 1.44
2003. . . . . . . . . . . . . . . . . . . . . . . . . 1,219 409,380,197 18.57
2004. . . . . . . . . . . . . . . . . . . . . . . . . 880 398,123,959 18.06
2005. . . . . . . . . . . . . . . . . . . . . . . . . 2,167 1,101,876,155 49.99
2006. . . . . . . . . . . . . . . . . . . . . . . . . 303 181,737,014 8.24
Total: . . . . . . . . . . . . . . . . . . . . . . . . 4,915 $2,204,305,471 100.00%
)
Distribution by Credit Score
Number
o
f
Mortgage Loans
Aggregate Unpaid
Principal Balance
Percentage
o
f
Principal Balance
a
s
o
f
the Option
ARMs Information
Cut- Off Date
Not Available . . . . . . . . . . . . . . . . . .
1
8
$ 10,591,210 0.48%
Less than 600 . . . . . . . . . . . . . . . . .
6
8
28,876,767 1.31
600649 . . . . . . . . . . . . . . . . . . . . 157 88,063,026 4.00
650699 . . . . . . . . . . . . . . . . . . . . 558 266,926,776 12.11
700749 . . . . . . . . . . . . . . . . . . . . 1,303 612,740,517 27.80
750799 . . . . . . . . . . . . . . . . . . . . 2,014 891,993,198 40.47
800849 . . . . . . . . . . . . . . . . . . . . 797 305,113,978 13.84
Total: . . . . . . . . . . . . . . . . . . . . . . . . 4,915 $2,204,305,471 100.00%
(
1
)
FICO Score means a statistical credit score obtained by WMB and many other mortgage lenders
i
application
t
i
s generated
b
y
models developed
b
y
a third party,
t
i
s
based on a borrowers historical credit data, including, among other things, payment history, delinquencies
o
n accounts, lev-
els
o
f
o
f
o
f
Number
o
f
Mortgage Loans
Aggregate Unpaid
Principal Balance
Percentage
o
f
Principal Balance
a
s
o
f
the Option
ARMs Information
Cut- Off Date
Single Family . . . . . . . . . . . . . . . . . . 2,834 $1,359,629,795 61.68%
Planned Unit Development . . . . . . . . 746 366,854,212 16.64
Condo . . . . . . . . . . . . . . . . . . . . . . . 670 235,665,032 10.69
2
-
Unit Multifamily . . . . . . . . . . . . . . . 379 124,056,534 5.63
3
-
4 Unit Multifamily . . . . . . . . . . . . . . 254 105,767,249 4.80
Co-Op . . . . . . . . . . . . . . . . . . . . . . . 23 8,688,458 0.39
Townhouse . . . . . . . . . . . . . . . . . . . . 9 3,644,191 0.17
Total: . . . . . . . . . . . . . . . . . . . . . . . . 4,915 $2,204,305,471 100.00%
C-2
CONFIDENTIAL
Return
Distribution
b
y
State
Number
o
f
Mortgage Loans
Aggregate Unpaid
Principal Balance
Percentage
o
f
Principal Balance
a
s
o
f
the Option
ARMs Information
Cut- Off Date
California . . . . . . . . . . . . . . . . . . . . . 3,119 $1,652,001,347 74.94%
Florida . . . . . . . . . . . . . . . . . . . . . . . 284 87,663,069 3.98
New York . . . . . . . . . . . . . . . . . . . . . 153 82,037,824 3.72
Colorado . . . . . . . . . . . . . . . . . . . . . 222 49,209,967 2.23
Massachusetts . . . . . . . . . . . . . . . . . 114 37,940,437 1.72
New Jersey. . . . . . . . . . . . . . . . . . . .
8
6
31,936,711 1.45
Virginia. . . . . . . . . . . . . . . . . . . . . . .
7
4
28,996,807 1.32
Michigan. . . . . . . . . . . . . . . . . . . . . . 109 24,534,416 1.11
Illinois . . . . . . . . . . . . . . . . . . . . . . . .
9
5
22,263,295 1.01
Washington . . . . . . . . . . . . . . . . . . .
7
2
20,514,600 0.93
Other . . . . . . . . . . . . . . . . . . . . . . . . 587 167,206,999 7.59
Total: . . . . . . . . . . . . . . . . . . . . . . . . 4,915 $2,204,305,471 100.00%
)
Distribution by Current LTV
Number
o
f
Mortgage Loans
Aggregate Unpaid
Principal Balance
Percentage
o
f
Principal Balance
a
s
o
f
the Option
ARMs Information
Cut- Off Date
0.01%10.00% . . . . . . . . . . . . . . .
1
0
$ 516,158 0.02%
10.0120.00 . . . . . . . . . . . . . . . . .
2
6
8,970,957 0.41
20.0130.00 . . . . . . . . . . . . . . . . .
5
5
13,863,869 0.63
30.0140.00 . . . . . . . . . . . . . . . . . 131 49,434,987 2.24
40.0150.00 . . . . . . . . . . . . . . . . . 269 97,064,554 4.40
50.0160.00 . . . . . . . . . . . . . . . . . 467 223,801,637 10.15
60.0170.00 . . . . . . . . . . . . . . . . . 1,083 523,452,763 23.75
70.0180.00 . . . . . . . . . . . . . . . . . 2,677 1,211,577,510 54.96
80.0190.00 . . . . . . . . . . . . . . . . . 197 75,623,037 3.43
Total: . . . . . . . . . . . . . . . . . . . . . . . . 4,915 $2,204,305,471 100.00%
(
1
)
o
f
a mortgage loan
i
o
f
which
i
ance
o
f
o
f
which
i
a
t
a time
o
f
origination
o
f
the
a
s
a percentage.
C-3
CONFIDENTIAL
Return
APPENDIX D
Portfolio Data for Asset Trust I And Asset Trust
I
I
,
Combined*
Principal Balance
Number
o
f
Mortgage Loans
Aggregate Unpaid
Principal Balance
Percentage
o
f
Principal
Balance as
o
f
the Combined
Information Cut- Off Date
$ 0$49,999 . . . . . 11,627 $ 423,138,809 6.38%
50,000 74,999 . . . . . 12,119 759,892,591 11.46
75,000 99,999 . . . . . 9,395 815,486,517 12.30
100,000 199,999 . . . . . 14,768 2,003,485,348 30.22
200,000 299,999 . . . . . 2,576 612,281,391 9.24
300,000 499,999 . . . . . 1,857 725,131,433 10.94
500,000 999,999 . . . . . 1,169 772,146,602 11.65
Greater than $1,000,000 . . . 328 518,215,341 7.82
Total: . . . . . . . . . . . . . . . . . 53,839 $6,629,778,032 100.00%
Gross Rate
Number
o
f
Mortgage Loans
Aggregate Unpaid
Principal Balance
Percentage
o
f
Principal
Balance
a
s
o
f
the Combined
4.00%4.99% . . . . . . 15 $ 1,846,604 0.03%
5.00 5.99 . . . . . . . 22,975 2,187,243,685 32.99
6.00 6.99 . . . . . . . 23,828 2,177,278,871 32.84
7.00 7.99 . . . . . . . 5,773 1,827,968,563 27.57
8.00 8.99 . . . . . . . 1,197 429,971,629 6.49
9.00 9.99 . . . . . . . 31 4,379,733 0.07
10.00 10.99 . . . . . . . 16 886,751 0.01
11.00 11.99 . . . . . . . 4 202,197 0.00
Total: . . . . . . . . . . . . . . . 53,839 $6,629,778,032 100.00%
t
o Maturity
Distribution by
Remaining
Months
t
o Maturity
Number
o
f
Mortgage Loans
Aggregate Unpaid
Principal Balance
Percentage
o
f
Principal
Balance
a
s
o
f
the Combined
Less than
6
1
. . . . . . . . . . 1,084 $ 34,255,585 0.52%
61120 . . . . . . . . . . . . 5,082 266,347,879 4.02
121180. . . . . . . . . . . . 11,739 872,915,273 13.17
181240. . . . . . . . . . . . 24,003 2,413,098,915 36.40
241300. . . . . . . . . . . . 577 115,404,634 1.74
301360. . . . . . . . . . . . 10,725 2,583,680,820 38.97
Greater than 360 . . . . . . . 629 344,074,927 5.19
Total: . . . . . . . . . . . . . . . 53,839 $6,629,778,032 100.00%
* All information
i
n this Appendix D
i
s
a
s
o
f
April
1
,
2007 (the Combined Information Cut-off Date). Due
t
o rounding, the per-
centages shown may not precisely total 100.00%.
D-1
CONFIDENTIAL
Return
o
f
Origination
Distribution by
Year
o
f
Origination
Number
o
f
Mortgage Loans
Aggregate Unpaid
Principal Balance
Percentage
o
f
Principal
Balance
a
s
o
f
the Combined
19972001 . . . . . . . . . . 521 $ 99,494,371 1.50%
2002 . . . . . . . . . . . . . . . . 4,849 466,144,424 7.03
2003 . . . . . . . . . . . . . . . . 24,663 2,586,664,014 39.02
2004 . . . . . . . . . . . . . . . . 14,904 1,685,245,726 25.42
2005 . . . . . . . . . . . . . . . . 8,536 1,606,217,391 24.23
2006 . . . . . . . . . . . . . . . . 366 186,012,106 2.81
Total: . . . . . . . . . . . . . . . 53,839 $6,629,778,032 100.00%
)
Distribution by
Credit Score
Number
o
f
Mortgage Loans
Aggregate Unpaid
Principal Balance
Percentage
o
f
Principal
Balance
a
s
o
f
the Combined
Not Available . . . . . . . . . .
1
9
$ 10,691,774 0.16%
Less than 600 . . . . . . . . . 1,074 114,456,810 1.73
600649. . . . . . . . . . . . 1,655 216,382,834 3.26
650699. . . . . . . . . . . . 5,517 719,857,800 10.86
700749. . . . . . . . . . . . 10,920 1,518,970,202 22.91
750799. . . . . . . . . . . . 20,531 2,619,741,034 39.51
800849. . . . . . . . . . . . 14,123 1,429,677,578 21.56
Total: . . . . . . . . . . . . . . . 53,839 $6,629,778,032 100.00%
(
1
)
FICO Score means a statistical credit score obtained by WMB and many other mortgage lenders
i
application
t
i
s generated
b
y
models developed
b
y
a third party,
t
i
s
based on a borrowers historical credit data, including, among other things, payment history, delinquencies on accounts, lev-
els
o
f
o
f
o
f
Distribution by Property
Type
Number
o
f
Mortgage Loans
Aggregate Unpaid
Principal Balance
Percentage
o
f
Principal
Balance
a
s
o
f
the Combined
Single Family . . . . . . . . . . 47,935 $5,433,307,565 81.95%
Condominium . . . . . . . . . 2,628 374,865,421 5.65
Planned Unit
Development . . . . . . . . 746 366,854,212 5.53
Townhouse . . . . . . . . . . . 1,798 210,441,922 3.17
2
-
Unit Multifamily . . . . . . . 379 124,056,534 1.87
3
-
4
-
Unit Multifamily . . . . . 254 105,767,249 1.60
Co-
o
p
. . . . . . . . . . . . . . .
2
3
8,688,458 0.13
Manufactured Housing. . .
7
6
5,796,671 0.09
Total: . . . . . . . . . . . . . . . 53,839 $6,629,778,032 100.00%
D-2
CONFIDENTIAL
Return
Number
o
f
Mortgage Loans
Aggregate Unpaid
Principal Balance
Percentage
o
f
Principal
Balance
a
s
o
f
the Combined
California . . . . . . . . . . . . . 15,969 $2,950,772,694 44.51%
Texas . . . . . . . . . . . . . . . 25,626 2,242,172,559 33.82
Florida. . . . . . . . . . . . . . . 4,499 399,994,436 6.03
New York . . . . . . . . . . . . . 2,351 307,781,840 4.64
Washington . . . . . . . . . . . 1,080 109,625,628 1.65
New Jersey . . . . . . . . . . . 703 95,486,464 1.44
Oregon . . . . . . . . . . . . . . 698 64,633,143 0.97
Colorado . . . . . . . . . . . . . 298 56,086,481 0.85
Illinois . . . . . . . . . . . . . . . 306 42,054,560 0.63
Georgia . . . . . . . . . . . . . . 420 41,534,978 0.63
Other . . . . . . . . . . . . . . . . 1,889 319,635,251 4.82
Total: . . . . . . . . . . . . . . . 53,839 $6,629,778,032 100.00%
)
Distribution by
Current LTV
Number
o
f
Mortgage Loans
Aggregate Unpaid
Principal Balance
Percentage
o
f
Principal
Balance
a
s
o
f
the Combined
Not Available . . . . . . . . . . 3 $ 575,567 0.01%
Less than 10.01% . . . . . . 1,278 41,086,870 0.62
10.0120.00 . . . . . . . . . 4,086 213,334,469 3.22
20.0130.00 . . . . . . . . . 5,695 395,124,562 5.96
30.0140.00 . . . . . . . . . 7,454 638,559,729 9.63
40.0150.00 . . . . . . . . . 8,093 807,645,045 12.18
50.0160.00 . . . . . . . . . 8,780 1,077,612,885 16.25
60.0170.00 . . . . . . . . . 9,091 1,391,632,148 20.99
70.0180.00 . . . . . . . . . 8,799 1,946,967,623 29.37
80.0190.00 . . . . . . . . . 558 117,019,643 1.77
90.01100.00% . . . . . . 2 219,492 0.00
Total: . . . . . . . . . . . . . . . 53,839 $6,629,778,032 100.00%
(
1
)
o
f
a mortgage loan
i
o
f
which
i
ance
o
f
o
f
which
i
a
t
a time
o
f
origination
o
f
the
a
s
a percentage.
D-3
CONFIDENTIAL
Return
APPENDIX E
Index
o
f
Terms
3
(
c)(
7
)
Representations . . . . . . . . . . . .
v
i
i
3
-
Month USD LIBOR . . . . . . . . . . . . . . 79
ACLS . . . . . . . . . . . . . . . . . . . . . . . . . 53
Additional Amounts . . . . . . . . . . . . . . . 85
Additional Assets. . . . . . . . . . . . . . . . . 41
Additional Tax Event . . . . . . . . . . . . . . 86
Additional Taxes . . . . . . . . . . . . . . . . . 86
Administrative Services Agreement . . . 44
Advanced Consumer Lending
System . . . . . . . . . . . . . . . . . . . . . . 53
alternative services . . . . . . . . . . . . . . . 49
Asset Documentation . . . . . . . . . . . . . 41
Asset Subsidiary . . . . . . . . . . . . . . . . . 42
Asset Tax Opinion . . . . . . . . . . . . . . . . 42
Asset Trust I . . . . . . . . . . . . . . . . . . . . 5
Asset Trust I Class A Trust Certificate. . 48
Asset Trust I Class R Trust Certificate. . 39
Asset Trust I Custodian . . . . . . . . . . . . 55
Asset Trust I Custody Agreement . . . . 55
Asset Trust I Delaware Trustee . . . . . . 47
Asset Trust I Loan Documents . . . . . . . 56
Asset Trust I Pooling and Servicing
Agreement . . . . . . . . . . . . . . . . . . . . 5
Asset Trust I Servicer . . . . . . . . . . . . . 47
Asset Trust I Servicer Indemnified
Parties . . . . . . . . . . . . . . . . . . . . . . . 54
Asset Trust I Trustee . . . . . . . . . . . . . . 47
Asset Trust
I
I . . . . . . . . . . . . . . . . . . . .
A
-
6
Asset Trust
I
I Class A
Trust Certificate . . . . . . . . . . . . . . . . 5
Asset Trust
I
I Class R
Trust Certificate . . . . . . . . . . . . . . . . 58
Asset Trust
I
I Custodian. . . . . . . . . . . . 66
Asset Trust
I
I Custody Agreement . . . . 66
Asset Trust
I
I Delaware Trustee . . . . . . 6
Asset Trust
I
I Loan Documents . . . . . . 67
Asset Trust
I
Agreement . . . . . . . . . . . . . . . . . . . . 6
Asset Trust
I
I Servicer . . . . . . . . . . . . . 57
Asset Trust
I
I Servicer Indemnified
Parties . . . . . . . . . . . . . . . . . . . . . . . 65
Asset Trust
I
I Trustee. . . . . . . . . . . . . . 57
Asset Trusts . . . . . . . . . . . . . . . . . . . . i
AVM . . . . . . . . . . . . . . . . . . . . . . . . . . 49
back- end ratio . . . . . . . . . . . . . . . . . . . 49
Bankruptcy Event . . . . . . . . . . . . . . . . 45
Benefit Plan Investor . . . . . . . . . . . . . . 111
Business Combination . . . . . . . . . . . . . 95
Business Day. . . . . . . . . . . . . . . . . . . . 70
CACS . . . . . . . . . . . . . . . . . . . . . . . . . 53
Clearstream. . . . . . . . . . . . . . . . . . . . . viii
Clearstream International. . . . . . . . . . . 103
Clearstream Participants . . . . . . . . . . . 103
Code . . . . . . . . . . . . . . . . . . . . . . . . . .
i
i
i
Code
o
f
Ethics. . . . . . . . . . . . . . . . . . . 51
Combined Information Cut-off Date . . . D-1
Company. . . . . . . . . . . . . . . . . . . . . . . 1
Company Common Securities . . . . . . . 4
Company Preferred Securities . . . . . . . 2
Companys Portfolio. . . . . . . . . . . . . . . 26
Comparable Treasury Issue . . . . . . . . . 81
Comparable Treasury Price . . . . . . . . . 82
Conditional Exchange . . . . . . . . . . . . . 2
core capital . . . . . . . . . . . . . . . . . . . . . 33
Covered Debt . . . . . . . . . . . . . . . . . . . 72
Credit Score . . . . . . . . . . . . . . . . . . . . 49
debt- to-income ratio . . . . . . . . . . . . . . . 49
Delaware Trustee. . . . . . . . . . . . . . . . . 37
Deposit Agreement . . . . . . . . . . . . . . . 97
Depositary . . . . . . . . . . . . . . . . . . . . . . 74
Depositary Shares. . . . . . . . . . . . . . . . 2
Dividend Payment Date . . . . . . . . . . . . 70
Dividend Period . . . . . . . . . . . . . . . . . . 70
dividends . . . . . . . . . . . . . . . . . . . . . . . 7
DTC . . . . . . . . . . . . . . . . . . . . . . . . . . 101
DTC Participants . . . . . . . . . . . . . . . . . vii, 102
Eligible Assets . . . . . . . . . . . . . . . . . . . 41
Eligible Investments . . . . . . . . . . . . . . . 42
ERISA . . . . . . . . . . . . . . . . . . . . . . . . .
i
i
i
Euroclear. . . . . . . . . . . . . . . . . . . . . . . vii, 103
Euroclear Operator . . . . . . . . . . . . . . . 103
Euroclear Participants . . . . . . . . . . . . . 103
Euroclear Terms and Conditions . . . . . 104
Exchange Act . . . . . . . . . . . . . . . . . . . x
Exchange Agreement . . . . . . . . . . . . . 74
Exchange Event . . . . . . . . . . . . . . . . . 12
FDIC . . . . . . . . . . . . . . . . . . . . . . . . . .
x
i
i
E
-
1
CONFIDENTIAL
Return
Federal Reserve . . . . . . . . . . . . . . . . . 68
FFO . . . . . . . . . . . . . . . . . . . . . . . . . . 11
FFO Test . . . . . . . . . . . . . . . . . . . . . . . 2
FICO Score . . . . . . . . . . . . . . . . . . . . .
B
-
2
Fidelity. . . . . . . . . . . . . . . . . . . . . . . . . 64
Fidelity System . . . . . . . . . . . . . . . . . . 64
Fitch . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Five- Year Date. . . . . . . . . . . . . . . . . . . 10
Fixed-to-Floating Rate Substitute
Preferred Stock . . . . . . . . . . . . . . . . 96
Fixed-to-Floating Rate Successor
Depositary Share . . . . . . . . . . . . . . . 96
Foreign Holder. . . . . . . . . . . . . . . . . . . 106
FSMA . . . . . . . . . . . . . . . . . . . . . . . . . 113
GAAP . . . . . . . . . . . . . . . . . . . . . . . . .
x
i
i
Global Security . . . . . . . . . . . . . . . . . . 101
HELs . . . . . . . . . . . . . . . . . . . . . . . . . . 5
HELs Information Cut-off Date . . . . . . .
B
-
1
independent . . . . . . . . . . . . . . . . . . . . 44
Independent Investment Banker. . . . . . 82
Independent Manager . . . . . . . . . . . . . 4
Index . . . . . . . . . . . . . . . . . . . . . . . . . . 57
Indirect DTC Participants . . . . . . . . . . . 102
Initial Purchasers. . . . . . . . . . . . . . . . . 113
Investment Company Act. . . . . . . . . . .
i
x
Investment Company Act Event . . . . . . 82
IRS . . . . . . . . . . . . . . . . . . . . . . . . . . . 105
Japan Securities and Exchange Law . . 115
Junior Equity Securities . . . . . . . . . . . . 79
Junior Securities . . . . . . . . . . . . . . . . . 90
LIBOR Business Day . . . . . . . . . . . . . . 79
LIBOR Determination Date . . . . . . . . . 79
like amount . . . . . . . . . . . . . . . . . . . . . 2
LLC Act . . . . . . . . . . . . . . . . . . . . . . . . 38
LLC Agreement . . . . . . . . . . . . . . . . . . 38
Manager . . . . . . . . . . . . . . . . . . . . . . . 44
Margin. . . . . . . . . . . . . . . . . . . . . . . . . 58
Marion. . . . . . . . . . . . . . . . . . . . . . . . . 22
Moodys. . . . . . . . . . . . . . . . . . . . . . . . 16
Mortgage Loans . . . . . . . . . . . . . . . . . 16
negative amortization . . . . . . . . . . . . . 29
Negative Amortization . . . . . . . . . . . . . 58
Negative Amortization Cap . . . . . . . . . 58
New Assets . . . . . . . . . . . . . . . . . . . . . 77
New Reporting Rules. . . . . . . . . . . . . . 1
Nominee . . . . . . . . . . . . . . . . . . . . . . . 75
Offering. . . . . . . . . . . . . . . . . . . . . . . . 3
One- Year MTA. . . . . . . . . . . . . . . . . . . 57
Option ARMs. . . . . . . . . . . . . . . . . . . . 5
Option ARMs Information Cut-
o
f
f
Date. . . . . . . . . . . . . . . . . . . . . . . . . C-1
OTS . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Outstanding Company Preferred
Securities . . . . . . . . . . . . . . . . . . . . . 2
Parity Equity Securities . . . . . . . . . . . . 2
Paying Agent . . . . . . . . . . . . . . . . . . . . 75
Paying Agents . . . . . . . . . . . . . . . . . . . 75
Permitted Investments . . . . . . . . . . . . . 42
Plan . . . . . . . . . . . . . . . . . . . . . . . . . . 111
Pooling and Servicing Agreements . . . 6
Primary Treasury Dealer . . . . . . . . . . . 82
Property Trustee . . . . . . . . . . . . . . . . . 37
Qualified Institutional Buyer . . . . . . . . .
i
i
i
Qualified Purchaser . . . . . . . . . . . . . . .
i
i
i
Qualifying Interests . . . . . . . . . . . . . . . 24
Rating Agencies . . . . . . . . . . . . . . . . . 43
Rating Agency Condition . . . . . . . . . . . 43
Rating Agency Event . . . . . . . . . . . . . . 82
Reference Treasury Dealer . . . . . . . . . 82
Reference Treasury Dealer
Quotations . . . . . . . . . . . . . . . . . . . . 82
Registrar . . . . . . . . . . . . . . . . . . . . . . . 75
Regulation . . . . . . . . . . . . . . . . . . . . . . 111
Regulatory Capital Event . . . . . . . . . . . 82
Relevant Implementation Date . . . . . . . 113
Relevant Member State . . . . . . . . . . . . 114
REMIC . . . . . . . . . . . . . . . . . . . . . . . . 6
Reminder Notice . . . . . . . . . . . . . . . . .
v
i
i
Replacement Capital Covenant . . . . . . 10
Replacement Covenant Covered
Securities . . . . . . . . . . . . . . . . . . . . . 72
Reuters Screen LIBOR01 Page . . . . . . 79
S&P. . . . . . . . . . . . . . . . . . . . . . . .
.
. . 16
SEC . . . . . . . . . . . . . . . . . . . . . . . . . .
x
i
Section
3
(
c)(7). . . . . . . . . . . . . . . . . . .
v
i
Securities Act . . . . . . . . . . . . . . . . . . . viii
Senior Equity Securities. . . . . . . . . . . . 12
Securities . . . . . . . . . . . . . . . . . . . . . 1
Series 2006- B Company Preferred
Securities . . . . . . . . . . . . . . . . . . . . . 1
Series 2006- C Company Preferred
Securities . . . . . . . . . . . . . . . . . . . . . 1
E
-
2
CONFIDENTIAL
Return
Securities . . . . . . . . . . . . . . . . . . . . . 1
Series I WMI Preferred Stock . . . . . . . 100
Series J WMI Preferred Stock . . . . . . . 100
Series K WMI Preferred Stock . . . . . . . 100
Series L WMI Preferred Stock . . . . . . . 100
Series M WMI Preferred Stock . . . . . . 2
SFA. . . . . . . . . . . . . . . . . . . . . . . . . . . 114
Similar Law . . . . . . . . . . . . . . . . . . . . .
i
i
i
Successor Entity . . . . . . . . . . . . . . . . . 96
supplementary capital . . . . . . . . . . . . . 33
tangible capital . . . . . . . . . . . . . . . . . . 33
Tax Event . . . . . . . . . . . . . . . . . . . . . . 82
Tax- Exempt
U
.
S
.
Holder . . . . . . . . . . . 108
Thrift Financial Report . . . . . . . . . . . . .
x
i
i
total capital . . . . . . . . . . . . . . . . . . . . . 33
Transfer Agent . . . . . . . . . . . . . . . . . . . 75
Treasury Rate . . . . . . . . . . . . . . . . . . . 83
Trust . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Trust Act . . . . . . . . . . . . . . . . . . . . . . . 37
Trust Agreement . . . . . . . . . . . . . . . . .
v
i
Trust Holder. . . . . . . . . . . . . . . . . . . . . 13
Trust I . . . . . . . . . . . . . . . . . . . . . . . . . 1
Trust I Securities . . . . . . . . . . . . . . . . . 1
Trust
I
I
.
. . . . . . . . . . . . . . . . . . . . . . . . 2
Trust
I
I Securities. . . . . . . . . . . . . . . . . 2
Trust Securities . . . . . . . . . . . . . . . . . . 1
U
.
S
.
Holder . . . . . . . . . . . . . . . . . . . . . 105
U
.
S
.
Person. . . . . . . . . . . . . . . . . . . . . 73
UBTI . . . . . . . . . . . . . . . . . . . . . . . . . . 108
University Street . . . . . . . . . . . . . . . . . 4
Voting Parity Securities . . . . . . . . . . . . 89
WaMu Cayman . . . . . . . . . . . . . . . . . . 1
WaMu Cayman Securities . . . . . . . . . . 1
WMB. . . . . . . . . . . . . . . . . . . . . . . . . . 1
WMI . . . . . . . . . . . . . . . . . . . . . . . . . . 1
WMI Group . . . . . . . . . . . . . . . . . . . . . 1
WMI Parity Stock. . . . . . . . . . . . . . . . . 90
WMIs Board
o
f
Directors . . . . . . . . . . . 29
WTC . . . . . . . . . . . . . . . . . . . . . . . . . . 75
E
-
3
CONFIDENTIAL
Return
No dealer, salesperson
o
r
other person
i
s authorized
t
o give any information
o
r
t
o
represent anything not contained
i
n this
offering circular. You must not rely on any
unauthorized information
o
r
representations.
This offering circular
i
s an offer
t
o sell only
the Trust Securities offered hereby, but only
under circumstances and
i
n jurisdictions
where
i
t
i
s lawful
t
o do so. The information
contained
i
i
s current
only
a
s
o
f
its date.
TABLE OF CONTENTS
Page
Index
o
f
Terms . . . . . . . . . . . . . . . . . . . . . .
i
i
Notice
t
o Investors . . . . . . . . . . . . . . . . . . . .
i
i
i
Special Note Regarding Forward-Looking
Statements . . . . . . . . . . . . . . . . . . . . . . . x
Where You Can Find More Information . . . . .
x
i
Offering Circular Summary . . . . . . . . . . . . . . 1
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . .
1
8
Certain Information Concerning WMB . . . . . .
3
2
Use
o
f
Proceeds . . . . . . . . . . . . . . . . . . . . .
3
6
The Trust . . . . . . . . . . . . . . . . . . . . . . . . . .
3
7
The Company . . . . . . . . . . . . . . . . . . . . . . .
3
8
Asset Trust I . . . . . . . . . . . . . . . . . . . . . . . .
4
7
Asset Trust
I
I . . . . . . . . . . . . . . . . . . . . . . . .
5
7
WMI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
6
8
Certain Relationships and Related Party
Transactions. . . . . . . . . . . . . . . . . . . . . . .
6
9
Description
o
f
the Trust Securities . . . . . . . . .
7
0
Description
o
f
Preferred Securities . . . . . . . . . . . . . . . . .
7
7
Description
o
f
Other Company Securities. . . .
8
7
Description
o
f
Stock. . . . . . . . . . . . . . . . . . . . . . . . . . . .
8
9
Description
o
f
the Depositary Shares. . . . . . .
9
7
Description
o
f
the Other WMI Capital Stock . . 100
Book- Entry Issuance . . . . . . . . . . . . . . . . . . 101
Certain
U
.
S
.
Federal Income Tax
Considerations . . . . . . . . . . . . . . . . . . . . . 105
ERISA Considerations . . . . . . . . . . . . . . . . . 111
Ratings. . . . . . . . . . . . . . . . . . . . . . . . . . . . 112
Plan
o
f
Distribution . . . . . . . . . . . . . . . . . . . 113
Notice
t
o Canadian Residents. . . . . . . . . . . . 116
Validity
o
f
Securities . . . . . . . . . . . . . . . . . . . 118
Additional Information . . . . . . . . . . . . . . . . . 119
APPENDIX A Washington Mutual Preferred
Funding LLC, Financials . . . . . . . . . . . . . .
A
-
1
APPENDIX B Portfolio Data
f
o
r
Asset Trust
I
. .
B
-
1
APPENDIX C Portfolio Data
f
o
r
Asset
Trust
I
I
.
. . . . . . . . . . . . . . . . . . . . . . . . . .
C
-
1
APPENDIX D Portfolio Data
f
o
r
Asset Trust I
And Asset Trust
I
I
,
Combined . . . . . . . . . .
D
-
1
APPENDIX E Index
o
f
Terms . . . . . . . . . . . .
E
-
1
$500,000,000
Washington Mutual
Preferred Funding Trust
I
I
I
Fixed-to-Floating Rate
Perpetual Non- cumulative
Trust Securities
Automatically Exchangeable
i
n
Specified Circumstances into
Depositary Shares Representing
Preferred Stock
o
f
Washington Mutual, Inc.
Sole Structuring Coordinator and Joint
Bookrunner
Goldman, Sachs &Co.
Joint Bookrunners
Lehman Brothers
UBS Investment Bank
Co-Managers
Credit Suisse
Keefe, Bruyette & Woods
JPMorgan
Morgan Stanley
Wachovia Securities
CONFIDENTIAL
Return
STATES
~
4
STATp~ I
~
1
~
j
j
t
~
tate
o
f
Secretary
0
f
State
I
, Sam Reed, Secretary
of State of the State of
Washington
and custodian of its
seal,
hereby
issue this .
.
. .
.
.
. .
.
certificate that the attached
i
s
a true and correct copy
of
...
ARTICLES OF AMENDMENT
of
WASHINGTON MUTUAL, INC.
as filed in this office on
May 23, 2007.
Date:
May 23,
2007
Givenundermy
hand and the Seal of the State
of
Washington a
t
Olympia,
the State
Capital
Sam Reed, Secretary of State
______
I
San flAt
-
CONFIDENTIAL
Return
ARTICLES OF AMENDMENT
OF
WASHINGTON MUTUAL, INC.
(Series M Perpetual Non- cumulative
Fixed-to-Floating Rate Preferred Stock)
Pursuant
t
o the provisions of Chapter 23B. 10 and Section 23B. 06.020
o
f
the Revised
Code
o
f
Washington,
the
undersigned officer of Washington Mutual, Inc. (the Company), a
corporation organized and existing under the laws of the State of
Washington, does hereby
submit for filing these Articles of Amendment to the Companys Amended and Restated Articles
o
f
Incorporation:
FIRST: The name of the Company i
s
SECOND: 500 shares of the authorized preferred stock of the Company are hereby
designated Series M Perpetual Non- cumulative
Fixed- to-Floating Rate Preferred Stock.
The preferences, limitations, voting powers
and relative rights of the Series M Perpetual
Non-cumulative
Fixed-to-Floating
Rate Preferred Stock are as follows:
DESIGNATION
Section
1
.
Designation There
i
s
hereby created out of the authorized and unissued
shares
o
f
preferred stock
o
f
the Company a series of
preferred
stock
designated as the Series
M
Perpetual
Non- cumulative
Fixed-to-Floating
Rate Preferred Stock (the Series M Preferred
Stock). The number of shares
constituting
such series shall be 500. The Series M Preferred
Stock shall have no par
value
per
share and the
liquidation preference of the Series M Preferred
Stock shall be
$1,000,000.00 per share. Shares of the Series M Preferred Stock shall be issued
i
f and only i
f
a Conditional Exchange occurs.
Section 2. Ranking
The Series M Preferred Stock will, with
respect
to dividend
rights and rights on
liquidation, winding-
u
p and dissolution, rank
(
i
) on a parity with the Companys Series I
Perpetual
Non-cumulative
Fixed-to-Floating
Rate Preferred Stock ( the Series I Preferred
Stock),
the
Companys
Series J
Perpetual Non- cumulative Fixed Rate Preferred Stock
(the
Series J Preferred Stock),
the
Companys Series K Perpetual Non- Cumulative
Floating
Rate
Preferred Stock ( the Series K Preferred Stock), the
Companys
Series L
Perpetual
Non-
cumulative Fixed-to-Floating Rate Preferred Stock
( the Series L Preferred
Stock)
and with
each other class or series of preferred stock established after the
Designation
Date
b
y
the
Company the terms of which
expressly provide
that such class or series will rank on a parity
with the Series M Preferred Stock as to dividend
rights
and
rights on liquidation, winding- up
and
dissolution of the
Company ( collectively
referred to as Parity Securities)
and
(
i
i
) senior to the
Companys
common stock
(the
uCommon
Stock),
the
Companys
Series RP Preferred Stock
and each other class of
capital
stock
outstanding or established after the
Designation
Date
by
the
Company
the terms of which do not
expressly provide that
i
t ranks on a parity
with or senior
CONFIDENTIAL
Return
t
o the Series M Preferred Stock as t
o
dividend rights
and
rights on liquidation, winding-
u
p and
dissolution
o
f
the Company (collectively referred
t
o
as Junior Securities).
The
Company
has
the right to authorize and/ or issue additional shares or series of Junior Securities and Parity
Securities without the consent of the hblders of the Series M Preferred Stock.
Section
3
.
Definitions Unless the context or use indicates another meaning or
intent,
the
following
terms shall have the
following meanings,
whether used
i
n the singular or the
plural:
(
a
)
3-Month USD LIBOR means, with
respect
to
any
Dividend Period, a rate
determined on the basis of the offered rates for three- month U. S. dollar deposits of not less than
a principal amount equal to that which
i
s
representative for a single
transaction
i
n such market
at such time, commencing on the first day o
f
such Dividend Period, which
appears
on Reuters
Screen LIBORO1 Page as o
f
approximately 11: 00 a.m., London time, on the LIBOR
Determination Date for such Dividend Period.
I
f on
any
LIBOR Determination Date no rate
appears on Reuters Screen LIBOROI Page as o
f
approximately 11: 00 a.m., London time, the
Company
or an affiliate of the
Company on behalf of the
Company
will on such LIBOR
Determination Date
request
four
major
reference banks
i
n the London interbank market selected
b
y the
Company
to
provide
the
Company
with a quotation
of the rate at which three- month
deposits i
n U. S. dollars, commencing
on the first
day of such Dividend Period, are offered
b
y
them
t
o
prime
banks
i
n the London interbank market as of
approximately
11:00
a.m.,
London
time, on such LIBOR Determination Date and i
n
a
principal
amount equal
to that which
i
s
representative
for a
single
transaction i
n
such market at such time.
I
f at least two such
quotations are provided,
3-Month USD LIBOR for such Dividend Period will be the arithmetic
mean (rounded upward i
f
necessary
to the nearest .00001 of
1%) o
f
such
quotations
as
calculated
by
the
Company. I
f fewer than two
quotations are provided,
3-Month USD LIBOR for
such Dividend Period will be the arithmetic mean (rounded upward i
f
necessary t
o the nearest
.00001 of
1%)
of the rates
quoted as o
f
approximately
11: 00
am.,
New York time, on the first
day of such Dividend Period
b
y
three major banks
i
n New York City, New York selected by the
Company for loans
i
n U. S. dollars to leading European banks, for a three- month period
commencing on the first
day
of such Dividend Period and
i
n
a principal amount of not less than
$1,000,000.
(
b
)
Day means any day
other than a Saturday, Sunday or any
other day on which banks i
n New York City, New York, or Seattle, Washington are generally
required or authorized
b
y
law to be closed.
(
c
)
Stock has the
meaning set forth
i
n Section
2
.
(
d
)
means Washington Mutual, Inc., a Washington corporation.
(
e
)
Treasury Issue means the United States Treasury security
selected
by
the
Independent
Investment Banker as having a maturity comparable
to the term
remaining to the Dividend Payment
Date
i
n June 2012 that would be utihzed, a
t
the time of
selection and
i
n accordance with
customary
financial practice, i
n
pricing new issues of
perpetual
preferred securities having similar terms as the Series M Preferred Stock with respect to the
payment
of dividends and distributions of assets
upon liquidation,
dissolution or winding- up
of
the issuer of such
preferred
stock.
-2-
CONFIDENTIAL
Return
(
f
) Treasury Price means with
respect
to
any Redemption
Date the
average
of the Reference
Treasury
Dealer Quotations for such
Redemption Date, after
excluding
the
highest
and lowest
o
f
such Reference
Treasury
Dealer Quotations, or
i
f the
Independent
Investment Banker obtains fewer than five such Reference
Treasury
Dealer
Quotations,
the
average
of all such
quotations.
(
g
)
Exchange means the automatic
exchange
of the Trust
Securities into
depositary
shares
representing
an interest
i
n the Series M Preferred Stock which
occurs upon
the written direction of the OTS
upon or after the occurrence of an Exchange
Event.
(
h
)
Preferred Securities means the
Fixed-to-Floating
Rate
Perpetual
Non- cumulative Preferred
Securities,
Series
2007-A, liquidation preference $1,000
per security,
issued or to be issued
by Washington
Mutual Preferred
Funding LLC, a Delaware
limited
liability company.
(
i
) Date means
May 24,
2007.
U
)
Payment Date has the
meaning
set forth
i
n Section
4
(
b).
(
k
) Period has the
meaning
set forth
i
n Section
4
(
b).
(
I
) Event means the occurrence of
any
one of the
following at a
time as the Trust Securities are issued and
outstanding:
(
I
)
WMB becomes
undercapitalized
under the
Prompt
Corrective
Action
Regulations;
(
i
i
)
WMB
i
s
placed
into
conservatorship or receivership; or
(
i
i
i
) the
OTS, i
n its sole discretion, directs an exchange
of the Trust
Securities into
depositary
shares
representing an interest
i
n the Series M Preferred Stock
i
n
anticipation
of WMB
becoming undercapitalized
under the
Prompt
Corrective Action
Regulations
or of the OTS
taking any supervisory
action that limits the
payment
of dividends
b
y WMB.
(m)
Date means the Dividend
Payment
Date
i
n June 2012, and
the Dividend
Payment
Date
o
f
each fifth
succeeding year (
i
.
e
.
,
June 2017, June 2022, etc.)
assuming i
n each case that the Series M Preferred Stock has been issued.
(
n
)
Investment Banker means an independent
investment
banking
institution of national
standing appointed
b
y the
Company.
(
o
)
Securities has the
meaning
set forth
i
n Section
2
.
(
p
)
Business Day means any day on which commercial banks are
open
for
general
business
( including dealings i
n
deposits i
n U. S.
dollars) i
n London.
(
q
)
Determination Date
means, as to each Dividend Period, the date
that
i
s two LIBOR Business
Days prior
to the first
day
of such Dividend Period.
-3-
CONFIDENTIAL
Return
(
r
)
Q]~ means the Office
o
f
Thrift Supervision or any successor regulatory
entity.
(
s
)
Securitie~ s has the meaning set forth
i
n Section
2
.
(
t
) Treasury Dealer has the meaning set forth
i
n Section
3
(
y).
(
u
)
Corrective Action Regulation means 12 C.F.R. Part 565 as i
n
effect from time
t
o time, or any successor regulation.
(
v
)
Agencies means, at
any time, Standard & Poors Rating
Services, a Division
o
f
the McGraw- Hill Companies, Inc., Moodys Investors Service, Inc. and
Fitch, Inc., but only i
n the case
o
f
each such agency i
f
i
t
i
s
rating the relevant security, including
the Delaware Preferred Securities
a
t
the relevant time or, i
f none of them
i
s
providing a rating for
the relevant security, including the Delaware Preferred Securities at such time, then
any
nationally recognized
statistical
rating organization as that
phrase i
s defined for
purposes
of
Rule 436( g)(
2
)
under the Securities Act of 1933, as amended, which
i
s
rating such relevant
security.
(
w
)
AAgency Event occurs when the
Company reasonably
determines that an amendment, clarification or change
has occurred
i
n the
equity
criteria for
securities such as the Delaware Preferred Securities of
any Rating Agency
that then
publishes a
rating
for the
Company
which amendment, clarification or change
results
i
n
a lower
equity
credit
for the
Company
than the
respective equity
credit
assigned by
such
Rating Agency
to the
Delaware Preferred Securities on the
Designation
Date.
(
x
)
Date means any
date that
i
s
designated by
the
Company
in
a notice of
redemption
delivered
pursuant
to Section
7
.
(
y
)
Treasury Dealer means each of the three
primary
U. S.
government
securities dealers
( each, aTreasury Deater) as specified
b
y
the
Company; provided
that
i
f
any Primary Treasury
Dealer as specified by
the
Company ceases to
be a Primary Treasury Dealer, the
Company
will substitute for such
Primary Treasury
Dealer
another
Primary Treasury
Dealer and
i
f the
Company
fails
t
o select a substitute within a
reasonable
period
of
time,
then the substitute will be a PrimaryTreasury
Dealer selected
by
the
Independent
Investment Banker after consultation with the
Company.
(
z
)
Treasury Dealer Quotations means, with
respect
to the
Reference
Treasury
Dealer and
any Redemption Date, the
average, as determined
b
y
the
Independent investment Banker, o
f
the bid and asked
prices for the
Comparable Treasury
Issue
(expressed, i
n each case, as a percentage o
f
its
principal amount) quoted i
n
writing t
o the
Independent
Investment Banker
b
y
such Reference Treasury Dealer
a
t
5:00 p.m., New York
City time, on the third Business
Day preceding
such Redemption Date.
(aa) ACapital Event occurs when the
Company determines,
based
upon receipt
of an opinion o
f
counsel, that there
i
s
a significant risk that the Delaware
Preferred Securities will no longer constitute core capital of WMB for purposes of the
capital
adequacy regulations
issued
b
y the OTS as a result
o
f
a change i
n
applicable laws, regulations
or related
interpretations
after issuance
o
f
the Delaware Preferred Securities.
-4-
CONFIDENTIAL
Return
(bb) Screen LIBOROI Page means the
display so designated on
the Reuters 3000 Xtra (
o
r
such other
page as may replace that
page
on that service, or such
other service as
may
be nominated as the information
vendor,
for the
purpose o
f
displaying
rates
comparable
to the London lnterbank Offered rate for U. S. dollar deposits).
( cc)
I Preferred Stock has the
meaning
set forth i
n
Section 2.
( dd)
J Preferred Stock has the
meaning
set forth in Section
2
.
( ee)
K Preferred Stock has the
meaning
set forth
i
n Section
2
.
(
i
f
) L Preferred Stock has the
meaning
set forth i
n Section 2.
(gg)
M Preferred Stock has the
meaning
set forth
i
n Section
1
.
(hh)
Rate means the rate
per year equal
to the
quarterly equivalent
yield
to
maturity
of the
Comparable Treasury Issue, calculated
using
a
price
for the
Comparable
Treasury
Issue
(expressed as a percentage
of its
principal amount) equal
to the
Comparable
Treasury
Price for the relevant
Redemption
Date. The
Treasury
Rate will be calculated on the
third Business
Day preceding
the relevant
Redemption Date.
(
i
i
) Securities means the
Fixed-to-Floating
Rate Perpetual
Non-
cumulative Trust Securities, liquidation preference $100,000 per security,
Issued
b
y
Washington
Mutual Preferred
Funding
Trust
I
l
l
,
a Delaware
statutory
trust.
(
j
j
) Parity Securities has the
meaning
set forth in Section
8
(
b).
(kk)
means
Washington
Mutual Bank, a federal
savings
association
and a subsidiary
of the
Company, or its successor.
Section
4
.
Dividends
(
a
)
Holders of shares of Series M Preferred Stock shall be entitled to receive,
when, as and
i
f declared
by
the Board of
Directors,
out of the funds
legally
available therefor,
noncumulative cash dividends
i
n the amount determined as set forth
i
n Section
4
(
c),
and no
more.
(
b
)
Subject
to Section
4
(
a),
dividends shall be
payable
in arrears on
March 15, June 15, September
15 and December 15 of each
year commencing on the first such
day
after the issuance of the Series M Preferred Stock or, i
n each case, i
f
any
such
day i
s not a
Business
Day,
the next Business
Day (each, a Dividend
Payment Date).
Each dividend will be
payable
to holders of record as they appear on the stock books of the
Company
on the first
day
of the month in which the relevant Dividend
Payment
Date occurs or, i
f such date
i
s not a
Business
Day,
the first Business
Day
of such month. Each
period
from and
including a Dividend
Payment
Date
(
o
r
the date of the issuance of the Series M Preferred Stock)
to but
excluding
the
following
Dividend
Payment
Date (
o
r
the
Redemption Date) i
s
herein referred to as Dividend
Period, except that, i
f the Series M Preferred Stock
i
s
outstanding on June 15, 2012, the
Dividend Period
ending i
n June 2012 shall be
t
o but
excluding
June 15, 2012
(whether or not a
Business
Day)
and the Dividend Period
ending i
n
September 2012 shall commence on
June 15, 2012 (whether or not a Business Day).
-5-
CONFIDENTIAL
Return
(
c
)
I
f the date of issuance of the Series M Preferred Stock
i
s
prior to the day
immediatelypreceding
June
15, 2012, or i
f June
15,
2012
i
s not a Business Day, the first
Business Day after June 15, 2012, then from such date of issuance to but not
including June 15,
2012 (whether or not a Business Day) dividends,
i
f
, when and as declared by
the Board of
Directors, will be, for each outstanding share of Series M Preferred Stock, at an annual rate of
6.895% on the
per
share liquidation preference of the Series M Preferred Stock. From the later
of the
(
I
) June
15,
2012 and (
i
i
) the date of issuance of the Series M Preferred Stock, dividends,
i
f
, when and as declared
b
y the Board
o
f
Directors, will be, for each
outstanding
share of Series
M Preferred Stock, at an annual rate on the
per
share
of the Series M
Preferred Stock
equal
to 3-Month USD LIBOR for the related Dividend Period
plus 1.755%.
Dividends
payable
for
any
Dividend Period
greater
or less than a full Dividend Period will be
computed on the basis
o
f
twelve
30-day months, a 360-day year,
and the actual number of
days
elapsed i
n the
period i
f such Dividend Period ends
i
n
or prior
to June 2012; thereafter dividends
payable
for
any period greater or less than a full dividend
period
will be
o
f
the actual number of
days
in the relevant
period
divided
by
360. No interest will be
paid on
any
dividend
payment o
f
the Series M Preferred Stock.
(
d
)
Dividends on the Series M Preferred Stock are noncumulative.
I
f the
Board
o
f
Directors does not declare a dividend on
the Series M Preferred Stock
or declares less
than a full dividend
i
n
respect o
f
any
Dividend Period, the holders
o
f
the Series M Preferred
Stock will have no right t
o receive
any
dividend or a full dividend, as the case may be, for the
Dividend Period, and the
Company will have no obligation t
o
pay a dividend or to
pay
full
dividends for that Dividend Period, whether or not dividends are declared and
paid for any future
Dividend Period with respect to the Series M Preferred Stock or the Common Stock or
any
other
class or series
o
f
the Companys preferred stock.
(
e
)
I
f full dividends on
a
l
l
outstanding shares of the Series M Preferred Stock
for
any
Dividend Period have not been declared and paid, the Company shall not declare or
pay
dividends with
respect to, or redeem, purchase or acquire any of, its equity capital
securities
during the next
succeeding Dividend Period, except dividends i
n
connection with the Series RP
Preferred Stock or other shareholders
rights plan, i
f
any, or dividends
i
n connection with benefit
plans.
Section 5. Liquidation
(
a
)
In the event the Company voluntarily or involuntarily liquidates, dissolves
or winds
up,
the holders of Series M Preferred Stock at the time outstanding shall be entitled to
receive
liquidating
distributions
i
n the amount of $1,000,000 per
share of Series M Preferred
Stock, plus
an amount
equal
to
any
declared but
unpaid
dividends thereon for the current
Dividend Period to and
including
the date
o
f
such
liquidation,
out of assets
legally
available for
distribution to its shareholders, before
any
distribution of assets
i
s made to the holders of
Common Stock or any
securities
ranking junior
to the Series M Preferred Stock. After
payment
of the full amount of such
liquidating distributions,
the holders of Series M Preferred Stock will
not be entitled to
any
further
participation i
n
any
by,
and shall have no
right
or claim to
any remaining
assets
of,
the
Company.
(
b
)
In the event the assets of the
Company
available for distribution to
shareholders
upon any liquidation, dissolution or
winding-
u
p of the affairs of the
Company,
whether
voluntary or involuntary, shall be insufficient to
pay i
n full the amounts
payable
with
respect
to all
outstanding
shares of the Series M Preferred Stock and the
corresponding
-6-
CONFIDENTIAL
Return
amounts payable on any other Securities of equal ranking, the holders
o
f
Series M Preferred
Stock and the holders of such other securities
o
f
equal ranking shall share ratably i
n
any
distribution of assets of the Company i
n
proportion to the full respective liquidating
distributions
to which
they
would otherwise be respectively entitled.
Section 6. Maturity The Series M Preferred Stock shall be perpetual unless
redeemed
b
y the Company i
n accordance with Section 7.
Section 7. Redemptions
(
a
)
The Series M Preferred Stock shall not be redeemable at the
option
of the
holders at
any
time.
(
b
)
The Series M Preferred Stock shall be redeemable at the option of the
Company i
n
any
of the following circumstances:
(
i
) in whole but not
i
n
part, prior to the Dividend
Payment
Date
i
n
June, 2012
upon
the occurrence of a Regulatory Capital Event or a Rating Agency Event, at a
cash redemption price equal to the sum of:
(
A
)
the
greater
of:
(
1
)
$1,000,000 per
share of Series M Preferred Stock
and
(
2
)
The sum of the
present
value of $1,000,000 per
Stock,
discounted from the Dividend
Payment
Date in
June, 2012
to the redemption date, and the present values
o
f
all undeclared dividends for each Dividend
Period from the redemption date to and including the Dividend Payment Date
i
n
June, 2012
discounted from their applicable Dividend Payment Dates to the redemption date, i
n each case
on a quarterly
basis
(assuming
a 360.- day year consisting
of twelve
30-day months)
at the
Treasury Rate, as calculated
by
an
independent
Investment Banker, pIus 0.50%; pIus
(
B
)
any
declared but
unpaid dividends to the
redemption date;
(
i
i
) in whole but not
i
n
part, on any
prior
to
the Dividend
Payment Date i
n
June,
2012 for
any
reason other than the occurrence of a
Rating
Agency
Event or a
Regulatory Capital Event,
at a cash
to:
(
A
)
the
greater
of:
(
1
)
$1,000,000 per
share of Series M Preferred Stock,
or
(
2
)
the sum of the
present
share of Series M Preferred Stock discounted from the Dividend Payment Date
i
n
June, 2012 to
the redemption date, and the
present
values of all undeclared dividends for the Dividend
Periods from the
redemption
date to and
including
the Dividend
Payment
Date
i
n
June, 2012,
discounted from their
applicable
Dividend
Payment
Dates to the redemption date, i
n each case
-7-
CONFIDENTIAL
Return
on a quarterly basis (assuming a 360- day year consisting
of twelve
30-day months)
at the
Treasury Rate, as calculated by an Independent Investment Banker, plus 0.35%; pIus
(
B
)
~
h
y
declared but unpaid dividends to the
redemption date;
(iii) i
n whole but not
i
n
part, on any
Dividend Payment
Date after the
i
n
June, 2012 that
i
s not a Five- Year Date, upon
the occurrence o
f
a
Regulatory Capital
Event or a Rating Agency Event, a
t
a cash redemption price equal to
$1,000,000 per
share of Series M Preferred Stock, plus any
declared and unpaid dividends to
the
redemption date;
(
i
v
)
i
n whole or i
n
part, on each Dividend Payment Date that
i
s
a Five-
Year
Date, a
t
a cash redemption price of $1,000,000 per
Stock,
plus any
declared and unpaid
dividends to the
redemption date; and
(
v
)
i
n
whole but not
i
n
part, on
any
Dividend Payment
Date after the
Dividend
Payment
Date
i
n
June, 2012 that
i
s not a Five-Year Date for
any reason other than the
occurrence of a Rating Agency
Event or a Regulatory Capital Event,
at a cash redemption price
equal
to:
(
A
)
the
greater
of:
(
1
)
$1,000,000
per
Stock,
or
(
2
)
the sum of the
present
share of Series M Preferred Stock, discounted from the next succeeding
Five-Year Date to the
redemption date, and the
present
values of all undeclared dividends for the Dividend Periods
from the
redemption
date to and
including
the next
succeeding
Five-Year Date, discounted from
their
applicable
Dividend
Payment
Dates to the
redemption date, i
n
each case on a
quarterly
basis
(assuming a 360- day year consisting o
f
twelve
30-day months) a
t
the 3-month USD
LIBOR Rate
applicable
to the Dividend Period
immediately preceding
such
redemption
date
(which
3-month USD LIBOR Rate will also, for the
purposes
of
calculating
such
redemption
price,
be the rate used
i
n
calculating
the amount for each undeclared
dividend), as calculated
by
an Independent Investment Banker; plus
(
B
)
any
declared but
unpaid
dividends to the
redemption date;
in each
case, without accumulation of
any
undeclared dividends with
respect
to Dividend
Payment
Dates
prior t
o the
redemption
date.
(
C
)
Dividends will cease to accrue on the Series M Preferred Stock called for
redemption
on and as of the date fixed for
redemption
and such Series M Preferred Stock will
be deemed to cease to be
outstanding, provided
that the
redemption price, including any
authorized and declared but
unpaid
dividends for the current Dividend Period, i
f
any,
to the date
fixed for
redemption,
has been
duly paid or provision
has been made for such
payment.
(
d
)
I
n the case of
any redemption
under this Section
7
,
notice shall be mailed
to each holder of record of the Series M Preferred
Stock,
not less than 30 nor more than 60
days prior
to the
Redemption
Date
specified i
n such notice; provided, however, that a longer
minimum notice
may be agreed
to
by
the
Company, including i
n
a deposit agreement relating
to
-8-
CONFIDENTIAL
Return
depositary shares representing interests
i
n the Series M Preferred Stock. The notice of
redemption shall include a statement of (
i
) the redemption date, (
i
i
) the
redemption price,
and
(iii)
the number of shares to be redeemed.
(
e
)
Any shares of Series M Preferred Stock redeemed pursuant t
o this
Section 7 or otherwise
acquired by
the
Company
in
any manner whatsoever shalt become
authorized but unissued
preferred
shares
o
f
the
Company
but such
preferred
shares shall not
under
any
circumstances be reissued as Series M Preferred Shares. The
Company
shall from
time-to-time take such
appropriate
action as
may
be
necessary
to reduce the authorized
number of shares of Series M Preferred Stock
accordingly.
Section
8
.
Voting Rights
(
a
)
Holders of the Series M Preferred Stock will not have
any voting rights,
including
the
right t
o elect
any directors, except (
i
) voting rights, i
f
any, required
b
y
law, and
(
i
i
)
voting rights, i
f
any,
described
i
n this Section
8
.
(
b
)
Holders of the Series M Preferred Stock will
i
n the circumstances to the
extent set forth
i
n this Section
8
(
b),
have the
right
to elect two directors.
(
i
)
I
f after the issuance of the Series M Preferred Stock the
Company
fails to
pay, or declare and set aside for
payment,
full dividends on the Series M Preferred Stock
or any
other class or series of
Parity Securities
having
similar
voting rights
(
Voting Parity
Securities)
for six Dividend Periods or their
equivalent,
the authorized number of the
Companys
directors will be increased
b
y two.
Subject
to
compliance
with
any requirement
for
regulatory approval of, or non- objection to, persons serving as directors, the holders of Series M
Preferred Stock, voting together as a single
and
separate
class with the holders of
any
outstanding Voting Parity Securities,
will have the
right
to elect two directors
i
n addition to the
directors then
i
n office at the
Companys
next annual
meeting
of shareholders. This
right
will
continue at each
subsequent
annual
meeting
until the
Company pays
dividends
i
n full on the
Series M Preferred Stock and
any Voting Parity Securities for three consecutive Dividend
Periods or their
equivalent
and
pays or declares and sets aside for
payment
dividends
i
n full for
the fourth consecutive Dividend Period or its
equivalent or, i
f earlier,
upon
the
redemption
of
a
l
l
Series M Preferred Stock.
(
i
i
)
The term of such additional directors will
terminate, and the total
number of directors will be decreased
b
y
two, at such time as the
Company pays
dividends
i
n
full on the Series M Preferred Stock and any Voting Parity
Securities for three consecutive
Dividend Periods or their equivalent and declares and pays or sets aside for
payment
dividends
i
n full for the fourth consecutIve DMdend Period or its
equivalent or, i
f earlier, upon
the
redemption o
f
all Series M Preferred Stock. After the term of such additional directors
terminates, the holders
o
f
the Series M Preferred Stock will not be entitled to elect additional
directors unless full dividends on the Series M Preferred Stock have again not been paid or
declared and set aside for payment for six future Dividend Periods.
(iii) Any additional director elected by the holders of the Series M
Preferred Stock and the
Voting Parity
Securities
may only
be removed
b
y the vote of the holders
of record
o
f
the
outstanding
Series M Preferred Stock and
Voting Parity Securities, voting
together as a single and separate class, at a meeting of the Company
shareholders called for
that purpose. Any vacancy created
b
y the removal of any such director may be filled only by the
-9-
CONFIDENTIAL
Return
vote of the holders of the outstanding Series M Preferred Stock and
Voting Parity Securities,
voting together as a single
and
separate
class.
(
c
)
So
long as
any
thares of Series M Preferred Stock are outstanding, the
vote or consent of the holders of at least 66 2/ 3% of the shares of Series M Preferred Stock at
the time outstanding, voting as a class with
a
l
l
other classes and series of Parity Securities
upon
which like voting rights have been conferred and are exercisable, given in
person or
b
y
proxy,
either
i
n
writing without a meeting or by
vote at
any meeting called for the
purpose,
will be
necessary
for
effecting or validating any
of the
following actions, whether or not such
approval i
s
required by Washington law:
(
i
)
any amendment, alteration or repeal of
any provision of the
Companys
Amended and Restated Articles of
Incorporation (including
the Articles
o
f
Amendment
creating
the Series M Preferred
Stock)
or the
Companys bylaws
that would alter or
change
the
voting powers, preferences
or
special rights
of the Series M Preferred Stock so as to
affect them
adversely;
(
i
i
)
any
amendment or alteration of the
Companys
Amended and
Restated Articles of
Incorporation t
o authorize or create, or increase the authorized amount of,
any
shares of, or
any
securities convertible into shares of, any
class or series of the
Companys
capital
stock
ranking prior
to the Series M Preferred Stock
i
n the
payment o
f
dividends or i
n the
distribution of assets on any liquidation,
dissolution or winding up
of the Company; or
(
i
i
i
) the consummation
o
f
a
binding
share
exchange
or reclassification
involving
the Series M Preferred Stock or a merger or consolidation of the
Company
with
another
entity, except
that holders of Series M Preferred Stock will have no right t
o vote under
this
provision or under 23B. 11.035 of the Revised Code
o
f
Washington or otherwise under
Washington
law
i
f
i
n each case (
x
)
the Series M Preferred Stock remains
outstanding or, i
n the
case of
any
such
merger or consolidation with
respect
to which the
Company i
s not the
surviving or resulting entity, i
s converted into or exchanged for preference securities
o
f
the
surviving or resulting entity or its ultimate
parent,
and (
y
)
such Series M Preferred Stock
remaining outstanding or such
preference securities, as the case
may be, have such rights,
preferences, privileges
and
voting powers,
taken as a whole, as are not materially less favorable
to the holders thereof than the rights, preferences, privileges and
voting powers
of the Series M
Preferred Stock, taken as a whole;
provided, however, that
any
increase
i
n the amount of the authorized or issued Series M
Preferred Stock or authorized
preferred
stock or the creation and issuance, or an increase
i
n
the authorized or issued amount, of other series
o
f
preferred stock
ranking equally
with and/ or
junior to the Series M Preferred Stock with
respect
to the
payment
of dividends (whether
such
dividends are cumulative or noncumulative) and/ or the distribution
o
f
assets
upon
the
Companys liquidation, dissolution or winding up
will not be deemed to adversely affect the
voting powers, preferences or special rights
of the Series M Preferred stock and,
notwithstanding 23B. 10.040( 1
)
(
a
)
,
(
e
)
or
(
f
)
of the Revised Code of
Washington
or
any
other
provision
of
Washington law, holders of Series M Preferred Stock will have no right
to vote on
such an increase, creation or issuance.
(
d
)
I
f
an amendment, alteration, repeal,
share
exchange, reclassification,
merger or consolidation described above would
adversely
affect one or more but not all series
of
preferred
stock with like
voting rights (including
the Series M Preferred Stock for this
-10-
CONFIDENTIAL
Return
purpose),
then
only
the series affected and entitled to vote shall vote as a class
i
n lieu of all
such series of
preferred
stock.
Section
9
.
Certificates The
Company may
at its
option
issue the Series M Preferred
Stock without certificates.
THIRD: This amendment does not
provide
for an exchange,
reclassification or
cancellation of
any
issued shares.
FOURTH: The date of this amendments adoption i
s
May 23, 2007.
FIFTH: This amendment
t
o the Amended and Restated Articles of
Incorporation was
duly adopted by
the Board of Directors of the
Company.
SIXTH: No shareholder action was required.
11
CONFIDENTIAL
Return
EXECUTED this 23~
day
of
May,
2007.
By:
INC.
Title:
- 12 -
CONFIDENTIAL
Return
WaMu
~tm
4
~
$
1
,
ooo, ooo, ooo
Washington
Mutual Preferred
Funding
Trust IV
Fixed- to-Floating Rate Perpetual Non- cumulative Trust Securities
Automatically Exchangeable
in
Specified
Circumstances into
Depositary
Shares
representing
Preferred Stock
o
f
The Fixed-to-Floating Rate Perpetual Non- cumulative Trust Securities, liquidation preference $100,000 per security (each, a Trust Security,
and collectively, the Trust Securities), o
f
Washington Mutual Preferred Funding Trust IV, a Delaware statutory trust (the Trust), offered hereby
represent undivided beneficial interests in a like amount o
f
Fixed-to-Floating Rate Perpetual Non- cumulative Preferred Securities, Series 2007- B,
liquidation preference $1,000 per security (the Series 2007- B Company Preferred Securities), o
f
Washington Mutual Preferred Funding LLC, a
Delaware limited liability company (the Company). The Trust will have no assets other than the Series 2007- B Company Preferred Securities. The
Trust wilt
pass through dividends paid and redemption and liquidation payments made
b
y the Company on the Series 2007- B Company Preferred
Securities as distributions and redemption and liquidation payments On the Trust Securities. The Companys material assets consist of indirect
interests i
n
mortgages, mortgage- related assets Originated or acquired by Washington Mutual Bank
(
WMB), cash and other permitted investments

as described herein.
Dividends on the Series 2007- B Company Preferred Securities will be payable i
f
,
when, and as declared by the Companys Board o
f
Managers out of legally available funds, at an annual rate of 9.75% tO, but not including December15, 2017, and 3-Month USD LIBOR plus 4.723%
thereafter, on the liquidation preference per security, quarterly i
n arrears on March 15, June 15, September 15 and December 15 of each year,
commencing on December 15, 2007, or, i
n each case, the next Business Day i
f
any
such
day i
not a Business Day (each, aDividend Payment
Date). Dividends are noncumulative, which means that holders will not receive dividends i
f
they are not declared i
n the applicable quarter.
I
f the Office of Thrift Supervision ( together with any successor regulator, the OTS) so directs following the occurrence of an Exchange
Event as described herein, each Trust Security will be automatically exchanged for depositary shares representing a like amount of Washington
Mutual, Inc. s
(
WMI) Series N Perpetual Non- cumulative Fixed-to-Floating Rate Preferred Stock.

The Series 2007- B Company Preferred Securities will be redeemable, i
n whole or i
n
part,
at the option of the Company on the Dividend
layment Date occurring in December 2017 and each tenth anniversary thereafter (each a Ten-Year Datd) at a redemption price equal to the sum
of (
i
) $1,000per Series 2007- B Company Preferred Security plus (
i
i
)
any
declared and unpaid dividends to the redemption date. The Series 2007- B
Company Preferred Securities will be redeemable,
in whole but not i
n
part, at the option of the Company on any Dividend Payment
Date that i
s
not
a Ten-Year Date upon the occurrence of a Tax Event, an Investment Company Act Event, a Rating Agency Event or a Regulatory Capital Event
(each as described herein) at a redemption price equal t
o the sum of (
x
)
$1,000 per Series 2007- B Company Preferred Security plus (
y
)
any
declared and unpaid dividends to the redemption date plus (
z
)
i
f such event and related redemption occur prior to the Dividend Payment Date i
n
December 2017, a U. S. Treasury- based make- whole amount. The Company may also redeem the Series 2007- B Company Preferred Securities
on any Dividend Payment Date that i
s not a Ten-Year Date, whether before or after December 2017, at a redemption price equal to the sum o
f
(
i
) $1,000 per
2007- B Company Preferred Security plus (
i
i
) any declared and unpaid dividends to the redemption date plus ( iii) a make- whole
amount, which will be a U. S. Treasury- based make- whole amount for
any redemption prior to December 2017 or a 3-Month USD LIBOR- based
make- whole amount for
any redemption
after December 2017. I
n each case, the redemption price will be calculated without accumulation of
any
undeclared dividends with respect to Dividend Payment Dates prior t
o the redemption date. I
n addition, the Companys right to redeem the
Series 2007- B Company Preferred Securities prior to October 25, 2017 i
s also limited by its obligations set forth i
n the Replacement Capital
Covenant described i
n this offering circular. The proceeds o
f
any such redemption will be used to redeem a like amount of Trust Securities. Any
redemption of the Series 2007- B Company Preferred Securities will be subject to the prior approval of the OTS.
The Trust Securities will be issued only i
n book- entry form. Each individual purchaser or group of affiliated purchasers that acquires Trust
Securities i
n the initial offering must acquire at least three Trust Securities having an aggregate liquidation preference of $300,000.
The Trust Securities will not be listed on any
securities exchange or automated dealer quotation system.
The securities offered hereby are not insured or guaranteed by the U. S. Federal Deposit Insurance Corporation or any other insurer
or
government agency
or instrumentality.
See Risk Factors beginning on page 20 for a description of the risk factors you should consider before you invest i
n the securities offered hereby.
Offering
Price: $100,000.00 per
Trust
Security
THE SECURITIES OFFERED HEREBY HAVE NOT BEEN AND WILL NOT BE REGISTERED UNDER THE U
.
S. SECURITIES ACT OF 1933, AS AMENDED
(THE
SECURITIES
ACr),
AND ARE BEING OFFERED AND SOLD ONLY TO PERSONS THAT ARE BOTH QUALIFIED INSTITUTIONAL BUYERS
(WITHIN
ThE
MEANING OF RULE 144A UNDER THE SECURITIES ACT) AND QUALIFIED PURCHASERS ( WITHIN THE MEANING OF SECTION
2
(
A)(51) OF THE
U. S. INVESTMENT COMPANY ACT OF 1940, AS AMENDED ( THE INVESTMENT COMPANVACT)), IN RELIANCE ON AN EXEMPTION FROM REGISTRATION
PURSUANT TO RULE 144A. PROSPECTIVE PURCHASERS OF TRUST SECURITIES ARE HEREBY NOTIFIED THAT THE SELLER OF THE TRUST SECURITIES
MAY BE RELYING ON THE EXEMPTION FROM THE PROVISIONS OF SECTION 5 OF THE SECURITIES ACT PROVIDED BY RULE 144A. THE SECURITIES ARE
NOT TRANSFERABLE EXCEPT IN ACCORDANCE WITH THE RESTRICTIONS DESCRIBED UNDER NOTICE TO INVESTORS.
The Initial Purchasers expect to deliver the Trust Securities through the facilities o
f
The Depository Trust Company and Euroclear Bank
S
.
A./ N. V., as operator o
f
the Euroclear System, and Clearstream Banking, socit anonyme, as participants i
n The Depository Trust Company, i
n
each case against payment
in New York, New York, on or about October 25, 2007.
Sole Structuring Coordinator and Bookrunner
Goldman,
Sachs & Co.
Co- Managers
Credit Suisse Lehman Brothers
Morgan Stanley
Offering Circular dated October 18, 2007.
CONFIDENTIAL
Return
This
offering
circular
i
s confidential. You are authorized to use this
offering
circular
solely
for the
purpose
of considering the
purchase
of the securities described
i
n this
offering
circular. WMI, WMB,
University Street, Inc.
(
University Street),
the
Company,
the
Trust, Washington Mutual Home Equity
Trust I
(
Asset
Trust
I);
WAMU 2006- QA 1
(
Asset Trust II), WAMU 2007- Flex 1 ( Asset Trust III and,
together with Asset Trust I and Asset Trust
I
I
,
collectively, the Asset Trusts), and other sources
identified herein have provided the information contained
i
n this offering circular. The Initial Purchasers
make no representation or warranty, express or implied, as to the accuracy or completeness of such
information, and nothing contained
i
i
s
,
or shall be relied
upon as, a promise or
representation by the Initial Purchasers. You
may
not reproduce or distribute this offering circular, i
n
whole or i
n part, and you may not disclose any of the contents of this offering circular or use any
information herein for any purpose other than considering the purchase o
f
the Trust Securities. You
agree to the foregoing
b
y
accepting delivery of this offering circular.
THE SECURITIES OFFERED HEREBY HAVE NOT BEEN RECOMMENDED BY ANY UNITED
STATES FEDERAL OR STATE SECURITIES COMMISSION OR REGULATORY AUTHORITY. FUR
THERMORE, THE FOREGOING AUTHORITIES HAVE NOT CONFIRMED THE ACCURACY OR
DETERMINED THE ADEQUACY OF THIS DOCUMENT. ANY REPRESENTATION TO THE CON
TRARY IS A CRIMINAL OFFENSE.
The distribution of this offering circular and the offering and sale of the securities
i
n certain
jurisdictions may be restricted by law. WMI, WMB, University Street, the
Company,
the Trust, the
Asset Trusts and the Initial Purchasers
require persons
into whose
possession
this
offering
circular
comes to inform themselves about and to observe
any
such restrictions. This
offering
circular does
not constitute an offer of, or an invitation to purchase, any
of the securities
i
n
any jurisdiction i
n which
such offer or invitation would be unlawful.
Notwithstanding anything herein to the contrary, investors may disclose
t
o
any and all persons,
without limitation
o
f
any kind, the United States federal or state income tax treatment and tax structure
o
f
the offering and all materials
o
f
any kind (including opinions or other tax analyses) that are provided
to the investors relating to such tax treatment and tax structure. However, any
information relating to
the United States federal income tax treatment or tax structure shall remain confidential (and the
foregoing sentence shall not apply) to the extent reasonably necessary
to enable
any person
to
comply with applicable securities laws. For this purpose, tax structure means any facts relevant t
o
the United States federal or state income tax treatment of the offering but does not include information
relating t
o the identity
o
f
the issuer
o
f
the securities, the issuer
o
f
any assets underlying the securities,
or any of their respective affiliates that are offering the securities.
No
person
has been authorized to give any
information or to make
any representations other
than those contained
i
n this offering circular, and, i
f given or made, such information or representa
tions must not be relied
upon as having been authorized
b
y
any o
f
WMI, WMB, University Street, the
Company, the Trust or any Asset Trust. Neither the delivery
o
f
this offering circular nor any sale
hereunder will create, under any circumstances, any implication that there has been no change i
n the
affairs
o
f
WMI, WMB, University Street, the Company, the Trust orany Asset Trust since the date
hereof or that the information contained herein
i
s correct as
o
f
any time subsequent t
o its date.
CONFIDENTIAL
Return
NOTICE TO NEW HAMPSHIRE RESIDENTS ONLY
NEITHER THE FACT THAT A REGISTRATION STATEMENT OR AN APPLI~
CATION FOR A LICENSE HAS~ BEEN FILED UNDER CHAPTER 421- B OF THE--
NEW HAMPSHIRE REVISED STATUTES WITH THE STATE OF NEW HAMP
SHIRE NOR THE FACT THAT A SECURITY IS EFFECTIVELY REGISTERED OR A
PERSON IS LICENSED IN THE STATE OF NEW HAMPSHIRE CONSTITUTES A
FINDING BY THE SECRETARY OF STATE OF NEW HAMPSHIRE THAT ANY
DOCUMENT FILED UNDER RSA 421- B IS TRUE, COMPLETE AND NOT MIS
LEADING. NEITHER ANY SUCH FACT NOR THE FACT THAT AN EXEMPTION OR
EXCEPTION IS AVAILABLE FOR A SECURITY OR A TRANSACTION MEANS
THAT THE SECRETARY OF STATE HAS PASSED IN ANY WAY UPON THE
MERITS OR QUALIFICATIONS OF, OR RECOMMENDED OR GIVEN APPROVAL
TO, ANY PERSON, SECURITY OR TRANSACTION. IT 1S UNLAWFUL TO MAKE,
OR CAUSE TO BE
MADE,
TO ANY PROSPECTIVE
PURCHASER,
CUSTOMER
OR CLIENT ANY REPRESENTATION INCONSISTENT WITH THE PROVISIONS
OF THIS PARAGRAPH.
IN CONNECTION WITH THIS OFFERING, GOLDMAN, SACHS & CO., MAY OVER- ALLOT OR
EFFECT TRANSACTIONS WITH A VIEW TO SUPPORTING THE MARKET PRICE OF THE
SECURITIES OFFERED HEREBY AT A LEVEL HIGHER THAN THAT WHICH MIGHT OTHERWISE
PREVAIL FOR A LIMITED PERIOD OF TIME AFTER THE ISSUE DATE. HOWEVER, THERE MAY
BE NO OBLIGATION ON
GOLDMAN,
SACHS &
CO.,
TO DO THIS. SUCH STABILIZING,
IF
COMMENCED, MAY BE DISCONTINUED AT ANY TIME, AND MUST BE BROUGHT TO AN, END
AFTER A LIMITED PERIOD.
INDEX OF TERMS
An index of terms used
i
n this
offering
circular with
specific meanings appears on the inside back
cover of this
offering
circular.
CONFIDENTIAL
Return
NOTICE TO INVESTORS
Because of the
following restrictions, purchasers are advised to consult legal counsel prior to
making~ any offer, purchase~ resale,
p
/
edge or other transfer of the securities- offered
hereby.-
Representations of Purchasers
Each purchaser of Trust Securities
(including
the
registered holders and beneficial owners
o
f
the
Trust Securities as they
exist from time to~ time, including as a result
o
f
transfers) will be deemed to
have represented and agreed as follows,
i
n each case as of the time
o
f
purchase:
(
A
)
the
purchaser (
I
)
i
s a qualified institutional
buyer
within the meaning of Rule 1 44A
promulgated under the Securities Act (a
Qualified Institutional Buyer), (
i
i
)
i
s aware that the
Trust Securities have not been and will not be
registered
under the Securities Act and that the
sale of the Trust Securities to
i
t
i
s being made
i
n reliance on Rule 144A or another exemption
from the registration requirements o
f
the Securities Act and (
i
i
i
)
i
s acquiring such Trust Securities
for its own account or the account c4~ one
or more qualified institutional buyers;
(
B
)
the purchaser (
i
) i
s a qualified purchaser wit hin the meaning
of Section
2
(
a)(51) o
f
the
Investment Company
Act and the rules and
regulations
thereunder
(a
Qualified Purchaser),
(
i
i
)
i
s aware that the Trust will not be registered under the Investment Company
Act
i
n reliance
on the exemption set forth
i
n Section
3
(
c)(
7
)
thereof and
(
i
i
i
)
i
s
acquiring
such Trust Securities for
its own~ account or the account of one or more qualified purchasers as to which the
purchaser
exercises sole investment discretion, as the case may be;
(
C
)
(
i
)
either (
a
)
the purchaser i
s not (
x
)
a
n
employee benefit plan as defined
i
n
Section
3
(
3
)
o
f
the Employee Retirement Income
Security Act
o
f
1974, as amndOd
(
ERISA)
that
i
s subject to Title I
o
f
ERISA, (
y
)
a plan, account or other arrangement that
i
s
subject to
Section 4975
o
f
the Internal Revenue Code of 1986, as amended (the Code), or (
z
)
any entity
whose underlying assets include plan assets of
any o
f
the foregoing
b
y reason
o
f
investment
by an employee
benefit
plan or other. plan i
n such~
entity (each
o
f
the foregoing, a Benefit Plan
Investor), or (
b
)
the purchaser i
s an insurance
company general account that represents,
warrants and covenants that, at the time
o
f
acquisition
and
throughout
the
period i
t holds the
securities, (
x
)
i
t
i
s
eligible
for and meets the requirements of Department o
f
Labor Prohibited
Transaction Class
Exemption 95- 60, (
y
) less than 25% of the assets
o
f
such
general account are
(
o
r
represent) assets of, a Benefit Plan Investor and (
z
)
i
t
i
s not a person who has discretionary
authority or control with respect to the assets
o
f
the, Trust or any person
who
provides
investment
advice for a fee
( direct or indirect)
with respect to such assets, or any
affiliate of such a person
and would not otherwise be excluded under 29 C.F.
R
.
2510.3- 101( f)(
1
)
and (
i
i
) either (
a
)
the
purchaser i
s not a governmental plan, foreign plan, church plan or other plan subject t
o law that
i
s substantially similar to the Section 406
o
f
ERISA or Section 4975
o
f
the Code
(
Similar Law)
or (
b
)
its purchase and holding of the Trust Securities will not constitute or result
i
n a non- exempt
violation of Similar Law;
(
D
)
the purchaser
i
s not purchasing the Trust Securities with a view to the resale,
distribution or other disposition
thereof
i
n violation of the Securities Act;
(
E
)
neither the purchaser nor
any
account for which the purchaser i
s acquiring the
Trust Securities will hold such Trust Securities for the benefit
o
f
any other person
and the
purchaser
and each such account will be the sole beneficial owners thereof for all purposes and
will not sell participation interests
i
n the Trust Securities or enter into any other arrangement
pursuant t
o which any other person
will be entitled to an interest
i
n the distributions on the
Trust Securities;
I
I
I
CONFIDENTIAL
Return
(
F
)
the certificates
evidencing the Trust Securities will bear a legend to the following
effect:
THIS SECURITY IS ONE OF THE FIXED-TO-FLOATING RATE PERPETUAL NON-
CUMULATIVE TRUST SECURITIES
( TRUST SECURITIES)
ISSUED BY WASHINGTON
MUTUAL PREFERRED FUNDING TRUST IV (THE TRUST).
THE ISSUER OF THIS
SECURITY HAS NOT BEEN REGISTERED AS AN INVESTMENT COMPANY UNDER
THE U. S. INVESTMENT COMPANY ACT OF 1940, AS AMENDED
(THE
iNVESTMENT
COMPANYAC7),
AND THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE
U. S. SECURITIES ACT OF 1933, AS AMENDED (THE SECURITIES
ACT),
AND
NEITHER THIS SECURITY NOR ANY BENEFICIAL INTERESTS HEREIN MAY BE
OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED EXCEPT TO A PERSON
WHO
I
S BOTH A QUALIFIED INSTITUTIONAL BUYER WITHIN THE MEANING OF
RULE 144A UNDER THE SECURITIES ACT ( QUALIFIED INSTITUTIONAL BUYER)
AND A QUALIFIED PURCHASER WITHIN THE MEANING OF SECTION
2
(
a)(51) OF
THE INVESTMENT COMPANY ACT AND THE RULES AND REGULATIONS THEREUN
DER ( QUALIFIED PURCHASER) ACQUIRING FOR ITS OWN ACCOUNT OR THE
ACCOUNT OF A PERSON WHO
I
S BOTH A QUALIFIED INSTITUTIONAL BUYER AND A
QUALIFIED PURCHASER (AN ELIGIBLE
PURCHASER)
AND EACH SUCH PERSON
AND ACCOUNT FOR WHICH SUCH PERSON IS PURCHASING (
A
)
IS NOTA BROI< ER
DEALER THAT OWNS AND INVESTS ON A DISCRETIONARY BASIS LESS THAN $25
MILLION IN SECURITIES OF ISSUERS THAT ARE NOT ITS AFFILIATED PERSONS,
(
B
)
IS NOTA PLAN REFERRED TO IN PARAGRAPH
(a)(1)(i)(
D
)
OR
(a)(1)(i)(
E
)
OF
RULE 144A, OR A TRUST FUND REFERRED TO IN PARAGRAPH
(a)(1)(i)(
F
)
OF
RULE 144A THAT HOLDS THE ASSETS OF SUCH A PLAN, IF INVESTMENT DECI
SIONS WITH RESPECT TO THE PLAN ARE MADE BY THE BENEFICIARIES OF SUCH
PLAN, (
C
)
WAS NOT FORMED FOR THE PURPOSE OF INVESTING IN THE TRUST,
(
D
)
WILL HOLD AT LEAST $300,000 LIQUIDATION PREFERENCE OF TRUST SECURI
TIES (
i
.
e
.
,
AT LEAST THREE TRUST SECURITIES) AND, IF IT TRANSFERS ANY
INTEREST IN ANY TRUST SECURITY, WILL TRANSFER AT LEAST $100,000 LIQUIDA
TION PREFERENCE OF TRUST SECURITIES (
i
.
e
.
,
AT LEAST ONE TRUST SECURITY)
I
N THE CASE OF EACH INITIAL INVESTOR, AND WILL HOLD AND TRANSFER AT
LEAST $100,000 LIQUIDATION PREFERENCE OF TRUST SECURITIES (
i
.
e
.
,
AT LEAST
ONE TRUST
SECURITY) IN THE CASE OF EACH SUBSEQUENT INVESTOR AND
(
E
)
UNDERSTANDS THAT THE TRUST MAY RECEIVE A LIST OF PARTICIPANTS
HOLDING POSITIONS IN THIS SECURITY FROM ONE OR MORE BOOK- ENTRY
DEPOSITARIES. EACH PURCHASER OF THIS SECURITY OR ANY BENEFICIAL INTER
ESTS HEREIN WILL BE DEEMED TO REPRESENT THAT IT AGREES TO COMPLY
WITH THE TRANSFER RESTRICTIONS SET FORTH HEIREIN AND IN THE AMENDED
AND RESTATED TRUST AGREEMENT OF THE TRUST
(THE TRUSTAGREEMENT),
AND WILL NOT TRANSFER THIS SECURITY OR ANY BENEFICIAL INTERESTS
HEREIN EXCEPT TO AN ELIGIBLE PURCHASER WHO CAN MAKE THE SAME REPRE
SENTATIONS AND AGREEMENTS ON BEHALF OF ITSELF AND EACH ACCOUNT FOR
WHICH IT IS PURCHASING~ ANY PURPORTED TRANSFER OF THIS SECURITY OR
ANY BENEFICIAL INTERESTS HEREIN THAT IS IN BREACH, AT THE TIME MADE, OF
ANY TRANSFER RESTRICTIONS SET FORTH HEREIN OR IN THE TRUST AGREE
MENT WILL BE VOID AB INITIO.
I
F AT ANY
T! ME
THE TRUST DETERMINES
I
N GOOD
FAITH THAT A HOLDER OR BENEFICIAL OWNER OF THIS SECURITY OR BENEFICIAL
INTERESTS HEREIN
I
S IN BREACH, AT THE TIME GIVEN, OF ANY OF THE TRANS
FER RESTRICTIONS SET FORTH HEREIN, THE TRUST SHALL CONSIDER THE
ACQUISITION OF THIS SECURITY OR SUCH BENEFICIAL INTERESTS VOID, OF NO
FORCE AND EFFECT AND WILL NOT, AT THE DISCRETION OF THE TRUST, OPERATE
TO TRANSFER ANY RIGHTS TO THE TRANSFEREE NOTWITHSTANDING ANY
INSTRUCTIONS TO THE CONTRARY TO THE TRUST, ITS AGENT FOR REGISTRATION
i
v
CONFIDENTIAL
Return
OF TRANSFER, EXCHANGE OR PAYMENT (THE TRANSFER AGENT), OR ANY
OTHER INTERMEDIARY. IN ADDITION~ THE TRUST OR THE TRANSFER AGENT MAY
REQUIRE SUCH ACQUIRER OR BENEFICIAL OWNER TO SELL THIS SECURITY OR
SUCH BENEFICIAL- INTERESTS TO AN ELIGIBLE PURCHASER:~
NO SECURITY MAY BE PURCHASED OR TRANSFERRED TO: (
I
) AN EMPLOYEE
BENEFIT PLAN AS DEFINED IN SECTION
3
(
3
)
OF THE EMPLOYEE RETIREMENT
INCOME SECURITY ACT OF 1974, AS AMENDED
(
ERISA), THAT
I
S SUBJECT TO
TITLE I OF ERISA
U
)
A PLAN, ACCOUNT OR OTHER ARRANGEMENT THAT
I
S
SUBJECT TO SECTION 4975 OF THE INTERNAL REVENUE CODE OF 1986, AS
AMENDED (THE CODE), OR ( III) ANY ENTITY WHOSE UNDERLYING ASSETS.
INCLUDE PLAN ASSETS OF ANY OF THE FOREGOING BY REASON OF INVEST
MENT BYAN EMPLOYEE BENEFIT PLAN OR OTHER PLAN IN SUCH ENTITY (EACH
OF THE FOREGOING, A BENEFIT PLAN
INVESTOR), EXCEPT FOR AN INSURANCE
COMPANY GENERAL ACCOUNT THAT REPRESENTS, WARRANTS AND COVENANTS
THAT, AT THE TIME OF ACQUISITION AND THROUGHOUT THE PERIOD IT HOLDS
THE SECURITIES, (
I
)
I
T
I
S ELIGIBLE FOR AND MEETS THE REQUIREMENTS OF
DEPARTMENT OF LABOR PROHIBITED TRANSACTION CLASS EXEMPTION 95- 60,
(
I
I
) LESS THAN 25% OF THE ASSETS OF SUCH GENERAL ACCOUNTARE
(OR
REPRESENT)
ASSETS OF A BENEFIT PLAN INVESTOR AND
(III)
IT
I
S NOTA PERSON
WHO HAS DISCRETIONARY AUTHORITY OR CONTROL WITH RESPECT TO THE
ASSETS OF THE TRUST OR ANY PERSON WHO PROVIDES INVESTMENT ADVICE
FOR A FEE (DIRECT OR INDIRECT) WITH RESPECT TO SUCH ASSETS, OR ANY
AFFILIATE OF SUCH A PERSON AND WOULD NOT OTHERWISE BE EXCLUDED
UNDER 29 C.ER. 251 0.3- 101 (F)(1).
I
N ADDITION, EACH PURCHASER ORTRANS
FEREE OF. THIS SECURITY WILL BE REQUIRED TO REPRESENT AND WARRANT
(OR, IN CERTAIN CIRCUMSTAFJCES, WILL BE DEEMED TO REPRESENT AND WAR
RANT) THAT, FROM THE DATE OFACQUISITION AND THROUGHOUT THE PERIOD
OF HOLDING THIS SECURITY, EITHER
(
A
)
IT IS NOT A GOVERNMENTAL PLAN,
FOREIGN PLAN, CHURCH PLAN OR OTHER PLAN SUBJECT TO LAW THAT IS
SUBSTANTIALLY SIMILAR TO THE SECTION 406 OF ERISA OR SECTION 4975 OF
THE CODE
( SIMILAR LAW)
OR
(
B
)
ITS PURCHASE AND HOLDING OF THIS SECU
RITY WILL NOT CONSTITUTE OR RESULT IN A NON- EXEMPT VIOLATION OF SIMILAR
LAW.
UNLESS THiS SECURITY IS PRESENTED BYAN AUTHORIZED REPRESENTATIVE OF
THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION
(
DTC),
TO THE
TRUST OR THE TRANSFER AGENT, AND ANY CERTIFICATE ISSUED
I
S REGISTERED
IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS
I
S REQUESTED BYAN
AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE &
CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BYAN AUTHORIZED REPRE
SENTATIVE OF DTC), ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR
VALUE OR OTHERWISE BY OR TO ANY PERSON
I
S WRONGFUL ! NASMUCH AS THE
REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
(
G
)
the purchaser and each account for which
i
t
i
s purchasing:
(
i
) i
s not a broker- dealer that owns and invests on a
discretionary
basis less than
$25 million in securities of unaffiliated issuers;
(
i
i
)
i
s not a participant- directed employee plan, such as a 401(
k
)
plan, as referred to
in paragraph ( a)(1)(i)(
D
)
or (a)(1)(i)(
E
)
o
f
Rule 144A, or a trust fund referred to
i
n paragraph
(a)(
1
)
(
i)(
F
)
of Rule 144A that holds the assets of such a plan;
(
i
i
i
) was not formed for the purpose o
f
investing i
n the Trust;
V
CONFIDENTIAL
Return
(iv) will hold at least $300,000 liquidation preference of Trust Securities
(
i
. e., at least
three Trust
Securities) and,
i
f
i
t transfers
any
interest
i
n
any
Trust
Security,
will transfer at
least $100,000 liquidation preference of Trust Securities (
i
. e., at least one Trust Security) i
n
the case
o
f
each initial investor, and will hold and transfer at least $1 00,000 liquidation
preference of Trust Securities (
i
. e., at least one Trust Security) i
n the case of each
subsequent investor;
(
v
) will provide notice of the transfer restrictions described
i
n this Notice to Investors
to any subsequent transferees;
(vi) acknowledges that the Trust
may
receive a list
o
f
participants holding positions i
n
the Trust Securities from one or more book- entry depositaries; and
(vii) may
not transfer the Trust Securities or beneficial interests therein except to a
transferee who can make the same representations and agreements as set forth in this
Notice
t
o Investors and the Amended and Restated Trust Agreement
o
f
the Trust (the
Trust Agreement) on behalf of itself and each account for Which
i
t
i
s
purchasing.
The purchaser acknowledges that the Trust Securities are being offered only i
n a transaction not
involving any public offering
within the
meaning
of the Securities Act. The Trust Securities have not
been and will not be registered under the Securities Act and the Trust has not been and will not be
registered
under the Investment
Company Act, and,
i
f
i
n the future the purchaser decides to offer,
resell, pledge or otherwise transfer the Trust Securities or
any
interest therein, such Trust Securities or
interest
may
be offered, resold, pledged
or otherwise transferred
only
in accordance with the
legend
on such Trust Securities described above. The purchaser acknowledges that no representation i
s
made by the Trust, the
Company or the initial Purchasers as to the
availability o
f
any exemption under
the Securities Act or any state securities laws for resale of the Trust Securities.
Forced Sale of Securities
Any
transfer of Trust Securities
i
n breach
o
f
the transfer restrictions set forth
i
n this Notice to
Investors and the Trust
Agreement
will be of no force and effect, will be void ab initio, and will not
operate to transfer any rights to the transferee, notwithstanding any instructions to the contrary to the
Trust, its Transfer Agent or any
other intermediary.
The purchaser agrees
that
i
n the event that the Trust or its Transfer
Agent
determines
i
n good
faith that a holder or beneficial owner of the Trust Securities
i
s in breach, at the time given, of any of
the representations or agreements set forth above, the Trust shall consider the acquisition of the
Trust Securities or beneficial interests therein void,
o
f
no force and effect and will not, at the discretion
of the Trust, operate to transfer
any rights to the transferee
notwithstanding any instructions to the
contrary to the Trust, the Transfer
Agent or
any
other intermediary. In addition, the Trust or the
Transfer
Agent may
require such acquirer or beneficial owner to transfer such Trust Securities or
beneficial interests therein to a transferee
acceptable to the Trust who
i
s able to and who does make
all of the
representations
and
agreements set forth
i
n this Notice to Investors.
Pending such transfer,
such holder will be deemed not to be the holder of such Trust Securities for
any purpose, including but
not limited to receipt
of dividend and redemption payments on such Trust Securities or distributions
upon
the
liquidation
of the Trust, and such holder will be deemed to have no interest whatsoever
i
n
such Trust Securities except as otherwise
required to redeem or sell its interest therein as described
i
n this
paragraph.
Investment
Company
Act
In reliance on Section
3
(
c)(
7
)
under the Investment Company Act
(
Section
3
(
c)(7)), the Trust
has not registered as an investment company pursuant to the Investment Company Act. To rely on
Section
3
(
c)(7),
the Trust must have a reasonable belief that all purchasers
o
f
( including the Initial Purchasers and subsequent transferees) are qualified purchasers at the time of
v
i
CONFIDENTIAL
Return
their purchase
o
f
such securities. The Trust will establish a reasonable belief for purposes o
f
Section
3
(
c)(
7
)
based
upon
the
representations
deemed made
b
y the
purchasers o
f
the securities as
set forth under

Representations
of Purchasers above, the covenants and
undertakings
of the
Trust referred to below and the- agreements o
f
relating to the private placement
of the securities
pursuant to Rule 144A referred to under Plan of Distribution.
Reminder Notices
Whenever the Trust sends an annual report or other periodic report to holders of the Trust Secu
rities,
i
t will also send a reminder notice (each, a Reminder Notice) to the holders of the Trust Secu
rities. Each Reminder Notice will state that (
i
)
each holder of a Trust
Security (
o
r
an interest in a
Trust Security) must be able to make the
representations set forth above
i
n
paragraphs (
B
)
and
(
G
)
under

Representations
of Purchasers (the
3
(
c)(
7
)
Representations), (
i
i
) the Trust Securities
(
o
r
interests
i
n the Trust Securities) are transferable
only to purchasers deemed to have made the
3
(
c)(
7
)
Representations
and to have satisfied the other transfer restrictions
applicable
to the
Trust Securities, (
i
i
i
)
i
f
any prospective transfer9e of the Trust Securities (
o
r
an interest
i
n the
Trust Securities) i
s determined not to be a qualified purchaser, then the Trust will have the right
(exercisable
i
n its sole discretion) to refuse to honor such transaction and (iv) i
f
any security holder (
o
r
any
holder
o
f
an interest
i
n a security) i
s determined not
t
o be a qualified purchaser, then the Trust will
have the right (exercisable i
n its sole discretion)
t
o treat the transfer
t
o such purchaser as null and
void ab initio and require such purchaser to sell all of its securities (and all interests therein) to a
transferee designated by the Trust at the then current market
price
therefor. The Trust will send a
copy
o
f
each annual or other
periodic report (and each Reminder Notice) to DTC with a request that
participating organizations i
n DTC
( DTC Participants)
forward them to the
security
holders or holders
o
f
an interest
i
n Trust Securities.
DTC Actions with
respect
to the Trust Securities
The Trust will direct DTC to take the following steps i
n connection with the Trust Securities:
to include the 3c7 marker and, in lieu of the GABS marker or otherwise, the GRLS marker
i
n the DTC 20- character
security descriptor, and the 48- character additional descriptor
for the
Trust Securities
i
n order to indicate that sales are limited to Qualified Purchasers;
to cause (
i
)
each
physical
DTC delivery order ticket delivered by DTC
t
o purchasers to contain
the 20-character security descriptors and (
i
i
) each DTC delivery order ticket delivered
b
y DTC
to purchasers i
n electronic form to contain the 3c7 and GALS indicators and the related
user manual for participants, which will contain a description of relevant restrictions;
t
o
send, on or prior t
o the closing date
o
f
this Offering, an Important Notice to all DTC
Participants i
n connection with this Offering ofthe Trust Securities. The Trust
may
instruct DTC
from time to time (but not more frequently
than
every
six
months) to reissue the
Important
Notice;
to include the Trust
i
n DTCs Reference Directory o
f
Section
3
(
c)(
7
)
offerings;
to include
i
n all confirms of trades
o
f
the Trust Securities in DTC, CUSIP numbers with a
fixed field attached to the CUSIP number that has the 3c7 and GRLS markers; and
to deliver to the Trust from time to time a list
o
f
all DTC
Participants holding an interest
i
n the
securities.
Euroclear Actions with respect to the Trust Securities
The Trust will instruct Euroclear Bank
S
.
A./
N
.
V., as operator of the Euroclear
System ( Euro
clear), to take the
following steps i
n connection with the Trust Securities:
to reference 1 44N3( c)(7) as part of the security name
i
n the Euroclear securities database;
vii
CONFIDENTIAL
Return
i
n each daily securities balances report and daily transactions report
t
o Euroclear Participants
holding positions in the Trust Securities, to include 1
44A/
3
(
c)(7), i
n the securities name for the
Trust Securities;
periodically ( and
a
t
least
annually) t
o send
t
o the Euroclear Participants holding positions
i
n
the Trust Securities an electronic Important Notice outlining the restrictions applicable to
3
(
c)(
7
)
securities;
to deliver to the Trust from time to time, upon its request, a list
o
f
all Euroclear Participants
holding an interest i
n the Trust Securities; and
t
o include the
3
(
c)(
7
)
marker i
n the name
o
f
the Trust Securities i
n lists distributed
b
y Euroclear
monthly to its participants showing all securities accepted within the Euroclear securities
database.
Clearstream Actions with respect to the Trust Securities
The Trust will instruct Clearstream Banking, socit anonyme
(
Clearstream), t
o take the
following steps in connection with the Trust Securities:
to reference 144A/
3
(
c)(7) as part of the security name
i
n the Clearstream securities
database;
i
n each
daily portfolio report
and daily settlement
report
to Clearstream Participants holding
positions i
n the Trust Securities, to include 144A/
3
(
c)(7) i
n the securities name for the Trust
Securities;
periodically (and at least annually) to send to the Clearstream Participants holding positions i
n
the Trust Securities an electronic
Important
Notice
outlining
the restrictions
applicable to
3
(
c)(
7
)
securities;
to deliver to the Trust from time to time, upon its request, a list of all Clearstream
Participants,
holding an interest
i
n the Trust Securities; and
to include the
3
(
c)(
7
)
marker
i
n the name of the Trust Securities
i
n the continuously updated
list made available
b
y Clearstrearn to its participants showing a
l
l
securities accepted within the
Clearstream securities database and
t
o include the
3
(
c)(
7
)
marker
i
n the name
o
f
the
Trust Securities.
Bloomberg Screens, etc.
The Trust will request, from time to time, all third- party vendors
t
o include appropriate legends
regarding
Rule 144A and Section
3
(
c)(
7
)
restrictions on the Trust Securities on screens maintained
b
y
such vendors. Without limiting the foregoing,
the Initial Purchasers will request that Bloomberg, L.R
include the
following on each
Bloomberg screen containing information about the securities as
applicable:
the bottom of the Security Display page describing the Trust Securities should state: lssd
under 144A/ 3c7 and GRLS;
the Security Display page
for the Trust Securities should have a flashing red indicator stating
Additional Note Pg;
such indicator should link to an Additional
Security
Information
page,
which should state that
the Trust Securities are being offered
i
n reliance on the exception from registration under
Rule 144A
o
f
the Securities Act
o
f
1933, as amended
(the
Securities
Act), to persons that
are (
i
) qualified institutional buyers as defined
i
n Rule 144A under the Securities Act, and
(
i
i
) qualified purchasers as defined under Section
2
(
a)(51) o
f
the Investment Company Act
o
f
1940, as amended; and
vflI
CONFIDENTIAL
Return
the Disclaimer
pages
for the Trust Securities should state that the securities have not been
and will not be
registered
under the Securities Act of 1933, as amended, and
Washington
Mutual Preferred Funding Trust IV has not been registered under the Investment Company
Act
o
f
1940, as amended
(the
Investment
Company Act),
and the Trust
Securitiesmay
not be
offered or sold absent an applicable exemption
from
registration requirements
and
any
such
offer and sale
o
f
these securities must be
i
n accordance with Section
3
(
c)(
7
)
of the Investment
Company Act.
CUSIP
The Trust will cause each CUSIP obtained for a Global Security to have anattached fixed
field that contains 3c7, GALS and 144A indicators.
Legends
The Trust will not remove the legend set forth
i
n

Representations of Purchasers
a
t
any time.
i
x
CONFIDENTIAL
Return
SPECIAL NOTE REGARDING FORWARD- LOOKING STATEMENTS
This offering circular and the documents incorporated herein by reference contain certain
forward- looking statements ~within the meaning o
f
the Private Securities Litigation Reform Act of
1995 with respect to financial condition, results
o
f
operations and other matters. Statements
i
n this
offering circular, including those incorporated herein by reference, that are not historical facts are
forward- looking
statements for the
purpose o
f
the safe harbor
provided
b
y Section 21 E
o
f
the
Securities
Exchange
Act
o
f
1934, as amended (the Exchange Act) and Section 27A of the Securities
Act.
Forward-looking statements can be identified
by the fact that they do not relate strictly to historical
or current facts.
They
often include words, such as expects, anticipates, intends, plans,
believes, seeks, estimates or words of similar meaning, or future or conditional verbs, such as
will, should, would, could or may.
Forward-looking
statements provide WMIs or WMBs (
a
s
applicable) expectations or
predictions
of future conditions, events or results. They may include projections of the Companys revenues,
income, earnings per share, capital expenditures, dividends, capital structure or other financial items,
descriptions of managements plans or objectives for future operations, products or services, or
descriptions of assumptions underlying or relating to the foregoing. They are not guarantees of future
performance. By their nature, forward- looking statements are subject to risks and uncertainties. These
statements speak only as
o
f
the date made and WMI and WMB do not undertake to update them to
reflect changes or events that occur after that date. There are a number of significant factors that
could cause actual conditions, events or results
t
o differ materially from those described
i
n the
forward- looking statements
many
of which are beyond
WMIs or WMBs
(
a
s
applicable)
control or
ability
to
accurately
forecast or predict. The factors are generally described
i
n WMIs or WMBs (
a
s
applicable) most recent Form 10- K under the Table of Contents
entry
Risk Factors and the
heading
Factors That May Affect Future Results and Form 1 0-Q under the caption Cautionary Statements.
x
CONFIDENTIAL
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WHERE YOU CAN FIND MORE INFORMATION
WMI files annual, quarterly
and current reports, proxy statements and other information with the
Securities and
Exchange
Commission
( the SEC).
You
may
read and
copy any
document that WMI
files with the SEC at the SECs public reference room
i
n Washington, D. C. Please ca! l the SEC at
1-800- SEC- 0330 for further information on the public reference room. In addition, WMIs SEC filings
are available
t
o the public a
t
the SECs web site at http:// www. sec. gov You can also inspect reports,
proxy statements and other information about WMI
a
t
the offices of the New York Stock Exchange,
20 Broad Street, New York, New York.
This
offering
circular
incorporates
b
y reference certain information that WMI files with the SEC.
The information incorporated by reference
i
s considered to be a part of this offering circular and
should be read with the same care. When WMI updates the information contained
i
n documents that
have been incorporated by reference
b
y
making future
filings
with the SEC, the information incorpo
rated by reference in this offering circular
i
s considered to be automatically updated and superseded.
I
n other words, in the case
o
f
a confiict or inconsistency between information with respect to WMI
contained
i
n this offering circular and information incorporated by reference into this offering circular,
you
should rely on the information contained
i
n the document that was filed later. WMI incorporates
b
y
reference the documents listed below and
any
documents
i
t files with the SEC
i
n the future under
Sections
13(a), 13(c), 14, or 15(
d
)
of the Exchange
Act until this Offering i
s completed:
Annual Report on Form 10- K filed on March
1
,
2007 relating t
o the year ended December 31,
2006;
Quarterly report
on Form 10-Q filed
May 10, 2007
relating
to the
quarter
ended March 31,
2007;
Quarterly report on Form 10- Q filed on August

9
,
2007
relating to the
quarter
ended June 30,
2007; and
Current Reports on Form 8-K filed or furnished, as the case
may
be, on January 22, 2007,
February
7
,
2007, March 14, 2007, April 23, 2007, May 30, 2007, July 18, 2007 (other than
information furnished under Item 2.02 including Exhibits 99.1, 99.2 and
99.3), September 13,
2007 and October 17, 2007, and Current
Report on Form 8-K/ A furnished on October 18,
2007.
WMB files annual, quarterly
and current reports
and other information with the OTS. You
may
read and
copy
these reports and other non- confidential information that WMB files with the OTS at the
OTSs offices at 1700 G Street, N. W., Washington,
D. C. 20552.
I
n addition, WMBs most recent
periodic filings
with the OTS are available to the investors at WMIs website at
http:// www. wamu. com/
i
r
and then
clicking
the Fixed Income button.
This offering circular incorporates by reference certain information that WMB files with the OTS.
The information
incorporated
b
y reference
i
s considered to be a part
of this
offering
circular and
should be read with the same care. When WMB updates the information contained
i
n documents that
have been
incorporated
b
y reference
b
y
making
future
filings
with the OTS, the information
incorpo
rated
by
reference
i
n this
offering
circular
i
s considered to be
automatically updated
and
superseded.
I
n other words,
i
n the case of a conflict or inconsistency between information with respect to WMB
contained
i
n this offering circular and information incorporated
b
y reference into this offering circular,
you should rely
on the information contained i
n the document that was filed later. WMB
incorporates
b
y reference the documents listed below and any documents
i
t files with the OTS
i
n the future under
Sections 13( a), 13( ), 14, or 15(
d
)
o
f
the Exchange
Act or regulations o
f
the OTS to substantially
similar effect until this Offering i
s completed:
Annual Report on Form 10- K filed on April
2
,
2007 relating to the year ended December 31,
2006;
xi
CONFIDENTIAL
Return
Quarterly Report on Form 10-0 filed

May 15, 2007
relating
to the
quarter
ended March 31,
2007;
Quarterly report on Form 10- 0 filed on August 14, 2007
relating to the
quarter
ended~ June 30,
2007; and
Current
Reports on Form 8-K filed or furnished, as the case
may
be, with the OTS on April 23,
2007 and
September 17, 2007.
This
offering
circular also
incorporates
herein
b
y reference the
publicly available portions of
quarterly reports regarding
WMBs financial condition and
operations
that WMB submits to the OTS
on OTS Form 1313 entitled Thrift Financial
Report ( each,
a Thrift Financial
Report) as of and for
the annual
period
ended December 31, 2004 and all
periods thereafter. Each Thrift Financial
Report
consists
o
f
a Consolidated Statement
o
f
Condition, Consolidated Statement
o
f
Operations,
Consoli
dated Cash Flow
Information,
Consolidated
Capital Requirements
and other
supporting
schedules as
o
f
the end of the
period t
which the
report
relates. The Thrift Financial
Reports are prepared i
n
accordance with regulatory instructions issued by the OTS. These
regulatory
instructions i
n
most, but
not all, cases follow
generally accepted accounting principles in the United States
(
GAAP) or the
opinions and statements of the Accounting Principles Board or the Financial
Accounting
Standards
Board. While the Thrift Financial Reports are supervisory and regulatory documents, not primarily
accounting documents, and do not
provide a complete range o
f
financial disclosure about WMB, the
reports
nevertheless
provide important
information
concerning
WMBs financial condition and operat
ing results. In
addition, WMBs Thrift Financial Reports are not audited. The non- confidential
portions
o
f
Thrift Financial
Reports
filed
by
WMB are on file with, and are publicly
available
upon
written
request,
to the Office of Thrift
Supervision, FOIA, 1700 G Street, N. W., Washington,
D. C. 20552,
Attention: Dissemination Branch and are also available at the U. S. Federal
Deposit
Insurance
Corporations (the FDIC) web site at http: llwww. fdic. gov
You
may request a copy o
f
these
filings,
other than an exhibit to a filing
unless that exhibit
i
s
specifically incorporated by reference into that filing, at no cost, by writing to or telephoning WMI at:
1301 Second Avenue
Seattle, Washington
98101
(206)
461- 2000
The
Company was formed on February 3
,
2006 and has elected a calendar
year
fiscal
year.
The
Independent Auditors Report with
regard
to the audited financial statements
( and
related
notes) o
f
the
Company
for the fiscal
year
ended December 31, 2006 and the unaudited financial statements
(and
related
notes) o
f
the
Company
for the six months ended June 30, 2007 are included as Appendix
A to
this
offering
circular. The
Company
has
agreed i
n its LLC
Agreement
to
produce audited annual
financial statements and unaudited interim financial statements and to make such financial statements
available to investors or prospective
investors
upon request.
The financial statements as of and for the
year
ended December 31, 2006 are the
Companys
first annual audited financial statements.
XII
CONFIDENTIAL
Return
OFFERING CIRCULAR SUMMARY
The
following summary i
s
qualified
in its entirety by the detailed information
appearing
elsewhere
i
~ i
this
off~ ring circular, in
particular,
the information under the
headings Description
of the Trust Secu
rities, Description
of the Series 2007- B Company Preferred Securities, Description o
f
the Series N
WMI Preferred Stock and Description of the Depositary Shares~ which describe the terms and
conditions o
f
tha securities offered
hereby.
Introduction
The
Fixed-to-Floating
Rate Perpetual
Non-cumulative Trust Securities, liquidation preference
$100,000 per security (each, a Trust
Security~
and
collectively
Trust
Securities), are being
issued
by Washington
Mutual Preferred
Funding
Trust IV
(the Trust) i
n
a financing
transaction that raises
capital
for
Washington
Mutual Bank ( WMB).
WMB
i
s an indirect subsidiary
of
Washington Mutual,
Inc.
(
WMI). WMI and its affiliates are referred to herein as the WMI
Group~
The Trust will invest the proceeds
of the Trust Securities in a like amount of
Fixed-to-Floating
Rate
Perpetual
Non-cumulative Preferred Securities, Series 2007- B, liquidation preference $1,000 per
security (the Series 2007- B Company Preferred Securities), of Washington
Mutual Preferred
Funding
LLC, a Delaware limited liability company (the Company).
The Trust will have no assets other than
the Series 2007- B
Company
Preferred Securities. Dividends
paid
and
redemption
and
liquidation
payments made by the Company on the Series 2007- B
Company
Preferred Securities will
pass
through
the Trust as distributions on and redemption
and
liquidation payments on the Trust Securities.
The
Companys
material assets consist of direct or indirect interests
i
n
mortgages or mortgage- related
assets
originated or acquired
b
y
WMB,
cash and other
permitted
investments as described more
specifically
under
~
The
Company
Business of the
Company
Assets
o
f
the
Company,
Asset
Trust
I
, Asset Trust II and Asset Trust III.

The Trust Securities are being
offered
i
n reliance
upon
Rule 144A under the U. S. Securities Act
of 1933, as amended
(the
Securities
Act), only
to persons
who are qualified
institutional
buyers
within the
meaning
of 144A under the Securities Act
( each, a Qualified Institutional Buyer) and
qualified purchasers (each, a Qualified Purchaser)
within the
meaning
of Section
2
(
a)(51)
of the
U. S. Investment Company
Act of 1940, as amended
( the
Investment
Company Act). Resales of the
Trust Securities are subject
to restrictions as described under Notice to Investors.
WMB established the Company as its indirect
subsidiary
to facilitate financing transactions that
raise core capital
for WMB. The Series 2007- B Company Preferred Securities are the fifth series
o
f
t
o be issued by the Company.
The
Company
has
previously
issued:
I
n March 2006, $1,250,000,000 aggregate liquidation preference o
f
its Fixed-to-Floating
Rate
Perpetual Non-cumulative Preferred Securities
having an initial annual dividend rate o
f
6.534%
(the Series 2006- A Company Preferred Securities),
which were sold t
o
Washington
Mutual
Preferred
Funding Trust
I
, a Delaware statutory
trust
(
Trust I),
which
i
n turn issued
$1,250,000,000 liquidation preference o
f
its
Fixed- to-Floating
Rate
Perpetual
Non- cumulative
Trust Securities
(the
Trust I
Securities)
to investors;
Also
i
n March 2006, $750,000,000 aggregate liquidation preference
of its 7.25%
Perpetual
Non- Cumulative Preferred Securities
( the
Series 2006- B
Company
Preferred
Securities),
which were sold to
Washington
Mutual Preferred
Funding (Cayman)
I
Ltd., a Cayman
Islands
exempted company
limited
b
y shares ( WaMu Cayman),
which
i
n turn issued $750,000,000
of its 7.25%
Perpetual
Non- cumulative Preferred Securities,
in two series
(the
WaMu
Cayman Securities),
to investors; and
I
n December 2006, $500,000,000 aggregate liquidation preference o
f
its
Fixed-to-Floating
Rate
Perpetual
Non- cumulative Preferred Securities, Series 2006- C, having an initial annual dividend
rate
o
f
6.665%
(the
Series 2006- C
Company
Preferred
Securities),
which were sold to
CONFIDENTIAL
Return
Washington
Mutual Preferred
Funding
Trust
I
I
,
a Delaware
statutory trust
(
Trust II),
which
i
n
turn issued $500,000,000 liquidation preference of its
Fixed- to-Floating
Rate
Perpetual
Non-
cumulative Trust Securities
( the
Trust
I
I
Securities) to investors.
In May 2007, $500,000,000 aggregate liquidation preference of its Fixed-to-Floating Rate
Perpetual
Non-cumulative Preferred Securities, Series 2007-
A
,
having an initial annual dividend
rate of 6.895%
(the
Series 2007- A
Company
Preferred Securities and, together
with the
Series 2006- A
Company
Preferred Securities, the Series 2006- B
Company
Preferred Securi
ties and the Series 2006- C
Company
Preferred Securities, the
Outstanding Company
Pre
ferred Securities, and the
Outstanding Company
together
with the
Series 2007- B
Company
Preferred Securities and
any
other
Parity Equity
Securities that
may
be issued on a future date, the
Company
Preferred
Securities),
which were sold to
Washing
ton Mutual Preferred Funding Trust
I
l
l
,
a Delaware
statutory
trust
(
Trust III),
which
i
n turn
issued $500,000,000 liquidation preference
of its
Fixed- to-Floating
Rate
Perpetual Non- cumu
lative Trust Securities (the Trust Ill Securities) to investors.
Under the Companys LLC Agreement, the
Companys
Board
o
f
Managers
has the
power
to
create and issue additional equity securities ranking pan passu with the Outstanding Company
Preferred Securities i
n terms
o
f
payment o
f
dividends or on Iiquidatidn o
f
the
Company ( called Parity
Equity
Securities
i
n the LLC
Agreement) without the consent o
f
the holders of the Outstanding
Company
Preferred Securities; provided,
that after
giving
effect to the issuance of
any Parity Equity
Securities the
Company
satisfies an asset test and a funds from
operations
test
( the FF0 Test) and
the
Company i
s not otherwise
i
n breach of
any
of its covenants set forth in the LLC
Agreement.
The
Series 2007- B
Company
Preferred Securities will be
Parity Equity
Securities with
respect
to the
Outstanding Company
Preferred Securities.
Therefore, on the
closing
date for this
Offering,
the
Company
will be
required to satisfy
the tests for issuance of the Series 2007- B
Company
Preferred
Securities as Parity Equity
Securities with
respect
to the
Outstanding Company
See Description
of the Series 2007- B
Company
Ranking for a description of
those tests and the calculation
o
f
the
Companys compliance
with those tests.
I
n addition to the
Parity
Equity Securities, the Company may from time to time issue Junior Equity Securities subject to certain
limitations described herein.
The Office
o
f
Thrift
Supervision (together
with
any successor regulator,
the
OTS)
has confirmed
t
o
WMB that the Series 2007- B Company Preferred Securities and the Outstanding Company
Preferred Securities will constitute core
capital
of WMB under the OTSs
applicable regulatory capital
regulations.
I
following
the occurrence of an Exchange Event,
each Trust
Security
will be
automatically exchanged (a
Conditional
Exchange)
for a like amount
o
f
Fixed-to-Floating
Rate
Depositary
Shares
( the Depositaly Shares)
each
representing
1/ 1000th of a share of WMIs Series N
Perpetual
Non- cumulative
Fixed-to-Floating
Rate Preferred Stock, no par
value and
liquidation prefer
ence $1,000,000 per
share
( the
Series N WMI Preferred
Stock), as described below
i
n this
summary
under

The
Offering
Conditional
Exchange. Upon a Conditional
Exchange,
the Trust I Securities,
the Trust
I
I
Securities, the Trust
I
l
l Securities and the WaMu
Cayman Securities will also be
automatically exchanged,
but for
depositary
shares
representing
different series
o
f
WMIs
preferred
stock, having substantially equivalent terms (with certain exceptions) as to dividends, liquidation
preference
and
redemption preference as the Outstanding Company
Preferred Securities owned by
Trust
I
, Trust
I
I
, Trust
I
I
I
or WaMu
Cayman, as applicable.
This
offering
circular uses the term like amount
i
n
describing the number of Series 2007- B
Company
i
n which a holder
o
f
Trust Securities has a beneficial interest and
i
n
describing the number
o
f
Depositary
Shares for which the Trust Securities will be exchanged upon a
Conditional
Exchange.
The term like amount means:
when
describing
the number o
f
Series 2007- B
Company
i
n which a holder
o
f
Trust Securities has a beneficial interest, the number
o
f
Series 2007- B
Company
Preferred
2
CONFIDENTIAL
Return
Securities that has the same
aggregate liquidation preference as the Trust Securities
t
o which
the reference
i
s
being
made
(
e
.
g., 1,000 Series 2007- B
Company
Preferred Securities with an
aggregate liquidation preference
o
f
$1,000,000 are a like amount for 10 Trust Securities
having an aggregate liquidation preference o
f
$1,000,000); and
when describing the number
o
f
Depositary Shares for which Trust Securities will be exchanged
upon a Conditional Exchange, a number
o
f
Depositary Shares each representing 1/ 1000th of
an interest
i
n one share
o
f
Series N WMI Preferred Stock, having a liquidation preference equal
to the liquidation preference of the Trust Securities that are being exchanged (
e
.
g., 1,000
Depositary
Shares
representing
Series N WMI Preferred Stock with an aggregate liquidation
preference o
f
$1,000,000 are a like amount for 10 Trust Securities
having an aggregate
liquidation preference of $1,000,000).
The
offering
of the Trust Securities and the related issuance
o
f
the Series 2007- B
Company
Preferred Securities are referred to herein as the Offering
3
CONFIDENTIAL
Return
FIex- 5
ARMS
Transfer4
If~ I~
~
New American Capital, Inc., not shown here, i
s WMBs direct parent.
(
2
)
Intermediate subsidiaries of WMB not shown.
(
3
)
The Series 2006- A, 2006- B, 2006-C and 2007- A Company Preferred Securities are held by Trust
I
, WaMu Cayman, Trust II,
and Trust Ill, respectively.
(
4
)
Transfer of Flex-5 ARMs by WMB to the Company. I
n addition, a portion
of the Flex-5 ARMs will be contributed
b
y
University
Street to the Company.
(
5
)
The Series 2007- B Company Preferred Securities will be transferred to WMB
i
n exchange for a contribution
o
f
a portfolio of
Flex-5 ARMs. WMB will then sell the Series 2007- B Company Preferred Securities to the Trust.
The following diagram outlines the relationship
among
WMI, WMB, University Street, the
Company,
the Trust, Asset Trust
I
, Asset Trust
I
I
, Asset Trust
I
l
l
, the Outstanding Company Preferred
Securities and the holders of the Trust Securities:
4
WMB1
Proceeds of Sale of Trust
Securities
100% Common
Interest
C,
0
0.
0
DC
C)
5)
(0
CD
Company3
Series 2007- B
Company
Preferred
Securities5
Trust
Securities
The Trust
~
1
.
4
CONFIDENTIAL
Return
The Trust
Washington Mutual Preferred Funding Trust IV
i
s a statutory trust created under the Delaware
Statutory
Trust Act on August
9
,
2007 for the
purposes set forth below- under The Trust. The
Series 2007- B
Company
Preferred Securities will be the
only assets of the Trust. Under the
Trust
Agreement,
the Trust
i
s
prohibited
from
issuing any
securities other than the Trust Securities.
Subject to the limitations and
assumptions
described under Certain U. S. Federal IncomeTax
Considerations, the Trust intends
t
o be treated as a grantor
trust for United States federal income tax
purposes,
with the result that holders of Trust Securities are expected to be treated as beneficial
owners
o
f
Series 2007- B
Company
Preferred Securities for United States federal income tax
purposes.
The
Company
i
s a Delaware limited liability company formed on
February
3
,
2006. The LLC Agreement generally limits the Companys activities to (
i
) issuing (
a
)
the
Series 2006- A Company Preferred Securities, which were sold
t
o Trust
I
, (
b
)
the Series 2006- B
Company
Preferred Securities, which were sold to WaMu
Cayman, (
c
)
the Series 2006- C
Company
Preferred Securities, which were sold to Trust
I
I
, (
d
)
the Series 2007- A
Company
Preferred Securities,
which were sold to Trust Ill, (
e
)
other Parity Equity Securities such as the Series 2007- B Company
Preferred Securities, subject to the limitations described
i
n this
offering circular, (
f
)
the common
securities of the
Company ( the Company
Common
Securities) t
o
University Street, Inc., an indirect
subsidiary
of WMB
(
University Street)
and
(
g
)
additional Junior Equity Securities, subject to certain
limitations described
i
n this
i
i
) acquiring and holding Eligible Investments, including
the Asset Trust I Class A Trust Certificate, the Asset Trust
I
I Class A Trust Certificate, the Asset Trust
I
l
l
Class A Trust Certificate and the Asset Trust
I
I
(which,
other than Permitted
Investments, will be the sole
Eligible
Investments of the Company immediately
after the completion of
this Offering) i
n accordance with the investment policy as described
i
n

Business
o
f
the
Company
Assets of the Company and (
i
i
i
) performing functions
necessary
or incidental thereto.
The Series 2007- B Company Preferred Securities will rank pan passu with the Outstanding
Company
Preferred Securities as to dividends and
upon liquidation of the
Company.
The terms of the
Series 2007- B Company Preferred Securities will be substantially identical to the terms of the
Outstanding Company
Preferred Securities, other than with
respect t
o the rate
applicable
to dividends,
redemption dates and redemption prices.
University
Street owns all of the Company
Common Securities. The
Eligible
Investments owned
b
y the
Company
from time to time will
generate
net income for
payment
b
y the
Company
to the Trust
as dividends on the Series 2007- B Company Preferred Securities
(and consequently for pass through
b
y the Trust as distributions to the holders of the Trust Securities), to holders of other series of
preferred securities of the Company as distributions on such series (including to Trust
I
, Trust
I
I
,
Trust
H
I
and WaMu
Cayrnan as holders of the
Outstanding Company
Preferred Securities), and to
University Street to make distributions on, or to partially redeem, the Company Common Securities.
When used
i
n this offering circular with respect to the
Company
Common Securities or other Junior
Equity Securities, the term dividend refers
t
o
payments by the Company as a distribution on, or to
redeem a like amount of, the Company Common Securities or other Junior Equity Securities.
Subject to the limitations and assumptions described under Certain U. S. Federal Income Tax
Considerations, the Company intends to be treated as a partnership ( other than a publicly traded
partnership
taxable as a corporation) for United States federal income tax
purposes
and will receive
the opinion of Mayer Brown LLP to the effect that, for United States federal incme tax purposes, the
Company will not be treated as an association taxable as a
corporation or as a publicly traded
partnership taxable as a corporation.
5
CONFIDENTIAL
Return
The
Company i
s
managed
b
y a Board
o
f
Managers.
The
Companys
Board of
Managers
has
three members, one of whom
i
s not, and has not been during the preceding five
years,
an officer or
employee o
f
WMI or any
affiliate
o
f
WMI, other than a financing subsidiary
thereof
(the Independent
Manager).
- - -
Conveyances
of the Mortgage Loans
In connection with the
February
2006
offering o
f
the Series 2006- A
Company
Preferred Securi
ties and Series 2006- B
Company
Preferred Securities, WMB conveyed a portfolio
o
f
first lien, closed-
end, fixed rate home equity loans
(
HELs) to the Company i
n
exchange
for 100%
o
f
the Series 2006- A
Company
Preferred Securities and Series
2006- B Company
Concurrently
with
this transfer
b
y WMB, University
Street conveyed a portfolio of HEL5 to the Company i
n exchange for
100%
o
f
the Company Common Securities. The portfolio conveyed
b
y WMB and University Street to
the Company and subsequently transferred to Asset Trust I consisted of
approximately
$5,389,459,150 o
f
HELs
i
n the aggregate, calculated as
o
f
January 31, 2006. The Company conveyed
100%
o
f
the HELs that i
t received to Asset Trust I
i
n exchange for the interests
i
n Asset Trust I
represented by the Class A Asset Trust Certificate of Asset Trust I (the Asset Trust / Class A
Trust Certificate)
and a residual certificate
( the
Asset Trust I Class R Trust
Certificate),
which the
Company
transferred to WMB. WMB then sold the Series 2006- A Company Preferred Securities and
Series 2006- B Company Preferred Securities for cash to Trust I and WaMu
Cayman, respectively.
I
n connection with the December 2006 offering of the Series 2006- C
Company Preferred
Securities, WMB
conveyed a portfolio o
f
payment option adjustable rate
mortgages
(
Option ARMs)
to the Company i
n exchange for 100% of the Series 2006- C
Company
Preferred Securities, and
University
Street contributed a pool
of Option ARMs to the Company as a capital contribution. The
aggregate outstanding principal balance of all Option
ARMs contributed to the
Company
b
y WMB and
University
Street and
subsequently
transferred to Asset Trust
I
I was
approximately $2,899,877,211 in
the aggregate, calculated as of November 14, 2006. The Company conveyed 100% of the Option
ARMs that
i
t received to Asset Trust
I
I
i
n
exchange for interests
i
n Asset Trust
I
I
represented
b
y the
Class A Asset Trust Certificate of Asset Trust
I
I
( the Asset Trust
I
I Class A Trust Certificate) and a
residual certificate (the Asset Trust
I
I Class R Trust Certificate), which the
Company transferred to
WMB. WMB then sold the Series 2006- C Company Preferred Securities for cash to Trust
I
I
.
As
o
f
September 30, 2007, the Companys assets consisted of approximately $4,083,661,672 of
HELs
i
n the aggregate, held through Asset Trust
I
; $1,664,792,954 of Option ARMs in the aggregate,
held through Asset Trust
I
I
; and $525 million of permitted investments held directly or held through
Asset Trust I or Asset Trust
I
I
, as the case
may
be. Since the March 2006 issuance
o
f
Company
Preferred Securities, the Company has paid to University
Street
approximately $272.4 million of cash
distributions and $2.217 billion
o
f
cash
redemption payments, i
n each case on the
Company
Common
Securities. The Companys source
o
f
funds for those dividends has been payments of interest and
principal received by the Company through
Asset Trust I on its HELs and Asset Trust
I
I on its
Option
ARMs.
Contemporaneously
with this
Offering,
WMB will
convey
a portfolio of
fixed/ floating
rate mort
gages ( Flex-5 ARMs) to the Company in exchange for 100%
o
f
the Series 2007- B Company
Preferred Securities and University Street will contribute a pool o
f
Flex-5 ARMs to the Company
as a
capital contribution. The portfolio o
f
Flex-5 ARMs
t
o be conveyed
b
y WMB to the Company will consist
o
f
approximately $1,000,000,000 outstanding principal amount of Flex- 5 ARMs
i
n the
aggregate,
as of
September 30, 2007, and the portfolio
of Flex-5 ARMs contributed
b
y
University
Street to the
Company
will consist of approximately $4,199,147,686 outstanding principal amount of Flex- 5 ARMs
i
n the
aggregate, as
o
f
September 30, 2007. The
aggregate outstanding principal balance
o
f
Flex-S
ARMs contributed to Asset Trust
I
I
I
by WMB and University Street will be approximately
$5,199,147,686, calculated as
o
f
Company will,
i
n turn, convey
100%
o
f
the
Flex- 5 ARMs that
i
t owns
t
o a newly formed Delaware Trust, WAMU 2007- FIexl ( Asset Trust Ill and,
together
with Asset Trust I and Asset Trust
I
I
, the Asset
Trusts) i
n
exchange
for interests
i
n Asset
6
CONFIDENTIAL
Return
Trust Ill represented
b
y the Class A-i 2007- Flexi Asset Trust Certificate of Asset Trust Ill (the Asset
Trust Ill Class A Trust Certificate) and a second certificate ( the Asset Trust Ill Class R Trust Certif
icate), which the Company expects to transfer to WMB. WMB will then sell the Series 2007- B
Company Preferred Securities for cash to the Trust.
After
giving
effect to the contribution of the Flex-5 ARMs to the
Company
and Asset Trust Ill, on
a pro forma basis, the Companys assets will consist of approximately $4,083,661,672
o
f
HEL5
i
n the
aggregate, as
o
f
September 30, 2007, held through Asset Trust
I
; $1,664,792,954
o
f
Option ARMs
i
n
the aggregate, as
o
f
I
I
; and $5,199,147,686 of Flex- 5
ARMs
i
n the aggregate, as
o
f
September 30, 2007, to be held through Asset Trust Ill.
The HELs currently held
i
n Asset Trust
I
, the Option ARMs currently held
i
n Asset Trust I
I
and
the Flex- 5 ARMs to be held
i
n Asset Trust
I
l
l will together satisfy the coverage and FF0 tests
described under Descriptions o
f
the Series 2007- B Company Preferred Securities
Ranking for
issuance
o
f
the Series 2007- B Company Preferred Securities as Parity Equity Securities with respect
to the
Outstanding Company
University Street
University Street, Inc.
i
s a Washington corporation. I
t has elected to be treated as a real estate
investment trust for United States federal income tax purposes. University Street holds 100% of the
Company Common Securities, which represent 100% of the voting rights i
n the Company (subject to
the limited
rights o
f
holders of the
Company
Preferred Securities described
below).
The Asset Trusts
Washington Mutual Home Equity Trust I ( Asset Trust
I
)
i
s a Delaware statutory trust existing
under the Pooling and Servicing Agreement, dated as
o
f
March
7
,
2006 ( the Asset Trust I Pooling
and Servicing Agreement), among WMB, as servicer, the Company, Deutsche Bank National
Trust Company, as Trustee, and Deutsche Bank Trust Company Delaware, as Delaware trustee (the
Asset Trust / Delaware
Trustee).
The Asset Trust I
Pooling
and
Servicing Agreement i
s the
governing
instrument of Asset Trust
I
. Asset Trust I has made an election to be treated as a real estate mortgage
investment conduit
( REM/ C)
for United States federal income tax
purposes.
The assets of Asset Trust I consist of the portfolio of HELs conveyed
b
y the Company to Asset
Trust I in connection with the issuance by the Company of the Series 2006- A Company
Preferred
Securities and 2006- B
Company
Preferred Securities and the related
offerings
b
y Trust I of the Trust I
Securities and by WaMu Cayman of the WaMu Cayman
Securities. The HEL5 were originated or
acquired
b
y WMB
primarilythrough
its branch network. As of September 30, 2007, the HELs held
b
y
the Company through Asset Trust I had an aggregate unpaid principal balance
o
f
approximately
$4,083,661,672.
WAMU 2006- OA1
(
Asset Trust II) i

s a Delaware statutory trust existing under the Pooling and
Servicing Agreement, dated as o
f
I
I
Pooling and Servicing
Agreement) among the Company, WMB, as servicer, Deutsche Bank Trust Company Delaware, as
Delaware trustee (the Asset Trust
I
I Delaware Trustee), and Deutsche Bank National Trust Company,
as Trustee. The Asset Trust
I
I
Pooling
and
Servicing Agreement i
s the
governing
instrument
o
f
Asset
Trust
I
I
. Asset Trust
I
I has made an election to be treated as a REMIC for United States Federal
income tax
purposes.
The assets
o
f
Asset Trust
I
I consist substantially of the portfolio of Option ARMs conveyed by
the Company to Asset Trust
I
I
i
b
y the
Company o
f
the Series 2006- C
Company
Preferred Securities and the related offering by Trust
I
I of the Trust
I
I Securities. The Option
ARMs were originated by WMB between July 31, 1997 and
April 21, 2006. As of
September 30, 2007,
the
Option
ARMs held by
the
Company through
Asset Trust
I
I had an
aggregate unpaid principal
balance of approximately $1,664,792,954.
7
CONFIDENTIAL
Return
WAMU 2007- Flexi
(
Asset
Trust
lit) i
s a Delaware
statutory
trust formed
pursuant to a trust
agreement,
entered into on
August
9
,
2007, between the Company, as depositor, and Deutsche Bank
Trust Company Delaware, as Delaware trustee (the Asset Trust
I
l
l
Delaware Trustes). The Pooling
and Servicing Agreement, to be entered into on or- before the closing date
o
f
this Offering,--relating to
Asset Trust
I
l
l
among the
Company, WMB, as servicer, Deutsche Bank Trust
Company Delaware, as
Delaware trustee, and Deutsche Bank National Trust Company, as Trustee (the Asset Trust
I
l
l
Pooling
and Servicing Agreement, and together with the Asset Trust I
Pooling
and
Servicing Agreement and
the Asset Trust
I
I
Pooling and Servicing Agreement, collectively, the Pooling and Servicing Agree
ments),
will amend and restate the trust agreement o
f
Asset Trust Ill and will be the
governing
instrument of Asset Trust Ill. Asset Trust~ lll will also make an election to be treated as a REMIC for
United States Federal income tax
purposes.
The initial assets of Asset Trust
I
l
l will consist of the portfolio o
f
Flex- 5 ARMs to be conveyed by
the Company to Asset Trust
I
l
l
i
n connection with this
Offering.
The Flex- 5 ARMs were originated
b
y
WMB between 2000 and 2006. As of September 30, 2007, the Flex- 5 ARMs to be transferred into
Asset Trust
I
l
l had an aggregate unpaid principal
balance
o
f
Unless the context requires otherwise, the HELs owned by Asset Trust
I
, the Option ARMs
owned
b
y Asset Trust
I
I and the FleX- 5 ARMs to be held
b
y Asset Trust I
l
l
are referred to
i
n this
offering circular collectively as the Mortgage Loans.
WMI
With a history dating back to 1889, Washington Mutual, Inc., a Washington corporation, i
s a
consumer and small business
banking company
with operations i
n major U. S. markets. Based on its
consolidated assets on June 30, 2007, WMI was the largest
thrift
holding company in the United
States and the seventh largest among
all U. S.-based bank and thrift holding companies. As of
September 30, 2007, WMI, together
with its subsidiaries, had total assets
o
f
approximately $330.1 bil
lion, total liabilities of
approximately $306.1 billion and total stockholders
equity
of
approximately
$24.0 billion. As of September 30, 2007, WMI and its subsidiaries also had total deposits o
f
approximately $194.3 billion. WMIs common stock
i
s listed on the New York Stock
Exchange
under
the symbol WM. The principal business offices
o
f
WM1 are located at 1301 Second Avenue, Seattle,
Washington 98101 and its
telephone number
i
s 206- 461- 2000.
See WMI Recent Developments
for a discussion
o
f
recent developments concerning WMI
and the WMI Group.
WMB
Washington
Mutual Bank
i
s a federally
chartered
savings association, chartered and operating
under the United States Home Owners Loan Act
o
f
1933, as amended. WMB accepts deposits from
the general public; originates, purchases, services and sells home loans; makes credit card, home
equity
and commercial real estate loans
(the
latter
being
loans secured
primarily
b
y
multifamily
properties); and offers cash management and deposit services. WMB purchases, sells and services
loans to subprime borrowers through its subprime mortgage channel. WMB also markets annuities
and other insurance products and offers securities brokerage services through its insurance and
broker- dealer subsidiaries. As a federal savings association, WMB
i
s
subject t
o
regulation and
examination
b
y the OTS, its primary regulator.
WMB
i
s an indirect, wholly- owned subsidiary o
f
WMI.
8
CONFIDENTIAL
Return
The Offering
Issuer As
t
o the Trust Securities,
Washington
Mutual Preferred Fund
ing Trust
~
,
a Delaware statutory trust.
As to the Series 2007- B Company
Washington
Mutual Preferred
Funding LLC, a Delaware lim
ited liability company.
As to the Series N WMI Preferred Stock
( which
will be repre
sented by Depositary Shares) for which the Trust Securities
will be exchanged upon the occurrence
o
f
a Conditional
Exchange, Washington Mutual, Inc., a Washington
corporation.
Offered Securities Fixed-to-Floating Rate Perpetual Non- cumulative Trust Securi
ties, liquidation preference $100,000 per security and
$1,000,000,000
i
n the aggregate, issued by the Trust.
Dividends . Dividends on the Series 2007- B Company Preferred Securi
ties will be passed through by the Trust as distributions on the
Trust Securities on each date on which the Company pays t
o
the Trust dividends on the Series 2007-B
Company
Preferred
Securities, i
n an amount
per
Trust
Security equal
t
o the
amount of dividends received by the Trust on a like amount
o
f
Series 2007- B
Company
(including
Addi
tional Amounts,
i
f any).
For
purposes
of this offering circular, we refer to distributions
( with respect to Company Preferred Securities) and distribu
tions and
redemption payments (with respect to the
Company
Equity Securities) payable
b
y the Company on its securities as dividends~ Dividends on
the Series 2007- B Company Preferred Securities are payable
as follows:
Dividend Rate. Dividends on the Series 2007- B
Company
Preferred Securities will accrue at, an annual rate equal to
9.75% to, but not including December 15, 2017, and 3-Month
USD LIBOR plus 4.723% commencing December 15, 2017
and for each Dividend Period thereafter, applied t
o the liquida
tion preference o
f
$1,000 per Company Preferred Security.
Dividend Payment Dates.
I
f
b
y the
Companys Board of Managers, the Dividend Payment Dates
for the Series 2007- B
Company
March 15, June 15, September 15 and December 15 of each
year commencing on December 15, 2007, or, i
n each case,
the next Business
Day i
f
any
such day i
s not a Business
Day.
Declaration of Dividends, etc. Dividends on the
Series 2007- B Company
i
f
, when and as
declared
b
y the
Companys
Board
o
f
Managers out
o
f
legally
available funds, will be payable at the dividend rate described
above
applied to the
liquidation preference per Company
Pre
ferred Security accruing on a noncumulative basis from Octo
ber 25, 2007. Any
such dividends will be distributed to holders
9
~
CONFIDENTIAL
Return
o
f
Series 2007- B
Company
i
n the manner
described under Description o
f
the Series 2007- B Company
Preferred Securities Dividends.
Non- cumulative Dividends. Dividends on the Series 2007- B
Company
Preferred Securities are noncumulative. I
f the Com
panys
Board of
Managers
does not declare a dividend on the
Series 2007- B Cbmpany Preferred Securities or declares less
than a full dividend i
n
respect
of
any
Dividend Period, holders
o
f
the Series 2007- B Company Preferred Securities will have
no right to receive any dividend or a fufi dividend, as the case
may be, for that Dividend Period, and the
Company
will have
no obligation
to pay any dividends or full dividends on the
Series 2007- B Company Preferred Securities for that Dividend
Period,
whether or not dividends are declared and
paid
for
any
future Dividend Period with
respect
to
any
series
o
f
the
Company
Company
Common Securi
ties or any
other Junior Equity
Securities.
Redemption/ Replacement Capital
Covenant/ Intentions of WMI and the
Company
General. On each
day on which the
Company
redeems
Series 2007- B
Company
Preferred Securities, the Trust will
apply
the
redemption proceeds i
t receives on the
Series 2007- B Company Preferred Securities to redeem a like
amount of Trust Securities. The
redemption provisions o
f
the
Series 2007- B Company Preferred Securities are described
below. Subject to a covenant i
n effect until October 25, 2017,
in favor of certain of WMIs debtholders
limiting
WMIs and its
subsidiaries
right
to
purchase or redeem the Series 2007- B
Company
Preferred Securities or the Trust Securities (among
others), as described
i
n the next
paragraph,
and
subject
to
the
Company having
received the prior approval
of the OTS
for
any proposed redemption
of Series 2007- B Company
Pre
ferred
Securities,
the
Company may,
at its
option,
redeem the
Series 2007- B
Company
Preferred Securities:
i
n whole but not
i
n
part, on any
Dividend
Payment
Date
prior
to the Dividend
Payment
Date i
n December 2017 upon the
occurrence of a Tax Event, an Investment Company Act
Event, a Rating Agency
Event or a Regulatory Capital
Event, a
t
a cash redemption price equal t
o
the sum of: (
i
) the
greater
of:
(
A
)
$1,000 per
Series 2007- B
Company
Pre
ferred
Security,
or (
B
)
the sum of the
present
values of
$1,000
per
Series 2007- B
Company
Preferred
Security,
dis
counted from the Dividend
Payment
Date
i
n December 2017
to the redemption date, and the present values of all unde
clared dividends for each Dividend Period from the
redemp
tion date to and
including
the Dividend
Payment
Date
i
n
December 2017, discounted from their applicable Dividend
Payment
Dates to the
redemption
date on a quarterly basis,
i
n each case (assuming a 360- day year consisting o
f
twelve
30- day months)
at the
by an
10
CONFIDENTIAL
Return
Independent Investment Banker, pIus 1.00%; pIus (
i
i
) any
declared and unpaid dividends to the redemption date;
i
n whole but not
i
n
part, on any Dividend Payment Date prior
t
o the Dividend Payment
Date
i
n December 2017 for
any
reason other than the occurrence
o
f
a Tax Event, an Invest
ment Company Act Event, a Rating Agency Event or a Reg
ulatory Capital Event, at a cash redemption price equal to
the sum of
(
i
)
the greater
of:
(
A
)
$1,000
per
Series 2007- B
Company
Preferred
Security,
or
(
B
)
the sum of the present
value of $1,000
per
Preferred
Security,
Payment
Date in
December 2017 to the redemption date, and the
present
values of all undeclared dividends for each Dividend Period
from the
redemption
date
t
o and
including
the Dividend
Pay
ment Date
I
n December 2017, discounted from their applica
ble Dividend Payment
Dates to the redemption date,
i
n each
case on a quarterly
basis
(assuming a 360- day year
consist
ing of twelve 30- day months) at the Treasury Rate, as calcu
lated by an Independent Investment Banker, pIus 0.75%;
plus (
i
i
) any declared but unpaid dividends to the redemption
date;
i
n whole but not
i
n part, on any Dividend Payment Date after
the Dividend Payment Date
i
n December 2017 that
i
s not a
Ten- Year Date, upon the occurrence
o
f
a Tax Event, an
Investment Company Act Event, a Rating Agency Event or
a Regulatory Capital Event, at a cash redemption price
equal to $1,000
per
Series 2007- B
Company
Preferred
Security, plus any
declared and unpaid dividends to the
redemption date;
i
n whole or in part, on each Dividend Payment Date that
i
s
a Ten- Year Date at a cash
redemption price o
f
$1,000
per
Company
Preferred
Security, plus any
declared and unpaid
dividends to the redemption date; and
i
n whole but not
i
n
part, on
any
Dividend
Payment
Date after
the Dividend
Payment
Date in December 2017 that
i
s not a
Ten- Year Date for any reason other than the occurrence
o
f
a
Tax Event, an Investment Company Act Event, a Rating
Agency Event or a Regulatory Capital Event, at a cash
redemption price equal to the sum of (
I
) the greater o
f
(
A
)
$1,000 per Series 2007- B Company Preferred Security,
and (
B
)
the sum
o
f
the present value
o
f
$1,000 per
Series 2007- B Company Preferred Security, discounted from
the next succeeding Ten- Year Date to the redemption date,
and the
present
values of all undeclared dividends for each
Dividend Period from the redemption date to and including
the next succeeding
Ten- Year Date, discounted from their
applicable Dividend Payment Dates to the redemption date,
i
n each case on a quarterly basis (assuming a 360- day year
consisting o
f
a
t
the 3-Month USD
LIBOR Rate applicable to the Dividend Period
immediately
preceding
such
redemption
date
(which
3-Month USD
11
CONFIDENTIAL
Return
LIBOR Rate will also, for purposes o
f
calculating such
redemption price,
be the rate used i
n
calculating theamount
for each such undeclared dividend), as calculated
b
y
an
Independent Investment Banker; plus (
i
i
)
any declared but
unpaid
dividends to the
redemption date, i
n
each case,
with
out accumulation of
any
respect.
to Dividend
Payment
Dates
prior
to the
redemption
date.
Ten- Year Date means the Dividend
Payment
Date
i
n Decem
ber 2017 and the Dividend
Payment
Date in December of
each tenth
succeeding year (
i
.
e
.
,
December 2027, December
2037, etc.)
Restriction on Redemption or Purchases. At or prior to ini
tial issuance of the Trust Securities, WMI will enter into a
Replacement Capital
Covenant as described under
Descrip
tion of the Trust Securities Restriction on Redemption or
Purchases.
I
n the
Replacement Capital Covenant,
WMI will
covenant
i
n favor
o
f
certain
o
f
its debtholders that, i
f WMI or a
subsidiary purchases or redeems any Trust Securities or
Series 2007- B
Company
Preferred Securitis or, after a Con
ditional Exchange, Depositary Shares (
o
r
related Series N
WMI Preferred
Stock),
WMI or its subsidiaries will do so only
i
f and
t
o the extent that the total
redemption or purchase price
i
s
equal
to or less than
designated percentages
of the net
cash
proceeds
that WMI or its subsidiaries have received dur
ing
the 180
days prior
to such
redemption or purchase
from
the issuance of other securities or combinations of securities
having
the characteristics described under
Description
of the
Trust Securities Restriction on Redemption or Purchases.
The Replacement Capital Covenant will terminate on Octo
ber 25, 2017 without
any
action
b
y
WMI or any
other
person.
WMI entered into similar replacement capital covenants i
n
connection with the issuance
o
f
the
Outstanding Company
Preferred Securities in
May 2007, March 2006 and December
2006.
I
n
addition, upon the expiration of the Replacement Capital
Covenant on October 25, 2017, WMI and the Company intend
that, t
o
the extent the Series 2007- B Company Preferred
Securities and the related Trust Securities
provide WMI with
equity
credit from a nationally recognized rating agency at the
time of
redemption or repurchase
of such
securities,
WMI will
purchase
and/ or the
Company
will redeem or purchase ( but,
in the case of the
Company, only
to the extent such
redemp
tion or purchase i
s
funded, directly or indirectly,
b
y WMI and
its subsidiaries, other than WMB and its
subsidiaries)
the
Series 2007- B
Company
Trust Securities, as applicable, only
to the extent that the
amount paid by WMI and its subsidiaries (other than WMB
and its subsidiaries), net o
f
fees and expenses, i
n connection
with such redemption or repurchase does not exceed the net
proceeds received
b
y
WMI (and, i
n the case of the Company,
made available
t
o the
Company i
n
connection with a
12
CONFIDENTIAL
Return
b
y
i
t
) from the sale or issuance, dur
ing
the
180- day period prior
to the notice date for such
redemption or purchase,
b
y WMI or its subsidiaries, other
than WMBandits
subsidiaries,
to
third- party purchasers,
other than a subsidiary o
f
WMI, of securities for which WMI
will receive
equity credit, at the time of sale or issuance, that
is, i
n the
aggregate, equal
to or greater
than the
equity
credit
attributed to WMI from the 2007- B
Company
Preferred Securi
ties at the time of such
redemption or repurchase.
The deter
mination of the
equity
credit attributable to the 2007- B
Company
Preferred Securities and the related Trust Securities
that
may
be redeemed or purchased, as applicable, may
result i
n the issuance of an amount of new securities that may
be less than the
liquidation preference o
f
the 2007- B Com
pany
Preferred Securities and related Trust Securities
redeemed or
purchased, depending upon,
inter
a
/
ia, the
nature
o
f
the new securities issued and the equity credit attrib
uted
by a nationally recognized rating agency
to the
Series 2007- B
Company
Preferred Securities redeemed or
purchased
and the
new securities. Upon the occurrence
of an
Exchange Event, the
foregoing
shall
apply
to the Series N
WMI Preferred Stock mutatis mutandis. Unlike the
specifiC
agreements
set forth
i
n the
Replacement Capital Covenant,
the
foregoing represents
WMIs and the
Companys
intentions
with respect to the Series 2007- B Company Preferred
Securities.
See Description of the Series 2007- B Company Preferred
Securities Redemption.
Ranking Trust Securities. The Trust Securities will be the only secu
rities issued by the Trust. The Amended and Restated
Trust Agreement of the Trust ( the Trust Agreement) will pro
vide that the
Trust
will not issue
any
other securities.
Series 2007-B Company Preferred Securities. The
Series 2007- B
Company
Preferred Securities will rank
pan
passu
with the
Outstanding Company
and senior to the
Company
Common Securities and
any
other
Junior Equity Securities i
n terms
o
f
dividends and liquidation
payments.
During a Dividend Period, the
Company may
not declare or
pay any
dividends on any
of its Junior
Equity
Securities other
than dividends
payable i
n Junior
Equity
Securities of the same
class or series or Junior
Equity
Securities
ranking junior
to
that class or series, or purchase,
redeem or otherwise
acquire
for consideration, directly or indirectly, any
Junior
Equity
Secu
rities
(other
than as a result
o
f
reclassification of Junior
Equity.
Securities for or into other Junior Equity Securities, or the
exchange or conversion of Junior
Equity
Securities for or into
other Junior Equity Securities), unless dividends for such Divi
dend Period on all
Company
Preferred Securities then out
standing
have been declared and
paid i
n full, or declared and
set aside for
payment, as the case may
be.
13
CONFIDENTIAL
Return
The
Company may
issue additional
Parity Equity
Securities
from time to time without the consent of the holders
o
f
the
Series 2007- B
Company
that
(iyafter giving
effect to such issuance, the
pro
forma net book
value
o
f
the
Companys
assets
(after giving
effect to the
acqui
sition
o
f
any
New Assets
i
n connection with the issuance of
such
Parity Equity Securities)
will
equal or exceed 1.5 times
the sum o
f
the
aggregate liquidation preference o
f
the Com
pany
Preferred Securities then
outstanding
and
any
such Par
i
t
y
Equity
Securities that the
Company proposes to issue,
(
i
i
) after
giving
effect to such issuance, the
Companys pro
forma funds from
operations, or FF0, for the four fiscal
quar
ters beginning with the fiscal quarter i
n which such Parity
Equity Securities are proposed to be issued
(calculated
(
a
)
assuming
that such
proposed Parity Equity
Securities are
issued and
that, i
f
any Parity Equity
Securities
(including
the
Parity Equity
Securities that the
Company proposes
to
issue)
bear dividends based on a floating rate, the
applicable
divi
dend rate will not
change during
such four fiscal
quarters
from
the rate
i
n effect on the
applicable
date of determination,
(
b
)
assuming,
to the extent
necessary,
for each
mortgage
loan,
which bears an adjustable or floating
interest rate and/ or
having adjustable periodic payments,
that
i
s
directly or indi
rectly
owned
b
y the Company that the interest rate and the
minimum
monthly payment i
n the
applicable mortgage
note
will not
change during
such four
quarters
from the interest rate
and minimum monthly payment i
n effect on the applicable
date o
f
determination, and
(
c
)
as adjusted to reflect
any
New
Assets) equals or exceeds 150%
o
f
the amount that would be
required t
o
pay
full annual dividends on all
preferred
securities
o
f
the Company then outstanding and any such Parity Equity
Securities that the
Company proposes to issue and
( iii)
the
Company i
s not otherwise
i
n breach of
any
of its covenants
set forth
i
n the LLC
Agreement.
The Series 2007- B
Company
Preferred Securities are Parity~ Equity
Securities with
respect
to the
Outstanding Company
Preferred Securities, and the
Company
satisfies the tests for the issuance
o
f
the
Series 2007- B
Company Preferred Securities as Parity Equity
Securities. See
Description
Company
Ranking.
WMI will covenant
i
n the
Exchange Agreement
for the benefit
o
f
the holders of the Trust Securities that i
f for
any
Dividend
Period full dividends on (
i
)
the Series 2007- B Company Pre
ferred Securities or (
i
i
) the Trust Securities have not been
declared and paid, then WMI will not declare or pay
dividends
with respect to, or redeem, purchase or acquire, any of its
equity capital
securities
during the next succeeding
Dividend
Period, except
dividends
i
n connection with a shareholders
rights plan, i
f
any, or dividends
i
n connection with benefits
plans. WMI entered into similar
exchange agreements
that
included
equivalent
covenants
i
o
f
the
Outstanding Company
14
CONFIDENTIAL
Return
Conditional
Exchange I
following
the
occurrence
of an Exchange.
Event, each. Trust
Security
will be
automatically exchanged
for
a like amount
o
f
Depositary Shares, with each
Depositary
Share
representing
1/ 1000th of a share of Series N WMI Pre
ferred Stock (the Depositaiy Shares).
An
Exchange
Event will occur when
(
i
)
WMB becomes.
undercapitalized under the OTSs prompt corrective action
regulations, (
i
i
) WMB
i
s
placed into conservatorship or receiv
ership or (
i
i
i
) the OTS, i
n
i
t
s
sole discretion, anticipates
WMB
becoming undercapitalized i
n the near term or takesa
supervisory
payment o
f
dividends
b
y
WMB,
and
i
n connection
therewith, directs such
exchange.
The Series N WMI Preferred Stock, upon. issuance,
will have
substantially equivalent terms as
to
dividends, redemption and
liquidation preferences as the Series 2007- B
Company
Pre
ferred Securities and the Trust Securities for which
they may
be
exchanged, except
that:
(
i
)
the Series N WMI Preferred
Stock will not have the benefit of the favorable covenants
described under
Description
Company
Voting Rights
and Covenants; (
i
i
) the
occurrence of an Investment
Company
Act Event or Tax Event
will not affect the
ability
of WMI to redeem the Series N WMI
Preferred Stock; ( iii) Additional Amounts will not be
payable
with respect to the Series N WMI Preferred Stock; and
(
i
v
)
i
f
WMI fails to pay, or declare and set aside for
payment,
whether or not consecutive, full dividends on the Series N
WMI Preferred Stock after its issuance or any
then outstand
ing Voting Parity Securities for six Dividend Periods, the
authorized number of WMIs directors will increase
by two,
and the holders of Series N WM1 Preferred Stock, voting
together
with the holders of
any
other
Voting Parity Securities,
such as the Series I WMI Preferred Stock, Series J WMI Pre
ferred
Stock,
Series L WMI Preferred Stock and Series M
WMI Preferred Stock issuable
upon an Exchange
Event
i
n
exchange
for the Trust I
Securities, the WaMu
Cayman
Secu
rities, the Trust
I
I Securities
or.
the Trust III Securities, as appli
cable, will have the
right
i
n addition to
the directors then i
n office at the next annual meeting of
shareholders.
WMI will covenant i
n the Exchange Agreement i
n favor of the
holders
o
f
the Trust Securities that, prior to the issuance o
f
the Series N WMI Preferred Stock
upon a Conditional
Exchange,
WMI will not issue
any preferred
stock that would
rank senior to the Series N WMI Preferred Stock
upon
its
issuance
i
n terms
o
f
dividends or liquidation payments.
Each
share of Series N WMI Preferred Stock will, upon issuance,
rank at least
pan passu
with the most senior
preferred
stock
o
f
WMI, i
f
any,
then
outstanding,
and to
any
other
preferred
stock that WMI
may
have issued prior to the date of such
issuance of such Series N WMI Preferred Stock.
15 .
CONFIDENTIAL
Return
Voting Rights and Certain Covenants Except as set forth below, the holders of the Series 2007- B
Company
Preferred Securities will not have voting rights.
The LLC Agreement will provide that, so longas any
Corn
pany
o
f
any series are outstanding the
Company
will not, except
with the consent or affirmative vote
of the holders of at least two- thirds of all the series of Com
pany
Preferred Securities, voting together as a single class:
effect a consolidation, conversion, merger or share
exchange
with or into another
entity
other than an entity
controlled by, or under common control with, WMI;
issue
any equity
securities
o
f
the
Company ranking senior
to the
Company
i
n
respect
of
payments
o
f
dividends or on liquidation to the Company Preferred
Securities
(
Senior Equity Securities);
incur any indebtedness for borrowed money;
pay dividends on the Companys Junior Equity Securities

unless the
Companys FF0 for the four prior fiscal quarters
equals or exceeds 150% of the amount that would be
required to
pay
full annual dividends on all series of Com
pany
Preferred Securities then outstanding;
fail to invest the proceeds of the Companys assets such
that the
Companys
FF0 over
any period o
f
four fiscal
quar
ters will equal or exceed 150% of the amount that would be
required to pay full annual dividends on all series of Corn
pany
Preferred Securities then outstanding;
issue any additional Company Common Securities
t
o
any
person,
other than
University
Street or another affiliate of
WMI;
amend or otherwise change the terms
o
f
any
Asset Docu
mentation
i
n a manner that
i
s
materially adverse to the Trust
or the holders of the Trust Securities or to
any
other
entity
holding a series
o
f
Company Preferred Securities ( including.
Trust
I
, WaMu Cayman, Trust
I
I
.
and Trust Ill, a
Trust Holder) or
t
o the holders of that Trust Holders
securities;
remove or cause to be removed, as applicable, Washington
Mutual from the
Companys
or the Trusts name or the
name
o
f
any
other Trust Holder unless the name of WMI
changes
and the
Company
makes a change to the Compa
nys, the Trusts, or such other Trust Holders name to be
consistent with the new
group name;
take
any
action or fail to take
any
action that would cause
the Company to fail to be treated as a partnership (other
than a publicly traded partnership taxable as a corporation)
purposes;
engage i
n a U. S. trade or business for United States federal
income tax
purposes;
16
CONFIDENTIAL
Return
fail
t
o hold only assets that qualify for the portfolio interest
exemption under the Code or are otherwise exempt from
gross basis United States withholding taxes;
fail
t
o
manage i
t
s
affairs such that income with respect t
o
the Trust Securities does not constitute unrelated business
taxable income for United States federal income tax
purposes;
take
any
action that could
reasonably
be
expected to cause
a Tax Event, an Investment
Company
Act Event, a Rating
Agency
Event or a Regulatory Capital
Event to occur; or
amend its certificate of formation or LLC
Agreement i
n a
manner that materially and
adversely
affeOts the terms of
any series of
Company Preferred Securities; provided, how
ever, that,
i
f
any
amendment affects fewer than all classes
of
Company
Preferred Securities, the amendment will
require only a vote of the holders of such affected class or
classes of
Company
Preferred Securities, voting together as
a separate class.
I
n addition, the LLC Agreement will provide that, for so long
as any Company Preferred Securities are outstanding, certain
actions by the Company will be subject to the prior approval
o
f
all Managers, including the Independent Manager. The
Company will not be able, without the approval
ofthe Inde
pendent Manager, to:
terminate, amend or otherwise
change any
Asset. Documen
tation; or
effect a consolidation,
merger
or share exchange (excluding
the Conditional
Exchange)
that
i
s not tax- free to the holders
of
any
series of Company Preferred Securities, and the.
related trust securities, unless the transaction was approved
by
the consent or affirmative vote of the holders of at least
two- thirds of all the series of Company
voting together as a
single
class.
In addition, the LLC
Agreement
will
provide
that
i
f
(
i
)
the Com
pany
fails to
pay
full dividends on
any
series of Company Pre
ferred Securities on any Dividend Payment Date, (
i
i
) any
Trust Holder fails
t
o
pass through full dividends paid by the
Company on the Company Preferred Securities held
b
y that
Trust Holder to the holders of the Trust Holders securities on
any
Dividend
Payment Date, or (
i
i
i
) a Bankruptcy
Event
occurs,
the holders
o
f
all the series of
Company
Preferred
Securities, voting together as a single class, by majority vote
of the votes cast on such matter, are entitled
t
o remove the
initial or
any
succeeding Independent Manager
and to fill the
vacancy created by such removal or any other vacancy exist
ing i
n the office of the
Independent Manager.
Each holder
o
f
Trust Securities will have the
right to direct the
Property Trustee acting for the Trust, as holder of the
Series 2007- B
Company
Preferred Securities, as to the
17
CONFIDENTIAL
Return
exercise
o
f
the
voting rights
described above
pertaining
to a
like amount of Series 2007- B
Company
represented
b
y its
respective
Trust Securities. See
Descrip
tion of the Trust Securities
Voting Rights.
Additional Amounts
I
f the
Company
or the Trust i
s
required to withhold or pay any
Additional Taxes as a result of an Additional Tax Event, the
Company
will
pay as additional amounts on the Series 2007- B
Company
Preferred Securities such amounts as will be
required so that dividends on the Series 2007- B Company
Preferred Securities and/ or the
amounts passed through
b
y
the Trust on the Trust Securities, as applicable,
will not be
reduced as a result
o
f
any
such Additional Taxes. See
Description
Company Preferred Securi
ties Additional Amounts.
I
f the Trust Securities are
exchanged
for Series N WMI Preferred Stock
upon a Condi
tional
Exchange,
WMI will not be
obligated
to
pay
Additional
Amounts on the Series N WMI Preferred Stock.
Listing
The Trust Securities will not be listed
on any
securities
exchange or automated dealer
quotation system.
Use of Proceeds The Trust will use the
proceeds o
f
the sale of the Trust Securi
ties i
n this
Offering
to purchase from WMB a like amount
o
f
Preferred Securities, which the Com
pany will issue to WMB i
n
exchange for the conveyance o
f
the
Flex-5 ARMs
t
o the
Company.
The WMI
Group
will use the
proceeds
from the sale of the Series 2007- B
Company
Pre
ferred Securities to the Trust for
general corporate purposes.
Ratings
The Trust Securities are expected to be
assigned upon
issu
ance ratings
of BBB
by
Standard & Poors
Rating Services,
a Division of The McGraw- Hill Companies, Inc.
(
S
&
P),
Baal
by Moodys
Investors Service, Inc.
( Moodys)
and
A
b
y
Fitch,
Inc.
(
Fitch).
A
rating i
s not a recommendation
to
buy,
sell or hold securities and
may
be
subject
to revision,
suspension or withdrawal at any time
b
y the
assigning rating
organization.
See Risk Factors Risks
Relating to the Terms
o
f
the Trust Securities and the Series 2007- B Company Pre
ferred Securities Rating agencies may change rating
methodologies.
Tax
Consequences I
t
i
s
anticipated
that the Trust will be treated as a grantor trust
purposes. Accordingly,
each holder of a Trust
Security i
s
expected
to be treated as i
f
i
t owned
directly
the Series 2007- B
Company Preferred Secu
rities allocable to such Trust
Security.
The
Company
intends to
qualify as a partnership ( other
than
a publiOly
traded
partnership
taxable as a corporation)
for
United States federal income tax
purposes, and thus, the
Series 2007- B
Company
by
the Trust
are intended to constitute
equity
interests
i
n
a partnership.
As
a partnership,
the
Company
intends that
i
t will not be
subject
to United States federal income tax. Instead, each holder
o
f
a
Trust Security will be required to report on its United States
18
CONFIDENTIAL
Return
federal income tax return its share
o
f
the income, gains,
losses, deductions and credits
o
f
the
Company
that are alloca
ble
t
o
the Trust, even

i
f such holder has not received any cash
distributions.
See Certain
U
.
S. Federal Income Tax Considerations
United States Federal Income Tax Consequences.
ERISA Considerations No Trust
Security may
be purchased
b
y or transferred to
any
Benefit Plan Investor, except for an insurance
company gen
eral account that
represents, warrants and covenants that, at
the time of acquisition and
throughout
the
period i
t holds the
securities, (
i
) i
t
i
s eligible for and meets the requirements of
Department
of Labor Prohibited Transaction Class
Exemp
tion 95- 60, (
i
i
)
less than 25% of the assets of such
general
account are (
o
r
represent)
assets
o
f
a Benefit Plan Investor
and (
i
i
i
)
i
t
i
s not a person who has discretionary authority or
control with
respect to the assets of the Trust or any person
who provides investment advice for a fee ( direct or indirect)
with respect to such assets, or any affiliate
o
f
such a person
and would not otherwise be excluded under
29 C.ER. 2510.3- 101( f)( 1).
Governing Law The Trust Agreement, the Trust Securities, the LLC Agree
ment and the Series 2007- B Company Preferred Securities
will be
governed by,
and construed
i
n accordancewith, the
laws of the State of Delaware. The Series N WMI Preferred
Stock will be governed
b
y and construed
i
n accordance with
the laws of the State of
Washington.
The Depositary Shares
will be governed by,
and construed
i
n accordance with, the
laws of the State of New York.
CUSIP 93936TAA8
ISIN US93936TAA88
19
CONFIDENTIAL
Return
RISK FACTORS
Purchasers should
carefully
consider the
following
risk factors in
conjunction
with the other
information contained in this
offering circular, as well as information that
i
s
incorporated by
reference
i
n this
offering circular, before purchasing any Trust Securities, the financial entitlements of which will
be
substantially
similar to those of a like amount o
f
Series 2007- B
Company
which are conditionally exchangeable into Depositary Shares
representing
interests
i
n Series N WMI
Preferred Stock. In addition, purchasers should also carefully
consider the risk factors included i
n
WMIs and WMBs Annual
Reports on Form 10- K for the
year
ended December 31, 2006, and their
respective Quarterly Reports on Form 1 0-Q for the
quarterly periods
ended March
31,
2007 and
June
30,
2007.
Risks Relating to the Terms of the Trust Securities and the Series
2007- B Company Preferred
Securities
Holders of Trust Securities will receive distributions only i
f the Company pays dividends on
the Series 2007-B Company Preferred Securities.
Amounts available to the Trust for
payment on the Trust Securities will be limited to dividends
received by the Trust as the holder
o
f
the Series 2007- B Company Preferred Securities.
I
f the
Company does not declare and
pay
dividends on the Series 2007- B
Company
the Trust will not pass through any
dividends to holders
o
f
Dividends on
the Series 2007- B Company Preferred Securities are not cumulative and
purchas
ers will not receive dividends on the Trust Securities for
any
Dividend Period unless dividends
are authorized and declared by the Companys Board of Managers for that Dividend Period on
the like amount of Series 2007- B
Company
by
the Trust.
Dividends on the Series 2007- B Company Preferred Securities are not cumulative. Consequently,
i
f
the Board
o
f
Managers does not declare a dividend on the Series 2007- B
Company
Preferred
Securities for any
Dividend Period, the Trust, as holder o
f
the Series 2007- B CompanyPreferred
Securities,
and
consequently
the holders of Trust
Securities,
will not receive dividends for that
Dividend Period.
I
n
addition, the
Companys
Board
o
f
Managers may
determine that
i
t would be
i
n the
Companys
best interests to
pay
less than the full amount of the stated dividends on the Series 2007- B
Company
Preferred Securities or no dividends for
any
Dividend Period even i
f funds are available.
Factors that would
generally
be considered by
the
Companys
Board of
Managers i
n
making
this
determination are the amount
o
f
available funds, the
Companys
financial condition and
capital needs,
the
impact
of current and
pending legislation
and
regulations,
economic conditions and tax
considerations.
The level of the
Companys
assets relative to the
of the Com
panys preferred
securities could shrink over time because of, among
other
things,
dividends
paid by the
Company on
the
Company
Equity
Securities
i
f
any are issued at a future date.
The LLC
Agreement
includes
provisions
that limit the
Companys ability
to
pay
dividends on the
Companys
Junior
Equity
Securities but, subject
to satisfaction of those
limitations, does not prohibit
dividends that could cause the level
o
f
the
Companys
assets relative to the
aggregate liquidation
preference o
f
the Company Preferred Securities to shrink. These limitations are described under
Description o
f
the Series 2007- B
Company
Ranking,

Restcictions on
Dividends and

Voting Rights
and Covenants.
They
include the
following:
during a Dividend Period, the

Company may
not
pay
dividends on Junior
Equity Securities, or
purchase, redeem or otherwise acquire for consideration directly or indirectly ( with limited
exceptions)
Junior
Equity Securities, unless dividends for such Dividend Period on a
l
l
series of
20
CONFIDENTIAL
Return
Company
Preferred Securities then outstanding
paid i
n full, or set
aside for
payment, as the case
may
be; and
without the consent or affirmative vote, of the holders of at least two- thirds. of all series of
Company
Preferred Securities, voting together as a single class, the
Company may
not:
pay
dividends on Junior Equity Securities unless the Companys FF0 for the four prior fiscal
quarters equals or exceeds 150%
o
f
the amount that would be required to pay full dividends
on all series
o
f
the Company Preferred Securities; or
amend or otherwise
change
the requirement that the Company make investments and
distributions with the proceeds o
f
the Companys assets such that the Companys FF0 for
any period o
f
four fiscal quarters will equal or exceed 150% of the amount that would be
required to
pay
full annual dividends on all series
o
f
Additionally,
the
Companys
Board of Directors has the
power to create and issue
Parity Equity
Securities without the consent
o
f
the holders of the Company Preferred Securities so long as the
Company satisfies the FF0 Test on a pro forma basis and the pro forma net book value
o
f
the
Companys assets equals or exceeds 1.5 times the sum of the aggregate liquidation preference o
f
the
Company Preferred Securities then outstanding and the Parity Equity Securities proposed t
o be
issued.
As the Mortgage Loans held by the Asset Trusts prepay or repay principal and distributions with
respect to such principal payments are made
b
y each Asset Trust to the Company subject
to the
limitations referenced above, the Company may choose
t
o
apply such amounts and any retained
proceeds o
f
this offering to pay dividends on the Company Common Securities or other Junior Equity
Securities or reinvest such amounts i
n Permitted Investments or additional Eligible Assets~ Since
March
6
,
2006, the date on which Company
Preferred Securities were first issued, the
Company
has
paid
dividends
totaling approximately
$2.489 billion on the Company Common Securities from
principal and interest collections on the Mortgage Loans. Additionally, subject to the limitations
referenced above, the
Company
could distribute a portion of the Asset Trust I Class A Trust Certificate,
Asset Trust
I
I Class A Trust Certificate or the Asset Trust
I
l
l Class A Trust Certificate as a dividend on
the
Company
Common Securities. The Company has no current intention to
pay
an extraordinary
dividend, and WMI has no current intention to cause or permit
the
Company to pay an extraordinary
dividend. Nevertheless, dividends
paid by
the Company on the Company Common Securities could
result
i
n a reduction
i
n the Companys assets that could have the consequence, notwithstanding
its
compliance with the limitations referred to above, of the Company not having funds available to pay
full dividends on the Series 2007- B Company Preferred Securities
i
n future periods or loss
b
y
investors
o
f
some or all
o
f
the amount of their investment were the Company to be liquidated.
The Trust Securities and the Series 2007- B Company Preferred Securities are perpetual and
not redeemable at the option
of the holder, and holders of the Trust Securities can have no
assurance of
receiving
their initial investment back.
The Trust Securities
may not be redeemed at the
option o
f
their holder under
any circumstances,
are perpetual and have no maturity date.
I
f and when the Company redeems Series 2007- B Company
Preferred Securities, the Trust will redeem a like amount
o
f
Trust Securities. While the Series 2007- B
Company
may
be redeemed at the option of the
Company
under certain
circumstances described herein, any
such redemption i
s
subject to the approval o
f
the OTS and may
be constrained
b
y
operation o
f
the Replacement Capital Covenant. Investors
i
will have no right t
o
reclaim their initial investment from the Trust and there can be no guarantee that
the Trust Securities will ever be redeemed.
I
f investors
i
n the Trust Securities choose to sell their
Trust Securities i
n order
t
o reclaim all or part of their initial investment
i
n the absence of
any
redemption, there can be no guarantee that such investors would be able to sell their securities
i
n the
secondary market, or that
i
f such a sale occurred the sale price would be at or above the initial price.
21,
CONFIDENTIAL
Return
A decline in WMBs capital levels or its placement
into
conservatorship or receivership may
result in a Conditional
Exchange. I
f a Conditional
Exchange occurs, i
t
i
s
likely
to occur at a
time when . WMBs and WMIs financial condition has deteriorated and may have other adverse
consequences.
The returns from an investment
i
n the Trust Securities will be dependent to a significant extent
on the performance and capital
of WMB due to the
potential
for a Conditional
Exchange.
A decline
i
n
the
performance
and
capital
levels
o
f
WMB or the placement by the OTS of WMB into conservatorship
or receivership could result
i
n the occurrence of an Exchange
Event and a Conditional
Exchange
of
the Trust Securities for
Depositary
Shares
representing
Series N WMI Preferred Stock. The Series N
WMI Preferred Stock would
represent
an investment in WMI and not
i
n the Company or the Trust.
Under these circumstances:
the Trust Securities would be exchanged
for a preferred equity interest
i
n WMI at a time when
WMBs and, ultimately,
WMIs financial condition has significantly deteriorated or when WMB
may have been placed into conservatorship or receivership and, accordingly, i
t
i
s
quite unlikely
that WMI would be
i
n a financial position to make
any
dividend payment on the Series N WMI
Preferred Stock;
i
n the event of a liquidation of WMI, the claims
o
f
creditors of WMI and of all its subsidiaries,
including WMB, would be entitled to
priority i
n payment over the claims of holders of equity
interests such as the Series N WMI Preferred Stock, and, therefore, the former holders of the
Trust Securities who would then hold the Depositary Shares
representing
Series N WMI
Preferred Stock
may
receive substantially less than such holders would receive had the
Trust Securities not been exchanged
for the Depositary Shares. See Risk Factors Applica
ble to Depositary Shares Issued
i
n a Conditional
Exchange
The Series N WMI Preferred
Stock will rank subordinate to the direct indebtedness of WMI;
purposes,
a Conditional
Exchange would most likely be a
taxable event to holders of the Trust Securities, and
i
n that event the holders generally
would
incur a gain or loss, as the case may
be, measured by the difference between their adjusted
tax basis in the Trust Securities and the fair market value
o
f
the Depositary Shares; and
although the terms of Depositary Shares are substantially similar

t
o the terms
o
f
the
Series 2007- B Company Preferred Securities, there are differences that holders of Trust Secu
rities might deem to be important, such as the fact that holders of
Depositary
Shares will not
generally
have
voting rights, except as required
b
y law or
i
n connection with the right to elect
directors
i
f dividends are missed or as otherwise described
i
n this Offering
Circular
( see
Description
of the Series N WMI Preferred Stock
Voting Rights), and will not benefit from
the same favorable covenants as the Series 2007- B
Company
The terms of the Trust Securities and the Series 2007- B Company Preferred Securities
provide
for limited
voting rights.
Except as specified i
n the Trust Agreement or i
n relation
t
o the right to direct the manner i
n
which the
Property Trustee acting
on behalf of the Trust exercises its voting rights with respect to the
Series 2007- B Company Preferred Securities, holders
o
f
Trust Securities are not entitled to voting
rights. Except as specified i
n the LLC
Agreement,
the Trust, as holder of Series 2007- B
Company
i
s not entitled to voting rights. Nevertheless, the LLC
Agreement prohibits the
Company
from
taking
certain actions without the consent or vote of
a
t
least two- thirds
o
f
either the
Series 2007- B Company Preferred Securities, voting separately, or of all the series of
Company
Preferred Securities, voting together as a single class, as applicable.
For a description o
f
the matters
on which the holders
o
f
Series 2007- B Company Preferred Securities have a right
t
o vote, see
Description of the Series 2007- B Company
Voting Rights and Covenants.
22
CONFIDENTIAL
Return
Holders of the Trust Securities and Series 2007- B
Company
Preferred Securities have no
redemption rights; however, the Company may ( but
is not required to) redeem the
Series 2007- B
Company
Preferred Securities on any
Dividend
Payment Date, and such
redemp
tion will cause a~ automatic
redemption
of the Trust Securities.
Subject to the Replacement Capital
Covenant and to the Company having received the
prior
approval o
f
the OTS for
any proposed redemption o
f
Series 2007- B
Company
the
Company may
redeem the Series 2007-B Company Preferred Securities: (
i
) i
n whole but not i
n
part on any Dividend Payment Date upon the occurrence of a Tax Event, an Investment
Company
Act
Event, a Rating Agency
Event or a Regulatory Capital Event and
(
i
i
) i
n whole or in
part, on any
other
Dividend
Payment Date,
at a redemption price equal
to the
liquidation preference per
Series 2007- B
Company
Preferred
Security, plus
declared but
unpaid dividends, i
f
any, plus a U. S.
Treasury- based
make- whole amount i
f the
redemption
occurs prior
the Dividend
Payment
Date
occurring i
n Decem
ber 2017 or a LIBOR- based make- whole amount
i
f the
redemption occurs after December 2017 on a
Dividend
Payment
Date that
i
s not a Ten- Year Date. The
redemption by
the
Company of the of the
Preferred Securities will
automatically cause the
redemption o
f
the
Trust Securities for which the redemption price
will
bepaid from the proceeds
the Trust receives from
the
Company as a consequence
of the
redemption
Company
Preferred
Securities. The occurrence o
f
a Tax Event, an Investment
Company
Act Event, a Rating Agency
Event
or a
Regulatory Capital Event will not, however, give a holder
o
f
any right to
require that the Series 2007- B
Company
Preferred Securities or the Trust Securities be redeemed.
I
f
the Company
redeems the 2007- B
Company
Preferred Securities, the Trust Securities will be
automatically redeemed, and the former holders of the Trust Securities
may
not be able to invest their
redemption proceeds
in securities with a dividend
yield
and other terms
comparable
to that
o
f
the
Trust Securities. A
Treasury
based make whole amount will be
payable only i
n connection with a
redemption prior
to the Dividend
Payment
Date
i
n December 2017; after the Dividend Payment
Date
occurring i
n December 2017, a LIBOR- based make- whole amount will be
payable only i
f the
Series 2007- B
Company
Preferred Securities are redeemed on a Dividend Payment Date that
i
s not a
Ten- Year Date and no Tax Event, Investment
Company
Act Event, Rating Agency
Event or Regulatory
Capital
Event shall have occurred.
The Series 2007- B Company Preferred Securities will rank subordinate to claims of the
Compa
nys
creditors and on a parity
with other series of
preferred
securities issued
by
the Company,
whether
presently or
in the future.
The Series 2007- B
Company
Preferred Securities will rank subordinate to all claims of the
Companys creditors. The Series 2007- B Company
Preferred Securities will rank par! passu as to
dividends and upon liquidation with the Outstanding Company Preferred Securities and any other
Parity Equity Securities that the
Company may
issue. The
Company may
issue additional
Parity Equity
Securities at any
time
i
n the future, subject to satisfying certain conditions at the time of issuance,
without the consent or approval
of the holders of the Trust Securities.
Accordingly, i
f
the
Company
does not have funds legally
available
t
o
pay
full dividends on all series of the
Company
Preferred Securities; or
i
n the event
o
f
the
Companys liquidation,
dissolution or winding up, the Company does not
have funds legally
available to pay
the full
liquidation
value
o
f
all the series
o
f
Company
any
funds that are legally
available to
pay
such amounts will be
paid pro
rata to the holders
o
f
the
Series 2007- B
Company
Outstanding Company
any
other
Parity Equity
Securities. See Description
of Other
Company
Securities.
23
CONFIDENTIAL
Return
There has never been a market for the Trust Securities.
Prior
t
o this Offering, there was no market for the Trust Securities.
Although
the Initial Purchas
ers intend
t
o make. a market
i
n the Trust Securities, they are under no obligation t
o do so and, t
o the
extent that such market making i
s commenced, i
t
may
be discontinued at
any time. The Trust Securi
ties will not be listed on
any
securities exchange or automated dealer quotation system. There can be
no assurance that an active and
liquid trading
market for the Trust Securities will
develop or be
sustained.
I
f such a market were to develop, the prices at which the Trust Securities trade would
depend on
many
factors, including prevailing
interest rates, the
operating results
o
f
the Company,
WMB and WMI, and the market for similar securities. Holders of Trust Securities
may
not be able to
resell their Trust Securities at or above the initial
price. Furthermore,. the Trust Securities that are not
and will not be
registered
under the Securities Act and will be deemed to be restricted securities
within the meaning of Rule 144 under the Securities Act and are subject to significant transfer
restrictions as described
i
n Notice to Investors. These restrictions on transfer
may
inhibit the
development o
f
an active and liquid trading market for the Trust Securities and
may adversely impact
the market price
o
f
The Trust Securities are not obligations of, or guaranteed by, any other entity.
The Trust Securities do not constitute obligations or equity securities
o
f
WMI, WMB, the
Company, WM Marion Holdings, LLC
(
Marion), Seneca Holdings, Inc.

(
Seneca) (Seneca and

Marion being intermediate holding companies between WMB and
University Street), University Street,
Trust
I
, Trust
I
I
, WaMu Cayman, any
of the Asset Trusts or
any entity other than the Trust, nor are the
Trusts obligations with respect to the Trust Securities
guaranteed
b
y
any entity. I
n
particular, none of
WMI, WMB, the Company, Marion, Seneca, University Street,
any
of the Asset Trusts or
any
other
entity guarantees that the Trust will
pass through any
dividends paid by the Company to the Trust as
the holder of the Trust Securities, nor are they obligated to provide
additional
capital or other support
to the Trust to enable the Trust to make distributions
i
n the event the Company. fails to
pay
dividends
on the Series 2007- B
Company
Preferred Securities and the Trust has no dividends tO pass through
to holders of the Trust Securities. The Trust Securities are not exchangeable for
Depositary
Shares or
Series N WMI Preferred Stock except upon a Conditional Exchange. No holder
o
f
have the right t
o
require the Trust to exchange
the Trust Securities for Depositary Shares.
The Series 2007-B Company Preferred Securities represent solely an interest
i
n the Company
and are not obligations of, or guaranteed by, any other entity.
The Series 2007- B Company Preferred Securities do not constitute obligations or equity securi
ties
o
f
any entity other than the Company, including WMI, WMB, Marion, Seneca~ University Street,
the Trust, Trust
I
, Trust
I
I
, WaMu Cayman or
any
of the Asset Trusts, nor are the
Companys
obligations
with
respect to the Series 2007- B
Company
guaranteed by any
other
entity. I
n
particular, none of WMI, WMB, Marion, Seneca, University. Street, the Trust, Trust
I
, Trust
I
I
,
WaMu
Cayman, any
of the Asset Trusts or any
other
entity guarantees that the Company will declare
or pay any
dividends to the Trust, nor are they obligated to provide additional
capital or other
support
to the Company to enable the Company to pay
Company
Preferred
Securities
t
o the Trust
i
n the event the Companys assets and results from operations are insufficient
for this purpose or the Company otherwise fails to do so. Holders
o
f
Series 2007- B
Company
Preferred Securities do not have the right to require an exchange o
f
their securities for
any
securities
o
f
WMI or WMB.
Rating agencies may change rating methodologies.
The rating methodologies for securities with features similar to the Trust Securities are still
developing and the
rating agencies may change their methodologies i
n the future. This may include,
for example, the relationship between ratings assigned t
o WMIs senior securities and
ratings assigned
t
o securities with features similar to the Trust Securities, sometimes called notching. I
f the rating
24
CONFIDENTIAL
Return
agencies were to change
their
practices
for
rating
such securities
i
n the future and the ratings of the
Trust Securities were to be
subsequently lowered, this
may
have a negative impact on the
trading
price of the Trust Securities.
Risks Associated with the Companys Business
The Company is effectively controlled by WMI and the Companys relationship with WMI and
WMB
may create potential
conflicts of interest.
All of the
Companys
officers and all but one of the
Companys Managers may
also be officers
o
f
WMI, WMB or their respective affiliates, as the case may
be. After this
Offering, WMI, WMB and
University
Street will continue to control all of the Companys outstanding voting securities. WMI,
WMB, and
University
Street will have the
right to elect all
o
f
the
Companys Managers, including
the
WMB and University Street may have interests that are not identical to the Companys interests.
WMI, through its
subsidiary
New American Capital, Inc., i
s the ultimate owner of WMBs and
University Streets common stock, and may have investment goals and strategies that differ from
those
o
f
the holders of the Trust Securities. Consequently, conflicts
o
f
interest between the Company,
on one hand, and WMB, University Street and/ or WMI, on the other hand, may
arise.
The Company is dependent on the officers and employees of WMI and WMB for the selection,
structuring and monitoring
of the Mortgage
Loans and the
Companys relationship
with WMI
and WMB
may
create potential conflicts of interest.
WMI and WMB are involved
i
n virtually every aspect of the Companys existence. WMB
administers the Companys day-to-day
activities under the terms of certain
agreements between WMB
and the Company. The Company
i
s dependent on the diligence and skill of the officers and employees
o
f
WMB for the selection, structuring and monitoring o
f
the Mortgage Loans and the Companys
other
Eligible
Investments.
This
dependency
and the
Companys
close
relationship
with WMI and WMB
may create potential
conflicts of interest. Specifically, such conflicts of interest may arise because the
employees
of WMI
and WMB
(
i
)
were directly
involved
i
n the decisions
regarding
the amount, type
and
price o
f
the
Mortgage
Loans and other assets
acquired indirectly
from
University
Street and WMB
prior
to this
Offering and (
i
i
) will make decisions on the amount, type and (
i
f applicable) price of any future
acquisitions
b
y the Company o
f
Additional Assets from University Street, WMI or other parties.
The Company i
s
dependent on the officers and employees of WMB for the
servicing
of the
Mortgage Loans in the Asset Trusts and the Companys relationship with WMB may create
potential
conflits of interest.
The Company i
s dependent on WMB and others for the servicing of the Mortgage Loans and
i
s
expected to be
dependent on WMB and others for the
servicing
of
any underlying
collateral with
respect
t
o Additional Assets. WMB administers the Companys day- to-day activities under the terms of
the Asset Documentation
relating to the Companys assets. These
agreements
contain and will
contain terms that the Company believes are consistent with those resulting from arms-length
negotiations.
With
respect to the Asset Trust I Pooling and Servicing Agreement
and Asset Trust
I
,
WMBs
servicing
fee
i
s an annual fee
o
f
0.125%, paid monthly,
for each HEL based on the
unpaid
principal balance of such HEL. With respect to the Asset Trust
I
I
and Asset Trust
I
I
, WMBs
servicing
fee
i
s an annual fee
o
f
0.375%, paid monthly, for each
Option
ARM based on the unpaid principal balance of such Option ARM. With respect to the Asset Trust
I
l
l
Pooling and Servicing Agreement and Asset Trust
I
l
l
, WMBs servicing fee
i
s an annual fee of 0.125%,
paid monthly, for each Flex- 5 ARM based on the unpaid principal balance
o
f
such Flex- 5 ARM. WMB,
as the servicer
o
f
the Mortgage Loans, will be entitled
t
o retain certain fees and ancillary charges,
including any prepayment fees, insufficient funds fees, modification fees, payoff statement fees and
25
CONFIDENTIAL
Return
late charges with respect t
o the Mortgage Loans as additional servicing compensation and will alsO be
entitled to certain income generated
b
y permitted investments made with collections on the Mortgage
Loans.
Despite the Companys belief that the terms
o
f
the Asset Documentation between WMB and the
Company reflect and will reflect terms consistent with those negotiated
on an
arms- length basis, the
Companys dependency on WMBs officers and employees and the Companys close relationship with
WMB
may
create potential
conflicts
o
f
interest. Specifically,
such conflicts
o
f
interest
may
arise
because the employees of WMB have the
power
to modify the terms of or sell the Mortgage Loans
and other assets
i
n the Asset Trusts and
any
Additional Assets and make business decisions with
respect to the servicing of those underlying assets, particularly to the extent such underlying collateral
i
s defaulted or otherwise
non- performing.
Regulators may
limit the
Companys ability to implement the Companys business plan and
may
restrict the
Companys ability to pay
dividends.
Because the
Company i
s an indirect
subsidiary
of WMB, regulatory
authorities will have the
right
to examine the
Company
and its activities and, under certain circumstances, to impose restrictions on
WMB or the Company that could affect its
ability to conduct business
pursuant to the
Companys
business
plan
and that could
adversely
affect the Companys financial condition and results of
operations.
I
f the OTS, which
i
s WMBs primary regulator, determines that WMBs relationship with the
Company
results
i
n an unsafe or unsound practice, or
i
f
,
i
n certain instances, WMB
i
s no
longer
well-
capitalized, then the OTS has the authority to:
restrict the Companys ability t
o transfer assets;
o
pay dividends
t
o its security holders;
o redeem its preferred securities; or
require WMB to sever its relationship with the Company or divest its ownership of the
Company.
I
i
s operating with an insufficient level
o
f
capital, or that the
payment
of dividends by either WMB or its
subsidiaries, under the then- present circumstances, i
s an
unsafe and unsound practice, the OTS could restrict the Companys ability to
pay
dividends.
If
any
of the Company, the Asset Trusts Or the Trust loses its exemption under the Investment
Company Act,
i
t could have a material adverse effect on the Company and would
likely
result
in a redemption of the Series 2007- B Company Preferred Securities and the Trust Securities.
Each of the Company, Asset Trust
I
, Asset Trust
I
I
, Asset Trust
I
l
l and the Trust believes that
i
t
i
s
not, and intends to conduct its
operations so as not to be, required to register as an investment
company
under the Investment Company Act. Under the Investment Company Act, a non- exempt
entity that
i
s an investment
company i
s
required to register
with the SEC and
i
s
subject to extensive,
restrictive and potentially adverse regulation relating to, among other things, operating methods,
management, capital structure, dividends and transactions with affiliates. The Investment
Company
Act exempts entities that, directly or through majority- owned subsidiaries, are primarily engaged i
n
the business
o
f
purchasing or otherwise acquiring mortgages and other liens on and interests
i
n real
estate (which the
Company
refers
t
o as Qualifying Interests). Under current
interpretations o
f
the
staff
o
f
the SEC,
i
n order to qualify for this exemption, each of the Company and each Asset Trust,
among other things, must maintain
a
t
least 55%
o
f
the Companys assets
i
n
Qualifying Interests and
also
may
be required to maintain an additional 25%
i
n Qualifying Interests or other real estate related
assets. The assets that the
Company or the Asset Trusts
may
acquire therefore
may
be limited
b
y the
provisions
of the Investment Company Act. The Company and the Asset Trusts have each established
26
CONFIDENTIAL
Return
a policy
of
limiting
authorized investments which are not
Qualifying
Interests to not more than 20%
o
f
the value of their
respective
total assets. The Investment Company Act does not treat cash and cash
equivalents as either Qualifying Interests or other real estate related assets.
Based on the criteria outlined
above,
the
Company
and the Asset Trusts each believe
that, as of
the time
o
f
this
Offering,
the
Companys
and the Asset Trusts
Qualifying
Interests
(excluding
cash
received
i
n connection with this
offering)
will
comprise
at least 90%
o
f
the estimated fair market value
of their respective
total assets. As a result, the
Company
and the Asset Trusts each believe that
they
are not
required
to
register as investment
companies
Company
Act. Neither the
Company nor the Asset Trusts intend, however, to seek an exemptive order, no-action letter or other
form
o
f
interpretive guidance from the SEC or its staff on this position. I
f
the SEC or its staff were to
take a different
position with respect to whether the Companys or an Asset Trusts assets constitute
Qualifying Interests, the
Company or the relevant Asset Trust could be required either (
I
) to change
the manner i
n which i
t conducts
i
t
s
operations t
o
avoid being required to register as an investment
company, or (
i
i
) to register as an investment
company,
either
o
f
which could have a material adverse
effect on the
Company or the Asset Trust, as the case may be,
the
Companys ability
to make
payments i
n
respect
Company
Preferred Securities and, accordingly,
the
trading
price o
f
the Trust Securities. Further, i
n order to ensure that the
Company
and Asset Trusts at all
times continue to
qualify
for the above
exemption
from the Investment
Company Act,
the
Company
and the Asset Trusts
may
be
required
at times to
adopt
less efficient methods of
financing
certain
o
f
the
Companys
and the Asset Trusts assets than would otherwise be the case and
may
be
precluded
from
acquiring
certain
types
of assets whose
yield i
s
higher
than the
yield on assets that could be
purchased i
n
a manner consistent with the
exemption.
The net effect
o
f
these factors
may
be to lower
at times the
Companys
net interest income.
Finally, i
f the
Company or an Asset Trust were an
unregistered
investment
company,
there would be a risk that the
Company or the Asset Trust, as the
case may
be, would be subject to monetary penalties and injunctive relief i
n an action brought by the
SEC, that the Company or the Asset Trust, as the case may be, would be unable to enforce contracts
with third parties and that third parties could seek to obtain rescission
o
f
transactions undertaken
during the periodthe Company Or the Asset Trust was determined to be an unregistered
investment
company. I
f the
Company, any o
f
the Asset Trusts or the Trust
i
s ever considered an investment
company
Company
Act as a result of an Investment
Company
Act Event, the
Company
would
likely
redeem the Series 2007- B
Company
Preferred Securities. See Description
of
the Series 2007- B
Company
Redemption.
Additionally,
the
Company may
from time
t
o time have Asset Subsidiaries other than the Asset
Trusts. The
Company may
not establish an Asset
Subsidiary
unless the establishment and
operation
of such Asset
Subsidiary
will not cause the
Company
to be an investment
company
that i
s
required
to
register
under the Investment Company
Act and such Asset
Subsidiary i
s not itself an investment
company
that
i
s
required
to
register
Company
Act.
I
f
any
such Asset
Subsidiary
were to be
required to register as an investment
company,
the results would be similar to those
described above in
respect to
any
Asset Trust
being required
to
register as an investment
company.
An adverse determination of the
Companys partnership status could
subject
the
Company
to
taxation.
Contemporaneously with the issuance
o
f
the Series 2007- B
Company
Company
will receive an opinion
from
Mayer
Brown LLP
t
o the effect that, for United States federal
income tax purposes, (
i
) the Company will not be treated as an association taxable as a corporation
and
(
i
i
)
although no activities
closely comparable to that
contemplated
b
y the
Company
have been the
subject
of
any
U. S.
Treasury regulation,
revenue ruling or judicial decision, the
Company
will not be
treated as a publicly
traded
partnership
taxable as a corporation.
The
opinions are based on certain
assumptions
and on certain
representations
and
agreements regarding
restrictions on the future
conduct of the activities of the
Company. Although
the
Company
intends to conduct its activities
i
n
accordance with such
assumptions, representations
and
agreements, i
f
i
t were nonetheless
27
CONFIDENTIAL
Return
determined that the Company was taxable as a
corporation
purposes,
then the
Company would be subject
under the Code to the
regular corporate income tax.
Such taxes would reduce the amounts available to make
payments on the Series 2007- B
Company
The
Company cannot assure purchasers
that
i
t
paid
WMB and
University
Street fair market
value for all of the
Companys
assets because the Company has not obtained
any
third
party
valuations of all such assets. Nor can the Company assure purchasers that the Company will
acquire or dispose
of Its assets i
n the future at their fair market value.
The
Company
has
adopted policies
with a view to ensuring that all financial dealings between
WMB, University
Street and the
Company
will be fair to each
party
and consistent with market terms.
However, there has been no third- party
valuation of aU
o
f
the
Companys
assets.
I
n
addition, i
t
i
s not
anticipated
that
third- party
valuations will beobtained
i
n connection with the
acquisition
of the Flex- 5
ARMs or with other future
acquisitions or dispositions
of assets even i
n circumstances where an
affiliate of the Company i
s
selling
the assets to the Company or purchasing
the assets from the
Company. Accordingly, the Company
cannot assure purchasers
that the purchase price the Company
paid
for all
o
f
the
Companys
assets was equal to the fair market value
o
f
those assets. Nor can the
Company assure purchasers
that the consideration to be
paid by
the
Company to, or received
by
the
Company from, WMB, University
Street or any
of the
Companys
other affiliates
i
n connection with
future
acquisitions or dispositions o
f
assets will be
equal
to the fair market value
o
f
such assets.
The Asset Trusts or any
other Asset Subsidiary, and- therefore the
Company,
could incur
losses as a result of environmental liabilities
relating to properties underlying the Companys
assets in the Companys Porffolio through foreclosure action.
Any Asset Trust or any other Asset Subsidiary may be forced t
o
foreclose on an underlying
Mortgage
Loan or other
assets
where the borrower has defaulted on its
obligation t
o
repay
the
applicable Mortgage
Loans.
I
t
i
s
possible
that an Asset Trust or any
other Asset
Subsidiary,
and
therefore, the
Company, may
be
subject to environmental liabilities with
respect to foreclosed
property.
The
discovery o
f
these liabilities and
any
associated costs for removal
o
f
hazardous substances,
wastes, contaminants or pollutants,
could have a material adverse effect on the fair value of such
assets.
-
Delays
in
liquidating
defaulted loans could occur and could cause the
Companys
business to
suffer.
-
-
Substantial
delays
could be encountered
i
liquidation
of the collateral
securing
defaulted loans
i
n the
Companys Portfolio, with
corresponding delays i
n the
Companys
receipt of related proceeds. An action to foreclose on a
mortgaged property or repossess and sell
other collateral
securing a loan
i
s
regulated
b
y
state statutes and rules.
Any
such action
i
s
subject to
many of the delays and expenses o
f
lawsuits, which may impede the Companys ability t
o
foreclose
on or sell the collateral or to
obtain
proceeds
sufficient to repay
all amounts due on the related loan i
n
the
Companys
Portfolio.
The
Company may
invest
i
n assets that involve new risks and need not maintain the current
asset
coverage.
Although
the
Companys Portfolio, immediately
after the
completion
of this
Offering,
will consist
primarily
of
Mortgage Loans, to the extent
i
t
acquires
Additional Assets i
n the future, the
Company i
s
not
required
to limit its investments to assets
o
f
the
types currently i
n the
Companys
Portfolio. See
The Company
Business
o
f
the Company
Assets
o
f
the
Company.
Assets such as second lien
closed end home
equity loans, first or second lien home
equity
lines
o
f
credit, mortgage
loans on
single family or multifamily residences, commercial
mortgage
loans or other real estate assets
may
involve different risks not described i
n this offering circular. Moreover, while the LLC Agreement will
28
-
CONFIDENTIAL
Return
call for maintaining specified levels
o
f
FF0 coverage as
t
o expected dividends, the Company i
s not
required to maintain the levels
o
f
asset
coverage
that currently exist.
The
Company
is
dependent on WMI, WMB and
University
Street with
respect to its
aquisition
of Additional Assets and may be subject to conflicts of interest with respect to its
acquisition
of new assets.
The
dependency
of the
Company on WM1, University
Street and WMB and the Companys close
relationship with WMI, University Street and WMB
may
create potential conflicts
o
f
interest
i
n
connection with the
Companys acquisition o
f
Additional Assets. The
Company will be dependent on
WMI, University
Street and WMB
t
o
identify
Additional Assets that
i
t
may acquire,
but WMI, University
Street and WMB are not required to contribute or sell Additional Assets to the Company. I
f WMI,
University
Street and WMB are unable to identify, or are unwilling to contribute or sell, suitable
Additional Assets, then over time the
Companys
level of FF0
coverage
as to expected dividends will.
decline. Moreover, conflicts of interest may arise because the employees of WMI, University Street
and WMB will, subject to certain restrictions, make decisions on the amount, type and (
t
o
the extent
the Company purchases Additional Assets) price o
f
future acquisitions
b
y the Company of Additional
Assets from
University Street, WMB or other members
o
f
the WMI Group as well as future
dispositions o
f
assets to WMB, University Street or third parties.
Risk Factors Applicable to Depositary Shares Issued
i
n a Conditional
Exchange.
Adverse developments i
n the mortgage lending business have recently affected WMIs
business.
WMIs results for the third quarter of 2007 reflect adverse developments i
n the
mortgage lending
business
(and i
n the
housing
market more generally)
and related
volatility
and
liquidity
constraints
i
n
the capital markets since June 30, 2007, including with respect to net income, net interest income,
non- performing assets, and
provisions
for loan and lease losses.
I
t
appears
that such developments
will be significantly worse and longer lasting than originally expected. See WMI Recent
Developments.
Holders of Trust Securities may have adverse tax consequences as a result of a Conditional
Exchange.
For United States federal income tax purposes, a Conditional Exchange would most likely be a
taxable event to holders of Trust Securities; and holders would recognize gain or loss, as the case
may be, measured
b
y the difference between their adjusted tax basis
i
n the Trust Securities and the
fair market value of the Depositary Shares received
i
n the exchange. In addition, dividends,
i
f
any,
paid
to
Foreign
Holders
o
f
Depositary
Shares received
upon a Conditional
Exchange generally
will be
subject to a 30% U. S. withholding tax unless the holder qualifies
for a reduction from
withholding tax
under an applicable United States income tax treaty.
A decline in WMIs financial condition
may
restrict its ability to
pay
dividends and could result
in a loss on the investment of the former holders of Trust Securities.
I
f WMIs financial condition were to deteriorate
(which
would be quite likely
to have occurred or
occur thereafter
i
n the event of a Conditional Exchange), the holders of the Depositary Shares could
suffer direct and significantly adverse consequences, including suspension o
f
the payment o
f
non
cumulative dividends on the Series N WMI Preferred Stock and, i
f a dissolution, liquidation or winding
up o
f
WMI were
t
o
occur, loss by holders of Depositary Shares
o
f
a
l
l
or part o
f
their investment.
29
CONFIDENTIAL
Return
A Conditional
Exchange may
be based on WMBs receivership, which could
likely
lead to
WMIs
bankruptcy
and would mean that others are likely
to have
liquidation claims senior to
that of the holders of the
Depositary
Shares.
An
Exchange
Event
triggering a Conditional
Exchange
will occur i
f WMB
i
s
placed
into
conservatorship or receivership. WMBs conservatorship or receivership could likely lead to WMI
becoming subject to a voluntary or involuntary proceeding
under the
U
.
S.
Bankruptcy
Code.
I
n the
event of WMIs
bankruptcy,
the claims o
f
WMIs secured, senior, general and subordinated creditors
would be entitled to a priority o
f
payment over the claims
o
f
holders of equity interests such as the
Series N WMI Preferred Stock. As a result
o
f
such subordination, i
f WMI became
subject t
o
a
bankruptcy proceeding
after a Conditional Exchange,
the holders of the
Depositary
Shares would
likely receive, i
f
anything, substantially
less than
they
would have received had the Conditional
Exchange
not occurred. -
Upon
the occurrence of a Conditional Exchange,
the, holders of the
Depositary Shares will not
have the benefit of the same favorable covenants as the Series 2007-B
Company
Preferred
Securities.
Upon
the occurrence of a Conditional
Exchange,
the holders
o
f
the
Depositary
Shares will not
benefit from the same favorable covenants as the Series 2007- B
Company
WMI
i
s not
obligated
to
pay
dividends on the Series N WMI Preferred Stock and dividends on
these securities are not cumulative.
Dividends on the Series N WMI Preferred Stock are not cumulative.
Consequently, i
f the board
o
f
directors o
f
WMI ( WMIs Board of
Directors) does not declare dividends on the Series N WMI
Preferred Stock for any quarterly period, the holders o
f
the Depositary Shares would not be entitled to
any
such dividend whether or not funds are or subsequently
become available.
WMIs Board of Directors
may
determine that
i
t would be in WMIs best interest to
pay
less than
the full amount of the stated dividends on the Series N WMI Preferred Stock or no dividends for
any
quarter even i
f funds are available. Factors that would be considered
b
y WMIs Board of Directors
i
n
making
this determination are WMIs financial condition and
capital needs, the
impact o
f
current and
pending legislation
and
regulations,
economic conditions, tax considerations, and such other factors
as WMIs Board of Directors
may
deem relevant.
The Series N WMI Preferred Stock will rank subordinate to the direct indebtedness of WMI.
The Series N WMI Preferred Stock will be subordinate and rank
junior i
n
right o
f
payment
to all
of WMIs indebtedness for borrowed money
and indebtedness evidenced
by
notes or other securities.
Because the sole source of funds for
payment i
n
respect o
f
the
Depositary
Shares
i
s the Series N
WMI Preferred Stock, the
Depositary
Shares are effectively subordinated on the same basis as the
Series N WMI Preferred Stock. The terms o
f
the
Depositary
Shares and the Series N WMI Preferred
Stock will not limit
i
n
any way
WMIs
ability to incur additional indebtedness.
The Series N WMI Preferred Stock will be structurally subordinated to all
obligations
of WMIs
subsidiaries, and as a holding company, WMI may require cash from its subsidiaries to make
payments
with
respect to the Series N WMI Preferred Stock.
WMI
i
s a holding company
that conducts its
operations through
its
operating
subsidiaries and
relies
primarily on dividends and
proceeds
from
intercompany
transactions and loans from thOse
subsidiaries to meet its
obligations
for
payment
with
respect
to its
outstanding equity securities, any
and all of which
may
be
subject
to contractual restrictions and
regulatory
restrictions.
Accordingly,
the
Series N WMI Preferred Stock
(and
thus the
Depositary Shares) will be
structurally
subordinated to all
existing
and future liabilities of WMIs subsidiaries, including WMB. Holders of
Depositary Shares
should look
only
to the assets
o
f
WMI, and
notany o
f
its subsidiaries, for
payments
with respect to
30
CONFIDENTIAL
Return
the Depositary Shares. I
f
WMI i
s unable to obtain cash from its subsidiaries i
t
may be unable to fund
dividend
payments i
n
respect o
f
the Series N WMI Preferred Stock.
Upon the occurrence of a Conditional
Exchange, the holders of the Depositary Shares will not
have the benefit of the same favorable covenants as the Series 2007- B
Company
Preferred
Securities.
Upon
the occurrence o
f
a Conditional
Exchange,
the holders
o
f
the
Depositary
Shares will not
benefit from the same favorable covenants as the Series 2007- B
Company
There is no active trading market for Series N WMI Preferred Stock or the Depositary
Shares
and such a trading
market
may never develop.
The Series N WMI Preferred Stock and the
Depositary
Shares will be new issues
o
f
securities.
WMI does not intend
t
o
cause the listing or quotation of the Series N WMI Preferred Stock or the
Depositary
Shares on any securities exchange or automated dealer
quotation system.
The Initial
Purchasers
are under no obligation
to and do not intend to make a market
i
n the
Depositary
Shares.
Consequently, i
t
i
s
unlikely
that an active and
liquid trading public
market for the
Depositary
Shares or
the
underlying Series N WMI Preferred Stock will
develop or be maintained. The lack of
liquidity
and
an active
trading
market could
adversely
affect
ability
of the holders of
Depositary
Shares to
dispose
o
f
such shares.
I
n
addition,
neither the
Depositary
Shares nor the Series N WMI Preferred Stock
represented by
such shares have been or will be
registered
under the Securities Act and will be deemed to be
restricted securities within the
meaning
of Rule 144 of the Securities Act. Holders of
Depositary
Shares will not be able to offer, sell, pledge or otherwise transfer the
Depositary
Shares other than:
to a qualified
institutional
buyer
within the
meaning o
f
Rule 144A of the Securities Act
i
n
a
transaction
complying
with Rule 1 44A;
otherwise i
n accordance with an applicable exemption from the registration requirements of the
Securities Act; or
to WMI or one o
f
WMIs affiliates,
and, i
n
any case, i
n accordance with exemptions from
any applicable state securities or blue
sky
laws.
These restrictions on transfer may inhibit the development o
f
an active and liquid trading market
for the Depositary Shares and may adversely impact the market
price o
f
such shares.
Risks
Relating to the
Mortgage
Loans
General economic conditions in the United States could
change
and possible resulting
changes
in
delinquency rates of the Mortgage Loans could
negatively impact
the
Companys
financial condition, results of
operations
and
ability
to
pay
dividends.
A
t
the time
o
f
the contribution of the HELs
i
n March 2006 and the
Option
ARMs
i
n December
2006, no loans that were delinquent
30
days or more were included
i
n such
Mortgage
Loans that
were contributed to Asset Trust I and Asset Trust
I
I
,
as applicable. Similarly,
the Flex- 5 ARMs to be
contributed to Asset Trust I
l
l
will not include
any
loans that are 30
days
or more
delinquent.
Delinquency
rates
may
be affected
b
y
many factors, including general
economic
conditions,
applicable
interest rates and the
availability o
f
refinancing opportunities. Recently, many mortgage
lenders, including WMB, have
experienced increasing delinquency
rates due to such factors. Eco
nomic conditions
may generally
dedine, interest rates
may
increase and
refinancing opportunities may
become constrained
by tightening
credit and
underwriting
standards or declining property prices.
There can
be
no assurance that delinquencies
with
respect
to the
HEL5, Option
ARMs and/ or the
Flex- 5 ARMs held
i
n the
applicable
Asset Trusts will not be
negatively
affected
i
n the future or that
31
CONFIDENTIAL
Return
such
delinquencies
will not be
higher
than those
experienced
b
y other lenders or
b
y WMB with
respect
to loans owned or originated by i
t that are not
part
of the
Companys
Portfolio.
Since the Companys income consists primarily of payments received on the Mortgage Loans in
the
Companys Portfolio, an increase
i
n
delinquencies
with respect to such
Mortgage
Loans
may
adversely
affect the
Companys ability
to
pay full, or even partial,
Company
The Company has no control over changes in interest rates and such changes could nega
tively
affect the
Companys
finanial condition, results of
operations
and
ability
to
pay
dividends.
The Companys income will consist primarily of payments received on the HELs that are the
underlying
assets supporting the Asset Trust I Class A Trust Certificate, on the Option ARMs that are
the
underlying
assets
supporting
the Asset Trust
I
I Class A Trust Certificate and on the Flex-5 ARMs
that will be the
underlying
assets
supporting
the Asset Trust
I
l
l Class A Trust Certificate
(such
underlying assets, together
with
any
collateral with
respect
to
any
Additional Assets, the
Companys
Portfolio). As
o
f
September 30, 2007, all of the HELs included i
n the Companys Portfolio bore
interest at fixed rates, substantially
all
o
f
the
Option
ARMs bore interest at
floating rates, and as of
September 30, 2007, substantially
all
o
f
the Flex-5 ARMs bore interest at fixed rates
( subject
to
change to adjustable
rates after the
expiration
of the
respective
five
year period
from the date of
origination o
f
each Flex- 5 ARM)
and other related
mortgage
assets included
i
n the
Companys
Portfolio bore interest at adjustable rates. In the future, the
Company
could
acquire
Additional Assets
that include or are secured
b
y loans with a fully or partially adjustable
rate.
Adjustable
rate loans
decrease the risks to a lender associated with
changes i
n interest rates but involve other risks. As
interest rates rise,
the
payment required
from the borrower rises to the extent
permitted
b
y the terms
of the loan, and the increased
payment obligation
increases the
potential
for default.
I
n
addition, i
f
credit and
underwriting
standards become more restrictive in a period
of
increasing
interest rates, as
i
s
currently
the case i
n the United States,
borrowers
facing
increased
payments
under the terms of
their
respective loans may become unable
t
o refinance their loans,
thus further
heightening
the
potential
for increased payment delinquencies and ultimately,
defaults.
A
t
the same time, the market
ability of the underlying property may be adversely affected
b
y
higher interest rates. Thus, an
increasing
interest rate environment may adversely affect the Companys ability to pay full, or even
partial,
Company
Preferred Securities. I
n
a declining interest rate
environment, there
may
be an increase
i
n
prepayments on the HELs, Option
ARMs or other assets i
n
the Companys Portfolio as borrowers refinance their mortgages at lower interest rates. Under these
circumstances, the Company may find i
t
more difficult to acquire Additional Assets with rates sufficient
to
support
the
payment
of the dividends on the Series 2007- B
Company
Preferred Securities. A
declining
interest rate environment would adversely
affect the
Companys ability
to
pay full, or even
partial,
Company
More
generally,
the Mortgage Loans in the Companys Portfolio are subject to economic condi
tions that could
negatively
affect the value of the collateral
securing
such
Mortgage
Loans
and/ or the results of the
Companys operations.
The value of the Mortgage Loans underlying the Companys
Portfolio and/ or the results o
f
the
Companys operations could be affected
b
y various conditions i
n the economy, such as:
local and other economic conditions
affecting
real estate and other collateral values;
32
CONFIDENTIAL
Return
sudden or unexpected changes i
n economic conditions, including changes
that
might
result
from terrorist attacks and the United States response
to such attacks;
and
the continued financial
stability o
f
a borrower and the borrowers
ability
to -make loan
principal
and interest
payments,
which
may
be
adversely
affected
by job loss, recession, divorce, illness
or personal bankruptcy.
A substantlal
portion
of the Flex-5 ARMs, and
particularly
the
Option ARMs, may experience
Negative
Amortization.
A substantial
portion o
f
the
Option
ARMs and Flex- 5 ARMs
may experience Negative
Amortiza
tion. After
giving
effect to the contribution
o
f
the Flex- 5 ARMs to Asset Trust Ill, approximately 62.70%
o
f
the
Companys assets, on a pro forma basis as of September 30, 2007, will consist
o
f
a portfolio o
f
Option ARMs and Flex- 5 ARMs, which will be held
through
Asset Trust
I
I and Asset Trust Ill,
respectively.
After an initial fixed- rate
period (generally one or three months i
n the case o
f
Option
ARMs and five
years i
n the case o
f
the Flex- 5
ARMs),
the
mortgage
interest rate on substantially
all
Option
ARMs and Flex- 5 ARMS will be
adjusted monthly
to
equal
the sum o
f
an index and the
per
annum rate
specified i
n each
mortgage note, which means that the interest
payable
with
respect
to
substantially
all of the
Option
ARMs and Flex- 5 ARMs which are no longer
in their initial fixed- rate
period
will
change monthly,
and
may
increase
through
time.
Substantially
all the Option ARMs grant borrowers the option to pay a minimum
monthly payment
that i
s
typically less than the amount o
f
interest calculated
a
t
the
fully
indexed interest rate, i
n which
case the difference between the amount of interest calculated at the
fully
indexed rate and the
minimum
monthly payment
would be added to the
principal
balance of the loan.
Substantially
all of the
Flex- 5 ARMs
provide
for a
minimum
monthly payment during
the initial fixed
period
sufficient to
fully
pay
the interest on the loan. Thereafter
during
the
adjustable
rate
period
for each Flex- 5 ARM the
minimum
monthly payment i
s reset on
an annual basis to an amount sufficient to
fully
amortize the
mortgage
loan over the term based on an assumed interest rate. The borrower
i
s
given
the
option
to
pay
this minimum
monthly payment even i
f the
applicable
index rate which
i
s used for the calculation
of interest
actually accruing on
the loan
i
s
higher
than the assumed interest rate, i
n which case the
difference between the amount of interest calculated at the
fully
indexed rate and the minimum
monthly payment
would be added to the principal balance of the loan. I
n
either case, the addition to
the principal balance of the Option ARM or the Flex- 5 ARM, as the case may be, i
s referred to
generally as negative
amortization. Increases i
n the related index are a significant possibility
for
any
Option ARM or Flex- 5 ARM, particularly i
f
i
t was originated a
t
a time when the value
o
f
the index was
low relative to historical values, and
any
such increase
may
create
negative
amortization.
Many
factors, including changes i
n economic conditions and
monetary policy o
f
the U. S. Federal Reserve
System, may
lead to increases
i
n the index.
With respect t
o
Option ARMs, i
n
general, during the first five
years
the minimum
monthly
payment may not increase by more than specified amounts, and will not increase at all during the first
year o
f
the
mortgage.
Even after the first
year,
when the minimum monthly payment may increase,
this adjustment may not be enough t
o
raise the minimum
monthly payment to the amount necessary
to pay
the interest due on the
Option
ARM based on the sum of the
applicable
index and the
margin
in effect. I
f the minimum
monthly payment increases, but
i
s still less than the amount
o
f
interest due,
there will continue to be
negative
amortization i
f the
mortgagor
chooses to
pay
the minimum
monthly
payment.
With respect to Flex- 5 ARMs, there should not be negative amortization during the initial fixed
rate period. Thereafter, negative amortization may occur t
o the extent that the
applicable
index rate
rises above the assumed interest rate used for the annual calculation of the
applicable
minimum
monthly payment,
and the borrower chooses to make
only
the minimum
monthly payment
rather than
a
payment equal
to the full amount of interest
actually
accrued for such month.
33
CONFIDENTIAL
Return
Negative amortization can increase both the likelihood of default, and the severity of losses in
the event of a loan default. As a result
o
f
negative amortization, Option
ARMs and Flex- 5 ARMs
owned
b
y Asset Trust
I
I and Asset Trust lii, respectively, may i
n the future have increased loan- to-
value ratios. The result could be to increase the likelihood of default because the mortgagors principal
obligation i
s increased.
I
n addition, when interest due on an Option
ARM or Flex- 5 ARM
i
s added to
the principal
balance
o
f
such
Option
ARM or Flex- 5 ARM
through negative amortization, the
mortgaged property provides proportionally
less overcollateralization for the
repayment o
f
such
Option
ARM or Flex- 5 ARM. Therefore,
i
f the mortgagor
defaults on such Option ARM or Flex- 5 ARM there
i
s
a greater
likelihood that a loss will be incurred
upon
the liquidation
o
f
the
mortgaged property.
Furthermore, the loss will be larger than would otherwise have been recognized in the absence of
negative
amortization. These losses could
adversely
affect the funds available to pay
dividends to the
holders of the
Company
Preferred Securities, including the Series 2007- B Company Preferred
Securities, or to return to investors the liquidation amount
o
f
i
f the
Company were liquidated.
The interest accrued and due on an Option ARM or Flex-5 ARM
i
s considered interest income
under US GAAP without respect to any negative amortization that may occur. As a result, the reported
financials of the
Company may
include noncash income related
t
o
negative amortization. As a result,
funds available
t
o
pay dividends
t
o the holders
o
f
the Company Preferred Securities, including the
Series 2007- B Company Preferred Securities, could materially differ from income actually received
from Asset Trust
I
I and Asset Trust
I
l
l as reported
b
y the Company.
The HELs, Option ARMS and Flex-5 ARMs
i
n the Companys Portfolio that are or will be held
through
Asset Trust
I
, Asset Trust
i
l and Asset Trust ill, respectively are concentrated in
spe
cific
states,
and adverse conditions in those states, in particular, could have a negative impact
on the Companys operations.
As
o
f
September, 30, 2007, approximately 79.84% (
a
s a
percentage
of such loans unpaid
principal balances) of the HELs
i
n the Companys
Portfolio were located
i
n Texas and California. As
o
f
September 30, 2007, approximately
73.19% (
a
s a percentage of such loans unpaid principal
balances) of the Option ARMs
i
n the Companys
Portfolio and, as
o
f
September 30, 2007,
approx
imately
45.30% (
a
s
a percentage o
f
such loans unpaid principal balances)
o
f
the Flex- 5 ARMs
i
n the
Companys Portfolio were located
i
n California~ Because
o
f
the concentration of the Companys
interest
i
n those states, i
n the event of adverse economic conditions
i
n those states, the Company
would
likely experience higher rates
o
f
loss and
delinquency on the
Companys
Portfolio than
i
f the
underlying HELs, Option ARMs or FIex-5 ARMs were more geographically diversified.
Additionally,
the
HELs, Option ARMs and Flex- 5 ARMs
i
n the Companys Portfolio may be subject to a greater risk
o
f
default than other comparable mortgage loans
i
n the event
o
f
adverse economic, political, or business
developments or natural hazards that may affect Texas and California, and the ability o
f
property
owners or commercial borrowers
i
n those states to make payments of principal and interest on the
underlying mortgage
loans.
I
n the event
o
f
any
adverse
development or natural disaster
i
n those
states, the
Companys ability to
pay
dividends on the
Company
Preferred Securities, including
the
Series 2007- B Company Preferred Securities could be adversely affected.
The origination of mortgage loans, including those currently owned by the
Company through
the Asset Trusts,
i
s
heavily regulated, and real or alleged violations of statutes or regulations
applicable to the
origination
of the Companys mortgage
loans could have an adverse effect
on the Companys financial condition and results of operation and its ability to
pay
dividends
on the Company Preferred Securities.
The origination of the HELs, Option ARMs and Flex- 5 ARMs currently owned
b
y the Company
through
the Asset Trusts, and other
mortgage loans that the
Company may
own in the future,
i
s
governed
b
y a variety of laws and regulations, including, for example, the Truth in Lending Act
(
TILA)
and various anti- fraud and consumer protection statutes. The
Company believes its mortgage loans
34
CONFIDENTIAL
Return
were originated i
n
compliance with applicable laws and regulations i
n all material respects. From time
to time, however, borrowers may allege
that the origination o
f
their
mortgage loans did not
comply
with
applicable
laws or regulations i
n
one or more respects.
Borrowers
may assert such violations as
an affirmative defense
t
o
payment or to the exercise
b
y the
Company o
f
i
t
s
remedies, including
foreclosure proceedings, or i
n an action seeking statutory and other damages i
n connection with such
alleged violations. The Company could become involved i
n
litigation i
n connection with any such
dispute, including
class action lawsuits.
I
f
the Company were not successful
i
n
demonstrating that the
mortgage loans
i
n
dispute were originated i
n accordance with applicable statutes and
regulations,
the
Company
could become
subject
to
monetary damages
and other civil
penalties, including possible
rescission
o
f
the affected
mortgage loans, and could incur substantial
litigation
costs over a period o
f
time that could be
protracted.
The risk that borrowers will
allege
a defense
t
o
payment o
f
their
mortgage loans, including
that the
origination
of the
mortgage
loan did not
comply i
n some respect
with laws or regulations,
increases to the extent
general
economic conditions
i
n the United States
deteriorate and
delinquencies
and foreclosures
accordingly
increase.
I
n connection with the transfer of the HELs, the
Option
ARMs and the Flex-5 ARMs, WMB has
represented
and warranted to the
Company
that the HELS, the
Option ARMs, the Flex- 5 ARMs and
their
origination complied i
n all material
respects
with
applicable
federal and state laws and related
regulations, including
lILA.
I
f WMB were determined to have breached those
representations
and
warranties, the
Companys recourse against
WMB
i
n connection with these breaches could be
impaired i
f at that time WMB itself was i
n financial distress. This could i
n turn
negatively
affect the
Companys financial condition, results from operations and ability to pay dividends.
35
CONFIDENTIAL
Return
CERTAIN INFORMATION CONCERNING WMB
Geera
Washington
Mutual Bank ( WMB) i
s a federally chartered savings association, chartered and
operating under the United States Home Owners Loan Act
o
f
1933, as amended. WMB accepts
deposits
from the
general public; originates, purchases,
services and sells home loans; makes credit
card, home equity and commercial real estate loans (the latter being loans secured primarily
b
y multi
family properties); and, offers cash
management
and
deposit
services. WMB
purchases,
sells and
services loans to subprime borrowers through its subprime mortgage channel. WMB also markets
annuities and other insurance
products
and offers securities
brokerage
services. As a federal
savings
association, WMB
i
s subject to
regulation
and examination
by
the U. S. Office of Thrift
Supervision
(together with any successor regulator, the OTS), its primary regulator. WMB
i
s an indirect
wholly-
owned
subsidiary o
f
WMI.
The Trust Securities will be
exchangeable,
without the
approval or any
action on the
part o
f
the
holders of such securities, for Depositary
Shares under~ any
of the following circumstances, each of
which
i
s referred to as an Exchange
Event:
WMB becomes
undercapitalized
under the OTSs
prompt
corrective action
regulations;
WMB
i
s placed into conservatorship or receivership; or
the OTS, in its sole discretion, anticipates that WMB
may
become undercapitalized in the
near term or takes supervisory
payment
of dividends
b
y WMB, and
i
n
connection therewith, directs such exchange.
Upon occurrence of an Exchange Event, the OTS

may
direct that eah Trust
Security
be
automatically exchanged for a likeamount of Depositary
Shares.
Capital Adequacy
WMB
i
s subject to OTS capital requirements. The capital adequacy requirements are quantitative
measuresestablished
b
y OTS
regulations
that require WMB to maintain minimum amounts and ratios
of capital. The OTS requires WMB to maintain minimum ratios of core and total capital to risk-
weighted assets, as well as core capital to adjusted
total assets and
tangible capital to adjusted
total
assets. Under applicable OTS regulations Tier 1 capital and core capital have the same meaning.
Federal law and regulations establish minimum capital standards, and under the OTS regula
tions, WMB
i
s
required to have a (
i
) leverage
ratio
o
f
core capital to adjusted
total assets
o
f
at least
4.00%, (
i
i
) a ratio
o
f
cOre capitalto total risk- weighted assets of
a
t
least 4.00%, ( iii) a ratio
o
f
total
capital to risk- weighted assets of at least 8.00% and (
i
v
)
a ratio of
tangible capital to adjusted total
assets of
a
t
least 1.50%. A
savings
associations adjusted total assets represent the
savings
associations total assets on its Thrift Financial
Report
filed with the OTS less assets
o
f
non- includable
subsidiaries, goodwill and other intangibles assets (exclusive of mortgage servicing rights
and
purchased credit card relationships), disallowed servicing assets and purchased credit card relation
ships and accumulated gains (losses) on certain available-for- sale securities and cash flow hedges.
For purposes o
f
determining risk- weighted assets for the risk- based capital ratios, the book value
o
f
each of the
savings
associations on- balance sheet assets, and a portion of certain off- balance sheet
items and
exposures,
are weighted
from 0% to 100% based on broad categories. For instance,
U. S.
government
debt
obligations are generally risk- weighted at 0%; certain
qualifying
residential
mortgage loans on one- to-four family dwellings are generally risk weighted at 50%; and commercial
loans and most other assets are generally risk- weighted at 100%. Off-balance sheet items
(including
letters of credit, loan commitments,
swaps
and other derivatives) are converted into on- balance sheet
equivalent amounts for risk- based
capital purposes,
then
assigned a risk
weight
like other assets.
The capital risk weighting assigned to certain asset-backed securities may vary from 20% to 200%
36
CONFIDENTIAL
Return
depending on credit rating. Subordinated residual interests retained in asset securitizations, credit
enhancement and forms of recourse can result
i
n
higher capital charges or deductions from capital.
For purposes o
f
the OTS regulations, total capital i
s defined as the sum o
f
core capital and
supplementary capital. Core capital generally includes: common shareholders equity (which includes
related surplus); noncumulative perpetual preferred stock (which includes related surplus); and
qualifying minority interests
i
n the equity accounts
o
f
consolidated subsidiaries (which may include
such instruments as qualifying REIT preferred stock andthe Company Preferred Securities). Supple
mentary capital generally includes (subject t
o certain limits and sub- limits): cumulative perpetual
preferred stock; maturing capital instruments; Dutch auction and
money
market preferred stock; hybrid
capital
instruments
( including
certain
mandatory
convertible
notes); term subordinated debt; the
savings associations allowance for loan and lease losses (
u
p to a maximum
o
f
1.25%
o
f
total risk-
weighted assets);
and
up
to 45% of the pretax net unrealized gains of available- for- sale equity
securities investments.
Supplementary capital i
s
permitted to count towards
only
one- half
o
f
total
capital. Both core capital and
tangible capital are subject to various deductions. Tangible capital i
s
defined, generally, as common stock and retained earnings, noncumulative perpetual preferred stock
and retained
earnings,
certain nonwithdrawable accounts, and
minority
interests
i
n
fully
consolidated
subsidiaries ( which includes, among other instruments, the Company
Preferred
Securities), less
certain amounts of
intangible assets, servicing assets, credit- enhancing interest- only strips
and
investments ( both equity and debt) i
n certain subsidiaries. Some
o
f
these deductions are more
stringent for tangible capital than core capital, including goodwill, certain other intangible assets, and
certain servicing assets
i
n excess
o
f
certain limits.
Federal law and regulations also establish five capital categories
for
savings associations: well-
capitalized, adequately capitalized, undercapitalized, significantly undercapitalized and critically under
capitalized. A savings association
i
s treated as well- capitalized i
f its ratio
o
f
total capital to risk-
weighted assets
i
s 10.00% or more, its ratio of core capital
t
o risk- weighted assets i
s 6.00% or
more,
its leverage ratio
i
s 5.00% or more, and
i
t
i
s not subject to any federal supervisory agreement order or
directive
t
o meet a specific capital level. I
n
order to be adequately capitalized, any savings association
must have a ratio
o
f
total capital to risk- weighted assets
o
f
not less than 8.00%, a ratio
o
f
core capital
to risk- weighted assets of not less than 4.00%, and ( unless i
t
i
s
i
n the most highly- rated category) a
leverage
ratio of not less than 4.00%.
Any savings
association that
i
s neither well- capitalized nor
adequately capitalized will be considered undercapitalized. Any savings association with a tangible
equity
ratio
o
f
2.00% or less will be considered
critically undercapitalized.
Undercapitalized savings
associations are subject to certain prompt corrective action require
ments, regulatory controls and restrictions, which become more extensive as an association becomes
more
severely undercapitalized. Failure by WMB to comply with applicable capital requirements, i
f
unremedied, would result in restrictions on its activities and lead to regulatory enforcement actions
against WMB including, but not limited to, the issuance ofa capital directive to ensure the
maintenance
o
f
required capital levels. The Federal
Deposit Insurance Corporation Improvement
Act
o
f
1991 requires the federal banking regulators to take prompt corrective action with respect to
depository institutions that do not meet minimum capital requirements. Additionally, FDIC or OTS
approval o
f
any regulatory application filed for its review may be dependent on compliance with capital
requirements.
In addition, the OTS from time to time
may impose higher specific capital requirements on
any
savings association that
i
s prceivedto have risks, exposures, credit concentration, rapid growth or
other circumstances warranting special attention. Failure to satisfy such a capital directive could
subject an association to civil money penalties, judicial enforcement and administrative remedies
available
t
o the OTS, as well as a finding that a savings association
i
s
undercapitalized.
Whether WMB would ever be determined
b
y the OTS
t
o be undercapitalized or at risk of
n the near term thereby triggering the exchange o
f
for Depositary Shares
could be influenced not only

b
y the OTSs capital adequacy regulations, but
37
CONFIDENTIAL
Return
also by the regulators interpretations and judgment on other matters. For example, the OTSs views
on asset credit quality potentially could affect a thrift or savings associations capital status. Among
other things, the OTS typically evaluates asset quality, loan loss reserves and procedures during
periodic regulatory examinations of each federal -savings association.
I
f
,
following
such an examination
or otherwise, the OTS
i
n its discretion were to require WMB to significantly increase its reserves
against credit losses (
i
.
e
.
,
the allowance for loan and lease losses), this could
potentially reduce
WMBs retained earnings and
regulatory capital. As noted above, a
savings
associations allowance
for loan and lease losses
i
s includable within
supplementary capital only up to a limit, and
i
s not
included at all
i
n core capital.
The OTS has
proposed to require savings
associations that have certain aggregated covered
positions (including on- and off- balance sheet positions i
n the savings associations
trading account
and all foreign exchange and commodity positions whether or not
i
n the
trading account) equal to
10 percent or more of total assets or $1 billion or
more,
to maintain
regulatory capital against the
market risk of their trading positions. The other federal
banking agencies already impose a market risk
capital requirement for their regulated entities (bank holding companies and
banks).
WMB and WMI
are assessing the potential impacts of the proposed market risk capital rule.
A savings associations regulatory capital status, and the risk of being deemed
~
undercapital
ized, could also be affected
by other developments or by future changes i
n
regulatory capital
and
other standards. WMB and WMI cOntinue
t
o actively follow the
progress o
f
the U. S.
banking agencies
and the Base! Committee on Banking Supervision
i
n developing a new set of
regulatory
risk- based
capital requirements. The Basel Committee on Banking Supervision
i
s a committee
o
f
bank
supervi
sory
authorities established by the central bank
governors
of certain industrialized nations, including
the United States. The new requirements are commonly referred to as Basel
I
I or The New Basel
Capital Accord; however, final requirements have nOt been adopted. WMB and WMI are also
assessing the potential impacts o
f
Basel 11. Based on public
U. S.
regulatory guidance to date, WMB
believes that
i
t will be a required early adopter of Basel
I
I
requirements when final guidance regarding
compliance
with Basel
I
I
i
s released.
The
regulatory capital
ratios calculated for WMB, along
with the
capital amounts and ratios for
the minimum
regulatory requirement and the minimumamounts and ratios required to be categorized
as well- capitalized
under the
regulatory
framework for
prompt
corrective action were as follows:
June 30, 2007
Minimum to be
Categorized as
Well- Capitalized
Under the
Minimum OTSs Prompt
Regulatory
Corrective Action
Actual Requirement RegUlations
WMB Amount Ratio Amount Ratio Amount Ratio
(Dollars i
n millions)
Total
capital to total
risk- weighted
assets $28,966 12.17% $19,048 8.00% $23,810 10.00%
Core
capital to total risk- weighted
assets 19,379 8.14 9,524 4.00 14,286 6.00
Core capital to adjusted total assets
(leverage) 21,159 7.02 12,056 4.00 15,070 5.00
Tangible capital t
o
tangible assets
(tangible equity) 20,830 6.92 6,021 >2.00 n/ a n/ a
38
CONFIDENTIAL
Return
December 31, 2006
Minimum to be
Categorized as
Well- Capitalized
Under the
Minimum OTSs
Prompt
Regulatory
Corrective Action
Actual
Requirement Regulations
(Dollars i
n
millions)
Total
capital
to total
risk- weighted
assets $30,950 12.16% $20,364 8.00% $25,455 10.00%
Core capital t
o total risk- weighted
assets
21,081
8.28
10,182
4.00
15,273 6.00
Core
capital
to
adjusted
total assets
(leverage) 22,790 6.79 13,422 4.00(
1
)
16,777 5.00
Tangible capital to tangible assets
(tangible equity) 22,397 6.68 6,703 >2.00
n
/
a
n
/
a
December 31, 2005(
2
)
Minimum to be
Categorized as
Well- Capitalized
Under the
Minimum OTSs
Prompt
Regulatory
Corrective Action
Actual
Requirement Regulations
(Dollars
in
millions)
Total
capital
to total
risk- weighted
assets $26,219 11.50% $18,240 8.00% $22,800 10.00%
Core
capital
to total
risk- weighted
assets 19,350 8.49 9,120 4.00 13,680 6.00
Core
capital t
o
adjusted
total assets
(leverage) 20,787
6.47 12,850 4.00 16,062 5.00
Tangible capital
to
tangible
assets
(tangible equity) 20,331 6.34 6,416 >2.00 n/ a
n
/
a
( 1
)
The minimum leverage ratio guideline i
s 3% for financial institutions that do not anticipate significant growth and that have
well- diversified risk, excellent asset quality, high liquidity, good earnings, effective management and monitoring of market
risk and, i
n general, are onsidered top- rate, strong banking organizations.
(
2
)
Represents regulatory capital ratios as filed for the year ended December 31, 2005, prior to the
merger o
f
Long Beach Mort
gage Company with and into WMB. Amounts have not been restated to reflect the
merger.
Benefits to WMB
The OTS has confirmed to WMB that the Series 2007- B Company
Outstanding Company
Preferred Seurities will constitute core capital o
f
WMB under the OTSs
applicable regulatory capital regulations.
39
CONFIDENTIAL
Return
USE OF PROCEEDS
The Trust will use the
proceeds
of the sale
o
f
the Trust Securities i
n this
Offering, expected
to be
approximately $975,000,000
net of
underwriting commissions,
to
purchase
from WMB a like amount
o
f
Series 2007- B
Company
Preferred Securities, which the
Company
will issue to WMB in
exchange
for the
conveyance o
f
the Flex-5 ARMs to the
Company.
The WMI Group will use the proceeds from
the sale of the Series 2007- B Company Preferred Securities to the Trust for
general corporate
purposes.
40
CONFIDENTIAL
Return
THE TRUST
Washington
Mutual Preferred
Funding
Trust IV
(the Trust) i
s
a statutory
trust created under the
Delaware
Statutory
Trust Act, as amended
(the
Trust
Act), pursuant
to a certificate of trust filed with
the Secretary o
f
State
o
f
the State of Delaware and the execution of a trust
agreement o
f
the Trust on
August 9
,
2007. The Trust will continue its existence from and after the closing of this Offering
pursuant to an amended and restated trust agreement (
a
s
so amended and restated, the Trust Agree
ment), to be entered into
b
y and
among
the
Company, as grantor, Wilmington
Trust
Company, as
property trustee ( the Property Trustee), and Wilmington Trust Company, as Delaware trustee ( the
Delaware
Trustee), as o
f
the date the Trust Securities are issued. The
rights o
f
the holders of the
Trust
Securities, including
economic
rights, rights t
o information and
voting rights, are as set forth
i
n
the Trust
Agreement
and the Trust Act.
The Trust
Agreement generally
limits the Trusts activities to (
i
)
holding
the Series 2007- B
Company
Preferred Securities, (
i
i
)
issuing
the Trust Securities, (
i
i
i
)
passing through
dividends and
redemption
and
liquidation payments paid
b
y the
Company
to the Trust on the Series 2007- B
Company
(iv) performing
functions
necessary
or incidental thereto. The Trust
i
s
prohibited
from
issuing
other
equity
securities or any
debt securities or engaging i
n
any
other
activities.
Subject
to the limitations and
assumptions
described under Certain U. S. Federal Income
Tax Considerations, the Trust intends
t
o be treated as a grantor
trust for United States federal income
tax purposes, with the result that holders of Trust Securities are expected to be treated as beneficial
owners of the Series 2007- B
Company
Preferred Securities for United States federal income tax
purposes. The Series 2007- B Company Preferred Securities will be the only assets
o
f
the Trust. The
principal executive offices
o
f
the Trust will be located a
t
1301 Second Avenue, Seattle, Washington
98101. The office
o
f
the Delaware Trustee
i
s
Rodney Square North, 1100 North Market Street,
Wilmington,
Delaware 19890. Copies
of the Trust
Agreement
will be available upon request
to WMI.
As set forth in, and
subject to,
the Trust
Agreement,
the
Property
Trustee and the Delaware
Trustee will have exclusive and
complete authority
to
carry
out the
purposes o
f
the Trust.
The
Property
Trustee will hold title to theSeries 2007- B Company Preferred Securities for the
benefit of the holders
o
f
the Trust Securities, and, as such holder, the
Property
Trustee will have the
power to exercise all rights, powers and privileges with respect to the Series 2007- B Company
Preferred Securitiesunder the LLC
Agreement. I
n
addition, the
Property
Trustee will maintain
exclusive control
o
f
a segregated
noninterest
bearing
bank account to hold all
payments
made
i
n
respect
Company
Preferred Securities for the benefit
o
f
the holders
o
f
the
Trust Securities.
Pursuant to the Trust
Agreement,
all
charges or expenses o
f
the Trust other than
payments
required under the terms of the Trust Securities, including the fees, charges and
expenses o
f
the
Property Trustee, the Delaware Trustee, the
Registrar, the Transfer
Agent or any Paying Agent, will be
paid or caused to be paid
b
y
the Company; provided, however, that i
f the Company does not pay or
cause t
o be
paid
such fees, charges and expenses or can pay
such fees, charges and expenses only
in a manner that would allocate such fees, charges
and
expenses against
the interests of the holders
o
f
the Series N
Company
Preferred
Stock,
WMB will
pay
such fees,
charges
and
expenses; provided
further, that
i
f the
Property
Trustee or the Delaware Trustee incurs fees, charges or expenses
for
which
i
t
i
s not otherwise liable under the Trust
Agreement, or i
f the
Paying Agent,
the
Registrar
or the
Transfer
Agent
incurs fees, charges or expenses
for which
i
t
i
s not otherwise liable under the
Agency
Agreement,
in each case at the
request
of a holder of Trust Securities or other
person, such holder or
other
person
will be liable for such fees, charges
and
expenses.
The information with
respect to the Trust that i
s
required by paragraph (d)(
4
)
(
i
) of Rule 144A
under the Securities Act, will be available
upon request to the
Property
Trustee until the earlier
o
f
(
i
) the redemption in full o
f
the Trust Securities or (
i
i
) the Conditional Exchange.
41
CONFIDENTIAL
Return
THE COMPANY
Washington Mutual Preferred
Funding
LLC (the Company) i
s a Delaware limited
liability
company formed onFebruary
3
,
2006 under the Delaware Limited-- Liability Company Act, asamended
(the LLC Act), pursuant to an initial limited liability company agreement and a certificate
o
f
formation
filed with the Secretary o
f
State
o
f
the State of Delaware. The limited
liability company agreement was
amended and restated
i
n its entirety i
n connection with each of the issuance
o
f
the Series 2006- A
i
n March 2006, the Series 2006- C Company Preferred Securities
i
n
December 2006 and the Series 2007- A Company Preferred Securities
i
n
May 2007. The limited
liability company agreement of the Company
will be further amended and restated to include the
terms of the Series 2007- B
Company
upon
the closing of this
Offering (
a
s so
amended, the LLC
Agreement).
The LLC
Agreement generally limits the Companys activities to (
i
) issuing (
a
)
the Series 2006- A
Company Preferred Securities, which were sold to Trust
I
, (
b
)
the Series 2006- B
Company Preferred
Securities, which were sold to WaMu Cayman, (
C
)
the Series 2006- C Company Preferred Securities,
which were sold to Trust
I
I
,
(
d
)
the
Series 2007- A Company Preferred Securities, which were sold to
Trust Ill, (
e
)
other
Parity Equity Secu~ ities, such as the Series 2007- B
Company
subject to the limitations described
i
n this offering circular, (
f
) the common securities of the
Company
( the Company
Common
Securities) to University Street, Inc., an indirect subsidiary of WMB
(
University Street),
and
(
g
)
additional Junior
Equity Securities, subject to certain limitations described
i
n this
i
i
)
acquiring
and
holding Eligible Investments, including
the Asset Trust I
Class A Trust Certificate, the Asset Trust
I
I
I
I Class A
Trust Certificate (which, other than Permitted Investments, will be the sole Eligible Investments of the
Company immediately after the completion of this Offering) i
n accordance with the investment
policy
as described in
Business
o
f
the Company
Assets of the Company i
n and (
i
i
i
) performing
functions
necessary
or incidental thereto. Subject to the limitations and assumptions described under
Certain U. S. Federal Income Tax Considerations, the
Company
intends to be treated as a
federal income tax
purposes.
The
Company may
not take
any
action, or permit any
action to be taken,
that would cause the Company
t
o fail to be treated as a partnership for United States federal income
tax purposes
for so long as any Company Preferred Securities of
any
series are
outstanding, except
o
f
the holders
o
f
at least two- thirds of all the series of Company
Preferred Securities, voting together as a single class. The principal executive office
o
f
the
Company
i
s do
Washington Mutual, Inc., 1301 Second Avenue, Seattle, Washington 98101. Copies of the LLC
Agreement will be available upon request to WMI.
The Company will receive the opinion of Mayer Brown LLP to the effect that, for United States
federal income tax
purposes, the Company will not be treated as an association taxable as a
corporation or as a publicly traded partnership taxable as a corporation.
Capitalization
Upon completion
of this Offering, University
Street will continue to hold all of the
Company
Common Securities, representing 100%
o
f
the voting rights i
n the
Company (subject
t
o the limited
voting rights of holders of the Series 2007- B
Company
Preferred Securities and the other Company
Preferred Securities described under Description of the Series 2007- B
Company
Voting Rights
and
Covenants). Upon completion o
f
this Offering, the Trust will hold all
o
f
the
Series 2007- B
Company
Preferred Securities. Trust I will continue to hold all the Series 2006- A
Company Preferred Securities, WaMu
Cayman
will continue to hold all the Series 2006- B
Company
Preferred Securities, Trust
I
l will continue to hold all the Series 2006- C
Company
and Trust
I
l
l will continue to hold
a
l
l
the Series 2007- A Company Preferred Securities.
42
CONFIDENTIAL
Return
The following table illustrates the capitalization o
f
the Company as o
f
June 30, 2007 and the
expected capitalization o
f
the
Company as o
f
the
closing o
f
this
Offering ( the Closing Date),
after
giving
effect to the issuance
o
f
the Series 2007- B
Company
As of June 30, As of the
2007(
1
)
Closing
DateW
(Unaudited) (Unaudited)
Series 2006- A Company Preferred Securities $1,250,000,000 $ 1,250,000,000
Series 2006- B
Company
Preferred Securities 750,000,000 750,000,000
Series 2006-C
Company
Series 2007- B
Company
1,000,000,000
Company
Common Securities 3,896,229,848 7,644,035,493
Total Capitalization $6,596,229,848 $11,644,035,493
( 1
)
These figures exclude certain capitalized costs associated with the issuance of the Company Preferred Securities and
exclude retained earnings.
Business of the
Company
Assets of the
Company
I
n
connection with the
February
2006
offering
of the Series 2006- A
Company
Preferred Securi
ties and Series 2006- B
Company
Preferred Securities, WMB
conveyed a portfolio
of first
lien, closed-
end,
fixed rate home
equity
loans
(
HELs) to the
Company
in
exchange
for 100% of the Series 2006- A
Company
Preferred Securities and Series 2006- B
Company
Concurrently
with
this transfer
b
y
WMB, University
Street
conveyed a portfolio
of HEL5 to the
Company i
n
exchange
for
100% of the
Company
Common Securities. The
portfolio conveyed by
WMB and
University
Street to
the
Company
and
subsequently
transferred to Asset Trust I consisted
o
f
approximately
$5,389,459,150 of HELs
i
n the
aggregate,
calculated as of
January 31, 2006. The
Company conveyed
100%
o
f
the HELs that
i
t received to Asset Trust I
i
n
exchange for the interests i
n Asset Trust I
represented by the Class A Asset Trust Certificate of Asset Trust I (the
Asset Trust I Class A
Trust
Certificate)
and a residual certificate
( the
Asset Trust / Class R Trust Certificate), which the
Company transferred t
o
WMB. WMB then sold the Series 2006- A
Company
Series 2006- B
Company
Preferred Securities for cash to Trust I and WaMu
Cayman, respectively.
I
n connection with the December 2006 offering of the Series 2006- C
Company
Preferred
Securities, WMB
conveyed a portfolio o
f
payment option adjustable rate mortgages
(
Option ARMs)
to the
Company i
n
exchange for 100% o
f
the Series 2006- C
Company
Preferred Securities, and
University Street contributed a pool o
f
Option
ARMs to the
Company as a capital
contribution. The
aggregate outstanding principal
balance
o
f
all
Option
ARMs contributed to the
Company
b
y WMB and
University
Street and
subsequently
transferred to Asset Trust
I
I
was approximately $2,899,877,211 i
n
the
aggregate,
calculated as of November 14, 2006. The
Company conveyed
100% of the
Option
ARMs that
i
t received to Asset Trust
I
I
i
n
exchange
for interests in Asset Trust
I
I
represented by
the
Class A Asset Trust Certificate of Asset Trust
I
I
(the
Asset Trust
I
I Class A Trust
Certificate)
and a
residual certificate
( the
Asset Trust
I
I Class R Trust Certificate), which the Company transferred to
WMB. WMB then sold the Series 2006- C Company Preferred Securities for cash to Trust
I
I
.
As of
September 30, 2007, the
Companys
assets consisted of
approximately $4,083,661,672 of
HELs in the
aggregate,
held
through
Asset Trust
I
; $1,664,792,954 o
f
Option
ARMs in the
aggregate,
held
through
Asset Trust
I
I
; and $525 million of
permitted
investments held
directly or held
through
Asset
Trust I or Asset Trust
I
I
,
as the case may
be. Since the March 2006 issuance of
Company
Preferred
Securities, the
Company
has paid to
University
Street approximately $272.4 million of cash distributions
and $2.217 billion
o
f
cash redemption payments, i
n each case on the
Company
Common Securities.
43
CONFIDENTIAL
Return
The
Companys source of funds for those dividends has been
payments o
f
interest and
principal
received
b
y the Company through Asset Trust I on its HELs and Asset Trust
I
I on its
Option
ARMs.
Contemporaneously
with this
Offering,
WMB will
convey a portfolio
o
f
FIex-5 ARMs to the
Company in exchange for 100% of the Series 2007- B Company Preferred Securities and
University
Street will contribute a pool o
f
FIex-5 ARMs to the Company as a capital contribution. The portfolio of
Flex-5 ARMs
t
o be
conveyed by WMB
t
o the Company will consist of
approximately $1,000,000,000
outstanding principal amount
o
f
Flex- 5 ARMs
i
n the aggregate, and the portfolio o
f
Flex- 5 ARMs
contributed by University
Street to theCompany will consist of
approximately $4,199,147,686 outstand
ing principal amount of Flex- 5 ARMs
i
n the aggregate.
The
aggregate outstanding principal balance of
Flex-5 ARMs contributed to Asset Trust
I
I
I
by WMB and University Street will be
approximately
$5,199,147,686, calculated as of
Company will,
i
n turn,
convey
100% of the
Flex-5 ARMs that
i
t owns to Asset Trust
I
l
l
i
n
exchange
for interests in Asset Trust
I
I
I
represented
b
y
the Class A-i 2007- Flexi Asset Trust Certificate of Asset Trust
I
l
l
( the Asset Trust Ill Class A
Trust Certificate) and a second certificate
(the
Asset Trust
I
l
l Class R Trust
Certificate), which the
Company expects
t
o transfer to WMB. WMB will then sell the Series 2007- B Company Preferred
Securities for cash to the Trust.
After giving
effect to the contribution of the Flex- 5 ARMs to the Company and Asset Trust Ill, on
a pro
forma basis, the
Companys assets will consist
o
f
approximately $4,083,661,672
o
f
HELs
i
n the
aggregate, as
o
f
I
; $1,664,792,954 of Option ARMs
i
n
the aggregate, as
o
f
I
I
; and $5,199,147,686 of Flex- 5
ARMs
i
n the
aggregate,
as of September 30, 2007, to be held through Asset Trust Ill.
The HELs currently held
i
n Asset Trust
I
, the Option ARMs held
i
n Asset Trust
I
I and the Flex- 5
ARMs to be held
i
n Asset Trust
I
l
l will together satisfy the coverage and FF0 tests described under
Description o
f
Ranking for issuance
o
f
the
Series 2007- B Company Preferred Securities as Parity Equity Securities with respect to the Outstand
ing Company
The
Eligible
Investments
( which will, immediately
after the
completion
of this Offering and the
transactions contemplated i
n connection therewith, consist of the Asset Trust I Class A Trust Certificate,
the Asset Trust
I
I
I
I Class A Trust Certificate and Permitted
Investments from time to time will generate net income for payment of dividends
b
y the
Company to
the Trust as holder of the Series 2007- B Company
(and consequently for pass
through
b
y the Trust to holders
o
f
the Trust Securities),
t
o Trust
I
, Trust
I
I
, Trust.
I
l
l and WaMu
Cayman,
as holders of the Outstanding Company
Preferred Securities, and to University
Street as holder of the
Company
Common Securities.
The
Company
intends to manage
its assets so as (
i
)
to ensure that the
Company
will at all times
maintain its exemption under the Investment Company Act, (
i
i
) to result
i
n the
Company at all times
maintaining sufficient FF0 to allow payments to be made with respect to its Junior Equity Securities
(including payments to University Street as holder of the Company Common Securities) and
(
i
i
i
)
t
o
maintain the desired treatment under the Code for the Companys assets and obligations.
Current requirements under the Investment Company Act mandate that
i
n order to maintain its
exemption from registration as an investment
company,
the Company must limit its assets that are not
Qualifying
Interests or other real estate related assets to no more than 20% of its total assets at
any
time. The Company expects that
initially
the distributions
i
t receives from Asset Trust
I
, Asset Trust
I
I
and AssetTrust
I
l
l as holder of the Asset Trust I Class A Trust Certificate, the Asset Trust
I
I Class A
Trust Certificate and the Asset Trust
I
l
l Class A Trust Certificate, respectively, and its income on its
Permitted Investments, will significantly exceed the amount
required to
pay
dividends on all the series
o
f
Company
Preferred Securities. Cash received from the Asset Trusts and
any
Permitted Investments
purchased with such funds or with the proceeds of the sale
o
f
the Series 2007- A
Company
Preferred
Securities are not Qualifying
interests or other real estate related assets, and therefore funds received
from the Asset Trusts or from the sale
o
f
the Series 2007- A
Company
44
CONFIDENTIAL
Return
retained
b
y the
Company
will be limited
(together
with
any
other assets that are not
Qualifying
Interests or other real estate related
assets)
to 20% of the
Companys
total assets at
any
time. Current
cash and the
expected proceeds
of the sale
o
f
2007- B
Company
Preferred Securities will not exceed
20%
o
f
the
Companys
total assets. For this and other reasons, (
i
)
the
Company~ may
seek to invest a
substantial
portion
of its Permitted Investments (after giving
effect to the sale of 2007- B
Company~
Preferred
Securities)
to
purchase
Additional Assets as described below and
(
i
i
) the
Company expects
i
t
will, i
n the
ordinary course, distribute all or substantially
all of the funds
i
t receives from the Asset
Trusts
t
o
University Street, as holder
o
f
the Company Common Securities, to the extent
i
t
i
s
permitted
to do so i
n accordance with the restrictions on dividends with
respect
to the
Company
Common
Securities and such funds are not otherwise required t
o
pay dividends on any series
o
f
the
Company
Preferred Securities. The Company
intends to invest funds
i
t receives from the Asset Trusts
i
n
Permitted Investments
prior to such funds
being
distributed to the holders
o
f
the
Company
Common
Securities or other Junior Equity
Securities or o
f
any
series o
f
the Company
The
Company
also expects that over time the principal balance o
f
the Mortgage Loans held
b
y
the Asset Trusts will decrease as a result
o
f
principal payments
and
payoffs.
Since
(
i
) i
n accordance
with the terms
of the
Pooling
and
Servicing Agreements,
additional assets
may
be added to
any
Asset
Trust
only
in
very
limited circumstances and
(
i
i
) funds distributed to the
Company
b
y
an Asset Trust
may
be distributed to
University
Street as discussed above and to the extent held
b
y the
Company
will
generally ( when
invested
i
n Permitted
Investments) generate a lower rate of return than the
Mortgage
Loans held i
n the Asset Trusts, over time the
Company expects
that its FF0 will decline.
Accordingly,
prior
to the
point
at which the
Companys
FF0 level
i
s reduced to a level that would
prevent payments
with
respect
to its Junior
Equity
Securities
( including payments
to
University
Street as holder of the
Company
Common Securities), the Company intends
t
o
acquire additional income
producing invest
ments that constitute
Eligible
Assets.
Any
additional assets that are acquired
b
y the
Company
will not
be transferred to
any
Asset Trust or serviced
i
n accordance with the related Asset Documentation.
Any additional Eligible Assets that are acquired by the Company (such assets, Additional
Assets)
may (but are not i
n all cases required to)
consist of
obligations o
f
Asset Subsidiaries. The terms
o
f
the
Asset Documentation with respect to
any
Additional Assets will provide for the servicing o
f
such
Additional Assets.
Eligible
Assets means assets:
(
i
)
which
(
a
)
are securities, interests or other
obligations o
f
an Asset
Subsidiary
which are
backed or collateralized
b
y first or second lien closed end home
equity loans, first or second lien
home
equity
lines
o
f
credit, mortgage
loans on single family
or
multi-family residences, commer
cial
mortgage
loans or other real estate assets, i
n each
case,
with
respect
to real estate located
i
n the United States; provided, however, that the
Company may acquire
and hold first or second
lien closed end home
equity loans,
first or second lien home
equity
lines of credit, mortgage
loans on single family or multifamily residences, commercial
mortgage
loans or other real estate
assets
directly i
f the
Company
receives an Asset Tax
Opinion i
n connection with such assets or
(
b
)
otherwise
satisfy
the
Rating Agency
Condition and are approved by all o
f
the
Managers,
including the Independent Manager;
(
i
i
) which will be serviced and maintained i
n accordance with Asset Documentation, as
applicable;
(
i
i
i
) the collateral for which
i
s
not permitted to include under the related Asset Documentation
any
first or second lien closed end home
equity loans, first or second lien home
equity
lines of
credit, mortgage
loans on
single family or multifamily
residences, commercial mortgage loans or
other real estate assets as t
o which the applicable obligor was more than 30
days delinquent as
o
f
the
applicable
cut- off date or transfer date;
(
i
v
)
the collateral for which does not create or carry any obligation o
f
the Company or any
Asset
Subsidiary t
o make future advances or loans to any obligor
with
respect
to such collateral
under lines of
credit, revolving
loan facilities or other similar features; and
45
CONFIDENTIAL
Return
(
v
)
the acquisition, maintenance and servicing of which will not (
i
n
itself or
i
n connection with
any o
f
the Companys other assets):
(
a
)
cause the Company to~ be an investment
company
that
i
s required to
register
Company Act;
(
b
)
cause the imposition of United States federal income withholdihg tax
( including
under Section 1445 of the
Code) i
n
respect o
f
payments
made
b
y the Company on
any
series of the Company Preferred Securities;
(
c
)
cause the Company to be treated under the Code as a publicly traded partnership
taxable as a corporation;
(
d
)
cause the Company to be treated as engaged i
n a U. S. trade or business, as
determined for United States federal income tax purposes; or
(
e
)
cause income with respect to the Trust Securities to constitute unrelated business
taxable income for U. S. federal income tax purposes or gain subject to U. S. net income
taxation under Section 897 of the Code.
Asset Documentation means (
i
)
with respect to Asset Trust I and the Asset Trust I Class A
Trust Certificate, the Asset Trust I Pooling and Servicing Agreement and the related Asset Trust I
Custody Agreement, (
i
i
) with respect to Asset Trust
I
I and the Asset Trust
I
I Class A Trust Certificate,
the Asset Trust
I
I Pooling and Servicing Agreement and the related Asset Trust
I
I
Custody Agreement,
(
i
i
i
) with respect to Asset Trust
I
l
l and the Asset Trust
I
l
l Class A Trust Certificate, the Asset Trust
I
l
l
Pooling
and
Servicing Agreement
and the related Asset Trust
I
l
l
Custody Agreement, (
i
v
) the Master
Loan Contribution and Purchase
Agreement,
dated as
o
f
March
6
,
2007, between the Company and
WMB and the Master Loan Contribution and Purchase Agreement, dated as
o
f
March
6
,
2007,
between the Company and University Street (together with any Loan Transfer Confirmations thereun
der, collectively,
the Asset Contribution Agreements), and (
v
) with respect to
any Additional Assets,
the documentation (
a
)
governing the maintenance and servicing o
f
such Additional Assets and
custodial arrangements related thereto and (
t
o
the extent applicable) any underlying
collateral related
to such Additional Assets, (
b
)
establishing (
i
f applicable) any
Asset
Subsidiary created
i
n connection
with such Additional Assets, and (
C
)
governing (
i
f applicable) the acquisition
b
y the
Company o
f
any
Eligible Assets or first or second lien closed end home equity loans, first or second lien home equity
lines of credit, mortgage
loans on single family or multi-family residences, commercial
mortgage
loans
or other real estate assets; provided, that the execution
o
f
any such documentation, to the extent such
documentation
i
s not substantially
similar
i
n all material
respects to the Asset Trust I
Pooling
and
Servicing Agreement and the Asset Contribution
Agreements (with such changes as
may
be
necessary or desirable to reflect the collateral for such Additional Assets and the
acquisition thereof),
must satisfy the Rating Agency Condition and be approved by all of the Managers, including the
Asset Subsidiary means Asset Trust
I
,
Asset Trust
I
I
, Asset Trust Ill and, with respect to any
Additional Assets, an entity
formed for the
purpose
of
holding
the collateral related to such Additional
Assets and making payments with respect
thereto to the Company and:
(
i
) i
n which the
Company
holds all or substantially all
o
f
the economic interests;
(
i
i
) which
i
s established and governed pursuant to Asset Documentation;
(
i
i
i
) which
i
s not an investment
company
which
i
s
required to register under the Investment
Company Act;
(
i
v
)
the establishment and operation of which will not cause the Company to be an
investment company that
i
s
required t
o
register under the Investment Company Act;
46
CONFIDENTIAL
Return
(
v
)
the establishment and
operation
of which will not cause the
imposition
of United States
federal
withholding
tax
( including
under Section 1445 of the Code) i
n
respect o
f
payments by
the
Company on any
series of the Company Preferred Securities;
(
v
i
)
the establishment
a
~
d
operation o
f
which will not cause
the
Company
to be treated
under the Code as a publicly
traded
partnership
taxable as a corporation;
and
(vii)
the establishment and
operation
of which will not cause the
Company
to be treated as
engaged i
n a U. S. trade or business, as determined for United States federal income tax
purposes.
Asset Tax
Opinion means,
with
respect
to
any assets, an opinion
of counsel from
nationally
recognized
tax counsel to the effect that the
acquisition
and
ownership o
f
such assets
b
y the
Company
will not
(
i
n
itself or i
n connection with
any o
f
the
Companys
other
assets):
(
i
) cause the
imposition
of United States federal
withholding
tax i
n
respect o
f
payments
made
b
y the
Company on any
series of the
Company
Preferred Securities;
(
i
i
) cause the Company to be treated under the Code as a publicly
traded
partnership
taxable as a corporation; or
(
i
i
i
) cause the Company to be treated as engaged i
n
a U
.
S. trade or business, as
determined for United States federal income tax purposes.
Eligible Investments means the Asset Trust I Class A
Tryst Certificate, the Asset Trust I
I
Class A
Trust Certificate, the Asset Trust I
l
l
Class A Trust Certificate, the Asset Trust I Class A Trust Certificate,
the Asset Trust I
I
Class A Trust Certificate,. the Asset Trust
I
I
I
Class R Trust Certificate
any
other~
Eligible
Assets and
any
Permitted Investments.
Permitted Investments means one or more o
f
the
obligations or securities listed below:
(
i
) obligations of, or guaranteed as to
principal
and interest
by,
the United States
o
f
America or any agency or instrumentality thereof when such obligations are backed by the full
faith and credit of the. United States
o
f
America;
(
i
i
)
repurchase agreements on obligations
described
i
n clause
(
i
) o
f
this definition
o
f
Permitted lnvestments~ provided,
that the unsecured
obligations o
f
the party agreeing to
repurchase
such
obligations have, a
t
the time at which the repurchase agreement i
s entered into,
one of the two highest short- term debt ratings o
f
each
o
f
the
Rating Agencies;
and
provided
further, that such
repurchasers
unsecured
long- term
debt has, a
t
the time at which the
repurchase agreement i
s entered into, one o
f
the two highest
unsecured
long- term
debt
ratings
of each o
f
the Rating Agencies;
(
i
i
i
) federal funds, certificates
o
f
deposit, time deposits and bankers acceptances o
f
any
bank or trust company incorporated
under the laws
o
f
the United States o
f
America or
any state;
provided,
that the debt obligations
of such bank or trust
company (or, i
n the case of the
principal
bank
i
n a bank
holding company. system,
debt
obligations
of the bank
holding company)
at the
date of
acquisition
thereof have one of the two
highest
short-tecm debt
ratings
of each of the
Rating Agencies
and unsecured
long- term
debt has one o
f
the two
highest
unsecured
long- term
debt
ratings
of each of the
Rating Agencies;
(
i
v
)
federal funds, certificates of
deposit,
time
deposits,
demand deposits
and bankers
acceptances
of WMB;
.
(
v
)
obligations o
f
,
or obligations guaranteed by, any
state of the United States of America
or the District of Columbia; provided,
that such
obligations
at the date of
acquisition
thereof shall
have one of the two
highest long- term
debt
ratings
available for such securities from each of the
flating Agencies;
.
47 .
CONFIDENTIAL
Return
(
v
i
) commercial
paper o
f
any corporation incorporated
under the laws of the United States
of America or any state thereof, which on the date of acquisition has the
highest
commercial,
paper rating o
f
each
o
f
the
Rating Agencies; provided,
that the
corporation
has unsecured long-
term debt that has one of the two
highest
unsecured
long- term
debt
ratings
of each
o
f
the
Rating
Agencies;
(vii) securities ( other than stripped bonds or stripped coupons) bearing interest or sold
a
t
a
discount that are issued
b
y
any corporation incorporated
under the laws
o
f
the United States
o
f
America or
any
state thereof and have one of the two highest long- term
unsecured
ratings
available for such securities from each of the
Rating Agencies; and
(viii) any
other category o
f
investments that satisfy the Rating Agency
Condition and
i
s
approved by all of the
Managers, including the Independent Manager, subject to the receipt
b
y
the Company
of an Asset Tax
Opinion
with
respect to such category o
f
investments;
provided, hOwever, that (
x
)
any
of the investments listed above will not be Permitted Investments to
the extent that investment therein would cause the
outstanding principal amount of Permitted
Investments that are then held by the Company to exceed 20% of the aggregate principal amount of
all
Eligible
Investments and
(
y
)
(
a
)
any payments
received with
respect to any
of the investments listed
above must not be subject to withholding tax of
any jurisdiction assuming compliance with standard
tax documentation requirements, unless the
Company i
s entitled to a full
gross-up (
o
n an after- tax
basis) with respect to any such withholding tax, (
b
)
the gain from the disposition of such investment
would not be subject to.
U
.
S. federal income or withholding tax under section 897 or section 1445,
respectively, of the Code and (
c
)
such investments will not cause the imposition of U. S. federal
withholding tax
i
n
respect of payments made
b
y the Company on any series
o
f
Securities. In no event shall an instrument be a Permitted Investment
i
f the instrument evidences a
right
to receive
only
interest
payments
with respect to the
obligations underlying
such instrument or
has been purchased at a price greater than the outstanding principal balance of such instrument.
Rating Agencies means, at any time, S&
P
,
Moodys and Fitch, but only i
n the case
o
f
each
such
agency i
f
i
t
i
s rating the relevant security, including the Trust Securities at the relevant time or, i
f
none of them
i
s
providing a rating
for the relevant
security, including
the Trust Securities at such time,
then
any nationally recognized statistical rating organization as that phrase
i
s defined for
purposes
of
Rule
436( g)(
2
)
under the Securities Act, which
i
s
rating such relevant security.
Rating Agency Condition means written notice from each Rating Agency confirming that the
proposed action, change or modification will not result in a reduction of the rating then currently
assigned
b
y such
Rating Agency to the Trust Securities.
Employees
and Administration
Agreement
The Company and WMB have entered into an Administrative Services Agreement ( the Admin
istrative Services
Agreement) pursuant to which WMB
provides (
o
r
causes to be
provided) certain
accounting, legal, tax and other support services to the Company, assists the
Company i
n
maintaining
compliance with all pertinent
U. S. local, state and federal laws and provides necessary administrative,
recordkeeping
and secretarial services to the
Company.
Under this
agreement,
the
Company
has
agreed to reimburse the provider o
f
such services from time to time for the value of services provided
by
such provider to the Company. The
Company expects that any
such reimbursement will be. in a
de minimisamount. The Company may i
n the future amend or terminate the Administrative Services
Agreement.
The Company will maintain limited liability company
records and audited financial statements
that are
separate
from those
o
f
WMI and
any o
f
its other affiliates. None of the officers, employees or
Managers of the Company will have any direct or indirect
pecuniary
interest in
any security to be
acquired or disposed o
f
b
y the Company or
i
n
any transaction
i
n which the Company has an interest.
48
CONFIDENTIAL
Return
Management
of the
Company
Managers
and Officers
The Company will be managed by a Board of Managers ( the Companys Board
o
f
Managers).
The LLC Agreement provides that the Companys Board
o
f
Managers will at all times be composed of
three members (each, a Manager), one
o
f
whom
i
s not and has not been during the preceding five
years
an officer or employee of WMI or
any
affiliate of WMI, other than a
financing subsidiary (the
Independent Manager).
The
Managers
will serve until their successors are duly elected and qualified.
Except i
n certain circumstances described under

Independent Manager below, action
b
y the
Companys Board of
Managers
will be
b
y
majority
vote. The Company has nine officers.
The
persons who currently serve as the Managers
and officers
o
f
the
Company are:
Name: Position and Offices Held
Robert Williams
Manager
and Senior Vice- President
Peter
Freilinger Manager
and Senior Vice- President
Kenneth
J
.
Uva Independent Manager
Tim
Cleary
Senior Vice- President
Jim Douthitt Senior Vice- President and Chief Financial Officer
Doreen
Logan
First Vice- President and Assistant
Secretary
Jack Read Senior Vice- President
Charles E. Smith First Vice- President and Secretary
Jessica
Jaeger
Vice- President
Susan Chan First Vice- President
Each
o
f
the urrent
Managers (other
than the
Independent Manager)
and officers
o
f
the
Company are individuals who are officers or employees of WMI or one of its affiliates. The Indepen
dent Manager i
s
currently Kenneth
J
.
Uva, who
i
s an employee of CT Corporation.
Independent Manager
Under the LLC
Agreement, i
n order to be considered
independent, a Manager
must not, during
the preceding five
years,
have been a director or employee of WMI or any affiliate of WMI, other than
a direct or indirect
financing subsidiary
of WMI.
The LLC Agreement requires that,
i
n assessing the benefits to the Company of
any proposed
action
requiring
his or her consent, the
Companys Independent Manager
take into account the
interests of holders of both the Junior Equity Securities, including Company Common Securities, and
any series
o
f
the Company Preferred Securities. The LLC Agreement provides that
i
n considering the
interests
o
f
the holders of the Company Preferred Securities, any Junior Equity Securities and any
series of
Company Preferred Securities, the Companys Independent Manager owes
a
l
l
such holders
the same duties.
The LLC Agreement provides that, for so long as any Company Preferred Securities are
outstanding,
certain actions
b
y the Company will be subject to prior approval
of all
Managers,
including
the
The
Company
will not be able, without the
approval o
f
the
Independent Manager, to (
i
)
terminate, amend or otherwise change any
of the Companys Asset
Documentation or (
i
i
)
effect a consolidation,
merger
or share exchange (excluding the Conditional
Exchange) that
i
s not tax- free to the holders of any series of the Company Preferred Securities, and
the related Trust Securities, unless such consolidation, merger or share exchange was approved
b
y
the consent or affirmative vote of the holders of at least two- thirds of all series of the Company
Preferred Securities, voting together as a single
class.
I
n addition,
i
f
any
Asset Trust fails to make a
payment to the Company or
any payments are~ not received with regard
t
o
any
Additional Asset
i
n
violation
o
f
the terms
o
f
the related Asset Documentation on any scheduled payment date, the
Independent Manager
will have the authority to cause the Company,
as the holder
o
f
the Asset Trust I
49
CONFIDENTIAL
Return
Class A Trust Certificate, the Asset Trust
I
I
l
l Class A
Trust Certificate or any Additional Asset, as applicable, to enforce
i
t
s
rights i
n such capacity until
payments
have been resumed and a year has passed since the date
o
f
the latest scheduled payment
date with respect to which the applicable Asset -Trust or the Additional Asset failed to make a payment.
Furthermore, the Independent Manager shall also have authority to enforce the Companys rights
pursuant t
o
any Asset Contribution Agreements.
The holders
o
f
all the series
o
f
Company Preferred Securities, voting together as a single class,
b
y
majority vote
o
f
the votes cast on such matter
a
t
a meeting properly called and held or by written
instructions signed
b
y the holders of
Company Preferred Securities representing a majority o
f
the
voting rights of all series of the Company Preferred Securities then
outstanding, voting together as a
single class, are entitled to remove the initial or
any succeeding Independent Manager and to fill the
vacancy
created
b
y such removal or
any
other
vacancy existing i
n the office of the
Independent
Manager i
f (
i
)
the Company
fails to
pay
full dividends on
any
series
o
f
on
any
Dividend Payment Date, (
i
i
)
any
Trust Holder fails to
pass through full dividends
paid
b
y the
Company on the Company
b
y the Trust Holder to the holders of the
Trust Holders securities on any
Dividend Payment Date or ( iii) a Bankruptcy Event occurs. The
person
so elected will be deemed to be an Independent Manager irrespective o
f
whether he or she meets the
independence
test described above. This
right
will continue for as
long as any Company
Preferred
Securities of any series are outstanding.
Bankruptcy
Event means the Company, the Trust or
any
other Trust Holder
(
i
)
becomes
insolvent or
i
s unable to pay its debts or fails or admits in writing its inability generally to pay its debts
as they become due, (
i
i
) makes a general assignment, arrangement
or
composition with or for the
benefit
o
f
its creditors or (
i
i
i
) institutes or has instituted against i
t a proceeding seeking a judgment of
insolvency or bankruptcy or
any
other relief under
any bankruptcy or insolvency law or other similar
law
affecting
creditors
rights,
or a petition i
s presented for its winding up
or liquidation.
Compensation of the Independent Manager
The Company pays the Independent Manager
a reasonable fee for his or her services as a
Manager of the Company, plus reimbursement of
expenses
for attendance at each
meeting
of the
Companys
Board
o
f
Managers.
Indemnification of Managers and Officers
The LLC Agreement provides that the Company will,
t
o the fullest extent permitted by law,
indemnify any Manager or officer of the Company for
any liability and related
expenses (including
reasonable counsels fees) arising out of such Managers or officers status as a Manager or officer of
the Company; provided, however, that a court of competent jurisdiction has not determined that such
Manager or officer did not act
i
n
good
faith and
i
n a manner that he or she
reasonably believed to be
in, or not opposed to, the best interests of the Company and, with respect to
any
criminal action or
proceeding,
had no reasonable cause to believe that his or her conduct was unlawful. The LLC
Agreement provides that the right to indemnification
i
s a contract right and set forth certain
procedural
and
evidentiary
standards
applicable to enforcement of a claim. The LLC
Agreement provides that the
Company may purchase and maintain insurance to
protect any Manager
or officer
against any liability
asserted against him or her, or incurred by him or her, arising out
o
f
his or her status as such.
Additional Covenants of the Company i
n the LLC
Agreement
The LLC
Agreement provides that, so long as any Company
Preferred Securities of
any
series
are
outstanding,
the
Company
will not authorize, create or increase the authorized amount of or issue
any class or series
o
f
any equity shares
o
f
the Company, or any warrants, options or other
rights
convertible or
exchangeable into any class or series
o
f
any equity shares of the Company, ranking
senior to the Company Preferred Securities, either as
t
o dividend rights, or rights on dissolution,
50
CONFIDENTIAL
Return
liquidation and winding up
of the Company, without the consent or an affirmative vote of the holders of
at least two- thirds of all series of the Company Preferred Securities, voting together as a single class.
The LLC
Agreement
also
provides that, except
o
f
the holders
o
f
at
least two- thirds
o
f

a
l
l
the series
o
f
Company
Preferred Securities, voting together asa single class,
the Company will not take certain other actions. These actions are described under Description of the
Series 2007- B
Company
Voting Rights
and Covenants.
Additional Information
The information with respect to the Company that
i
s
required
b
y
paragraph (d)(
4
)
(
i
)
of Rule 144A
under the Securities Act, including quarterly unaudited and annual audited financial statements, i
n
each case prepared i
n accordance with GAAP, will be available upon request t
o WMI until the earlier
o
f
(
i
)
the redemption i
n full
o
f
the Series 2007- B Company Preferred Securities or (
i
i
) the Conditional
Exchange.

51
CONFIDENTIAL
Return
ASSET TRUST
General
Washington
Mutual Home
Equity
Trust I
(
Asset
Trust
I
)
i
s
a statutory
trust formed under the
laws of the State of Delaware
pursuant t
o
a trust agreement between the Company, as depositor, and
Deutsche Bank Trust
Company Delaware, as Delaware trustee. The Asset Trust I
Pooling
and
Servicing Agreement,
dated as of March
7
,
2006
(the
Asset Trust /
Pooling
and
Servicing Agree
ment), among
the
Company, as depositor, WMB, as servicer
(the
Asset Trust I
Servicer),
Deutsche
Bank Trust
Company Delaware, as Delaware trustee
(the
Asset Trust / Delaware
Trustee)
and
Deutsche Bank National Trust
Company, as trustee (the Asset Trust I Trustee), restated the initial
trust agreement and i
s the governing instrument o
f
Asset Trust I
.
Asset Trust I does not and will not own any
assets other than the HELs and the other assets
described below. Asset Trust I does not and will not have any liabilities other than those incurred i
n
connection with the Asset Trust I
Pooling
and
Servicing Agreement
and
any
related
agreement.
Asset
Trust I does not and will not have
any
directors, officers or other
employees.
No
equity
contribution
has or will be made to Asset Trust I
b
y
WMB, the
Company or any
other
party, except
for a de minimis
contribution made
b
y the
Company,
as
depositor, pursuant t
o the initial trust agreement, and Asset
Trust I does not and will not have
any
other
capital.
The fiscal
year
end of Asset Trust I
i
s
December31. Asset Trust I acts
through
the Asset Trust I Trustee and the Asset Trust I Delaware
Trustee, whose fees and reasonable
expenses are paid or reimbursed
by
the Asset Trust I Servicer.
For
purposes
of this
offering
circular with
respect
to the
underwriting, origination
and
servicing o
f
the HEL5
i
n Asset Trust
I
, references to WMB include WMB, originators acquired by
WMB and WMBs
subsidiaries.
General Description of Assets
The assets o
f
Asset Trust I consist of HELs that had, as of January 31, 2006, an aggregate
unpaid principal balance o
f
approximately $5,389,459,150, together with
payments
received thereon
and certain other investments. The HELs were originated or acquired
b
y
WMB between September
1
,
2001 and
September 30, 2005. As of
September 30, 2007, the HELs
heldby
Asset Trust I had an
aggregate unpaid principal
balance of
As
o
f
September 30, 2007, the HELs had a weighted average gross
interest rate of
approx
imately
6.07% and
ranged
from a gross
interest rate
o
f
approximately
4.00% to 11.32%
per annum.
As
o
f
average current, unpaid principal
balance of the HELs
was
approximately $88,299 with a minimum current, unpaid principal
balance
o
f
approximately $8 and a
maximum
current, unpaid principal balance
o
f
approximately $917,267. As of September 30, 2007,
assets
i
n Asset Trust I had various
original
maturities
ranging
from 5
years
to 30
years
and
were, on
average, originated
within the last 47 months. As of
September 30, 2007, the current
weighted
average
loan-to-value ratio
o
f
the HELs was approximately
50.39% and the
weighted average
loan- to-value ratio at
origination was approximately
58.69%. As of
September 30, 2007, the HELs had
a weighted average Credit Score of approximately 758. Most of the properties underlying the HELs
are owner occupied with
approximately
3.82% of the properties non- owner occupied.
The HELs are
geographically concentrated i
n Texas (approximately 50.55%), California ( approximately 29.29%),
Florida
(approximately 7.06%),
and New York
(approximately 5.11%).
HELs are typically made for
reasons such as home
purchases,
home
improvements,
furniture and fixtures
purchases, purchases
o
f
automobiles and debt consolidation. The HELs are generally repaid on a fully amortizing
basis.
Acquisition
of the Portfolio and Related Transactions
I
o
f
the Series 2006- A
Company
Series 2006- B
Company
Preferred Securities, WMB contributed a pool
of HELs to the
Company i
n
exchange for a corresponding
amount
o
f
the Series 2006- A
Company
52
CONFIDENTIAL
Return
Series 2006- B Company Preferred Securities.
I
n addition, University Street contributed a pool o
f
HELs
to the
Company i
n
exchange
for all
o
f
the Company
Common Securities. The aggregate value
o
f
these contributions totaled
approximately $5,389,459,150, calculated as
o
f
January 31, 2006.
The
Company
contributed to Asset Trust I all of the HELs
i
University
Street. This contribution was made
i
n
exchange
for the Class A-i
Washington
Mutual Home
Equity
Trust I Certificate
( the
Asset Trust / Class A Trust
Certificate)
and the Class A
Washington
Mutual
Home
Equity
Trust I Certificate
(the
Asset Trust / Class R Trust
Certificate).
For United States federal
income tax purposes, the Asset Trust I Class A Trust Certificate
represents
the sole class
o
f
regular
interests
i
n Asset Trust
I
, and the Asset Trust I Class A Trust Certificate
represents the sole class of
residual interests
i
n Asset Trust
I
. The
Company
retained the Asset Trust I Class A Trust Certificate
and sold the Asset Trust I Class R Trust Certificate to WMB on March
7
,
2006.
Asset Trust I owns the right to receive all payments of principal and interest on the HELs. A
schedule to the AssetTrust I
Pooling
and
Servicing Agreement
includes information about each HEL,
including:
the outstanding principal balance as of the close of business on January 31, 2006;
the term
o
f
the HEL; and
the applicable interest rate as

o
f
the close
o
f
business on January 31, 2006.
The notes relating to the 1-IELs were not endorsed
t
o Asset Trust I and no assignments to Asset
Trust I
o
f
the mortgages securing the HEL5 were prepared. WMB,
i
n
i
t
s
capacity as initial Asset Trust I
Custodian, has possession o
f
and reviews such notes and the HELs as custodian for Asset Trust I
and
financing statements were filed
evidencing
Asset Trust ls interest
i
n the
1
-
IEL5.
Description of the Portfolio
Genera!
All of the HELs
i
n the portfolio of Asset Trust I consist of closed- end, first lien home
equity
loans
secured by a first lien that primarily i
s on the borrowers residence. Such residences are largely single
family properties. These loans
typically
are made for reasons such as home purchases, home
improvements, acquisition of furniture and fixtures, purchases of automobiles, and debt consolidation.
The HELs are
generally paid on a fully- amortizing basis. As of September 30, 2007, 0.40% of the
HEL5
i
n Asset Trust I were 30 days or more delinquent, 0.18% were 60 days or more delinquent and
0.11% were 90 days or more delinquent. Because no delinquent HELs were initially included
i
n the
Companys Portfolio, the foregoing delinquency data
i
s therefore limited
i
n its scope. There can be no
assurance that delinquencies with respect t
o the HEL5 will not increase
i
n the. future. See Risk
Factors Risks Relating to the Mortgage Loans
General economic conditions
i
n the United States
could
change
and
possible resulting changes i
n
delinquency rates of the
Mortgage
Loans could
negatively impact the Companys financial condition, results of operations and ability to
pay
dividends.
The tables
i
n Appendix B to this offering circular represent information as of September 30, 2007
with respect to the HELs included in the portfolio of Asset Trust
I
.
Underwriting
General
The HELs owned
b
y Asset Trust I were, i
n all material respects, originated i
n accordance with
the underwriting guidelines o
f
WMB as described herein. The HELs were underwritten
b
y WMB
using
automated
underwriting systems.
WMBs underwriting guidelines generally are intended to evaluate the prospective borrowers
credit standing and repayment ability and the value and adequacy o
f
the mortgaged property as
53
CONFIDENTIAL
Return
collateral. Some HELs are manually underwritten, i
n which case an underwriter reviews information
submitted
b
y the borrower and
supporting documentation, i
f
required,
and a credit
report o
f
the
borrower, and based on that review determines whether to
originate a loan
i
n the amount and with the
terms requested by the borrower. Some HELs are underwritten through WMBs automated underwrit
ing system,
described below.
Prospective
borrowers are required to provide details about their financial factors such as their
assets, liabilities and related
monthly expenses, as well as income and
employment information.
Borrowers
may provide this information
b
y
electronic transmission to a bank
representative
who
inputs
the information
directly
into the
lending system.
Each borrower also
provides an authorization t
o
access a credit
report
that summarizes the borrowers credit
history.
Evaluation of the Borrowers Credit
Standing
To evaluate a prospective borrowers credit
history,
the loan underwriter obtains a credit report
relating
to the borrower from one or more credit
reporting agencies.
The credit
report typicallycontains
information
relating t
o such matters as credit
history
with local and national merchants and lenders,
installment debt
payments
and
any
record of defaults, bankruptcy, repossession, suits or judgments.
I
n most
cases, the credit report provides a credit score (each, a Credit
Score)
for the borrower.
Credit Scores are designed
to assess a borrowers creditworthiness and likelihood to default on an
obligation over a defined
period (usually
two
t
o three
years)
based on a borrowers credit
history.
Credit Scores do not
necessarily correspond
to the
probability
of default over the life of a HEL
because they reflect past credit
history,
rather than an assessment of future
payment performance.
Credit Scores
range from approximately 350 to approximately 850, with higher scores
indicating more
favorable credit
history. I
n
the case o
f
co-borrowers, the Credit Score for the
primary borrower i
s
typically used, unless the co- borrower has a Credit Score that i
s 40 points lower than that of the
primary borrower, i
n which case the lower score i
s then used. The
primary
borrower
i
s determined
b
y
the
applicant at the time the
borrowing request i
s made. Minimum Credit Scores are required
for some
loan
products
and loan
programs.
Credit Scores
may
not be available for some borrowers.
Evaluation of the Borrower~ s
Repayment Ability
In
evaluating a prospective borrowers
ability
to
repay a HEL, the loan underwriter considers the
ratio of the borrowers total
monthly
debt
(including non- housing expenses)
to the borrowers
gross
income
(referred
to as the debt- to-income ratio or back- end
ratio).
The maximum
acceptable
ratios
may vary depending on other loan factors, such as loan amount and loan
purpose, loan- to-value ratio,
credit score and the
availability
of other
liquid
assets.
Exceptions
to the ratio
guidelines may
be made
when compensating factors are present.
Evaluation of the Adequacy of the Collateral
The adequacy of the property being pledged as collateral
generally i
s determined
b
y
an appraisal
made
i
n accordance with
pre-established appraisal guidelines. At origination, all appraisals are
required t
o
conform to the Uniform Standards
o
f
Professional
Appraisal
Practice
adopted
b
y
the
Appraisal
Standards Board of the Appraisal Foundation, and are made on forms acceptable to the
Federal National
Mortgage
Association and/ or the Federal Home
LoanMortgage Corporation.
Appraisers may
be staff
appraisers employed
b
y WMB or independent appraisers
selected
i
n
accordance with the
pre- established appraisal guidelines.
Such
guidelines generally require
that the
appraiser, or an agent on its behalf, personally inspect the
property
and
verify
whether the
property i
s
i
n
adequate
condition and, i
f the
property i
i
t
i
s
substantially completed.
However, i
n the case o
f
HELs underwritten
through
WMBs automated
underwriting system, an
automated valuation method
( AVM) may
be used
i
n lieu of a traditional
appraisal. The AVM relies on
public
records
regarding
the encumbered
property
and/ or
neighboring properties
and
statistically
derives a value
using
that information,
I
f
AVMs are used, they comply
with the
requirements o
f
the
Financial Institutions Reform and
Recovery
Act
o
f
1989, as amended, and are
independently
verified
54
CONFIDENTIAL
Return
periodically. I
n either case, the
appraisal normally i
s based
upon
a market data
analysis o
f
recent
sales
o
f
comparable properties and, when deemed
applicable, a replacement cost analysis based on
the current cost of
constructing or purchasing a similar
property.
Title insurance or alternative services
(
e
.
g.,
lien
insurance) are required
for all HELs. Certain
o
f
the HELs owned
b
y
Asset Trust I involve the use o
f
alternative services These services consist o
f
three services
(including property reports
and
recording services)
and are used
i
n lieu
o
f
title
insurance, endorsements and title
company
services. Alternative services
may
be used
i
n certain
circumstances
including i
n connection with first liens that are being granted
to a lender other than
i
n
connection with the
purchase o
f
a home; or i
n connection with loans made to borrowers who
already
own, on a free and clear basis, the
property being
used as collateral to secure the loan
i
n
question.
Alternative services provide a
low-cost alternative to standard title insurance and
provide acceptable
risk
coverage i
n the event of default.
Each HEL owned
b
y Asset Trust I was underwritten
using
either WMBs full income documenta
tion
program or i
t
s
stated income
program.
Under WMBs full documentation
program,
the
prospective
borrowers stated income i
s verified through receipt o
f
the borrowers most recent pay stub and most
recent W-2 form, or
b
y
using a written Verification
o
f
Employment
form
completed
b
y the borrowers
employer. I
n the case of
self- employed
borrowers or borrowers with more than 25% of their income
from commissions, two
years
of
personal (and, i
f
applicable, business)
tax returns. For
self- employed
borrowers, profit and loss statements
may
also be
required.
Under WMBs stated income
program,
the
prospective
borrowers income and assets either are
not
required
to be obtained or are obtained but not verified.
Eligibility
criteria and the amount of the
loan are determined
by an automated
underwriting system.
Purchase loans as well as refinance loans
may
be
eligible
for
participation i
n WMBs stated income
program.
A credit
report
for the borrower
generally i
s
required
for all HELs underwritten under either
program.
Exceptions to Program
Parameters
Exceptions to WMBs loan
program parameters may
be made on a case- by-case
basis i
f
compensating
factors are present. I
n those cases, the basis for the exception i
s
documented, and i
n
some cases the approval o
f
a senior underwriter
i
s
required. Compensating
factors
may include, but
are not limited to, low loan-to-value ratio, good
credit
standing,
the
availability o
f
other
liquid assets
and stable
employment.
Currently,
all HEL5
originated
b
y WMB utilize a proprietary
automated
underwriting system
known as SUCCESS~ Based on the borrowers credit report and the information provided by the
borrower, the
system
either
(
I
)
approves
the loan, which
approval may
involve relief from certain
documentation otherwise
required
for manual
underwriting
or be subject t
o
the satisfaction
o
f
specified
conditions, which may
include the receipt of additional documentation, (
i
i
) refers the loan
application to
an underwriter for manual
underwriting, or (
i
i
i
) declines the file based on
predetermined eligibility
criteria. In
making
the
underwriting decision,
SUCCESS
distinguishes among
different levels of credit
standing,
based on a proprietary
custom score model, the borrowers Credit Score, and
specific
policies, application
and loan characteristics. WMB has
developed
these credit
standing
levels based
on a statistical
analysis
of the
past performance
of its
portfolio
of home
equity
loans. WMB has used
analysis
of the
past performance
of its
portfolio
of home
equity
loans. WMB has used SUCCESS to
underwrite HELs since
May
2001. WMB
regularly
evaluates and validates SUCCESS and to date has
completed
all
required compliance
and fair
lending
evaluations i
n a satisfactory manner. WMB
55
CONFIDENTIAL
Return
periodically upgrades
its
proprietary
automated underwriting system. SUCCESS was last
upgraded
in
November 2004.
Quality
ControiReview
WMBs credit risk
oversight department conducts quality
control reviews of statistical samplings
of
previously originated
HELs on a regular
basis.
Credit Risk
Management
Policies
Credit risk within the WMI
Group i
s
managed
b
y
means of a broad set
o
f
policies
and
principles
contained i
n its credit policy. The Chief Credit Officer
i
s
responsible
for
overseeing the work of a credit
policy committee, monitoring
the
quality o
f
the WMI
Groups
credit
portfolio, determining
the reason
ableness
o
f
the WMI
Groups
allowance for loan losses, reviewing
and
approving large
credit
exposures
and
setting underwriting
criteria for credit- related
products
and
programs. Credit risk
management i
s based on analyzing
the creditworthiness of the borrower, the
adequacy
of the
underlying collateral given current events and conditions and the existence and strength of any
guarantor support.
Credit risk assessment i
s a process that requires the evaluation o
f
numerous factors, many o
f
which are
qualitative.
Process
integrity
relies on the
ability
of the WMI
Groups lending personne to
analyze
all risk elements.
I
t also
depends on maintaining
risk
rating accuracy by recognizing changing
elements
o
f
credit risk and
promptly initiating risk
rating changes.
Conflicts of Interest Policies
Pursuant to WMBs code
o
f
ethics (the Code of Ethics), WMB extends credit to borrowers
only
when the extension of credit
i
s
financially
reasonable for both WMB and the borrower in
question.
Pursuant to the Code
o
f
Ethics, lending personnel cannot permit personal relationships or other
considerations to influence
lending decisions, and cannot
approve
extensions of credit to, or be
involved in the funding or auditing of any loans made to family or friends.
Servicing and the Asset Trust I Servicer
General
All
o
f
the HELs owned
b
y Asset Trust I are serviced
b
y
WMB, as the Asset Trust I Servicer,
pursuant
to the Asset Trust I
Pooling
and
Servicing Agreement.
WMB has
possession
of the
mortgage
files
(
i
.
e
.
,
the credit
reports, servicing documents, etc.) i
n its
capacity as Asset Trust I Servicer and the
Asset Trust I Loan Documents i
n its capacity as Asset Trust I Custodian.
The Asset Trust I
Pooling
and
Servicing Agreement provides
that WMB
may
not
resign
from its
obligations and duties thereunder as Asset Trust I Servicer except upon a determination that its duties
thereunder are no longer permissible
under.
applicable
law. No such
resignation
will become effective
until a successor Asset Trust I Servicer has assumed WMBs
servicing obligations
and duties under
the Asset Trust I
Pooling
and
Servicing Agreement. I
f the Asset Trust I Servicer
resigns,
the
Company,
subject
to the terms
o
f
the Asset Trust I
Pooling
and
will
appoint a successor
Asset Trust I Servicer.
The Asset Trust I Servicer receives a fee for its services as Asset Trust I Servicer under the
Asset Trust I Pooling
and
The
servicing
fee
i
percentage for each HEL based on the principal balance for such HEL. The servicing fee with respect
to
each such HEL equals 0.125%
per
annum and
i
s
paid monthly.
The Asset Trust I Servicer i
s
entitled to retain certain
ancillary
fees and
charges, including,
but not limited to, any prepayment fees,
insufficient funds fees, modification fees, payoff
statement fees and late charges with
respect
to the
HELs as additional
servicing compensation
and
i
s also entitled to certain income
generated
b
y
permitted
investments made with collections on the HEL5. The Asset Trust) Servicer
generally pays
56
CONFIDENTIAL
Return
all
expenses
incurred
i
n connection with its
responsibilities as Asset Trust I Servicer under the Asset
Trust I Pooling and Servicing Agreement (subject to reimbursement for certain
expenses
and
advances, including those incurred by i
t
i
n connection with the liquidation of defaulted HELs, the
restoration
o
f
damaged mortgaged properties, and payments
b
y the Asset Trust I Servicerfor taxes
and insurance
premiums
with
respect to mortgaged properties).
Any person
into which the Asset Trust I Servicer
may
be
merged, converted or consolidated, or
any person resulting
from
any merger,
conversion or consolidation to which the Asset Trust I Servicer
i
s a party will be the successor Asset Trust I Servicer under the Asset Trust I
Pooling
and
Servicing
Agreement.
The Asset Trust I Servicer
may outsource to third
party
vendors some servicing functions, as
described under The Asset Trust I Servicer
Servicing Procedures The Asset Trust I Servicers
Third
Party
Vendors and Service Providers below.
The Asset Trust I Servicers Servicing Experience
WMB, including its predecessors i
n interest, has been servicing loans secured by real estate or
other property for over 100 years. The home equity loans serviced
b
y WMB include closed- end fixed
and
adjustable rate home
equity
loans and open- end home
equity
lines
o
f
credit. The HELs
i
n WMBs
portfolio have been originated or acquired by WMB.
The following table shows the number and aggregate unpaid principal balance of HEL5 serviced
by the Asset Trust I Servicer as
o
f
December 31 for each
o
f
the most recent three
years:
Closed- end Home Equity Loans Serviced by the Asset Trust I Servicer~
1
~
September 30 December 31
2007 2006 2005 2004
(Dollars i
n thousands)
Number
o
f
Closed-End Home
Equity
Loans Serviced
b
y WMB 133,811 133,146 134,181 143,033
Aggregate Unpaid Principal Balance . .. . $8,144,446 $8,197,747 $8,617,244 $9,502,897
~
In April of 2007, WMB reclassified home equity loans
i
t had purchased from third parties as subprime home equity loans
rather than closed- end home equity loans on its balance sheet.
I
n July 2007, WMB reclassified fixed- rate loan option loans
as home equity lines of credit rather than as closed- end home
equity
loans on its balance sheet. This table reflects the
closed- end home equity loans, as currently defined
b
y WMB for
purposes o
f
its balance sheet, serviced
b
y the Asset Trust I
Servicer. None of the HEL5 held
b
y Asset Trust I were or are subject to reclassification as subprime home equity loans or
home equity lines of credit.
Servicing Procedures
Servicing Functions. The functions performed by the Asset Trust I Servicer under the Asset
Trust I
Pooling
and
Servicing Agreement include, among
other
servicing functions, payment collection,
payment application, and default management. The Asset Trust I Servicer performs its servicing
functions at loan
servicing centers located
i
n Melbourne, Florida; San Antonio, Texas; Stockton,
California; Chatsworth, California; and Seattle, Washington.
Servicing Standard; Waivers and Modifications. Pursuant
t
o the Asset Trust I Pooling and
Servicing Agreement, the Asset Trust I Servicer
i
s required to service the HEL5 owned by Asset
Trust
I
, consistent with prudent first lien, closed- end home equity loan servicing practices and (unless
inconsistent with those servicing practices) i
n the same manner
i
n which, and with the same care,
skill, prudence and diligence with which,
i
t services and administers similar HELs for its own portfolio.
57
CONFIDENTIAL
Return
i
s required to make reasonable efforts
t
o collect or cause to be collected all
payments under the HELs and, to the extent consistent with the Asset Trust I Pooling and Servicing
Agreement
and
applicable insurance policies,
follow such collection
procedures as are followed with
respect to comparable HELs that are held
i
n
portfolios o
f
responsible mortgage
lenders
i
n the local
areas where each mortgaged property i
s located. Under the terms
o
f
the Asset Trust I Pooling and
Servicing Agreement, the servicing standard applicable
to the Asset Trust I Servicer may only
be
modified with the consent of the Company.
Under the terms
o
f
the Asset Trust I
Pooling
and
the Asset Trust I Servicer
( subject t
o certain
conditions) may waive, modify or vary any
term
o
f
any HEL or consent to the
postponement o
f
strict compliance with any such term or
i
n
any manner grant indulgence to the
applicable obligor i
f
i
t has determined, exercising its good faith business judgment i
n the same manner
as
i
t would
i
f
i
t were the owner
o
f
the related HEL, that the security for, and the timely and full
collectability
o
f
,
such HEL would not be adversely affected
b
y such waiver, modification, postponement
or indulgence, and may make certain other modifications with respect t
o the HELs and the related
property i
n accordance with the terms of the Asset Trust I Pooling and Servicing Agreement.
Loan Servicing System. I
n
performing its servicing functions, the Asset Trust I Servicer
generally uses computerized loan servicing systems. The Asset Trust I Servicer leases its primary
servicing system
from AMS- CGI (known as Advanced Consumer Lending System or ACLS). ACLS
produces detailed information about the financial status
o
f
each HEL, including outstanding principal
balance, current interest rate, outstanding fees and information about transactions that affect the HEL,
including the amount and due date
o
f
each payment, the date of
receipt o
f
each
payment, and how
the
payment
was applied. ACLS works
i
n conjunction with AMS- CGIs Computer Automated Collection
System
(
CACS) to monitor payment collections and

t
o
provide
default collection activity
information
regarding delinquent consumer loans. The Asset Trust I Servicer
began using
ACLS in 2003. Prior to
November 2003, the Asset Trust I Servicer serviced
equity
HELs
using an ALLTEL loan
servicing
system; i
n November 2003, the Asset Trust I Servicer transferred servicing onto the ACLS
servicing
platform
b
y
converting approximately 948,000 loan records from the ALLTEL loan
servicing system
to
ACLS.
Collections and Distributions. Underthe terms of the Asset Trust I Pooling and Servicing
Agreement,
collections with respect to the HEL5 are collected
b
y the Asset Trust I Servicer and
initially
deposited into accounts controlled by the Asset Trust I Servicer and may be commingled with funds
with respect to other HELs or mortgage loans serviced or owned
b
y the Asset Trust I Servicer. The
Asset Trust I Servicer i
s required to deposit collections received with respect to the HELs owned by
Asset Trust I into a certificate account controlled
b
y the Asset Trust I Trustee under the Asset Trust I
Pooling and Servicing Agreement on a monthly basis. The amount of collections required to be
remitted to the Asset Trust I Trustee
i
n
any given monthly deposit i
s determined
b
y the timing o
f
the
Asset Trust I Servicers receipt of collections and the type of collections they represent. I
n accordance
with the terms
o
f
the Asset Trust I Pooling and Servicing Agreement,
may
retain certain amounts with respect to
expenses
and advances from collections or apply them towards
the costs of certain costs and permitted expenses connected with the servicing o
f
the HELs. The
Asset Trust I Servicer
i
s neither permitted nor required
t
o make servicer advances to cover any gap
between scheduled
payments on the HELs and the actual collections thereon in any given period.
Subject to the terms and conditions set forth
i
n the Asset Trust I
Pooling
and
Servicing
Agreement, on a monthly basis the Asset Trust I Trustee distributes collections deposited i
n the
certificate account to the
Company, as holder of the Asset Trust I Class A Trust Certificate, less
(
a
)
fees, expenses and indemnities payable to the Asset Trust I Trustee and the Asset Trust I
Delaware Trustee and
(
b
)
fees and certain other amounts payable to the Asset Trust I Servicer. No
amounts will be payable from collections with respect to the Asset Trust I Class R Trust Certificate.
Under the terms
o
f
the Asset Trust I
Pooling
and
collections with respect
to the HELs may be invested in certain permitted investments prior to their distribution to the
58
CONFIDENTIAL
Return
Company, as holder of the Asset Trust I Class A Trust Certificate. The Asset Trust I Servicer
i
s entitled
to retain
any
investment income
produced
b
y such investment as additional
servicing compensation.
Servicing
of
Delinquent HELs; Foreclosure. The Asset Trust I Servjcer
i
s required under the
terms of the Asset Trust I
Pooling
and
Servicing Agreement t
o make reasonable efforts to collect or
cause to be collected all
payments on the HELs owned by
Asset Trust I that are 16 or more days
delinquent. Strategic
decisions
regarding early stage
collection efforts are guided
b
y
Experians
Strategic Account Management System, Probe .
Early stage collections,
i
n other words, collections
beginning on the 16th
day
of
delinquency and cohtinuing thrpugh the 89th day of delinquency, are
conducted
primarily through
the use
o
f
automated outbound collection
telephone
calls and debt
collection letters. Late stage collections, or collection efforts taking place from the 90th
day
and
through
the 180th
day
of
delinquency, are segregated i
n CACS
b
y risk and a combination
o
f
manual
and automated collection efforts are used. CACS also
segregates delinquent accounts by status,
including bankruptcy, probate, foreclosure, real-estate-owned and special activities (
e
.
g., consumer
credit counseling and recovery). These collection efforts are carried out
b
y
personnel who specialize
i
n debt collection and recovery. Such efforts may include payment reminder telephone calls to the
borrower, letter campaigns, drive-
b
y
under the Asset Trust I Loan Documents and applicable law.
i
s
required under the Asset Trust I Pooling and Servicing Agreement
t
o foreclose upon the mortgaged property related
t
o each defaulted HEL as
t
o which no satisfactory
arrangements can be made for collection of
delinquent payments.
Under the Asset Trust I Pooling and
i
s
permitted, i
n lieu
o
f
foreclosure,
i
f
prudent to do so
and
taking into account the
desirability
of
maximizing net liquidation proceeds, to accept a payment of
less than the
outstanding principal
balance
o
f
the defaulted HELs. The Asset Trust I Servicer
i
s not
permitted to foreclose upon a mortgaged property i
f
i
t
i
s aware of evidence of toxic waste or other,
environmental contamination on the
mortgaged property
and
i
t determines that
i
t would be
imprudent
to foreclose.
Insurance. The Asset Trust I Servicer maintains a blanket hazard policy for all HELs.
I
n
addition, the Asset Trust I Servicer tracks all HELs for
compliance
with
applicable law regarding
flood
insurance
coverage.
When
necessary,
the Asset Trust I Servicer force places flood insurance
policies.
Limitations on the Asset Trust I Servicers
Liability
The Asset Trust I
Pooling
and
Servicing Agreement provides that neither the Asset Trust I
Servicer nor any director, officer, employee or agent of the Asset Trust I Servicer (the Asset Trust /
Servicer Indemnified Parties) i
s under any liability
t
o Asset Trust
I
, the Company or the holders
o
f
the
Asset Trust I Class A TrUst Certificate and the Asset Trust I Class A Trust Certificate or others for any
action taken (
o
r
not taken) by any Asset Trust I Servicer Indemnified Party i
n good faith pursuant
t
o
the Asset Trust I
Pooling and Servicing Agreement, or for errors
i
that
i
s not
protected against any liability
that would otherwise be
imposed by
reason of willful misfeasance, bad faith or
gross negligence i
n the performance of duties or by reason
o
f
reckless
disregard o
f
obligations
and duties thereunder. The Asset Trust I
Pooling
and
Servicing
Agreement
further
provides
that
any
Asset Trust I Servicer Indemnified
Party i
s entitled
t
o indemnifi
cation by Asset Trust I and will be held harmless against any loss, liability or expense incurred
i
n
connection with
any legal
action
relating to theAsset Trust I
Pooling
and
Servicing Agreement
or the
certificates issued thereunder (except any such loss, liability, or expense otherwise reimbursable
pursuant to the Asset Trust I
Pooling
and
Servicing Agreement)
and
any loss, liability
or
expense
incurred by reason of willful misfeasance, bad faith or gross negligence i
n the performance of duties
thereunder or
b
y reason
o
f
reckless disregard o
f
obligations and duties thereunder.
I
n addition, the
Asset Trust I
Pooling, and Servicing Agreement provides that the Asset Trust I Servicer
i
s not under
any obligation t
o
appear
i
n
,
prosecute or defend any legal action that
i
s not incidental to its
responsibilities under the Asset Trust I Pooling and Servicing Agreement and that i
n its opinion may
59
CONFIDENTIAL
Return
involve
i
t
i
n
any expense or liability.
may, however,
i
n its discretion,
undertake
any
such action that
i
t
may
deem
necessary or desirable with
respect to the Asset Trust I
Pooling and Servicing Agreement and the rights and duties of the parties thereto and the interests
o
f
~holders of the Asset Trust I Class A Trust Certificate and the Asset Trust I Class R Trust Certificate.
-
I
n such event, the legal expenses and costs of such action and
any liability resulting therefrom will be
expenses,
costs and liabilities of AssetTrust
I
, and the Asset Trust I Servicer will be entitled to be
reimbursed therefor and to charge the certificate account.
Asset Trust I Servicer Termination and Replacement. Under the terms
o
f
the Asset Trust I
Pooling and Servicing Agreement, after the occurrence
o
f
any one
o
f
several typical Asset Trust I
Servicer termination events, including but not limited to a receivership with respect to the Asset Trust I
Servicer or (subject to the expiration o
f
typical grace periods and
materiality requirements) the failure
b
y the Asset Trust I Servicer to make
required deposits to the certificate
account, the Company may
remove the Asset Trust I Servicer.
I
f the Asset Trust I Servicer
i
s removed
b
y the
Company, the
Company shall have the sole
power to appoint a replacement Asset Trust I Servicer.
The Asset Trust I Servicers Third
Party
Vendors and Service Providers. Under the Asset
Trust I Pooling and Servicing Agreement, the Asset Trust I Servicer
may
perform its
servicing
responsibilities through agents or independent contractors, but will not thereby be released from
any
of its responsibilities thereunder. The Asset Trust I Servicer outsources some of its responsibilities
pursuant to these
provisions,
that
may include some or all of the following: (
I
) management o
f
foreclosure actions, (
i
i
) monitoring of borrower
bankruptcy proceedings, (
i
i
i
) preservation of properties
related to delinquent loans, (
i
v
)
processing
of
primary mortgage insurance claims, (
v
)
maintenance,
marketing
and sale of real-estate- owned
properties, (
v
i
)
assuring that hazard insurance
coverage i
s
maintained, (vii) determining whether flood insurance coverage i
s required and
assuring
that
any
required coverage i
s maintained, (viii) tax bill procurement and tracking of delinquent tax
payments,
(ix) printing
and
mailing billing statements, (
x
)
depositing borrower payments into lockbox accounts,
(
x
i
)
performing certain calculations with respect to scheduled and actual collections, (xii) performing
certain tax related calculations,~ (xiii) performing
calculations with respect to monthly distributions from
Asset Trust I and (xiv) performing reporting functions required under the Asset Trust I
Pooling and
From time to time, the Asset Trust I Servicer
may
cease to outsource one or
more of the foregoing servicing functions or
may
choose to outsource additional
servicing
functions.
Some vendors
may perform more than one function, and some functions may be performed by more
than one vendor.
The Asset Trust I Servicers Quality Control Procedures
The Asset Trust I Servicer uses a combination of
to ensure the
accuracy
and integrity o
f
servicing records. Management controls include the use
o
f
approval levels, the segregation of duties, and reconciliations of
servicing data and accounts, among
others.
Technology
controls include the use of data security controls and interface controls to ensure
that only authorized
persons
have the
ability to access and change system data or to submit data to
or receive data from vendors and investors. Specific security profiles
for each
job
function include a
predetermined set
o
f
data
security
controls that are appropriate for that job function. The
regional
data
center for the ACLS Server, which
i
s located
i
n Seattle, Washington, i
s
kept in a fire resistant
environment, and commercial electrical power i
s backed
up by generators.
I
n addition, the Asset Trust I Servicer conducts periodic internal audits
o
f
critical
servicing and
technology
functions. External audits
b
y entities such as the OTS and certain third
party mortgage
guarantors and the annual examination by WMIs independent accountants
i
n connection with their
audit
o
f
WMI and its subsidiaries
may provide independent verification of the
adequacy
of such
functions.
The Asset Trust I Servicer maintains detailed business
continuity plans so that
i
t can resume
critical business functions
i
n the event of a disaster or other serious
system outage, which plans are
60
CONFIDENTIAL
Return
reviewed and
updated periodically.
i
s
obligated
to return to fufi
system
functionality
within 48 hours of a reported system outage.
performs
annual
disaster recovery
tests in which
i
t reroutes data and servicing system operations to the designated
back-
u
p
site, and then
processes sample
transactions from all
servicing
locatioris to ensure the
functionality o
f
such
back-
u
p site.
I
t
i
s the Asset Trust I Servicers
policy
to
require
its other third
party
vendors to
implement
measures similar to those described above to ensure the
accuracy
and
integrity o
f
servicing
records.
The Asset Trust I Custodian
Washington Mutual Bank acts as custodian ( the Asset Trust I Custodian) for Asset Trust I
pursuant to a Custody Agreement dated as o
f
March
7
,
2006 (the
Asset Trust!
Custody Agreement),
among
the Asset Trust I Trustee, the Asset Trust I Servicer and the Asset Trust I Custodian. The
Asset Trust I Custodian holds the notes, mortgages and other legal documents related t
o
the HELs
(collectively,
the Asset Trust I Loan
Documents)
for the benefit
o
f
the Asset Trust I Trustee. The
Asset Trust I Custodian maintains the Asset Trust I Loan Documents
i
n
secure
and fire resistant
facilities. The
mortgage
files held
b
y the Asset Trust I Servicer have not been
physically segregated
from Asset Trust I Loan Documents i
n the Asset Trust I Custodians custody but are kept i
n shared
facilities. The Asset Trust I Custodian has reviewed the Asset Trust I Loan Documents related to each
HEL and delivered
t
o the Asset Trust I Trustee a certification to the effect that, except as noted
i
n
such certification, all
required
documents have been executed and received.
I
n
the event of the termination of the Asset Trust I
Custody Agreement,
the Asset
Trust!
Custodian will be
required
to deliver the Asset Trust I Loan Documents
i
n the Asset Trust I Custodians
custody
to the Asset Trust I Trustee or any successor Asset Trust I Custodian
appointed
b
y the
Company.
The Asset Trust I Servicer may, but does not currently, pay the Asset Trust I Custodian a fee for
its services under the Asset Trust I Custody Agreement from time to time.
Payment o
f
this fee will not
affect dividends to the
Company.
61
CONFIDENTIAL
Return
ASSET TRUST
I
I
General
WAMU 2006-OA1
(
Asset Trust
I
I
)
i
s a statutory trust formed under the laws of the State
o
f
Delaware pursuant to a trust
agreement
between the
Company, as depositor, and Deutsche Bank
Trust Company Delaware, as Delaware trustee. The Asset Trust
I
I
Pooling
and
dated as
o
f
December 13, 2006
(the Asset Trust/ I Pooling and Servicing Agreement), among
the
(the
Asset Trust
I
I
Servicer),
Deutsche Bank Trust Com
pany Delaware, as Delaware trustee (the Asset Trust
I
I Delaware Trustee) and Deutsche Bank
National Trust Company, as trustee
(the
Asset Trust
I
I
Trustee), restates the initial trust agreement
and
i
s the
governing
instrument of Asset Trust
I
I
.
Asset Trust
I
I does not own
any assets other than the Option ARMs and the other assets
described below. Asset Trust
I
I does not have
any liabilities other than those incurred
i
n connection
with the Asset Trust
I
I
Pooling and
Servicing Agreement
and
any
related
agreement.
Asset Trust
I
I
does not have any directors, officers or other employees. No equity contribution has been made to
Asset Trust
I
I
b
y
WMB, the
Company or any other party, except for a de minimiscontribution made
b
y
the Company, as depositor, pursuant to the initial trust agreement, and Asset Trust I
I
does not have
any
other capital. The fiscal
year end
o
f
Asset Trust
I
I
i
s December 31 Asset Trust
I
I acts
through the
Asset Trust
I
I
I Delaware Trustee, whose fees and reasonable expenses
are paid or reimbursed
b
y the Asset Trust
I
I Servicer.
For
purposes o
f
this
offering circular with respect to the underwriting, origination and servicing of
the Option ARMs
i
n Asset Trust
I
I
, references to WMB include WMB, originators acquired
b
y WMB
General Description of Assets
The assets
o
f
Asset Trust
I
I are Option ARMs that had, as of November 14, 2006, an aggregate
unpaid principal balance of
approximately $2,899,877,211, together
with
payments received thereon
and certain other investments. The
Option ARMs were originated by WMB. A portion
o
f
the
Option
ARMs were contributed to the Company
b
y
University Street, the owner
o
f
all the
Companys common
interests. As
o
f
September 30, 2007, the Option ARMs held by Asset Trust
I
I had an
aggregate unpaid
principal balance of approximately $1,664,792,954.
The interest rate for substantially all Option ARMs
i
s fixed for a specified
initial
period, and
i
s
then
adjusted
on a monthly
basis based on its index. The index for substantially all Option ARMs
i
s a
per. annum rate equal to the twelve- month
moving average monthly yield on United States
Treasury
Securities adjusted to a constant maturity of one year ( One-Year MTA or the Index), as published
b
y the Board of Governors of the Federal Reserve System i
n the Federal Reserve Statistical Release
Selected Interest Rates (
H
.
15), determined
b
y
averaging the monthly yields for the most recently
available twelve months. The One-Year MTA
figure
used for each interest rate adjustment date
i
s the
most recent One- Year MTA
figure available as of fifteen days before that date.
I
f One- Year MTA
i
s no longer available, the Asset Trust
I
I
Servicer will choose a new index that
i
s based on
comparable
information. When the Asset Trust
I
I Servicer chooses a new index,
i
t will
increase or decrease the margin on
substantially
all
Option
ARMs
b
y the difference between the
average
of One-Year MTA for the final three
years i
t was i
n effect and the
average o
f
the replacement
index for the most recent three
years.
The margin will be increased by that difference
i
f the
average
of
One-Year MTA
i
s greater than the
average o
f
the
replacement index, and the margin will be decreased
b
y that difference
i
f the average of the replacement index
i
s
greater
than the
average
of One-Year
MTA. The new margin
will be rounded
up
as provided in the related mortgage note.
After an initial fixed- rate period
o
f
one or three months, the
mortgage
interest rate on substan
tially all Option ARMs
i
s
adjusted monthly to equal the sum of the applicable index and the
per
annum
62
CONFIDENTIAL
Return
rate
(the Margin) specified i
n the
applicable mortgage
note. As of
September 30, 2007,
the
Margin
rates
applicable
to the
mortgage
loans i
n the Asset Trust
I
I had a weighted average
of
approximately
2~ 68% and
range
from 1.80% to 4.50%
per annum. The
mortgage
loans in the Asset Trust
I
I
are
subject
to Lifetime Rate
Caps,
with a weighted average
of
approximately
10.04% and
ranging
from
8.95% to 14.35%
per annum. Generally, during
the initial fixed rate period o
f
an Option ARM,
mortgagors are required to pay a minimum
monthly payment that, i
n
some cases,
will not fully
amortize the mortgage loan. Each month thereafter, mortgagors are given one or more payment
options, which
may
include a payment
amount less than, equal t
o
or greater
than a fully amortizing
monthly payment.
Whether an Option
ARM with a negative
amortization feature
i
s
repaid on a
fully- amortizing
basis
depends on the payment option selected by
the
mortgagor on each monthly
payment date. I
f
the minimum monthly payment i
n
a given
month
i
s less than the amount
o
f
accrued
and
unpaid
interest on the
mortgage loan, the excess interest will be added to the
outstanding
principal
balance of the
mortgage
loan
i
n the form of
negative
amortization
( Negative Amortization).
The maximum Negative Amortization (the Negative Amortization Cap) of substantially
all the
Option
ARMs
i
n Asset Trust
I
I
ranges
from 110% to 125% of the
original principal
balance. On the earlier of
the
sixty- first
month or the month
i
n which the
Negative
Amortization
Cap i
s reached, mortgagors are
required
to make
fully amortizing payments.
As
o
f
average current, unpaid principal
balance
o
f
the
Option
ARMs
was approximately $440,888, with a minimum current, unpaid principal
balance of
approximately $979
and a maximum current, unpaid principal
balance of
approximately $9,195,090.
The
Option
ARMs
have various
original
maturities
ranging
from 15
years
to 40
years
and were, on average, originated
within the last 34 months. The
majority o
f
the
Option
ARMs were underwritten under WMBs reduced
documentation
program (described below); as of
September 30, 2007, approximately
29.07% of the
Option
ARMs were underwritten under WMBs full documentation
program (described below).
As of
September 30, 2007, the current
weighted average
loan-to-value ratio was approximately
70.05% and
the
weighted average
loan- to-value ratio at
origination was
approximately
68.86%. The
mortgage
loans in the Asset Trust
I
I
have a
weighted average
Credit Score of
approximately
738. The
majority
o
f
the
properties underlying
the
Option
ARMs are owner occupied
with
approximately
28.93%
o
f
the
properties non- owner occupied.
Of the Option
ARMs
i
n Asset Trust
I
I
,
approximately
46.68% are
cash- out refinances, approximately 40.03% are purchase loans and
approximately
13.29% are rate!
term refinances. The Option ARMs are geographically concentrated i
n California (approximately
73.19%).
Acquisition
of the
Option
ARMs and Related Transactions
Contemporaneously
with the issuance of the Series 2006- C
Company
WMB contributed a pool
of
Option
ARMs to the
Company i
n
exchange
for the Series 2006- C
Company
I
n
addition, University
Street contributed a pool
of
Option
ARMs to the
Company as a capital contribution. The
aggregate
value
o
f
these contributions was
approximately
$2,899,877,211, calculated as of November 14, 2006.
The
Company
contributed to Asset Trust
I
I all
o
f
the
Option
ARMs
i
University
Street. This contribution was made
i
n
exchange
for the Class A-i 2006-OA1 Certificate (the
Asset Trust
I
I Class A Trust
Certificate)
and the Class R 2006- OA1 Certificate
( the
Asset Trust
I
I
Class R Trust
Certificate).
For United States federal income tax
purposes,
the Asset Trust
I
I Class A
Trust Certificate represented the sole class of
regular
interests
i
n Asset Trust
I
I
, and the Asset Trust I
I
Class A Trust Certificate
represented
the sole class
o
f
residual interests
i
n Asset Trust
I
I
.
The
Company
retained the Asset Trust
I
I Class A Trust Certificate and transferred the Asset Trust
I
I Class A
Trust Certificate to WMB.
63
CONFIDENTIAL
Return
Asset Trust H owns the
rightto receive all payments
of
principal and interest on the
Option
ARMs
due after November 30, 2006. A schedule to the Asset Trust
I
I
Pooling
and
Servicing Agreement
included information about each of the Option ARMs, including:
the outstanding principal balance as
o
f
the close
o
f
business on November 30, 2006;
the term
o
f
the Option ARM; and
the applicable interest rate as of the close of business on November 30, 2006.
The notes relating to the Option ARMs have not been endorsed
t
o Asset Trust
I
I and no
assignments to Asset Trust
I
I
o
f
the mortgages securing the Option ARMs were prepared. WMB, i
n its
capacityas initial Asset Trust
I
I
Custodian, has possession of and reviews such notes and the Option
ARMs as custodian for Asset Trust
I
I and financing statements were filed evidencing Asset Trust Iis
interest
i
n the Option ARMs.
In exchange
for the Option ARMs and the other assets described above, the Asset Trust
I
I
Trustee authenticated and delivered the Asset Trust
I
I
I
Class A Trust Certificate
pursuant to the Companys order.
Description o
f
the Portfolio
General
The majority of Option ARMs
i
n the
portfolio o
f
Asset Trust
I
I consist of
payment- option.
adjustable rate mortgage loans with a negative amortization feature secured
by a first lien, fee
simple
or leasehold interest
i
n a
one- to-four-family residential property or shares
o
f
stock relating to
cooperative apartments. Such residences include detached homes, duplexes, triplexes, forplexes,
townhomes, individual condominium units, individual units
i
n planned unit developments and other
attached dwelling units that are part of buildings consisting of no more than four units. As
o
f
September 30, 2007, 2.59% of the Option ARMs
i
n Asset Trust
I
I
were 30 days or more delinquent,
1.33% were 60 days or more delinquent and 0.72% were 90 days or more delinquent. Because no
delinquent Option ARMs were initially included
i
n the Companys Portfolio, the
foregoing delinquency
data
i
s therefore limited
i
n its
scope.
There can be no assurance that delinquencies with respect to
the
Option
ARMs will not increase
i
n the future. See Risk Factors Risks
Relating to the
Mortgage
Loans General economic conditions
i
n the United States could
change
and
possible resulting
changes i
n
delinquency
rates
o
f
the Mortgage Loans could negatively impact the
Companys
financial
condition, results
o
f
operations and ability to
pay
dividends.
The tables
i
n Appendix C to this offering circular represent information as
o
f
September 30, 2007
with respect t
o the Option ARMs included
i
n the portfolio o
f
Asset Trust
I
I
.
Underwriting
Genera!
The
Option
ARMs owned
b
y Asset Trust
I
I
were, in all material respects, originated i
n
accordance with the
underwriting guidelines
o
f
WMB as described herein. The
Option ARMs were
underwritten
byWMB.
WMBs
underwriting guidelines generally are intended to evaluate the
prospective borrowers
credit standing and repayment ability
and the value and adequacy
of the
mortgaged property as
collateral. Some
Option
ARMs are manually underwritten,
i
information submitted by the borrower and
supporting documentation,
i
f required, and a credit
report
o
f
the borrower, and based on that review determines whether to originate a loan
i
n the amount and
with the terms
requested
b
y the borrower. Some
Option ARMs are underwritten
through
WMBs
automated underwriting system, described below.
64
CONFIDENTIAL
Return
Standing
To evaluate a prospective
borrowers credit
history,
the loan underwriter obtains a credit
report
relating
to the borrower from one or more credit
reporting agencies.
The credit report typically
contains
information
relating t
o such matters as
credit
history with local and national merchants and lenders,
installment debt
payments
and
any
record
o
f
defaults, bankruptcy, repossession,
suits or judgments.
In most cases the credit
report provides a Credit Score for the borrower. Credit Scores are designed
t
o
assess a borrowers creditworthiness and likelihood to default on an obligation over a defined period
( usually two to three years) based on a borrowers credit
history.
Credit Scores do not
necessarily
correspond t
o the
probability o
f
default over the life
o
f
an Option
ARM because they reflect past credit
history,
rather than an assessment o
f
future payment performance.
Credit Scores
range
from
approximately
350
t
o
approximately 850, with
higher scores indicating
more favorable credit
history. I
f
the loan underwriter obtains credit scores from three credit
reporting companies,
the middle score
generally i
s
used,
and
i
f two credit scores are obtained, the lower score generally i
s used.
I
n the case
of co- borrowers, the credit score for the borrower with the lowest credit score generally i
s used
( determined
for each borrower as described
i
n
theimmediately preceding sentence).
Minimum credit
scores are required
for some loan
products
and loan
programs.
For borrowers for which credit scores
are not available, the loan underwriter will
require
alternative documentation
indicating
the borrowers
creditworthiness, such as rental or utility payment history or payment history on other debt.
Evaluation of the Borrowers
Repayment Ability
I
n
evaluating
a
prospective
borrowers
ability
to
repay an Option ARM,
the loan underwriter
considers the ratio of the borrowers total
monthly
debt
(including non- housing expehses)
to the
borrowers
gross
income
(referred
to as the debt-to-income ratio or back- end ratio). The maximum
acceptable
ratios
may vary depending on other loan
factors, such as loan amount and loan
purpose,
loan- to-value ratio, credit score and the
availability
of other
liquid
assets.
Exceptions
to the ratio
guidelines may
be made when
compensating
factors are present.
For
purposes
of
calculating
the front end and back end ratios for certain Option ARMs, the
borrowers monthly mortgage debt i
s determined based on the fully
indexed rate and a predetermined
factor as set
b
y WMBs credit
department
from time to time ( which rate may be greater than the rate
i
n effect for the Option ARM during the initial fixed- rate
period). I
n
addition, for
purposes o
f
calculating
these ratios for an Option
ARM with a 40- year term, the borrowers monthly mortgage
debt
i
s
determined based on 30- year
term.
Evaluation of the
Adequacy
of the Collateral
The
adequacy o
f
the Option
ARM as collateral
generally was determined
by an appraisal
made
i
n accordance with
pre- established appraisal guidelines.
At
origination,
all appraisals are required
to
conform to the Uniform Standards of Professional
Appraisal
Practice
adopted
b
y the
AppraisaF
Standards Board of the
Appraisal Foundation,
and are made on forms
acceptable
to Fannie Mae
and/ or Freddie Mac.
Appraisers may
be staff
appraisers employed
b
y WMB or independent appraisers
selected
i
n accordance with the pre- established appraisal guidelines.
Such
guidelines generally
require
that the
appraiser, or an agent on its behalf, personally inspect
the property and verify whether
the
property i
s in adequate condition and, i
f the property i
i
t
i
s
substantially completed. However, i
n the case o
f
Option
ARMs underwritten
through
WMBs auto
mated
underwriting system, an automated valuation method
may
be used, under which the appraiser
does not
personally inspect
the property but instead relies on public
records
regarding
the
mortgaged
property
and/ or
neighboring properties. I
n either
case,
the
appraisal normally i
s based
upon a
market
data analysis o
f
recent sales of
applicable, a replacement
cost
analysis
based on the current cost
o
f
constructing or purchasing a similar
property.
For
Option
ARMs underwritten under WMBs streamline documentation
programs,
the
appraisal guidelines i
n
some cases permit
the
appraisal
obtained for an
existing Option
ARM to be used. Title insurance
i
s
required
for all
Option ARMs, except
that for
Option
ARMs secured
b
y shares of
cooperative
65
CONFIDENTIAL
Return
apartments,
title insurance
i
s not
required
for the cooperative apartment building (but a lien search
i
s
provided
b
y the title
company). Specific
additional title insurance
coverage i
s
required for some types
of
Option ARMs.
Documentation
Programs
Each
Option
ARM owned
b
y Asset Trust
I
I
was underwritten under one of WMBs documentation
guidelines
for verification of the borrowers stated income and assets. Under WMBs full/ alternative
documentation
program,
the
prospective
borrowers stated income
i
s verified
through receipt o
f
the
borrowers most recent pay stub and most recent W-2 form, or
b
y
using a written Verification of
Employment
form
completed
b
y
the borrowers employer. I
n
the case of
self- employed
borrowers or
borrowers with more than 25%
o
f
their income from commissions, two years o
f
personal (and, i
f
applicable, business) tax returns. For self- employed borrowers, profit and loss statements may also be
required.
Under the full/ alternative documentation
program, the borrowers stated assets are verified
through receipt
of the borrowers two most recent bank or brokerage statements. I
n
addition, the
borrowers
employment may
be verified with the
employer
b
y
telephone or by
other
independent
means.
The WMB low documentation
program places increased reliance on the value and
adequacy
of
the
mortgaged property as collateral, the borrowers credit
standing
and
(
i
n some cases)
the
borrowers assets.
I
t
i
s available to borrowers with certain loan-to-value ratios, loan amounts and credit
scores. Under this
program,
the income as stated i
n the borrowers loan
application i
s not verified,
although
the borrowers
employment may
be verified
by telephone.
The borrowers stated income must
be reasonable for the borrowers
occupation
and assets
(
a
s determined
i
n the underwriters discre
tion).
Assets
may
be verified for
higher
risk transactions and when
exceptions are approved,
such as
when specific loan- to-value ratios or loan amount limits are exceeded.
A credit report for the borrower
generally i
s
required for all
mortgage
loans underwritten under
Exceptions to
Program
Parameters
Exceptions
to WMBs loan
program parameters may be made on a case- by-case basis i
f
compensating factors are present. I
n
those cases, the basis for the exception i
s
documented, and i
n
some cases the
approval o
f
a senior underwriter
(who i
s
an employee
of
WMB) i
s
required.
Compensating
factors
may
include, but are not limited
to,
low loan-to-value
ratio, low debt- to-income
ratio, good credit
standing,
the
availability
of other
liquid assets, stable
employment
and time
i
n
residence at the
prospective
borrowers current address.
Some
mortgage
loans
originated through
the
sponsors
retail and wholesale
lending divisions have
been underwritten
i
n whole or i
n
part through the sponsors proprietary
automated
underwriting system,
known as Enterprise
Decision
Engine or EDE. Based on the borrowers credit
report
and the information
i
n the borrowers loan
application,
the
system
either
(
a
)
approves
the loan, which
approval may
involve
relief from certain documentation otherwise
required
for manual
underwriting or be
subject
to the
satisfaction of specified conditions, which
may
include the
receipt o
f
additional documentation, o
r
(
b
)
refers
the loan
application to an underwriter for manual underwriting. I
n
making the underwriting decision, EDE
evaluates the borrowers default risk based on both the credit score and characteristics
o
f
the loan. The
sponsor
has been
using
EDE for
underwriting of mortgage loans since January 2005. The version of EDE
used
b
y the
sponsor through
October 2006 was developed based on a statistical
analysis of the past
performance o
f
approximately
1 93,000 mortgage
loans
originated
b
y the
sponsor
for its own
portfolio
between 1998 and 2001. The version of EDE used
b
y the
sponsor
since October 2006 was developed
based on a statistical
analysis o
f
the
past performance
of
approximately one million
mortgage
loans
originated by
the
sponsor between 1998 and 2002. The
sponsor
has also used
i
n the
past,
and
currently
uses, other automated
All or some of the
mortgage
loans owned
b
y Asset Trust
I
I
may
have been underwritten
through
EDE or other automated
66
CONFIDENTIAL
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Quality
Control Review
WMBs credit risk oversight department conducts quality control reviews o
f
o
f
previously originated Option ARMs on a regular
basis.
Credit Risk
Management
Policies
Credit risk within the WMI Group i
s
managed
b
y
means o
f
a broad set
o
f
policies and
principles
contained i
n its credit policy. The Chief Credit Officer i
s
responsible
for
overseeing the work o
f
a credit
policy committee, monitoring
the
quality o
f
the WMI
Groups
credit
portfolio, determining
the reason
ableness
o
f
the WMI
Groups
allowance for loan losses, reviewing
and
approving large
credit
exposures
and
products
and
programs.
Credit risk
management i
the creditworthiness of the
borrower,
the
adequacy
of the
underlying
collateral
given
current events andconditions and the existence and
strength
of
any
guarantor support.
Credit risk assessment
i
s a process
that
requires
the evaluation of numerous factors, many
of
which are qualitative.
Process
integrity
relies on the
ability o
f
the WMI
Groups lending personnel
to
analyze
all risk elements.
I
t also
risk
rating accuracy
b
y
recognizing changing
elements
o
f
credit risk and
promptly initiating
risk
rating changes.
Pursuant to WMBs code
o
f
ethics
(the
Code of
Ethics),
WMB extends credit to, borrowers
only
when the extension
o
f
credit i
s
financially reasonable for both WMB and the borrower i
n
question.
o
f
Ethics, lending personnel cannot permit personal relationships or other
considerations to influence
lending decisions, and cannot approve extensions of credit to, or be
involved i
n the funding or auditing o
f
any loans made to family or friends.
Servicing
and the Asset Trust
I
I Servicer
General
All of the
Option
ARMs owned
by
Asset Trust
I
I
are serviced
by WMB, as the Asset Trust
I
I
Servicer, pursuant
to the Asset Trust
I
I
Pooling
and
WMB has
possession
of the
mortgage
files
(
i
. e., the credit
reports, servicing documents, etc.) i
n its
capacity as Asset Trust
I
I
I
I Loan Documents
i
n its
capacity as Asset Trust I
I
Custodian.
The Asset Trust
I
I
Pooling
and
Servicing Agreement provides
that WMB
may
not
resign
from its
obligations
and duties thereunder as Asset Trust
I
I Servicer
except upon a determination that its duties
thereunder are no longer permissible
under
applicable
law. No such
resignation
will become effective
until a successor Asset Trust
I
I Servicer has assumed WMBs servicing obligations
and duties under
the Asset Trust I
I
Pooling and Servicing Agreement. I
f
the Asset Trust I
I
Servicer resigns, the
Company, subject to the terms o
f
the Asset Trust I
I
Pooling and Servicing Agreement, will appoint a
I
I Servicer.
The Asset Trust
I
I Servicer receives a fee for its services as Asset Trust
I
I Servicer under the
Asset Trust
I
I
Pooling
and
The
servicing
fee
i
percentage
for each
Option
ARM based on the
principal
balance for such
Option
ARM. The
servicing
fee with
respect
to each Option
ARM
equals
0.375%
per annum and
i
s
paid monthly.
The Asset Trust
I
I
,
Servicer
i
s entitled to retain certain
ahcillary
fees and
charges, inluding,
but not limited to, any
prepayment fees,
insufficient funds fees, modification fees, payoff
statement fees and late
charges
with
respect
to the
Option
ARMs as additional
and
i
s also entitled to certain
income
generated by permitted
investments made with collections on the
Option
ARMs. The Asset
Trust
I
I Servicer
generally pays
all
expenses
incurred
i
responsibilities as Asset
Trust I
I
Servicer under the Asset Trust I
I
Pooling and Servicing Agreement (subject to reimbursement
for certain expenses and advances, including those incurred by i
t
i
n connection with the liquidation
of
67
CONFIDENTIAL
Return
defaulted Option ARMs, the restoration
o
f
damaged mortgaged properties,
and
payments
b
y the Asset
Trust
I
I Servicer for taxes and insurance premiums with respect to mortgaged properties).
Any person
into which the Asset Trust
I
I Servicer
may
be merged, converted or consolidated, or
from any
merger,
conversion or consolidation to which the Asset Trust
I
I Servicer
i
s a party
will be the successor Asset Trust
I
I
I
Pooling and
Servicing
Agreement.
The Asset Trust
I
I Servicer may outsource to third party vendors some
servicing functions, as
described under The Asset Trust
I
I Servicer
Servicing Procedures The Asset Trust
I
I
Servicers Third
Party
The Asset Trust
I
I Servicer
The Asset Trust
I
I Servicers Servicing Experience
WMB has been servicing loans secured by real estate or other property for over 100
years.
The
Option ARMs
i
n WMBs portfolio were originated
b
y WMB.
The following table shows the number and aggregate principal balance of prime single- family
residential
mortgage loans, including conforming
and
nonconforming mortgage
loans and fixed rate
and adjustable rate mortgage loans, serviced by the Asset Trust
I
I Servicer as of the specified date.
Single- Family
Residential Prime
Mortgage
Loans Serviced
by
the Asset Trust
I
I Servicer~ 1~
September 30
December 31
2007
2006 2005 2004
(Dollars in millions)
Number
o
f
Mortgage
Loans Serviced for
WMB or Its Affiliates (
o
r Their
Securitization
Trusts) 675,819 707,497 766,384 798,269
Aggregate Principal
Balance $ 231,116 $ 232,607 $266,334 $ 213,525
Number of Mortgage Loans Serviced for
Unaffiliated Third Parties 2,034,562 2,800,162 0 3,820~ 696
Aggregate Principal Balance $ 292,273 $ 373,679 $429,944 $ 444,595
(
1
)
Both the Option ARMs held by Asset Trust
I
I and the Flex-5 ARMs held by Asset Trust
I
l
l are considered as single- family
residential
prime mortgage
loans for the
purposes
of this chart.
Servicing
Procedures
Servicing Functions. The functions
pertormed by the Asset Trust
I
I Servicer under the Asset
Trust
I
I
Pooling
and
Servicing Agreement include, among other servicing functions, payment collection,
payment application, investor reporting and other investor services, default
management
and escrow
administration. The Asset Trust
I
I Servicer
perlorms its servicing functions at loan servicing centers
located
i
n Florence, South Carolina; and Jacksonville, Florida.
Servicing Standard; Waivers and Modifications. Pursuant to the Asset Trust
I
I
Pooling and
I
I Servicer
i
s required to service the Option ARMs owned by
Asset Trust I
I
consistent with prudent mortgage loan servicing practices and (unless inconsistent with
those servicing practices) i
n the same manner
i
n which, and with the same
care, skill, prudence and
diligence with which,
i
t services and administers similar mortgage loans for other portfolios. The Asset
Trust I
I
Servicer
i
s required to make reasonable efforts to collect or cause
t
o be collected all payments
under the mortgage loans and, to the extent consistent with the Asset Trust
I
I
Agreement
and
applicable
insurance
policies,
follow such collection procedures as are followed with
respect to comparable mortgage loans that are held
i
n
portfolios
of responsible mortgage
lenders
i
n
68
CONFIDENTIAL
Return
the local areas where each mortgaged property i
s located. Under the terms of the Asset Trust
I
I
Pooling
and
Servicing Agreement, the servicing standard applicable to the Asset Trust
I
I Servicer
may
only be modified with the consent of the Company.
Under the terms of the Asset Trust
I
I
Pooling and Servicing Agreement, the Asset Trust
I
I
Servicer
(subject to certain conditions) may
waive, modify or
vary any term
o
f
any mortgage loan or
consent to the
postponement o
f
strict compliance with any
such term or
i
n
any manner grant
indulgence to the
applicable obligor i
f
i
its
good
faith business
judgment i
n
the same manner as
i
t would
i
f
i
t were the owner
o
f
the related Option ARM, that the security for, and
the timely and full collectability of, such Option ARM would not be adversely affected by such waiver,
modification, postponement or indulgence, and may make certain other modifications with respect to
the Option ARMs and the related property i
o
f
the Asset Trust
I
I
Pooling
and Servicing Agreement.
Mortgage Loan Servicing System. In performing its servicing functions, the Asset Trust
I
I
Servicer generally uses computerized mortgage loan servicing systems that
i
t leases from Fidelity
Information Services, a division of
Fidelity
National Financial
(
Fideilty), a third
party
vendor
(collectively, the Fidelity System). The Fidelity System produces detailed information about the
financial status of each mortgage loan, including outstanding principal balance, current interest rate
and the amount of
any
advances, unapplied payments, outstanding fees, escrow deposits or escrow
account overdrafts, and about transactions that affect the mortgage loan, including the amount and
due date
o
f
each
payment,
the date
o
f
receipt o
f
each payment ( including
scheduled
payments
and
prepayments),
and how the payment was applied. The
Fidelity System also produces additional
information about mortgage loans that are
i
n default, including the amount of
any
insurance and
liquidation proceeds
received. The Asset Trust
I
I Servicer
began using
the
Fidelity System i
n 1996.
Prior
t
o July 2004, the Asset Trust
I
I Servicer serviced some mortgage
loans using a proprietary
mortgage loan servicing system; i
n July 2004, the Asset Trust
I
I Servicer consolidated servicing into a
single servicing platform by converting approximately 1.2 million loan records from the proprietary
mortgage loan servicing system to the Fidelity System.
Collections and Distributions. Under the terms
o
f
the Asset Trust
I
I
Agreement, collections with respect t
o the Option ARMs are collected by the Asset Trust
I
I Servicer
and
aggregated
into a
Payment Clearing
Account controlled by the Asset Trust
I
I
Servicer; such
collections are deposited into accounts controlled
b
y the Asset Trust
I
I Servicer and
may
be
commingled
with funds with
respect to other
Option
ARMs or mortgage
loans serviced or owned
by
the Asset Trust
I
I Servicer. The Asset Trust
I
I Servicer
i
s required to deposit collections received with
respect to the Option
ARMs owned
b
y Asset Trust
I
I into a certificate account controlled
b
y the Asset
Trust
I
I Trustee under the Asset Trust
I
I
Pooling and Servicing Agreement on a
monthly
basis. The
amount of collections required to be remitted to the Asset Trust
I
I Trustee
i
n any given monthly deposit
i
s determined
by
the
timing o
f
the Asset Trust
I
I Servicers receipt of collections and the type of
collections they represent. In accordance with the terms of the Asset Trust
I
I
Agreement,
the Asset Trust
I
I Servicer
i
s allowed to retain certain amounts with
respect to expenses
and advances from collections or apply
them towards the costs
o
f
certain costs and permitted
expenses
connected with the
servicing o
f
the Option ARMs. The Asset Trust
I
I Servicer
i
s neither be
permitted nor required to make servicer advances to cover
any gap between scheduled payments on
the Option ARMs and the actual collections thereon
i
n
any given period.
Subject to the terms and conditions set forth
i
n the Asset Trust
I
I
Agreement, on a monthly basis the Asset Trust
I
I Trustee distributes collections deposited i
n the
certificate account to the Company, as holder of the Asset Trust
I
I
Class A Trust Certificate, less
(
a
)
fees, expenses
and indemnities payable to the Asset Trust
I
I
I
Delaware Trustee and (
b
)
fees and certain other amounts payable to the Asset Trust
I
I
. Servicer. No
amounts are payable
from collections with respect to the Asset Trust
I
I Class A Trust Certificate.
69
CONFIDENTIAL
Return
I
I
Pooling
and
collections with
respect
to the
Option
ARMs
may
be invested
i
n certain
permitted investments prior to their distribution to the
Company, as holder of the Asset Trust
I
I Class A Trust Certificate. The Asset Trust
I
I Servicer shall be
entitled to retain
any
investment income
produced
b
servicing
compensation.
Servicing
of
Delinquent Option ARMS; Foreclosure. The Asset Trust
I
I Servicer
i
s
required
under the terms of the Asset Trust
I
I
Pooling and Servicing Agreement to make reasonable efforts to
collect or cause to be collected all payments on the Option ARMs owned
b
y Asset Trust
I
I that are 30
or more days delinquent. Such efforts
may
include
payment
reminder telephone calls to the
mortgagor, letter campaigns, drive-
b
y
I
I Loan Documents and applicable law.
The Asset Trust
I
I
Servicer
i
s required under the Asset Trust
I
I
to foreclose
upon
the mortgaged property related to each defaulted Option ARM as to which no
satisfactory arrangements
can be made for collection of delinquent payments.
Under the Asset Trust
I
I
Pooling
and
Servicing Agreement, the Asset Trust U Servicer
i
s permitted,
i
n lieuof foreclosure,
i
f
prudent to do so and taking into account the desirability of maximizing net liquidation proceeds, to
accept a payment o
f
less than the
balance of the defaulted
Option
ARM. The
Asset Trust
I
l Servicer
i
s not permitted to foreclose
upon
a mortgaged property i
f
i
t
i
s aware of
evidence of toxic waste or other environmental contamination on the
mortgaged property
and
i
t
determines that
i
t would be imprudent to foreclose.
Insurance. For each Option ARM with an
original
loan-to-value ratio
greater
than 80%, the
Asset Trust
I
I
Pooling and Servicing Agreement generally requires the Asset Trust
I
I Servicer to keep
in full force and effect a primary mortgage insurance policy. The Asset Trust
I
I Servicer
generally i
s
not required
to maintain such policy i
f the outstanding principal balance
o
f
the Option ARM
i
s 80% or
less of the original appraised value of the related mortgaged property, unless required by applicable
law.
Limitations on the Asset Trust
I
I
Servicers Liability
The Asset Trust
I
I
Pooling and Servicing Agreement provides
that neither the Asset Trust
I
I
Servicer nor
any director, officer, employee or agent of the Asset Trust
I
I Servicer
(the Asset Trust
I
I
Servicer Indemnified Parties)
i
s under
any liability to Asset Trust
I
I
, the
Company or the holders
o
f
the Asset Trust
I
I
I Class R Trust Certificate or others for
any
action taken (
o
r
not taken)
b
y
any
Asset Trust
I
Party i
n
good
faith
pursuant
to the Asset Trust
I
I
Pooling and Servicing Agreement, or for errors
i
that the Asset Trust
I
I Servicer
i
s not
protected against any liability
that would otherwise be
imposed
by reason
o
f
willful misfeasance, bad faith or gross negligence i
n the performance of duties or
by
reason
o
f
reckless
disregard o
f
obligations and duties thereunder. The Asset Trust
I
I
Pooling
and
Servicing Agreement further provides that any Asset Trust
I
Party i
s entitled to
indemnification
b
y Asset Trust
I
I and will be held harmless against any loss, liability or expense
incurred
i
n connection with any legal action relating t
o the Asset Trust
I
I
Agreement or the certificates issued thereunder ( except any
such loss, liability, or
expense otherwise
reimbursable
pursuant to the Asset Trust
I
I
Pooling and Servicing Agreement) and
any loss, liability or
expense
incurred by reason
o
f
willful misfeasance, bad faith or gross negligence
i
n the
performance
of
duties thereunder or by reason
o
f
reckless
disregard of obligations and duties thereunder. In addition,
the Asset Trust
I
I
Pooling and Servicing Agreement provides that the Asset Trust
I
I Servicer
i
s not
under
any obligation to appear in, prosecute or defend
any legal action that
i
s not incidental to its
responsibilities under the Asset Trust
I
I
Pooling
and
Servicing Agreement
and that
i
n its
opinion may
involve
i
t
i
n any expense or liability.
The Asset Trust
I
I Servicer may, however, i
n its discretion
undertake
any
such action that
i
t
may
deem
necessary or desirable with
respect to the Asset Trust
I
I
Pooling
and
Servicing Agreement
and the
rights
and duties
o
f
the
parties
thereto and the interests
o
f
the holders
o
f
the Asset Trust
I
I
I Class R
70
CONFIDENTIAL
Return
Trust Certificate.
I
n such event, the
legal expenses
and costs of such action and
any liability resulting
therefrom will be expenses, costs and liabilities
o
f
Asset Trust
I
I
, and the Asset Trust
I
I Servicer will be
entitled to be reimbursed therefor and to
charge the certificate account.
Asset Trust
I
I Servicer Termination and
Replacement.
Under the terms
o
f
the Asset Trust
I
I
Pooling
and
after the occurrence of
any one of several
typical
Asset Trust I
I
Servicer termination events, including
but not limited to a receivership
with
respect
to the Asset Trust
I
I
Servicer or ( subject
to the
expiration o
f
typical grace periods
and
materiality requirements)
the failure
b
y the Asset Trust
I
I Servicer to make
required deposits
to the certificate
account,
the
Company may
I
I Servicer. I
f
the Asset Trust
I
I Servicer
i
s removed
by
the
Company,
the
Company
shall have the sole
power t
o
appoint a
replacement
Asset Trust I
I
Servicer.
The Asset Trust
I
I
Servicers Third
Party Vendors and Service Providers. Under the Asset
Trust
I
I
Pooling
and
the Asset Trust
I
I Servicer
may perform
its
servicing
responsibilities through agents or independent contractors, but will not
thereby
be released from
any
of its
responsibilities thereunder. The Asset Trust
I
I Servicer
currently
outsources certain of its
responsibilities
and
may
in the future outsource other of its
responsibilities pursuant
to these
provisions,
which services
may
include some or all
o
f
the
following: (
i
)
collections on early stage
delinquent loans, (
i
i
)
processing
and
monitoring
of foreclosure actions, (iii) processing
and
monitoring
of mortgagors bankruptcy proceedings, (iv) preservation of properties related to delinquent loans,
(
v
)
maintenance, marketing
and sale
o
f
real-estate-owned
properties, (
v
i
)
assuring
that hazard
insurance coverage i
s
maintained, (vii) determining whether flood insurance coverage i
s
required and
assuring that any required coverage i
s maintained, (viii) tax bill
procurement and tracking o
f
delinquent
tax
payments, (
i
x
)
printing
and
mailing billing statements, Option
ARM notices and default notices and
(
x
)
depositing mortgagor payments
into a lockbox account. From time to time, the Asset Trust
I
I
Servicer
may cease to outsource one or more of the
foregoing servicing
functions or may
choose to
outsource additional
servicing
functions. Some vendors
may perform more than one function,
and
some functions
may
be
performed
b
y
more than one vendor.
The Asset Trust
I
I Servicer has entered into service level
agreements
with some o
f
its vendors,
which set forth detailed
performance criteria, including
in some cases
minimum time requirements
for
completing specified
tasks and maximum error rates, and which
i
n some cases impose penalties
for
I
I Servicer monitors vendor
compliance
with
applicable servicing
criteria
through procedures
that
may
include reviews of statistical
samplings of.
Option
ARMs and reviews
o
f
reports on vendor
performance prepared
b
y the vendor or the Asset
Trust
I
I Servicer.
The Asset Trust
I
I Servicers
Quality
Control Procedures
The Asset Trust
I
l Servicer uses a combination
o
f
management
controls and
technology
controls
to ensure the
accuracy
and
integrity
of
servicing
records.
Management
cOntrols include the use of
approval levels,
the
segregation
of
duties,
and reconciliations of
servicing
data and
accounts, among
others.
Technology
controls include the use of data
security
controls and interface controls to ensure
that
only
authorized
persons
have the
ability
to access and
change system
data or to submit data to
or receive data from vendors and investors.
Specific security profiles
for each
job
function include a
predetermined
set of data
security
controls that are appropriate
for that
job
function. The
regional
data
center for the
Fidelity System,
which
i
s located
i
n
Jacksonville, Florida, i
s
kept i
n
a fire resistant
environment, and commercial electrical power i
s backed up by generators.
In addition, the Asset Trust
I
I Servicer conducts
periodic
internal audits of critical
servicing
and
technology
functions. External audits
b
y entities such as the Fannie Mae, Freddie Mac and Ginnie
Mae and the annual examination by WMIs independent acountants in connection with their audit of
may provide independent
verification
o
f
the adequacy o
f
such functions.
b
y the Asset Trust
I
I Servicers
regulatory
authorities
may provide additional
independent review o
f
the Asset Trust
I
I Servicers
management
controls.
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Both the Asset Trust
I
I Servicer and Fidelity maintain detailed business continuity plans so that
each entity can resume critical businessfunctions
i
n the event of a disaster or other serious
system
outage,
which
plans are reviewed and
updated periodically. Fidelity i
s
contractually obligated
to return
- -. the Asset Trust
I
I Servicer to full
functionality
within 48 hours of a reported system outage. The Asset
Trust
I
I Servicer and Fidelity perform annual disaster recovery tests
i
n which
they reroute data and
servicing system operations to Fidelitys backup site, and then
process sample
transactions from all
servicing
locations to ensure the
functionality
of such
back-
u
p site.
I
t
i
s the Asset Trust
I
I Servicers policy to require its other third party vendors to implement
measures similar to those described above to ensure the accuracy and integrity of servicing records.
The Asset Trust
I
I Custodian
Washington Mutual Bank acts as custodian (the Asset Trust
I
I
Custodian) for Asset Trust
I
I
pursuant to a Custody Agreement,
dated as
o
f
I
I
Custody
Agreement), among
the Asset Trust
I
I Trustee, the Asset Trust
I
I Servicer and the Asset Trust
I
I
Custodian. The Asset Trust
I
I Custodian holds the notes, mortgages and other legal documents
related to the Option ARMs (collectively, the Asset Trust
I
I Loan Documents)
for the benefit of the
AssetTrust
I
I Trustee. The Asset Trust
I
I Custodian
i
s
required to maintain the Asset Trust
I
I Loan
Documents
i
b
y the Asset Trust
I
I Servicer
are not required to be
from Asset Trust
I
I
, Loan Documents
i
n the Asset Trust
I
I
Custodians custody but are kept i
n shared facilities. The Asset Trust
I
I Custodian
i
s required to review
the Asset Trust
I
I Loan Documents related to each Option
ARM and deliver to the Asset Trust
I
I
Trustee a certification to the effect that, except as noted
i
n the certification, all required documents
have been executed and received.
I
n the event of the termination of the Asset Trust
I
I
Custody Agreement,
the Asset Trust
I
I
Custodian will be required to deliver the Asset Trust
I
I Loan Documents
i
n the Asset Trust
I
I
Custodians
custody to the Asset Trust
I
I Trustee or
any
I
I Custodian
appointed~
by the Company.
The Asset Trust
I
I Servicer
may,
but does not currently, pay the Asset Trust
I
I Custodian a fee for
its services under the Asset Trust
I
I
Custody Agreement
from time to time. Payment of this fee will not
affect dividends to the Company.
72
CONFIDENTIAL
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ASSET TRUST
I
l
l
General
WAMU 2007- Flexi
(
Asset
Trust
Ill) i
s
a statutory
trust formed under the laws of the State of
Delaware pursuant to a trust
agreement
between the
Company, as depositor,
and Deutsche Bank
Trust Company Delaware, as Delaware trustee. The Asset Trust Ill
Pooling
and
to be dated as o
f
October 25, 2007 (the
Asset Trust Ill Pooling and Servicing Agreement), among
the
( the
Asset Trust
I
l
l
Servicer), Deutsche Bank
Trust Company Delaware, as Delaware trustee (the Asset Trust
I
l
l
Delaware Trustee
) and Deutsche
Bank National Trust Company, as trustee (the Asset Trust Ill Trustee), will amend and restate the
initial trust agreement
and will be the
governing instrument o
f
Asset Trust Ill.
Asset Trust I
l
l
will not own any assets other than the Flex- 5 ARMs and the other assets
described below. Asset Trust
I
l
l
will not have any liabilities other than those incurred i
n connection
with the Asset Trust
I
l
l
Pooling
and
Servicing Agreement
and
any
related
agreement.
Asset Trust
I
l
l
will not have
any directors, officers or other
employees.
No
equity
contribution will be made
t
o Asset
Trust
I
l
l
b
y
WMB, the
Company or any
other
party, except
for a de minim/s contribution made
b
y the
Company, as depositor, pursuant
to the initial trust
agreement,
and Asset Trust
I
l
l will not have
any
other assets. The fiscal
year
end
o
f
Asset Trust
I
l
l
i
s December 31. Asset Trust
I
l
l will act
through
the
Asset Trust
I
l
l Trustee and the Asset Trust
I
l
l Delaware
Trustee,
whose fees and reasohable
expenses
will be
paid or reimbursed
b
y the Asset Trust
I
l
l Servicer.
For
purposes
of this
offering
circular with
respect
to the
underwriting, origination
and
servicing
of
the Flex-5 ARMs in Asset Trust Ill, references to WMB include WMB, originators acquired
b
y WMB
General
Description
of Assets
The assets of Asset Trust Ill will consist
o
f
Flex- 5 ARMs that
had, as of
September 30, 2007 (the
Asset Trust
I
l
l Cut- Off
Date), an aggregate unpaid principal
balance of
approximately
$5,199,147,686, together
with
payments
received thereon and certain other investments. The Flex- 5
ARMs were originated
b
y WMB. A
portion o
f
the Flex-5 ARMs will be contributed to the
Company
b
y
University Street, the owner of all the
Companys
common interests.
I
n
general,
the interest rate for each Flex- 5 ARM
i
s fixed for a specified
initial
five- year period,
and thereafter will adjust on a
monthly
basis based on its index. The index for the Flex- 5 ARMs i
s a
per annum rate equal to the One-Year MTA, as published
b
y
the Board
o
f
Governors
o
f
the Federal
Reserve
System i
n the. Federal Reserve Statistical Release Selected Interest Rates
(
H
.
15),
determined
b
y
averaging the monthly yields for the most recently available twelve months. The One-
Year MTA
figure
used for each interest rate adjustment
date will be the most recent One-Year MTA
figure
available as o
f
fifteen
days
before that date.
I
f One-Year MTA
i
s
no longer available, the Asset Trust
I
l
l
Servicer will choose a new index that
i
s based on comparable
information. When the Asset Trust
I
l
l Servicer chooses a new index, i
t will
increase or decrease the
margin on substantially
all Flex- 5 ARMs
b
y the difference between the
average o
f
One-Year MTA for the final three
years i
t was i
n effect and the
average
of the
replacement
index for the most recent three years.
The
margin
will be increased
b
y that difference
i
f the
average
of
One~ Year MTA
i
s
greater
than the
average o
f
the
replacement index, and the
margin
will be decreased
b
y that difference i
f the
average o
f
the replacement index
i
s
greater
than the
average
of One-Year
MTA. The new margin
will be rounded
up as provided i
n the related
mortgage
note.
After an initial fixed- rate
period
of five
years,
the
mortgage
interest rate on substantially
all the
Flex- S ARMs
adjusts monthly
to
equal
the sum o
f
the
applicable
index and the
per annum rate
( the
Margin) specified i
n the applicable mortgage note. The
Margin
rates applicable to the mortgage
loans in the Asset Trust I
I
I
had a weighted average of approximately 2.66% and range
from 1.23% to
73
CONFIDENTIAL
Return
5.25%
per
annum. The mortgage loans
i
n the Asset Trust Ill are subject to a maximum interest rate
that
may
be charged at
any point over the life of the mortgage (a Lifetime Rate Cap), with a
weighted average
of approximately 12.01% and ranging from 8.75% to 16.95% per annum. During the
initial fixed rate period of a Flex- 5 ARM, mortgagors will be required to
pay
a minimum monthly
payment i
n an amount sufficient to fully amortize the mortgage loan over the term. Each month
thereafter, mortgagors
are given one or more payment options, which
may
include a payment amount
less than, equal to or greater
than a
fully amortizing monthly payment, but
i
n no case less than the
minimum monthly payment.
The minimum monthly payment i
s recalculated
during
the adjustable rate
period on an annual basis
i
n an amount sufficient to
fully
amortize the mortgage loan over the term
based on an assumed interest rate equal to the interest rate
i
n effect
forty-five days prior to the
recalculation date. Whether a Flex- 5 ARM
i
s
repaid on a fully- amortizing
basis
depends on whether
the actual interest rate payable on a mortgage
loan
during any
annual
period
exceeds the assumed
interest rate used
i
n calculating the minimum monthly payment for such annual period and the
payment option selected
b
y the mortgagor on each monthly payment date.
I
f the payment made
i
n a
given month
i
s insufficient to
pay
the amount of accrued and
unpaid
interest on the
mortgage loan,
the excess interest will be added to the
balance of the
mortgage
loan
i
n the form
of
Negative
Amortization. The maximum
Negative
Amortization Cap of the Flex- 5 ARMs that will be
i
n
Asset Trust
I
l
l
ranges
from 110% to 125%
of the original principal balance. On the month
i
n which the
Negative
Amortization
Cap i
s reached, mortgagors
are required to make fully amortizing payments.
As of the Asset Trust
I
l
l Cut-Off Date, the
average current, unpaid principal balance of the Flex-5
ARMs
i
s
approximately $297,009, with a minimum current, unpaid principal balance of approximately
$188 and a maximum current, unpaid principal balance of approximately $5,205,972. The Flex- S
ARMs that will be
i
n Asset Trust
I
l
l have various original maturities ranging from 15 years to 40 years
and
were, on average, originated within the last 43 months. The majority
of the Flex- S ARMs were
underwritten under WMBs low documentation program (described below); approximately
22.88% of
the Flex- S ARMs were underwritten under WMBs full documentation
program (described below). The
current weighted average
loan- to-value ratio
i
s
approximately
63.02% and the weighted average
loan-to-
value ratio at origination was approximately
67.72%. The
mortgage
loans that will be
i
n Asset
Trust
I
l
l have a weighted average
Credit Score of approximately 715. The majority of the properties
underlying
the FIex-5 ARMs are owner occupied with approximately 19.45% of the properties non-
owner occupied.
Of the FIex-5 ARMs that will be in Asset Trust Ill, approximately 43.70% are cash- out
refinances, approximately 34.84% are purchase loans and approximately 21.46% are rate/ term
refinances. The Flex-S ARMs are geographically concentrated
i
n California (approximately 4S.30%).
Acquisition of the Flex-5 ARMs and Related Transactions
Contemporaneously with the issuance of the Series 2007- B Company Preferred Securities,
WMB will contribute a pool
of Flex-S ARMs to the
Company i
n exchange for the Series 2007- B
Company Preferred Securities. I
n
addition, University Street will contribute a pool of Flex-S ARMs to
the Company as a capital contribution. The aggregate value of these contributions
i
s expected to total
The
Company
will contribute to Asset Trust Ill all of the Flex- S ARMs
i
t will receive from WMB
and University Street. This contribution will be made
i
n exchange for the Class A-i 2007- Flexi
Certificate of Asset Trust
I
l
l
( the Asset Trust Ill Class A Trust Certificate) and the Class R 2007- FIexl
Certificate of Asset Trust
I
l
l
( the
Asset Trust III Class R Trust Certificate). For United States federal
income tax
purposes,
the Asset Trust
I
l
l Class A Trust Certificate will represent the sole class of
regular
interests
i
n Asset Trust Ill, and the Asset Trust
I
I
I
Class A Trust Certificate will represent the
sole class of residual interests
i
n Asset Trust III. The Company will retain the Asset Trust
I
l
l Class A
Trust Certificate and expects that
i
t will transfer the Asset Trust
I
l
l Class A Trust Certificate to WMB.
74
CONFIDENTIAL
Return
Asset Trust Ill will own the right to receive all
payments o
f
principal and interest on the Flex-5
ARMs due after the Asset Trust
I
l
l Cut-Off Date. A schedule to the Asset Trust
l
i
i
Pooling and
Servicing Agreement
will include information about each of the Flex- 5 ARMs, including:
the
balance as
o
f
the Asset Trust
I
l
l Cut-Off Date;
the term
o
f
the Flex- 5 ARM; and
the
applicable
interest rate as
o
f
the close of business on the Asset Trust
I
l
l Cut- Off Date.
The notes relating to the Flex- 5 ARMs will be endorsed. in blank to Asset Trust
I
l
l and no
assignments t
o Asset Trust
I
l
l
o
f
the mortgages securing the Flex-5 ARMs will be prepared. WMB,
i
n
its capacity as initial Asset Trust
I
l
l
Custodian, will have possession o
f
and will review such notes and
the Flex-5 ARMs as custodian for Asset Trust
I
l
l
and financing statements will be filed evidencing
Asset Trust Ills interest
i
n the Flex- 5 ARMs.
I
n
exchange for the Flex- 5 ARMs and the other assets described above, the Asset Trust
I
l
l
Trustee will authenticate and deliver the Asset Trust Ill Class A Trust Certificate and the Asset Trust
I
l
l
Class R Trust Certificate
pursuant to the
Companys order.
Description o
f
the Portfolio
General
The Flex- 5 ARMs
i
n the
portfolio o
f
Asset Trust Ill will consist of flex- 5
adjustable rate mortgage
loans which may under certain circumstances experience negative
amortization. See Asset Trust
I
l
l
General
Description of Assets. These mortgage loans are secured
b
y a first lien, fee simple or
leasehold interest
i
n a one- to-four- family
residential
property.
Such residences
may
include detached
homes, duplexes, triplexes, fourplexes, townhomes, individual condominium units, individual units
i
n
planned unit developments and other attached dwelling units that are part
o
f
buildings consisting o
f
no
more than four units. As of September 30, 2007, none of the Flex- 5 ARMs weredelinquent i
n
payments
for a period of 30 days or
more, i
n large part because the process o
f
selection for the
Flex- 5 ARMs that will be
conveyed to Asset Trust
I
l
l excluded
any
such loans; however, there can be
no assurance that Flex-5 ARMs that will be held in. the portfolio of Asset Trust
I
l
l will not become
delinquent i
n the future. WMBs
delinquency experience
with
respect to mortgage
loans owned
b
y
WMB and its subsidiaries substantially similar to the Flex- 5 ARMs has been as follows: the percent
age of the unpaid principal balance
o
f
such loans which were delinquent (for the purposes
of this
sentence, defined as
having
two or more
payments
overdue, or being
clasified as
non- performing)
as
o
f
the end
o
f
the calendar year i
n 2004 was 1.08%,
i
n 2005 1.31%,
i
n .2006 1.55% and as of
September 30, 2007 2.16%.
The tables
i
n Appendix D to this offering circular represent information as of September 30, 2007
with
respect to the Flex- 5 ARMs that will be included
i
n the
portfolio
of Asset Trust lii.
Underwriting
General
The Flex- 5 ARMs that will be owned
b
y Asset Trust
I
l
l
were, i
n all material respects, originated i
n
accordance with the underwriting guidelines of WMB as described herein. The Flex- 5 ARMs were
underwritten
b
y WMB.
WMBs underwriting guidelines generally are intended to evaluate the prospective borrowers
credit standing and repayment ability and the value and adequacy of the mortgaged property as
collateral. Some Flex- 5 ARMs are manually underwritten,
i
information submitted by the borrower and supporting documentation,
i
f
required, and a credit report
o
f
the borrower, and based on that review determines whether to originate a loan
i
n the amount and
75
CONFIDENTIAL
Return
with the terms requested
b
y the borrower. Some Flex- 5 ARMs are underwritten
through
WMBs
automated
underwriting system,
described below.
Standing
To evaluate a prospective
borrowers credit history, the loan underwriter obtains a credit
report
relating to the borrower from one or more credit reporting agencies. The credit report typically contains
information
relating to such matters as credit history with local and national merchants and lenders,
installment debt payments and
any
record
o
f
defaults, bankruptcy, repossession,
suits or judgments.
I
n most cases the credit
report provides a Credit Score for the borrower. Credit Scores are designed
to assess a borrowers creditworthiness and likelihood to default on an obligation over a defined period
( usually two to three years) based on a borrowers credit
history.
Credit Scores do not necessarily
correspond to the probability o
f
default over the life of a Flex- 5 ARM because
they
reflect
past
credit
history, rather than an assessment
o
f
future payment performance. Credit Scores are measured
relative
t
o a scale of 350 to 850, with
higher scores indicating more favorable credit history. I
f the loan
underwriter obtains Credit Scores from three credit reporting companies, the middle score
generally i
s
used, and
i
f two Credit Scores are obtained, the lower score generally i
s used.
I
n the case
o
f
co
borrowers, the Credit Score for the borrower with the lowest Credit Score
generally i
s used
( determined for each borrower as described
i
n the
immediately preceding sentence).
Minimum Credit
Scores are required
for some loan
products and loan
programs.
For borrowers for which Credit Scores
are not available, the loan underwriter will
require
alternative documentation
indicating
the borrowers
creditworthiness, such as rental or utility payment history or payment history on other debt.
Evaluation of the Borrowers
Repayment Ability
In evaluating a prospective borrowers ability to
repay
a Flex-5 ARM, the loan underwriter
considers the ratio of the borrowers total monthly debt (including non- housing expenses) to the
borrowers gross income (referred to as the debt- to-income ratio or back- end ratio). The maximum
acceptable ratios
may vary depending on other loan factors, such as loan amount and loan purpose,
loan- to-value ratio, Credit Score and the availability of other liquid assets. Exceptions t
o the ratio
guidelines may
be made when
compensating factors are present.
For
purposes
of calculating the ratios for certain Flex- S ARMs, the borrowers monthly mortgage
debt and other factors are determined based on the fixed rate and a predetermined factor as set
b
y
WMBs credit department from time to time
(which rate
may
be
greater
than the rate
i
n effect for the
Flex- S ARM
during the initial fixed- rate period). I
n
addition, for
purposes
of
calculating
these ratios for
a Flex- 5 ARM with a 40- year term, the borrowers
monthly mortgage
debt
i
s determined based on
30-year term.
Evaluation of the Adequacy of the Collateral
The
adequacy
of the Flex- 5 ARM as collateral generally i
s determined by an appraisal made
i
n
accordance with pre-established appraisal guidelines.
At
origination,
all
appraisals are required to
conform to the Uniform Standards of Professional Appraisal Practice adopted
b
y the
Appraisal
Standards Board
o
f
the
Appraisal Foundation, and are made on forms acceptable
t
o Fannie Mae
and/ or Freddie Mac.
Appraisers may
be staff
appraisers employed by
WMB or independent appraisers
selected
i
n accordance with the pre- established appraisal guidelines.
Such
guidelines generally
require that the appraiser, or an agent on its behalf, personally inspect
the
property
and
verify
whether
the property i
s
i
n
adequate condition and,
i
f the property i
i
t
i
s
substantially completed. However, i
n the case
o
f
FIex-5 ARMs underwritten through WMBs automated
underwriting system, an automated valuation method
may
be used, under which the
appraiser does
not personally inspect the property but instead relies on public records regarding the mortgaged
property and/ or neighboring properties. In either
case,
the appraisal normally i
s based upon a market
data
analysis o
f
recent sales of
applicable, a replacement
cost analysis based on the current cost of constructing or purchasing a similar
property.
For Flex- S
76
CONFIDENTIAL
Return
ARMs underwritten under WMBs low documentation programs, the appraisal guidelines i
n some
cases permit the appraisal obtained for an existing
Flex-5 ARM to be used. Title insurance
i
s required
for all Flex- 5 ARMs, except that for Flex-5 ARMS secured by shares of cooperative apartments, title
insurance
i
s not required for the cooperative apartment building (but a Hen- search
i
s
provided
b
y the
title company). Specific additional title insurance
coverage i
s required for some types of Flex-5 ARMs.
Each Flex- 5 ARM that will be owned
b
y Asset Trust
I
l
l was underwritten under one
o
f
WMBs
documentation
guidelines
for verification
o
f
the borrowers stated income and assets. Under WMBs
full/ alternative documentation program, the prospective borrowers stated income
i
s verified through
receipt o
f
the borrowers most recent pay stub and most recent W-2 form, or
b
y
using a written
Verification
o
f
Employment form completed
b
y the borrowers employee. I
n the case of self- employed
borrowers or borrowers with more than 25%
o
f
their income from commissions, two
years
of personal
(and, i
f
applicable, business) tax returns. For self- employed borrowers, profit and loss statements may
also be required. Under the full/ alternative documentation program, the borrowers stated assets are
verified through receipt of the borrowers two most recent bank or brokerage statements.
I
n
addition,
the borrowers
employment may
be verified with the employer
b
y
telephone or
b
y other independent
means.
The WMB low documentation
program places
increased reliance on the value and
adequacy
of
the mortgaged property as collateral, the borrowers credit standing and (
i
n
some cases) the
borrowers assets.
I
t
i
s available to borrowers with certain loan- to-value ratios, loan amounts and
Credit Scores. Under this
program,
the income as stated
i
n the borrowers loan application i
s not
verified, although the borrowers
employment may
be verified
b
y
telephone.
The borrowers stated
income must be reasonable for the borrowers occupation and assets (
a
s determined
i
n the
underwriters
discretion).
Assets
may
be verified for
higher
risk transactions and when exceptions are
approved, such as when specific loan-to-value ratios or loan amount limits are exceeded.
A credit report for the borrower generally
i
s required for all mortgage loans underwritten under -
Exceptions to Program Parameters
Exceptions to WMBs loan
program parameters may
be made on a case- by-case basis
i
f
compensating
factors are present. I
n those cases~ the basis for the
exception i
s documented, and
i
n
some cases the
approval
of a senior underwriter
(who i
s an employee
of WMB)
i
s required.
Compensating factors
may include, but are not limited to, low loan-to-value ratio, low debt- to-income
ratio, good credit standing, the availability o
f
other liquid assets, stable employment and time
i
n
residence
a
t
the prospective borrowers current address.
Automated
Underwriting System
Some
mortgage loans- originated through
the
sponsors retail and wholesale
lending
divisions
i
n whole or
i
n part through
the sponsors proprietary
automated
underwriting
system, known as Enterprise Decision Engine or EDE. Based on the borrowers credit report and the
information
i
n the borrowers loan application, the system either (
a
)
approves the loan, which approval
may involve relief from certain documentation otherwise required for manual
underwriting
or be
subject
t
o the satisfaction of specified conditions, which may include the receipt o
f
additional documentation,
or (
b
)
refers the loan application to an underwriter for manual underwriting.
In
making the underwriting
decision, EDE evaluates the borrowers default risk ten different levels of credit standing, based on
both the Credit Score and characteristics
o
f
the loan. The
sponsor
has been
using
EDE for
underwriting of
mortgage
loans since January 2005. The version of EDE used by the
sponsor through
October 2006 was developed
analysis o
f
the
past performance o
f
approximately
193,000 mortgage
loans originated by the
sponsor
for its own portfolio between 1998 and 2001.
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CONFIDENTIAL
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The version of EDE used
b
y the
sponsor
since October 2006 was developed
analysis
of the past performance
of
approximately one million
mortgage
loans
originated by
the
sponsor
between 1998 and 2002. The
sponsor
has also used
i
n the
past,
and
currently uses, other
automated
underwriting systems.. A
~
l or sQrne. of the mortgage
loans owned
b
y Asset Trust
I
l
l
may~
through
EDE or other automated
Quality
Control Review
WMBs credit risk
oversight department
conducts
quality
control reviews of statistical
samplings
of
previously originated
Flex- 5 ARMs on a
regular
basis.
Credit Risk
Management
Policies
Credit risk within the WMI Group i
s
managed
b
y
means o
f
a broad set o
f
policies and principles
contained
i
n
i
t
s
credit
policy.
The Chief Credit Officer i
s
responsible for overseeing the work o
f
a credit
policy committee, monitoring the quality of the WMI Groups credit portfolio, determining the reason
ableness
o
f
the WMI
Groups
allowance
for
loan
losses, reviewing
and
approving large
credit
exposures
and
products
and
programs.
Credit risk
management i
the creditworthiness of the borrower, the
adequacy
of the
underlying
collateral
given
current events and conditions and the existence and
strength o
f
any
guarantor support.
Credit risk assessment i
s a process
that
requires
the evaluation of numerous factors, many
of
which are qualitative.
Process
integrity
relies on the
ability o
f
the WMI
Groups lending personnel
to
analyze
all risk elements. I
t also
risk
rating accuracy by recognizing changing
elements
o
f
credit risk and
promptly initiating
risk
rating changes.
Pursuant to WMBs Code
o
f
Ethics, WMB extends credit to borrowers
only
when the extension
of credit i
s
financially reasonable for both WMB and the borrower i
n
question.
o
f
Ethics, lending personnel cannot permit personal relationships or other considerations to influence
lending decisions, and cannot
approve
extensions of credit to, or be involved
i
n the
funding or auditing
o
f
any
loans made to family or friends.
Servicing and the Asset Trust Ill Servicer
General
All
o
f
the Flex-5 ARMs owned
by
Asset Trust
I
l
l will be serviced
by WMB, as the Asset Trust Ill
Servicer, pursuant
to the Asset Trust
I
I
I
Pooling
and
WMB will have
possession
of the
mortgage
files
(
i
. e.,
the credit
reports, servicing documents, etc.)
in its
I
l
l
I
I
I
Loan Documents
(
a
s defined
below) i
n its
I
l
l
Custodian.
The Asset Trust I
l
l
Pooling and Servicing Agreement will provide that WMB may not resign from
its obligations and duties thereunder as Asset Trust
I
l
l
Servicer
except upon a determination that i
t
s
duties thereunder are no longer permissible under applicable law. No such resignation will become
effective until a successor Asset Trust I
I
I
Servicer has assumed WMBs
servicing obligations and
duties under the Asset Trust
I
l
l
Pooling
and
Servicing Agreement. I
f the Asset Trust
l
i
i Servicer
resigns,
the
Company, subject
to the terms of the Asset Trust
I
l
l
Pooling
and
will
appoint a successor Asset Trust
I
l
l Servicer.
The Asset Trust
I
l
l Servicer will receive a fee for its services as Asset Trust
I
l
l Servicer under
the Asset Trust
I
l
l
Pooling
and
The
servicing
fee will be calculated as a per
annum percentage
for each Flex- 5 ARM based on the
principal
balance for such FIex-5 ARM. The
servicing
fee with
respect
to each FIex-5 ARM will
equal
0.125%
per annum and will be
paid monthly.
The Asset Trust
I
l
l Servicer will be entitled to retain certain
ancillary
fees and
charges, including,
but
not limited
to, any prepayment fees, insufficient funds fees, modification fees, payoff
statement fees
78
CONFIDENTIAL
Return
and late
charges
with
respect
to the FJex- 5 ARMs as additional
and will also
be entitled to certain income
generated
b
y
permitted investments made with collections on the Flex- 5
ARMs. The Asset Trust
I
l
l
Servicer
generally will
pay
all expenses incurred i
responsibilities as. Asset
TrustJll
Servicer under the Asset Trust
I
l
l
Pooling
and
Servicing Agreement
( subject to reimbursement for certain expenses and advances, including
those incurred
b
y
i
t
i
n
connection with the liquidation of defaulted Flex- 5 ARMs, the restoration of damaged mortgaged
properties,
and
payments by the Asset Trust
I
I
I
Servicer for taxes and insurance premiums with
respect
to
mortgaged properties).
Any person
into which the Asset Trust
I
l
l
Servicer
may
be
merged,
converted or consolidated, or
from
any merger,
conversion or consolidation to which the Asset Trust Ill Servicer
i
s a party
will be the successor Asset Trust Ill Servicer under the Asset Trust
I
l
l
Pooling
and
Servicing
Agreement.
The Asset Trust
I
l
l Servicer
may
outsource to third
party
vendors some servicing functions, as
described under The Asset Trust Ill Servicer
~Servicing
Procedures The Asset Trust
I
l
l
Servicers Third
Party
The Asset Trust III Servicer
The Asset Trust Ill Servicers
Servicing Experience
WMB has been servicing loans secured
by real estate or other property for over
100
years. The
Flex- 5 ARMs
i
n WMBs portfolio were originated by
WMB.
The
following
table shows the number and aggregate principal balance of
prime single- family
residential
mortgage loans, including conforming
and
nonconforming mortgage
loans and fixed rate
and adjustable rate mortgage loans, serviced
b
y the Asset Trust I
l
l
Servicer as of the specified date.
Single- Family
Residential Prime
by
the Asset Trust
I
l
l
Servicer~~
September 30 December 31
2007 2006 2005 2004
(Dollars i
n
millions)
Number
o
f
Mortgage
Loans Serviced for
WMB or Its Affiliates (
o
r
Their
Securitization
Trusts) 675,819 707,497 766,384 798,269
Aggregate Principal
Balance
$ 231,116 $ 232,607 $266,334 $ 213,525
Number
o
f
Mortgage
Loans Serviced for
Unaffiliated Third Parties 2,034,562 2,800,162 0 3,820,696
Aggregate Principal
Balance $ 292,273 $ 373,679 $429,944 $ 444,595
( 1
)
Both the Option ARMs held by Asset Trust I
I and the Flex-5 ARMs held by Asset Trust I
l
l
are considered as single- family
residential prime mortgage loans for the purposes of this chart.
Servicing
Procedures
Servicing
Functions. The functions to be performed
b
y the Asset Trust
I
l
l
Servicer under the
Asset Trust I
l
l
Pooling and Servicing Agreement will include, among other servicing functions, payment
collection, payment application, investor reporting and other investor services, default management
and escrow administration. The Asset Trust
I
l
l Servicer will
perform substantially
all of its
servicing
functions at loan
servicing
centers located
i
n
Florence, South Carolina and Jacksonville, Florida.
Servicing Standard; Waivers and Modifications. Pursuant to the Asset Trust
I
I
I
Pooling
and
the Asset Trust
I
l
l Servicer will be
required to service the Flex- 5 ARMs owned
b
y Asset Trust
I
l
l consistent with
prudent mortgage
loan
servicing practices
and
(unless
inconsistent
79
CONFIDENTIAL
Return
with those
servicing practices) i
n the same manner
i
n which, and with the same care, skill, prudence
and
diligence
with which, i
t services and administers similar mortgage loans for other portfolios. The
Asset Trust I
l
l
Servicer will be required to make reasonable efforts to collect or cause to be collected
all
payments
under the
mortgage
loans and, to the extent consistent with the Asset Trust I
l
l
Pooling
and
Servicing Agreement and applicable insurance policies, follow such collection
procedures as are
followed with respect t
o
comparable mortgage loans that are held i
n
portfolios o
f
responsible mortgage
lenders
i
n the local areas where each
mortgaged property i
s located. Under the terms of the Asset
Trust
I
l
l
Pooling
and
the
servicing
standard
applicable
to the Asset Trust Ill
Servicer
may only
be modified with the consent of the
Company.
Under the terms o
f
the Asset Trust
I
l
l
Pooling
and Servicing Agreement,
the Asset Trust Ill
Servicer (subject
to certain
conditions) may
waive, modify or vary any
term
o
f
any mortgage
loan or
consent to the
postponement o
f
strict
compliance
with
any
such term or
in
any manner grant
indulgence
to the applicable obligor i
f
i
its
good
faith business
judgment i
n
the same manner as i
t would
i
f
i
t were the owner o
f
the related Flex- 5 ARM, that the
security for, and
the
timely
and full collectability of, such Flex- 5 ARM would not be
adversely
affected
by
such
waiver,
modification, postponement or indulgence,
and
may
make certain other modifications with
respect
to
the Flex-5 ARMs and the related
property i
n accordance with the terms of the Asset Trust
I
l
l
Pooling
and
Mortgage
Loan
Servicing System. I
n
performing
its
servicing functions, the Asset Trust
I
l
l
Servicer
generally
will use computerized mortgage
loan
servicing systems
that
i
t leases from
Fidelity
Information Services. The
Fidelity System produces
detailed information about the financial statusof
each
mortgage loan, including outstanding principal balance, current interest rate and the amount of
any advances, unapplied payments, outstanding fees, escrow deposits or escrow account overdrafts,
and about transactions that affect the mortgage loan, including the amount and due date o
f
each
payment, the date o
f
receipt of each payment (including
scheduled
payments
and
prepayments),
and
how the
payment was applied.
The
Fidelity System
also
produces
additional information about
mortgage
loans that are i
n
default, including
the amount of
any
insurance and
liquidation proceeds
received. The Asset Trust I
l
l
Servicer began using
the
Fidelity System i
n 1996. Prior to
July 2004, the
Asset Trust
I
l
l Servicer serviced some mortgage
loans using a proprietary mortgage
loan
servicing
system; i
n
July 2004, the Asset Trust
I
l
l Servicer consolidated
servicing
into a single servicing platform
b
y
converting approximately
1
.
2 million loan records from the
proprietary mortgage
loan
servicing
system
to the
Fidelity System.
Collections and Distributions. Under the terms of the Asset Trust
I
l
l
Pooling
and
Servicing
Agreement,
collections with respect to the Flex- 5 ARMs will be collected by the Asset Trust I
I
I
Servicer
and will be aggregated into a Payment Clearing Account controlled
b
y the Asset Trust
I
l
l
Servicer;
such collections will then be deposited into accounts controlled
b
y
the Asset Trust I
l
l
Servicer and
may be commingled with funds with respect to other Flex- 5 ARMs or mortgage
loans serviced or
owned
b
y
the Asset Trust
I
l
l
Servicer. The Asset Trust I
l
l
Servicer will be
required t
o
deposit
collections received with
respect
to the Flex-5 ARMs owned
by
Asset Trust
I
l
l into a certificate aOcount
controlled
by
the Asset Trust
I
l
l Trustee under the Asset Trust
I
l
l
Pooling
and
Servicing Agreement on
a monthly
basis. The amount of collections required
to be remitted to the Asset Trust
I
l
l Trustee
i
n
any
given monthly deposit i
s determined
b
y the
timing
of the Asset Trust
I
l
l Servicers
receipt o
f
collections
and the type of collections they represent.
In accordance with the terms of the Asset Trust Ill
Pooling
and
the Asset Trust
I
I
I
Servicer will be allowed to retain certain amounts with
respect
to expenses and advances from collections or apply
them towards the costs of certain costs
and
permitted expenses
connected with the
servicing o
f
the Flex-5 ARMs. The Asset Trust
I
l
l Servicer
will neither be
permitted nor required
to make servicer advances to cover any gap between scheduled
payments on the Flex- 5 ARMs and the actual collections thereon i
n
any given period.
Subject
to the terms and conditions set forth
i
n the Asset Trust
I
l
l
Pooling
and
Servicing
Agreement, on a monthly
basis the Asset Trust
I
l
l Trustee will distribute collections
deposited i
n the
certificate account to the Company, as holder of the Asset Trust I
I
I
Class A Trust Certificate, less
80
CONFIDENTIAL
Return
(
a
)
fees, expenses
and indemnities
payable
to the Asset Trust Ill Trustee and the Asset Trust I
l
l
Delaware Trustee and
(
b
)
fees and certain other amounts
payable
to the Asset Trust
I
l
l Servicer. No
amounts will be
payable
from collections with
respect
to the Aset Trust
I
l
l Class R Trust Certificate.
I
l
l
Pooling
and
collections with
respect
to the Flex-5 ARMs
may
be invested
i
n certain
permitted
investments
prior
to their distribution to the
Company, as holder of the Asset Trust
I
l
l Class A Trust Certificate. The Asset Trust Ill Servicer shall
be entitled to retain
any
investment income
produced
b
servicing
compensation.
Servicing
of
Delinquent
Flex-5
ARMs; Foreclosure. The Asset Trust Ill Servicer will be
required
under the terms of the Asset Trust
I
l
l
Pooling
and
Servicing Agreement
to make reasonable
efforts to collect or cause to be collected all
payments on the Flex- 5 ARMs owned
b
y Asset Trust Ill
that are 30
or more days delinquent. Such efforts may include
payment
reminder
telephone
calls to
the
mortgagor,
letter
campaigns, drive-
b
y
property inspections
and other collection activities permissi
ble under the Asset Trust
I
l
l Loan Documents and
applicable
law.
The Asset Trust
I
l
l Servicer will be
required
I
l
l
Pooling
and
Servicing
Agreement
to foreclose
upon
the
mortgaged property related to each defaulted Flex- 5 ARM as t
o
which no satisfactory arrangements can be made for collection
o
f
delinquent payments.
Under the
Asset Trust I
l
l
Pooling and Servicing Agreement, the Asset Trust Ill Servicer will be
permitted, i
n lieu
o
f
foreclosure, i
f
prudent to do so and
taking into account thedesirability of maximizing net liquidation
proceeds, t
o
accept a payment o
f
less than the
balance of the defaulted Flex- 5
ARM, sell the Mortgage
Loan for an amount less than its outstanding principal balance or enter into a
modification
o
f
a Mortgage
Loan that would constitute a troubled debt
restructuring
for
purposes o
f
GAAP. The Asset Trust Ill Servicer will not be
permitted
to foreclose
upon
a
mortgaged property i
f
i
t
i
s
aware o
f
evidence
o
f
toxic waste or other environmental contamination on the
mortgaged property
and
i
t determines that
i
t would be
imprudent to foreclose.
Insurance. For each Flex- 5 ARM with an original
loan- to-value ratio
greater
than 80%, the
Asset Trust
I
l
l
Pooling
and
Servicing Agreement generally
will
require
the Asset Trust
I
l
l Servicer to
keep
in full force and effect a primary mortgage
insurance
policy.
The Asset Trust
I
l
l Servicer
generally
will not be
required
to maintain such
policy i
f the
balance of the Flex-5 ARM
i
s
80% or less of the
original appraised
value of the related
mortgaged property,
unless
required
b
y
applicable
law.
Limitations on the Asset Trust Ill Servicers
Liability
The Asset Trust
I
l
l
Pooling
and
Servicing Agreement
will
provide
that neither the Asset Trust
I
l
l
Servicer nor any. director, officer, employee or agent
of the Asset Trust
I
l
l Servicer
( the
Asset Trust
I
/ I
Servicer Indemnified
Parties)
will be under
any liability to Asset Trust
I
l
l
, the
Company or
the holders
of the Asset Trust
I
l
l Class A Trust Certificate and the Asset Trust
I
l
l Class A Trust Certificate or others
for
any action taken
(
o
r
not taken) by any
Asset Trust
I
l
l
Servicer Indemnified
Party
in
good
faith
pursuant
to the Asset Trust Ill
Pooling
and
Servicing Agreement, or for errors i
n
judgment; provided,
however, that the Asset Trust I
l
l
Servicer will not be protected against any liability that would otherwise
be
imposed by reason o
f
willful misfeasance, bad faith or gross negligence i
n the
performance o
f
duties or by reason of reckless disregard o
f
obligations and duties thereunder. The Asset Trust I
l
l
will further
provide
that
any Asset Trust
I
l
l Servicer Indemnified
Party i
s entitled to indemnification
b
y Asset Trust
I
l
l
and will be held harmless
against any loss, liability
or expense incurred i
n connection with any legal action relating t
o
the Asset Trust I
l
l
Pooling and
Servicing Agreement or the certificates issued thereunder
( except any
such loss, liability, or expense
otherwise reimbursable
pursuant
to the Asset Trust
I
l
l
Pooling
and
Servicing Agreement)
and
any loss,
liability or expense
incurred
b
y
reason of willful misfeasance, bad faith or gross negligence i
n the
performance o
f
duties thereunder or by reason
of reckless
disregard o
f
obligations
and duties
thereunder. In addition, the Asset Trust
I
l
l
Pooling
and
Servicing Agreement
will
provide
that the Asset
81
CONFIDENTIAL
Return
Trust
I
l
l Servicer
i
s not under
any
obligation
t
o
appear i
n
,
prosecute or defend
any legal action that
i
s
not incidental to its responsibilities under the Asset Trust
I
l
l
Pooling
and
Servicing Agreement
and that
i
n its
opinion may
involve
i
t
i
n
any expense or liability.
The Asset Trust
I
l
l Servicer
may, however, in its
discretion undertake any such action that
i
t may deem necessary. or desirable with
respect to the
Asset Trust
I
l
l
Pooling
and
Servicing Agreement
and the
rights
and duties of the parties thereto and
the interests of the holders of the Asset Trust
i
l
l Class A Trust Certificate and the Asset Trust
I
I
I
Class A Trust Certificate. In such event, the legal expenses and costs
o
f
such action and
any liability
resulting therefrom will be expenses, costs and liabilities
o
f
Asset Trust Ill, and the Asset Trust
I
l
l
Servicer will be entitled to be reimbursed therefor and to charge the certificate account.
Asset Trust III Servicer Termination and Replacement.
Under the terms
o
f
the Asset Trust
I
l
l
Pooling
and
after the occurrence
o
f
any
one of several
typical
Asset Trust
I
l
l
Servicer termination events, including but not limited to a receivership with respect to the Asset Trust
l
i
i
Servicer or (subject to the expiration o
f
typical grace periods and materiality requirements) the failure
b
y the Asset Trust I
l
l
Servicer to make required deposits to the certificate account, the Company may
I
l
l Servicer.
I
f the Asset Trust
I
l
l Servicer
i
s removed
b
y the Company, the
Company shall have the sole power t
o appoint a replacement Asset Trust
I
I
I
Servicer.
The Asset Trust III Servicers Third
Party
Vendors and Service Providers. Under the Asset
Trust
I
l
l
Pooling
and
I
l
l Servicer may perform its servicing
responsibilities through agents or independent contractors, but will not thereby be released from any
o
f
its responsibilities
thereunder. The Asset Trust I
l
l
Servicer expects that
i
t will outsource some other
of its responsibilities pursuant to these provisions, which services may include some or all of the
following: (
i
)
certain collection- related activities on early stage delinquent loans, (
i
i
) processing and
monitoring of foreclosure actions, (
i
i
i
) processing and monitoring o
f
mortgagors bankruptcy proceed
ings, (
i
v
)
preservation
of properties related to
delinquent loans, (
v
)
maintenance, marketing and sale
of real-estate- owned properties, (
v
i
)
assuring
that hazard insurance
coverage i
s maintained, (vii)
deter
mining
whether flood insurance boverage
i
s required and assuring that
any required coverage i
s
maintained, ( viii) tax bill procurement and tracking of delinquent tax payments, (
i
x
)
printing
and
mailing
billing statements, Flex-5 ARM notices and default notices and (
x
)
depositing mortgagor payments into
a lockbox account. From time to time, the Asset Trust Ill Servicer may cease to outsource one or
more
o
f
the
foregoing servicing
functions or
may
choose to outsource additional servicing functions.
Some vendors may perform more than one function, and some functions may be performed
b
y more
than one vendor.
The Asset Trust
I
l
l Servicer has entered into service level agreements with some of its vendors,
which set forth detailed performance criteria, including i
n some cases minimum time
requirements
for
completing specified
tasks and maximum error rates, and which
i
n some cases impose penalties for
I
l
l Servicer will monitor vendor compliance with
applicable servicing criteria through procedures that may
include reviewsof statistical samplings o
f
Flex- 5 ARMs and reviews of reports on vendor performance prepared
b
y the vendor or the Asset
Trust
I
l
l Servicer.
The Asset Trust Ill Servicers
Quality
Control Procedures
The Asset Trust
I
l
l
Servicer uses a combination
o
f
to ensure the accuracy
and
integrity o
f
servicing records. Management
controls include the use of
approval levels, the segregation o
f
duties, and reconciliations of servicing data and accounts, among
others. Technology controls include the use of data security controls and interface controls to ensure
that only authorized
persons
have the ability to access and change system data or to submit data to
or receive data from vendors and investors.
Specific security profiles
for each
job
function include a
predetermined
set of data security controls that are appropriate for that job function. The regional data
center for the Fidelity System,
which
i
s located
i
n Jacksonville, Florida,
i
s
kept i
n a fire resistant
environment, and commercial electrical
power i
s backed
up by generators.
82
CONFIDENTIAL
Return
I
n addition, the Asset Trust
I
l
l Servicer conducts periodic
internal audits
o
f
critical servicing and
technology functions. External audits by entities such as the Fannie Mae, Freddie Mac and Ginnie
Mae and the annual examination by WMIs independent accountants
i
n connection with their audit of
WMI and its subsidiaries may provide independent verification
o
f
the adequacy o
f
such functions. -
b
y the Asset Trust
I
l
l
Servicers regulatory authorities may provide additional
independent review
o
f
the Asset Trust
I
l
l Servicers management controls.
Both the Asset Trust Ill Servicer and
Fidelity maintain detailed business continuity plans
so that
each entity can resume critical business functions
i
n the event of a disaster or other serious system
outage,
which plans are reviewed and
updated periodically. Fidelity i
s
contractually obligated to return
the Asset Trust
I
l
l Servicer to full
functionality within 48 hours of a reported system outage.
The Asset
Trust
I
l
l Servicer and
Fidelity perform
annual disaster
recovery
tests
i
n which they reroute data and
servicing system operations
to
Fidelitys backup site, and then
process sample transactions from all
servicing locations to ensure the functionality of such backup site.
I
t
i
s the Asset Trust
I
l
l Servicers
policy to require
its other third
party
vendors to implement
measures similar to those described above to ensure the accuracy and integrity of servicing records.
The Asset Trust Ill Custodian
Washington Mutual Bank will act as custodian (the Asset Trust I
I
I
Custodian) for Asset Trust
I
I
I
pursuant t
o a Custody Agreement, to be entered into on or before the closing date (the Asset Trust
I
/ I
Custody Agreement), among the Asset Trust
I
I
I
Trustee, the Asset Trust I
l
l
Servicer and the Asset
Trust
I
l
l Custodian. The Asset Trust Ill Custodian will hold the notes, mortgages and other legal
documents related to the Flex- 5 ARMs (collectively, the Asset Trust III Loan Documents)
for the
benefit of the Asset Trust III Trustee. The Asset Trust
I
l
l Custodian will be required to maintain the
Asset Trust III Loan Documents
i
b
y the
Asset Trust III Servicer will not be
required to be
from Asset Trust
I
l
l Loan
Documents
i
n the Asset Trust
I
l
l Custodians
custody
butwill be kept i
n shared facilities. The Asset
Trust
I
I
I Custodian will be required to review the Asset Trust
I
I
I Loan Documents related to each Flex-
5 ARM and deliver to the Asset Trust
I
l
l Trustee a certification to the effect that, except as noted
i
n
the certification, all required
documents have been executed and received.
I
n the event
o
f
the termination
o
f
the Asset Trust
I
I
I
Custody Agreement, the Asset Trust
I
l
l
Custodian will be required to deliver the Asset Trust
I
I
I
Loan Documents
i
n the Asset Trust
I
l
l
Custodians custody t
o the Asset Trust
I
I
I
Trustee or any successor Asset Trust I
l
l
Custodian
appointed
b
y the Company.
The Asset Trust III Servicer
may,
but does not currently, pay
the Asset Trust
I
l
l Custodian a fee
for its services under the Asset Trust III Custody Agreement
from time to time.
Payment o
f
this fee will
not affect distributions to the Company.
83
CONFIDENTIAL
Return
WMI
General
WMI
i
s
a Washington corporation. I
t
owns two federal savings associations as well as numerous
nonbank subsidiaries. WMI
i
s a multiple savings
and loan
holding company.
As a savings
and loan
holding company,
WMI
i
s
subject
to
regulation
b
y the OTS.
WMIs federal
savings
associations are subject
to extensive
regulation
and examination
by
the
OTS, their
primary
federal
regulator, as well as the Federal Deposit Insurance Corporation ( FDIC).
WMIs nonbank financial subsidiaries are also subject
to various federal and state laws and
regulations.
All of WMIs
banking
subsidiaries are under the common control of WMI and
are insured by the
FDIC.
I
f
an insured institution fails,
claims for administrative
expenses o
f
the receiver and for
deposits
i
n U. S. branches
(including
claims. of the FDIC as
subrogee
of the failed
institution)
have
priority over.
the claims of
general
unsecured creditors. In addition, the FDIC has
authority
to
require any o
f
WMIs
banking
subsidiaries to reimburse
i
t for losses
i
t incurs
i
n connection either with the failure of another
of WMIs banking subsidiaries or with the FDICs provision o
f
assistance to one of WMIs banking
subsidiaries that i
s
i
n
danger o
f
failure.
Holding Company
Status and
Acquisitions
WMI
i
s
a multiple savings
and loan
holding company, as defined
b
y federal law, because
i
t
owns
more than one savings
association. WMI
i
s
regulated
as a unitary savings
and loan
holding company,
however, because the OTS deems WMIs federal savings associations to have been acquired i
n
supervisory transactions. Therefore, WMI i
s
exempt
from certain restrictions that would otherwise
apply under federal law to the activities and investments o
f
a multiple savings and loan
holding
company. These restrictions will apply t
o
WMI i
f
any o
f
WMIs
banking
institutions fails to meet a
qualified
thrift lender test
established
b
y federal law. As of June 30, 2007, WMIs
banking subsidiaries,
were i
n
compliance
with
qualified
thrift lender standards.
WMI
may
not
acquire
control of another
savings
association without the
prior approval
of the
OTS. WMI
may
not be
acquired
b
y
a company,
other than a bank
holding company,
unless the OTS
approves
such an acquisition, or
b
y
an individual unless the OTS does not
object
after
receiving
notice. WMI
may
not be
acquired
b
y
a bank
holding company unless the Board
o
f
Governors
o
f
the
Federal Reserve
System ( the
Federal
Reserve) approves.
In
any case, the
public
must have an
opportunity
to comment on the
proposed acquisition,
and the OTS or Federal Reserve must
complete
an application
review. Without
prior approval
from the OTS, WMI
may
not
acquire more than 5% of
the
voting
stock
o
f
any savings
institution that
i
s not one of WMIs subsidiaries.
The
Gramm-Leach- Bliley
Act
generally
restricts
any
non- financial
entity
from
acquiring
WMI
unless such non- financial entity was, or had submitted an application to become, a savings and loan
holding company as o
f
May 4
,
1999. Because WMI was treated as a unitary savings
and loan
holding
company prior to that date, WMI
may engage i
n non- financial activities and acquire non- financial
subsidiaries.
Recent
Developments
On October 17, 2007, the WMI
Group
announced its results
o
f
operations
for the
quarter
ended
September 30, 2007. The WMI
Groups
net income was $210 million
i
n the third
quarter
of
2007,
compared
with net income of $748 million
i
n the third
quarter o
f
2006 and $830 million
i
n the second
quarter
of 2007.
Net interest income was $2.014 billion
i
n the third
quarter
of 2007, compared
with $1 .947 billion
i
n the third
quarter
of 2006 and $2.034 billion
i
n the second
quarter o
f
2007.
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CONFIDENTIAL
Return
Non-performing
assets were approximately $5.5 billion, or 1.65%
o
f
total assets, at
Septem
ber 30, 2007, compared
with
approximately $2.40 billion or 0.69%, a
t
September 30, 2006 and
approximately $4.03 billion, or 1.29%, at June 30, 2007. The provision for loan and lease losses was
$967 million
i
n the third
quarter o
f
2007, compared
with $166 million
i
n the third
quarter o
f
2006 and
$372 million i
n the second
quarter o
f
2007. This resulted i
n the WMI Groups allowance for loan and
lease losses increasing t
o
$1.9 billion a
t
September 30, 2007, up 21% from June 30, 2007.
Total assets at
September 30,
2007 were $330.1 billion, compared
to $348.9 billion at
Septem
ber 30, 2006 and $312.2 billion at June 30, 2007. Total net loans held
i
n
portfolio,
net of allowance for
loan and lease losses at
September 30, 2007 were $235.2 billion, compared
to $240.2 billion at
September 30,
2006 and $213.4 billion atJune 30, 2007.
WMI
Groups
results for the third
quarter
of 2007 reflect adverse developments
in the
mortgage
lending
business (and i
n the
housing
market more generally)
and related
volatility
and
liquidity
constraints
i
n the
capital
markets since June 30, 2007.
I
t
appears
that those developments
will be
significantly worse and longer lasting than originally expected.
The
consequences
for the WMI
Group
have included:
For the foreseeable future, the WMI Group likely will have higher level o
f
non- performing
assets leading to higher
levels
o
f
provisions and chargeoffs compared to periods prior to the
second
quarter o
f
2007.
Disruptions i
n the capital markets continue t
o affect the ability o
f
mortgage originators,
including WMB, t
o sell
mortgage
loans to the
capital
markets
through
whole loan sales or
any
securitization format. Loans held
i
n
portfolio
b
y the WMI
Group
increased
during
the third
quarter as a result of its retention of loans that
i
n the
past i
t would have sold
through
whole
loan sales or securitization format. Such retained loans consist
primarily
of
nonconforming
loans.
For additional information
regarding
the WMI Groups results for operations
for the
quarter
ended
September 30, 2007, please see WMIs
press release, dated October 17, 2007, which was furnished
to the SEC on Form 8-K on October 17, 2007 and which
i
s
incorporated by reference in this
Offering
Circular. See Where You Can Find More Information.
85
CONFIDENTIAL
Return
WMB
i
s the Asset Trust I
Servicer,
the Asset Trust I
I
Servicer, the Asset Trust
I
l
l Servicer and
the
originator o
f
the HELs held
b
y the
Company through
Asset Trust
I
, the
Option
ARMs held
b
y the
Company through
Asset Trust
I
I and the Flx- 5 ARMs h~id
by
the
Company through
Asset Trust Ill.
WMB
i
s
expected
to be the servicer and
may
be the
originator
with
respect
to
any
Additional Assets.
University
Street
i
s
an indirect
subsidiary
of WMB. The
Company i
s
a subsidiary o
f
University
Street.
There i
s not currently, and there was not during the past two years, any
material business
relationship, agreement, arrangement,
transaction or understanding that i
s or was entered into outside
the ordinary course o
f
business oc i
s or was on terms other than would be obtained
i
n
an arms-length
transaction with an unrelated third
party, between (
i
) any o
f
WMB or University Street, on the one
hand, and
(
i
i
)
any
of the
Company,
Asset Trust
I
, Asset Trust
I
I
, Asset Trust I
l
l
or the Trust, on the
other hand.
The
Company
will
periodically
reimburse WMB for
general
overhead
expenses incurred
b
y WMB
on behalf of the
Company.
The
Company expects that the amount
o
f
such reimbursements will be
de minimis.
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CONFIDENTIAL
Return
DESCRIPTION OF THE TRUST SECURITIES
The
foflowing summary
describes the material terms and
provisions o
f
the Trust
Securities, which
will
represent
undivided beneficia
ownership
interests
i
n
a like amount
o
f
Series 2007- B
Company
b
y the Trust. This
description i
s
qualified i
n its
entirety
b
y reference
t
o the
terms and
provisions
of the Trust
Agreement.
A
copy o
f
the Trust
Agreement may
be obtained
upon
request
to WMI.
General
The
Fixed-to-Floating
Rate
Perpetual
Non-cumulative Trust Securities, liquidation preference
$100,000 per security (the Trust Securities), o
f
the Trust are beneficial ownership interests i
n the
Trust, the terms o
f
which are set forth
i
n the Trust
Agreement.
The
aggregate liquidatioi preference o
f
i
s
$1,000,000,000.
The funds
o
f
the Trust available for distribution to the holders
of the Trust Securities will be limited
solely
to
payments
received
b
y the Trust from the
Company
as
dMdends
on, or upon redemption o
f
,
the Series 2007- B
Company
Preferred Securities, which
payments
will be
passed through upon receipt
b
y the Trust to the holders of the Trust Securities.
Consequently, i
f the
Company
does not
pay any
dividend or make
any redemption payment on the
Series 2007- B
Company
Preferred Securities, the Trust will not have funds to make the related
distribution or redemption payment on the Trust Securities. Distributions on and the
redemption price
o
f
each Trust
Security
will be
passed through
to the holders of the Trust Securities on the same dates
and
i
n the same amounts as the
corresponding
dividends and
redemption price, as applicable,
that
are paid
b
y the
Company
to the Trust on a like amount of Series 2007- B
Company
Preferred
Securities; provided, that
i
f
any
such
payment
of dividends or redemption price i
s received
b
y the Trust
after 2:00 PM. New York time, such payment will instead be passed through to the holders of the
Trust Securities on the next day
that
i
s
a Business
Day. The Dividend
Payment
Dates and related
Dividend Periods are the same for the Trust Securities and the Series 2007- B Company Preferred
Securities, and, accordingly,
the terms Dividend
Payment Date, Dividend Period and Business
Day
have the same meanings as applied
to each of those securities.
The Trust Securities are automatically exchangeable
under certain circumstances into a like
amount of Depositary
Shares. See Conditional Exchange.
Under the Trust
Agreement,
the Trust
i
s
prohibited
from
issuing any
securities other than the
Trust Securities.
The Trust Securities are
not
obligations of, or guaranteed by, WMI, WMB, Marion, Seneca, the
Company, University Street, Trust
I
, Trust
I
I
, Trust
I
l
l
, WaMu
Cayman or any
of their
respective
affiliates or any
other
entity.
The Trust Securities represent equity
interests
solely
in the Trust and do
not represent an interest
i
n
any
of the
foregoing
entities.
Distributions
Distributions on the Trust Securities will be
passed through on each date on which the
Company
pays
to the Trust dividends on the Series 2007- B
Company
Preferred Securities owned
b
y the Trust,
i
n an amount
per
Trust
Security equal
to the amount of dividends received
by
the Trust on such date
on a like amount
o
f
Series 2007- B
Company
( including
Additional Amounts, i
f
any); provided,
that
i
f
any
such
payment
of dividends
i
s received
b
y the Trust after 2:00 PM. New York
time, such
payment
will instead be
passed through
to the holders
o
f
the Trust Securities on the next
day
that
i
s a Business
Day. Accordingly:
i
f the
Company pays
full dividends on a Dividend
Payment
Date for the Series 2007- B
Company
pass through corresponding
full distributions on
the Trust Securities on such Dividend
Payment Date;
87
CONFIDENTIAL
Return
i
f the
Company pays partial dividends on a Dividend
Payment
Date for the Series 2007- B
Company
pass through partial
distributions in the same
proportionate
amount on the Trust Securities on such Dividend
Payment Date; and
i
f the
Company pays no dividends on a Dividend Payment Date for the Series 2007B
Company
Preferred
Securities,
the Trust will not
pass through any
distributions on the
Trust Securities on such Dividend
Payment
Date.
See
Description o
f
the Series 2007- B
Company
Preferred Securities Dividends.
The record date for distributions on the Trust
Securities
will be the first
day
of the month
i
n which
the relevant Dividend
Payment
Date occurs or, i
f
any
such
day i
s not a Business
Day,
the next
day
that
i
s
a Business
Day.
Dividends on the Series 2007- B
Company
Preferred Securities are noncumulative.
Accordingly,
distributions on the Trust Securities are noncumulative. I
f
the Trust passes through no distributions or
less than full distributions on the Trust Securities on a Dividend Payment Date because i
t received no
dividend or less than full dividends on the Series 2007- B Company
Preferred Securities, holders o
f
Trust Securities will have no
right
to receive,
and the TrUst will have no obligation to
pass through,
such
unpaid
distributions at a future, date, whether or not dividends or distributions are paid on a
future Dividend
Payment
Date on the
Company
Common Securities or the Trust Securities.
Under certain circumstances, i
i
s
operating
with an insufficient
level of
capital or i
s
engaged in, or its
relationship
with the
Company
results
i
n
,
an unsafe and
unsound
banking practice,
the OTS could restrict
payment
of dividends
by
the
Company on the
Series 2007- B
Company
Preferred Securities, resulting i
n
a corresponding
restriction
i
n the distribu
tions passed through by
the Trust to the holders of the Trust Securities. The
Outstanding Company
Preferred Securities, the Trust I Securities, the Trust I
I
Securities, the Trust
I
I
I
Securities and the
WaMu Cayman Securities are also subject to such action
b
y
the OTS.
WMI will covenant i
n
the Exchange Agreement
for the benefit
o
f
the holders
o
f
the Trust Securi
ties that i
f for any Dividend Period full dividends on (
i
) the Series 2007- B Company Preferred
Securities or (
i
i
) the Trust Securities have not
been declared and
paid, then, as described under
Description
Company
Preferred Securities Restrictions on Dividends
by
WMI, WMI will not declare or pay
dividends with respect to, or redeem, purchase or acquire, any
of
its
equity capital
securities
during
the next
succeeding
Dividend Period, except
dividends
i
n connection
with a shareholders
rights plan, i
f
any, or dividends i
n connection with benefits plans. WMI entered
into similar
exchange agreements
that included
equivalent
covenant
i
n connection with the issuance of
the
Outstanding Company
Redemption
The Trust Securities will not be redeemable at the
option o
f
the holders thereof. On each
day on
which the Company redeems Series 2007- B Company Preferred Securities, the Trust will redeem a
like amount o
f
Trust Securities for a redemption price i
n the same amount as the
corresponding
redemption price paid to the Trust on a like amount o
f
Series 2007- B
Company
Preferred Securities;
provided,
that
i
f
any
such
payment
of the
redemption price i
s received
by
the Trust after 2:00 P.M.
New York time, the Trust will redeem the like amount of Trust Securities on the next
day
that
i
s a
Business
Day. See Description
Company
Redemption.
I
f the redemption of the Series 2007- B
Company
i
s
i
n
part instead of
i
n
whole on any redemption date, then the
particular
Trust Securities to be redeemed will be selected
not more than 60
days prior
to the
redemption
date
b
y the
Property
Trustee from the
outstanding
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CONFIDENTIAL
Return
Trust Securities not previously called for
redemption,
b
y such method as the
Property
Trustee deems
fair and appropriate.
A notice o
f
redemption of the Trust Securities will be mailed
b
y first class mail, postage prepaid,
addressed to the holders
o
f
record
o
f
the securities t
o
be redeemed a
t
their respective last addresses
appearing on the books and records
o
f
the Trust. Such
mailing
will be
a
t
least 30 days but not more
than 60
days
before the date fixed for
redemption.
Restriction on Redemption or Purchases
At or prior
to the initial issuance of the Trust Securities,
WMI will enter into a Replacement
Capital
Covenant
relating
to the Trust Securities, the Series 2007- B
Company
the
Depository Shares and the Series N WMI Preferred Stock that
may
be issued
upon a Conditional
Exchange (collectively
the
Replacement
Covenant Covered
SecuritieS).
The
Replacement Capital
Covenant will
only
benefit holders of Covered Debt (
a
s
defined
below)
and will not be enforceable
b
y
holders of Trust Securities or any
other
Replacement
Covenant Covered Securities. However, the
Replacement Capital
Covenant could preclude WMI from
redeeming or purchasing Replacement
Covenant Covered Securities at a time WMI
might
otherwise wish to do so.
I
n the
Replacement Capital Covenant, WMI will covenant to redeem or purchase Replacement
Covenant Covered Securities
only i
f and to the extent that the total
redemption or purchase price i
s
equalto or less than
designated percentages o
f
the net cash proceeds thatWMI or its subsidiaries
have received
during the 180 days prior to the redemption or purchase from the issuance of WMI
common stock, noncumulative perpetual preferred stock or certain other securities or combinations
o
f
securities
satisfying the requirements o
f
the Replacement Capital Covenant.
WMIs
abilityto raise proceeds
from
qualifying securities during the 180 days prior t
o
a proposed
will
depend on, among
other
things,
market conditions at such times as well
as the
acceptability
to
prospective investors
o
f
the terms
o
f
such
qualifying
securities.
WMIs covenants
i
n the
Replacement Capital Covenant will run i
n favor of
persons
that
buy,
hold
or
sell WMIs indebtedness
during
the
period
that such indebtedness
i
s Covered Debt
, which
i
s
currently comprised
of WMIs 4.625% Subordinated Notes due 2014, bearing CUSIP No. 939322AN3.
Other debt will
replace
WMIs Covered Debt under the
Replacement Capital
Covenant on the earlier
to occur of
(
i
)
the date two
years prior to the
maturity
of the
existing
Covered
Debt, (
i
i
) the date of a
redemption or purchase o
f
the
existing
Covered Debt
i
n
an amount such that the
amount of the
existing
Covered Debt
i
s or will become less than $100 million.
The
Replacement Capital
Covenant will be
subject
to various additional terms and conditions
and this
description i
s
qualified
in its
entirety
b
y reference to the Replacement Capital Covenant, a
copy of the form of which i
s available upon request from WMI. The Replacement Capital Covenant
may be terminated
i
f the holders
o
f
a
t
least 51%
o
f
the
principal amount o
f
the Covered Debt so
agree, or i
f WMI no longer has outstanding any long- term indebtedness that qualifies as Covered
Debt,
without
regard t
o whether such indebtedness
i
s rated
by a nationally recognized
statistical
rating
organization.
The
Replacement Capital
Covenant will terminate on October 25, 2017 without
any
action
by
WMt or any
other
person.
Subject
to the limitations described above and the terms
o
f
any preferred
stock
ranking
senior to
the Trust Securities or of
any outstanding
debt instruments, WMI or its affiliates
may
from time to time
purchase any outstanding
shares
o
f
b
y
tender, i
n the
open
market or
by private agreement.
In
addition, upon
the
expiration
of the
Replacement Capital
Covenant
i
n October
25, 2017,
WMI
and the
Company
intend that, to the extent the Series 2007- B
Company
Preferred Securities and the
related Trust Securities
provide
WMI with
equity
credit from a nationally recognized rating agency
at
the time of redemption or repurchase of such securities, WMI will purchase and/ or the Company will
redeem or purchase (but, i
n the case of the
Company, only to the extent such
redemption or
89
CONFIDENTIAL
Return
purchase i
s funded, directly or indirectly,
b
y WMI and its subsidiaries, other than WMB and its
subsidiaries)
the Series 2007- B
Company
Preferred Securities and the related Trust Securities, as
applicable, only
to the extent that the amount
paid by
(other
than WMB and
its
subsidiaries),
net
o
f
fees and
expenses,
inconnection with such
redemption or repurchase
does
not exceed the net proceeds received by
WMI
(and, i
n the case of the Company, made available to
the
Company i
n connection with a redemption or purchase by
i
t
) from the sale or issuance, during
the
180- day period prior
to the notice date for such
redemption or purchase,
b
y WMI or its subsidiaries,
other than WMB and its
subsidiaries,
to
third- party purchasers,
other than a subsidiary
of
WMI,
of
securities for which WMI will receive
equity credit, at the time
o
f
sale or issuance,
that
i
s
,
i
n the
aggregate, equal
to or greater
than the
equity
credit attributed to WMI from the 2007- B
Company
Preferred Securities at the time of such redemption or repurchase. The determination of the equity
credit attributable to the 2007- B
Company
Preferred Securities and the related Trust Securities that
may be redeemed or purchased, as applicable, may result i
n the issuance o
f
an amount o
f
new
securities that may
be less than the
f
the 2007- B
Company
Preferred
Securities and related Trust Securities redeemed or purchased, depending upon,
inter
a
/
ia, the nature
o
f
the new securities issued and the
equity
credit attributed
b
y
a nationally recognized rating agency
to the Series 2007- B
Company
Preferred Securities redeemed or purchased
and the new securities.
Upon
the occurrence o
f
an Exchange Event, the
foregoing
shall
apply
to the Series N WMI Preferred
Stock mutatis mutandis. Unlike the
specific agreements
set forth
i
n the
Replacement Capital
Covenant, the
foregoing represents
WMIs and the
Companys
intentions with
respect t
o the 2007- B
Company
Voting Rights
Except as set forth below, the holders o
f
Trust Securities will have no
voting rights.
I
n the event that the Trust
i
s entitled to exercise its
voting rights
with
respect
to the Series 2007- B
Company
Preferred Securities, each holder
o
f
right
to direct the manner
i
n which the
Property
Trustee on behalf
o
f
the Trust exercises such
voting rights
with respect to a like
amount of Series 2007- B Company Preferred Securities on a proportionate basis. I
f
the Property
Trustee receives notice from the Company that the Trust, as holder of Series 2007- B Company
Preferred Securities, i
s entitled to vote on any matter, promptly after learning o
f
such entitlement, the
Property
Trustee shall cause t
o be mailed to each holder
o
f
Trust Securities notice
o
f
such vote
( including a description
of the
subject
matter of the vote and related circumstances to the extent
known to the
Property Trustee), along
with a copy
of
any
notice. or other written communication
received
b
y the
Property
Trustee from the
Company
with respect t
o such vote and related matters.
I
n
each such notice, the
Property
Trustee shall
request
direction from each holder
o
f
Trust Securities as
to how the Trust as a holder of Series 2007- B
Company
Preferred Securities shall vote on the matter
a
t
issue. Each holder of Trust Securities shall have the
right
to direct the manner i
n which the
Property.
Trustee on behalf of the Trust exercises such
voting rights
with
respect
to a like amount
o
f
Series 2007- B
Company
Notwithstanding
the
description
above of the
voting rights
available to holders of the Trust Secu
rities under the Trust
Agreement,
such
voting rights may
be exercised
only by a beneficial owner of a
Trust
Security
that
i
s a U. S. Person or
b
y
a U. S. Person
acting as irrevocable
agent
with
discretionary
powers
for the beneficial owner of a Trust
Security
that
i
s not a U. S. Person. Beneficial owners o
f
Trust Securities that are not U. S. Persons must
irrevocably appoint a U. S. Person with
discretionary
powers
to act as their agent with respect to such voting rights. As used i
n this paragraph, the term
U. S. Person means, for United States federal income
tax. purposes, a citizen or resident
o
f
the
United States, a corporation
created or
organized i
n or under the laws of the United States or
any
state, an estate the income o
f
which i
s includible i
n
gross income for United States federal income tax
purposes regardless o
f
its
source, or a trust i
f
a court within the United States
i
s able
t
o exercise
primary supervision over its administration and one or more United States
persons
have
authority to
control all substantial decisions
o
f
the trust.
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CONFIDENTIAL
Return
I
n the case where the
Company,
the
Property
Trustee and the Delaware Trustee wish to enter
into one or more agreements supplemental
to the Trust
Agreement, they may
do so without the
consent
o
f
the holders of the Trust Securities for the
following purposes: (
i
)
to evidence the succession
of another
entity,
to the
Company
and the
assumption
b
y
any
such successor of the covenants of the
Company
contained
i
n the Trust
Agreement; (
i
i
) to add to the covenants of the
Company
for the
benefit
o
f
the holders of the Trust Securities, or to surrender
any right or power
conferred
upon
the
Company; (iii)(
a
)
to correct or supplement any provision
of the Trust
Agreement
which
may
be
defective or inconsistent with
any
other
provision
therein or (
b
)
to make
any
other
provisions
with
respect to matters or questions arising
under the Trust
Agreement, provided,
that
any
such action
taken under this clause
(
i
i
i
) shall not
materially adversely
affect the interests of the holders of the
Trust Securities; or (
i
v
)
to cure any ambiguity or correct
any
manifest error. Any
other amendmentor
agreement supplemental to the Trust Agreement must be i
n
writing and approved by a majority of the
holders
(
b
y
aggregate liquidation preference) o
f
the Trust Securities then
outstanding, provided, that,
for the purpose of such approval, any Series 2007- B Company Preferred Securities that are directly or
indirectly held or beneficially owned by any member o
f
the WMI Group will be treated as i
f
they were.
not
outstanding.
Conditional
Exchange
Each Trust
Security
will be
exchanged automatically
for a like amount of
newly
issued
Depositary
Shares, each
representing a 1/ 1000th interest
i
n
one share of Series N WMI Preferred Stock, i
f the
OTS so directs
i
n
writing upon or after the occurrence of an Exchange
Event. An
Exchar~
g
e Event
will occur when:
WMB becomes undercapitalized under the OTSs
prompt
corrective action
regulations;
WMB
i
s
placed
into
conservatorship
or receivership; or
the OTS,
in its sole discretion, anticipates
WMB
n the near term
or takes a supervisory
payment
of dividends
b
y WMB and
i
n connection
therewith, directs an exchange.
For
purposes
of this
offering circular,
this
exchange i
s referred to
as
the Conditional
Exchange~
I
following
the occurrence of an Exchange Event, each holder of Trust Secu
rities will be
unconditionally obligated
to surrender to WMI or its
agent any
certificates
representing
the Trust Securities owned by such holder, and WMI will be unconditionally obligated to issue to such
holder, i
n
exchange
for each such Trust
Security, a depositary receipt representing a like amount
o
f
Depositary Shares. Any Trust Securities purchased or redeemed by WMI or any of its affiliates prior to
the time o
f
exchange will not be deemed
outstanding
and will not be
subject to the Conditional
Exchange.
The Conditional
Exchange
will occur as of 8:00 A.M. New York time, on the date for such
exchange
set forth
i
n the
applicable
OTS directive, or i
f such date
i
s not set forth
i
n the directive, as of
8:00A. M.,
New York
time, on the earliest possible
date such exchange
could occur consistent with
the directive, as evidenced
b
y the issuance
b
y WMI
o
f
a press
release
prior
to such time. As of the
time of
exchange,
all
o
f
the Trust Securities will be transferred to WMI without any
further action
by
the Trust, all
rights
of the holders of Trust Securities as holders
o
f
i
n the Trust will
cease, and such
persons
will be, for all
purposes,
the holders of
Depositary
Shares.
WMI will mail notice of the issuance of an OTS directive after the occurrence of an Exchange
Event to each holder of Trust Securities within 30
days,
and WMI will deliver
(
o
r
cause to be
delivered)
to each such holder
depositary receipts
for
Depositary
Shares
upon
surrender of the Trust Securities.
Until such depositary receipts are delivered or i
n the event such depositary receipts are not delivered,
any certificates previously representing
Trust Securities will be deemed for all
purposes to represent
Depositary
Shares. All corporate authorization necessary for WMI to issue the Depositary Shares and
the Series N WMI Preferred Stock as o
f
the time
o
f
exchange
will be
completed prior to or upon
91
CONFIDENTIAL
Return
completion
of this
Offering. Accordingly, once the OTS directs a Conditional
Exchange
after the
occurrence
of an
Exchange Event, no action will be
required t
o be taken
by
holders of Trust
Securities,
b
y
WMI,
b
y WMB
(other
than to inform the
OTS),
b
y the
Company or by
the Trust
i
n order to effect
the automatic
exchange as of the time of
exchange.
After the occurrence o
f
the Conditional
Exchange, .. -
the Trust Securities will be owned
b
y WMI.
Holders of Trust Securities,
b
y
purchasing
such securities, Whether in this
Offering or i
n the
secondary
market after this Offering, will be deemed to have
agreed
to be bound
b
y the unconditional
obligation
to
exchange
such Trust Securities for
Depositary
Shares i
following
the
occurrence of an Exchange
Event. The Trust
Agreement provides
that the holders of Trust Securities
will be
unconditionally obligated
to surrender such Trust Securities. Prior to issuance of the Trust Secu
rities, WMI will enter into an Exchange Agreement (the Exchange Agreement) among WMI, the Trust
and Mellon Investor Services LLC, as
depositary (the Depositaiy),
to
implement
the Conditional
Exchange.
Holders o
f
Trust Securities cannot exchange
their Trust Securities for
Depositary
Shares
voluntarily.
Absent an OTS directive after the occurrence o
f
an Exchange Event, no exchange o
f
the
Trust Securities for Depositary
Shares will occur. Upon the issuance of an OTS directive on or
following
the occurrence o
f
an Exchange Event, the Series N WMI Preferred Stock and the related
Depositary Shares to be issued
i
n the Conditional
Exchange
will constitute a newly
issued series Of
preferred
stock
o
f
WMI and will have
substantially
similar terms and
provisions
with
respect
to
dividends, liquidation,
and
redemption as the Series 2007- B
Company
Preferred Securities, except
that the
Depositary
Shares:
will not have the benefit of the favorable covenants, including
with
respect
to
any
additional
taxes,
described under
Description
Company
Voting Rights
and Covenants;
will be redeemable prior to the Dividend Payment Date occurring in December 2017 only upon
the occurrence o
f
Event or a Rating Agency
Event or payment o
f
a
U. S.
Treasury- based
make- whole amount; and
Additional Amounts will not be
payable
with respect to the Series N WMI Preferred Stock as
described under.
In addition, i
f WMI fails to
pay, or declare and set aside for
payment,
whether or not
consecutive,
full dividends on the Series N WMI Preferred Stock after its issuance or any
then
outstanding Voting
Parity
Securities for six Dividend
Periods,
the authorized number of WMIs directors will increase
b
y
two, and the holders of Series N WMI Preferred Stock, voting together
with the holders of
any
other
Voting Parity Securities, such as the Series I WMI Preferred Stock, Series J WMI Preferred Stock,
Series L WMI Preferred Stock and Series M WMI Preferred Stock issuable
upon an Exchange
Event
i
n
exchange
for the Trust I Securities, the WaMu
Cayman Securities, the Trust
I
I Securities or the
Trust
I
l
l
Securities, as applicable,
will have the
right
i
n addition to the directors
then i
n office at the next annual meeting of shareholders.
WMI will covenant i
n the Exchange Agreement i
n favor
o
f
the holders
o
f
prior t
o the issuance
o
f
the Series N WMI Preferred Stock upon a Conditional Exchange, WMI will not
issue any preferred stock that would rank senior to the Series N WMI Preferred Stock upon its
issuance. Each share
o
f
Series N WMI Preferred Stock will
upon
issuance rank at least
par! passu
with the most senior
preferred
stock of
WMI, i
f
any,
then
outstanding,
and to
any
other
preference
stock that WMI
may
issue
i
n the future. Absent the occurrence of a Conditional
Exchange,
holders of
Trust Securities will have no dividend, liquidation preference, redemption
Or other
rights
with
respect
to
any security
of WMI.
92
CONFIDENTIAL
Return
Form, Transfer and
Book- Entry
Procedures
The Trust Securities will be issued
only i
n
book- entry
form. See Book- Entry Issuance.
Payments
and
Paying Agent
Payments i
n
respect o
f
i
n the form
o
f
Global Securities will be made to the
address of the holder entitled thereto as such address will
appear on the
register.
The DTC nominee
( the Nominee)
will be the
registered
holder of the Trust Securities i
n the form
o
f
Global Securities.
Payments
made to the order
o
f
the Nominee will be made
by.
wire transfer to DTC and DTC will credit
The relevant accounts
o
f
the DTC
Participants. I
n the event that the circumstances described under
Book- Entry
Issuance
Form, Denomination, Transfer and
Book- Entry
Procedures
Special
Situa
tions When the Global
Security
Will Be Terminated
apply
and the Trust Securities are
not
i
n the form
of Global Securities, payments i
n
respect
of the Trust Securities will be made
by
wire transfer, direct
deposit or check mailed to the address
o
f
the holder entitled thereto as such address will
appear on
the securities
register.
The
paying agent ( the Paying Agent)
for the Trust Securities initially will be
Wilmington Trust Company (
i
n its individual capacity, WTC) and any co- paying agent will be
appointed
b
y the Trust. The
Paying Agent
and
any co- paying agent (collectively,
the
Paying Agents)
will be permitted to resign as Paying Agents upon 30 days written notice to the Company. I
n
the event
that WTC will no longer
be the
Paying Agent,
the
Company
will appoint a successor t
o act as Paying
Agent.
Registrar
and Transfer
Agent
WTC will act as Registrar (the Registrar)
and Transfer
Agent ( the Transfer
Agent)
for the
Trust Securities.
Registration o
f
transfers
o
f
Trust Securities will be effected without
charge
b
y or on behalf of the
Trust,
but the
Property
Trustee or the
Registrar
and Transfer
Agent
will
require, prior
to
registration,
payment (
O
r
the
giving o
f
such
indemnity as the
Registrar
and Transfer
Agent may require)
of a sum
sufficient
t
o
cover any
tax or other
governmental charges
that
may
be
imposed i
n connection with
any
transfer
o
f
definitive Trust Securities. The Trust will not be
required
to
register or cause to be
registered
the transfer of definitive Trust Securities
during
the
period o
f
15
days~
before the
day
of
selection for
redemption
of such Trust Securities and
ending
at the close of business on the
day
of
mailing o
f
the notice
o
f
redemption
for the Trust Securities that have been called for
redemption.
Expenses
of the
Paying Agent,
Transfer
Agent
and
Registrar
I
f
the
Paying Agent,
Transfer
Agent or Registrar incurs fees, charges
or expenses, for which i
t
i
s
not otherwise liable under the Agency Agreement, t
o
be entered into on or before the closing date,
among WTC, as Registrar,
Transfer
Agent
and
Paying Agent,
and the Trust
acting through
the
Property
Trustee at the
request o
f
a holder
o
f
Trust Securities or other
person,
such holder or other
person
will be liable for such fees, charges or
expenses.
Notices
Notices to the holders
o
f
the Trust Securities will be
given
b
y
delivery
of the relevant notice to
DTC and
any
other relevant securities clearing system
identified i
n
writing by the Trust for communi
cation
by
each of them to entitled
participants.
Listing
The Trust Securities will not be listed on any securities exchange or automated dealer quotation
system.
93
CONFIDENTIAL
Return
Governing
Law
The Trust Agreement and the Trust Securities will be governed
b
y and construed
i
n accordance
with the laws
o
f
the State of Delaware.
Restrictions on Transfer
For information
regarding restrictions on ownership and transfer
o
f
the Trust Securities, see
Notice to Investors.
94
CONFIDENTIAL
Return
DESCRIPTION OF THE SERIES 2007- B COMPANY PREFERRED SECURITIES
The following summary describes the material terms and provisions of the Series 2007- B
Company
Preferred Securities. This description is qualified in its entirety
b
y reference to the terms
and provisions
of the LLC
Agreement. A
copy
of the LLC
Agreement may
be obtained
upon request to
WMI.
General
The Fixed-to-Floating Rate Perpetual Non-cumulative Preferred Securities, Series 2007- B, liqui
dation preference $1,000 per security and $1,000,000,000
i
n the aggregate (the Series 2007- B
Company
Preferred Securities), are limited
liability company interests i
n the Company, the terms
o
f
which are set forth
i
n the LLC Agreement. When issued, the Series 2007- B Company Preferred
Securities will be validly issued, and no additional payments will be required pursuant to the LLC Act
for such securities to represent limited liability company interests i
n the
Company.
The holders of the
Series 2007- B Company Preferred Securities will have no pre-emptive rights with respect to
any
limited
liability company
interests
i
n the Company or
any
other securities
o
f
the Company
convertible
into or
carrying rights or options to purchase
any
such securities. The Series 2007- B Company
Preferred Securities are perpetual and will not be convertible into Company
Common Securities or
any
other class or series
o
f
limited
liability company
interests
i
n the
Company
and will not be subject
to
any sinking fund or other obligation of the Company for their repurchase or retirement.
The Series 2007- B Company Preferred Securities will be issued
i
n certificated form only.
The Series 2007- B Company
Preferred Securities are not obligations
o
f
,
or guaranteed by, WMI,
WMB, Marion, Seneca, University Street, the Trust, Trust
I
, Trust
I
I
, Trust Ill, WaMu Cayman any o
f
the Asset Trusts or any o
f
their
respective
affiliates or any
other entity. The Series 2007- B Company
Preferred Securities solely represent an interest
i
n the Company and do not represent an interest
i
n
any o
f
The Series 2007- B
Company
Preferred Securities are not insured or guaranteed
b
y the FDIC or
any
other insurer or governmental agency
or instrumentality.
Ranking
The Series 2007- B
Company
Preferred Securities will rank senior to the
Company
Common
Securities and will rank
pan passu
with
any
other series of Company Preferred Securities, including
the
Outstanding Company
i
n terms
o
f
payment o
f
dividends and on liquidation.
The Companys Board of Managers has the
power
to create and issue Junior Equity
Securities
and additional
equity
securities
ranking par! passu
with the Series 2007- B Company Preferred
Securities
i
n terms of dividends and liquidation payments (any such securities, the Parity Equity
Securities) without the consent of the holders of the Series 2007- B Company Preferred Securities,
provided, that (
i
)
after giving effect to the issuance of any Parity Equity Securities, the pro forma net
book value
o
f
the Companys assets (after giving effect to
any assets acquired by the Company i
n
connection with the issuance of such Parity Equity Securities ( New Assets)) will equal or exceed
1.5 times the sum
o
f
the aggregate liquidation preference
of the preferred
securities of the Company
then
outstanding
and
any
such Parity Equity Securities that the Company proposes
to issue, (
i
i
)
after
giving
effect to such issuance, the Companys pro
forma FF0 for the four fiscal
quarters beginning
with the fiscal
quarter i
n which such Parity Equity
Securities are proposed to be issued (calculated
(
a
)
assuming that such proposed Parity Equity
Securities are issued and that,
i
f
outstanding or
proposed new Parity Equity
Securities bear dividends based on a floating rate, the applicable dividend
rate will not change during such four fiscal quarters from the rate
i
n effect on the applicable date
o
f
determination, (
b
)
assuming,
to the extent
necessary,
for each mortgage loan bearing an adjustable or
floating interest rate and/ or having adjustable periodic payments, that
i
s
directly or indirectly owned
b
y
the Company that the interest rate
i
n the applicable mortgage note and the then effective minimum
95
CONFIDENTIAL
Return
monthly payment
determinedin accordance with such
mortgage
note will not
change during
such four
quarters from the rate and minimum
monthly payment i
n effect on the
applicable date of determination
and
(
c
)
as adjusted
to reflect
any
New
Assets) equals or exceeds 150%
o
f
the amount that would be
required
to
pay
preferred
securities of the
Company
then
outstanding
and
any such Parity Equity Securities that the Company proposes to issue and (
i
i
i
) the Company i
s not
otherwise i
n breach o
f
any o
f
its covenants set forth
i
n
the LLC
Agreement.
Funds from
operations, or
FF0, means net income
( excluding gains (
o
r
losses) from sales
o
f
property
and
taking
into account
with respect to each mortgage loan, which bears an adjustable or floating interest rate and/ or
having
adjustable periodic payments,
that
i
s
directly or indirectly owned
b
y
the Company only the cash
payment o
f
interest on the related
mortgage note,
but otherwise
computed
in accordance with
GAAP),
plus depreciation
and amortization, and after
adjustments
for unconsolidated
partnerships
and
joint
ventures.
Adjustments
for unconsolidated
partnerships
and
joint
ventures will be calculated to reflect
funds from
operations on the same basis.
The Series 2007- B Company
Preferred Securities are Parity Equity Securities with respect to the
Outstanding Company
Preferred Securities, and are being
offered without the consent of the holders
of the
Outstanding Company
Preferred Securities because the
Company
will
comply with the tests
outlined above. After
giving
effect to the transfer of the Flex-5
ARMsby
WMB and
University
Street to
the
Company,
the contribution
o
f
the Flex- 5 ARMs
b
y the
Company
to Asset Trust
I
l
l
i
n
exchange
for
the Asset Trust I
l
l
Class A Certificate and the Asset Trust Ill Class A Certificate and the issuance of
the Series 2007- B
Company
the
pro
forma net book value of the
Companys
assets will be $11,644,035,493, less dividends
declared, but
unpaid, i
f
any,
the
Company Preferred Securities and the Outstanding Company Preferred Securities, taken
together, will be $4,000,000,000, and the ratio of the pro forma net book value of the
Companys assets to such aggregate liquidation preference
will be 2.91; and
(
i
)
the
Companys pro
forma FF0 for the four fiscal
quarters beginning on July 1
,
2007,
calculated
i
n the manner above, i
s
$563,891,061
(
X), (
i
i
) the amount
requiredto pay
full
dividends for one
year
on the Series 2007- B
Company
Preferred Securities and the Outstand
ing Company
Preferred Securities calculated
i
n the manner set forth above
i
s
$301 ~350, D00
and 150% of that amount
i
s
$452,025,000
(
Y),
and
(iii)
X exceeds Y
by $111,866,061.
The LLC Agreement provides that, so long as any Company
Preferred Securities of
any
series
remain
outstanding,
the
Company may not, except
with the consent
o
f
at least two- thirds
o
f
all series
o
f
Company
as a
single class,
issue Senior
Equity
Securities.
Dividends
For
purposes o
f
this
offering circular, we refer to distributions
( with respect
to
Company
Preferred
Securities)
and distributions and
redemption payments ( with respect
to the
Company
Common
Securities or other Junior
Equity Securities) payable
b
y the
Company on its securities as dividends~
Company
payable i
f
, when and as
declared by the Companys Board of Managers out of its legally available funds, on a noncumulative
basis at an annual rate o
f
9.75% to, but not
including
December 15, 2017, and 3-Month USD LIBOR
plus 4.723% for the period starting on December 15, 2017 and each Dividend Period thereafter, i
n
each case, on the liquidation preference thereof, which
i
s
Company
Preferred
Securities,
i
f
by
the
Companys
Board of
Managers,
will be
payable quarterly i
n arrears on March 15, June 15, Septem
ber 15, and December 15
o
f
each
year, commencing on December 15, 2007, or, i
f
any
such
day i
s not
a Business
Day,
the next Business
Day (each
such date, a Dividend
Payment Date).
Each
period
from and
including a Dividend
Payment
Date (
o
r
the date
o
f
issuance of the Series 2007- B
Company
Preferred
Securities)
to but
excluding
the
following
Dividend
Payment
Date
i
s referred to herein as a
Dividend Period. Dividends on the Series 2007- B
Company
Preferred Securities will accrue from
96
CONFIDENTIAL
Return
October 25, 2007. The record date for the
payment
of dividends, i
f declared, will be the first
day o
f
the
month
i
n which the relevant dividend
payment occurs or, i
f
any
such
day i
s not a Business
Day,
the
next
day
that
i
s
a Business Day. Dividends
payable on the Series 2007- B
Company
Preferred
Securities for
any period greater or less than a full. Dividend Periodwilibe
computedon
4he basisof
(
i
)
for
any
Dividend Periods
ending prior
to the Dividend
Payment
Date
i
n December 2017, twelve
30- day months, a 360- day year, and the actual number
o
f
days elapsed i
n the period and (
i
i
) for
any
Dividend Periods thereafter, the actual number of days i
n the relevant Dividend Period divided
b
y 360.
No interest will be
paid on any
dividend
payment made on the Series 2007- B
Company
Preferred
Securities, Trust Securities or Depositary
Shares.
3-Month USD LIBOR means, with
respect
to
any
Dividend Period,, a rate determined on the
basis
o
f
the offered rates for three-month U.
S
.
doflar deposits o
f
not less than a principal amount
equal t
o that which
i
s
representative for a single
transaction
i
n such market
a
t
such time, commencing
on the first
day
of such Dividend Period, which
appears on Reuters Screen LIBORO1
Page as of
approximately
11: 00 A.M., London time, on the LIBOR Determination Date for such Dividend Period.
I
f
on any LIBOR Determination Date no rate
appears
on Reuters Screen LIBORO1
Page
as of
approximately
11: 00 A.M., London time, the
Company or another affiliate of WMI on behalf of the
Company
will on such LIBOR Determination Date request four major reference banks i
n the London
interbank market selected
b
y the
Company
to
provide
the
Company
with a quotation
of the rate at
which three- month
deposits i
n U. S. dollars, commencing
on the first
day o
f
such Dividend Period, are
offered by them to
prime
banks
i
n the London interbank market as of approximately 11: 00
A
.
M.,
London time, on such LIBOR Determination Date and
i
n
a principal
amount
equal
to that which
i
s
representative for a single transaction i
n such market at such time. I
f
a
t
least two such quotations are
provided,
3-Month USD LIBOR for such Dividend Period will be the arithmetic mean (rounded upward
i
f
necessary
to the nearest .00001 of 1%) of such quotations as calculated
b
y
the Company. I
f
.
fewer
than two quotations are provided,
3-Month USD LIBOR for such Dividend Period will be the arithmetic
mean (rounded upward i
f
necessary
to the nearest .0000 1 of
1%)
of the rates
quoted as of
approximately
11: 00
A
.
M., New York time, on the first
day
of such Dividend Period
b
y three
major
banks
i
n New York, New York selected
by
the
Company
for loans
i
n U. S. dollars to
leading European
banks, for a three- month
period commencing on the first
day o
f
such Dividend Period and i
n
a
principal
amount of not less than $1,000,000.
Business Day means any day
other than a Saturday, Sunday or any
other
day on which banks
i
n New York, New York, Seattle, Washington or Wilmington,
Delaware are generally required or
authorized
b
y law to be closed.
LIBOR Business
Day means any day on which commercial banks are open
for
general
business
(including dealings i
n
deposits i
n
U
.
S. dollars) i
n London.
LIBOR Determination Date?
means, as t
o each Dividend Period, the date that
i
s
two LIBOR
Business
Days prior to
the first
day
of such Dividend Period.
Reuters Screen LIBORO1
Page means
the
display
so
designated
on the Reuters 30P0 Xtra
(
o
r
such other
page as may replae
that
page on that service, or such other service as may
be nominated
as the information
vendor,
for the
purpose
of
displaying rates or prices comparable to the London
Interbank Offered rate for U. S. dollar
deposits).
Dividends on the Series 2007- B Company Preferred Securities are noncumulative.
Accordingly,
i
f the
Companys
Board
o
f
Managers
does not declare a dividend on the Series 2007- B
Company
Preferred Securities or declares less than a full dividend i
n
respect of any Dividend Period, holders of
the Series 2007- B
Company
Preferred Securities will have no right to receive
any
dividend or a full
dividend, as the case may be, for that Dividend Period, and the
Company
will have no
obligation t
o
pay any
dividends or full dividends on the Series 2007- B
Company
Preferred Securities for that
Dividend Period, whether or not dividends are declared and
paid
for
any
future Dividend Period with
respect to
any
series of the
Company
Preferred
Securities,
the
Company
Common Securities or any
other Junior
Equity
Securities. .
97
CONFIDENTIAL
Return
During a Dividend Period, no dividends will be declared or paid on any securities
o
f
the Company
ranking junior to the Company
Preferred Securities in terms of dividends or liquidation payments
(
Junior Equity Securities), other than dividends payable in Junior Equity

Securities of the same class
or series, or Junior
Equity
Securities
ranking junior to that class or series, and no Junior
Equity
Securities will be purchased, redeemed or otherwise acquired for consideration, directly or indirectly
( other
than as a result of reclassification
o
f
Junior
Equity
Securities for or into other Junior
Equity
Securities, or the exchange or conversion of Junior Equity Securities for or into other Junior
Equity
Securities), unless dividends for such Dividend Period on all series
o
f
Company
paid i
n full, or declared and set aside for
be.
When dividends are not paid i
n full
on, or a sum sufficient for such full
payment i
s not set apart
for, all series
o
f
the Company Preferred Securities, all dividends declared
upon
all series of the
Company Preferred Securities will be declared pro rata. Thus, the amount
o
f
dividends declared per
Company
Preferred
Security
of each series will
i
n all cases bear
t
o each other the same ratio that
(
i
)
full dividends per Company Preferred Security of such series for the then- current Dividend Period,
which will not include any accumulation
i
n
respect o
f
unpaid dividends for prior Dividend Periods and
(
i
i
) full dividends, which will not include any accumulation
i
n respect o
f
unpaid dividends for prior
Dividend Periods, on all other series of
Company
Preferred Securities, bear to each other.
i
i
s
operating with an insufficient
level of capital or
i
s engaged in, or its relationship with the Company results in, an unsafe and
unsound banking practice,
the OTS could restrict the
Companys ability to
pay
dividends, including
dividends to the holders of the Series 2007- B Company Preferred Securities. See The Company
Business
o
f
the Company.
by
WMI
WMI will covenant
i
for the benefit of the holders of the Trust Securi
ties that
i
f for
any
Dividend Period full dividends on (
i
)
the Series 2007- B Company Preferred
Securities or (
i
i
)
the Trust Securities have not been declared and paid, then, WMI will not declare or
pay dividends with respect to, or redeem, purchase or acquire, any o
f
its equity capital securities
during
the next succeeding
Dividend Period, except
dividends
i
n connection with a shareholders
rights
plan, i
f any, or dividends
i
n connection with benefits plans. WMI entered into similar exchange
agreements that included equivalent covenant i
o
f
the Outstanding
Redemption
The Series 2007- B Company Preferred Securities will not be redeemable at the option o
f
the
holders thereof. Subject to the Replacement Capital Covenant i
n favor
o
f
certain
o
f
WMIs debtholders
limiting WMIs and its subsidiaries right t
o
purchase or redeem the Series 2007- B Company Preferred
Securities or the Trust Securities (among others) as described under Description of the Trust Secur
ities Restriction on Redemption or Purchases, and subject to the Company having received the
prior approval o
f
the OTS for
any proposed redemption o
f
Series 2007- B
Company
Preferred
Securities, the
Company may,
at its option, redeem the Series 2007- B
Company
i
n whole but not in
part, on
any
Dividend
Payment
Date
prior to the Dividend
Payment
Date
i
n
December 2017
upon
the occurrence of a Tax Event, an Investment Company Act Event, a
Rating Agency Event or a Regulatory Capital Event, at a cash redemption price equal to:
the greater of:
(
i
)
$1,000
per
Series 2007- B
Company
Preferred
Security, or
(
i
i
) the sum
o
f
the present value
o
f
$1,000 per Series 2007- B Company Preferred
Security, discounted from the Dividend Payment Date
i
n December 2017
t
o the redemption
98
CONFIDENTIAL
Return
date, and the present values
o
f
a
l
l
redemption date to and including the Dividend Payment Date i
n December 2017, dis
counted from their
applicable
Dividend
Payment Dates to the redemption date, i
n
each
case on a quarterly
basis
f
twelve
30- day months) at
the
by an Independent
Investment
Banker, pIus 1.00%, pIus
any
declared but
unpaid
dividends to the
redemption date;
i
n whole but not i
n
part, on any
Dividend
Payment Date prior t
o the Dividend Payment Date i
n
December 2017 for
any reason other than the occurrence of a Tax Event, an Investment
Company
Act Event, a
Rating Agency
Event or a Regulatory Capital Event, a
t
a cash
to:
the
greater
of:
(
i
) $1,000 per
Preferred
Security, or
(
i
i
) the sum of the
present
value of
$1,000 per Series 2007- B
Company
Preferred
Security,
Payment
Date
i
n December 2017 to the
redemption
date, and the present values of all undeclared dividends for each Dividend Period from the
redemption
date to and
including
the Dividend
Payment
Date
i
counted from their
applicable
Dividend
Payment
Dates to the redemption date, i
n each
case on a quarterly basis ( assuming a 360- day year consisting of twelve 30- day months) at
the
b
y
an Independent
Investment Banker,
p
/
u
s
0.75%; plus
any
redemption date;
in whole but not i
n
part, on any Dividend
Payment
Date after the Dividend
Payment
Date i
n
December 2017 that
i
s not a Ten-Year Date, upon
the occurrence of a Tax Event, an
Investment
Company
Event or a Regulatory Capital Event, at a
cash redemption price equal to $1,000 per
Series 2007- B Company Preferred Security, plus
any
declared and
unpaid
dividends to the
redemption date;
i
n whole or i
n
part, on each Dividend
Payment
Date that
i
s
a Ten- Year Date at a cash
redemption price of $1,000 per
Series 2007- B Company Preferred Security, plus any
declared
t
i
n whole but not
i
n
part, on any Dividend Payment Date after the Dividend Payment Date i
n
December 2017 that i
s not a Ten- Year Date for
any reason other than the occurrence of a Tax
Event, an Investment Company Act Event, a Rating Agency Event or a Regulatory Capital
Event, at a cash redemption price equal to:
the
greater
of:
(
i
) $1,000 per
Preferred
Security, or
(
i
i
) the sum of the
present
value of $1,000 per
Series 2007- B
Company
Preferred
Security,
discounted from the next
succeeding
Ten- Year Date to the
redemption date, and
the
present
values of all undeclared dividends for each Dividend Period from the
redemp
tion date to and
including
the next
succeeding
Ten- Year Date, discounted from their
applicable
Dividend
Payment
Dates to the
redemption date, i
n each
case on a
quarterly
basis
of twelve
30- day months)
at the 3-Month USD
LIBOR Rate
applicable
such
redemption
date
(which 3-Month USD LIBOR Rate will also, for purposes o
f
calculating such redemption
price, be the rate used i
n
calculating the amount for each such undeclared
dividend), as
calculated
b
y
an Independent
Investment Banker; plus
any
declared but
unpaid
dividends to the
redemption date;
i
o
f
any
respect
to Dividend
Payment
Dates
prior
to the
redemption
date.
99
CONFIDENTIAL
Return
I
n addition, upon the expiration o
f
the Replacement Capital Covenant, the Series 2007- B
Company Preferred Securities will be subject to certain other intended limitations. See Description of
Restrictions on Redemption or Purchases.

~
Comparable Treasury Issue means the Uhited States Treasury security selected
b
y the
-
Independent
Investment Banker as
having
a
maturity comparable to the term
remaining
to the
i
n December 2017 that would be utilized, at the time of selection and
i
n
accordance with customary financial practice, i
n
pricing
new issues of perpetual preferred securities
having terms similar to those of the Series 2007- B Company
Preferred Securities with respect to the
payment
of dividends and distributions of assets
upon liquidation, dissolution or
winding up
of the
issuer of such preferred stock.
Comparable Treasury Price
means,
with respect to
any redemption date for the Series 2007- B
Company Preferred Securities, the
average of the Reference Treasury Dealer Quotations for such
redemption date, after
excluding
the
highest
and lowest
o
f
such Reference
Treasury
Dealer Quota
tions, or
i
f the Independent Investment Banker obtains fewer than five such Reference Treasury
Dealer Quotations, the
average o
f
all such
quotations.
Independent
Investment Banker means an independent investment banking institution of
national standing appointed
b
y the
Company.
An Investment Company Act Event occurs with respect to the Series 2007- B Company
Preferred Securities when the
Company determines, based
upon receipt o
f
an opinion
of counsel, that
there
i
s a significant risk that the Company, the Trust, Asset Trust
I
, Asset Trust
I
I
, Asset Trust
I
l
l or
any
other Asset
Subsidiary
will be considered an investment
company
that
i
s
required to be
registered under the Investment Company Act, as a result of a change i
or related interpretations.
A Rating Agency Event occurs when the Company reasonably determines that an amendment,
clarification or change has occurred
i
n the equity criteria for securities such as the Series 2007- B
Company
o
f
any Rating Agency
that then publishes a rating
for WMI which
amendment, clarification or change results
i
n a lower equity
credit for WMI than the respective equity
credit
assigned by
such
Rating Agency t
o the Company Preferred Securities on the closing date
o
f
this Offering.
Reference Treasury Dealer means each of three primary U. S. government securities dealers
(each a Primary Treasury Dealer), as specified
b
y the Company; provided, that
i
f
any Primary
Treasury Dealer specified
b
y the Company ceases to be a Primary Treasury Dealer, the Company will
substitute for such Primary Treasury Dealer another Primary Treasury Dealer and
i
f the
Company
fails
to select a substitute within a reasonable period o
f
time, then the substitute will be a Primary Treasury
Dealer selected by the Independent Investment Banker after consultation with the Company.
Reference Treasury Dealer Quotations
means,
with respect to each Reference
Treasury
Dealer
and
any redemption date, the
average,
as determined by the Independent Investment Banker, of the
bid and asked prices for the
Comparable Treasury
Issue (expressed, i
n each
case, as a percentage o
f
its principal amount) quoted in writing to the Independent Investment Banker by such Reference
Treasury
Dealer at 5:00 PM., New York
City time, on the third Business
Day preceding such
redemption date.
A Regulatory Capital Event occurs with respect to the Series 2007- B
Company
Preferred
Securities when the Company determines, based
upon receipt o
f
an opinion of counsel, that there
i
s a
significant risk that the Series 2007- B
Company
Preferred Securities will no longer
constitute core
capital of WMB for
purposes
of the capital adequacy regulations issued by the OTS as a result of a
change i
or related interpretations after issuance of the Series 2007- B
Company
A Tax Event occurs with respect to the Series 2007- B Company Preferred Securities when the
Company determines, based upon receipt of an opinion o
f
counsel, that there
i
(
i
)
the Company will be required
b
y a relevant jurisdiction to withhold amounts from payments to the
100
CONFIDENTIAL
Return
holders
o
f
any
Series 2007- B
Company
Preferred Securities for taxes or any
other
governmental
charges, (
i
i
) the Trust will be required by a relevant jurisdiction
t
o withhold amounts from payments to
the holders
o
f
the Trust Securities for taxes or any other governmental charges or ( iii) the Company i
s
or will be treated as a publicly traded partnership taxable as a corporation
or as an association taxable
as a corporation for United States federal income tax purposes, as a result
o
f
any change i
n law or
regulation, or any judicial or regulatory action, that
i
s effective or announced after the issuance
o
f
the
Series 2007- B Company Preferred Securities.
Treasury Rate means the rate per year equal to the quarterly equivalent yield to maturity o
f
the
Comparable Treasury Issue, calculated using a price for the Comparable Treasury
Issue (expressed
as a percentage of its principal amount) equal to the Comparable Treasury Price for such redemption
date. The Treasury Rate will be calculated on the third Business Day preceding the redemption date.
A notice
o
f
redemption of the Series 2007- B Company
Preferred Securities will be mailed
b
y
first- class mail, postage prepaid,
addressed to the holders
o
f
reord of the securities to be redeemed
at their respective last addresses appearing on the books and records of the
Company.
Such mailing
will be at least 35 days but not more than 65 days
before the date fixed for
redemption.
The Companys ability to redeem
any Company Preferred Security i
s subject to compliance with
applicable regulatory requirements, including the prior approval
of the OTS, relating to the redemption
o
f
capital instruments. Under current policies
o
f
the OTS, such approval would be
granted only i
f the
redemption were to be made out of the proceeds o
f
the issuance
o
f
another capital instrument or
i
f
the OTS were to determine that the conditions and circumstances
o
f
WMB warrant the reduction
o
f
a
source
o
f
permanent capital.
Restrictions on Redemption or Purchases
At or prior t
o issuance
o
f
the Series 2007- B
Company
Preferred Securities and the Trust Securi
ties, WMI will enter into the Replacement Capital Covenant described under Description o
f
the
Trust Securities Restriction on Redemption or Purchases, limiting WMIs and its subsidiaries,
including the Companys, ability t
o redeem or purchase prior
to October 25, 2017 certain securities,
including the Series 2007- B Company Preferred Securities or the Trust Preferred Securities, among
others. In addition, although they
will not be legally required to do so, upon
the expiration of the
Replacement Capital
Covenant on October 25, 2017~ WMI and the Company
intend to follow certain
guidelines limiting
the circumstances under which they will fedeem or purchase, as applicable, the
Preferred Securities and the related Trust Securities as described under
Description
of the Trust Securities Restriction on Redemption or Purchases.
In the event the Company voluntarily or
involuntarily dissolves, liquidates and winds
up,
the
holders of Series 2007- B Company Preferred Securities at the time outstanding
will be entitled to
receive liquidating dividends
i
n the amount of $1,000 per security, plus any authorized, declared, but
unpaid
dividends to the date
o
f
liquidation, out
o
f
the
Companys assets legally
available for
distribution, before
any
i
s made to holders of Junior Equity Securities and subject
to the rights o
f
general creditors.
After payment o
f
the full amount
o
f
the liquidating distributions to which they are entitled, the
holders
o
f
Series 2007- B
Company
Preferred Securities will have no right or claim
t
o
any of the
Compahys remaining assets.
I
n the event that, upon any such voluntary or
involyntary
dissolution,
liquidation and winding up, the available assets are insufficient
t
o
pay the amount
o
f
the liquidation
distributions on all series of Company Preferred Securities, then the holders of all the series of
Company Preferred Securities will share ratably i
n
any
such distribution
o
f
assets in proportion to the
full liquidating distributions to which they would otherwise be respectively entitled.
For such
purposes,
the Companys consolidation or
merger
with or into
any
other entity, the
consolidation or
merger o
f
any
other
entity
with or into the
Company, or the sale of all or substantially
101
CONFIDENTIAL
Return
all
o
f
the
Companys property
or business, will not be deemed to constitute the Companys dissolution,
liquidation and winding up.
Voting Rights and Covenants
Except as set forth below,
holders
o
f
Series 2007- B
Company
Preferred Securities will not have
voting rights.
The LLC
Agreement provides that, so long as
any Company
o
f
any
series are outstanding,
the Company will not, except
with the consent or affirmative vote of the holders
of at least two- thirds of all series
o
f
the
Company
Preferred Securities, voting together as a single
class:
effect a consolidation, conversion,
merger
or share exchange with or into another
entity;
provided,
that the Company may
consolidate or
merge
with or into, or enter into a share
exchange with, another entity without the consent of the holders of the
Company
Preferred
Securities
i
f (
a
)
the other entity i
s controlled
by, or under common control with, WMI, (
b
)
the
other entity elects to be treated as a partnership
for U. S. federal income tax purposes and
i
s
not required t
o
register
as an investment
company
under the 1940 Act, (
c
) the other
entity
expressly assumes all
o
f
the ~ompanys obligations
and commitments pursuant to the consol
idation, merger, or share exchange, (
d
)
the outstanding Company Preferred Securities are
exchanged for or converted into shares
o
f
the surviving entity having preferences, limitations,
and relative voting and other rights substantially identical to those
o
f
Securities, including limitations on personal liability o
f
the Company
Preferred Securityholders,
(
e
)
after giving effect to the
merger, consolidation, or share exchange, no breach, or event
which, with the giving o
f
notice or
passage o
f
time or both, could become a breach,
b
y the
Company of obligations
under the LLC Agreement shall have occurred and be continuing and
(
f
) the Company has received written confirmation that the Rating Agency Condition has been
satisfied;
issue
any
Senior Equity Securities;
incur
any
indebtedness for borrowed
money;
pay dividends on the Companys Junior Equity Securities unless the Companys FF0 for the
four prior fiscal quarters, equals or exceeds 150% of the amount that would be required to pay
o
f
Company Preferred Securities the outstanding;
fail to invest the proceeds
of the
Companys
assets such that the Companys
FF0 over
any
period of four fiscal quarters
will
equal or exceed 150% of the amount that would be required
to
pay
o
f
Company Preferred Securities then
outstanding
issue any additional Company Common Securities to
any person,
other than University
Street
or another affiliate of WMI;
amend or otherwise change the terms
o
f
any Asset Documentation i
n a manner which
i
s
materially adverse
o
f
the Trust, or to
any
other Trust Holder or to the holders of that
Trust Holders securities;
remove or cause to be removed, as applicable, Washington Mutual from the Companys or
the Trusts name unless the name
o
f
WMI changes and the Company
makes a change to the
Companys or the name of
any
other Trust Holder, the Trusts or such other Trust Holders
name to be consistent with the new
group name;
take or fail to take any action that would cause the Company t
o fail
t
o be treated as a
federal income tax
purposes;
engage i
n a
U
.
S. trade or business for United States federal income tax purposes;
102
CONFIDENTIAL
Return
fail
t
o hold
only
assets that
qualify
for the portfolio interest exemption under the Code or are
otherwise exempt
from United States federal
withholding taxes;
fail to
manage
its affairs such that its income does not constitute unrelated business taxable
income fol United States federal income tax purposes;
take
any
action that could
reasonably
be expected to cause a
Tax
Event, an Investment
Company
Event or a Regulatory Capital Event; or
amend its Certificate of Formation or LLC
Agreement i
n a manner that
materially
and
adversely
affects the terms of
any
series
o
f
Company
Preferred Securities; provided, however,
that, i
f such amendment affects fewer than all classes of
preferred
securities issued
b
y the
Company,
such amendment will
require only a vote of the holders of such affected class or
classes
o
f
Company Preferred Securities,
voting together as a separate class;
provided,
that for the
purpose o
f
such
approval,
a like amount
o
f
Company
Preferred Securities as
any
Trust Securities, Trust I Securities, Trust
I
I
Securities, Trust Ill Securities or WaMu
Cayman
Securities that are directly or indirectly
held or beneficially
owned
b
y
any
member
o
f
WMI Group will
be treated as i
f
they were not
outstanding.
I
n
addition, the LLC
Agreement provides that, except
with the consent of all of the
Companys
Managers, including
its
Independent Manager,
the
Company
will not:
terminate, amend or otherwise

change any
Asset Documentation; or
or share
exchange ( excluding
the Conditional
Exchange)
that
i
s
not tax-free to the holders
o
f
any
series of the
Company
Trust
Securities,
Trust I
Securities,
Trust
I
I
Securities, Trust
I
l
l Securities or WaMu
Cayman
Securities, as applicable,
unless such transaction was approved
b
y the consent or affirmative
vote of the holders of at least two- thirds of all series of the
Company
voting together as a single
class.
I
n
addition, the LLC
Agreement
will
provide
that i
f
(
i
)
the
Company
fails to pay
full dividends on
any
series of the
Company
Preferred Securities on any
Dividend
Payment Date, (
i
i
)
any
Trust Holder
fails to
pass through
full dividends paid
b
y the
Company on the
Company
Preferred Securities held by
the Trust Holders to the holders of the Trust Holders securities on any
Dividend
Payment Date or (
i
i
i
) a
Bankruptcy
Event occurs, the holders
o
f
all the series
o
f
Company
Preferred Securities, voting
together as a single class,
b
y
majority vote
o
f
the votes cast on such matter at a meeting properly
called and held or
b
y written instructions
signed
b
y
the holders
o
f
Company
representing a majority o
f
the
voting rights o
f
all series of the
Company
Preferred Securities then
outstanding, voting together as a single class, are entitled to remove the initial or any succeeding
Independent Manager
and to fill the
vacancy
created
by
such removal or any
other
vacancy existing i
n
the office of the
As a condition to
effecting any consolidation, merger
or share
exchange
described above,
the
Company
will mail to the hOlders of record of the
Company
Preferred Securities a notice of such
consolidation, merger or share
exchange.
The notice will be mailed at least 15
days prior to such
transaction
becoming
effective and will contain a description
of such transaction
together
with a
certificate
o
f
one of the
Companys
officers
stating
that such transaction
complies
with the
require
ments set forth
i
n the LLC
Agreement
and that all conditions precedent provided therein
relating
to
such transaction have been fulfilled.
As described under
Description
of the Trust Securities
Voting Rights,
each holder of
right
to direct the manner i
n which
Property
Trustee on behalf of the
Trust exercises its
voting rights as to a like amount of Series 2007- B
Company
held
by
the Trust with
respect
to
any o
f
the matters on which a holder
o
f
Series 2007- B
Company
i
s entitled to vote.
103
CONFIDENTIAL
Return
WMIs articles
o
f
incorporation
do not contain similar favorable covenants regarding
the Series N
WMI Preferred Stock
following an exchange
of the Trust Securities. Therefore, following a Conditional
Exchange,
holders of the
Depositary
Shares would no longer
have
any voting rights, except as
provided
b
y
Washington law or
in connection with the
right
to elect directors
i
f dividends are skipped
or not
paid i
n full. See below under
Description o
f
Voting
Rights.
Additional Amounts
I
f
the Company or the Trust
i
s
required
to withhold or pay any
Additional Taxes as a result of an
Additional Tax Event, the
Company
will
pay as additional amounts on the Series 2007- B
Company
Preferred Securities such amounts as will be
required so that dividends on the Series 2007- B
Company
Preferred Securities and/ or the amount
passed through
b
y the Trust on the Trust Securities,
as applicable,
will not be reduced as a result of
any
such Additional Taxes
(
Additional Amounts).
Additional Taxes means the sum of
any
additional taxes, duties and other
governmental
charges
to which the
Company or the Trust has become
subject
from time to time as a result
o
f
an
Additional Tax Event.
An Additional Tax Event means the determination
b
y the
Company,
based upon receipt of an
opinion of counsel, rendered by a law firm experienced i
n such matters, in form and substance
reasonably satisfactory to the Company and WMI, to the effect that, as a result o
f
any amendment to,
or change (including any
announced
proposed change) i
n
,
the laws (
o
r
any regulations thereunder) o
f
the United States or o
f
any political subdivision or taxing authority
thereof or therein, or as a result o
f
any official administrative pronouncement or judicial
decision
interpreting or applying
such laws or
regulations,
which amendment or change i
s effective or which
proposed change, pronouncement or
decision
i
s announced on or after the date
o
f
issuance
o
f
the Trust Securities, there
i
s a significant
risk that
(
i
)
the
Company or the Trust is, or will be within 90
days
of the date
o
f
such
opinion
of
counsel, required
b
y
a relevant jurisdiction to withhold amounts from
payments
to the holders of the
Series 2007- B
Company
Preferred Securities or Trust Securities, respectively,
for
any taxes, duties
and other
governmental charges, (
i
i
) the Trust
i
s
,
or will be within 90
days o
f
the date of such
opinion
of counsel, subject
to United States federal income tax with
respect
to income received or accrued on
the like amount of Series 2007- B
Company
Preferred Securities held by i
t or (
i
i
i
) the Trust is, or will be
within 90 days of the date of such opinion of counsel, subject to more than a cia minimisamount o
f
other taxes, duties or other
governmental charges.
Amendments and Termination of the LLC
Agreement
University Street may, at any time and from time to time, without the consent o
f
the holders o
f
the Company
Preferred Securities o
f
any series, amend the LLC Agreement: (
i
) to correct or
supplement any provision i
n the LLC
Agreement that may be defective or inconsistent with
any
other
provision therein, or to make
any
other
provisions
with
respect
to matters or questions arising
under
the LLC
Agreement; provided,
that
any
such action taken under this clause will not materially
adversely affect the interests of the holders of
any
series of the
Company
Preferred Securities; and
provided, further, that
any
such amendment shall not cause the
Company,
the Trust or any
other
Trust Holder to be required to be registered
under the 1940 Act,
be taxable as a corporation
for United
States Federal income tax
purposes, or be treated as engaged i
n a trade or business within the
United States, as determined for United States Federal income tax
purposes; (
i
i
) to cure any ambiguity
or inconsistency
or correct
any
manifest
error; or (iii)
to
give
effect to the future issuance of
Parity
Equity
Securities or Junior
Equity
Securities and to set the
designations, preferences,
and
rights o
f
any
such
Parity Equity Security
or Junior Equity Security. Any
other amendment of the LLC Agreement
must be approved by vote of holders o
f
two- thirds (
b
y
aggregate liquidation preference) of any series
of the
Company
Preferred Securities, voting together as a
single
class (see

Voting Rights
and
Covenants); provided, that for the purpose o
f
such approval, i
f
any member of WMI Group directly or
indirectly
holds or beneficially owns any
Trust Securities or securities of
any
other Trust
Holder,
then a
104
CONFIDENTIAL
Return
like amount of the applicable series of Company Preferred Securities will be treated as i
f they were
not outstanding.
The
Company
will
notify
the
Paying Agents
and the holders of the Trust Securities
o
f
any
such amendment
o
f
the LLC
Agreement
within a reasonable
period
of time.
The LLC Agreement will terminate upon the terfr~ination of the Company under the LLC Act.
Governing Law
The LLC Agreement and the Series 2007- B Company Preferred Securities will be governed
b
y
,
and construed
i
n accordance with, the laws of the State
o
f
Delaware.
105
CONFIDENTIAL
Return
DESCRIPTION OF OTHER COMPANY SECURITIES
The
following summary
of the terms of the other
Company
securities does not
purport
to be
complete
and
i
s
subject i
n all
respects
to the
applicable provisions
of the LLC Act and the LLC
Agreement.
A
copy
of the LLC
A
~
ireement may be obtained upon request to WMI.
Common Securities
General
The Company has outstanding,
and will continue to have
outstanding upon
consummation
o
f
this
offering, 1,000 Company
Common Securities, all of which will continue to be held by University Street.
The Company Common Securities
may
be sold, assigned or otherwise transferred
by University
Street to another
entity, subject
to WMI
maintaining
direct or indirect
ownership o
f
100% of the
outstanding Company
Common Securities and receipt by University
Street of an opinion
of counsel to
the effect that as a result of
any
such sale, transfer or assignment
the
Company
will not be taxable as
a corporation
purposes.
Pursuant to the LLC
Agreement, except
with the consent or the affirmative vote of the holders of
at least two- thirds of all series of the
Company
Preferred Securities, voting together as a single class,
the
Company
will not issue
any
additional
Company
Equity
Securities to
any person, other than University Street or another affiliate of WMI.
No additional
payments
will be
required pursuant
to the LLC Act for
Company
Common
Securities to
represent
limited
liability company
interests i
n the Company upon issuance against full
payment of the purchase price therefor.
Voting
Subject
to the limited
rights o
f
the holders of the Series 2007- B
Company
as described under
Description o
f
the Series 2007- B
Company
Voting Rights
and Covenants, and
any voting rights granted
to holders of the Outstanding Company Preferred
Securities and any other Parity Equity Securities, all voting rights o
f
the
Companys security
holders
are vested i
n
the Company
Common Securities.
Dividends
The
Company
Common Securities rank
junior
to all the
Company
i
n terms
of dividends and
liquidation payments.
No dividends will be declared or paid i
n
any Dividend Period on
the
Company
Common Securities, other than dividends payable in Company
Common Securities, and
no Company Common Securities will be purchased,
redeemed or otherwise acquired for consider
ation, directly
or
indirectly (other than as a result of reclassification o
f
Company
Common Securities
for or into Company Common Securities, or the exchange or conversion
o
f
Company
Common
Securities for or into Company
Common
Securities),
unless dividends
i
n such Dividend Period on all
series of the
Company
Preferred Securities have been declared and
paid i
n
full, or set aside for
be. Pursuant to the LLC
Agreement, except with the consent or the
affirmative vote
o
f
the holders of at least two- thirds of all series of the
Company
voting together as a single class, the
Company
will not
pay any
dividends on the
Company
Common
Securities or other Junior
Equity
Securities unless the Companys FF0 for the four
prior
fiscal
quarters
equals or exceeds 150% of the amount that would be
required
to
pay
series of the
Company
that for the
purpose
of such
approval, a like
amount of the
applicable
series of
Company
Preferred Securities as any
Trust Securities, Trust I
Securities, Trust
I
I
Securities, Trust I
l
l
Securities or WaMu
Cayman
Securities that are directly or
indirectly
held or beneficially
owned
by any
member
o
f
WMI
Group
will be treated as i
f
they were not
outstanding.
106
CONFIDENTIAL
Return
Liquidation Rights
The Company Common Securities will rank junior to all series
o
f
the
Company
Preferred
Securities upon dissolution, liquidation and winding- up of the Company. In the event of
any voluntary
or involuntary dissolution
o
f
the Company, after all
o
f
the Companys debts and liabilities have been
satisfied and there have been paid or set aside for the holders
o
f
all series of the Company Preferred
Securities the full preferential amounts
t
o which such holders are entitled, the holders
o
f
Company
Common Securities will be entitled to share
equally and ratably in~any assets remaining.
Outstanding Company
The Outstanding Company Preferred Securities will rank
pan passu
with the Series 2007- B
Company
i
n terms
o
f
dividends and
The terms
o
f
the
Series 2007- B
Company
Preferred Securities will be substantially identical to the Outstanding
Company
except
for the dividend rates and
redemption
dates and
prices.
The
Series 2006- A
Company
Preferred Securities will,
i
f
, when and as declared by the Companys Board
o
f
Managers, pay
dividends at an annual rate
o
f
6.534% until March 15, 2011, and 3-month USD
LIBOR
plus
1.4825% thereafter. The Series 2006- A
Company
Preferred Securities are held by Trust
I
,
which issued a like amount of Trust I Securities to investors on March
7
,
2006. The Series 2006- B
Company Preferred Securities will,
i
f
b
y the Companys Board
o
f
Managers,
pay dividends at an annual rate
o
f
7.25%. The Series 2006- B
Company
Preferred Securities are held
b
y WaMu Cayman, which issued alike amount
o
f
t
o investors on March
7
,
2006. The Series 2006- C Company Preferred Securities will,
i
f
b
y the
Companys
Board of Managers, pay
dividends at an annual rate of 6.665% until December 15, 2016,
and 3-month USD LIBOR
plus
1.7925% thereafter. The Series 2006- C
Company
are held
b
y Trust
I
I
, which issued a like amount of Trust
I
I Securities to investors on December 13,
2006. The Series 2007- A Company
Preferred Securities will,
i
f
b
y the
Companys Board of
Managers, pay
dividends at an annual rate of 6.895% until June 15, 2012, and
3-month USD LIBOR plus 1.755% thereafter. The Series 2007- A Company Preferred Securities are
held by Trust Ill, which issued a like amount of Trust
I
l
l Securities on May 24, 2007. The
Outstanding
Company
Preferred Securities are not listed on any
securities exchange or automated dealer
quotation system.
Ability to Issue Additional Preferred Securities
Pursuant t
o the LLC Agreement,
the Company may
not issue
any
Senior Equity Securities or
incur any indebtedness except with the consent or affirmative vote
o
f
holders
o
f
a
t
least two- thirds of
all series of the
Company
Preferred Securities, voting together as a single class, as described under
Description of the Series 2007- B Company
Voting Rights
and Covenants.
The
Company may
issue additional Parity Equity
Securities without the consent of the holders of
Company Preferred Securities only i
f the tests described under Description o
f
the Series 2007- B
Company
Ranking are satisfied.
107
CONFIDENTIAL
Return
DESCRIPTION OF THE SERIES N WMI PREFERRED STOCK
The
following summary
provisions
of the Series N WMI
Preferred Stock. The
description i
s
qualified i
n its
entirety by
reference to the terms and
provisions
of
WMIs articles of
incorporation
and the articles of amendment
establishing
Stock. A
copy
of WMIs articles of
incOrporation
and such articles of amendment can be obtained
upon request
to WMI.
General
WMI has authorized and reserved for issuance upon a Conditional Exchange, as described
under
Description
of the Trust Securities Conditional
Exchange, 1,000 shares of its Series N
Perpetual
Non- cumulative
Fixed- to-Floating
Rate Preferred Stock, no par value and liquidation prefer
ence $1,000,000 per
share (the Series N WM! Preferred Stock). The shares o
f
Series N WMI
Preferred Stock, i
f and when issued upon
a Conditional Exchange, will be represented
b
y
depositary
shares ( the Depositary Shares), each representing
1/ 1000th
o
f
a share o
f
Stock. The holders of the Series N WMI Preferred Stock will have no pre- emptive rights
with
respect
to
any
shares of WMIs
capital
stock or any o
f
its other securities convertible into or carrying rights or
options
to
purchase any
such capital stock. The Series N WMI Preferred Stock
i
s
perpetual
and will
not be convertible into shares of WMI common stock or any
other class or series
o
f
its capital stock,
and will not be
subject
to
any sinking
fund or other
obligation
for its
purchase or retirement.
The Series N WMI Preferred Stock, upon issuance,
will have
substantially equivalent
terms as to
dividends, redemption
and
liquidation preference as the Series 2007- B
Company
and Trust Securities for which
they may
be
exchanged, except
that the Series N WMI Preferred Stock:
(
i
)
will not have the benefit of the favorable covenants described under
Description o
f
Series 2007- B
Company
Voting Rights and Covenants or

Additional Amounts and (
i
i
) will
be redeemable prior to the Dividend Payment Date occurring i
n
September 2017 only upon the
occurrence o
f
Event or a Rating Agency
Event as described under

Redemp
tion below.
I
n
addition, i
f WMI fails to pay, or declare and set aside for payment, whether or not consecutive,
full dividends on the Series N WMI Preferred Stock after
i
t
s
issuance or
any
other class or series of
WMI~
Parity
Stock
having
similar
voting rights
(
Voting Parity Securities)

for six Dividend Periods or
their
equivalent,
the authorized number
o
f
directors on WMIs board will be increased by two. Subject
t
o
compliance
with
any requirement
for
regulatory approval of, or non- objection to, persons serving as
o
f
Series N WMI Preferred Stock, voting together as a single
and
separate
class
with the holders of
any outstanding Voting Parity Securities, will have the
right
to elect two directors in
addition to the directors then i
n office at WMIs next annual
meeting o
f
shareholders.
The Dividend
Payment
Dates and related Dividend Periods for the Series N WMI Preferred
Stock, once issued,
will be the same as the Dividend
Payment
Dates and related Dividend Periods for
the Trust Securities and
Company
Preferred Stock, and the terms Dividend
Payment
Date and
Dividend Period will have the same meanings as applied to the Series N WMI Preferred Stock as
applied to those securities. The term Business
Day~ when used with reference to the Series N WMI
Preferred Stock, means any day
other than a Saturday, Sunday or any other day on which banks i
n
New York, New York or Seattle, Washington are generally required or authorized
b
y law
t
o be closed.
The Series N WMI Preferred Stock will be subject to the Replacement Capital
Covenant and
certain other intended limitations, i
n each
case,
described under
Description
Restriction on Redemption or Purchases.
Ranking
WMI will covenant in the Exchange Agreement i
n favor
o
f
the holders
o
f
prior to the issuance
o
f
the Series N WMI Preferred Stock upon a Conditional Exchange, WMI will not
108
CONFIDENTIAL
Return
issue
any preferred
stock that would rank senior to the Series N WMI Preferred Stock upon its
issuance
i
n terms of dividends or liquidation payments.
The Series N WMI Preferred Stock will, upon issuance, rank at least pan passu with the most
senior
preferred
stock
o
f
WMI,
i
f
any,
then
outstanding,
and to any other preferred
stock that WMI
may
issue in the future. The Series N WMI Preferred Stock will, with respect to dividends and
liquidation payments, rank (
i
)
on a parity with Series I WMI Preferred Stock, Series J WMI Preferred
Stock, Series K WMI Preferred Stock, Series L WMI Preferred Stock, Series M WMI Preferred Stock
and each other class or series
o
f
preferred stock WMI
may
issue
i
n the future, the terms
o
f
which
expressly provide that such class or series will rank on a parity with the Series
N
~
WMI Preferred Stock
as to dividend rights and rights on WMIs dissolution, liquidation and winding-
u
p (collectively referred
to as WMI Parity Stock) and (
i
i
) senior to WMIs common stock, its Series RP Preferred Stock and
each other class or series
o
f
capital
stock WMI
may
issue
i
n the future, the terms
o
f
which do not
expressly provide that
i
t ranks on a parity with or senior to the Series N WMI Preferred Stock as to
dividend rights and rights on WMIs liquidation, winding-
u
p and dissolution (collectively
referred to as
Junior
Securities).
WMI
may
authorize and issue additional shares
o
f
preferred
stock that
may
rank
junior to or
pan passu
with the Series N WMI Preferred Stock
i
n terms of dividends and liquidation
payments, without the consent of the holders of the Series N WMI Preferred Stock. See
Description
o
f
the Other WMI
Capital
Stock~ below.
Dividends
Dividends on the Series N WMI Preferred Stock will be payable
i
f
b
y
WMIs Board
o
f
Directors out of its
legally
available funds, on a noncumulative basis at an annual
rate of 9.75% to, but not including, December 15, 2017 (whether or not a Business Day) and 3-Month
USD LIBOR
pIus 4.723% thereafter on the
liquidation preference thereof, which
i
s $1,000,000 per
share, from and
including
the Dividend
Payment
Date on or prior t
o their date of issuance. Dividends
on the Series N WMI Preferred Stock,
i
f
, when and as declared by WMIs Board of Directors, will be
payable quarterly i
n arrears on each Dividend Payment Date, commencing on the first such day after
issuance
o
f
the Series N WMI Preferred Stock. The record date for the payment o
f
dividends, i
f
declared, will be the first day o
f
the month
i
n which the relevant Dividend Payment Date occurs or, i
f
any such day i
s not a Business Day, the next day that
i
s a Business Day. Dividends payable on the
Series N WMI Preferred Stock for
any period greater or less than a full Dividend Period will be
o
f
(
i
)
for
any
Dividend Periods
ending prior to the Dividend
Payment
Date
i
n
December 2017, twelve 30- day months, a 360- day year,
and the actual number of days elapsed in the
period and (
i
i
) for
any
Dividend Periods thereafter, the actual number
o
f
days elapsed
in the relevant
Dividend Period divided by 360. No interest will be paid on any dividend payment made on the
Series N WMI Preferred Stock or Depositary
Shares. Holders
o
f
Depositary
Shares will receive for
each Depositary
Share 1/ 1000th of any such dividend payment
made on a single share of the Series N
WMI Preferred Stock.
Dividends on the Series N WMI Preferred Stock will be noncumulative.
I
f WMIs Board of
Directors does not declare a dividend on the Series N WMI Preferred Stock or declares less than a
fuH dividend i
n respect o
f
any Dividend Period, the holders o
f
the Series N WMJ Preferred Stock will
have no right t
o receive any dividend or a full dividend, as the case may be, for the Dividend Period,
and WMI will have no obligation to
pay
a dividend or to
pay
full dividends for that Dividend Period,
whether or not dividends are declared and
paid for
any
future Dividend Period with respect to the
Series N WMI Preferred Stock, WMIs common stock or
any
other class or series of WMIs preferred
stock.
Redemption
The Series N WMI Preferred Stock will not be redeemable at the option of the holders thereof.
Subject to a covenant
i
n favor of certain of WMIs debtholders
limiting
WMIs and its subsidiaries
right
to purchase or redeem the Series N WMI Preferred Stock
(among others)
as described under
109
CONFIDENTIAL
Return
Description o
f
the Trust Securities Restriction on Redemption or Purchases, WMI
may, a
t
its
option
redeem the Series N WMI Preferred Stock:
i
n whole but not
i
n
part, on any
Dividend
Payment
Date
Payment
Date
i
n
December 2017
upon
the
occurrence
of a
Rating Agency
Event or a
Regulatory Capital Event,
at a cash
to:
the
greater
of:
(
i
) $1,000,000 per
share of Series N WMI Preferred Stock, or
(
i
i
) the sum of the
present
share of Series N WMI Preferred
Stock, discounted from the Dividend
Payment
Date
i
n December 2017 to the
redemption
date, and the
present
values of all undeclared dividends for each Dividend Period from the
redemption
date to and
including
the Dividend
Payment
Date
i
counted from their applicable
Dividend
Payment
Dates to the
redemption date, i
n each
case on a quarterly
basis
f
twelve
30- day months)
at
the
by an Independent
Investment
Banker, pIus 1.0%, pIus
any
redemption date;
i
n whole but not
i
n
part,
on
any
Dividend
Payment
Date
Payment
Date
i
n
December 2017 for
any reason other than the occurrence of a Rating Agency
Event or a
Regulatory Capital Event, at a cash redemption price equal to:
the
greater
of:
(
i
) $1,000,000 per share of Series N WMI Preferred Stock, or
(
i
i
) the sum of the present value of $1,000,000 per share o
f
Stock, discounted from the Dividend Payment Date i
n December 2017 to the redemption
date, and the present values of all undeclared dividends for each Dividend Period from the
redemption
date to and
including
the Dividend
Payment
Date i
counted from their
applicable
Dividend
Payment
Dates to the
redemption date, in each
case on a
quarterly
basis
(assuming
a
360- day year consisting
of twelve
30-day months) at
the
b
y
an Independent
Investment Banker, pIus 0.75%; pIus
any
declared but
unpaid
dividends tO the
redemption date;
i
n whole but not in
part, on any
Dividend
Payment
Date after the Dividend
Payment
Date
i
n
December 2017 that
i
s not a Ten- Year Date, upon
the occurrence of a Rating Agency
Event or
a Regulatory Capital Event, at a cash
to $1,000,000 per
share of
Series N WMI Preferred Stock, plus any
declared and
unpaid
dividends to the
redemption
date;
i
n whole or i
n
part, on each Dividend Payment Date that
i
s
a Ten- Year Date
a
t
a cash
redemption price of $1,000,000 per
share
o
f
Series N WMI Preferred Stock, plus any declared
t
i
n whole but not
i
n
part, on any Dividend
Payment
Date after the Dividend Payment Date i
n
December 2017 that i
s not a Ten- Year Date for any reason other than the occurrence o
f
a
Rating Agency
Event or a Regulatory Capital Event, a
t
a cash
redemption price equal to:
the greater
of:
(
i
) $1,000,000 per
share of Series N WMI Preferred Stock, or
(
i
i
) the
sum o
f
the present
value of
$1,000,000 per
share
o
f
Stock, discounted from the next
succeeding
Ten- Year Date to the
redemption date,
and the
present
values
o
f
all undeclared dividends for each Dividend Period from the
redemption
110
CONFIDENTIAL
Return
date to and
including
the next
succeeding
Ten- Year Date, discounted from their applicable
Dividend
Payment
Dates to the
redemption date, i
n each case on a quarterly
basis
f
twelve
30- day months)
at the 3-Month USD LIBOR
Rate
applicable
such
redemption
date
(which
3-Month USD LIBOR Rate will
also,
for
purposes
of
calculating
such
redemption price,
be
the rate used
i
n
calculating
the amount for each such undeclared
dividend), as calculated
b
y an Independent Investment Banker; plus
any
declared but
unpaid
dividends to the
redemption date;
i
n each
case,
without accumulation of
any
respect
to Dividend Payment
Dates
prior
to the
redemption
date.
Dividends will cease to accrue on the Series N WMI Preferred Stock called for redemption on
and as o
f
the date fixed for
redemption
and such Series N WMI Preferred Stock will be deemed to
cease t
o be
outstanding; provided,
that the
redemption price, including any
authorized and declared
but
unpaid
dividends for the current Dividend Period, i
f
any,
to the date fixed for
redemption,
has been
duly paid or provision
has been made for such
payment.
Notice of any redemption will be mailed
a
t
least 30 days, but not more than 60 days, prior t
o
any
redemption
date to each holder
o
f
t
o
b
e
redeemed, a
t
such holders
registered
address.
Replacement
At or prior
to~ issuance
o
f
the Series 2007- B
Company
Preferred Securities and the Trust Securi
ties,
WMI will enter into the
Replacement Capital Covenant described under
Description
of the
Trust Securities Restriction on Redemption or Purchases, limiting
WMIs
ability
to redeem or
purchase prior
to October 25, 2017 certain securities, including
the Series N WMI Preferred Stock,
among
others.
I
n
addition, i
n the event of the occurrence of the Conditional
Exchange
after the
expiration o
f
the Replacement Capital
Covenant on October 25, 2017, WMI intends to follow certain
guidelines limiting the circumstances under which i
t will redeem or purchase, as applicable, the
Series N WMI Preferred Stock as described under Description o
f
the Trust Securities Restriction
on Redemption or Purchases.
I
f WMI
voluntarily or involuntarily liquidates,
dissolves and winds
up,
the holders of Series N WMI
Preferred Stock at the time
outstanding
will be entitled to receive
liquidating
distributions
i
n the amount
of $1,000,000 per share, or $1,000 per Depositary
Share
representing a 1/ 1000th interest
i
n the
Series N WMI Preferred Stock, plus an amoUnt
equal
to declared but
unpaid
dividends for the current
Dividend Period to the date of
liquidation,
out of WMIs assets
legally
available for distribution to its
shareholders, before
any
distribution
o
f
assets
i
s made to holders
o
f
WMIs common stock or any
other Junior Securities, subject to the rights of the holders of any class or series of securities ranking
on a parity upon liquidation with the Series N WMI Preferred Stock
upon liquidation and the
rights o
f
its creditors.
After
payment
of the full amount of the
liquidating
distributions to which
they are entitled, the
holders
o
f
the Series N WMI Preferred Stock will have no right or claim to any o
f
WMIs
remaining
assets. In the event that, upon any
such
voluntary or involuntary dissolution, liquidation
and
winding
up, WMIs available assets are insufficient to
pay
the amount o
f
the liquidation distributions on all
outstanding
Series N WMI Preferred Stock and the corresponding amounts payable on any
other
securities
o
f
equal ranking,
then the holders of the Series N WMI Preferred Stock and
any
other
securities of
equal ranking
will share
ratably i
n
any
such distribution of assets
i
n
proportion
to the full
liquidating
distributions to which
they
would otherwise be
respectively
entitled.
111
CONFIDENTIAL
Return
For such
purposes,
WMIs consolidation or merger
with or into
any
other
entity,
the consolidation
or merger
of
any
other
entity
with or into
i
t
,
or the sale
o
f
all or substantially
all
o
f
WMIs
property or
business, will not be deemed to constitute its dissolution, liquidation
and
winding up.
Voting Rights
Holders of Series N WMI Preferred Stock will not have
any voting rights, including
the
right
to
elect
any directors, except upon
issuance as required
b
y
law, or as set forth below.
Washington
law attaches mandatory voting rights
to classes or series
o
f
shares that are affected
b
y certain amendments to the articles of
incorporation.
The holders of the
outstanding
shares
o
f
a
class or series are entitled to vote as a separate voting group i
f shareholder
voting i
s otherwise
required
b
y
Washington
law and
i
f the amendment would:
increase the
aggregate
number
o
f
authorized shares of the class or series;
effect an exchange or reclassification
o
f
all
o
r
part o
f
the issued and outstanding
shares of the
class or series into shares of another class or series, thereby adversely affecting
the holders of
the shares so exchanged or reclassified;
change
the
rights, preferences, or limitations
o
f
all or part
of the issued and
outstanding
shares
of the class or series, thereby adversely affecting
the holders of shares of the class or series;
change
all or part
of the issued and the then
outstanding
shares
o
f
the class or series into a
different number
o
f
shares of the same class or series, thereby adversely affecting
the holders
o
f
shares of the class or series;
create a new class or series of shares
having rights or preferences
with
respect
to dividends
or other distributions or to dissOlution that are, or upon designation by the board of directors
may be, prior, superior, or substantially equal to the shares of the class or series;
increase the
rights or preferences
with respect to distributions, or on liquidations or dissolution,
or the number of authorized shares o
f
any class or series that, after
giving
effect to the
amendment, has rights or preferences
with respect to distributions, or on liquidations or
dissolution that are, or upon designation
b
y
the board o
f
directors may be, prior, superior, or
substantially equal t
o
the shares o
f
the class or series;
limit or deny an existing pre-emptive right of all or part o
f
the shares o
f
the class or series;
cancel or otherwise adversely affect rights to distributions that have accumulated but not yet
been declared on all or part o
f
the shares of the class or series; or
effect a redemption or cancellation o
f
all or part o
f
the shares
o
f
the class or series i
n
exchange
for cash or any
other form o
f
consideration other than shares of the corporation.
Holders of the outstanding
shares o
f
a class or series of stock are entitled under Washington law
to vote as a separate voting group with respect t
o
a merger or share
exchange i
f shareholder
voting i
s
otherwise
required
b
y
Washington
law and
i
f
,
as a result of the
merger
or share
exchange,
holders of
a part or all of the class or series would hold or receive:
shares of
any
class or series of the
surviving or acquiring corporation, or o
f
any parent
corporation
of the
surviving corporation,
and either
(
i
)
that class or series has a greater
number of authorized shares thanthe class or series held
by
the holders, or (
i
i
) there
i
s a
change
in the number of shares held
b
y the holders or i
n the
rights, preferences or limitations
o
f
the shares or the class or series and the
change adversely
affects the holders;
shares of
any
class or series
o
f
the
surviving or acquiring corporation, or o
f
any parent
corporation o
f
the surviving corporation,
and such holders would be, as compared
to their
circumstances
prior
to the
merger or exchange, adversely
affected
by
the creation, existence,
112
CONFIDENTIAL
Return
number
o
f
authorized shares or rights or preferences o
f
another series that may be prior,
superior
or
substantially equal to the shares
t
o be received
b
y such holders; or
cash or any other property other than shares

o
f
the~ surviving or acquiring corporation or of
any
parent corporation o
f
the surviving corporation.
Under
Washington law,
i
f
any
class or series of shares
i
s entitled to vote as a
group
in
connection with an amendment
o
f
the artic! es, a
merger
or a share exchange, such class or series
and
any
other classes or series affected
i
n a substantially similar
way
will vote together as a single
voting
group
unless otherwise provided
b
y the articles or
b
y the board of directors.
Washington
law
permits
these
statutory voting rights to be
expanded or, i
n certain circum
stances, limited
i
n the
designation
of the terms
o
f
a class or series. The
statutory voting rights o
f
the
holders of Series N WMI Preferred Stock will be expanded and, i
n certain circumstances, limited as
described below.
I
f after issuance of the Series N WMI Preferred Stock WMI fails to pay, or declare and set aside
for
payment,
whether or not consecutive, full dividends on the Series N WMI Preferred Stock or any
then outstanding Voting Parity Securities for six Dividend Periods or their equivalent, the authorized
number of WMIs directors will be increased by two. Subject to compliance with any requirement for
regulatory approval of, or non- objection to, persons serving as directors, the holders
o
f
Series N WMI
Preferred Stock, voting together as a single and separate class with the holders of
any outstanding
Voting Parity
Securities, such as the Series I WMI Preferred Stock, Series J WMI Preferred Stock,
Series L WMI Preferred Stock and Series M WMI Preferred Stock issuable upon an Exchange Event
i
n
exchange
for the Trust I Securities, the WaMu Cayman Securities, the Trust
I
I Securities or the
Trust
I
l
l
Securities, as applicable, will have the right to elect two directors
i
n addition to the directors
then
i
n office at WMIs next annual
meeting o
f
shareholders. This
right
will continue at each
subsequent annual meeting until WMI
pays
dividends
i
n full on the Series N WMI Preferred Stock and
any Voting Parity Securities for three consecutive Dividend Periods or their equivalent and
pays
or
declares and sets aside for
payment
dividends
i
n full for the fourth consecutive Dividend Period or its
equivalent.
The term
o
f
such additional directors will terminate, and the total number
o
f
directors will be
decreased by two after WMI pays dividends
i
n full for three consecutive Dividend Periods or their
equivalent and declares and
pays or sets aside for
payment
dividends,
i
n full on the Series N WMI
Preferred Stock and
any Voting Parity Securities for the fourth consecutive Dividend Period or its
equivalent or, i
f earlier, upon the redemption of all Series N WMI Preferred Stock. After the term of
such additional directors terminates, the holders
o
f
the Series N WMI Preferred Stock will not be
entitled to elect additional directors unless full dividends on the Series N WMI Preferred Stock have
again not been paid or declared and set aside for payment for six future Dividend Periods.
Any additional director elected
b
y the holders of the Series N WMI Preferred Stock and the
Voting Parity
Securities
may
be removed
only
b
y the vote of the holders of record of the
outstanding
Series N WMI Preferred Stock and Voting Parity Securities, voting together as a single and separate
class, at a meeting of WMIs shareholders called for that
purpose. Any vacancy
created
b
y the
removal of
any
such director
may
be filled
only
b
y the vote
o
f
the holders of the
outstanding
Series N WMI Preferred Stock and Voting Parity Securities, voting together as a single and separate
class.
So
long as any
shares
o
f
Series N WMI Preferred Stock are outstanding, the vote or consent
o
f
the holders of at least 662/ 3% of the shares
o
f
Series N WMI Preferred Stock at the time
outstanding,
voting as a class with all other series of
preferred
stock
ranking equal
with the Series N WMI Preferred
Stock and entitled to vote thereon, given i
n
person
or by proxy,
either
i
n writing without a meeting or
113
CONFIDENTIAL
Return
b
y
vote at
any meeting
called for the purpose, will be
necessary
for
effecting or validating any o
f
the
following actions, whether or not such approval i
s
required
b
y
Washington law:
any amendment, alteration

o
s
repeal o
f
any provision o
f
o
f
Incorporation ( including
the Articles
o
f
Amendment
creating
Stock) or WMIs
bylaws
that would alter or change the
voting powers, preferences or special
rights o
f
the Series N WMI Preferred Stock so as t
o affect them adversely;
any
amendment or alteration o
f
o
f
Incorporation to
authorize or create, or increase the authorized amount of, any
shares of, or any
securities
convertible into shares of, any class or series of WMIs capital stock ranking prior tothe
i
n the
payment o
f
dividends or i
n
the distribution
o
f
assets on
any liquidation,
dissolution and
winding- up
of WMI; or
the consummation of a binding share exchange or reclassification involving the Series N WMI
Preferred Stock or a merger or consolidation of WMI with
another entity, except holders o
f
Series N WMI Preferred Stock will have no right
to vote under this
provision or otherwise under
Washington
law
i
f
i
n each case (
I
) the Series N WMI Preferred Stock remains
outstanding or,
i
n the case of
any
such
merger or consolidation with
respect
to which WMI
i
s not the
surviving
or resulting entity, i
s converted into or exchanged
for preference securities
o
f
the surviving or
resulting entity or its ultimate
parent,
and
(
i
i
) such Series N WMI Preferred Stock
remaining
outstanding or such
preference securities, as the case may be, have such
rights, preferences,
privileges
and
voting powers,
taken as a whole, as are not
materially
less favorable to the
holders thereof than the
rights, preferences, privileges
and
voting powers
of the Series N WMI
Preferred Stock, taken as a whole;
pro vided, however, that
any
increase i
n the amount of the authorized or issued Series N WMI
Preferred Stock or authorized preferred stock or any
securities convertible into preferred stock or the
creation and issuance, or an increase i
n the authorized or issued amount, of other series of preferred
stock or any securities convertible into preferred stock ranking equally with and/ or
junior to the
Series N WMI Preferred Stock with
respect
to the
payment
of dividends
(whethersuch
dividends are
cumulative or noncumulative)
and/ or the distribution
o
f
assets
upon
WMIs dissolution, liquidation
and
winding-
u
p will not be deemed to
adversely
affect the
voting powers, preferences or special rights
of
the Series N WMI Preferred Stock and, notwithstanding any provision
of
Washington law, holders of
Series N WMI Preferred Stock will have no right to vote on such an increase.
I
f
an amendment, alteration, repeal,
share
exchange, reclassification, merger
or consolidation
described above would
adversely
affect one or more but not all series of
Voting Parity
Securities
( including
the Series N WMI Preferred Stock for this purpose), then
only
those series affected and
entitled to vote shall vote as a class
i
n lieu of all such series of
preferred
stock.
The
foregoing voting provisions
will not
apply i
f
, at or prior
to the time when the act with
respect
to which such vote would otherwise be required i
s
effected, all
outstanding
shares of Series N WMI
Preferred Stock have been redeemed or called for
redemption upon proper
notice and sufficient funds
have been set aside
b
y WMI for the benefit of the holders of the Series N WMI Preferred Stock to
effect such
redemption.
WMI will covenant in the
Exchange Agreement
that
i
n the event WMI, prior
to the Conditional
Exchange, effects, or
i
s
,
the subject o
f
a merger, consolidation, statutory
share exchange, sale of all
or substantially
all of its assets or other form
o
f
business
combination, (
i
)
in which WMI
i
s not the
surviving, resulting or receiving corporation
thereof or (
i
i
)
i
f WMI
i
s the
surviving or resulting
corporation,
shares
representing
a majority of WMIs total voting power are either converted or
exchanged
into securities of another
person or into cash or other
property (any
such transaction
i
n
either
(
i
) or (
i
i
)
being a Business
Combination),
then WMI
(
I
) will not enter into such Business
Combination unless the Successor Entity agrees, effective upon the consummation o
f
such Business
Combination, to abide
b
y
all of WMIs obligations under the provisions of the Exchange Agreement
114
CONFIDENTIAL
Return
restricting
the
payment
of dividends
b
y WMI i
n the event dividends are not
paid
with respect t
o the
Company
(
i
i
)
may, at the election
o
f
the Board
o
f
Directors
o
f
WMI
prior to
the effectiveness
o
f
such Business Combination, assign,
effective
upon
the consummation
o
f
such
Business Combination, all o
f
its other
obligations
under the
Exchange Agreement t
o
a Successor
Entity that has Fixed-to-Floating Rate Substitute Preferred Stock and, as a result of such assignment,
a
l
l
references t
o
WMI, Series N WMI Preferred Stock and Depositary
Shares shall become and be
deemed
t
o be references to such Successor
Entity, t
o such Fixed Rate Substitute Preferred Stock and
to a Fixed Rate Successor
Depositary Share, respectively.
Successor
Entity means a corporation designated
b
y the Board of Directors of WMI
(
i
)
that
i
s
the
surviving, resulting or receiving corporation, as applicable, i
n
any
Business Combination, (
i
i
) the
securities of which are received i
n a Business Combination
b
y some or all holders of WMI
voting
shares or (
i
i
i
) that the Board of Directors of WMI determines to be an acquirer o
f
WMI in a BUsiness
Combination.
Fixed-to-Floating
Rate Substitute Preferred Stock means a class or series
o
f
equity
securities
o
f
a Successor
Entity having
the preferences, limitations and relative rights i
n its articles or certificate
of
incorporation or other constituent documents that are substantially
similar to those set forth
i
n the
articles
o
f
amendment
establishing
the Series N WMI Preferred Stock.
Fixed-to-Floating
Rate Successor
Depositary
Share means a depositary
share
substantially
similar to a Depositary
Share
representing an interest i
n the
Fixed- to-Floating
Rate Substitute
Preferred StOck. ~
Conditional
Exchange
For a description
of how an exchange
of the Trust Securities into
Depositary
Shares
may occur
upon an Exchange Event, purchasers
should read
Description o
f
the Trust Securities Conditional
Exchange.
115
CONFIDENTIAL
Return
DESCRIPTION OF THE DEPOSITARY SHARES
The
following summary
provisions
of the
Depositary
Shares.
This description i
s qualified i
n its entirety by reference
t
o the terms and provisions of the
Deposit
Agreement,
the form of
depositary receipts,
which contain the terms and provisions of the
Depositary
Shares, and WMIs articles of
incorporation
and articles of amendment.
Copies
of each of the
foregoing documents may be obtained
upon request to WMI.
General
Each depositary share wifl represent a 1/ 1000th interest
i
n one share
o
f
Stock
(the Depositary Shares).
The
Depositary
Shares will be evidenced
b
y
depositary receipts
issued in definitive registered form. The shares
o
f
underlying
the
Depositary
Shares will, upon an exchange as a result
o
f
an Exchange Event, be deposited with Mellon
Investor Series LLC, as depositary ( the Depositary), under a Deposit Agreement, to be entered into
on or before the closing
date ( the Deposit Agreemenr), among WMI, the Depositary, the registrar
appointed thereunder and all holders from time to time
o
f
depositary receipts issued
b
y the Depositary
thereunder. WMI does not intend
t
o list or quote the Depositary Shares or the Series N WMI Preferred
Stock on
any
securities exchange or automated dealer quotation system.
Subject to the terms
o
f
the
Deposit Agreement,
each owner
o
f
a Depositary Share, will be
entitled, through the Depositary, to all the rights, preferences and privileges of 1/ 1000th of a share
o
f
Series N WMI Preferred Stock. Owners
o
f
a single Depositary Share, representing a 1/ 1000th interest
in one share
o
f
Series N WMI Preferred Stock, will be subject to all of the limitations of the fractional
share
represented thereby,
which are summarized above under
Description o
f
the Series N WMI
Preferred Stock.
The Depositary will act as transfer
agent, registrar
and
paying agent
with
respect to the
Depositary Shares.
The Depositarys office at which the depositary receipts will be administered
i
s located at 480
Washington Boulevard, Jersey City, New Jersey 07310.
Purchasers
may
hold
Depositary Shares either directly or indirectly through their broker or other
financial institution.
I
f
purchasers hold Depositary Shares directly, by having Depositary Shares
registered i
n their name on the books
o
f
the Depositary, the purchaser
i
s a depositary receipt holder.
I
f
purchasers
hold the Depositary
Shares
through their broker or financial institution nominee, the
purchasers must rely on the procedures of such broker or financial institution to assert the rights
of a
depositary receipt
holder described
i
n this section. Purchasers should consult with their broker or
financial institution to find out what those
procedures are.
Issuance of Depositary Receipts
Automatically upon a Conditional
Exchange,
WMI will issue the shares of Series N WMI
Preferred Stock, and
deposit
those shares with the Depositary, which will then issue and deliver the
depositary receipts to WMI. WMI will, i
n turn, deliver the
depositary receipts to the holders of
Trust Securities as of the date of the Conditional Exchange. Depositary receipts will be issued
evidencing only
whole
Depositary Shares. Each Trust Security will then be exchanged for a like
amount
o
f
depositary receipts as described under Description of the Trust Securities
Conditional
Exchange.
Dividends and Other Distributions
The
Depositary
will distribute all cash dividends, dividends
paid i
n
Depositary Shares represent
ing paid-
u
p and nonassessable shares of Series N WMI Preferred Stock or other cash distributions
received
i
n respect
o
f
the Series N WMI Preferred Stock to the record holders of Depositary Shares
i
n
proportion to the numbers of such Depositary Shares owned by such holders on the relevant record
116
CONFIDENTIAL
Return
date.
I
n
the event of a distribution other than
i
n cash, the
Depositary
will distribute
property
received
b
y
i
t to the record holders of
Depositary
Shares entitled thereto, unless the
Depositary
determines
that
i
t
i
s not feasible to make such a distribution, i
n which case the
Depositary may,
after consultation
with WMI, sell such
property
and distribute the net
proceeds
from such sale to such holders.
Redemption
of
Depositary
Shares
I
f the shares
o
f
underlying
the
Depositary
Shares are redeemed,
i
n whole
p
r
i
n
part, Depositary
Shares will be redeemed with the
proceeds
received
b
y the
Depositary
resulting
from the
redemption
of the Series N WMI Preferred Stock held
by
the
Depositary.
The
redemption price per Depositary
Share will be
equal
to 1/ 1000th of the
redemption price per
share
payable
with
respect
to such Series N WMI Preferred Stock.
I
f less than all the shares of Series N
WMI Preferred Stock are to be redeemed, a corresponding proportion
of the
Depositary
Shares will
be redeemed and the
Depositary
Shares to be redeemed will be selected
b
y lot or pro rata, i
n WMIs
sole discretion.
After the date fixed for
redemption (which
will be the same date as the
redemption
date for the
Series N WMI Preferred Stock), the Depositary
Shares so called for redemption will no longer
be
deemed to be outstanding
and all rights o
f
the holders
o
f
the
Depositary
Shares will cease, except
the
right t
o receive the
moneys payable upon
such redemption and
any money
or other property to which
the holders o
f
such Depositary
Shares were entitled
upon
such
redemption upon
surrender to the
Depositary o
f
the
depositary receipts evidencing
such
Depositary
Shares.
Amendment of
Deposit Agreement
The form of
depositary receipt evidencing
the
Depositary
Shares and
ahy provision o
f
the
Deposit Agreement may
at
any
time be amended by agreement
between WMI and the
Depositary.
However, any
amendment that
materially
and
adversely
alters the
rights o
f
the holders of
depositary
receipts will not be effective unless such amendment has been
approved by
the holders of at least a
majority
of the
Depositary
Shares then
outstanding. Every
holder of an outstanding depositary receipt
at the time
any
amendment becomes effective will be deemed, by continuing
to hold such
depositary
receipt,
to consent and
agree
to such amendment and to be bound
b
y the Deposit Agreement as.
amended
thereby.
Charges of Depositary
WMI will pay the charges of the Depositary i
n connection with the initial deposit o
f
the
Series N WMI Preferred Stock and the initial issuance of the Depositary
Shares
upon a Conditional
Exchange,
and any redemption o
f
the Series N WMI Preferred Stock. Holders
o
f
Depositary
Shares
will
pay all other transfer and other taxes and
governmental charges and, i
n
addition, such other
charges as are expressly provided
in the
Deposit Agreement to be for their accounts. All other
charges
and
expenses
of the
Depositary
and of
any registrar
incident to the
performance
of their
respective obligations arising
from the depositary arrangements
will be
paid
b
y WMI
only
after
prior
consultation and
agreement
between the
Depositary
and WMI and consent
by
WMI to the incurrence
of such
expenses,
which consent will not be
unreasonably
withheld.
Miscellaneous
The
Depositary
will forward to the holders
o
f
the
Depositary
Shares all reports and communica
tions from WMI that WMI would be required
to furnish to the holders of the Series N WMI Preferred
StOck.
Neither the
Depositary nor WMI will be liable i
f
i
t
i
s
prevented or delayed by law or any
circumstances
beyond
its control
i
n
performing its obligations under the
Deposit Agreement.
The
Obligations of WMJ and the
Depositary
under the
Deposit Agreement
will be limited
t
o
performance i
n
good
faith
o
f
their duties thereunder, and they will not be obligated to prosecute or defend
any legal
117
CONFIDENTIAL
Return
proceedings i
n
respect
of
any Depositary
Shares or the Series N WMI Preferred. Stock unless
satisfactory indemnity i
s furnished. They may rely upon written advice of counsel or independent
accountants, or information
provided by persons presenting
Series N WMI Preferred Stock for deposit,
holders
o
f
Depositary
Shares or other
persons
believed
t
o be
competent
and on documents believed
to be
genuine.
Resignation
and Removal of
Depositary;
Termination of
Deposit Agreement
The
Depositary may resign
at
any
time
b
y
delivering
to WMI notice of its election to do
so, and
WMI
may
at
any
time remove the
Depositary,
with
any
such
resignation or removal
taking
effect
upon
the
appointment o
f
a successor depositary
and its
acceptance o
f
such
appointment.
Such successor
depositary
will be
appointed
b
y WMI within 60
days
after
delivery
of the notice of
resignation
or
removal.
Upon
termination of the
Deposit Agreement,
the
Depositary
will discontinue the transfer of
depositary receipts,
will
suspend the distribution
o
f
dividends to the holders thereof and will not
give
any
further notices
(other
than notice of such
termination) or perform any
further acts under the
Deposit Agreement, except
that the
Depositary
will continue to collect dividends and other distributions
pertaining to Series N WMI Preferred Stock and will continue
t
o deliver Series N WMI Preferred Stock
certificates
together
with such dividends and distributions and the net proceeds of any sales of rights,
preferences, privileges, or other property i
n
exchange
for
depositary receipts surrendered. At
any
time
after the expiration o
f
three years
from the date o
f
termination, the Depositary may sell the Series N
WMI Preferred Stock and hold the
proceeds
of such sale, without interest, for the benefit
o
f
the
holders of
depositary receipts
who have not then surrendered their
depositary receipts.
After
making
such sale, the
Depositary
will be
discharged
from all
obligations
under the
Deposit Agreement except
to account for such
proceeds.
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CONFIDENTIAL
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DESCRIPTION OF THE OTHER WMI CAPITAL STOCK
As of the date hereof, the authorized
capital
stock
o
f
WMI consists
o
f
1,600,000,000 shares of
WMI common stock and
10,000,000
shares of
preferred-stock, no par
value. As of the close of
business on October 17, 2007, there were 868,543,803 shares of WMI common stock
outstanding
and 500 shares
o
f
WMIs Series K
Perpetual
Non- Cumulative
Floating
Rate Preferred Stock outstand
ing.
As
o
f
the close of business on October 17, 2007, 700,000 shares
o
f
preferred stock of WMI were
authorized, but unissued, as contemplated by WMIs Rights Agreement,
dated as of December 20,
2000, entered into
b
y and between WMI and Mellon Investor Services LLC. I
n
addition, 3,000 shares
of WMI preferred stock were authorized for issuance i
n connection with the issuance of the Trust I
Securities, WaMu
Cayman Securities, Trust
I
I Securities and Trust
I
l
l
Securities as described below.
The shares
o
f
WMI
preferred
stock
t
o be issued
upon
the occurrence o
f
a Conditional
Exchange
have
been
duly
authorized and when and
i
f issued will be validly issued, fully paid,
nonassessable and free
o
f
preemptive rights,
with no personal liability attaching
to the
ownership
thereof;
WMI authorized and reserved for issuance
i
offering
of the Trust I Securities
and the related issuance
b
y the
Company
of the Series 2006- A
Company
up
to
1,250 shares of its Series I Perpetual Non-cumulative Fixed-to-Floating Rate Preferred Stock, no par
value, and liquidation preference o
f
$1,000,000 per
share (the Series I WMI Preferred Stock). WMI
also authorized for issuance i
n connection with the offering of the WaMu Cayman Securities and the
related issuance by the Company o
f
the Series 2006- B
Company
up t
o
750 shares
of its Series J
Perpetual
Non-cumulative Fixed Rate Preferred Stock, no par value,
and
liquidation
preference o
f
$1,000,000 per
share
(the
Series J WMI Preferred
Stock).
WMI authorized and
reserved for issuance in connection with the
offering
of the Trust I
I
Securities and the related issuance
b
y the
Company
of the Series 2006- C
Company
up
to 500 shares of its Series L
Perpetual
Non- cumulative
Fixed-to-FlOating
Rate Preferred Stock, no par value, and
liquidation
preference
of
$1,000,000 per
share
(the
Series L WMI Preferred
Stock).
WMI also authorized and
reserved for issuance
i
offering o
f
the Trust
I
I
I
Securities and the related
issuance by
the
Company
of Series 2007- A
Company
up
to 500 shares of its
Series M
Perpetual
Non-cumulative
Fixed-to-Floating
Rate Preferred Stock, no par
value and
liquida
tion preference $1,000,000 per share (the Series M WMI Preferred Stock). The shares of Series
.
1
WMI Preferred Stock, Series J WMI Preferred Stock, Series L WMI Preferred Stock and Series M
WMI Preferred Stock will be issued
b
y
WMI solely upon the occurrence o
f
a Conditional
Exchange
with
respect to the Trust I
Securities, the WaMu
Cayman Securities,
the Trust
I
I
Securities and the
Trust
I
l
l
Securities, respectively. I
f and when the shares
o
f
Series I WMI Preferred Stock, Series J
WMI Preferred Stock, Series L WMI Preferred Stock and Series M WMI Preferred Stock are issued
upon
the occurrence of a Conditional
Exchange, they
will each be
represented by depositary
shares
o
f
WMI, each of which will
represent
1/ 1000th of a share of such
preferred
stock. The Series I WMI
Preferred
Stock, Series J WMI Preferred Stock, Series L WMI PreferredStock and Series M WMI
Preferred Stock rank, and the Series N WMI Preferred Stock when issued will rank, par! passu
with
one another
i
n terms of dividends and
None of these series of WMI
preferred
stock will be listed on any
securities
exchange or automated dealer
quotation system.
The terms
o
f
the Series I WMI Preferred Stock, Series J WMI Preferred Stock, Series L WMI Preferred Stock and
Series M WMI Preferred Stock are substantially similar, with certain exceptions, to the terms o
f
the
Series 2006- A Company Preferred Securities, Series 2006- B Company Preferred Securities,
Preferred Securities and the Series 2007- A Preferred Securities,
respectively.
In
September 2006,
WMI issued 20,000,000 depositary shares,
each of which
represented a
1
/
40,000th
interest
i
n a share of WMIs Series K
Perpetual
Non- Cumulative
Floating
Rate Preferred
Stock
( the
Series K WMI Preferred Stock). 500 shares
o
f
Series K WMI Preferred Stock were
issued. The Series K WMI Preferred Stock has a liquidation preference o
f
$1,000,000 per
share.
Dividends on the Series K WMI Preferred StoOk are noncumulative and, i
f declared
by
the board
o
f
directors, are paid quarterly at a per annum rate equal to the greater o
f
(
i
) 3-month USD LIBOR for
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CONFIDENTIAL
Return
the related dividend period, pIus 0.70% or (
i
i
) 4.00%. The Series K WMI Preferred Stock has no
stated
maturity. Beginning i
n September 2011, WMI
may
at its option redeem the Series K WMI
Preferred Stock
i
n whole or
i
n
part at
any
time or from time to time at a price equal to $1,000,000 per
share plus any
declared and unpaid- dividends. The Series K WMI Preferred Stock has- no
voting rights
except i
n certain
specific
circumstances. The Series I WMI Preferred Stock, the Series J WMI
Preferred Stock, the Series L WMI Preferred Stock rank, Series M WMI Preferred Stock and the
Series N WMI Preferred Stock will rank, on a parity with Series K WMI Preferred Stock
i
n terms of
dividends and liquidation payments and
winding up
of WMI.
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CONFIDENTIAL
Return
BOOK-ENTRY ISSUANCE
Form, Denomination, Transfer and Book- Entry Procedures
General
The Trust Securities will be issued
only i
n
fully registered
form. Each purchaser i
n this
Offering
and each account for which i
t
i
s
purchasing will hold at least $300,000 liquidation preference o
f
Trust Securities
(
i
.
e
.
,
at least three Trust
Securities) and, i
f
i
t transfers
any
interest
i
n
any
Trust
Security,
will transfer at least
$100,000 liquidation preference
of Trust Securities
(
i
.
e
.
,
at least one Trust
Security)
and each
subsequent purchaser
and each account for which
i
t
i
s
purchasing
will hold and transfer at
of Trust Securities
(
i
.
e
.
,
at least one Trust
Security). Any transfer,
sale or other
disposition
of Trust Securities
having
a liquidation preference
of less than $100,000 or
that results
i
n a beneficial owner holding
Trust Securities
having an aggregate liquidation preference
of less than $100,000,
will be deemed to be null and void ab initio and of no legal
effect whatsoever.
Any
such transferee will be deemed not to be the beneficial owner of such Trust Securities for
any
purpose, including,
but not limited to, the
receipt o
f
dividends on such Trust Securities, and such
transferee will be deemed to have no interest whatsoever in such Trust Securities.
Global Security
The Trust Securities
initially
will be
represented by one or more
securities
i
n
registered, global
form
(collectively,
the Global
Security).
The Global
Security
will be
deposited upon
issuance with the
Registrar as custodian for The Depository Trust
Company ( DTC) i
n New York, New York, and
registered i
n the name o
f
DTC or its nominee (the Nominee), i
n each case for credit to an account
o
f
a DTC
Participant, as described below.
Special
Considerations for Global Securities
As an indirect holder, a purchasers rights relating to a Global
Security
will be
governed
b
y the
account rules
o
f
the purchasers financial institution and
o
f
DTC, as well as the general laws relating
t
o securities transfers. The Trust will not recognize
the
purchaser as a holder
o
f
Trust Securities and
instead will deal
only
with DTC or its nominee. See The DTC
System.
Purchasers should be aware that because Trust Securities are issued
only i
n the form of a
Global
Security:
they
cannot
get
Trust Securities registered i
n their
name;
they
cannot receive
physical
certificates for their interest
i
n the Trust Securities;
they
will be Street Name holders and must look to their own bank or broker for
payments on
the Trust Securities and the protection
of their
legal rights relating
to the Trust Securities;
they may
not be able to sell interests i
n the Trust Securities to some insurance
companies
and
other institutions that are required
b
y law to own securities
i
n the form
o
f
physical
certificates; and
DTCs
policies
will
govern payments, transfers, exchanges
and other matters relating to the
purchasers
interest
i
n the Global
Security.
See The DTC
System.
The Trust, the
Company
and the
Registrar
have no responsibility
for
any aspect o
f
DTCs actions or for its records of
ownership
interests
i
n the Global
Security.
The Trust, the
Company
and the
Registrar
also do
not supervise DTC i
n
any way.
Special
Situations When the Global
Security
Will Be Terminated
I
n
a few
special situations, interests
i
n the Global
Security
will be exchanged for definitive
physical
certificates
representing
Trust Securities. After that exchange, the choice of whether to hold
121
CONFIDENTIAL
Return
Trust Securities
directly
or i
n Street Name will be up t
o
the beneficial owner. Purchasers must
consult their own bank or broker to find out how
t
o
have their interests i
n Trust Securities transferred
to their own
name, so that they
will be direct holders.
The special
situations for
exchange o
f
the Global
Security
for definitive
physical
certificates are:
DTC notifies the Trust that i
t
i
s
unwilling, unable or no longer qualified to continue as the
depositary
for the Trust Securities; or
the Trust i
n its sole discretion determines that the Global
Security will be exchangeable for
certificated Trust Securities.
When the Global Security i
s
exchanged,~
DTC
(and not the Trust, the
Company or the
Registrar)
will be
responsible
for
deciding
the names of the institutions that will be the initial direct holders.
I
f
Trust Securities are issued
i
n certificated form, dividends, i
f
any,
will be
payable, and
Trust Securities
may
be transferred or exchanged, at the
corporate
trust office of the
Registrar i
n New
York, New York, provided,
that
payment
of interest on certificated Trust Securities
may
be made at the
option o
f
the Trust by check mailed to the address of the
persons
entitled thereto.
The DTC
System
DTC
i
s a limited-purpose trust company created t
o
hold securities for, its participating organiza
tions
( the DTC Participants).
DTC also facilitates the clearance and settlement between DTC
Participants
of transactions
i
n securities
deposited
with DTC
through changes i
n the account records
o
f
DTC
Participants.
DTC Participants include securities brokers and dealers (including the Initial
Purchasers), banks, trust companies, clearing corporations and certain other organizations. Access to
DTCs system i
s also available to other entities such as securities brokers and
dealers,
banks and
trust
companies
that work through a DTC Participant (the Indirect DTC
Participants).
When the Trust Securities are purchased through
the DTC
system,
the
purchase
must be made
by or through a DTC
Participant,
who will receive credit for the Trust Securities on DTCs records. The
purchasers ownership
interest will
only
be recorded on the DTC Participants (
o
r
Indirect DIG
Participants) records. DTC has no knowledge of a purchasers
individual
ownership of the Trust Secu
rities. DTCs records show
only
the
identity
of the DTC
Participants
and the amount o
f
the Trust Secu
rities held by or through them. A purchaser will not receive a written confirmation o
f
its purchase or
sale or
any periodic statement directly
from
DTC; i
t will receive these from the DTC
Participant or
Indirect DTC
Participant
at which
i
t maintains its account. Thus, the DTC
Participants (
o
r
Indirect DTC
Participants) are responsible
for
keeping an accurate account
o
f
the
holdings
of their customers.
Any redemption
notices with respect to the Trust Securities will be sent
b
y the
Company
and the
Trust
directly
to DTC, who will, i
n turn, inform the DIG
Participants,
who will then contact the
beneficial owners. I
f less than all of the Trust Securities are being redeemed, DTCs current practice i
s
to choose
by lot the amount of the interest of each DIG Participant
to be redeemed. Each DIG
Participant
will then use an appropriate
method to allocate the
redemption among
its beneficial
holders.
I
t
i
s DTGs current
practice, upon receipt o
f
any payment i
n
respect o
f
the Global
Security
to
credit DTC
Participants
accounts on the
payment
date based on
their
holdings
of beneficial interests
i
n the Global
Security as shown on DIGs records. In
addition, i
t
i
s DTGs current
practice
to
assign
any consenting or voting rights
to DTC
Participants
whose accounts are credited beneficial interests
i
n
the Global
Security
on a record date, by using an omnibus
proxy. Payments
b
y DTG
Participants
to
owners of beneficial interests i
n
the Global
Security, and voting by
DIG
Participants, will be based on
the
customary practices
between the DTG
Participants
and owners o
f
beneficial interests, as i
s
the
case with securities held for the account of customers registered i
n Street Name. However,
payments
will be the responsibility o
f
the DTG
Participants and not o
f
DTG, the
Registrar, the Trust or
the
Company.
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CONFIDENTIAL
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Interests
i
n the Trust Securities will trade
i
n DTCs
same-day
funds settlement
system,
and
secondary market trading activity i
n such interests will therefore settle
i
n
immediately
available
funds,
subject i
n all cases to the rules and
procedures
of DTC and its
participants.
DTC has advised the Trust that
i
t will take
any
action permitted t
o be taken
b
y
a holder of the
Trust Securities only at the direction ofone or more DTC Participants to whose account with DTC
interests
i
n the Global
Security are credited and
only i
n
respect o
f
such
portion
of the
aggregate
principal
amount of the Trust Securities as to which such
participant or participants
has or have
given
such direction.
Although
DTC has
agreed
to the
foregoing procedures i
n order to facilitate transfers
o
f
beneficial
ownership
interests
i
n the Global
Security among participants
of DTC
i
t
i
s under no obligation t
o
perform
or continue
t
o
perform
such procedures, and such procedures may
be discontinued at any
time. Neither the Company,
the Trust, the
Registrar or any o
f
their
representative agents
will have
any
responsibility
for the
performance
b
y
DTC, the DTC Participants or the Indirect DTC Participants o
f
its
obligations
under the rules and procedures governing their operations, including maintaining, supervis
ing or reviewing the records relating to, or payments made on account of, beneficial
ownership
interests i
n the Global
Security.
Euroclear and Clearstream
Clearstream
Banking,
socit
anonyme,
42 Avenue JF
Kennedy, L-1855, Luxembourg
(
Clear
stream), i
s
a subsidiary o
f
Clearstream International ( Clearstream International), a Luxembourg
limited
liability company
formed i
n
January
2000 through the merger of Cedel International and
Deutsche Boerse
Clearing, a subsidiary o
f
Deutsche Boerse AG. I
n
July 2002, Deutsche Boerse AG
acquired Cedel International and its 50% ownership of Clearstream International.
Clearstream
i
s
registered as a bank
i
n
Luxembourg,
and as such
i
s
subject to supervision by
the
Luxembourg
Financial Sector
Supervisory Commission, which supervises Luxembourg banks.
Clearstream holds securities for its customers
(
Clearstream Participants)
and facilitates the
clearance and settlement
o
f
securities transactions
b
y electronic
book- entry
transfers between their
accounts. Clearstream provides various services, including safekeeping, administration, clearance and
settlement
o
f
internationally
traded securities and securities
lending
and
borrowing.
Clearstream also
deals with domestic securities markets
i
n several countries
through
established
depository
and
custodial
relationships.
Clearstream has established an electronic
bridge
with Euroclear Bank
S.A./ N. V. as the Euroclear
Operator i
n Brussels to facilitate settlement of trades between
systems.
Clearstream
currently accepts over 200,000 securities for clearance.
Clearstream Internationals customers are worldwide financial institutions
including underwriters,
securities brokers and dealers, banks, trust
companies
and
clearing corporations.
Clearstream
Internationals United States customers are limited to securities brokers and dealers and banks.
Currently,
Clearstream International has over 2,500 customers located
i
n
over 94 countries, including
all
major European countries, Canada and the United States. Indirect access to Clearstream
i
s
available to other institutions which clear
through or maintain a custodial
relationship
with an account
holder
o
f
Clearstream.
The Euroclear
System
(
Euroclear) was created

i
n 1968 to hold securities for its
participants
(
Euroclear Participants)
and to clear and settle transactions between Euroclear
Participants through
simultaneous electronic book- entry delivery against payment, thereby eliminating the need for
physical
movement of certificates and
any
risk from lack
o
f
simultaneous transfers of securities and cash.
Transactions
may
be settled i
n a variety o
f
currencies, including United States dollars. Euroclear
includes various other securities, including securities lending and borrowing and interfaces with
domestic markets i
n several countries
generally
similar to the arrangements for cross- market transfers
with DTC described above. Euroclear
i
s
operated
b
y Euroclear Bank S.A./ N. V.
(the
Euroclear
Operator).
All
operations are conducted
b
y the Euroclear
Operator,
and all Euroclear securities
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CONFIDENTIAL
Return
clearance accounts and Euroclear cash accounts are accounts with the Euroclear
Operator.
Euroclear
plc establishes policy for Euroclear on behalf of Euroclear
Participants.
Euroclear
Participants
include
banks (including
central
banks),
securities brokers and dealers and other professional financial
intermediaries. Indirect access to Euroclear
i
s also available to other firms that clear
through or
maintain a custodial relationship with a Euroclear Participant, either directly or indirectly.
Securities clearance accounts and cash accounts with the Euroclear
Operator are governed by
the Terms and Conditions Governing Use
o
f
Euroclear and the related
Operating
Procedures
o
f
the
Euroclear System and applicable Belgian law (collectively, the Euroclear Terms and Conditions). The
Euroclear Terms and Conditions
govern
transfers
o
f
securities and cash within Euroclear, withdrawals
of securities and cash from Euroclear, and receipts of payments with respect to securities
i
n Euroclear.
All securities
i
n Euroclear are held on a fungible basis without attribution
o
f
specific certificates to
specific securities clearance accounts. The Euroclear Operator acts under the Euroclear Terms and
Conditions only on behalf
o
f
Euroclear Participants, and has no record of, or relationship with, persons
holding through
Euroclear Participants.
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CERTAIN
U
.
S. FEDERAL INCOME TAX CONSIDERATIONS
United States Internal Revenue Service Circular 230 Notice: To ensure compliance with Internal
Revenue Service Circular 230, prospective
investors are hereby
notified that: (0 any
discussion of
U. S. federal tax issues contained or referred to
i
n this
offering
circular or
any
document referred to
herein
i
s not intended or written
t
o be used, and cannot be used, by prospective
investors for the
purpose
of
avoiding penalties
that
may
be
imposed on them under the U. S. Internal Revenue Code;
(
i
i
) such discussion is written for use in connection with the
promotion or marketing
of the transactions
or matters addressed herein; and (
i
i
i
) prospective investors should seek advice based on their
particular
circumstances from an independent tax advisor~
General
The
following
discussion summarizes the principal United States federal income tax treatment of
the Trust and the Company, and the principal United States federal income tax consequences to
holders
o
f
the Trust Securities. This discussion
i
s
o
f
a general nature and
i
s not intended
t
o be, nor
should
i
t be construed
as,
tax advice to
any
holder. Purchasers should consult their own tax advisors
regarding the tax consequences of acquiring, owning and disposing of Trust Securities.
The discussion
i
s addressed only to holders that beneficially own Trust Securities as capital
assets and does not purport
t
o be a comprehensive description
o
f
a
l
l
the tax considerations that may
be relevant
t
o particular holders
i
n light of their personal circumstances. The discussion also does not
describe all aspects o
f
taxation that may be relevant
t
o certain types o
f
holders to which special
provisions o
f
United States federal income tax law
may apply, including:
dealers in securities and currencies;
regulated
investment
companies;
traders
i
n securities;
tax-exempt organizations;
banks and insurance companies;
persons that hold Trust Securities as part o

f
a hedge, straddle or conversion transaction;
persons
whose functional
currency i
s not the United States dollar; and
U. S. expatriates.
The summary i
s based on United States federal income tax law, including
the Code, existing
and
proposed U. S. Treasury regulations, administrative rulings and judicial decisions all as currently i
n
effect. These legal sources are subject to change or differing interpretations at any time, which change
or interpretation could apply retroactively and could affect the validity of the discussion below. There
can be no assurance that the Internal Revenue Service
(
IRS) will take the same view of the United
States federal income tax
consequences o
f
an investment
i
n the Trust Securities as described herein.
Each
purchaser i
s
urged to consult its own tax advisor as to the tax
consequences
of
acquiring,
owning and disposing of Trust Securities, including the United States federal, state, local and
any
other tax
consequences
of
acquiring, owning
and
disposing o
f
Depositary
Shares.
As used in this discussion, the term U. S. Holder means a beneficial owner of a Trust Security
that
i
s
,
for United States federal income tax purposes, a citizen or resident of the United States, a
corporation or partnership
created or organized in or under the laws of the United States or
any
state,
an estate the income of which
i
s includible in gross
income for United States federal income tax
purposes regardless
of its source, or a trust
i
i
s able to exercise
primary supervision over its administration and one or more United States
persons
have authority to
control all substantial decisions of the trust. The term Foreign Holder means a beneficial owner
o
f
Trust Securities that
i
s not a
U
.
S. Holder.
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Return
United States Federal Income Tax
Consequences
Tax Treatment of the Trust and its Investment in Serie 2007- B
Classification of the Trust and the Company. The Trust intends to take the
position
that
i
t
will be treated for United States federal income tax purposes as a grantor trust. Informal guidance
issued
b
y the IRS has created some uncertainty as to whether certain arrangements such as those
involving
the Trust and its investment
i
n
Company
Preferred Securities will be treated as a grantor
trust for United States federal income tax purposes. I
n the absence
o
f
further guidance, however, the
Trust intends to take the position that
i
t will be treated as a grantor trust.
I
f the Trust were not treated
as a grantor trust for United States federal income tax purposes, i
t would most likely be treated as a
partnership which, among
other things, would change the nature of and the manner
i
n which the Trust
would be required to comply with its United States federal tax reporting obligations, including its tax
reporting obligations to holders of Trust Securities.
By purchasing a Trust
Security, a holder
agrees
that
i
t will treat the Trust as a grantor trust for U. S. Federal income tax
purposes
and will treat the
Trust Securities as an undivided beneficial ownership interest
i
n the Company Preferred Securities,
and that
i
t will report
income from its investment
i
i
n a manner consistent with
the information
provided to
i
t on behalf
o
f
or with
respect
to the Trust.
Provided that the Trust
i
s treated as a grantor trust, each holder
o
f
a Trust
Security will be
treated as
i
f
i
t owns directly
the Series 2007- B
Company
Preferred Securities allocable to such
Trust
Security.
All of the Trusts assets are expected to consist of Series 2007- B
Company
Preferred
Securities. The Company intends to be classified as a U. S. domestic partnership for United States
federal income tax purposes, and the Series 2007- B
Company
acquired
b
y the
Trust are intended to constitute equity interests
i
n such partnership.
An entity that
i
s classified as a partnership for United States federal income tax purposes
generally i
s not a taxable entity and incurs no United States federal income tax liability. Instead, each
partner i
s required to take into account its allocable share of income, gains, losses, deductions and
credits of the partnership i
n computing its United States federal income tax liability, i
f
any,
even
i
f no
cash distributions are made
b
y the partnership to the
partner.
An
entity
that
i
s classified as a
partnership for United States federal income tax
purposes
nevertheless will be taxable as a
corpora
tion
i
f
i
t
i
s a publicly traded partnership and fails to satisfy a 90% qualifying income test, within the
meaning of Code Section 7704.
On the date of the initial issuance
o
f
the Trust Securities, the Company will receive an opinion
from
Mayer Brown LLP to the effect that, for United States federal income tax purposes, although no
activities
closely comparable to those
contemplated
b
y the
Company
have been the
subject o
f
any
U. S. Treasury regulation, revenue ruling or judicial decision, the Company will not be treated as an
association or publicly traded partnership taxable as a corporation. The opinions are based on certain
assumptions and on certain representations and
agreements regarding restrictions on the future
conduct of the activities
o
f
the Company. Although the Company intends
t
o conduct its activities
i
n
accordance with such assumptions, representations and agreements, i
f
i
t were nonetheless deter
mined that the Company was taxable as a corporation for United States federal income tax
purposes,
then cash available for distribution
i
n respect o
f
would be reduced on account of taxes payable by the
Company.
A determination
b
y the
Company,
based on receipt of an opinion of counsel, that there
i
s a significant risk that the Company i
s or will be
treated as an association or publicly
traded
partnership
taxable as a corporation as a result
o
f
a
change i
n law would constitute a Tax Event. See Description of the Series 2007- B
Company
Redemption.
The remainder of this discussion assumes that the Company
i
s
treated as a partnership,
and not as an association or publicly
traded
partnership
taxable as a
corporation,
for U. S. federal income tax
purposes,
and that the Series 2007- B
Company
Preferred
Securities will constitute equity interests
i
n such partnership.
126
CONFIDENTIAL
Return
Tax Consequences to U. S. Holders of Trust Securities
Income and Deductions in General. Each U. S. Holder of Trust Securities will be required to
report on its United States federal income tax return its share
o
f
income, gains, losses, deductions
and credits
o
f
the
Company
that are allocable to the Trust, even
i
f such holder has not received
any
cash distributions from the Trust.
Distributions on Trust Securities. Distributions of money
b
y the Trust to a U. S. Holder of
Trust Securities
generally
will not result in taxable
gain
to the U. S. Holder. A U. S. Holder
o
f
Trust Securities will recognize taxable gain upon a distribution of money
b
y the Company to the Trust
with respect to the Series 2007- B Company Preferred Securities
i
f and to the extent that the
U
.
S
.
Holders share
o
f
such distribution exceeds the U. S. Holders adjusted tax basis in the
Series 2007- B Company Preferred Securities allocable t
o
such U.
S
.
Holders Trust Securitiesimmedi
ately before the distribution.
I
n
general, each
U
.
S. Holder
o
f
Trust Securities will have an initial tax
basis
i
n the Series 2007- B Company Preferred Securities allocable to such
U
.
S. Holders Trust Secu
rities equal to the amount paid
b
y the Trust to purchase such Series 2007- B Company Preferred
Securities. A U. S. Holders tax basis
i
n such Series 2007- B
Company
generally
will be increased
b
y the U. S. Holders proportionate share of the Companys income and gain
allocated to the holder and decreased, but not below zero,
b
y the holders proportionate share of
any
cash and the tax basis of
any property
distributed
b
y the
Company
and
Company losses, deductions
and nondeductible expenditures that are not chargeable to capital.
Allocations of
Company Income, Gain, Loss and Deductions. Each holder
o
f
Trust Securi
ties must report
its
proportionate
share of the
Companys income, gain,
loss and deduction allocated
to the Trust for each
year.
Under Section
704(
b
)
o
f
the Code, a partnerships allocation
o
f
any
item of
income, gain,
loss or deduction to a partner will be given effect for United States federal income tax
purposes so
long
as
i
t has substantial economic effect, or
i
s otherwise in accordance with the
partners
interest
i
n the
partnership. I
f an allocation
o
f
an item does not satisfy
this standard,
i
t will
be reallocated
among
the partners on the basis of their respective interests
i
n the partnership, taking
into account all facts and circumstances. The Company believes that the allocations of items of
income, gain, loss and deduction under the LLC Agreement will be considered to have substantial
economic effect under the applicable Treasury regulations. U.
S
.
Holders are not expected to be
allocated any losses for United States federal income tax
purposes with respect to their indirect
interests
i
n the Company. The deductibility o
f
expenses and other losses arising from a partnership
such as the Company i
s subject to certain limitations under the Code.
I
n the event
expenses
or losses
are allocated to U. S. Holders
o
f
the Trust Securities, such U. S. Holders should consult their tax
advisors to determine the deductibility of such losses.
Sale, Exchange or Other Disposition of Trust Securities.
I
n
general, a
U
.
S. Holder will
recognize gain or loss
upon
the sale or exchange of such U. S. Holders Trust Securities
equal to the
difference between the amount realized and such U. S. Holders adjusted tax basis
i
n the Series 2007- B
Company Preferred Securities allocable to such U. S. Holders Trust Securities.
Initially,
the tax basis
o
f
a U. S. Holder should equal the amount paid for its Trust Securities. Such basis will be increased or
decreased as described above and, as a general matter,
i
s expected to equal the face value
o
f
the
U. S. Holders Trust Securities.
I
f a holders Trust Securities are exchanged
for Depositary Shares for
Series N WMI Preferred Stock, the transaction would most likely be a taxable event to the holder. The
holder would recognize gain or loss measured by the difference between the fair market value of the
Depositary Shares received and the holders adjusted tax basis
i
n its relinquished Trust Securities.
Company Audits. The tax treatment of Company- related items
i
s determined at the
Company
level.
University
Street will be appointed as tax matters partner
with the authority to determine the
Companys response to an audit. The limitations period for assessment of deficiencies and claims for
refunds with respect to items related to the Company i
s three years after the Companys return for the
taxable year i
n
question i
s filed, and the tax matters partner has the authority to, and may, extend
such period with respect
t
o
a
l
l
members of the Company.
I
f an audit results i
n an adjustment, the
127
CONFIDENTIAL
Return
holders
o
f
the Trust Securities, as the deemed owners o
f
the Series 2007- B
Company
Preferred
Securities, may
be
required
to restate their taxable
income,
which could cause holders of Trust Secu
rities to
pay
additional taxes, interest and
possibly penalties
and such holders
may
themselves also be
subject
to audits. There can be no assurance that the
Companys or a U. S. Holders tax return will not
be audited by the IRS or that no adjustments to their returns will be made as a result of such an
audit.
Series N WMI Preferred Stock Received in a Conditional Exchange. I
f
,
as a result of a
Conditional Exchange, a U.
S
.
Holder receives
Depositary
Shares for Series N WMI Preferred Stock,
any
distributions made on the Depositary Shares generally will be included in the holders income as
ordinary dividend income t
o the extent o
f
WMIs current and accumulated
earnings
and
profits.
Distributions i
n
excess
of WMIs current and accumulated
earnings
and
profits
will be treated as a
return of
capital
to the extent
o
f
the U. S. Holders
adjusted
tax basis
i
n the
Depositary
Shares and
thereafter as capital gain
from the sale or exchangeof
the
Depositary
Shares. Dividends received
b
y
a corporate
U. S. Holder
may
be
eligible
for a dividends received deduction, subject
to
applicable
limitations. The sale, exchangeor redemption of any Depositary Shares for Series N WMI Preferred
Stock will be
subject
to tax under the rules described above under
Sale, Exchange or Other
Disposition o
f
Trust Securities.
Tax Treatment of
Tax- Exempt
U. S. Holders of Trust Securities
For
purposes o
f
this discussion, a Tax- Exempt U. S. Holder means any
United States domestic
organization qualified
under Code Section 501
(
c
)
(
3), any
trust or governmental plan qualified
under
Code Section
401( a), any
individual retirement account and any other non- governmental U. S. Holder
generally exempt
from United States federal income taxation. A
Tax- Exempt
U. S. Holder
i
s not
expected
to be
subject
to the tax on unrelated business taxable income
(
UBTI)
with
respect
to its
share of
Company
income and
gain
allocable to the Trust or any capital gains
derived from an
investment i
n the Trust Securities. However, notwithstanding the foregoing, a Tax- Exempt U. S. Holder
that incurs acquisition indebtedness (
a
s defined in Code Section
514( c))
with
respect to its
Trust Securities
may be subject to the tax on UBTI i
n
respect of
any
income or gains derived i
n
respect o
f
the Trust Securities to the extent that such Trust Securities constitute debt-financed
property o
f
the
Tax- Exempt
U.
S
.
Holder within the
meaning
of Code Section
514( b).
Tax- Exempt U. S. Holders should consult their own tax advisors regarding the tax consequences
to them
o
f
an investment
i
Tax Treatment of Foreign Holders of Trust Securities
U. S. Trade or Business Status. The
Company
intends to conduct its affairs so as to not be
engaged i
n a trade or business i
n the United States. On the date o
f
o
f
the
Trust Securities, the
Company
will receive an opinion from
Mayer
Brown LLP t
o
the effect that, for
United States federal income tax purposes, although no activities blosely comparable to those
contemplated
b
y
the Company
have been the
subject
of
any
U.
S
.
Treasury regulation, revenue ruling
or judicial decision, i
t will not be treated as engaged i
n the conduct of a trade or business within the
United States.
Mayer
Brown LLPs opinion i
s not
binding on the IRS or the courts, and no ruling
will
be sought from the IRS regarding this, or any other, aspect
of the
Companys
United States federal
income tax treatment.
Accordingly, no assurance can be
given
that the IRS will not assert
positions
contrary
to those stated
i
n
Mayer
Brown LLPs opinion or that a court would not entertain
any
such
assertions.
Mayer
Brown LLPs
opinion i
s based on certain
assumptions
and on certain
representations
and
agreements regarding
restrictions on the future conduct of the
Companys
activities.
Although
the
Company intends to conduct its activities in
accorance
with such
assumptions, representations
and
agreements, i
f
i
t were nonetheless determined to be
engaged i
n
a trade or business
i
n the United
States and had taxable income that was
effectively
connected with such United States trade or
128
CONFIDENTIAL
Return
business, then each
Foreign
Holder would be
subject t
o United States federal income tax on such
Foreign
Holders share of the
Companys effectively
connected taxable income allocable to the Trust
at
regular
United States
corporate
income tax rates and
possibly
to a 30% United States branch
profits
tax as
well.
Moreover, i
n the event a Foreign
Holder were to derive
effectively
connected
income
i
n
respect
of its
ownership
of Trust Securities the United States, corporate
income tax
imposed
thereon would be
required
to be collected
i
n the first instance
through a withholding
b
y the
Company
of such tax at a rate of 35% on such Foreign
Holders distributive share of the income. A determination
by
the
Company, based on receipt
of an opinion
of counsel, that there
i
s a significant
risk that
i
t
i
s
or
will be treated as engaged i
n
a trade or business within the United States would constitute a Tax
Event. See Description
Company
Redemption.
The
remainder
o
f
this discussion assumes that the
Company
will not be considered
t
o be
engaged i
n
a
trade or business
i
n the United States.
United States
Withholding
Tax. Interest that constitutes
portfolio
interest within the
meaning
o
f
the Code
i
s
generally exempt from United States
withholding tax. A Foreign Holder will be treated.
as earning directly its share o
f
the income earned
b
y the
Company. Immediately following
the
completion o
f
this
Offering,
the
Companys
material assets will consist of the regular interests issued
in
registered
form
b
y the Asset Trusts (
i
.
e
.
,
the Asset Trust I Class A Trust Certificate, the Asset Trust I
I
Class A Trust Certificate and the Asset Trust I
l
l
Class A Trust Certificate),
each of which will be treated
as a real estate
mortgage
investment conduit under the Code
( a REM/ C).
REMIC
regular
interests
are generally
treated as indebtedness for United States federal income tax
purposes
that
qualifies
for
the
portfolio
interest
exemption.
In addition, during
the term of the transaction, the
Company expects,
pursuant
to its investment
guidelines,
to invest cash proceeds from the offering
Company
Preferred Securities in short term debt instruments and other debt securities that
qualify
for
the
portfolio
interest
exemption.
Accordingly, i
t
i
s
expected
that a Foreign
Holders share of the Trusts distributive share
o
f
the
Companys
interest income will constitute
portfolio interest, and thus, will not be subject
to U. S. with
holding tax, so long as the Foreign Holder has certified its status as a Foreign
Holder under
penalties
of
perjury on an appropriate
IRS Form W- 8.
I
n
addition, gain
realized on the sale, exchange or
redemption
of the Trust Securities held
b
y
a Foreign
Holder
generally
wilInot be subject to United
States federal income or withholding tax, as the case may be, unless such
Foreign
Holder
i
s
a
nonresident alien individual who holds the Trust Securities as a capital asset and who i
s
present i
n the
United States more than 182 days i
n the taxable year o
f
the sale and certain other conditions are met.
Series N WMI Preferred Stock Received in a Conditional
Exchange. I
f
a Conditional
Exchange of the Trust Securities were to occur, any
dividends
paid
to a
Foreign
Holder of the
Depositary
Shares for Series N WMI Preferred Stock received
upon
such Conditional
Exchange
generally
would be
subject
to a 30% U. S.
withholding
tax unless the holder qualifies
for an exemption
or a reduced rate under the U. S. Internal Revenue Code or applicable
U. S. tax
treaty.
Information
Reporting
and
Backup Withholding
Under
regulations applicable starting
with calendar
year 2007, a widely
held fixed investment
trusr such as the Trust must
report
to the IRS on IRS Form 1099 for each calendar
year anyinterest
allocable to an investor
i
n the trust that
i
s a partnership or that otherwise
generally
receives
Form 1099s.
I
n
addition, the
regulations provide
that such investors
i
n
. a trust will receive a written
statement that includes the information provided on the Form 1099, as well as information
relating
to
any expenses or deductions allocable
t
o the investor and any other information
necessary
for the
investor
t
o
accurately prepare
its tax return. This written statement must be
provided
to an investor
not later than the March 15
following
the end of the
year. These rules do not
specifically
address how
to report
income derived by a trust from an investment
i
n a partnership
such as the
Company,
and
i
t
i
s
possible
that the IRS would take a different view as to how the Trust and the Company should
provide
tax
reporting
than that described herein. Unless i
t
i
s advised to use a different method
o
f
tax
reporting, the Trust intends to report
such information under the trust reporting
rules.
Accordingly,
the
129
CONFIDENTIAL
Return
Trust will
comply
with its
obligations
under these
regulations, including
b
y
timely providing any
broker
through
which a holder holds its Trust Securities with the information
necessary
for the holder to
receive the written statement described above. The Trust will
prepare
its
reports using
the accrual
-method
o
f
tax
accounting.
A Holder may
obtain a copy
of such information
directly
from the Trust
a
t
Rodney Square North, 1100 North Market Street, Wilmington,
Delaware 19890
upon
reasonable
request.
Payments t
o
non- corporate holders o
f
Trust Securities
may be subject i
n certain circumstances
t
o
backup withholding i
f such holders do not furnish their correct
taxpayer
identification number and
certain certifications, or are otherwise subject
to
backup withholding. Backup withholding i
s not an
additional tax.
Any
amounts withheld from
payments
made to investors
may
be refunded or credited
against your
U. S. Federal income tax
liability, i
f
any, provided,
that the
required
information
i
s
timely
furnished to the IRS.
The payment of the proceeds
from the disposition of a Trust
Security by a Foreign
Holder
generally
will not be subject to information reporting and backup withholding i
f the Foreign Holder
certifies its status as a Foreign Holder (and, i
f
applicable,
its beneficial owners also
certify
their status
as non- United States
persons)
under
penalties
of
perjury on the
appropriate
IRS Form W- 8, satisfies
certain
documentary
evidence
requirements
for
establishing
that
i
t
i
s
a Foreign
Holder or otherwise
establishes an exemption.
Tax Return Disclosure
Requirements
Recently
issued Treasury Regulations
and other administrative
guidance promulgated by
the IRS
prescribe
certain circumstances under which holders
o
f
the Trust Securities could be
required
to file
information returns with the IRS ( the New Reporting Rules).
The New
Reporting
Rules could
apply
to a U. S. Holder
( and
to certain
Foreign
Holders who hold
their Trust Securities
i
n connection with a United States trade or business) i
f the Trust or the
Company
were to enter into one or more reportable transactions. The definition of
reportable
transaction
i
s
highly
technical.
I
t
i
s not
expected
that the Trust or the
Company
will
engage i
n activities that would
give
rise to
any reportable
transactions.
I
f the Trust or the
Company were to
engage i
n
any reportable
transaction, then, subject
to certain
exceptions
and threshold limitations, a U. S. Holder or Foreign
Holder
may
be
required
to file IRS Form 8886 with such holders United States federal income tax
return for each taxable year in which such reportable transaction affects such holders taxable
income, and to file a copy o
f
such form with the IRSs Office
o
f
Tax Shelter
Analysis.
The Trust intends
t
o
provide t
o
the holders of Trust Securities any information necessary to complete such form.
In addition, subject
to certain
significant exceptions, any
holder of Trust Securities that
recog
nizes a loss on a sale or exchange o
f
such holders Trust Securities may be required t
o file IRS
Form 8886 in the manner described above
i
f the loss exceeds certain thresholds and no exception
applies.
of Trust Securities are urged
to consult their own tax advisors
regarding
the
application
to them of the New
Reporting
Rules with
respect
to an investment in
Foreign, State, and Local Taxes
Holders
may
be liable for
foreign, state, and loOal taxes
i
n the
country, state, or locality i
n which
they
are resident or
doing
business or in a state or locality i
n which the Trust or the
Company
conducts or i
s deemed to conduct business. Because the tax laws of each
country, state, and
locality
may differ, each
prospective purchaser should consult its own tax advisors with respect to
any
taxes
that
may
be
payable as a result of an investment
i
130
CONFIDENTIAL
Return
ERISA CONSIDERATIONS
Section 406 of the
Employee
Retirement Income
Security
Act of
1974, as amended
(
ERISA)
and Section 4975 of the Code prohibit pension, profit- sharing or other retirement
plans
and accounts
subject
to ERISA or Section 4975 of the Code and entities that are deemed to hold
plan
assets of
any
of the
foregoing ( each, a Plan)
from
engaging i
n certain transactions with
persons
that are
parties i
n interest under ERISA or disqualified persons under the Code with
respect
to such Plan.
A violation of these
prohibited
transaction rules
may
result
i
n an excisetax or other penalties and
liabilities under ERISA and the Code for such
persons or the fiduciaries of the Plan.
I
n
addition, Title I
of ERISA also requires fiduciaries of a Plan subject t
o ERISA to make investments that are prudent,
diversified and
i
n accordance with the governing plan documents.
Certain transactions
involving
the Trust
might
be deemed
t
o constitute
prohibited
transactions
under ERISA and the Code with
respect
to a Plan that
purchased
Trust Securities or Series 2007- B
Company
Preferred Securities i
f assets
o
f
the Trust were deemed to be assets of the Plan. Under a
regulation
issued
b
y the United States
Department
of Labor
(the Regulation),
the assets
o
f
the Trust
would be treated as plan
assets of a Plan for the
purposes
of ERISA and the Code
only i
f the Plan
acquired an
equity
interest i
n the Trust and
none
of the
exceptions
to
plan
assets contained
i
n the
Regulation was applicable.
An
equity
interest
i
s defined under the
Regulation as an interest other than
an instrument that
i
s treated as indebtedness under
applicable
local law and that has no substantial
equity
features. The Series 2007- B
Company
Preferred Securities are not
likely
to be treated as
indebtedness for
purposes
of the
Regulation.
As such, the Trust intends to
prohibit
the
acquisition
and
holding o
f
any
Trust
Security or Company
Preferred
Security or any
interest
i
n
a Trust
Security or
b
y
or on behalf
o
f
a Benefit Plan Investor, other than an insurance
company general account that meets the
requirements
stated below.
The term Benefit Plan Investor
i
s defined
i
n Section
3
(
42) o
f
ERISA to include all
employee
benefit
plans
that are subject
to Title I of
ERISA,
individual retirement accounts, Keogh
Plans and
other
plans sUbject
to Section 4975 of the Code, and entities whose
underlying
assets are deemed to
include
plan assets by reason of the investment
i
n that
entity
b
y Benefit Plan Investors, such as group
trusts, bank collective investment trusts, insurance
company separate accounts, and certain insurance
company general
accounts.
By acquiring a Trust Security or Company
Preferred
Security (
o
r
any
interest
therein),
each
purchaser
and transferee will be deemed to represent, warrant and covenant that, from the date
o
f
acquisition throughout
the
period o
f
holding
such Trust
Security or Company
Preferred
Security (
o
r
interest
therein), i
t
i
s not, and
i
t
i
s not
acquiring
such Trust
Security or Company
Preferred
Security (
o
r
interest
therein)
with the assets
o
f
a Benefit Plan Investor, except
for an insurance
company general
account that
represents,
warrants and covenants
that, at the time of
acquisition
and
throughout
the
period i
t holds the securities, (
i
) i
t
i
s
eligible for and meets the
requirements
of
Department
of Labor
Prohibited Transaction Class
Exemption 95-60, (
i
i
) less than 25% of the assets of such
general
account are (
o
r
represent)
assets of a Benefit Plan Investor and
(iii) i
t
i
s not a person who has
discretionary authority or control with
respect
to the assets
o
f
the Trust or any person
who
provides
investment advice for a fee (direct or indirect) with respect to such assets, or
any
affiliate
o
f
such a
person
and would not otherwise be excluded under 29 C.F.R.
2510.3- 101( f)( 1).
Government
sponsored plans are not subject
to the
fiduciary provisions o
f
ERISA, and are also
not
subject
to the
prohibited
transaction provisions under Section 4975 of the Code. However, federal,
state or local laws or regulations governing
the investment and
management
of the assets of such
plans may
contain
fiduciary
and prohibited transaction
requirements
similar to those under ERISA and
the Code discussed above and
may
include other limitations on permissible
investments.
Accordingly,
fiduciaries
o
f
governmental plans, i
n consultation with their advisors, should consider the
requirements
of their
respective pension
codes with
respect
to
purchase
of a Trust
Security or
Company
Preferred
Security, as well as general fiduciary considerations.
131
CONFIDENTIAL
Return
Each purchaser and transferee of a Trust
Security or Company
Preferred
Security
will be
required to represent
and warrant
(
o
r
,
i
n certain circumstances, will be deemed to represent and
warrant) that, from the date
o
f
acquisition throughout the period of holding such Trust Security or
o
r
interest therein), either (
a
)
i
t
i
s not a governmental plan, foreign plan,
church plan or other plan subject
to law that
i
s
substantially
similar to the Section 406 of ERISA or
Section 4975
o
f
the Code
(
Similar Law) or (
b
)
its purchase and holding o
f
the Trust Security or
Company Preferred Security will not constitute or result
i
n a non- exempt violation o
f
Similar Law.
RATINGS
I
t
i
s
expected that the Trust Securities will be rated Baal
b
y
Moodys Investors Service, Inc.
(
Moodys), BBB by Standard & Poors
Rating Services, a Division
o
f
The McGraw- Hill Companies,
Inc.
(
S
&
P) and A
b
y Fitch, Inc.
(
Fitch). The ratings of the Trust Securities are not recommenda
tions to purchase, hold or sell the Trust Securities, inasmuch as the ratings do not comment as to the
market price or suitability
for a particular purchaser. Nor do the ratings described above address the
likelihood that a holder of Trust Securities will be able to sell such securities. The
ratings are based on
current information furnished to Moodys, S&P and Fitch by WMI, WMB, the Company and the Trust
and information obtained from other sources. The
ratings may
be
changed, suspended
or withdrawn
at any
time as a result of
changes
in, or the unavailability of, such information. See Risk Factors
Risks Relating to the Terms of the Trust Securities and the Series 2007- B Company Preferred
Securities
Rating agencies may change rating methodologies.
132
CONFIDENTIAL
Return
PLAN OF DISTRIBUTION
The
Company,
the Trust, WMJ and the initial
purchasers
listed
i
n the table below
( the
Initial
Purchasers) have entered into a purchase agrQement ~th respect
t
o the Trust Securities. Subject to
certain conditions, each Initial Purchaser has severally agreed to purchase the amount (
b
y
liquidation
preference) of Trust Securities indicated
i
n the following table.
Liquidation
Preference
o
f
Initial Purchasers Trust Securities
Goldman, Sachs & Co $ 700,000,000
Credit Suisse Securities (USA) LLC 100,000,000
Lehman Brothers Inc 100,000,000
Morgan Stanley & Co.
Incorporated 100,000,000
Total $1,000,000,000
The Initial Purchasers are committed to take and pay for all of the securities being offered
hereby, i
f
any are taken. The initial
offering price i
s set forth on the cover page
of this
offering
circular.
After the securities are released for sale, the Initial Purchasers may change the offering price and
other
selling terms.
The securities offered
hereby
have not been and will not be
registered
under the Securities Act.
The Initial Purchasers have agreed that they will offer or sell the Trust Securities only to persons who
are both qualified institutional buyers within the meaning o
f
Rule 144A under the Securities Act and
qualified purchasers within the meaning o
f
Section
2
(
a)(51) under the Investment Company Act
i
n
transactions meeting the requirements of Rule 144A.
I
n connection with this Offering, the Initial Purchasers may purchase and sell securities
i
n the
open
market. These transactions
may
include short sales, stabilizing transactionsand purchases to
cover positions
created
b
y short sales. Short sales involve the sale
by
o
f
a
greater number of securities than they are required to purchase in this Offering. Stabilizing transac
tions consist of certain bids or purchases
made for the
purpose
of
preventing
or
retarding
a decline
i
n
the market price of the securities while this Offering i
s
i
n progress.
These activities
b
y the Initial Purchasers
may stabilize, maintain or otherwise affect the market
price of the securities. As a result, the price o
f
the securities may
be
higher
than the price
that
otherwise
might
exist
i
n the
open
market.
I
f these activities are commenced, they may
be discontinued
by the Initial Purchasers at
any
time. These transactions
may
be effected
i
n the over- the- counter
market or otherwise.
Each
o
f
the Initial Purchasers has represented and agreed that:
i
t has only communicated or caused to be communicated and will only communicate or cause
to be communicated an invitation or inducement to engage i
n investment activity (within the
meaning o
f
Section 21 of the Financial Services and Markets Act 2000 (
a
s
amended) ( the
~FSMA) received
b
y
i
t
i
n connection with the issue or sale of the securities
i
n circumstances
i
n
which Section 21(
1
)
of the FSMA does not apply to the Trust; and
i
t has complied and will comply with all applicable provisions of the FSMA with respect to
anything
done
by i
t in relation to the Trust Securities
i
n
,
from or otherwise
involving
the United
Kingdom.
I
n relation to each Member State of the
European
Economic Area which has
implemented
the
Prospectus Directive
( each,
a Relevant Member State), each Initial Purchaser has represented and
agreed that with effect from and including the date on which the Prospectus Directive
i
s implemented
i
( the
Relevant
Implementation Date) i
t has not made arid will not
make an offer
o
f
the securities being offered hereby to the public in that Relevant Member State prior
133
CONFIDENTIAL
Return
to the
publication
of a prospectus i
n relation to the Trust Securities which has been
approved
b
y the
competent authority i
or,
where appropriate, approved i
n another
Relevant Member State and notified to the
competent authority i
n that Relevant Member State, all
i
n
accordance with the Prospectus Directive, except
that
i
t
may,
with effect from and
including
the
Relevant
Implementation Date, make an offer of the securities to the
public i
n that Relevant Member
State at
any
time:
to
legal
entities which are authorized or regulated
to
operate i
n the financial markets or, i
f not
so authorized or regulated,
whose
corporate purpose i
s
solely
to invest
i
n
securities;
t
o
any legal entity
which has two or more of
(
i
) an average
of at least 250
employees during
the last financial
year, (
i
i
) a total balance sheet of more than 43,000,000 and
(
i
i
i
) an annual
net turnover
o
f
more than 50,000,000, as shown
i
n its last annual or consolidated accounts;
to fewer than 100 natural or legal persons (other
than
qualified
investors as defined
i
n the
Prospectus Directive) subject to obtaining the prior consent of the representatives for any such
offer; or
i
n
any other circumstances which do not require
the
publication
b
y the Trust
o
f
a prospectus
pursuant to Article 3 of the Prospectus Directive.
For the purposes of this provision, the expression an offer of seurities to the public i
n relation
to any securities i
n
any Relevant Member State means the communication
i
n
any form and
b
y
any
means o
f
sufficient information on the terms of the offer and the securities to be offered so as t
o
enable an investor to decide to
purchase or subscribe the securities, as the same may
be varied in
that Member State
b
y
any measure implementing
the Prospectus Directive
i
n that Member State and
the
expression Prospectus
Directive means Directive 2003/ 71/ EC and includes
any
relevant
imple
menting measure i
n each Relevant Member State.
The Trust Securities may
not be offered or sold
by means o
f
any
document other than
(
i
) i
n
circumstances which do not constitute an offer to the
public
within the
meaning
of the
Companies
Ordinance
(Cap.32,
Laws of
Hong Kong), (
i
i
) to
professional
investors within the
meaning
of the
Securities and Futures Ordinance
(Cap.571,
Laws
o
f
Hong Kong)
and
any
rules made thereunder, or
(iii) i
n other circumstances which do not result i
n the document being a prospectus within the
meaning of the Companies
Ordinance
(Cap.32, Laws of Hong Kong), and no advertisement, invitation
or document
relating to the Trust Securities
may
be issued or may be i
n the possession
o
f
any person
for the purpose o
f
issue (
i
n each case whether i
n
Hong Kong or elsewhere), which i
s directed at, or
the contents o
f
which are likely
to be accessed or read
by,
the
public i
n
Hong Kong (except i
f
permitted
to do so under the laws of
Hong Kong)
other than with
respect
to securities which are or
are intended to be
disposed o
f
only
to
persons
outside
Hong Kong or only
to
professional
investors
within the
meaning o
f
o
f
Hong Kong)
and
any
rules made thereunder.
This
offering
circular has not been
registered as a prospectus
with the
Monetary Authority
of
Singapore. Accordingly,
this offering circular and any other document or material
i
n connection with
the offer or sale, or
invitation for
subscription or purchase,
may
not be circulated
or distributed, nor may
the Trust Securities be offered or sold, or be made the
subject
of an invitation
for
subscription or purchase,
whether
directly or indirectly,
to
persons
in
Singapore
other than
(
i
)
to an
institutional investor under Section 274 of the Securities and Futures Act, Chapter
289 of
Singapore
( the SFA), (
i
i
) to a relevant person, or any person pursuant to Section
275( 1A), and i
n accordance
with the conditions, specified i
n Section 275 of the SFA or ( iii) otherwise pursuant to, and i
n
accordance with the conditions of, any other applicable provision
of the SFA.
Where the Trust Securities are subscribed or purchased under Section 275
b
y
a relevant person
which is:
(
i
) a corporation (which i
s not an accredited
investor)
the sole business of which
i
s
to hold
investments and the entire share
capital
of which
i
s owned
b
y
one or more individuals, each
of whom
i
s
an accredited investor; or (
i
i
)
a trust (where the trustee
i
s not an accredited
investor)
whose sole
134
CONFIDENTIAL
Return
purpose i
s to hold investments and each
beneficiary i
s an accredited investor, shares, debentures and
units
o
f
shares and debentures
o
f
that
corporation or the beneficiaries
rights
and interest
i
n that trust
shall not be transferable for 6 months after that corporation or that trust has
acquired
the securities
under Section 275
except: (
a
)
to an institutional investor under Section 274
o
f
the SFA orto aielevant
person, or any person pursuant
to Section
275( 1A),
and
i
n accordance with the conditions, specified
i
n Section 275 of the SFA; (
b
)
where no consideration
i
s
given
for the transfer; or (
c
)
b
y
operation
of
law.
The Trust Securities have not been and will nOt be
registered
under the Securities and
Exchange
Law of
Japan (the
Securities and
Exchange Law)
and each Initial Purchaser has
agreed
that
i
t will
not offer or sell
any
Trust Securities, directly or indirectly, i
n
Japan or to,.
o
r
for the benefit of, any
resident of Japan (which term as used herein means any person resident in Japan, including any
corporation or other
entity organized
under the laws
o
f
Japan), or to others for
re-offering or resale,
directly or indirectly, i
n
Japan or to a resident of Japan, except pursuant to an exemption from the
registration requirements o
f
,
and otherwise i
n
compliance with, the Securities and Exchange Law and
any
other
applicable laws, regulations
and ministerial
guidelines o
f
Japan.
WMI, the
Company
and the Trust have
agreed i
n the
purchase agreement, subject
to certain
exceptions,
that for a period
of 180
days
after the date of this
offering circular, neither
they, nor
any
of
their subsidiaries or other affiliates over which
they
exercise
management or voting control, nor any
person acting on their behalf will,
without the prior
written consent of Goldman, Sachs & Co., offer,
sell, contract to sell or otherwise
dispose
of
any
securities that are substantially
similar to the
securities offered hereby.
WMI and the
Company
have
agreed
to
indemnify
against
certain liabilities,
including liabilities under the Securities Act.
Certain of the Initial Purchasers and their respective affiliates have, from time t
o
time, performed,
and may i
n the future perform, various financial
advisory and investment banking
services for the
Company,
for which
they
received or will receive
customary
fees and
expenses.
135
CONFIDENTIAL
Return
NOTICE TO CANADIAN RESIDENTS
The Trust Securities are being offered on a private placement basis
i
n Canada and, specifically,
i
n the provinces
o
f
British Columbia, Alberta,
M
~
rjitoba, Ontario, Qubec and Prince Edward Island
( the
Private Placement
Provinces) through some of the Initial Purchasers or their affiliates, who are
permitted under
applicable
securities laws or available exemptions to offer and sell the Trust Securities
i
n those provinces. The Trust Securities have not been nor will
they be qualified by prospectus
for sale
to the
public
under
applicable
Canadian securities laws and, accordingly, any
offer and sale of the
Trust Securities
i
n Canada will be made on a basis Which
i
s exempt from the prospectus requirements
o
f
those securities laws.
The offering of the Trust Securities
i
n the Private Placement Provinces
i
s
being made exclusively
through
this
offering
circular and not through any
advertisement
o
f
the Trust Securities. No
person
has
been authorized
t
o
give any information or to make any representation other thanthose contained
i
n
this
offering circular and any
decision to purchase
Trust Securities should be based
solely on the
information contained
i
n
i
t
. All dollar reference
i
n this offering circular are to U. S. dollars, unless
otherwise indicated.
Representation and
Agreement by Purchasers
Each purchaser
o
f
Trust Securities i
n Canada will be deemed
t
o have represented to the Trust
and the Initial Purchaser participating i
n the sale
o
f
the Trust Securities that the
purchaser:
(
a
)
i
s resident
i
n one
o
f
the Private Placement Provinces and
i
s entitled under applicable
provincial securities laws to purchase the Trust Securities without the benefit of a prospectus
qualified under those securities laws and,
i
n the case of purchasers i
n provinces other than
Ontario without the services
o
f
a dealer
registered pursuant to those securities laws;
(
b
)
i
s
basing
its investment decision
solely on the final version
o
f
this offering circular and
not on
any
other information concerning the Trust or the Offering;
(
c
)
has reviewed and acknowledges the terms referred to below under the heading Resale
Restrictions;
(
d
)
i
f
i
n Ontario
i
s an accredited investor as defined
i
n National Instrument 45- 106
(
N
I
45- 106), and
i
s not an individual unless purchasing from a fully registered dealer within the
meaning of Section 204
o
f
the
Regulation to the Securities Act
(Ontario),
and
i
s not a
person
created or being used solely to purchase or hold securities as an accredited investor;
(
e
)
i
f
i
n Quebec, British Columbia, Alberta, Manitoba or Prince Edward Island
i
s an
accredited investor as defined
i
n NI 45-106 and
i
s not a
person
created or being
used
solely to
purchase or hold securities as an accredited investor; and
(
f
)
i
s either purchasing Trust Securities as principal for its own account, or
i
s deemed to be
purchasing Trust Securities for its own account
b
y virtue of being either (
i
)
a trust
company
or
trust corporation as further described
i
n subsection
(
p
)
o
f
the accredited investor definition
o
f
N
I
45- 106; or (
i
i
) a
person
acting on behalf
o
f
a fully managed
account managed
b
y that
person
as further described in subsection (
q
)
of the accredited investor definition of NI 45- 106.
Each purchaser
o
f
Trust Securities i
n Canada hereby agrees that i
t
i
s the purchasers express
wish that all documents evidencing or relating i
n
any way
to the sale of the Trust Securities be drafted
i
n the
English language only. Chaque acheteur au Canada des valeurs mobiires reconnalt
que
cest
sa volontO
expresse que
tous les documents faisant foi ou se rapportant
de
que/ que
manire a
I
a
vente des valeurs mobilires soient
rdigs uniquement en anglais.
By purchasing these Trust Securities, the purchaser acknowledges
that its name and other
specified information, including the number of Trust Securities
i
t has purchased, may
be disclosed to
136
CONFIDENTIAL
Return
Canadian securities
regulatory
authorities and become available
t
o the
public i
requirements
of
applicable
laws. The
purchaser consents
t
o the disclosure of that information.
Indirect Collection of Personal Information
( Ontario Purchasers)
B
y
purchasing
these Trust Securities, the
purchaser acknowledges
that
personal information
such as the
purchasers name will be delivered to the Ontario Securities Commission
(the OSC)
and
that such
personal
information
i
s
being
collected
indirectly
b
y
the~ OSC under the
authority granted
to
i
t
i
n securities
legislation
for the
purposes o
f
the administration and enforcement of the securities
legislation
of Ontario.
By purchasing
these Trust Securities, the
purchaser
shall be deemed to have
authorized such indirect collection
o
f
personal
information
by
the OSC. Questions about such indirect
collection of
personal
information should be directed to the OSCs Administrative Assistant to the
Director of
Corporate Finance, Suite 1903, Box 55 20 Queen Street West, Toronto, Ontario M5H 3S8
or to the following telephone number: ( 416) 593- 8086.
Resale Restrictions
The distribution of the Trust Securities
i
i
s
being
made on a
private placement
basis.
Accordingly; any
resale
o
f
the Trust Securities must be made:
(
i
) through an
appropriately registered dealer or pursuant to an exemption from the dealer registration requirements
o
f
applicable provincial securities laws; and
(
i
i
)
i
n accordance with, or pursuant t
o
an exemption from,
the prospectus requirements of applicable provincial securities laws. These resale restrictions may i
n
some circumstances
apply
to resales made outside of Canada. Purchasers of Trust Securities are
advised to seek
legal
advice
prior
to
any
resale of Trust Securities.
Rights
of Action
(Ontario Purchasers)
Ontario Securities Commission Rule 45- 501
provides
that when
an offering circular, such as
this
offering
circular, i
s delivered to an investor to whom securities are distributed
i
n reliance
upon
the
accredited investor
prospectus exemption i
n Section 2.3
o
f
NJ 45~ 106, the
right
of action referred to
i
n Section 130.1 of the Securities Act
( Ontario)
(
Section 130.1)
will
apply i
n
respect
of such
offering
circular, unless, the
prospective purchaser
is:
(
a
)
a Canadian financial
institution, meaning
either:
(
i
) an association
governed
b
y the
Cooperative
Credit Associations Act
(Canada) or a
central cooperative credit society for which an order has been made under section 473( 1)
of that Act; or
(
i
i
) a bank, loan
corporation, trust company,
trust
corporation,
insurance
company,
treasury branch, credit union, caisse populaire, financial services corporation, or league
that, i
n each case, i
s
authorized by an enactment o
f
Canada or a jurisdiction o
f
Canada
t
o
carry
on business i
n Canada or a jurisdiction
in
Canada;
(
b
)
a Schedule
I
l
l
bank, meaning an authorized
foreign
bank named
i
n Schedule
I
l
l of the
Bank Act
(Canada);
(
c
)
The Business
Development
Bank
o
f
Canada
incorporated
under the Business
Develop
ment Bank of Canada Act
(Canada); or
(
d
)
a subsidiary
of
any person
referred to
i
n
paragraphs (
a
)
,
(
b
)
or (
c
)
,
i
f the
person owns
all
o
f
the
voting
securities of the
subsidiary, except the
voting
securities required
b
y law to be
owned
b
y the directors of the
subsidiary.
Section 130.1
provides purchasers
who
purchase
securities offered
b
y
an offering
memorandum
with a statutory right
of action
against
the issuer of securities and
any selling securityholder
for
rescission or damages
in the event that the
offering
memorandum or any
amendment to
i
t contains a
misrepresentation. Misrepresentation means. an untrue statement of a material fact or an omission
137
CONFIDENTIAL
Return
to state a material fact that
i
s
required to be stated or that
i
s
necessary to make anystatement not
misleading i
n
light o
f
the circumstances i
n which i
t was made.
I
n the event that this
offering circular, together
with
any
amendment
t
o
i
t
,
i
s delivered to a
prospective purchaser o
f
Trust Securities
i
n connection with a trade made
i
n reliance on Section 2.3
o
f
N
I
45- 106, and this
offering
circular contains a misrepresentation which was a misrepresentation at
the time of
purchase
of the Trust
Securities,
the
purchaser
will have a
statutory right o
f
action
against
the Trust for damages or,
while still the owner of the Trust Securities, forrescission,
in which
case, i
f
the
purchaser
elects to exercise the
right
of rescission, the
purchaser
will have no right
of action for
damages, provided
that:
(
a
)
no action shall be commenced more than, i
n the case o
f
an action for rescission,
180
clays
after the date
o
f
the transaction that
gave
rise to the
cause o
f
action; or, i
n the case of
any
other action, the earlier of:
(
i
)
180
days
after the
plaintiff
first had
knowledge
of the facts
giving
rise to the cause of action, or (
i
i
) three
years
after the date of the transaction that
gave
rise to the cause of action;
(
b
)
the defendant will not be liable
i
f
i
t
proves that the purchaser purchased
the Trust Secu
rities with knowledge of the misrepresentation;
(
c
)
the defendant will not be liable for all or any portion o
f
the damages that i
t
proves do
not represent
the
depreciation i
n value of the Trust Securities as a result o
f
the misrepresentation
relied
upon;
(
d
)
i
n no case will the amount recoverable exceed the
price at which the Trust Securities
were offered to the
purchaser;
and
(
e
)
the
statutory right o
f
action for rescission or damages i
s
i
n addition to and does not
derogate
from
any other rights or remedies the
purchaser may have at law.
This summary i
s
subject to the express provisions of the Securities Act (Ontario) and the
regulations and rules thereunder and you
should refer to such acts for the complete text of those
provisions.
Enforcement of
Legal Rights
All of the directors and officers of the Trust as well as any experts
named
i
n this
document, may
be located outside
o
f
Canada and, as a result, i
t
may
not be
possible
for
purchasers
to effect service
of
process
within Canada
upon
the Trust or those
persons.
All or a substantial
portion o
f
the assets of
the Trust and those
persons may
be located outside of Canada
and, as a result, i
t
may
not be
possible
to
satisfy a judgment against
the Trust or those
persons i
n Canada or to enforce a judgment
obtained
i
n Canadian courts
against
the Trust or those persons outside
o
f
Canada.
Canadian Tax Considerations
This
offering
circular does not address the Canadian tax consequences o
f
ownership o
f
the
Trust Securities.
of Trust Securities should consult their own tax advisors with
respect t
o
the Canadian and other tax considerations applicable to them
including
with respect t
o
the
application o
f
the proposed foreign
investment
entity provisions o
f
the Income Tax Act (Canada)
which, i
f
applicable, may
result i
n
a requirement to recognize
income for tax purposes even though no
cash distribution or proceeds
of
disposition
have been received.
138
CONFIDENTIAL
Return
VALIDITY OF SECURITIES
The validity o
f
the Trust Securities will be passed upon for WMI and the Initial Purchasers by
Richards, Layton & Finger, PA., Wilmington, Delaware. The validity of the Series 2007- B Company
Preferred Securities will be passed upon
for the Company
b
y Richards, Layton & Finger, PA., special
Delaware counsel for the Company, for WMI
b
y Mayer Brown LLP, New York, New York, and for the
Initial Purchasers
b
y Sullivan & Cromwell LLP, New York, New York. The validity o
f
the Depositary
Shares and of the Series N WMI Preferred Stock will be passed upon for WMI
b
y
Mayer Brown LLP
and
b
y Heller Ehrman LLP~ Seattle, Washington, and for the Initial Purchasers
b
y Sullivan & Cromwell
LLP.
Mayer
Brown LLP and Sullivan & Cromwell LLP will
rely upon
the
opinion
of Richards, Layton &
Finger, PA., as to matters of Delaware law, and
upon
the opinion of Heller Ehrman LLP as to matters
o
f
Washington law.
139
CONFIDENTIAL
Return
ADDITIONAL INFORMATION
Independent Registered Public Accounting Firm
o
f
(
WMI) and Washington Mutual Bank

( WMB) as of and for the
years
ended December 31, 2006 and 2005, and
managements reports on
the effectiveness of internal control over financial reporting as of December 31, 2006 for both WMI
and WMB, incorporated
b
y reference
i
n this
offering
circular have been audited
b
y Deloitte & Touche
LLP, an independent registered public accounting firm, as stated
i
n their
reports appearing
therein.
Independent
Auditors
The statement of financial condition of Washington Mutual Preferred
Funding
LLC as of and for
the
year
ended December 31, 2006, and the related statements
o
f
income, member interests, and
cash flows for the period February
3
,
2006 ( date
o
f
inception) to December 31, 2006, included
i
n this
offering
circular have been audited by
Deloitte & Touche LLP, independent auditors, as stated in their
report appearing herein.
No Material Adverse Change
Except as disclosed
i
n this offering circular and the documents
incorporated
b
y reference herein,
there has been no adverse
change i
n the financial
position o
f
the
Company, the Trust, WMB or WMI
since September 30, 2007 or their respective dates of establishment (which was August
9
,
2007
i
n the
case
o
f
the Trust), that would be deemed material in the context
o
f
the issue and sale of the
Trust Securities in this
Offering.
Legal Proceedings
The following litigation i
s
i
n relation
t
o WMI. WMB, the Company and the Asset Trusts have not
been named as defendants
i
n any o
f
the following lawsuits and, on that basis, they do not expect such
lawsuits materially affect their respective operations or financial results.
I
n the ordinary course
o
f
business, WMI and its subsidiariesare routinely defendants
i
n or
parties to a number of pending and threatened
legal actions and proceedings, including actions
brought
on behalf of various classes
o
f
claimants.
I
n certain
o
f
these actions and proceedings, claims
for substantial
monetary damages are asserted against WMI and its subsidiaries. Certain of these
actions and
proceedings are based on alleged
violations of consumer protection, banking and other
laws.
I
n
July 2004, WMI and a number of its officers were named as defendants
i
n a series of cases
alleging violations of Section
10(
b
)
o
f
the Securities
Exchange
Act of 1934 (the Exchange Act),
Rule 1 Ob- 5 thereunder and Section 20(
a
)
of the Exchange Act. By stipulation, those cases were
consolidated into a single case currently pending i
n the U. S. District Court for the Western Division of
Washington South FerryL.P # 2v. Killingeretal., No. CVO4- 1599C( W. D. Wa., Filed Jul. 19, 2004)
(the Securities Action). I
n brief, the plaintiffs i
n the Securities Action allege, on behalf
o
f
a putative
class of purchasers of
Washington Mutual, Inc., securities from April 15, 2003, through June 28, 2004,
that, i
n various
public statements, the defendants
purportedly made misrepresentations and failed to
disclose material facts
concerning, among
other
things, alleged
internal
systems problems and
hedging
issues.
The defendants moved to dismiss the Securities Action on
May 17, 2005. After
briefing, but
without oral argument, the Court on November 17, 2005, denied the motion
i
n principal part; however,
the Court dismissed the claims against certain of the individual defendants, dismissed claims
pleaded
on behalf
o
f
sellers of put options on Washington
Mutual stock, and concluded that the plaintiffs could
not rely on supposed violations of accounting standards to support their claims. The
remaining
defendants
subsequently
moved for reconsideration
or, i
n the alternative, certification of the opinion
140
CONFIDENTIAL
Return
for
interlocutory appeal
to the United States Court
o
f
Appeals
for the Ninth Circuit. The District CoUrt
denied the motion for reconsideration,
but on March
6
,
2006, granted
the motion for certification.
The defendants thereafter moved to have the Ninth Circuit Court
o
f
Appeals accept
the case
for
interlocutory
review
o
f
the District Courts
original
order
denying
the motion to dismiss. On June
9
,
2006,
the Ninth Circuit granted
the defendants motion, indicating
that
i
t will hear the merits
o
f
the
defendants
appeal.
The defendants filed their initial brief on September 25, 2006. Pursuant to an
updated, stipulated briefing schedule, the plaintiffs filed their responsive brief on January 10, 2007,
and the defendants filed their
reply on March 12, 2007. Oral
argument
has not
yet
been scheduled.
On November 29, 2005, 12
days
after the Court denied the motion to dismiss the Securities
Action, a separate plaintiff filed i
n
Washington State Superior
Court a derivative shareholder lawsuit
purportedly asserting claims for the benefit of WMI. The case was removed to federal court, where
i
t
i
s
now pending.
Lee
Family Investments, by
and
through
its Trustee WB. Lee, Derivatively and on
behalf of Nominal Defendant Washington Mutual, Inc.
v
~
K// linger et a!., No. CVO5-21 21 C
(
W
.
D
.
Wa.,
Filed Nov. 29, 2005) (the
Derivative
Act/ or?).
The defendants i
n the Derivative Action include those
individuals
remaining as
defendants
i
n the Securities Action, as well as those of WMIs current
independent
directors who were directors at
any
time from
April 15, 2003, through
June 2004. The
allegations i
n the Derivative Action mirror those i
n the Securities Action, but seek relief based on
claims that the
independent
director defendants failed
properly
to
respond
to the
misrepresentations
alleged i
n the Securities Action and that the
filing
of that action has caused WMI to
expend sums to
defend itself and the individual defendants and to conduct internal
investigations
related to the
underlying
claims. At the end
o
f
February 2006, the
parties
submitted a stipulation
to the Court that
the matter be
stayed pending
the outcome of the Securities Action. On March
2
,
2006, the Court
entered an Order pursuant
to that
stipulation, staying
the Derivative Action
i
n its
entirety.
Governing Law
The LLC
Agreement,
the Trust Agreement, the Trust Securities and the Series 2007- B Company
governed by,
and construed i
n accordance with, the laws of the State of
Delaware. The Series N WMI Preferred Stock will be
governed by,
and construed
i
n accordance with,
the laws
o
f
the State
o
f
Washington.
The
Depositary
Shares will be
governed by,
and construed
i
n
accordance with, the laws of the State
o
f
New York.
141
CONFIDENTIAL
Return
APPENDIX A
Deloitte
Deloitte &Touche LLP
SuIte 3300
925 Fourth Avenue
Seattle, WA 98104- 1126
USA
Tel: +1 206 716 7000
Fax: +1 206 965 7000
www. deloitte. com
INDEPENDENT AUDITORS REPORT
To the Board
o
f
Managers o
f
Washington
Mutual Preferred
Funding
LLC
Seattle, Washington
We have audited the
accompanying
statement of financial condition
o
f
Washington
Mutual
Preferred
Funding
LLC
( the Company). as of December
31, 2006,
and the related statements of
income, member interests, and cash flows for the
period February 3
,
2006
( date
of
inception)
to
December 31, 2006. These financial statements are the
responsibility
of the
Companys management.
Our
responsibility i
s to
express an opinion on these financial statements based on our audit.
We conducted our audit
i
n accordance with
generally accepted auditing
standards as established
by
the
Auditing Standards Board
(United States)
and in accordance with the
auditing
standards of the
Public
Company Accounting Oversight Board (United States). Those standards require that we plan
and
perform
the audit to obtain reasonable assurance about whether the financial statements are free
of material misstatement. The Company i
s not
required
to have, nor were we engaged
to
perform, an
audit
o
f
its internal control over financial
reporting.
Our audit included consideration
o
f
internal control
over financial
reporting as a basis for
designing
audit
procedures
that are appropriate i
n the
circumstances, but not for the purpose
of
expressing an opinion on the effectiveness of the
Companys
internal control over financial reporting. Accordingly, we express no such opinion. An audit also
includes
examining, on a test basis, evidence
supporting
the amounts and disclosures i
n the financial
statements, assessing the accounting principles used and significant estimates made by management,
as well as evaluating
the overall financial statement
presentation.
We believe that our audit
provides a
reasonable basis for our opinion.
In our opinion, such financial statements present fairly, i
n all material respects, the financial
position o
f
Washington
Mutual Preferred
Funding
LLC at December 31, 2006, and the results of its
operations
and its cash flows for the above- stated
period, i
n
conformity
with
accounting principles
generally accepted i
n the United States
o
f
America.
Seattle, Washington
March 21, 2007
Member of
Deloitte Touche Tohmatsu
A-i
CONFIDENTIAL
Return
STATEMENT OF INCOME
- -
From Ince~ iion
(February
3
,
2006)
through
December 31,
2006
Interest Income
Interest income $250,796,200
Recovery of reserve for loan losses (
Interest income after
recovery
of reserve for loan losses 260,256,990
Expense
Loan servicing
fees 6,625,659
Other
expenses
114,889
Total expense 6,740,548
Net Income $253,516,442
See Notes to Financial Statements
A-2
CONFIDENTIAL
Return
Washington
Mutual Preferred
Funding
LLC
STATEMENT OF FINANCIAL CONDITION
December 31,
2006
ASSETS
Cash $ 43,165,776
Loans held
i
n
portfolio
7,281604,640
Allowance for ! oan
losses
(
Total loans held
i
n
portfolio, net of reserve for loan losses
7,256,610,286
Receivable from affiliates for collections related to the
servicing
of loans 218,575,543
Other assets 27,217,293
Total assets $7,545,568,898
LIABILITIES
Payable
to affiliates $ 23,545,756
Other liabilities 205,242
Total liabilities 23,750,998
Member Interests
Common securities 5,049,306,234
Preferred securities no par
value: 2,500,000 securities authorized, issued and
outstanding
(
$
1,000 per security liquidation preference) 2,446,240,411
Retained earnings 26,271,255
Total member interests 7,521,817,900
Total Liabilities and Member
Interests
$7,545,568,898
A-3
CONFIDENTIAL
Return
Washington Mutual Preferred
Funding
LLC
STATEMENT OF MEMBER INTERESTS
Common
-.
Preferred Retained
Securities Securities Earnings Total
BALANCE, February
3
,
2006 $ $ $
$

Net income 253,516,442 253,516,442
Common securities issued. . 5,695,621,428 5,695,621,428
Preferred securities issued
net of capitalized costs. ... 2,446,240,411 2,446,240,411
Cash dividends
paidon
common securities (122,184,355) ( 122,184,355)
Cash dividends
paid on
(105,060,832) ( 105,060,832)
Common securities
redeemed (
_____________ ____________
(
BALANCE, December 31,
2006 $5,049,306,234 $2,446,240,411 $ 26,271,255 $7,521,817,900
A-4
CONFIDENTIAL
Return
Washington
Mutual Preferred
Funding
LLC
Statement of Cash Flows
From
Inception
(February
3
,
2006)
through
December 31,
2006
Net income $ 253,516,442
Adjustments
to reconcile net income to net cash
provided
b
y
operating
activities:
Recovery of reserve for loan losses (9,460,790)
Increase i
n receivable from affiliates
(218,575,543)
Increase i
n other assets (4,224,332)
Increase
i
n
payable t
o affiliates 23,545,756
Increase
i
n other liabilities
205,242
Net cash
provided
b
y
operating
activities 45,006,775
Purchase
o
f
loans (33,021,548)
Principal payments on loans held i
n
portfolio 798,467,624
Net cash
provided
b
y
investing
activities 765,446,076
o
f
common securities 113,283,332
Proceeds from the issuance of preferred securities 46,749,564
Payment o
f
capitalized costs (53,759,590)
Redemption o
f
common securities
( 646,315,194)
Dividends
paid (
Net cash used
i
n
financing
activities
(
Increase
i
n cash 43,165,776
CASH, beginning o
f
period
CASH,
end
o
f
period $ 43,165,776
SUPPLEMENTAL SCHEDULE OF NONCASH FINANCING ACTIVITIES:
The
Company issued common and preferred
securities
i
n
exchange
for
cash, loans and other assets as follows:
Loans received
i
n
exchange
for common and
preferred
securities
$8,012,774,740
i
n
exchange
for common and
preferred
securities 22,813,792
A-S
CONFIDENTIAL
Return
NOTE 1: DESCRIPTION OF THE COMPANY
Washington
Mutual Preferred
Funding
LLC
(the Company) i
liability
company formed on February
3
,
2006 for the purpose of (
i
)
issuing preferred and common securities,
(
i
i
)
acquiring
and
holding eligible assets, and
( iii) performing
functions
necessary or incidental to the
foregoing.
The
Company i
s classified as a partnership
for U. S. federal income tax
purposes.
No
provision for income taxes i
s
recognized i
n the accompanying financial statements.
The assets owned
by
the
Company provide
cash flows for
payment by
the
Company
to holders
of the securities.
On March
6
,
2006, a pool
of closed end, first lien home
equity
loans
(
HEL5) was contributed

by
Washington
Mutual Bank
( WMB)
and
University
Street Inc.
(
University Street), an indirect subsid

iary o
f
WMB, to the
Company i
n
exchange
for the
Companys common securities and the
Series 2006- A and Series 2006- B
P
~
eferred Securities.
Subsequently,
and on the same day,
the
Company
transferred the HEL5 to
Washington
Mutual Home
Equity
Trust I
(the
Asset Trust
I), a
statutory trust formed under the laws
o
f
the State of Delaware, i
n
exchange
for Class A-i
Washington
Mutual Home Equity Trust I Certificates.
On December 12, 2006, a pool
of
payment option adjustable
rate
mortgages
(
Option ARMs)
was contributed by WMB . and University Street to the Company i
n
exchange for the additional
common securities and the Series 2006- C Preferred Securities.
Subsequently, and on the same day,
the
Company
transferred the
Option
ARMs to WAMU 2006 OA-i
(the
Asset Trust
II), a statutory
trust formed under the laws o
f
the State of Delaware, i
n
exchange for Class A-I WAMU 2006 OA-1
Certificates.
Asset Trust I and Asset Trust I
I
hold only HEL and Option ARM assets, respectively. The trusts
do not have
any
liabilities other than those incurred
i
Pooling
and
Servicing
Agreements
(
PSAs)
and
any
related
agreements.
The trusts do not have
any directors,
officers or
other
employees.
At December 31, 2006, Asset Trust I and Asset Trust
I
l had total assets of
$4.7
billion and
$2.8 billion, respectively.
As the transfers of assets from the
Company
to the Asset Trust I and Asset Trust
I
I did not meet
the definition of a sale within the
scope o
f
Statement of Financial
Accounting
Standards 140,
Accounting
for Transfers and
Servicing
of Financial Assets and
Extinguishments
of Liabilities,
the
assets continue to be recorded as loans on the Statement of Financial Condition.
NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash
Cash includes amounts due from banks.
Use of Estimates
The
Companys reporting
and
accounting policies
conform to
accounting principles generally
accepted i
n the United States of America
(
GAAP).
The
preparation
of financial statements i
n
conformity
with GAAP
requires management
to make estimates and assumptions that affect the
reported
amounts of assets and liabilities and disclosure of
contingent
assets and liabilities at the date
of the financial statements and the
reported
amounts of revenues and
expenses during
the
reporting
period. Management
has made
significant
estimates
i
n certain areas, including
the allowance for loan
losses. Actual results could differ from those estimates.
A-6
CONFIDENTIAL
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PERIOD ENDED DECEMBER 31, 2006( CONTINUED)
Loans Held
i
n Portfolio
Loans held
i
n portfolio are recorded
a
t
the principal amount
outstanding, net of deferred loan
costs or fees and any discounts received or premiums paid on purchased loans. Deferred costs or
fees, discounts and
premiums are amortized over the contractual term of the loan, adjusted
for actual
prepayments, using
the interest method. The Company uses contractual
payment
terms to determine
the constant yield needed to apply the interest method.
Allowance for Loan Losses
The allowance for loan losses represents managements estimate of incurred credit losses
inherent
i
n its loan portfolio as of the reporting date. The Companys estimate of the allowance
i
s
based on a variety o
f
factors, including past
loan loss experience, the current credit
profile
of its
borrowers, adverse situations that have occurred that may affect the borrowers ability to
repay,
the
estimated value
o
f
underlying collateral, the
impact
that
changes i
n interest rates has on a borrowers
ability to
repay adjustable- rate loans and general economic conditions.
The Company accounts for the allowance for loan losses on portfolios of loans that are evaluated
for collective impairment i
n accordance with Financial
Accounting
Standards Board
(
FASO)
State
ment No.
5
,
Accounting
for
Contingencies
(
Statement
No. 5) when available information indicates
that
i
t
i
s probable that a loss has been incurred and the amount of the loss can be reasonably
estimated. The allowance
comprises
both an allocated and an unallocated
component.
The Company determines the allocated portion
o
f
the allowance based on analyses of pools
o
f
loans with similar attributes. The allocated allowance
i
s determined
using
statistical
forecasting models
that estimate default and loss outcomes based on an evaluation of past performance of similar pools
o
f
loans
i
n our portfolio, and other factors affecting default and loss factors, as well as industry
historical loan loss data.
The unallocated portion o
f
the allowance reflects managements assessment of various risk
factors that are not
fully
reflected
i
n the models used to determine the allocated component o
f
the
allowance. These factors include general economic and business conditions specific t
o the Companys
key lending products and markets, credit quality and collateral value trends, loan concentrations,
specific industry conditions within portfolio segments, recent loss experience i
n particular segments of~
the portfolio, duration of the current business
cycle
and the impact of other such variables for which
recent historical data do not provide a high level of precision for risk evaluation.
Nonaccrual Loans
When a loan
i
s placed on Nonaccrual status, all interest accrued, but not collected, i
s reversed
against interest income. Loans are placed i
n nonaccrual status when
they are 90 days past due. The
Company accounts for these loans on the cash or cost recovery method, until they qualify for return to
accrual status. Loans are returned to accrual status when the borrower
brings the loans to less than
30 days past due. Loans are generally written down to the fair value of the underlying collateral (less
estimated costs to sell)
when those loans are 180
days past
due.
Other Assets
Other assets include foreclosed assets and interest receivable on loans. Foreclosed assets are
accounted for at the lower
o
f
cost or fair value
(less estimated costs to sell). The amount the Company
ultimately recovers from foreclosed assets
may
differ
substantially
from the net carrying
value
o
f
these
A-7
CONFIDENTIAL
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(CONTINUED)
assets because
o
f
future market factors
beyond
its control or
because of
changes i
n its
strategy
for sale
of the
property.
At December 31, 2006, the
Company
had foreclosed assets
o
f
$179,168.
I
n
September 2006, the FASB issued Statement No. 157, Fair Value Measurements
(
Statement
No.
157).
Statement No. 157
prescribes a definition o
f
the term fair value, establishes a framework
for measuring
fair value and expands
disclosure about fair value measurements: Statement No. 157
i
s
effective for fiscal
years beginning
after November 15, 2007, with
early adoption permitted as o
f
January 1
,
2007. The
Company
does not
expect
the
application
of Statement No. 157 to have a
material effect on the Statement of Income and the Statement of Financial Condition.
In
February 2007,
the FASB issued Statement No. 159, The Fair Value
Option
for Financial
(
Statement
No.
159).
Statement No. 159 permits an instrument
by.
instrument election
t
o account for selected financial assets and liabilities at fair
value.
Statement
No. 159
i
s effective for fiscal
years beginning
after November 15, 2007, with
early adoption permitted
as o
f
January 1
,
2007. The
Company i
s
currently evaluating the impact Statement No. 159 will have
on its Statement of Income and Statement of Financial Condition.
NOTE
3
:
Loans held in portfolio consisted of the following:
December 31,
2006
Loans held
i
n
portfolio:
Option
ARMs home loans<~ $2,638,560,716
Home
equity
loans 4,643,043,924
Total loans held i
n
portfolio~
2
~
$7,281,604,640
(
1
)
The total amount
b
y
which the
unpaid principal balance of Option ARM loans exceeded their original principal amount was
$6.2 million
a
t
December 31, 2006.
( 2
)
Includes net unamortized deferred loan origination costs of $67.7 million at December 31, 2006.
Features of Residential Loans
Certain residential loans have features that
may
result in increased credit risk when
compared
with residential loans without those features.
Categories
of loans within the
Companys portfolio
that
have such features include loans with an option
to defer the
payment
of interest
(
i
.
e
.
,
Option ARM
home loans). The portfolio o
f
Option ARM loans largely
consisted of loans with
properties residing i
n
the state of California.
At December 31, 2006 all loans held i
n
portfolio were pledged as collateral for issued securities.
Fair Value of Loans Held in Portfolio
The
following
estimated fair value amount has been determined
b
y the
Company using quoted
market
prices,
internal estimates and the
pricing
of similar instruments. These estimates do not reflect
any premium or discount that could result from
offering
for sale at one time the
Companys
entire
holdings o
f
loans held
i
n
portfolio.
Fair value estimates were based on managements judgment
concerning
current economic conditions, risk characteristic
o
f
the loans held
i
n
portfolio
and other
factors. In addition, considerable
judgment was required
to
interpret
market data to
develop
the
A-8
CONFIDENTIAL
Return
estimates of fair value. Accordingly, the estimates presented herein are not necessarily indicative of
the amounts the
Company could realize
i
n a current market exchange. The use of different market
assumptions and/ or estimation methodologies may
have a material effect on the estimated fair value
amount.
The net carrying amount and the fair value
o
f
the loans held
i
n
portfolio at December 31, 2006
was $7,256,610,286 and $6,962,489,000, respectively.
Changes i
n the allowance for loan losses were as follows:
From Inception
through
December 31,
2006
Balance, February
3
,
2006
$
Allowance acquired from loans transferred 34,573,575
Recovery o
f
reserve for loan losses
(
25,112,785
Loans
charged
off:
Home equity loans
(
Total loans charged off
(118,450)
Recoveries of loans
previously charged
off:
Home
equity
loans
19
Total recoveries
o
f
loans previously charged off 19
Net charge
- offs
(
Balance, end
o
f
year $24,994,354
The amount of Nonaccrual loans held
i
n portfolio at December 31, 2006 was $3,996,795.
NOTE
4
:
COMMON SECURITIES
Company
had $5,049,306,234 of common securities issued and
outstanding. The Company, at its discretion, may pay
Companys common
securities out of
legally
available funds.
i
n the amount
o
f
$122,184,355 to
University Street after
paying
dividends on the
Companys preferred securities. The
Company
also
redeemed common securities
i
n the amount
o
f
$646,315,194 from
University
Street
during the
year.
NOTE
5
:
PREFERRED SECURITIES
At December 31, 2006, the Company had (
i
)
1,250,000
o
f
Securities, (
i
i
) 750,000 o
f
Series 2006- B Company Preferred Securities, and (
i
i
i
) 500,000
o
f
Series 2006- C Company Preferred Securities issued and outstanding. The preferred securities do not
have
any voting rights.
When and
i
f declared, dividends on the Series 2006- A Company Preferred Securities will be
payable on a noncumulative basis at a fixed rate
per
annum equal to 6.534%
(calculated on a
30/ 360
Basis),
and on and after March 15, 2011 at a variable rate
per
annum
equal to three-month
LIBOR for the related dividends
period plus
1.485%
(calculated on an Actual/ 360
Basis), i
n each
case,
on the
liquidation preference of $1,000 per security. I
f
declared, dividends on the Series 2006- A
A-9
CONFIDENTIAL
Return
Company
payable quarterly i
n
arrears on March 15, June 15,
September
year commencing June 15, 2006. At its discretion, the
Company may
redeem the Series 2006- A
Company
Preferred Securities on March 15, 2011 or
thereafter.
When and i
f
declared, dividends on the Series 2006- B
Company
payable on a noncumulative basis at a fixed rate per annum equal to 7.25% (calculated on a
30/ 360
basis) on the liquidation preference
of $1,000 per security. I
f
declared, dividends on the
Series 2006- B
Company
payable quarterly i
n
arrears on March 15,
June 15, September 15 and December 15 o
f
each year commencing June 15, 2006. At its discretion,
the
Company may
redeem the Series 2006- B
Company
Preferred Securities on March 15, 2011 or
thereafter.
When and
i
f
declared, dividends on the Series 2006- C
Company
payable on a noncumulative basis at a fixed rate
per
annum equal
to 6.665%
(calculated on a
30/ 360
Basis),
and on and after December 15, 2016 at a variable rate
per annum equal
to three-
month LIBOR for the related dividends period plus 1.7925% (calculated on an Actual/ 360 Basis), i
n
each case, on the
f
$1,000 per security, I
f
declared, dividends on the
Series 2006- C
Company
payable quarterly i
n
arrears on March
15,
June 15, September
year commencing
March 15, 2007. At its discretion,
the
Company may
redeem the Series 2006- C
Company
Preferred Securities on December 15, 2016
or thereafter.
During
the
year, the Company
declared and
paid
dividends
i
n the amounts o
f
$63,071,250 and
$41,989,582 to holders of the Series 2006- A Company Preferred Securities and Series 2006- B
Company
Preferred Securities, respectively.
During
the
year, the Company
incurred and
capitalized costs associated with the issuance of
preferred
securities. These costs, totaling $53,759,590, related to
legal, underwriting
and other
professional fees.
NOTE
6
:
WMB
i
s the servicer of the HELs and
Option
ARMs that were conveyed
to the
Company i
n
exchange
for
Companys preferred
securities. WMB
i
s entitled
t
o
a servicing
fee from the Company equal
to the
beginning
balance of the HEL5 loan portfolio and
Option
ARMs loan
portfolio
for
any given period multiplied by an annualized rate
equal
to 0.125% and
0.375%, respectively. Since its inception, the Company has paid $6,625,659 to WMB as part
of the
Company
had a payable
to WMB
i
n the amount of $23,545,756,
which
represented
costs
paid by
WMB on behalf of the
Company as well as excess asset
contributions made
b
y WMB to the
Company.
At December 31, 2006, the Company had a receivable from WMB
i
n
the amount o
f
$218,575,543, which
represented principal
and interest collections
b
y WMB as the servicer
o
f
the
HELs and Option ARMs.
The Second Amended and Restated Limited Liability Company Agreement of Washington Mutual
Preferred
Funding
LLC
(the
LLC
Agreement) provides
that the
Company
be
managed
b
y a Board of
Managers consisting
of three members
(Managers), one of whom
i
s not and has not been
during
the
preceding
five
years an officer or employee o
f
Washington
Mutual Inc.
(
WMJ) or any
affiliate
o
f
WMI,
other than a
financing subsidiary (the Independent Manager).
The
Independent Manager i
s
paid a
A-b
CONFIDENTIAL
Return
nominal fee for his services which i
s recorded
i
n other
expenses.
The
remaining
two
managers are
employees
of
Washington
Mutual Inc. and are not
directly paid compensation by
the
Company
for
services rendered.
WMI and its affiliates do not allocate overhead
expenses to the
Company.
Such
expenses are
considered de minimis to the Companys financial statements taken as a whole. The
Company
reimburses WMB for costs paid on the
Companys
behalf.
There
i
s no material business
relationship, agreement, arrangement, transaction or understand
ing
that
i
s or was entered into outside the
ordinary course O
f
business or i
s or was on terms other
i
n
an arms- length transaction with an unrelated third
party,
between WMB or
University
Street and the
Company.
A-il
CONFIDENTIAL
Return
LLC
Consolidated Statements of Income
(Unaudited)
Income
Interest income
Provision for loan losses
Income after
provision
for loan losses
Expense
Loan servicing fees
Other expenses
Total
expense
Net Income
Three Months
Ended June 30,
2007
$ 98,590,306
(
100,433,996
3,324,761
118,821
3,443,582
$ 96,990,414
Three Months
Ended June 30,
2006
$76,264,847
(
85,274,390
1,624,887
12,491
1,637,378
$83,637,012
Income
Interest income
Income after provision for loan losses
Expense
Loan servicing fees
Other
expenses
Total
expense
Net Income
Six Months
Ended June 30,
2007
$205,554,905
(
210,502,720
7,077,927
204,432
7,282,359
$203,220,361
From Inception
(February
3
,
2006) Through
June 30, 2006
$ 97,438,866
(
106,562,284
2,741,691
41,081
2,782,772
$103,779,512
See Notes to Consolidated Financial Statements
A-12
CONFIDENTIAL
Return
LLC
Consolidated Statements of Financial Condition
( Unaudited)
June, 30 December, 31
2007 2006
ASSETS
Cash $ 527,620,640 $ 43,165,776
Loans held
i
n portfolio 6,151,566,623 7,281,604,640
Allowance for loan losses ( (
Loans held in portfolio, net 6,131,592,188 7,256,610,286
Receivable from affiliates for collections related to the
servicing
of loans 194,984,152 218,575,543
Other assets 22,293,729 27,217,293
Total assets $6,876,490,709 $7,545,568,898
LIABILITIES
Payable
t
o affiliates $ 273,196 $ 23,545,756
Other liabilities 468,356 205,242
Total liabilities . 741,552 23,750,998
Member Interests
Common securities 3,896,229,848 5,049,306,234
Preferred securities no
par
value: 3,000,000 at June 30, 2007
and 2,500,000
a
t
December 31, 2006 securities authorized,
issued and outstanding
(
$ 1,000 per security liquidation
preference) 2,937,732,243 2,446,240,411
Retained earnings 41,787,066 26,271,255
Total member interests 6,875,749,157 7,521,817,900
Total Liabilities and Member Interests $6,876,490,709 $7,545,568,898
A-13
CONFIDENTIAL
Return
LLC
Consolidated Statements
o
f
Member Interests
(Unaudited)
Common Preferred Retained
Securities Securities Earnings
Total
BALANCE, February
3
,
2006
(Inception) $ $ $
Net income 103,779~ 512 103,779,512
Common securities issued. 3,423,697,341 3,423,697,341
issued 1,957,371,824 1,957,371,824
Capitalized
costs
( 533,674) (533,674)
Cash dividends
paid on
common securities (40,398,774) (40,398,774)
Cash dividends paid on
preferred
securities (37,035,833) (37,035,833)
Common securities
redeemed
Cash dividends
paid on
common securities
Cash dividends
paid
on
preferred
securities
Common securities
redeemed
(
_____________ ____________
(
BALANCE, June 30, 2006... $ 3,134,721,402 $1,956,838,150 $ 26,344,905 $ 5,117,904,457
BALANCE, December 31,
2006 $ 5,049,306,234 $2,446,240,411 $ 26,271,255 $7,521,817,900
Net income 203,220~ 361 203,220,361
issued 500,000,000 500,000,000
Capitalized
costs (8,508,168) (8,508,168)
Cash dividends
paid on
common securities (102,831,913) (102,831,913)
Cash dividends paid on
preferred
securities
(84,872,637) (84,872,637)
Common securities
redeemed (
_____________ ____________
(
BALANCE, June 30, 2007... $ 3,896,229,848 $2,937,732,243 $ 41,787,066 $ 6,875,749,157
A-14
CONFIDENTIAL
Return
Washington
Mutual Preferred
Funding LLC
Consolidated Statements of Cash Flows
(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income
Adjustments
to reconcile net income to net cash
provided by
operating
activities:
Decrease( Increase) i
n receivable from affiliates
.
Decrease
i
n other assets
(Decrease) increase i
n
payable t
o affiliates
Increase
(Decrease) i
n other liabilities
Net cash provided
b
y
operating
activities
Principal payments on loans held
i
n
portfolio
Net cash provided by investing activities
Proceeds from the issuance o
f
common securities
Proceeds from the~ issuance of
preferred
securities
Payment o
f
capitalized
costs
Redemption
of common securities
Dividends paid
Net cash used i
n
financing activities
Increase
i
n cash
CASH, beginning o
f
period
CASH, end of
period
SUPPLEMENTAL SCHEDULE OF NONCASH FINANCING
ACTIVITIES:
The
Company
issued common and
preferred
securities i
n
exchange for loans and other assets as follows:
Loans received
i
n
exchange
for common and preferred
securities
i
n
exchange
for common and
preferred
securities
From
Inception
(February 3
,
2006)
Through
June 30,
______________
2006
$ 203,220,361 $ 103,779,512
65,715,334
43,031,636
(533,674)
(288,975,939)
(
(
51,448,950
$ 51,448,950
Six Months
Ended June 30,
2007
(9,123,418)
(81,191,698)
248,422
723,393
(251,178)
14,185,033
295,461,167
295,461,167
( 4,947,815)
23,591,391
5,183,949
(23,272,560)
263,114
204,038,440
1,129,705,528
1,129,705,528
500,000,000
(8,508,168)
( 1,153,076,386)
(
(
484,454,864
43,165,776
$ 527,620,640
$53,000,394,935
14,555,436
A-is
CONFIDENTIAL
Return
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PERIOD ENDED JUNE 30, 2007
NOTE 1: DESCRIPTION OF THE COMPANY
Washington Mutual Preferred Funding LLC (the Company) i
liability
company formed~ on February
3
,
2006 for the purpose o
f
(
I
) issuing preferred and common securities,
(
i
i
) acquiring and holding eligible assets and (
i
i
i
)
performing functions necessary or incidental to the
foregoing. The Company i
s classified as a partnership for
U
.
S. federal income tax
purposes.
No
provision for income taxes
i
s
recognized i
n the accompanying consolidated financial statements.
The assets owned
b
y the
Company provide cash flows for
payment
b
y the
Company to holders
of the securities.
On March
6
,
2006, a pool of closed end, first lien home equity loans
(
HEL5) was contributed

b
y
Washington Mutual Bank ( WMB) and University Street, Inc.
(
University Street~), an indirect subsid
iary o
f
WMB, to the Company i
n exchange for the Series 2006- A and Series 2006- B Preferred
Securities,
i
n the case
o
f
WMB, and the Companys common securities,
i
n the case
o
f
University
Street.
Subsequently, and on the same day, the Company transferred the HELs to Washington Mutual
Home
Equity
Trust I
(the
Asset Trust
I
)
,
a statutory trust formed under the laws of the State
o
f
Delaware,
i
n exchange for Class A-i
Washington
Mutual Home
Equity
Trust I Certificates.
On December 12, 2006, a pool of payment option adjustable rate mortgages
(
Option ARMs)
was contributed
b
y WMB and University Street to the
Company
in
exchange
for the Series 2006- C
i
n the case of WMB, and additional common securities,
i
n the case of University
Street. Subsequently, and on the same day, the Company transferred the Option ARMs to WAMU
2006 OA-1 (the Asset Trust II), a statutory trust formed under the laws of the State o
f
Delaware, i
n
exchange for Class A-i WAMU 2006 OA-1 Certificates.
Substantially
all
o
f
the assets held
b
y Asset Trust I and Asset Trust
I
I are HEL and
Option
ARM
assets,
respectively.
The trusts do not have any liabilities other than those incurred in connection with
the Pooling and Servicing Agreements
(
PSA5). The trusts do not have any directors, officers or
employees. At June 30, 2007, Asset Trust I and Asset Trust
I
I had total assets
o
f
approximately
$4.4 billion and $2.2 billion, respectively.
These trusts are consolidated into the
Company.
As the transfers of assets from the Company to Asset Trust I and Asset Trust
I
I did not meet the
definition of a sale within the
scope o
f
Statement
o
f
Financial
Accounting
Standards 140, Accounting
for Transfers and
Servicing
of Financial Assets and Extinguishments of Liabilities, the assets continue
to be recorded as loans on the Consolidated Statements of Financial Condition.
NOTE
2
:
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The
Companys reporting
and
accounting policies
conform to
accounting principles generally
accepted i
n the United States of America
(
GAAP). The preparation of consolidated financial
statements
i
n
conformity
with GAAP requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure
o
f
contingent assets and liabilities
at the date of the consolidated financial statements and the reported amounts of revenues and
expenses during the reporting period. Management has made significant estimates in certain areas,
including the allowance for loan losses. Actual results could differ from those estimates.
The results of operations i
n the interim statements are not necessarily indicative
o
f
the results
that
maybe expected
for the full
year.
The interim financial information should be read
i
n
conjunction
with Washington Mutual Preferred Funding LLCs 2006 audited financial statements.
In September 2006, the Financial Accounting
Standards Board
(
FASB) issued Statement
No. 157, Fair Value Measurements ( Statement No. 157). Statement No. 157
prescribes a definition
of the term fair value establishes a framework for measuring fair value and expands disclosure
A-16
CONFIDENTIAL
Return
PERIOD ENDED JUNE 30, 2007(CONTINUED)
requirements
aboUt fair value measurements. Statement No. 157 i
s effective for fiscal years beginning
after November 15, 2007. The Company
does not expect
the
application o
f
Statement No. 157 to have
a material effect on the Consolidated Statements of Income and the Consolidated Statements of
In
February 2007, the FASB issued Statement No. 159, The Fair Value Option for Financial
(
Statement
No.
159).
Statement No. 159
permits an instrument
by
instrument election to account for selected financial assets and liabilities at fair value. Statement
No. 159
i
s effective for fiscal
years beginning
after November 15, 2007. The
Company i
s
currently
evaluating
the
impact
Statement No. 159 will have on its Consolidated Statements of Income and
Consolidated Statements of Financial Condition.
NOTE
3
:
Loans held
i
n
portfolio
consisted of the
following:
June 30, December 31,
2007 2006
Loans held i
n
portfolio:
Option
ARMs home loans11~ $1,885,525,632 $2,638,560,716
Home
equity
loans 4,266,040,991 4,643,043,924
Total loans held
i
n portfolio~
2
~
$6,151,566,623 $7,281,604,640
(
1
)
The total amount
b
y which the unpaid principal balance of Option ARM loans exceeded their
original principal amount was
$14.8 million and $ 6.2 million at June 30, 2007 and December 31, 2006, respectively.
(
2
)
Includes net unamortized deferred loan origination costs of $53.4 million and $67.7 million at June 30, 2007 and Decem
ber 31, 2006.
Changes i
n the allowance for loan losses were as follows:
From
Inception
Six Months
(February 3
,
2006)
Ended June 30, Through
June
30,
2007 2006
Beginning
balance $24,994,354 $

Allowance acquired from loans transferred 27,099,065
Provision for loan losses ( (
20,046,539 14,975,647
Loans
charged
off:
Home
equity
loans (

Balance, end of
period $19,974,435 $17,975,647
NOTE
4
:
COMMON SECURITIES
At June 30, 2007, the Company had $3,896,229,848
of common securities issued and outstand
ing.
The
Company,
at its discretion, may pay
Companys common securities out of
legally
available funds.
During
the three and six months ended June
30, 2007,
the
Company
declared and
paid
distributions in the amount of $65,365,602 and $102,831,913 to
University
Street after
paying
dividends on the
Companys, preferred
securities. The
Company
also redeemed common securities
i
n
the amount of $
6
1
1,940,660 and $1,153,076,386 from University Street during the same periods.
A-17
-
CONFIDENTIAL
Return
PERIOD ENDED JUNE 30, 2007( CONTINUED)
NOTE
5
:
PREFERRED SECURITIES
The
Company
issued $500,000,000
o
f
Fixed-to-Floating Rate Perpetual Non-cumulative
Series 2007- A Company Preferred Securities, liquidation preference
of $1,000 per security on May 21,
2007.
At June 30, 2007, the Company
had
(
i
)
1,250,000
o
f
Series 2006- A
Company
Preferred
Securities, (
i
i
) 750,000
o
f
Series 2006- B Company Preferred Securities, (
i
i
i
) 500,000 of Series 2006- C
Company
Preferred Securities, and (iv) 500,000
o
f
Series 2007- A
Company
issued and
outstanding, except
under
specified
circumstances. The preferred securities do not have
any voting rights.
I
f
b
y the Companys
Board of
Managers
out of legally available funds,
dividends onthe Series 2006- A Company Preferred Securities will be payable on a noncumulative
basis at a fixed rate
per
annum equal to 6.534% (calculated on a 30/ 360 basis), and on and after
March 15, 2011 ata variable rate
per
annum equal to three- month USD LIBOR for the related
dividends period plus 1.485% (calculated on an Actual/ 360 basis),
i
n each
case, on the liquidation
preference
o
f
$1,000. per security.
I
f declared, dividends on the Series 2006- A
Company
Preferred
Securities will be payable quarterly i
n arrears on March 15, June 15, September 15 and December 15
o
f
each
year commencing on June 15, 2006. At its discretion, the Company may redeem the
Series 2006- A
Company
Preferred Securities on March 15, 2011 or thereafter.
I
f
b
y the Companys
Board
o
f
Managers out of
legally
available funds,
dividends on the Series 2006- B Company Preferred Securities will be payable on a noncumulative
per
annum equal to 7.25% (calculated on a 30/ 360 basis) on the liquidation
preference
of $1,000 per security. I
f declared, dividends on the Series 2006- B Company
Preferred
Securities will be
payable quarterly i
o
f
each
year commencing on June 15, 2006. At its discretion, the Company may redeem the
Series 2006- B
Company
Preferred Securities on March 15, 2011 or thereafter.
I
f
, when and as declared by the Companys
Board of Managers out
o
f
legally
available funds,
dividends on the Series 2006- C
Company
payable
on a noncumulative
per
annum equal to 6.665% (calculated on a 30/ 360
basis), and on and after
December 15, 2016 at a variable rate
per
annum equal to three- month USD LIBOR for the related
dividends
period plus 1.7925% ( calculated on an Actual/ 360 basis), in each case, on the liquidation
preference of $1,000 per security. I
f declared, dividends on the Series 2006- C
Company
Preferred
Securities will be payable quarterly i
of each
year commencing on March 15, 2007. At its discretion, the Company may
redeem the
Series 2006- C
Company
Preferred Securities on December 15, 2016 or thereafter.
I
f
, when and declared bythe Companys Board
o
f
Managers out of
legally
available funds,
dividends on the Series 2007- A Company
payable
on a noncumulative
per
annum equal to 6.895% (calculated on a 30/ 360 basis), and on and after
June 15, 2012 at a variable rate
per
annum equal to three-month USD LIBOR for the related
dividends
period plus 1.755% ( calculated on an Actual/ 360 basis), i
n each
case,
on the liquidation
preference
of $1,000
per security. I
f declared, dividends on the Series 2007- A
Company
Preferred
Securities will be
payable quarterly i
n arrears on March 15, June 15, September
15 and December 15
o
f
each year commencing on September 15, 2007. At its discretion, the Company may
redeem the
Series 2007- A
Company
Preferred Securities on May 25, 2017 or thereafter.
During the three and six months ended June 30, 2007, the Company declared and paid
dividends i
n the amounts
o
f
$20,418,750 and $40,837,500 to the holders of the Series 2006-
A
;
$13,593,750 and $27,187,500 to the holders of the Series 2006-
B
;
and $8,331,249 and $16,847,637
to holders
o
f
the Series 2006- CS
A-18
CONFIDENTIAL
Return
PERIOD ENDED JUNE 30, 2007( CONTINUED)
During
the three and six months ended June 30, 2007, the
Company incurred
capitalized
costs
associated with the issuance of
preferred
securities. These costs, totaling $8,372,270 and
$8,508,168,
related to
legal, underwriting
and other professional fees.
NOTE
6
:
WMB
i
s the servicer
o
f
the HELs and Option ARMs that were conveyed to the
Company i
n
exchange
for
Companys preferred
securities. WMB i
s entitled
t
o
a servicing fee from the Company equal to the
beginning
balance
o
f
the HELs loan
portfolio
and
Option
ARMs loan portfolio
for
any given period, multiplied by an annualized rate equal to 0.125% and
0.375%, respectively.
The
Company
incurred
expenses o
f
$3,324,761 and $7,077,927 t
o
WMB under
the terms of the
servicing agreement during
the three and six months ended June 30 2007. For the
three months ended June 30, 2006,
the
Company
incurred
expenses
of
$1,624,887 to WMB under
the terms of the
From
inception, February 3
,
2006
through
June
30, 2006,
the
Company
incurred
expenses o
f
$2,741,691 to WMB under the terms of the
At June 30, 2007 and December 31, 2006, the
Company
had a liability to WMB i
n the amount of
$273,196 and $23,545,756, respectively, which represented costs paid by WMB on behalf
o
f
the
Company
as well as excess asset contributions made
b
y WMB to the
Company.
At June 30, 2007 and December 31, 2006, the
Company
had a receivable from WMB
i
n the
amount of $194,984,152 and $218,575,543, which
represented principal
and interest collections
by
WMB as the servicer
o
f
the HELs and
Option
ARMs.
The Third Amended and Restated Limited
Liability Company Agreement
of
Washington Mutual
Preferred
Funding LLC ( the LLC
Agreement) provides
that the
Company
be
managed
b
y
a Board of
Managers consisting o
f
three members
(Managers), one of whom
i
s not and has not been
during
the
preceding five years an officer or employee o
f
Washington
Mutual Inc.
(
WMI) or any
affiliate of WMI,
other than a financing subsidiary ( the Independent Manager).
The
Independent Manager i
s
paid a
nominal fee for his services which
i
s recorded
i
n other expenses. The
remaining
two
managers are
employees o
f
Washington Mutual, Inc. and are not
compensated directly by
the
Company for services
rendered.
WMI and its affiliates do not allocate overhead
expenses
to the
Company.
Such
expenses are
considered de minimisto the
Companys
financial statements taken as a whole. The
Company
reimburses WMB for third- party expenses paid
b
y WMB on the
Companys
behalf.
There
i
s
no material business
relationship, agreement, arrangement, transaction or understand
ing that i
s or was entered into outside the
ordinary course o
f
business or i
s
or was on terms other
i
n an arms-length transaction with an unrelated third party, between the
Company
and WMB or University Street, as the case may
be.
A-19
CONFIDENTIAL
Return
APPENDIX B
Portfolio Data for Asset Trust 1
*
Distribution
by
Current
Principal
Balance
Principal
Balance
$ 0.00
$49,999
50,000 74,999
75,000 99,999
100,000199,999
200,000 299,999
300,000 499,999
Greater than or equal to $500,000
Total
Numbrof
Mortgage
Loans
11,671
11,546
8,701
12,332
1,502
456
40
46,248
Aggregate Unpaid
Principal
Balance
$ 414,008,163.
722,197,499
754,659,189
1,653,310,400
349,160,616
165,998,762
24,327,041
$4,083,661,672
Percentage
of
Aggregate Unpaid
Principal Balance
as of the HELs
Information
Cut-Off Date
10.14%
17.69
18.48
40.49
8.55
4.06
0.60
100.00%
Distribution
by
Current Gross Rate
Distribution
by
Current
Gross Rate
4.00% 4.99%
5.00 5.99
6.00 6.99
7.00 7.99
Greater than 7.99%
Total
Number of Aggregate Unpaid
Mortgage
Loans
Principal
Balance
Percentage
of
Aggregate Unpaid
Principal
Balance
as of the HELs
Information
Cut- Off Date
Distribution
by Remaining
Months to
Maturity
Distribution
by Remaining
Months to Maturity
Number of
Mortgage Loans
1,240
4,989
11,611
21,750
582
6,076
46,248
Aggregate Unpaid
Principal
Balance
$ 37,156,025
252,613,863
852,478,080
2,152,799,013
68,472,863
720,141,827
$4,083,661,672
Percentage
of
Aggregate Unpaid
Principal
Balance
as of the HEL5
Information
Cut- Off Date
0.91%
6.19
20.88
52.72
1.68
17.63
100.00%
16 $ 1,817,664 0.04%
21,842 .
2,030,354,899 49.72
22,283 1,906,837,080 46.69
1,888 131,088,061 3.21
219
46,248
13,563,968
$4,083,661,672
0.33
100.00%
Less than 61
61 120
121 180
181240
241 300
301 360
TotaI
All information i
n this Appendix B i
s as of September 30, 2007 (the HELS Information Cut- Off Date). Due to rounding, the
percentages shown
may not precisely total 100.00%.
B-i
CONFIDENTIAL
Return
Distribution
by
Year of
Origination
Percentage
of
Aggregate Unpaid
Principal Balance
as of the HELs
Distribution
by Number of Aggregate Unpaid Information
Year of
Origination Mortgage
Loans
Principal
Balance Cut-Off Date
19982001 232 $ 16,582,960 0.41%
2002 4,477 397,196,256 9.73
2003 22,246 2,019,504,091 49.45
2004 13,236 1,184,490,298 29.01
2005 5,999 462,101,516 11.32
2006 58 3,786,552 0.09
TOtal- 46,248 $4,083,661,672 100.00%
Distribution
by
FICO Score~~
Percentage of
Aggregate Unpaid
Principal Balance
as of the HELs
Number of Aggregate Unpaid Information
Distribution by FICO Score Mortgage Loans Principal Balance Cut-Off Date
Not Available 1 $ 82,945 0.00%
LessThan 600 1,105 . 91,268,311 2.23
600649 1,469 122,057,864
. 2.99
650
699 4,463 398,009,724 9.75
700749 8,791 812,828,617 19.90
750799 17,379 1,581,160,307 38.72
800849 13,040 1,078,253,904 26.40
Total- 46,248 $4,083,661,672 100.00%
(
1
) FICO Score means a statistical credit score obtained by WMB and
many
other
mortgage lenders
i
application to help assess a borrowers creditworthiness. A FICO Score
i
s generated by models developed
b
y a third
party,
Fair, Isaac & Co., and made available to WMB through three national consumer reporting agencies. The FICO Score
i
s
based on a borrowers historical credit data, including, among other
things, payment history, delinquencies on accounts, lev
els of outstanding indebtedness, length of credit history, types o
f
Percentage of
Aggregate Unpaid
Principal Balance
as of the HELs
Number of
Aggregate Unpaid Information
Distribution
by Property Type
.
Mortgage Loans Principal Balance Cut- Off Date
Single Family 42,669 $3,760,416,191 92.08%
Townhouse 1,684 190,603,441 4.67
Condo 1,824 127,320,142 3.12
Manufactured
Housing 71 5,321,898 0.13.
Total- 46,248 $4,083,661,672 100.00%
B-2
CONFIDENTIAL
Return
Distribution
by
State
Distribution by Current Loan- to-Value Rati&
1
1
Number
o
f
Mortuacie Loans
Percentage o
f
Aggregate Unpaid
Principal Balance
as
o
f
the HELs
Information
Cut- Off Date
Texas
California
Florida
New York
Washington
New
Jersey
Oregon
Georgia
Arizona
Idaho
Other
Total
24,219
12,135
3,989
2,089
946
582
623
376
247
264
778
46,248
50.55%
29.29
7.06
5.11
1.98
1.44
1.32
0.74
0.49
0.49
1.53
100.00%
Percentage
of
Aggregate Unpaid
Principal
Balance
as of the HELs
Information
Cut-Off Date
Loan- to-Value Ratio
Aggregate Unpaid
Principal Balance
$2,064,328,045
1,196,173,193
288,465,212
208,702,177
80,979,666
58,771,679
53,850,349
30,083,032
19,902,171
19,860,534
62,545,614
$4,083,661,672
Aggregate Unpaid
Principal Balance
$ 568,236
40,820,971
202,102,400
368,835,462
565,136,390
685,429,526
795,334,495
816,316,916
578,667,603
30,358,214
91,459
$4,083,661,672
Not Available
0.01% ~10.00%
10.01 20.00
20.0130.00
30.0140.00
40.0150.00
50.0160.00
60.0170.00
70.0180.00
80.01 90.00
Greater than 90.00%
TotalS
Number of
Mortgage Loans
3
1,411
4,096
5,572
.7,110
7,575
7,821
7,579
4,806
274
46,248
0.01%
1.00
4.95
9.03
13.84
16.78
19.48
19.99
14.17
0.74
0.00
100.00%
(
1
)
The current loan- to-value ratio of a mortgage loan
i
s a fraction, the numerator of which
i
s the outstanding principal balance
of the mortgage loan and the denominator of which
i
at a time of
origination o
f
the related
mortgage property, expressed as a percentage.
B-3
CONFIDENTIAL
Return
APPENDIX C
Portfolio Data for Asset Trust 11*
Principal
Balance
Percentage
of
Aggregate Unpaid
Principal
Balance
as of the
Option
Distribution by Current Number of
Aggregate Unpaid ARMs Information
Principal
Balance
Mortgage
Loans
Principal
Balance Cut- Off Date
$ 0.00$49,999
8 $ 162,006 0.01%
50,000 74,999 446,109 0.03
75,00099,999 19 1,760,955 0.11
100,000199,999 952 142,515,262 8.56
200,000299,999 678 168,656,181 10.13
300,000499,999 1,020 410,994,113 24.69
500,000 999,999 852 566,865,674 34.05
Greater than or equal t
o
$1,000,000 .
240
373,392,655 22.43
TotaI
3,776 $1,664,792,954 100.00%
Distribution by Current Gross Rate
Percentage of
Aggregate Unpaid
Principal Balance
as of the
Option
Distribution
by
Current Number of
Aggregate Unpaid
ARMs Information
Gross Rate
Mortgage
Loans Principal Balance Cut- Off Date
6.00% 6.99% 177 $ 93,927,248 5.64%
7.00 7.99 2,868 1,256,158,059 75.45
8.00 8.99 727 312,453,016 18.77
9.00% 9.99% 4 2,254,631 0.14
Total 3,776 $1,664,792,954
100.00%
Distribution
by Remaining
Months to
Maturity
Percentage
of
Aggregate Unpaid
Principal Balance
as of the
Option
Distribution
by Remaining
Number of
Aggregate Unpaid
ARMs Information
Months to
Maturity Mortgage
Loans
Principal
121 180 2 $ 387,485 0.02%
181240 3 655,892 0.04
241 300 230 69,043,340 4.15
301360 3,037 1,326,431,941 79.68
Greater than 360 504
268,274,297 16.11
Total 3,776 $1,664,792,954
100.00%
All information i
n this Appendix C i
s as September 30, 2007 (the Option ARMs Information Cut- Off Date
2
.
Due to rounding,
the percentages shown
may not precisely total 100.00%.
c-i
CONFIDENTIAL
Return
Distribution by Year of
Origination
Percentage
of
Aggregate Unpaid
Principal Balance
as of the Option
Distribution by Number of Aggregate Unpaid ARMs Information
Year of Origination Mortgage Loans Principal Balance Cut-Off Date
1997 2001 218 $ 62,212,171 3.74%
2002 44 16,483,062 0.99
2003 867 279,286,621 16.78
2004 632 273,251,222 16.41
2005 1,762 884,047,088 53.10
2006 253 149,512,790 8.98
Total- 3,776 $1,664,792,954 100.00%
Distribution by FICO Score~
1
~
Percentage
of
Aggregate Unpaid
Principal Balance
as of the Option
Number
o
f
Distribution
by FICO Score Mortgage Loans Principal Balance Cut-Off Date
Not Available 17 $ 11,146,197 0.67%
Less than 600 98 54,661,491 3.28
600649 174 82,391,579 4.95
650699 468 233,036,805 14.00
700 749 965 432,936,230 26.01
750799 1,494 646,175,918 38.81
800849 560 204,444,733 12.28
Total- 3,776 $1,664,792,954 100.00%
(
1
)
FICO Score means a statistical credit score obtained by WMB and
many
other
mortgage
lenders in connection with a loan
application
t
i
s generated by models developed
b
y a third party,
Fair, Isaac & Co., and made available to WMB through three national consumer reporting agencies. The FICO Score
i
s
based on a borrowers historical credit data, including, among
other
things, payment history, delinquencies on accounts, lev
els of outstanding indebtedness, length of credit history, types
of credit and bankruptcy experience. A higher FICO Score
C-2
CONFIDENTIAL
Return
Distribution
by Property Type
Distribution
by Property Type
Single Family
Planned Unit
Development
Condo
2-4 Unit
Multifamily
Co-Op
Townhouse
TotalS
Number of
Aggregate Unpaid
Mortgage
Loans Principal Balance
2,148
578
518
506
19
7
3,776
Percentage o
f
Aggregate Unpaid
Principal
Balance
as of the Option
ARMs Information
Cut- Off Date
61.10%
16.78
10.81
10.74
0.42
0.16
100.00%
California
Florida
New York
Colorado
Massachusetts
New
Jersey
Virginia
Michigan
Illinois
Arizona
Other
TotalS
Number of
Aggregate Unpaid
Mortgage
Loans
Principal
Balance
2,321 $1,218,409,405
242 74,680,109
118 64,087,040
183 40,576,973
.95
31,272,668
69 26,733,265
64 25,834,081
81 19,833,535
75
17,954,535
46 17,255,684
482
128,155,659
3,776 $1,664,792,954
Percentage
of
Aggregate Unpaid
Principal
Balance
as of the
Option
ARMs Information
Cut- Off Date
.73.19%
4.49
3.85
244
1.88
1.61
1.55
1.19
1.08
1.04
7.70
100.00%
$1,017,134,946
279,279,899
180,032,860
178,816,786
6,913,100
2,615,364
$1,664,792,954
C-3
CONFIDENTIAL
Return
Distribution by Current Loan- to-Value Ratio~
1
~
Percentage of
Aggregate Unpaid
Principal Balance
as of the Option
Distribution
b
y Current Number of Aggregate Unpaid ARMs Information
Mortgage
Loans
Principal
0.01%10.00% 10 $ 319,416. 0.02%
10.01 20.00 21 7,093,124 0.43
20.01 30.00 50 11,810,717 0.71
30.01 40.00 99 32,060,759 1.93
40.01 50.00 203 70,03Q, 010 4.21
50.01 60.00 314 155,793,792 9.36
60.01 70.00 754 352,071,345 21.15
70.01 80.00 1,789 821~ 681,578 49.36
80.01 90.00 530 211,630,269 12.71
Greater than 90.00%. 6 2,301,944 0.14
Total
3,776 $1,664,792,954 100.00%
(
1
) The current loan-to-value ratio of a mortgage
loan
i
o
f
which
i
s the
balance
of the mortgage loan and the denominator
o
f
which
i
s the collateral value, generally at a time of origination o
f
the related
C-4
CONFIDENTIAL
Return
APPENDIXD
Portfolio Data for Asset Trust 111*
Distribution
by
Current
Principal
Balance
Distribution
b
y Current
Principal
Balance
$ 0.00$ 49,999
50,000 74,999
75,000 99,999
100,000 199,999
200,000 299,999
300,000 499,999
500,000 999,999
Greater than or equal to $1,000,000.
TOtal-
Number of Initial
Mortgage Loans
732
913
1,203
4,992
3,252
3,902
2,180
331
17,505
Aggregate Unpaid
Principal
Balance
$ 24,443,841
58,037,496
106,465,049
745,281,355
804,353,527
1,514,610,817
1,445,467,643
500,487,958
$5,199,147,686
Percentage
of
Aggregate Unpaid
Principal Balance
as of the Flex-5
ARMs Information
Cut- Off Date
0.47%
1.12
2.05
14.33
15.47
29.13
27.80
9.63
100.00%
Distribution
b
y Current Gross Rate
Distribution
by
Current
Gross Rate
9
3,715
10,482
1,781
1,217
300
17,505
$ 3,474,235
1,260,556,535
3,136,059,738
491,813,775
273,585,164
33,610,405
47,834
$5,199,147,686
Percentage of
Aggregate Unpaid
Principal
Balance
as of the FIex- 5
ARMs Information
Cut- Off Date
0.07%
24.25
60.32
9.46
5.26
0.65
0.00
100.00%
Number of Initial
Aggregate Unpaid
Mortgage Loans Principal Balance
3.00% 3.99%
4.00 4.99
5.00 5.99
6.00 6.99
7.00 7.99
8.00 8.99
9.00%9.99%
Total
*
All information i
n this Appendix D i
s
presented on a
pro
forma basis as of September 30, 2007 (the FIex-5 ARMs Informa
tion Cut- Off Date). Due t
o
rounding, the percentages shown may not precisely total 100.00%.
D-1
CONFIDENTIAL
Return
Distribution by Remaining Months to Maturity
Percentage
of
Aggregate Unpaid
Principal Balance
as of the Flex-5
Distribution
by Remaining Number of Initial Aggregate Unpaid ARMs lnformatiofl
Months to Maturity Mortgage Loans Principal Balance Cut- Off Date
61120 76 $ 6,687,470 0.13%
121180 325 48,119,422 0.93
241 300 1,431 291,937,068 5.62
301 360 15,355 4,734,092,896 91,06
Greater than 360 318 118,310,829 2.28
Total 17,505 $5,199,147,686 100.00%
Distribution
by Year of Origination
Percentage of
Aggregate Unpaid
Principal Balance
as of the Flex-5
Distribution by Number of Initial Aggregate Unpaid ARMs Information
Year of
Origination Mortgage Loans
Principal
Balance Cut- Oft Date
20002001 636 $ 107,421,374 2.07%
2002 2,121 528,535,293 10.17
2003 7,462 2,212,819,803 42.56
2004 4,667 1,412,368,467 27.17
2005 1,672 641,870,003 12.35
2006 947 296,132,747 5.70
TotaI 17,505 $5,199,147,686 100.00%
D-2
CONFIDENTIAL
Return
1
~
Percentage
of
Aggregate Unpaid
Principal Balance
as of the FIex- 5
Number of Initial
Aggregate Unpaid
ARMs Information
Distribution
by
FICO Score
Mortgage
Loans
Principal
Not Available 68 $ 18,707,377 0.36%
Less than 600 975 253,821,902 4.88
600649 1,709 494,701,911 9.52
650699 3,892 1,162,362,295
22.36
700749 5,215 1,581,739,075 30.42
750799 4,238 1,293,195,290 24.87
800849 1,408 394,619,836 7.59
Total- 17~ 505 $5,199,147,686 100.00%
(
1
)
FICO Score means a statistical credit score obtained by WMB and
many
other mortgage lenders i
application to help assess a borrowers creditworthiness. A FICO Score i
s
generated
b
y models developed
b
y a third
party,
Fair, Isaac & Co., and made available to WMB through three national consumer reporting agencies. The ACO Score i
s
other things, payment history, delinquencies on accounts, lev
els o
f
outstanding indebtedness, length o
f
credit history, types of credit and bankruptcy experience. A higher FICO Score
Percentage
of
Aggregate Unpaid
Principal Balance
as of the Flex-5
Number of Initial
Aggregate Unpaid
ARMs Information
Distribution
by Property Type Mortgage
Loans
Principal
Single Family
10,047 $3;211,079,580 61.76%
Condo 4,144 940,712,567 18.09
Planned Unit Development 2,066 675,375,119 12.99
2-4 Unit Multifamily 1,158 359,050,809 6.91
Townhouse 41 6,724,762 0.13
Manufactured
Housing
44 5,638,504 0.11
Prefabricated/ Modular Home 5 566,345 0.01
Total- 17,505 $5,199,147,686 100.00%
D-3
CONFIDENTIAL
Return
Distribution
by
State
Percentage
of
Aggregate Unpaid
Prinipal Balance
as of the Flex-5
Number of initial
Distribution
by
State
Mortgage Loans Principal Balance Cut-Off Date
California 6,289 $2,355,236,149 45.30%
New York 1,613 626,627,520 12.05
Florida 2,223 412,408,066 7.93
Illihois
1,413 323,815,007 6.23
Washington
818
221,049,644
4.25
New
Jersey
681 197,668,971 3.80
Massachusetts 565
169,450,005
3.26
Colorado 617 136,421,576 2.62
Connecticut 474
132,207,575
2.54
Arizona 391 80,778,541 1.55
Other 2,421 543,484,632 10.45
Total
17,505 $5,199,147,686
100.00%
Distribution by Current Loan- to-Value Ratio~
1
~
Percentage
of
Aggregate Unpaid
Principal
Balance
as of the Flex-5
Distribution
by
Current Number of Initial
Aggregate Unpaid
ARMs Information
Mortgage
Loans
Principal
0.01%10.00% 100 $ 5,924,070 0.11%
10.01 20.00 206 26,612,238 0.51
20.01 30.00
. . ~
438 92,608,068 1.78
30.01 40.00 929 234,476,015 4.51
40.01 .50.00 1,511 432,552,613 8.32
50.01 60.00 2,548 800,933,710 15.41
60.01 70.00 5,606 1,815,230,382 34.91
70.01 80.00 5,951 1,750,249,646 33.66
80.01
90.00 177 30,981,323 0.60
90.01%100.00% 39 9,579,621 0.18
Total 17,505 $5,199,147,686 100.00%
(
1
)
The current loan- to- value ratio of a mortgage loan i
s a fraction, the numerator of which i
o
f
the mortgage loan and the denominator of which i
s the collateral value, generally at a time of origination o
f
the related
D-4
CONFIDENTIAL
Return
APPENDIX E
I
, Asset Trust
I
I And Asset Trust Ill, Combined*
Distribution by Current Principal Balance
Percentage
of
Aggregate Unpaid
Principal
Balance
as of the Combined
Distribution by Current Number of
Principal
Balance Mortgage Loans Principal Balance Cut- Off Date
$ 0.00s 49,999 12,411 $ 438,614,010 4.01%
50,000 74,999 12,466 780,681,105 7.13
75,000 99,999 9,923 862,885,193 7.88
100,000199,999 18,276 2,541,107,016 23.21
200,000299,999 5,432 1,322,170,324 12.08
300,000499,999 5,378 2,091,603,693 19.11
500,000999,999 3,072 2,036,660,358 18.60
Greater than or equal to $1,000,000. . .
571 873,880,612 7.98
TotaI~ 67,529 $10,947,602,312 100.00%
Distribution
by
Current Gross Rate
Percentage of
Aggregate Unpaid
Principal Balance
as of the Combined
Distribution by Current Number
o
f
Gross Rate Mortgage Loans Principal Balance Cut- Off Date
3.00%3.99% 9 $ 3,474,235 0.03%
4.00 4.99 3,731 1,262,374,199 11.53
5.00 5.99 32,324 5,166,414,637 47.19
6.00 6.99 24,241 2,492,578,103 22.77
7.00 7.99 5,973 1,660,831,284 15.17
8.00 8.99 1,202 356,822,203 3.26
Greater than 8.99% 49 5,107,651 0.05
Total 67,529 $10,947,602,312 100.00%
*
All information
i
n this Appendix E
i
s presented on a pro forma basis as
o
f
September 30, 2007 with respect to portfolio data
for Asset Trust
I
, Asset Trust I
I and Asset Trust
I
l
l
(the
Combined Information Cut- Off
Datd).
Due to
rounding,
the
percent
ages
shown
may
not precisely total 100.00%.
E- 1
CONFIDENTIAL
Return
Distribution by Remaining Months to Maturity
Distribution
by Remaining
Months
t
o
Maturity
Less than 61
61120
121180
181240
241300
301360
Greater than 360
Total
Number of
Mortgage
Loans
1,240
5,065
11,938
21,753
2,243
24,468
822
67,529
Aggregate Unpaid
Principal
Balance
$
37,156,025
259,301,334
900,984,987
2,153,454,905
429,453,271
6,780,666,664
386,585,126
$10,947,602,312
Percentage of
Aggregate Unpaid
Principal
Balance
as of the Combined
Information
Cut- Off Date
0.34%
2.37
8.23
19.67
3.92
61.94
3.53
100.00%
Distribution by Year of Origination
Distribution
b
y
Year of
Origination
19972001
2002
2003
2004
2005
2006
TotaI
Number of
Mortgage
Loans
1,086
6,642
30,575
18,535
9,433
1,258
67,529
Aggregate Unpaid
Principal
Balance
$ 186,216,505
942,214,610
4,511,610,514
2,870,109,987
1,988,018,607
449,432,089
$10,947,602,312
Percentage o
f
Aggregate Unpaid
Principal
Balance
as of the Combined
Information
Cut- Off Date
1.70%
8.61
41.21
26.22
18.16
4.11
100.00%
E-2
CONFIDENTIAL
Return
Distribution by FICO Score
Not Available
Less than 600
600649
650699
700749
750799
800849
Total
Single Family
Condo
Planned Unit
Development
2-4 Unit
Multifamily
Townhouse
Manufactured Housing
Co-
o
p
Prefabricated/ Modular Home
Total
Number of
Mortgage Loans
54,864
6,486
2,644
1,664
1,732
115
19
5
67,529
$ 29,936,519
399,751,703
699,151,355
1,793,408,825
2,827,503,922
3,520,531,515
1,677,318,473
$10,947,602,312
Aggregate Unpaid
Principal Balance
$ 7,988,630,717
1,248,065,568
954,655,019
537,867,595
199,943,567
10,960,402
6,913,100
566,345
$10,947,602,312
Percentage
Of
Aggregate Unpaid
Principal
Balance
as of the Combined
Information
Cut-Off Date
0.27%
3.65
6.39
16.38
25.83
32.16
15.32
100.00%
Percentage of
Aggregate Unpaid
Principal Balance
as of the Combined
Information
Cut- Oft Date
72.97%
11.4
8.72
4.91
1.83
0.10
0.06
0.01
100.00%
Aggregate Unpaid
Principal Balance
Number of
Mortgage Loans
86
2,178
3,352
8,823
14,971
23,1.11
15,008
67,529
(
1
) FICO Score means a statistical credit score obtained by WMB and many other mortgage lenders
i
application to help assess a borrowers creditworthiness. A FICO Score
i
s generated
b
y models developed by a third party,
Fair, Isaac & Co., and made available
t
i
s
other things, payment history, delinquencies on accounts, lev
els
o
f
outstanding indebtedness, length of credit history, types o
f
credit and bankruptcy experience. A
higher
FICO Score
E-3
CONFIDENTIAL
Return
Distribution
by
State
Distribution
by State
California
Texas
NewYork.
Florida
Illinois
Washington
New
Jersey
Massachusetts
Colorado
Connecticut
Other
Total
Number
o
f
Mortgage
Loans
20,745
24,471
3,820
6,454
1,682
1,819
1,332
675
872
520
5,139
67,529
Aggregate Unpaid
Principal
Balance
$ 4,769,818,747
2,114,936,135
899,416,737
775,553,388
358,975,435
317,495,059
283,173,915
201,606,151
183,236,864
147,225,773
896, i64~ 108
$10,947,602,312
Percentage
of
Aggregate Unpaid
Principal Balance
as of the Combined
Information
Cut- Off Date
43.57%
19.32
8.22
7.08
3.28
2.90
2.59
1.84
1.67
1.34
8.19
100.00%
Distribution
by
Current Loan- to-Value Rati&
1
~
Number of
Mortgage
Loans
3
1,521
4,323
6,060
8,138
9,289
10,683
13,939
12,546
981
46
67,529
Aggregate Unpaid
Principal
Balance
$ 568,236
47,064,457
235,807,762
473,254,248
831,673,164
1,188,012,150
1,752,061,997
2,983,618,643
3,150,598,827
272,969,805
11,973,025
$10,947,602,312
Percentage of
Aggregate Unpaid
Principal
Balance
as
of the Combined
Information
Cut- Off Date
0.01%
0.43
2.15
4.32
7.60
10.85
16.00
27.25
28.78
2.49
0.11
100.00%
Distribution
b
y Current
Not Available
0.01%10.00%
10.01 20.00
20.01 30.00
30.01 40.00
40.01 50.00
50.01 60.00
60.01 70.00
70.01 80.00
80.01 90.00
Greater than 90.00%
Total
(
1
)
The current loan- to-value ratio o
f
a mortgage loan i
s a fraction, the numerator o
f
which i
of the mortgage loan and the denominator of which i
s the collateral value, generally at a time of origination of the related
mortgage property, expressed as a
percentage.
E-4
CONFIDENTIAL
Return
APPENDIX F
Index of Terms
3
(
c)(
7
)
Representations v
i
i
3-Month LJSD LIBOR 97
ACLS 58
Additional Amounts 104
Additional Assets 45
Additional Tax Event 104
Additional Taxes 104
Administrative Services Agreement
48
Advanced Consumer Lending System 58
alternative services 55
Asset Contribution Agreements
46
Asset Documentation 46
Asset Subsidiary 46
Asset Tax Opinion 47
Asset Trust I
i
,
7
,
52, A-6, A-16
Asset Trust I Class A Trust Certificate.
. . . 6
,
43, 53
Asset Trust I Class R Trust Certificate
6
,
43, 53
Asset Trust I Custodian 61
Asset Trust I Custody Agreement 61
Asset Trust I Delaware Trustee
7
,
52
Asset Trust I Loan Documents 61
Asset Trust I Pooling and Servicing
Agreement 7
,
52
Asset Trust I Servicer 52
Asset Trust I Servicer Indemnified Parties 59
Asset Trust I Trustee 52
Asset Trust
I
I
~
,
7,62, A-6, A-16
Asset Trust
I
.
Asset Trust H Class R Trust Certificate
Asset Trust I
I
Custodian
Asset Trust I
I
Custody Agreement
Asset Trust
I
I Delaware Trustee
Asset Trust I
I Loan Documents
Asset Trust I
I
Agreement
Asset Trust
I
I Servicer
Asset Trust
I
I Servicer Indemnified Parties
Asset Trust I
I Trustee
Asset Trust
I
I
I
Asset Trust I
I
I
Class A Trust Certificate.
Asset Trust
I
I
I
Class R Trust Certificate.
Asset Trust Ill Custodian
Asset Trust
I
I
I
Custody Agreement
Asset Trust Ill CUt-Off Date
Asset Trust
I
l
l Delaware Trustee
Asset Trust I
l
l
Loan Documents
Asset Trust I
l
l
Agreement
Asset Trust
I
l
l Servicer
Asset Trust I
l
l
Servicer Indemnified Parties
Asset Trust I
l
l
Trustee
Asset Trusts
6
,
43, 63
72
72
.... 7,62
72
62
70
62
i
,
6
,
8
,
73
7
,
44, 74
7
,
44, 74
83
83
73
.8,73
83
.8,73
73
81
73
i, 6
AVM 54
back- end ratio 54, 65, 76
Bankruptcy Event
Benefit Plan Investor
Business Combination
Business
Day
CACS
Clearstream
Clearstream International
Clearstream
Participants
Closing Date
Code
Code of Ethics
Combined Information Cut-Off Date
Company 1
,
42,
A
-
i,
Company Common Securities
Companys
Board of
Managers.
Companys Portfolio
Comparable Treasury Issue . .
Comparable Treasury
Price
. .
Conditional
Exchange
core capital
Covered Debt
Credit Score
debt- to-income ratio
Delaware Trustee
Deposit Agreement
50
i
i
i
,
v
, 131
114
87, 97, 108
58
viii, 123
123
123
43
iii, v
56,67
E-1
A-
6
,
A-16, cover
5,42
2
49
32
100
100
2,91
36,37
89
54
54, 65, 76
41
116
Depositary 92, 116
6,43, 63
Depositary
Shares
2
,
15, 108, 116
Derivative Action 141
dividend 5
Dividend
Payment
Date 87, 96, 108, cover
Dividend Period 87, 96, 108
dividends
9
,
96
DTC
v
, 121
DTC Participants vii, 122
EDE 66, 77
Eligible
Assets 45
Eligible Investments 47
Eligible
Purchaser
i
v
Employee
Benefit Plan iii, v
equivalent
36
ERISA iii, v
, 131
Euroclear vii, 123
Euroclear Operator 123
Euroclear
Participants
123
Euroclear Terms and Conditions 124
Exchange Act
x
,
140
Exchange Agreement
92
Exchange
Event 15, 91
FASB
A
-
7
,
A-16
FDIC xii, 84
Federal Reserve 84
FF0 14, 96
FF0 Test 2
F
-
i
CONFIDENTIAL
Return
FICO Score .
B
-
2
,
C-
2
,
0
-
3, E-3
Fidelity 69
Fidelity System 69
Fitch 18,132
Fixed-to-Floating Rate Substitute Preferred Stock 115
Fixed-to-Floating Rate Successor Depositary
Share 115
Flex-5 ARMs 6
Flex-5 ARMs Information Cut- Off Date D- 1
Foreign Holder 125
FSMA 133
GAAP xii, A-
6
,
A-16
Global Security
121
HELs
6
,
43, A-6, A-16
HELs Information Cut-Off Date B-i
Independent Investment Banker 100
Independent Manager 6
,
49, A-19
Index 62
Indirect DTC Participants 122
Initial Purchasers 133
Investment Company Act .
i
v
,
ix,
1
,
cover
Investment Company Act Event 100
IRS 125
JuniorEquity Securities 98
Junior Securities 109
LIBOR Business Day 97
LIBOR Determination Date 97
Lifetime Rate Cap 74
like amount 2,3
LLC Act 42
LLC
Agreement 42, A-i9
Manager 49
Margin 63, 73
Marion 24
misrepresentation . ... . 137
Moodys 18, 132
Mortgage Loans 8
Negative Amortization 33, 63
Negative Amortization Cap
63
New Assets 95
New Reporting Rules 130
N145- i06 136
Nominee 93, 121
Offering
3
One- Year MTA 62
Option ARMs
6
,
43, A-
6
,
A-16
Option ARMs Information Cut- Off Date C-i
OSC 137
OTS
2
,
36, cover
Outstanding Company Preferred Securities 2
Parity Equity Securities
2
,
95
Paying Agent 93
Paying Agents
93
Permitted Investments 47
Plan 131
Plan Assets
i
i
i
,
v
, 131
Pooling
and Servicing Agreements 8
Primary Treasury Dealer . 100
Private Placement Provinces 136
Property Trustee 41
PSAs A-6, A-16
Qualified Institutional Buyer
i
i
i
,
i
v
,
viii,
i
, cover
Qualified Purchaser
i
i
i
,
i
v
,
viii,
1
,
cover
Qualifying Interests 26
Rating Agencies 48
Rating Agency Condition 48
Rating Agency Event 100
Reference Treasury Dealer 100
Reference Treasury Dealer Quotations 100
Registrar 93
Regulation 131
Regulatory Capital Event 100
Relevant Implementation Date 133
Relevant Member State 133
REMIC
7
,
129
Reminder Notice vii
Replacement Capital Covenant 12, 89
Replacement Covenant Covered Securities 89
Reuters Screen LIBORO1 Page 97
S&P 18,132
SEC
x
i
SFA 134
Section 130.1 137
Section
3
(
c)(
7
)
Securities Act
i
v
,
viii,
1
,
cover
Securities Action 140
Securities and Exchange
Law 135
Selected Interest Rates (
H
.
15) 62, 73
Seneca 24
Senior Equity Securities 16
Preferred Securities 1
Series 2006- B Company Preferred Securities 1
Series 2006- C Company Preferred Securities 1
Series 2007- A Company Preferred Securities 2
Series 2007- B Company Preferred
Securities
1
,
95, cover
Series IWMI Preferred Stock 119
Series J WMI Preferred Stock 119
Series K WMI Preferred Stock
Series L WMI Preferred Stock
Series M WMI Preferred Stock.
Series N WMI Preferred Stock.
Similar Law
Statement No. 157
Statement No. 159
Statement No. 5
Successor Entity
supplementary capital
tangible capital
Tax Event
Tax- Exempt U. S. Holder
Ten- Year Date
Thrift Financial Report
Tier 1 capital
119
119
119
2,108
i
i
i
,
v, 132
A-8,A-16
A-8,A-17
A-7
115
37
37
100
128
12, cover
xii
36
F-2
CONFIDENTIAL
Return
TILA.
total
capital
Transfer Agent
Treasury Rate .~.
Trust
Trust Act
Trust Agreement
Trust Holder
Trust I
Trust I Securities
Trust
I
I
Trust
I
I Securities
Trust I
l
l
Trust I
l
l
Securities
Trust Securities
34
37
v, 93
101
iv, 1,41, cover
41
iv, vi, 13,41
16
2
2
2
2
iv,
1
,
87, cover
F-3
Trust
Security
U. S. Holder
U. S. Person
UBTI
University Street
Voting Parity
Securities
.
WaMu Cayman
WMB
1
,
WMI
WMI Group
WMI
Parity
Stock
WMIs Board of Directors..
WTC
1,cover
125
90
128
i
,
5
,
42,
A
-
6
,
A-16
108
36, 140,
A
-
6
,
A
-
16, cover
1
,
140, A-b,
A
-
19, cover
109
30
93
CONFIDENTIAL
Return
No dealer, salesperson or other
person
i
s authorized to
give any
information or to
represent anything
not contained i
n this
~ ~
offering
circular. You must not rely on any
~
I
unauthorized information or representations.
This
offering
circular is an offer to sell
only
the Trust Securities offered
hereby,
but
only
under circumstances and
i
n
jurisdictions
where
i
t is lawful to do
so. The information
contained in this
offering
circular
i
s current
Washington
Mutual
only as of its date.
_________
Preferred
Funding
Trust IV
TABLE OF CONTENTS
Index o
f
Terms
i
i
Fixed-to-Floating Rate
Notice To Investors
Perpetual
Non-cumulative
Special Note Regarding Forward- Looking
Statements Trust Securities
Where You Can Find More Information
x
i
Automatically Exchangeable i
n
Offei1ngC~ cular
~:
. .
:
:::::
20
Specified
Circumstances into
Certain Information Concerning WMB 36 Depositary Shares representing
Use Of Proceeds 40 Preferred Stock
of.
~
:
ny.. .
i:.
. . .
. i.~.
. ~
.
.:..
Asset Trust I 52
Asset Trust
I
I
62
Asset Trust
I
l
l 73
CertauiRea~ onships and Related Party
!~~~ l
i

Description Of The Trust Securities 87
Description Of The Series 2007- B Company
Preferred Securities 95
Description
Of Other
Company
Securities 106
Description Of The Series N WMI Preferred Sole
Structuring
Coordinator
Stock 108 and Bookrunner
Description
Of The
Depositary
Shares 116
Description Of The Other WMI Capital Stock . 119
Book- Entry Issuance 121
Certain U
.
S
.
Federal Income Tax
Considerations 125
Goldman,
Sachs & Co.
ERISA Considerations 131
Ratings
132
Plan Of Distribution 133
Notice To Canadian Residents 136
Co-Managers
Validity Of Securities .~. . .
139
Additional Information 140
APPENDIX A Washington Mutual Preferred
Credit Suisse
Funding LLC Financial Statements A-i
APPENDIX B Portfolio Data for Asset Trust I B-i Lehman Brothers
APPENDIX C Portfolio Data for Asset Trust II. C-i
APPENDIX D Portfolio Data for Asset Trust III D-i
Morgan Stanley
APPENDIX E Portfolio Data for Asset Trust
I
,
Asset Trust
I
I and Asset Trust III,
Combined E-1
APPENDIX F Index of Terms F-i
CONFIDENTIAL
Return
PRELIMINARY CANADIAN OFFERING MEMORANDUM
DATED OCTOBER 18, 2007
(SUBJECT
TO COMPLETION)
This Canadian Offering Memorandum constitutes an offering
o
f
the securities described herein only i
n those jurisdictions
and to those
persons
where and to whom they may be lawfully offered for sale, and only by persons permitted to sell these
securities. This Canadian Offering Memorandum i
s
not, and under no circumstances
i
s to be construed
as,
an advertisement
or a public offering of these securities
i
n Canada. No securities commission or similar authority
in Canada has reviewed or
i
n
any way passed upon this document or the merits ofthese securities, and any representation to the
contrary i
s an offence.
Washington
Mutual Preferred
Funding
Trust IV
Private Placement
i
n Canada of
Trust Securities
THE OFFERING
Washington
Mutual Preferred Funding Trust IV (the Trust) i
s offering Trust Securities of the Trust ( the
Securities), i
n an international offering (the Offering).
In Canada, the
Offering i
s
being
made on a
private placement basis
i
n the provinces of British Columbia, Alberta, Manitoba, Ontario, Qubec and
Prince Edward Island (the Private Placement Provinces) through some of the initial purchasers of the
Offering or their affiliates who are permitted under applicable securities laws or available exemptions to
offer and sell the Securities
i
n those provinces. The Securities have not been nor will they be qualified by
prospectus
for sale to the public under applicable Canadian securities laws and, accordingly, any offer and
sale of the Securities
i
n Canada will be made on a basis which
i
s
exempt from the prospectus
requirements
of those securities laws.
Included i
n this Canadian Offering Memorandum and forming a
part
of
i
t
i
s the full text of the u.S.
offering circular ( the
U. S.
Offering Circular) concerning
the Offering. The definitions in the U. S.
Offering Circular (except as otherwise stated) apply throughout this Canadian
Offering Memorandum..
Where the
U
.
S. Offering Circular remains subject to completion or amendment, this Canadian Offering
Memorandum similarly remains subject to completion or amendment. The Offering i
n the Private
Placement Provinces
i
s
being made
exclusively through this Canadian Offering Memorandum and not
through any
advertisement of the Securities. No
person
has been authorized to give any
information or to
make
any representation
other than those contained in this Canadian Offering Memorandum and
any
decision to purchase
Securities should be based
solely on the information contained in it. All dollar
references
i
n the U. S.
Offering
Circular are to U. S. dollars, unless otherwise indicated.
REPRESENTATIONS AND AGREEMENT BY PURCHASERS
Each purchaser of Securities
i
n Canada will be deemed to have represented to the Trust and the dealer
participating i
n the sale of the Securities that the purchaser:
(
a
)
i
s resident
i
n one of the Private Placement Provinces and
i
s entitled under applicable
provincial securities laws to purchase the Securities withoutthe benefit of a prospectus
qualified under those securities laws and, i
n the case of purchasers i
n
provinces other
than Ontario without the services of a dealer registered pursuant to those securities laws;
(
b
)
i
s
basing its investment decision
solely
on the final version of this Canadian Offering
Memorandum and not on
any other information concerning
the Trust or the
Offering;
(
c
)
has reviewed and acknowledges the terms referred to below under the heading Resale
Restrictions;
CONFIDENTIAL
Return
-2-
(
d
)
i
f
i
n Ontario
i
s
an accredited investor as defined in National Instrument 45-106 ( NI
45- 106),
and
i
s
not an individual unless
purchasing
from a fully registered
dealer within
the
meaning
of Section 204 of the
Regulation to the Securities Act
(Ontario),
and
i
s
not a.
person
created or being
used
solely to purchase or hold securities as an accredited
investor;
(
e
)
i
f in
Quebec,
British Columbia, Alberta, Manitoba or Prince Edward Island
i
s
an
accredited investor
as.
defined
i
n NI 45- 106 and
i
s
not a person
created or being
used
solely to purchase or hold securities as an accredited investor; and
(
f
)
i
s
either
purchasing
Securities as principal
for
i
t
s
own account, or i
s deemed to be
purchasing
Securities for its own account by
virtue of
being
either
(
i
) a trust company or
trust corporation as further described
i
n subsection
(
p
)
of the accredited investor
definition of NI 45- 106; or (
i
i
) a person acting on behalf of a fuily managed account
managed by
that
person
as further described
i
n subsection
(
q
)
of the accredited investor
definition of NI 45- 106.
Each
purchaser
of Securities
i
n
canada hereby agrees
that
i
t
i
s the
purchasers express
wish that all
documents
evidencing or relating
in
any way to the sale
o
f
the Securities be drafted
i
n the
English
language only. Chaque
acheteur au Canada des valeurs mobilires reconnaIt
que c est so volont
expresse que bus les documents
faisant foi ou se rapportant
de
quelque
manire a
I
a
vente des valetirs
mobilires soient rdigs uniquement en anglais.
By purchasing
these
Securities,
the
purchaser acknowledges
that its name and other
specified information,
including the number of Securities
i
t has purchased, may
be disclosed to Canadian securities regulatory
authorities and become available to the public i
requirements
of applicable laws.
The
purchaser consents to the disclosure Of that information.
INDIRECT COLLECTION OF PERSONAL INFORMATION (Ontario Purchasers)
By purchasing these Securities, the purchaser acknowledges that personal information such as the
purchasers name will be delivered to the Ontario Securities Commission ( the OSC) and that such
personal information
i
s
being
collected indirectly
b
y
the OSC under the authority granted to i
t in
securities
legislation
for the
purposes
of the administration and enforcement of the securities legislation of
Ontario.
By purchasing
these Securities, the
purchaser
shall be deemed to have authorized such indirect
collection of
personal
information
b
y the OSC.
Questions
about such indirect collection of
personal
information should be directed to the OSCs Administrative Assistant to the Director of
Corporate
Finance,
Suite
1903, Box 55,
20
Queen
Street
West, Toronto,
Ontario M5H 3S8 or to the
following
telephone
number:
(416)
593- 8086.
RESALE RESTRICTIONS
The distribution of the Securities
i
i
s
being made on a private placement
basis.
Accordingly, any
resale of the Securities must be made:
(
i
) through an appropriately registered
dealer or pursuant to an exemption from the dealer
registration requirements
of
applicable provincial
securities
laws;
and
(
i
i
)
i
n accordance with, or pursuant to an exemption from, the
prospectus
requirements
of
applicable provincial
securities laws. These resale restrictions
may i
n
some circumstances
apply to resales made outside of Canada. Purchasers of Securities are advised to seek legal
advice
prior
to
any
resale of Securities.
CONFIDENTIAL
Return
-3-
RIGHTS OF ACTION (Ontario Purchasers)
Ontario Securities Commission Rule 45- 50 1 provides
that when an offering memorandum, such as this
Canadian Offering Memorandum, i
s delivered to an investor to whom securities are distributed
i
n reliance
upon
the accredited investor
prospectus exemption i
n Section 2.3 of NI 45- 106, the
right
of action
referred to i
n Section 130.1 of the Securities Act
(Ontario)
(
Section 130.1)
will
apply
in
respect
of such
offering memorandum, unless,
the
prospective purchaser i
s
:
(
a
)
a Canadian financial
institution, meaning
either:
(
i
) an association
governed by
the
Cooperative
Credit Associations Act
(Canada) or
a central cooperative credit society for which an order has been made under
section
473(
1
)
of that Act; or
(
i
i
) a bank,
loan
corporation,
trust
company,
trust
corporation,
insurance
company,
treasury branch,,
credit
union,
caisse
populaire,
financial services
corporation, or
league that,
in each
case, i
s authorized
b
y
an enactment of Canada or a
jurisdiction
of Canada to carry on business in Canada or a
jurisdiction j
n
Canada;
(
b
)
a Schedule III
bank, meaning an authorized
foreign
bank named in Schedule Ill of the
Bank Act
(Canada);
(
c
)
The Business
Development
Bank of Canada
incorporated
under the Business
Development
Bank
of
Canada Act
(Canada); or
(
d
)
a subsidiary of
any person
referred to
i
n
paragraphs (
a
)
,
(
b
)
or (c), i
f the
person owns all
of the
voting
securities of the
subsidiary, except
the
voting
securities
required by
law to
be owned
b
y the directors of the
subsidiary.
Section 130.1 provides purchasers who
purchase
securities offered by an offering memorandum with a
statutory right
of action
against
the issuer of securities and any selling securityholder for rescission or
damages i
n the event that the
offering
memorandum or any
amendment to i
t contains a
misrepresentation. Misrepresentation means an untrue statement of a material fact or an omission to
state a material fact that
i
s
required to be stated or that
i
s
necessary to make
any statement not misleading
i
n
light
of the circumstances
i
n which
i
t
was made.
I
n the event that this Canadian
Offering Memorandum, together
with
any
amendment
t
o
i
t
,
i
s delivered to
a prospective purchaser
of Securities
i
n connection with a trade made
i
n reliance on Section 2.3 of NI 45-
106, and this Canadian Offering Memorandum contains a misrepresentation which was a
misrepresentation at the time of
purchase
of the Securities, the
purchaser
will have a statutory right
of
action
against
the Trust for
damages or,
while still the owner of the Securities, for rescission, i
n which
case, i
f the
purchaser
elects to exercise the
right
of rescission, the
purchaser
will have no right
of action
for
damages, provided
that:
(
a
)
no action shall be commenced more than, i
n the case of an action for
rescission,
180
days
after the date of the transaction that gave
rise to the cause of
action; or, i
n the case of
any
other
action,
the earlier of:
(
i
)
180
days
after the
plaintiff
first had
knowledge of the facts
giving
rise to the cause of
action, or (
i
i
) three
years
after the date of the transaction that
gave
rise to the cause of action;
(
b
)
the defendant will not be liable
i
f
i
t
proves
that the
purchaser purchased
the Securities
with
knowledge
of the misrepresentation;
CONFIDENTIAL
Return
-4-
(
c
)
the defendant will not be liable for all or
any portion of the damages that
i
t
proves
do not
represent the
depreciation i
n value of the Securities as a result of the
misrepresentation
relied
upon;
-
(
d
)
in no case will the amount recoverable exceed the
price
at which the Securities were
offered to the purchaser; and
(
e
)
the
statutory right
of action for rescission or damages i
s
i
n addition to and does not
derogate
from
any
other
rights or remedies the
purchaser may
have at law.
This
summary i
s
subject to the
express provisions
of the Securities Act
(Ontario)
and
the. regulations
and
rules thereunder and
you
should refer to such acts for the
complete
text of those
provisions.
ENFORCEMENT OF LEGAL RIGHTS
All of the directors and officers of the Trust as well as
any experts
named in this
document, may
be
located outside of Canada
and, as , a result,
i
t
may
not be
possible
for
purchasers to effect service of
process
within Canada
upon
the Trust or those
persons.
All or a substantial
portion
of the assets of the
Trust and those
persons may
be located outside of Canada and, as a result, i
t
may
not be
possible
to
satisfy
a
judgment against
the Trust or those
persons
in Canada or to enforce a
judgment
obtained in
Canadian courts against
the Trust Or those
persons
outside of Canada.
CANADIAN TAX CONSIDERATIONS
This Canadian
Offering
Memorandum does not address the Canadian tax
consequences
of
ownership
of
the Securities.
of Securities should consult their own tax advisors with
respect to
the Canadian and other tax considerations
applicable
to them
including
with
respect to the
application
of
the
proposed foreign
investment
entity provisions
of the Income Tax Act (Canada) which, i
f
applicable,
may
result
i
n a requirement
to
recognize
income for tax
purposes
even
though no cash distribution or
proceeds
of
disposition
have been received.
CONFIDENTIAL
Return
Front: Rotella, Steve <steve.rotella@wamu.net>
Sent: Saturday, September 20, 2008 6:20 PM
To: Williams, Robert J. <robert.j.williams@wamu.net>
Subject: Fw: Near term liquidity sources
lJh, did we need to use the tip language with the ots.
Sent fiom my BlackBerry Wireless Handheld
..... Original Message .....
From: Freilinger, Peter
To: daryl,duchow@ots.treas.gov <daryl.duchow@ots.treas.gov>; benjamin.fran!din@ots.treas.gov
<benjamin.franklin@ots.treas.gov>; jotm.bisset@ots.treas.gov <john.bisset@ots.treas.gov>;
christopher.rook@ots.treas.gov <christopher.rook@ots,treas.gov>
Cc: Williams, Robert J.; Robinson, John; Rotella, Steve; Bjorklund, Bob
Sent: Sat Sep 20 15:16:14 2008
Subject: Near term liquidity sources
We have $6.2bln in cash as of end of day Friday; $2.6bln in government money market funds, $1.7bln in fed ftmds sold, and
the rest ira agency discount notes. AII of these are readily convertible to dollars.
We have approximately $4 billion in FHLB Seattle capacity. We have had active discussions and believe a!l is readily
available, with $500mm per day being easy and $1bln per day with modest effort.
We have approximately $12bln in FHLB San Francisco capacity, and we have lined up $ lbln for Monday start. Beyond that,
we are concerned that FHLB SF may not extend further advances.
We have $9.2bin in Fed discotmt window access. I believe we will be able to roll ouit existing $2bln discounting on Monday
for a week, but do not believe fresher window advances will be forthcoming until a deal is signed.
We have about $1.5bln in unemcumbered agency passthroughs. Last week that market remained effectively closed, but it
could get better this week. I wouldnt necessarily count on it.
Our forecast for monday has us $I .4bln short, which wed meet by the prearranged SF advance and another $500mm from
Seattle. The rest of the week should see similar reductions each day if we see Fridays activity repeated, and if Seattle
advances $500mm per day, wed get to next weekend with $1.5bln in cash left. Initial indications are that weekend activity is
lighter than Friday, which is great - in that case wed get to Friday with more cash or without needing to necessarily hit the
Seattle FHLB every day.
If outflows reduce, well be good through QE. If they dont or they return to last Weds/Thurs levels, wed probably tip on
Monday Sept 29.
Hope this is clear - let me know what else I can provide.
--Peter
~ \ .~ :~ ,
B995
htt~ s :!!matters.amicillc.com!iomc 16/web/content/~ et oa~ ei228670/native/1 ?isViewer=l 4/1/2009
Restricted Pot Use in Connection with Plan Confirmation Only WMIPG_500002465.00006
From:
Sent:
did we need to use the langu.lge with the ot3.
Sent from my D' ...... "....,,,,,, Wireless Handheld
Cc: Robert . 1\.UUm'''UILI,
2015:16:142008
Near term 1''''Il1(ji,t\! sources
We have $6.2bln in cash as of end
the rest ill agency discount notes. All
vu.,,,,,,u, Bob
$2.6bln in government money market
convertible to dollars.
$1.7bln in fed funds
aplJfOXl!1[1ately $4 billion in FHLB Seattle ,..",.,",",,,,
<l>J'JV'Ulll per easy and $lbln per
We have had active discussions and believe all is
with modest effort.
We have $12bln in FHLB San Francisco "'''J<'' .. ,,.v. and we have lined up $lbln for Mf,nrl"v start.
we are concerned that FHLB SF may not extend further auvarlces.
We have $9.2bln in Fed discount window access. I believe we will be able to roll ouit
for a week, but do not believe f1Uther window advances will be lOrtn{;ol1rung
and
We have about $1.5bln in unemcumbered Last week that market remained euectlve,[v closed, but it
could get better this week. I wouldn't ne,:es:SllJ:lly
Our forecast for has us $l.4bln sbort, which we'd meet SF advance and another $50Ornm from
Seattle. The rest of the week should see similar reductions each and if Seattle
advances $500mm per we'd get to next weekend with $1.5bln indications are that weekend is
than which is great - in that case we'd get to with more c a ~ h or without to hit the
FHLB every
If outflows reduce, we'll be don't or return to last Weds/Thurs we'd or<)bablv on
29.
this is clear let me know what else I can
--Peter
B995
?is Viewer= 1 411i2009
in
Return
Document Not Linked At Request of WMI
Return
Document Not Linked At Request of WMI
Return
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;urrem market anxietv limits access to markets
Strateaic investors "frozen" market and developments
Sufficient liquidity to withstand short-term pressure on depo:sits
insurance
Uninsured consumer deposits
- 20 million customers:
approximately Obn
seeing erosion of customer base
JrrF!ntlv have $20 bn of near-term available liquidity and incremental collateral available to
pledge

September charge-off trends improving for all
Delinauencies showina of
Aaaressive loss itigation and loan modification programs in
New
committed to reauclr and balance sheet size
Proposed stand-alone recapitalization provides alternative approach without intervention
3
Rp"tridprl F'nr II"" in r.nnnpdinn with PI:>n r.nnfirm:>tinn Onlv \l\lMIPr. "innnn1 qcm nnnrn
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Del:lOs;it are down 7% from VA"r-Anrl
- Cost of down costs down 11 Obps
- Retail deposits as a % of assets to 46.6% from 43.8% at 12131/07
143.6
148.3
142.9
" Consumer Noninterest-Bearina
" CD
.. Interest-Bearing Transaction
2Q'08 JulOB Aug 'DB 9/19
Retail Cost of Deposits 2.82% 2.23% 2.00% 209
CD Cost of 4.56 3.94 3.37 3.46
CD as % of Total 34.4 29.1 29.7 32.3 35.8
------------ -------
Retail DeD as % of Total Assets 43.8 47.9 45.0 46.6
4
Rp"tri/Olprl For I J"P in r.nnnpr:tinn with PI"n r.nnfirm::.tinn On Iv \I\II\IJ J pr. <;nnnn HIAn nnn04
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delJOS;it base more stable before IndyMac
- Mix of accounts from July 11th - shifting to lower balance mix.
$500K
- Accounts over exoerienced almost the decrease of accounts $1
:ouonlv two-thirds of over last several from uninsured depo:sits
Balance> $100K for
$24.0
07111/08 08/01/08 08129108 09/12108
R.,,,trid.,ri Fnr II"" in f':nnnpdinn with PI"n f':nnfirm"tinn Onl"
98% of accounts are under
09/19/08
vs.45%)
II
+
OOK-
75% Decrease
since 07/11
45% Decrease
since 07/11
5
INMIPf': Finnnn1 qqn nnnnFi
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DENTIAL
i
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I
In 1% of all balance HH's ended their WaMu relatinn"hin
14% withdrew more but kept their rc!latinn"hin
- As of 9/11 41 % of these customers back$10K+
Balance
/ Actions between 7125 and 9111
Total
Households (>$100kl Total HHLDs %ofTolal HHLDs %ofTotal
/
HHLDs end ina WaMu
5,594 1.7%
/
I
Back $10k-$100k
$100k+ but
,
44,760 13,7
(
\ Brought Back $10k+ 14,0 41
All Other 275,189 84.5
\ 1 Other
20.2 59
\1 TOTAL 34.2K 100%
TOTAL 325,543 100,0%
6
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WaMu demonstrated the to raise DOst-lndvMac
$2.00
$1.00
___
7/15 -
7/14- _--,- _______ _
'"
"3
35% to $3.23

"'-
""
no
E'2 Ii'
8/29 last day a' first S%
CD ptOl't'llC'Jbo.n,
one-dIIIy irn:reas.e
$1.38
9/5 - Rrst day 0( second
5% CO prorrto!;i.on
9/10 - WaMu shares declines
30'% to $2.32
WaMu Share Price
___________________ 0 ______ _
:nil n4
9/17 - Will"lu
"",,,,,,,
9/15 - LehlTIiln flie:! for for wle
W<lMu shares
to $2,0{)
7/11 7/14 7/17 7/20 7/13 7/] 7/29 8/1 8/4 8{7 8/10 8/13 8/16 8/19 8/22 8/25 8/28 8/31 9/3 9/6 9/9 9/12 9/15 9/18
7
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Total Residential Mortgage 30 89

$!\,J(JO ____ _

'l'l.J(lO
/Ul/' /
PLw
_ l

I

$O,;roo
---n----n------
.1t1t1t1t1bntu,uu,U,u_,1 II II II II II
$1,J(lO _

"II'" & &.' jP'.;> jP lif .;Ifi -.j" $ df .;,# <I' ,.i' ,,@ #' #' ,i' ,.t'
Sub prime 30 89 nlPlin,
l_a

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Prime Loans 30 - 89

-----

Ji;;;_00IJ ___ ____ ______________________ ____ ,..,

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to._U_._LJ ___ U __LLJ I !! I! t I [I !! I I !! j 1 !! !! !! !! !! I I g_
<to 1- ,;. r>' :/' ,<$ <1 e d" if' ;t !P
,.". ,'- -,-S }f .,.f' ..," ci' ,;!o' <I' j/I' \J' $' ,$ ,f "t ,.fo
Home Equity Loans 30 - 89 Day n,,'I,
!l,NJ
1
1'''"" "=:=' "'-<'-' ,..i>--'. _. __ /,P'_.W'/>,,,,,,
"' ,. /f nH Jl H]llu f1 '"
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....,..-
$-!IX, $--." --.

Jllill
' .
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"""
'"
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These statistics are not adjusted for the effects of loan modification programs that result In Troubled Debt Restructuring (TOR) classifications of loans as non-
Derformino_ By skipping some loans forward to that later-stage, non-performing status, such activITY can reduce the amounts recorded as early-stage
8
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Return
Downstream cash from holding company to bank
Conversion of REIT Preferred to Holding Company Preferred frees up pledge-able collateral
Restructuring of bank and holdoo debt with lower notional and I or preferred instruments
Sale of loans to reduce risk and enhance liquidity
Additionalliquiditv sourced throuah collateral initiatives
._--
Same actions as
Sale of East coast I deposit franchise with selected assets
$500mm to bn investment sourced from with additional pos,slble from
other investors
Potential to source liquidity from acquiror to lost deposits
Same actions as
secured loan
receives

Washinaton Mutual sells significant portion of risk assets to new
Recent indications pricing will be based on intrinsic value of assets
Resulting pro forma company has capital, significant liquidity and would be very
attractive for potential acauirors
10
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1) I
Downstream
Cash
I
II Downstream
$4bn of cash
WM8
I I
WMlto
Conversion of RE!T III REIT Preferred converts to Collateral
Preferred Holding Company preferred
with occurrence of exchange
event
Bank Liq'Jidily Bank Callilal
Common EquITY + $4bn
$600
Debt I Preferred
Restructuring
II Public tender to exchange Reduced debt $1.5bn Preferred Stock + S10bn
Asset
Sale
Total
existing debt/preferred into maturiiies
more subordinated Of reduced
notional securities
II Given capita! generation from Cash
orevious strategies, seH high
loans J NPLs to reduce
overall portfolio exposure
II Restructured
an
a
more focused business model,
and a de-risked portfolio
RA<::tridArl For II<:A in r.onnpdinn with PI",n r.nnfirm"tinn nnl\l
in 2009 maturities
$5-10bn Depending on price Uke!y negative
$13-$18bn Up to $14 bn
12
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III Public exchanae offer to holders of debt and preferred
2 weeks to document
4 weeks business to execute
III Holders offered an exchanoe for a reduced notional value of preferred stock
III Holders also granted common stock a significant portion of the company
- Shares allocated proportional to discount surrendered holder

Offer contingent on 80% success rate
New
Security Restructure Estimated Notional Preferred
Haidee Subdebt Haldeo Preferred 25 80 % $1,299 $325
Haidee Senior Holdeo Preferred 30 80 3,297 989
Bank Subdebt Bank Preferred 35 80 4,520 1,582
Bank Senior Bank Preferred 50 80 6,452 3,226
REIT Preferred Haldeo Preferred 20 80 3,200 640
WM INCDRD Haldeo Preferred 20 80 400 80
WM INC Convertible Pref Haldeo Preferred 20 80 2,400 480
WM INC PIERS Haldeo Preferred 20 80
T etal Potential $22,168 $7,442
r. Does oollnclilde impact of remaining REfT pmferreds exchanged into holdco prere/7'ed or dlscoont to par teafi7ed by DRD and converlib/e prefem3d hoiders.
2 Represents common stock granted to holders pm rat.1 fl<1sed on discoont to par accepted In exchange.
Rp"trid"rl For II"" in r.onnpdinn with PI,'ln r.nnfirm",tion nnlv
Net Common
Common Shares
$633 86
1,500 204
1,910 259
2,097 285
2,560 226
320 28
1,920 170
$11,420 1,301
13
IIIIMIPr. "iOOnOHlqn noon
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::ash & In","",1'T1er:s
Net cf Reserves
Other Assets
T olal Assets
"''''''',
Other Oorrowings
fHLB
0:her
EqJfty
('..ash & nYe5lments
Loans Ne': of Riffie'ves
GoodWill
Ot:Jf {1'1v&1r:'1errlln Subs
Total Assets
Other
Other liabilities

;::treferred
Equty
R InYE>S1r:'1e'1ts
Net rff Re$ef\/l;;S
Ot'1er Assets
Assets
E:quty
I
I

08/31108
S

7,284
34,-50$
S 307,007
$ 174,894
31,911
68,420
3,914
3,138
s
S 301,OG7
iDownstMam
WMICash
so
so
s-j
VIIMI lI"re1'errnd
so
so
(2,240)
2,240
so
Consolidated WaMu
COft'M>liid;l(e-d
T I!!:r 1 Ll!'lvl!'lr<ll\jle
T er 1 RstiG
""" Tier L.everage
Tier
WMBOebt
$5----- SO
(5,196) (10,972)
(3,912)
HoIdco(WM1)
5(4,000) $ 1,36:)

o 0
27.470 4,000 3912 35382
$ 32_597 '$ ;) $ 0 $3-,912"- SO S J6 ana
,
1,352
'111MB Con-wiidatJe<:j
$
229,733
7,28-4
37,574
S 3[Y-,924 $ 4,008 - - - lS'j-- $ 8 S C SO - - -S 31",)8,924
S 179,636 S 179,838
25,556 (10,972) 14,584
68,420
(3_912) 0
0
7,912
$'3,fn2
$(5,196)
1,149
7,414
-$3-if12
ctHill19f!
${COO'
$ 4,Q')O
(10,972)
(3,912)

$(1'2,726)
4,800

$ 4,000
14
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Downstream Cash
from Holding
Company
Conversfon of REIT
Preferred to Haldeo
Preferred
Debt f Preferred
Restructuring
Non-Performing Loan
Sale
Other Asset Sale
j Roducfion of debt matw1tfes in 6 }t'I8rs
+ .. .., ~ ....
I
Immediate
Rp<:lrir:tArl Fnr II"", in r.nnnpr:tinn with PI::m r.nnfirm"tinn nnlv
30 Days 60 Days
Bank Bank
S4
$6
$10' $13
$6
Sl2J
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1) I I
Securities j Other Earning Assets
Total Loans
Alll
GoodlN'lll and Intangibles
Other Assets
Total Assets
Uabilities
Standalone
$ 29,738
238,807
(9,050)
7,604
39,908
$ 307,007
Debt
NPl-Sale
(15,000)
6000
(3,306) 1,050
$(3,30S) , __ $(1,9501
Pro-Forma
$ 29,738
223,007
(3,050)
7,604
37,652
$ 303,701
Deposits $ 174,894 $ 174,894
Public Debt 20,610 (16,168) 4,442
Govemmerrl lend'mg Facility 0 0
Borrowed Funds 79,121 (6,000) 73,721
other Liabilities 3,138 3,138
Shareholder's Equity
Preferred Stock
Common Equity
AOCI
Tota! Shareholder's Eql!!t)'
Tangible Common Equity
Key Ratios:
TEiTA
TeE ITA
Tier 1 Rae
Tier 1 Leverage Ratio
Total R8G
TBVPS
Ending Shares Outstanding
Exce to Well 1 RBC
2
$ 3,392 $ 5,353 $ 8,745
23,021 11,420 (1,950) 32,491
(1,683)(1,683)
$ 24,730 $ 18,773 $(1,950) $ 39,553
$ 15,417 $ 11,420 $(1,950) $ 24,887
7.59% 443 bps -46 bps 11.36 %
5.15 391 -53 8.41
9.11 535 -81 14.32
7,47 422 -54 11,06
1368 268 -81 t6.32
9.07 $(0.11 ) $(115) 8.31
1.699 2,994
-
16
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18.00 %
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12.00 %
9.00 %
9.11 % 9JJ(J % 8.92 % 8.82 % 8,74 % 8.53 % ~ L 5 1 % 8.25 % 824 % 8.20 %
6.00 %
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PfIW COF Nee JPM \,\1M SOV 001 HBAN C KEY ATB Me lNFC PNC we IMI MTB RF 511 ZION CMA
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11.00% 944%10.3.3% 6"'3% 7.47% 8.34% 7,1]% 7.58% 5.04% 9.34% 9.00% 6.09% 7.3-5% 725% 6.57% 7.34% 710% 6.78% 7,54% 7.20% 8.53%
LB\-'II!h1il9O
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WM FITS WB Nee HBAN STI MI RF C KEY CMA ZION MTB BAC 8BT WFC PNC JPM sov COF PF
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Downstream II! Downstream approximately Common Equity ,., $4bn
Cash $4bn of cash from WMI to
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Conversion of REIT
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Preferred Holding
with occurrence
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Debt I Preferred
"
Public tender to exchange Reduced debt $105bn Preferred Stock ,.., $tObn
Restructuring existing debt/preferred into maturrties in 2009 maturities
more subordinated or reduced
notional securities
Asset
"
Given capital generation from Cash $5-10bn Depending on price Likely negative
Sale previous strateoies, sell high
to reduce
overall
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"
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"
Assumption of -$30bn Reduced Footings $1 o5bn - $200bn
Branches $30bn of depOSITS and 12431 deposits
Premium Paid S2bn
l1li Asset transfer + 270n
"
Premium paid + 3bn
"
Current discussions with
II Lost borroVlfing - [5]bn
Toronto Dominion
Strategic II Investment of $500mm of Cash $SOOmm - $ tbn Preferred Stock $SOOmm $1bn
Investors bank level preferred stock by
East Coast
II Ruver of East Coast branches Line of Credit $Sbn None None
into a $Sbn [t8] month
secured lending facility
Total $14-$190n Up to $19bn
19
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CO'nsQlidated Balance Sheet
Assets
Securities f Other Earning Assets
Total Loans
ALLL
Goodwill and Intangibles
Liabilities
Standalone
31-Aug..{)8
:$ 29,738
238,807
(9,OSO)
7,604
Debt
Restructuring NPL Sale
Branch
Sale
$(27,792)
o
Pro-forma
31 .A,ug..oo
$ 1,946
223,007
(3,050)
7,004
D e p o s ~ $ 174,894 $(30,880) $ 144,014
Public Debt 20,610 (16,168) 4,442
Government Lending Facility 0 0
Borrowed Funds 79,721 (6,OOO) 73,n1
Other Liabilities 3,138 3,138
Preferrod Slock
Common Equity
$ 3,392 $ 5,353 $ 8,745
23.021 11,420 (1,950) 2,007 34,498
Tangible Common Equity $ 15,417 $11,420 $(1,950) $ 2,007 $ 26,894
Key RatIOS; Impact to standalone RatiO's
TEtrA 7.59% 443 bps -46 bpS 155 13.34%
TeE I TA 5.15 391 -53 129 11106
Tier1RBC 911 535 ..-81 165 15.68
Tier 1 Ullwrage Ralio 7.47 422 -54 105 12.28
Total RBC 13.68 268 -81 20J 11-73
TBVPS 9.07 $(0.11) $(1.15) $ 118 8.:00
Ending Shares Owtstarn:ling 1.699 2,994
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Securities I Other Earning Assets
Total Loans
ALLL
Goodwill and Intangibles
Uabmties
Standalone
$ 29,738
238,807
(9,050)
7,604
i
!lebt Government Pro-forma
$ 29,738
238,807
(9,050)
7,604
Deposits $ 174,894 $ 174,894
Public Deb'! 20,610 (16,168) 4,442
Govemment lending Facility 0 20,000 20,000
Borrowed Funds 79,721 (20,000) 59,721
Preferred Stock
Common EquHy
AOCI
Total Shareholder's Equity
Tangible Common Equity
Key Ratios:
TEITA
TeE ITA
Tier 1 ReC
Tier 1 Leverage Ratio
Total RBC
TBVPS
2
$3,392 $5,353 $8,745
23,021 11,420 34,441
(1 ,683) (1,68:31
'-$ 16,n3 $ 41,503
$ 15,417 $11,420 $0 $ 26,837
7_59 % 443 bps 0 1202 %
5.15 391 0 9.06
9.11 535 0 14.46
747 422 0 11.69
13.68 268 0 1636
9.07 $(0.11 ) $(7,94) 1.79
< =0
Ending Shares Outstanding ,,. ......... ~ 14,970
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Securities I Other Earning Ass.ets
Total loans
AlLL
Good\'ViIJ and Jntmgibles
Other Assets
Tota! Assets
liabilities

$ 29,738
238,807
(9,050)
7,604
39,908
$ 301,001
FI
Debt
Loan Sale
(60,000)
3,600
(3,3()6) 3,990
-
Pro-Forma
$ 50,038
158,507
(5,450)
7,604
40,592
$ 251)291
Deposits $ 174,894 $ 174,894
Debt 20,610 (16,168) 4,442
Govemment lending Facility 0 0
Borrowed Funds 79,721 (45,000) 34,721
Preferred Stock $ 3,392
Common Equity 23,021
AOel (1,683)
$ 5,353
11,420 (7,410)
Total Shareholdor's EqullJl $ 24,130 _$(1,410)
Tangible Common Equity $ 15,417 511,420 $(7,410)
Key Ratios: Ratios
TEITA 7.59 % 443 bps
TeE ITA 515 391
Tier 1 RBC 9,11 535
Tier 1 leverage Ratio 7.47 422
Total RBC 13,68 268
TBVPS 9D7 $(0,11)
Ending Shares Outstanding 1,699
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$ 34,093
$ 19,427
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17.39
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2,994
$ 16,325
INMIPr. e;OOnOH1>:lO nOn?')
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30+ Days Past Due
Total Prime ARM
Home -1st lien
30+ Days Past Due
Total Home Equity - 151 Uen
Home 2nd Lien
30+ Days Past Due
Total Home Equity - 2nd lien
Option ARMs
Performing
30+ Days Past Due
Total Option ARMs
Multi-Family
Performing
Due
30+ Days Past Due
Total Subprime
CredN Card I Other Consumer
Performing
30+ Days Past Due
Total Credit Card I Other Consumer
O1her Real Estate I Commercial
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30+ Days Past Due
Total Other Real Esta1e J Commercial
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30+ Days Past Due
Total
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$ 49,366 $ 11.483
$33,412 $0 $ 33.412
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$ 12,785 $0 $ 12,785
$ 14,494 $0 $ 14,494
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LlqUiOlty manageable if provided with against eligible collateral and expressions of suppon
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1
From: Alun
W
.
Griffiths [ mailto:agriffiths@ ssbb. com]
Sent: Monday, February 22, 2010
5
:
1
6
PM
To: Evan Parness
Cc: Joshua Rubins
Subject: WaMu Bankruptcy
-
-
Letter Agreement
w
/
Moody's
Evan
-
-
I am producing herewith documents we have located which are responsive
t
o the parties' letter agreement. Please note
that the documents are marked " Moody's Confidential Information 001" through " Moody's Confidential Information 043."
I would like
t
o have a quick conference call with you
a
t
some point later this week
-
-
I should
b
e
generally available
o
n
Thurs. and Fri.
o
f
this week,
i
f some time
o
n
either
o
f
those days works
f
o
r
you.
Thanks
-
-
<
<
Moody's Confidential Information 001- 043. pdf>>
Very truly yours,
Alun
W
.
Griffiths
Satterlee Stephens Burke & Burke
230 Park Avenue, Suite 1101
New York,
N
.
Y
.
10169
(212) 404- 8747
----------------------------------------------------------------------------------------
The information contained
i
n this communication and any attachment thereto
i
s intended
t
o
b
e
confidential and
f
o
r
the use
o
f
only the individual
o
r
entity named above.
I
f the reader
o
f
this message
i
s not the intended recipient, you are hereby
notified that any retention, dissemination, distribution
o
r
copying
o
f
this communication
i
s strictly prohibited.
I
f you have
received this communication
i
n error, please immediately notify
u
s
b
y
telephone, return the original message
t
o
u
s
and
destroy any copies. Thank you.
CONFIDENTIAL
Return
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Return
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Return
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1
From: Alun
W
.
Griffiths [ mailto:agriffiths@ ssbb. com]
Sent: Monday, February 22, 2010
5
:
1
6
PM
To: Evan Parness
Cc: Joshua Rubins
Subject: WaMu Bankruptcy
-
-
Letter Agreement
w
/
Moody's
Evan
-
-
I am producing herewith documents we have located which are responsive
t
o the parties' letter agreement. Please note
that the documents are marked " Moody's Confidential Information 001" through " Moody's Confidential Information 043."
I would like
t
o have a quick conference call with you
a
t
some point later this week
-
-
I should
b
e
generally available
o
n
Thurs. and Fri.
o
f
this week,
i
f some time
o
n
either
o
f
those days works
f
o
r
you.
Thanks
-
-
<
<
Moody's Confidential Information 001- 043. pdf>>
Very truly yours,
Alun
W
.
Griffiths
Satterlee Stephens Burke & Burke
230 Park Avenue, Suite 1101
New York,
N
.
Y
.
10169
(212) 404- 8747
----------------------------------------------------------------------------------------
The information contained
i
n this communication and any attachment thereto
i
s intended
t
o
b
e
confidential and
f
o
r
the use
o
f
only the individual
o
r
entity named above.
I
f the reader
o
f
this message
i
s not the intended recipient, you are hereby
notified that any retention, dissemination, distribution
o
r
copying
o
f
this communication
i
s strictly prohibited.
I
f you have
received this communication
i
n error, please immediately notify
u
s
b
y
telephone, return the original message
t
o
u
s
and
destroy any copies. Thank you.
CONFIDENTIAL
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Return
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Return
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Return
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CONFIDENTIAL
Return
CONFIDENTIAL JPMCD_000004963.00001
HIGHLY CONFIDENTIAL
Confidential Treabnent Reque$ted
OFFICE OF THRIFT SUPERVISION
OMS No. 15500077
Expiration Date: 1213112003 .
Docket Number: 08551
NOTICE FOR ESTABLISHMENTOF AN OPERATING SUBSIDIARY
TO; Office ofThrlft Supervision Date of'Notice: lanuary 30,2006
We, the undersigned executive officer Md secretary, pursuant to a resolution of a. majority of the members of the board
directors, of: .
Washington Mutual Bank
Savings Institution. Name
2273 North Green yaIley PkwV
Street Address
Henderson. NY 89014
City. State, and Zip Code
(hereioaller the "Institution"), hereby provides notice to the Office of Thrift Supervision ("OTS"') that the Institution
intends to establiSh Washington Mutual Preferred Funding LLC (the "Operating Subsidiary") as an operating subsidiary, to
engage in the activities set forth on the attachment hereto pursuant to 12 C.F.R. 559.3. which .will operate in the State set forth
on the attacllment hereto, and do hereby certify that, giving effect to the proposed acquisition of the subsidiary:
1. The Opera.t.ing Subsidiary wiUengage only in activities that Federal savings. llSSociations .may undel'Ulke
directly;
2. That lIle Institutil'ln will own, indirectly, 100% of the common or voting membership interests of the
Operating Subsidiary; .
3. That no person or entity other than the Institutil'ln will exercise effective operating control over the Operating
Subsidiary;
4. That the Institution and the Operati.ng Subsidiary will observe separate corporate existence and comply fully
with 12 C.F.R. 559.10;
S. That the Operating Subsidiary will be subject tl'l OTS examination and superviSion in accordance with 12
C.F.R. SS9.3(o)(1);
6. That the Institution has notified the FOlC, pursuant to 12 U.S.C. 1828(m)(I), of the acquisition of the
Operating Subsidiary and has attached a copy of the FDIC notificatil'ln under 12 C.F.R. 303.146; and
7. That the Institution is aware that 018 may request lnfonnadon I'lr may impose conditil'lns for establishing
operating subsidiaries, and may determine that the proposed subsidiary presents supervisory concerns.
The Operating Subsidiary is not contracting with a third-patty to provide, on behalf of the Operating Subsidiary,
primary services that the Operating Subsidiary offers to the public; and, therefore, no such contract with the third-party provider
is attached.
Mike Brandebeny, Senior Vice President
ers Form 1579
RevIsed April 2001
127416.8
William L. Lynch, Secreta.ty
Date of Recoipt by OTS
WMI-TPS 701359838.00001
Return
HIGHLY CONFIDENTIAL
Confidential Treatment Requested
Attachment to OTS Form 1579
filed by
Washington Mutual Bank,
Washington Mutual Bank (the "Association") proposes to establish a new operating
subsidiary to be named Washington Mutual Preferred Funding LLC (the "New Operating
Subsidiary"), which will be authorized to issue preferred securities eligible to be Included in the
core capital of the Association (the "Transaction"). As of the date of this submission, the
Association anticipates raising, on a consolidated basis, not more than $1.5 billion in connection.
with the initial Transaction. The Association hereby undertakes to notify the OTS if any
amounts in excess of $1.5 billion will be raised. The New Operating Subsidiary will be formed
as a limited liability company organized under the laws of the State of Delaware, and will issue
to the Association fixed rate and variable rate preferred securities as described more fully
herein. The New Operating Subsidiary will issue a limited amount of such securities to the
Association in exchange for a corresponding amount of consumer loan assets (or interests
thereon). The New Operating Subsidiary will be a direct subsidiary of University Street, Inc.
("REIT"). REIT qualifies asa real estate investment trust for federal income tax purposes and
is a subsidiary of Marion Holdings, Inc. ,Mario.,"). Both Mario.n and REIT are operating"
subsidiaries of the Association. .
The following is a summary of the various asset transfers and securities issuances
(some of which are described below in more detail) that are expected to occur In anticipation of,
or in connection with, the Transaction:
1. The Association will contribute to the New Operating Subsidiary consumer loan
assets (or interests thereon) in exchange for a corresponding amount of the LLC
Preferred Securities (defined below);
2. REIT will contribute to the New Operating Subsidiary adcjitional consumer loan
assets (or interests thereon) in exchange for all of the common, or voting,
mel!lbership interests of the New Operating Subsidiary; and
3. The New Operating Subsidiary wiJI contribute to the Asset Trust (defined below)
all of the consumer loan assets (or interests thereon) it received from each of the
Association and REIT;
4. The Association will sell to Delaware Issuer for cash the LLC Variable Rate'
Preferred Securities (defined below);
5. The Association will sell to Cayman Co. for cash the LLC .Fixed Rate Preferred
Securities.(defined below);
6. Each of Delaware Issuer and Cayman Co. will offer securities to investors as
described more specifically below,
The New Operating Subsidiary will :satisfy all other requirements applicable to operating
subSidiaries set forth in 12 C.F.R. 559.3. As required by 12 C.F:R. 559.3(c), the
Association, through its ownership of Marion and REIT, will own 100% of the voting
membership interests of Delaware LLC.
127416.8
.. '.",
WMI-TPS 701359838.00002
Return
HIGHLY CONFIDENTIAL
The New Operating Subsidiary will be managed by a Board of Managers, at least one
member of which will be an individual that is not affiliated with the Association or any of its,
subsidiaries. Pursuant to its operating agreement, the New Operating Subsidiary will voluntarily
agree to refrain from taking certain actions without the consent of at least two-thirds of the
holders of the LLC Preferred Securities, acting as a single class
1
Otherwise, action by the
Board will be by majority vote. The primary assets of the New Operating Subsidiary will be
comprised of certificates representing an undivided, 100% ownership interest in the regular and
residual interests i s s u e ~ by the Asset Trust upon its receipt of the Asset Trust Assets (defined
below).
Three additional entities will b.e formed in connection with the Transaction; however,
they will not be "subsidiaries of the Association for purposes of the notice requirement set forth
in 12 CFR 559.11. Nevertheless, because these entities will be used to facilitate the
Transaction, a description of these entities is included here for your reference.
1. Washington Mutual Home Equity Trust 1(" Asset Trusf), a trust formed under the laws
of the State of Delaware pursuant to a trust agreement between Delaware LLC, as
depositor, and a trustee, unaffiliated with the Association, as Delaware Trustee, Asset
Trustwill own apprOximately $5.2 billion of first lien, closed-end, home equity loans (the
UAsset Trust Assets") acquired from the Association, -the New OPE'rating Subsidiary
and from REIT, any property that secured a.consumer loan that the Asset Trust
acquires by foreclosure or deed in lieu of foreclosure. as well as other assets authorized
for federal savings associations under federal law.
2. Washington Mutual Preferred Funding Trust I, a trust formed under the laws of the State
of Delaware ("Delaware Issuer"), will own all of the LLC Variable Rate Preferred
Securities (defined below)" The LlC Variable. Rate Preferred Securities will be the sole
asset of the Delaware Issuer. The Delaware Issuer will issue Delaware Issuer
Securities (defined below). solely to U.S. persons who are "qualifiedinstitutioral buyers"
(within the meaning of Rule 144A under the Securities Act of 1933, as amended
("Securities Act") w h ~ are also "qualified purchasers" (within the meaning of the
Investment Company act of 1940 ("Investment Company Acf in a transaction
exempt from the registration requirements of the Securities Act pursuant to Rule 144A
thereunder.
3. Washington Mutual Preferred Funding (Cayman) I Ltd., a company with limited liability
organized under the laws of the Cayman Islands ("Cayman Co. -), will own all of the LLC
Fixed Rate Preferred Securities (defined below). Cayman Co. Will not have any material
assets other than the LlC Fixed Rate Preferred Securities. Cayman Co. will issue
Cayman Co. Fixed Rate Preferred SecuritieS (described below) (i) primarily to "non-US
. persons (within the meaning of Regulation S under the Securities Act), and (ii) to US
persons who are (A) -qualified institutional buyers
w
(within the meaning of Rule 144A)
1 Actions subject to this two-thirds approval requirement include: a merger or consolidation of the New
Operating Subsidiary; the iSsuance by the New Operating Subsidiary of any senior securities: a waiver of
compliance with applicable financial covenants; and certain amendments'to the New Operating
Subsidiary'S organizational documents. These actions would materially and adversely affect the rights of
the holders of the LLC Preferred Securities ordirectly relate to the New Operating Subsidiary's ability to
pay its obligations vis.-&-'lis such holders. /los the holder of all voting membership interests in the New
Operating Subsidiary, REIT (the Association's subsidiary) will have effective control of the dayto-day
operations oltha New Operating Subsidiary. The OTS has recognized that preferred securities containing
similar rights dO not constitute voting stock. See 12 C.F.R. 567.2(u)(2)(i). No other party will have such
control.
2
WMI-TPS 701359838.00003
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> < . ~ ~ . :
HIGHLY CONFIDENTIAL
and (B) "qualified purchasers- (within the meaning of the Investment Company Act), in
a transaction exempt from the registration requirements of the'Securities Act pursuant to
Regulation S and Rule 144A, respectively. A Cayman charitable trust will own 1000Al of
the common equity of Cayman Co. The board of directors of Cayman Co. will consist of
five directors. One employee of the Association will serve as a director of Cayman Co.;
three directors will be appointed by such Cayman charitable trust; and the independent
director of Delaware LLC also will serve as the independent director of Cayman Co.
The New Operating Subsidiary will issue two classes of preferred securities (collectively
the "LLC Preferred Securities"):
a. Class A-1 Perpetual Non-Cumulative Preferred Securities (-LLC Fixed Rate Preferred
Securities"), which will have a stated amount to be determined based upon market
conditions and will pay distributions on a non-cumulative basis at a fixed rate. The LLC
Fixed Rate Preferred Securities will be issued to the Association, which will then sell
them to Cayman Co.
b. Class A-2 Perpetual Non-Cumulative Preferred Securities rLLC Variable Rate
Preferred Securities") will have a stated amount to be determined based upon market
conditions and will pay distributions on a non...cumulative basis at a fIXed rate for a
period to be determined, and thereafter will pay distributions based on a variable rate of
interest plus an applicable spread. The LLC Variable Rate Preferred Securities will be
issued to the Association, which will then sell them to Delaware Issuer.
It is anticipated that the interest rate applicable to each of the LLC Fixed Rate Preferred
Securities and the LLC Variable Rate Preferred Securities will be lower than the rate of interest
currently paid by the Association's parent, Washington Mutual, Inc. (the -Holding Company"),
on certain trust preferred securities previously sold to investors by the Holding Company.
In addition, the Holding Company will make a declaration of covenant in favor of certain holders
of the Holding Company's publicly issued debt (as well as the Cayman Co. Preferred Securities
and the Delaware Issuer Securities) that it will not permit the New Operating Subsidiary to
redeem, in the case of the LLC Preferred Securities, and will not itself redeem, in the case of
Holding Company Shares (defined below), upon a Conditional Exchange (as defined below),
except out of the net proceeds of (x) common stock issuedby the Holding Company, (y) non-
cumulative perpetual preferred stock issued by the Holding Company or the Association
satisfying certain requirements to be agreed upon with the rating agencies, or (z) certain other
qualifying equity or debt securities issued by the Holding Company or one of its subsidiaries, in
each case during the 180 days prior to the redemption date applicable to the LLC Preferred
Securities'or Holding Company Shares, as applicable; provided, however that if the Holding
Company issues common stock in connection with any redemption of the Holding Company
Shares, Cayman Co. Preferred Securities or Delaware Issuer Securities, then the Holding
Company will only have to issue common stock in an amount equal to 75% of the amount of
securities so redeemed. '
This Notice also constitutes a notice of the issuance of securities by a subsidiary pursuant to
12 C.F.R. 559.12(b).
In turn, Cayman Co. and Oelaware Issuer will issue the following securities:
i. Cayman Co. will issue t w ~ classes of securities:
3
WMI-TPS 701359838.00004
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HIGHLY CONFIDENTIAL
A Cayman Co. Ordinary Shares to a Cayman charitable trust for $1,000 (the
uOrdinary Shares").
B. Perpetual Exchangeable Non-cumulative Preferred Securities ("Cayman Co.
Preferred Securities"). The financial entitlements of the Cayman Co. Preferred
Securities will be substantially the same as the financial entitlements of the LLC
Fixed Rate Preferred Securities held by Cayman Co., with the consequence that
dividends and the redemption price on each Cayman Co. Preferred Security are
expected to be paid on the same dates and in the same amounts as the
corresponding dividends or redemption price, as applicable, on the llC Fixed
Rate Preferred Securities.
ii. Delaware Issuer will issue a single class of securities, the Perpetual Exchangeable
cumulative Trust Securities ("Delaware Issuer Securities) which will represent
undivided benefiCial ownership interests in the lLC Variable Rate Preferred Securities
held by the Delaware Issuer. The Delaware Issuer will pass.;through any distributions or
payments upon redemption or upon liquidation with respect to the LLC Variable Rate
Preferred Securities to be holders of the Delaware Issuer Securities.
Accordir:lg to the terms of the Cayman Co. Preferred Securities and the Delaware Issuer
Securities, upon the occurrence of a Supervisory Event', the Cayman Co. Preferred Securities
and the Delaware Issuer Securities will (at the direction of the OTS) each automatically be
exchanged for a corresponding amount of depositary shares (the -Holding Company Shares")
repre.senting a fractional interest in preferred stock of the Holding Company? The Holding
Company Shares will (i) generally have the same terms as the respective LLC Preferred
Securities, (ii) upon issuance, rank at least pari passu with the most senior preferred stock of
the Holding Company, if any, then outstanding, (iii) pay dividends (based on a fixed or variable
coupon, as the case may be) if, when, and as declared by the Holding Company's board of
directors, (iv) be non-cumulative and and (v) be redeemable on the same terms as
the LLC Preferred Securities; provided, however, that certain redemption events tied to
changes in tax law and the regulation of investment companies that are applicable to the LLC
Preferred Securities will not be applicable with respect to the redemption of Holding Company
Shares.
For purposes of the above discussion,. Supervlsory Evenf means:
a. the Association becomes "undercapitalized- under the OTS corrective action
n
regulations, as defined in 12 C.F.R. 565.4(b)(3);
b. the Association is placed Into bankruptcy, reorganization, conservator!ahip or
receivership; or
c. the CTS, in its sole discretion, (i) anticipates that the Association may become
undercapitalized in the near term or (ii) takes supervisory action that limits the payment of
2 During the first five-year period, the LLC Preferred Securities may. subject to approval by the OlS. be
redeemed by Delaware LLC (which will automatically cause a redemption of the related Cayman Co.
Preferred Securities and Delaware Issuer Securities) if there is a change in the law regarding the tax,
investment company or regulatory capital treatment of the LLC Preferred Securities. Thereafter; they may
be redeemed with .the prior approval of the OlS. lhese conditions do not include a detennination that the
ASSOCiation is either insolvent or placed into receivership.
4
WMI-TPS 701359838.00005
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HIGHLY CONFIDENTIAL
distributions or dividends, as applicable by the Delaware LLC or the Association, and in
connection therewith, directs such exchange.
The foregoing provision is not subject to the restriction imposed by 12 C.F.R. 559.12{a),
which states that "[a] subsidiary may not issue any sec4rity the payment,' maturity or redemption
of which may be accelerated upon the condition that [the parent savings association is1
insolvent or [has] been placed into receivership. The LLC Preferred Securities will not be paid,
mature or be redeemed as a result of the exchange described above and the capital treatment
of the LLC Preferred Securities (see below) will remain the same. The Cayman Co. Preferred
Securities and the Delaware Issuer S:ecurities are not issued by. a subsidiary of the Association
and hence are not subject to the limitation of the above cited regulation.
Confirmation of Capital Treatment. The Association respectfully requests that the OTS confirm
that the sale of the Cayman Co. Preferred Securities and the Delaware Issuer Securities to
outside investors constitutes the sale of the LLC Preferred Securities to outside investors and
that the LLC Preferred Securi.ties qualify for inclusion in core capital of the Association because
they constitute either preferred stock of a fully consolidated subsidiary or "minority interests in
equity accounts of subsidiaries that are fully consolidated" in accordance with 12 C.F.R.
)(ii) or (iii), and, if so, that the LLC Preferred Securities would also constitute Tier 1
capita) under the OTS "Prompt Corrective Action" regulations, 12 C.F.R. 565.2(g).3 We note
that the OTS has approved capital treatment to a similar issuance (See: Letter from John F.
Downey. Executive Director, Supervision, OTS, re: Capital and Prompt Corrective Action
Treatment of Minority Interests.in Capital Corporation, November 13, 1996).
To .address any supervisory concern that the OTS may have about whether the LLC Preferred
Securities (through the issuance of the Cayman Co. Preferred Securities and the Delaware
Issuer Securities) would provide the same level of capital support to the Association as other
types of core capital, the Association hereby agrees to the follOwing requirements.
1. The LLC Preferred Securities, in accordance with 12 C.F.R. 567.5(a)(1)(ii), will
constitute noncumulative, perpetual preferred stock (as defined in 12 C.F.R. 567.1)
and related surplus. The terms applicable to the Cayman Co. Preferred Securities and
the Delaware Issuer Securities will mirror in aU material respects the LLC Preferred
Securities.
2. The offering circular, preferred stoek agreement or certificate (as applicable)
related to each of the LLC Preferred Securities, the Cayman Co. Preferred Securities
and the Delaware Issuer Securities will include a disclosure stating that the respective
securities covered thereby cannot be redeemed unless the Association receives the
prior written consent of the OTS.
3. Upon the occurrence of a Supervisory Event- (described above), the Cayman
Co. Preferred Securities and the Delaware Issuer Securities will (at the direction of the
OTS) be exchanged for depositary shares representing a fractional
interest in preferred stock of the Holding Company. .
4. The amount of the Association's core capital that may be comprised of the LLC
Preferred Securities (plus any other future issuances -of subsidiary preferred stock) will
3 For avoidance of doubt, the Association is not requesting double counting of the LLC Preferred
Securities along with the Cayman Co. Preferred Securities and Delaware Issuer Securities. Instead, the
Association Is merely requesting that these securities be viewed as part of one transaction .
. 5
WMI-TPS 701359838.00006
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HIGHLY CONFIDENTIAL
not exceed 25 percent of the Association's core capital including the LLC Preferred
Securities and any future subsidiary preferred stock issuances.
II. Additional Information
The following additional information is pn:w.ided with regard to matters that have not already
been discussed above, and that are set forth in, Section 605 of the QTS Applications
Processing Handbook to assist in the decision with regard to the Association's proposal to
establish the New Operating SUbsidiary.
With respect to the -New Operating Subsidiary:
(I) The Association will provide to. the OTS, if requested, copies of organizational
documents for the New Operating Subsidiary after these documents have been finalized.
(ii) In lieu of a statement by the Association's attorney that the New Operating Subsidiary is
permitted to engage in the activities summarized above pursuant to applicable state laws, the
Association represents that s,,!ch is the case.
- .
(iii) There are no qualifications or licensing requirements of personnel responsible for the
activities summarized above.
(Iv) The New Operating Subsidiary will have requirements in its organizational documents
requiring it to maintain a separate entity existence.
(v) The Association will continue to comply with any applicable investment limitations under
5(c) of HOLA and 12 Part 560 tOr the proposed operating subsidiary activities
above.
(vi) Certain officers of the ,Association (who are "affiliated persons" of ttle Association
according to the definition in OTS regulations at 12 C.F.R 561.5(a will be nominated by the
Association to serve as directors. officers or agents of the New Operating Subsidiary. No
affiliated person of the Association has any personal interests. however, in the transaction, or
any other relationships to the New Operating Subsidiary.
Under separate cover, we are sending, to the OTS Regional Office in Daly City. California, a
check for $1 ,000 payable to the Office of Thrift SuperviSion, for the filing fee.
The Association is also filing a notice With the Federal Deposit Insurance Corporation-
("FDIC) under FDIA 18(m) and 12 C.F.R. 303.142(c) and :362.15. A copy of the notice to
the FDIC is attached in compliance With 12 C.F.R. 559.11.
Request for Confidential Treatment Pursuant to 12 C.F,R .. 51a.35(b)(1), and consistent
with the standards of the Freedom of Information Act, 5 U.S.C. 552{b), and the regulations of
the Department of the Treasury issued thereunder; 31 C.F.R. Part 1, Subpart A (incorporated
by reference into 12 C.F.R. Part 505), the Association hereby requests confidential treatment of
this notice and the enclosures (collectively, the UNotice-). The Notice contain business
information that is "commercial or financial information obtained from a person and privileged
and confidential" that is exempt from disclosure under paragraph (b){4) of the Freedom of
Information Act, 5 U.S.C. 552(b){4), and theappnoable regulations of the Department of the
Treasury. 31 C.F.R. 1.2(c)(1} and 1.6(a). The Association would not customarily disclose the
6
WMI-TPS 701359838.00007
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HIGHLY CONFIDENTIAL
Notice to the public. Disclosure of the Notice may result in negative consequences that could
adversely affect the Association and cause substantial competitive harm. The Association
believes that its competitors could riot otherwise obtain the confidential information contained
the Notice from any other source. This information is proprietary, material inside information
and not otherwise available to any other party from any other source. For these reasons, the
Association believes that the Notice is exempt from disclosure pursuant to 5 U.S.C. 552(b)(4)
and 31 C.F.R. 1.2(c)(1) and 1.6(a). Accordingly. the Notice is marked "Confidential." '
The Association requests that the Notice be treated as confidential indefinitely, because
the basis for confidential treatment will continue to exist. The Association further requests that
if, notwithstanding the foregoing, the OTSshoukl determine preliminarily to make available to
any party any of the information contained in the Notice, the OTS will notify the Association
prior to any such release, as required by 31 C..F.R. 1.6(c}, and provide the Association with an
opportunity to object to such disclosure, as pr()vided by 12 C.F.R. 1.6(d) and applicable law.
Furthermore, if the OTS decides to disclose the Notice to any party despite the Association's
objection of such disclosure, then the Association requests that. prior to any such disclosure,
the OTS provide the Association with a written notice of its decision, in accordance with 31
C.F.R. 1.6(e). The Association also requests that the ors notify the Association, in
accordance with 31 C.F.R. 1.6(f), of any suit Seeking to compel disclosure of the Notice. The
Association would appreciate the opportunity to defend against any such suit seeking to compel
disclosure. . '
If you have any questions regarding this notice, please call Robert Monheit at (212) 326-
6104, Chad Smith at (206) 49()"1836 or Bill Lynch at (206) 4 6 1 - ~ 1 4 0 .
7
WMI-TPS 701359838.00008
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Washington Mutual (WMI) - Attachments/Exhibits To The Final Report of The Examiner (Part 10/10)

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Washington Mutual (WMI) - Attachments/Exhibits To The Final Report of The Examiner (Part 10/10)

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Asset Trust I Custodian holds the notes, mortgages and other legal documents related

One- Year MTA

) and the Class R 2006- OA1 Certificate (the Asset Trust

New Assets)) will equal

Junior Equity Securities), other than dividends payable

Voting Parity Securities)

Clearstream International), a Luxem-

Clearstream Participants) and facilitates the

Euroclear) was created

Euroclear Participants) and

UBTI) with respect

Deloitte & Touche LLP

HELs) was contributed

WMB) and University Street Inc.

GAAP). The preparation

Statement No. 5) when available information indicates

Statement No. 159). Statement No. 159 permits

WMB), cash and other permitted investments

WMI) Series N Perpetual Non- cumulative Fixed-to-Floating Rate Preferred Stock.

Quarterly report on Form 10- Q filed on August

Quarterly Report on Form 10-0 filed

, Asset Trust II and Asset Trust III.

Asset Trust II) i

incur any indebtedness for borrowed money;

pay dividends on the Companys Junior Equity Securities

the Trust, even

during a Dividend Period, the

although the terms of Depositary Shares are substantially similar

Marion), Seneca Holdings, Inc.

Seneca) (Seneca and

Upon occurrence of an Exchange Event, the OTS

could be influenced not only

the applicable interest rate as

CACS) to monitor payment collections and

Junior Equity Securities), other than dividends payable in Junior Equity

Restrictions on Redemption or Purchases.

terminate, amend or otherwise

Voting Parity Securities)

cash or any other property other than shares

any amendment, alteration

Euroclear) was created

persons that hold Trust Securities as part o

WMI) and Washington Mutual Bank

HEL5) was contributed

University Street), an indirect subsid

HEL5) was contributed

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