<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 4, 1994
REGISTRATION NO. 33-
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM S-11
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
GREEN TREE FINANCIAL CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
----------------
MINNESOTA 41-1263905
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
1100 LANDMARK TOWERS
345 ST. PETER STREET
SAINT PAUL, MINNESOTA 55102-1639
(612) 293-3400
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
----------------
DREW S. BACKSTRAND
1100 LANDMARK TOWERS
345 ST. PETER STREET
SAINT PAUL, MINNESOTA 55102-1639
(612) 293-3400
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPIES TO:
CHARLES F. SAWYER CATHY M. KAPLAN
DORSEY & WHITNEY BROWN & WOOD
220 SOUTH SIXTH STREET ONE WORLD TRADE CENTER
MINNEAPOLIS, MINNESOTA 55402 NEW YORK, NEW YORK 10048
----------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF SECURITIES TO THE
PUBLIC: As soon as practicable after the effective date of this Registration
Statement.
CALCULATION OF REGISTRATION FEE
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PROPOSED PROPOSED
AMOUNT MAXIMUM MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF TO BE OFFERING PRICE AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED PER UNIT(1) OFFERING PRICE FEE
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Manufactured Housing Contract
Pass-Through Certificates....... $1,000,000 100% $1,000,000 $344.83
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(1) Estimated solely for the purpose of calculating the registration fee on
the basis of the proposed maximum aggregate offering price, pursuant to
Rule 457(c).
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that the Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933, or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section
8(a), may determine.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION--PRELIMINARY
PROSPECTUS DATED MARCH , 1994
PROSPECTUS
$ (APPROXIMATE)
GREEN TREE FINANCIAL CORPORATION, SELLER AND SERVICER
% MANUFACTURED HOUSING CONTRACT
SENIOR/SUBORDINATE PASS-THROUGH CERTIFICATES,
SERIES 1994-1, CLASS B-2 (SUBORDINATED)
(PRINCIPAL AND INTEREST PAYABLE ON THE 15TH DAY OF EACH MONTH BEGINNING APRIL,
1994)
------------
The Manufactured Housing Contract Senior/Subordinate Pass-Through
Certificates, Series 1994-1 (the "Certificates") will represent interests in a
trust (the "Trust") consisting of a pool (the "Contract Pool") of actuarial
manufactured housing installment sale contracts and installment loan agreements
(collectively, the "Contracts") and certain related property conveyed by Green
Tree Financial Corporation (in such capacity referred to herein as the
"Company"). The Company will also act as servicer of the Contracts (in such
capacity referred to herein as the "Servicer"). The Contracts were originated
or purchased by the Company in the ordinary course of its business. The term
"Approximate," with respect to the aggregate principal amount of the
Certificates, means subject to a permitted variance of plus or minus 5%.
The Certificates will consist of five classes of Senior Certificates (the
Class A-1 Certificates, the Class A-2 Certificates, the Class A-3 Certificates,
the Class A-4 and the Class A-5 Certificates) (collectively, the "Class A
Certificates"), and three classes of Subordinated Certificates (the Class B-1
Certificates, the Class B-2 Certificates and the Class C Certificates). Only
the Class B-2 Certificates are being offered hereby. The Class A Certificates
will evidence in the aggregate an initial % (approximate) undivided interest
in the Trust, the Class B-1 Certificates will evidence an initial %
(approximate) undivided interest in the Trust, the Class B-2 Certificates will
evidence an initial % (approximate) undivided interest in the Trust, and the
Class C Certificates will evidence an interest in a portion of the interest
payments on the Contracts. The Trust will be created in March 1994, pursuant to
a Pooling and Servicing Agreement between the Company, as Seller and Servicer
of the Contracts, and First Bank National Association as trustee (the
"Trustee"). The Trust property will include all rights to receive payments due
on each Contract on or after March 1, 1994 (the "Cut-off Date"), security
interests in the manufactured homes securing the Contracts, all rights under
certain hazard insurance policies with respect to the manufactured homes and
rights to amounts in the Certificate Account.
Principal and interest are payable on the 15th day of each month (or, if the
15th day is not a business day, the next business day thereafter) (a
"Remittance Date") beginning in April 1994. On each Remittance Date, holders of
the Class B-2 Certificates will be entitled to receive, from and to the extent
of funds available in the Certificate Account, the Class B-2 Distribution
Amount, calculated as set forth herein. The rights of the holders of the Class
B-1, Class B-2 and Class C Certificates to receive distributions with respect
to the Contracts will be subordinated to the rights of the holders of the Class
A Certificates, and the rights of the holders of the Class B-2 and Class C
Certificates to receive distributions with respect to the Contracts will be
subordinated to the rights of the holders of the Class B-1 Certificates, all as
described herein.
The Class B-2 Certificateholders will have the benefit of a liquidity reserve
(the "Liquidity Reserve") established to protect against losses that would
otherwise be absorbed by the Class B-2 Certificateholders. To the extent that
funds in the Certificate Account are insufficient to distribute to the holders
of the Class B-2 Certificates the Class B-2 Formula Distribution Amount
(described below), the Reserve Draw Amount (described below) will be withdrawn
from the Liquidity Reserve. No funds will be deposited in the Liquidity Reserve
at Closing, and the aggregate amount of funds on deposit in the Liquidity
Reserve will in no event exceed $ .
An election will be made to treat the Trust as a real estate mortgage
investment conduit ("REMIC") for federal income tax purposes. As described more
fully herein, the Class B-2 Certificates will constitute "regular interests" in
the REMIC and the Class C Certificates will constitute "residual interests" in
the REMIC. See "Certain Federal Income Tax Consequences" in the Prospectus.
The obligations of the Servicer with respect to the Certificates are limited
to its contractual servicing obligations. The Company, as Seller of the
Contracts, however, will make certain representations and warranties relating
to the Contracts. In the event of an uncured breach of any representation or
warranty that materially adversely affects the Trust's interest in a Contract,
the Company will be obligated to repurchase such Contract or substitute another
contract therefor.
The interests of the owners of the Class B-2 Certificates (the "Certificate
Owners") will be represented by book-entries on the records of The Depository
Trust Company and participating members thereof. See "Description of the
Certificates--Registration of the Class B-2 Certificates" herein.
(the "Underwriters") intend
to make a secondary market in the Class B-2 Certificates, but have no
obligation to do so. There can be no assurance that a secondary market for the
Class B-2 Certificates will develop, or if it does develop, that it will
continue.
The Class B-2 Certificates will not be insured or guaranteed by any
governmental agency or instrumentality, the Underwriters or any of their
affiliates or the Company, and will be payable only from amounts held in the
Trust. See "Special Considerations" herein.
------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
UNDERWRITING PROCEEDS TO
PRICE TO PUBLIC(1) DISCOUNT COMPANY(2)
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Class B-2 Certificate........ % % %
- ------------------------------------------------------------------------------
Total............................ $ $ $
- ------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
(1)Plus accrued interest, if any, at the Class B-2 Remittance Rate from March
, 1994.
(2)Before deducting expenses, estimated to be $100,000.
------------
The Class B-2 Certificates are offered subject to prior sale, when, as and if
issued by the Trust and accepted by the Underwriters and subject to their right
to reject orders in whole or in part. It is expected that delivery of the Class
B-2 Certificates will be made in book-entry form only through the Same Day
Funds Settlement system of The Depository Trust Company on or about March ,
1994.
------------
March , 1994
<PAGE>
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICES OF THE CLASS B-2
CERTIFICATES OFFERED HEREBY AT LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL
IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY
TIME.
Until , 1994, all dealers effecting transactions in the Class B-2
Certificates, whether or not participating in this distribution, may be
required to deliver a Prospectus. This is in addition to the obligation of
dealers to deliver a Prospectus when acting as underwriters and with respect to
their unsold allotments or subscriptions.
REPORTS TO CLASS B-2 CERTIFICATEHOLDERS
The Company will cause to be provided to the holders of the Class B-2
Certificates certain monthly and annual reports concerning such Certificates
and the Trust as further described in this Prospectus under "Description of the
Certificates--Reports to Class B-2 Certificateholders."
ADDITIONAL INFORMATION
This Prospectus contains a summary of certain material terms of certain of
the documents referred to herein and therein, but neither contains nor will
contain all of the information set forth in the Registration Statement of which
this Prospectus is a part (the "Registration Statement"). For further
information, reference is made to such Registration Statement and the exhibits
thereto which the Company has filed with the Securities and Exchange Commission
(the "Commission"), under the Securities Act of 1933, as amended. Statements
contained in this Prospectus describing a provision of any contract or other
document referred to are summaries, and if this Prospectus indicates that such
contract or other document has been filed as an exhibit to the Registration
Statement, reference is made to the copy of the contract or other document
filed as an exhibit, each such statement being qualified in all respects by
reference to the actual provision being described. Copies of the Registration
Statement can be inspected and, upon payment of the Commission's prescribed
charges, copied at the public reference facilities maintained by the Commission
at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and at
certain of its Regional Offices located as follows: New York Regional Office,
Seven World Trade Center, 13th Floor, New York, New York 10048, and Chicago
Regional Office, Suite 1400, 500 West Madison Street, Chicago, Illinois 60661.
2
<PAGE>
SUMMARY OF TERMS OF THE CLASS B-2 CERTIFICATES
This summary is qualified in its entirety by reference to the detailed
information appearing elsewhere in this Prospectus. Capitalized terms used
herein and not otherwise defined herein shall have the respective meanings
assigned them elsewhere in this Prospectus.
Securities Offered........... The Class B-2 Certificates (the "Class B-2 Cer-
tificates") of the Manufactured Housing Con-
tract Senior/Subordinate Pass-Through Certifi-
cates, Series 1994-1 (the "Certificates"). The
Certificates also include the Class A Certifi-
cates, the Class B-1 Certificates and the Class
C Certificates, which are not being offered
hereby.
Seller....................... Green Tree Financial Corporation (in such capac-
ity referred to herein as the "Company").
Servicer..................... Green Tree Financial Corporation (in such capac-
ity referred to herein as the "Servicer").
Trustee...................... First Bank National Association, Minneapolis,
Minnesota (referred to herein as the "Trust-
ee").
Cut-off Date Pool Principal $ (Approximate. Subject to permit-
Balance..................... ted variance of plus or minus 5%).
Original Class B-2 Principal $ (Approximate. Subject to permit-
Balance..................... ted variance of plus or minus 5%).
Original Class A Principal $ (Approximate. Subject to permit-
Balance..................... ted variance of plus or minus 5%).
Original Class A-1 $ (Approximate. Subject to permit-
Principal Balance........... ted variance of plus or minus 5%).
Original Class A-2 $ (Approximate. Subject to permit-
Principal Balance........... ted variance of plus or minus 5%).
Original Class A-3 $ (Approximate. Subject to permit-
Principal Balance........... ted variance of plus or minus 5%).
Original Class A-4 $ (Approximate. Subject to permit-
Principal Balance........... ted variance of plus or minus 5%).
Original Class A-5 $ (Approximate. Subject to permit-
Principal Balance........... ted variance of plus or minus 5%).
Original Class B-1 Principal $ (Approximate. Subject to permit-
Balance..................... ted variance of plus or minus 5%).
Class B-2 Remittance Rate.... % per annum, subject to a maximum rate equal
to the weighted average of the Contract Rates
on each Contract in the Contract Pool, computed
on the basis of a 360-day year of twelve 30-day
months.
Class A-1 Remittance Rate.... % per annum, computed on the basis of a 360-
day year of twelve 30-day months.
Class A-2 Remittance Rate.... % per annum, computed on the basis of a 360-
day year of twelve 30-day months.
Class A-3 Remittance Rate.... % per annum, computed on the basis of a 360-
day year of twelve 30-day months.
3
<PAGE>
Class A-4 Remittance Rate.... % per annum, computed on the basis of a 360-
day year of twelve 30-day months.
Class A-5 Remittance Rate.... % per annum, computed on the basis of a 360-
day year of twelve 30-day months.
Class B-1 Remittance Rate.... % per annum, computed on the basis of a 360-
day year of twelve 30-day months.
Remittance Date.............. The 15th day of each month (or if such 15th day
is not a business day, the next succeeding
business day), commencing on April 15, 1994.
Record Date.................. The business day immediately preceding the re-
lated Remittance Date.
Cut-off Date................. March 1, 1994.
Agreement.................... The Pooling and Servicing Agreement, dated as of
March 1, 1994 (the "Agreement"), between the
Company, as Seller and Servicer, and the Trust-
ee.
Description of Certificates.. The Class B-1, Class B-2 and Class C Certifi-
cates are Subordinated Certificates and the
Class A-1, Class A-2, Class A-3, Class A-4 and
Class A-5 Certificates are Senior Certificates,
all as described herein. The Class A, Class B-1
and Class C Certificates are not being offered
hereby. The undivided percentage interest of
any Class B-2 Certificate in the distributions
to the holder of such Certificate (the
"Percentage Interest") will be equal to the
percentage obtained from dividing the denomina-
tion specified on such Certificate by the Orig-
inal Class B-2 Principal Balance. The Class B-2
Certificates will be offered in registered
form, in denominations of $1,000 and integral
multiples of $1,000 in excess thereof, except
for one Class B-2 Certificate with a denomina-
tion representing the remainder of the Original
Class B-2 Principal Balance. See "Description
of the Certificates--Registration of the Class
B-2 Certificates."
Distributions................ On each Remittance Date, distributions on the
Certificates will be made first to the holders
of the Class A Certificates, then to the hold-
ers of the Class B-1 Certificates and then to
the holders of the Class B-2 Certificates, in
the manner described below. The rights of the
Class B-1, Class B-2 and Class C
Certificateholders to receive distributions are
subordinated to the rights of the Class A
Certificateholders, the rights of the Class B-2
and Class C Certificateholders to receive dis-
tributions are subordinated to the rights of
the Class B-1 Certificateholders, and the
rights of the Class C Certificateholders to re-
ceive distributions are subordinated to the
rights of the Class B-2 Certificateholders.
Distributions of interest and, to the extent
specified below, principal to the Class B-2
Certificateholders will be made in an amount
equal to their respective Percentage Interests
of the Class B-2 Distribution Amount (as de-
scribed below). Distri-
4
<PAGE>
butions will be made on each Remittance Date to
holders of record on the preceding Record Date,
except that the final distribution in respect
of the Class B-2 Certificates will only be made
upon presentation and surrender of the Class B-
2 Certificates at the office or agency ap-
pointed by the Trustee for that purpose in Min-
neapolis or St. Paul, Minnesota.
The "Class B-2 Formula Distribution Amount" for
any Remittance Date will equal the sum of (i)
the amount of interest calculated as described
below under "A. Interest," and (ii) the amount
of principal calculated as described below un-
der "B. Principal." The "Class B-2 Distribution
Amount" for any Remittance Date will equal the
lesser of (i) the Class B-2 Formula Distribu-
tion Amount for such Remittance Date or (ii)
the Amount Available in the Certificate Account
available for distribution to the Class B-2
Certificateholders (after giving effect to the
distribution made to Class A and Class B-1
Certificateholders) on such Remittance Date
(the "Remaining Amount Available") plus the Re-
serve Draw Amount, if any, (described below).
Distributions on the Class B-2 Certificates
will be applied first to the payment of inter-
est, then to the payment of principal.
See "Description of the Certificates" herein for
a detailed description of the amounts on de-
posit in the Certificate Account that will con-
stitute the Remaining Amount Available on each
Remittance Date. The Remaining Amount Available
will include amounts otherwise payable to Class
C Certificateholders. See "Description of the
Certificates--Subordination of Class B-2 Cer-
tificates and Class C Certificates."
A. Interest.................. Interest on the outstanding Class B-2 Principal
Balance will accrue from March , 1994 or from
the most recent Remittance Date on which inter-
est has been paid to but excluding the follow-
ing Remittance Date. To the extent of the Re-
maining Amount Available, if any, for a Remit-
tance Date after payment of the Class A Distri-
bution Amount and the Class B-1 Distribution
Amount for such date, interest will be paid to
the Class B-2 Certificateholders on such Remit-
tance Date at the Class B-2 Remittance Rate on
the then outstanding Class B-2 Principal Bal-
ance. The Class B-2 Principal Balance is the
Original Class B-2 Principal Balance less all
amounts previously distributed to the Class B-2
Certificateholders on account of principal.
In the event that, on a particular Remittance
Date, the Remaining Amount Available in the
Certificate Account plus the Reserve Draw
Amount, if any, is not sufficient to make a
full distribution of interest to the Class B-2
Certificateholders, the amount of the defi-
ciency will be carried forward as an amount
that the Class B-2 Certificateholders are enti-
tled to receive on the next Remittance Date.
Any amount so carried forward will, to the ex-
tent legally permissible, bear interest at the
Class B-2 Remittance Rate. See "Description of
the Certificates."
5
<PAGE>
B. Principal (including Except for payments of the Class B-2 Principal
Prepayments)................ Liquidation Loss Amount (described below) with-
drawn from the Liquidity Reserve, payments of
principal on the Class B-2 Certificates will
not commence until the Remittance Date on which
the Class B-1 Principal Balance has been re-
duced to zero (the "Sixth Cross-over Date"),
and will be made on that Remittance Date and
each Remittance Date thereafter only if each
Class B Principal Distribution Test (described
below) is satisfied on such Remittance Date
(unless the Class A Principal Balance has been
reduced to zero). Payments of principal on the
Class B-1 Certificates will not commence until
the Class B Cross-over Date (described below),
and will be made on that Remittance Date and
each Remittance Date thereafter only if each
Class B Principal Distribution Test (described
below) is satisfied on such Remittance Date
(unless the Class A Principal Balance has been
reduced to zero). The Class B Cross-over Date
will be the later of (A) the Remittance Date in
April 1999, and (B) the first Remittance Date
on which the Class B Principal Balance repre-
sents 22% or more of the Pool Scheduled Princi-
pal Balance. The Class B Principal Distribution
Tests on each Remittance Date relate to losses
and delinquencies on the Contracts, and are de-
scribed under "Description of the Certifi-
cates--Principal" herein.
On each Remittance Date on or after the Sixth
Cross-over Date on which each Class B Principal
Distribution Test is satisfied, the Class B
Percentage of the Formula Principal Distribu-
tion Amount will be distributed, to the extent
of the Remaining Amount Available, to the Class
B-2 Certificateholders until the Class B-2
Principal Balance has been reduced to zero.
In the event that, on a particular Remittance
Date, the Remaining Amount Available in the
Certificate Account plus the Reserve Draw
Amount, if any, is not sufficient to make a
full distribution of principal to the Class B-2
Certificateholders, the amount of the defi-
ciency will be carried forward as an amount
that the Class B-2 Certificateholders are enti-
tled to receive on the next Remittance Date.
The Class B Percentage for any Remittance Date
on or after the Class B Cross-over Date on
which each Class B Principal Distribution Test
has been satisfied will be equal to 100% minus
the Class A Percentage. The Class B Percentage
for each Remittance Date, if any, after the
Class A Principal Balance has been reduced to
zero will be equal to 100%.
The Class A Percentage for any Remittance Date
prior to the Class B Cross-over Date, and for
any Remittance Date on or after the Class B
Cross-over Date on which each Class B Principal
Distribution Test has not been satisfied, will
equal 100%. On each Remittance Date on or after
the Class B Cross-over Date, if each Class B
Principal Distribution Test
6
<PAGE>
has been satisfied on such Remittance Date, the
Class A Percentage will equal a fraction, ex-
pressed as a percentage, the numerator of which
is the Class A Principal Balance for such Re-
mittance Date and the denominator of which is
the Pool Scheduled Principal Balance for the
immediately preceding Remittance Date.
The Class A Percentage of the Formula Principal
Distribution Amount (described below) will be
distributed, to the extent of the Amount Avail-
able (described below) after payment of in-
terest on each Class of Class A Certificates,
first, to the Class A-1 Certificateholders un-
til the Class A-1 Principal Balance has been
reduced to zero, then to the Class A-2
Certificateholders until the Class A-2 Princi-
pal Balance has been reduced to zero, then to
the Class A-3 Certificateholders until the
Class A-3 Principal Balance has been reduced to
zero, then to the Class A-4 Certificateholders
until the Class A-4 Principal Balance has been
reduced to zero and then to the Class A-5
Certificateholders until the Class A-5 Princi-
pal Balance has been reduced to zero.
The "Principal Balance" of a Class of Certifi-
cates as of any Remittance Date is the Original
Principal Balance of such Class of Certificates
less all amounts previously distributed to such
Class on account of principal. The Class A
Principal Balance as of any Remittance Date is
the sum of the Class A-1 Principal Balance, the
Class A-2 Principal Balance, the Class A-3
Principal Balance, the Class A-4 Principal Bal-
ance and the Class A-5 Principal Balance. The
Class B Principal Balance as of any Remittance
Date is the sum of the Class B-1 Principal Bal-
ance and the Class B-2 Principal Balance.
The "Formula Principal Distribution Amount" for
any Remittance Date will be equal to the sum of
(i) all scheduled payments of principal due on
each outstanding Contract during the month pre-
ceding the month in which the Remittance Date
occurs, (ii) the Scheduled Principal Balance
(as defined below) of each Contract which, dur-
ing the month preceding the month of such Re-
mittance Date, was purchased by the Company
pursuant to the Agreement on account of certain
breaches of its representations and warranties,
(iii) all Partial Principal Prepayments applied
and all Principal Prepayments in Full received
during such preceding month and (iv) the Sched-
uled Principal Balance of each Contract that
became a Liquidated Contract (defined below)
during such preceding month.
The Scheduled Principal Balance of a Contract
for any month is its principal balance as spec-
ified in its amortization schedule, after giv-
ing effect to any previous Partial Principal
Prepayments and to the scheduled payment due on
its scheduled payment date ("Due Date") in that
month, but without giving effect to any adjust-
ments due to bankruptcy or similar pro-
7
<PAGE>
ceedings. The Pool Scheduled Principal Balance
is the aggregate of the Scheduled Principal
Balances of Contracts outstanding at the end of
a month. A Liquidated Contract is a Contract as
to which all amounts that the Servicer expects
to recover through the date of disposition of
the manufactured home securing such Contract
(the "Manufactured Home") have been received.
On each Remittance Date prior to the Sixth
Cross-over Date, the Class B-2
Certificateholders will be entitled to receive,
from the Liquidity Reserve (subject to the
limit of the amount on deposit in the Liquidity
Reserve), any Class B-2 Principal Liquidation
Loss Amount for such Remittance Date. The
"Class B-2 Principal Liquidation Loss Amount"
for any Remittance Date will equal the amount,
if any, by which the sum of the Class A Princi-
pal Balance, the Class B-1 Principal Balance
and the Class B-2 Principal Balance for such
Remittance Date exceeds the Pool Scheduled
Principal Balance for such Remittance Date (af-
ter giving effect to all distributions of prin-
cipal from the Amount Available on such Remit-
tance Date).
Subordination of Class B-2
and Class C Certificates....
The rights of holders of the Class B-1, Class B-
2 and Class C Certificates to receive distribu-
tions with respect to the Contracts in the
Trust will be subordinated, to the extent de-
scribed herein, to such rights of the holders
of the Class A Certificates. In addition, the
rights of the holders of the Class B-2 and
Class C Certificates to receive distributions
with respect to the Contracts in the Trust will
be subordinated, to the extent described here-
in, to such rights of the holders of the Class
B-1 Certificates. This subordination is in-
tended to enhance the likelihood of regular re-
ceipt by the holders of the Class A Certifi-
cates and Class B-1 Certificates of the full
amount of their scheduled monthly payments of
principal and interest and to afford such hold-
ers protection against losses on Liquidated
Contracts.
The protection afforded to the holders of Class
A and Class B-1 Certificates by means of the
subordination of the Class B-2 and Class C Cer-
tificates will be accomplished by the preferen-
tial right of the Class A and Class B-1
Certificateholders to receive, prior to any
distribution being made on a Remittance Date in
respect of the Class B-2 and Class C Certifi-
cates, the amounts of principal and interest
due them on each Remittance Date out of the
Amount Available on such date in the Certifi-
cate Account and, if necessary, by the right of
such Class A and Class B-1 Certificateholders
to receive future distributions of Amounts
Available that would otherwise be payable to
the holders of the Class B-2 and Class C Cer-
tificates.
The rights of the holders of the Class C Certif-
icates to receive distributions with respect to
the Contracts on each Remittance Date will be
subordinated to the rights of the holders of
the
8
<PAGE>
Class A, Class B-1 and Class B-2 Certificates.
See "Description of the Certificates--Subordi-
nation of Class B-2 Certificates and Class C
Certificates."
Liquidity Reserve............ In order to mitigate the effect of the subordi-
nation of the Class B-2 Certificates and liqui-
dation losses and delinquencies on the Con-
tracts, the Trustee on each Remittance Date
will, if necessary, withdraw the Reserve Draw
Amount (to the extent of funds on deposit in
the Liquidity Reserve) from the Liquidity Re-
serve for payment to the Class B-2
Certificateholders. The "Reserve Draw Amount"
for any Remittance Date will equal the sum of
the amount of interest owing to the Class B-2
Certificateholders on such Remittance Date and
unpaid from the Remaining Amount Available plus
any Class B-2 Principal Liquidation Loss Amount
for such Remittance Date.
No funds will be deposited in the Liquidity Re-
serve on the Closing Date. On each Remittance
Date, unless the amount on deposit in the Li-
quidity Reserve equals the Requisite Reserve
Amount (described below), the Trustee will de-
posit in the Liquidity Reserve, from any Amount
Available remaining in the Certificate Account
after distributing all amounts due to the Class
A Certificateholders, the Class B-1
Certificateholders and the Class B-2
Certificateholders, but before payment of the
Monthly Servicing Fee to the Company, an amount
equal to the product of 1/12 and 0.2% of the
Pool Scheduled Principal Balance for such Re-
mittance Date. The "Requisite Reserve Amount"
will be equal to $ .
The Class C Certificateholders may obtain the
release of all amounts in the Liquidity Reserve
upon delivery to the Trustee of an irrevocable
letter of credit or other form of credit en-
hancement. See "Description of the Certifi-
cates--The Liquidity Reserve."
Losses on Liquidated As described above, the distribution of princi-
Contracts................... pal to the Class A and Class B-1
Certificateholders is intended to include the
Class A Percentage and the Class B Percentage,
respectively, of the Scheduled Principal Bal-
ance of each Contract that became a Liquidated
Contract during the month preceding the month
of such distribution. If the Net Liquidation
Proceeds from such Liquidated Contract are less
than the Scheduled Principal Balance of such
Liquidated Contract, the deficiency will, in
effect, be absorbed by the Class C
Certificateholders, then the Monthly Servicing
Fee (so long as the Company is the Servicer),
and then the Class B-2 Certificateholders since
a portion of the Amount Available equal to such
deficiency and otherwise distributable to them
will be paid to the Class A and the Class B-1
Certificateholders.
If the Amount Available is not sufficient to
cover the entire amount distributable to the
Class A Certificateholders on a particular Re-
mittance Date, then the Class A Percentage on
9
<PAGE>
future Remittance Dates will be increased and
the Class B Percentage on future Remittance
Dates will be reduced as a result of such defi-
ciency. If the Amount Available is sufficient
to cover the entire amount distributable to the
Class A Certificateholders on a particular Re-
mittance Date but is not sufficient to cover
the entire amount distributable to the Class B-
1 Certificateholders, then the amount of the
deficiency will be carried forward as an amount
that the Class B-1 Certificateholders are enti-
tled to receive on the next Remittance Date.
But for the payments of the Reserve Draw Amount
from funds on deposit in the Liquidity Reserve
and the subordination of the Class C Certifi-
cates and the Monthly Servicing Fee otherwise
payable to the Company, the Class B-2
Certificateholders would absorb (i) all losses
on each Liquidated Contract in the amount by
which its Net Liquidation Proceeds are less
than its unpaid principal balance plus accrued
and unpaid interest thereon less the related
Monthly Servicing Fee, and (ii) all delinquent
payments on the Contracts. See "Description of
the Certificates--Subordination of Class B-2
Certificates and Class C Certificates" and
"Yield, Prepayment and Maturity Considera-
tions."
Optional Repurchase of the
Contracts by the Servicer
or the Company..............
At its option either the Servicer or the Company
may repurchase from the Trust all remaining
Contracts, and thereby effect early retirement
of the Certificates, on any Remittance Date
when the Pool Scheduled Principal Balance is
less than 10% of the Cut-off Date Pool Princi-
pal Balance. See "Description of the Certifi-
cates--Repurchase Option."
The Contracts................ Fixed rate manufactured housing installment sale
contracts and installment loan agreements in-
cluding any and all rights to receive payments
due thereunder on and after the Cut-off Date
and either (i) security interests in the Manu-
factured Homes purchased with the proceeds of
such contracts or (ii) with respect to certain
of the Contracts ("Land-and-Home Contracts")
liens on the real estate to which the related
Manufactured Homes are deemed permanently af-
fixed. The Contracts are secured by Manufac-
tured Homes or real estate located in states
and the District of Columbia and have been se-
lected by the Company from its portfolio of
manufactured housing contracts based on the
criteria specified in the Agreement. All but
, or % by Cut-off Date Pool Principal
Balance, of the Contracts are conventional Con-
tracts (i.e., not insured or guaranteed by any
governmental agency). The annual percentage
rate of interest on the Contracts ranges from
% to % with a weighted average of ap-
proximately %. The Contracts had a weighted
average term to scheduled maturity, as of orig-
ination, of months, and a weighted average
remaining term to scheduled maturity, as of the
Cut-off
10
<PAGE>
Date, of months. The final scheduled pay-
ment date on the Contract with the latest matu-
rity is in . See "The Contract
Pool."
Security Interests and
Certain Other Aspects of
the Contracts; Repurchase
or Substitution
Obligations.................
In connection with the transfer of the Contracts
to the Trust, the Company has assigned the se-
curity interests in the Manufactured Homes or
(with respect to the Land-and-Home Con-
tracts) the liens on the underlying real prop-
erty, as appropriate, to the Trust. Under the
laws of most states Manufactured Homes that
have not been affixed to the real estate con-
stitute personal property, and perfection of a
security interest in the Manufactured Home is
obtained, depending on applicable state law,
either by noting the security interest on the
certificate of title for the Manufactured Home
or by filing a financing statement under the
Uniform Commercial Code. If the Manufactured
Home were relocated to another state without
reperfection of the security interest, or if
the Manufactured Home were to become attached
to its site and a determination were made that
the security interest was subject to real es-
tate title and recording laws, or as a result
of fraud or negligence, the Trust could lose
its prior perfected security interest in a Man-
ufactured Home. Subject to the effect of not
amending certificates of title as discussed un-
der "Special Considerations--Security Interests
and Certain Other Aspects of the Contracts,"
the Servicer will take such steps as are neces-
sary to maintain perfection of the security in-
terest in each Manufactured Home. Because of
the expense and administrative inconvenience
involved, the Company has not recorded the as-
signment to the Trustee of the mortgage or deed
of trust securing each Land-and-Home Contract.
Consequently, in some states in the absence of
such recordation the assignment to the Trustee
of the mortgage or deed of trust securing a
Land-and-Home Contract may not be effective and
in the absence of such recordation the assign-
ment of the mortgage or deed of trust to the
Trustee may not be effective against creditors
of or purchasers from the Company or a trustee
in bankruptcy of the Company. Federal and state
consumer protection laws impose requirements
upon creditors in connection with extensions of
credit and collections on installment sale or
loan contracts, and certain of these laws make
an assignee of such a contract, such as the
Trust, liable to the obligor thereon for any
violation by the lender. The Company has agreed
to repurchase, or, at its option, to substitute
another contract for, any Contract as to which
it has failed to perfect a security interest in
the Manufactured Home securing such Contract,
or as to which a breach of federal or state
laws exists if such breach materially adversely
affects the Trust's interest in the Contract,
unless such failure or breach has been cured
within 90 days from
11
<PAGE>
notice of such breach. See "Special Considera-
tions--Security Interests and Certain Other As-
pects of the Contracts."
Certain Federal Income Tax
Consequences................
For federal income tax purposes, the Trust will
be treated as a real estate mortgage investment
conduit ("REMIC"). The Class A Certificates and
the Class B Certificates will constitute "regu-
lar interests" in the REMIC and generally will
be treated as debt instruments of the Trust for
federal income tax purposes with payment terms
equivalent to the terms of such Certificates.
The Class C Certificates will constitute "re-
sidual interests" in the REMIC. The holders of
the Class B-2 Certificates will be required to
include in income interest on such Certificates
(including any original issue discount) in ac-
cordance with the accrual method of accounting.
See "Certain Federal Income Tax Consequences."
ERISA Considerations......... No transfer of a Class B-2 Certificate will be
permitted to be made to any employee benefit
plan subject to the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), or
to the Internal Revenue Code of 1986, as
amended (the "Code") unless the opinion of
counsel described under "ERISA Considerations"
is delivered to the Trustee. See "ERISA Consid-
erations."
Legal Investment Because the Class B-2 Certificates will not be
Considerations.............. rated in one of its two highest rating catego-
ries by Moody's Investors Service, Inc.
("Moody's"), the Class B-2 Certificates will
not constitute "mortgage related securities"
for purposes of the Secondary Mortgage Market
Enhancement Act of 1984 ("SMMEA"). Accordingly,
many institutions with legal authority to in-
vest in more highly rated securities based on
first mortgage loans may not be legally autho-
rized to invest in the Class B-2 Certificates.
See "Legal Investment Considerations." No rep-
resentations are made as to any regulatory re-
quirements or considerations (including without
limitation regulatory capital requirements) ap-
plicable to the purchase of Class B-2 Certifi-
cates by banks, savings and loan associations
or other financial institutions, which institu-
tions should consult their own counsel as to
such matters.
Rating....................... It is a condition to the issuance of the Class
B-2 Certificates that they be rated at least
" " by Moody's. The rating of the Class B-2
Certificates addresses the likelihood of the
ultimate payment of principal and interest on
the Class B-2 Certificates. A security rating
is not a recommendation to buy, sell or hold
securities and may be subject to revision or
withdrawal at any time by the rating agency.
Registration of the Class B-
2 Certificates..............
The Class B-2 Certificates initially will be
represented by one or more certificates regis-
tered in the name of Cede & Co. ("Cede") as the
nominee of The Depository Trust Company
12
<PAGE>
("DTC"), and will only be available in the form
of book-entries on the records of DTC and par-
ticipating members thereof. Certificates repre-
senting the Class B-2 Certificates will be is-
sued in definitive form only under the limited
circumstances described herein. All references
herein to "holders" or "Certificateholders"
shall reflect the rights of Certificate Owners
as they may indirectly exercise such rights
through DTC and participating members thereof,
except as otherwise specified herein. See "De-
scription of the Certificates--Registration of
the Class B-2 Certificates."
13
<PAGE>
SPECIAL CONSIDERATIONS
Prospective Certificateholders should consider, among other things, the
following factors in connection with the purchase of the Class B-2
Certificates:
1. General. An investment in the Class B-2 Certificates may be affected by,
among other things, a downturn in regional or local economic conditions.
These regional or local economic conditions are often volatile and
historically have affected the delinquency, loan loss and repossession
experience of pools of manufactured housing installment sale contracts.
See "The Contract Pool." Moreover, regardless of its location,
manufactured housing generally depreciates in value. Consequently, the
market value of certain Manufactured Homes could be or become lower than
the outstanding principal balances of the Contracts that they secure.
Sufficiently high delinquencies and liquidation losses on the Contracts
will have the effect of reducing, and could eliminate, the protection
against loss afforded by the Liquidity Reserve. The Class B-2
Certificateholders will bear the risk of delinquencies and losses on the
Contracts on each Remittance Date to the extent such losses are not
covered by Reserve Draw Amounts or absorbed by the Monthly Servicing Fee
otherwise distributable to the Company (as Servicer) and the amounts
otherwise distributable to the Class C Certificateholders on any
Remittance Date.
2. Prepayment Considerations. The prepayment experience on the Contracts
may affect the average life of the Certificates. See "Yield, Prepayment
and Maturity Considerations."
3. Limited Liquidity. There can be no assurance that a secondary market
will develop for the Class B-2 Certificates, or, if it does develop,
that it will provide the holders of the Class B-2 Certificates with
liquidity of investment or that it will remain for the term of the Class
B-2 Certificates. The Class B-2 Certificates will not constitute
"mortgage related securities" for purposes of the Secondary Mortgage
Market Enhancement Act of 1984 ("SMMEA"). Accordingly, many institutions
with legal authority to invest in SMMEA securities will not be able to
invest in the Class B-2 Certificates, limiting the market for such
securities.
4. Distributions of Principal. The yield to maturity on the Class B-2
Certificates will be affected by the rate at which Contracts become
Liquidated Contracts and the severity of ensuing losses on such
Liquidated Contracts and the timing thereof. Prior to the Class B Cross-
over Date, and on any Remittance Date on or after the Class B Cross-over
Date on which each Class B Principal Distribution Test is not satisfied,
the Class A Certificateholders will receive all payments of principal
that are made on the Contracts. Holders of the Class B-1 Certificates
will be entitled to all distributions of principal paid to the Class B
Certificates until the Class B-1 Principal Balance is reduced to zero.
It is not possible to predict the timing of the occurrence of the Class
B Cross-over Date, the Sixth Cross-over Date or of the Remittance Date,
if any, on which the Class A Principal Balance is reduced to zero, which
occurrences will be affected by the rate of voluntary principal
prepayments in addition to prepayments due to default and subsequent
liquidation. Prepayments on Contracts may be influenced by a variety of
economic, geographic, social and other factors, including repossessions,
aging, seasonality, market interest rates, changes in housing needs, job
transfers and unemployment. See "Yield, Prepayment and Maturity
Considerations." In addition, the timing of distributions of principal
on the Class B-2 Certificates will be dependent on the satisfaction of
Class B Principal Distribution Tests relating to losses and
delinquencies on the Contracts. See "Description of the Certificates--
Principal."
5. Security Interests and Certain Other Aspects of the Contracts. Each
Contract will be secured by a security interest in a Manufactured Home
(or, in the case of a Land-and-Home Contract, by a mortgage or deed of
trust on the real estate to which the Manufactured Home is permanently
affixed). Perfection of security interests in the Manufactured Homes and
enforcement of rights to realize upon the value of the Manufactured
Homes as collateral for the Contracts are subject to a number of federal
and state laws, including the Uniform Commercial Code (the "UCC") as
adopted in each state and, in most states, certificate of title
statutes, but generally not state real estate laws. The steps necessary
14
<PAGE>
to perfect the security interest in a Manufactured Home will vary from
state to state. Because of the expense and administrative inconvenience
involved, the Company will not amend any certificate of title to name the
Trustee as the lienholder and will not deliver any certificate of title to
the Trustee or note thereon the Trustee's interest. Consequently, in some
states in the absence of such an amendment to the certificate of title the
assignment to the Trustee of the security interest in the Manufactured
Home may not be effective or such security interest may not be perfected
and in the absence of such notation or delivery to the Trustee the
assignment of the security interest in the Manufactured Home to the
Trustee may not be effective against creditors of the Company or a trustee
in bankruptcy of the Company. Because of the expense and administrative
inconvenience involved, the Company will not record the assignment to the
Trustee of the mortgage or deed of trust securing each Land-and-Home
Contract. Consequently, in some states in the absence of such recordation
the assignment to the Trustee of the mortgage or deed of trust securing a
Land-and-Home Contract may not be effective, and in the absence of such
recordation the assignment of the mortgage or deed of trust to the Trustee
may not be effective against creditors of or purchasers from the Company
or a trustee in bankruptcy of the Company. In addition, numerous federal
and state consumer protection laws impose requirements on lenders under
installment sales contracts and installment loan agreements such as the
Contracts, and the failure by the lender or seller of goods to comply with
such requirements could give rise to liabilities of assignees for amounts
due under such agreements and the right of set-off against claims by such
assignees. These laws would apply to the Trust as assignee of the
Contracts. From time to time, the Company has been involved in litigation
under consumer or debtor protection laws, some of which have been class
actions. Pursuant to the Agreement, the Company will represent and warrant
that each Contract complies with all requirements of law and will provide
certain warranties relating to the validity, perfection and priority of
the security interest in each Manufactured Home securing a Contract. A
breach by the Company of any such warranty that materially adversely
affects any Contract would require the Company to repurchase, or at its
option substitute another manufactured housing contract for, such Contract
unless such breach is cured within 90 days. If the Company does not honor
its repurchase obligation in respect of a Contract and such Contract were
to become defaulted, recovery of amounts due on such Contract would be
dependent on repossession and resale of the Manufactured Home securing
such Contract. Certain other factors may limit the ability of the
Certificateholders to realize upon the Manufactured Homes or may limit the
amount realized to less than the amount due. See "Certain Legal Aspects of
the Contracts" herein.
6. Certain Matters Relating to Insolvency. A case recently decided by the
United States Court of Appeals for the Tenth Circuit contains language
to the effect that accounts sold by an entity which subsequently became
bankrupt remained property of the debtor's bankruptcy estate. Although
the Contracts constitute chattel paper rather than accounts under the
UCC, sales of chattel paper, like sales of accounts, are governed by
Article 9 of the UCC. If the Company were to become a debtor under the
federal bankruptcy code and a court were to follow the reasoning of the
Tenth Circuit and apply such reasoning to chattel paper,
Certificateholders could experience a delay or reduction in
distributions.
STRUCTURE OF THE TRANSACTION
The Company will establish the Trust and transfer the Contracts and related
rights to the Trust pursuant to the Agreement. The Certificates represent
fractional undivided interests in the Trust, the corpus of which will consist
of the Contracts (including all rights to receive payments due on such
Contracts on and after March 1, 1994 (the "Cut-off Date") and security
interests in the Manufactured Homes securing such Contracts), rights under
certain hazard insurance policies with respect to the Manufactured Homes,
amounts held for the Trust in the Certificate Account (as defined below) and
all proceeds in any way derived from any of the foregoing. The Company will
also service the Contracts for the Trust. Except for the Land-and-Home
Contracts, the Contracts will be held by the Company on behalf of the Trustee.
First Trust National Association will act as custodian to hold, as the
Trustee's agent, the documents relating to all Land-and-Home Contracts.
15
<PAGE>
Payments by Obligors will be deposited in a separate account maintained at an
Eligible Institution in the name of the Trustee (the "Certificate Account") no
later than one Business Day after receipt. Certain payments deposited in the
Certificate Account in respect of each calendar month (a "Due Period") will be
applied on the 15th day of the next month (or, if such day is not a Business
Day, the next succeeding business day) (a "Remittance Date") to make the
distributions to Certificateholders described under "Description of the
Certificates--Distributions" and to pay certain monthly fees to the Company as
compensation for servicing the Contracts. The Company, in its capacity as
Servicer of the Contracts, and any successor servicer are referred to herein as
the "Servicer."
The Company's conveyance of the Contracts to the Trust is without recourse,
except for certain warranties made by the Company in the Agreement and certain
indemnities by the Servicer described under "Description of the Certificates--
Indemnification."
THE CONTRACT POOL
The Contract Pool consists of Contracts having an aggregate principal
balance as of the Cut-off Date of $ (the "Cut-off Date Pool
Principal Balance"). All of the Contracts are manufactured housing installment
sales contracts originated by a manufactured housing dealer and purchased by
the Company from such dealer, or manufactured housing installment loan
agreements originated by the Company directly. The Contracts were originated
between and . Manufactured housing installment sale contracts
and manufactured housing installment loan agreements are hereinafter
collectively referred to as "manufactured housing contracts" or "contracts."
All of the Contracts are conventional manufactured housing contracts, meaning
that they are not insured or guaranteed by any governmental agency.
Each Contract (a) is secured by a Manufactured Home or, in the case of a
Land-and-Home Contract, is secured by a lien on real estate to which the
Manufactured Home is deemed permanently affixed, (b) is fully amortizing with a
fixed contractual rate of interest (the "Contract Rate") and provides for level
payments over the term of such Contract and (c) is dated on or after
. The Contracts were originated or acquired by the Company in the ordinary
course of the Company's business. A detailed description of the Contracts is
included in the Agreement. Approximately % of the Cut-off Date Pool Principal
Balance is attributable to loans to purchase Manufactured Homes which were new
and approximately % is attributable to loans to purchase Manufactured Homes
which were used at the time the related Contract was originated. All Contracts
have a Contract Rate of at least %. Approximately % of the Contracts
by Cut-off Date Pool Principal Balance have Contract Rates less than %
(equal to the Class B-2 Remittance Rate). The Contracts have remaining
maturities, as of the Cut-off Date, of at least months but not more than 300
months and original maturities of at least months but not more than 300
months, and a weighted average remaining term to scheduled maturity, as of the
Cut-off Date, of months. The average remaining principal balance per
Contract as of the Cut-off Date was $ and the outstanding principal
balances of the Contracts as of the Cut-off Date ranged from $ to
$ . All but , or % by Cut-off Date Pool Principal Balance,
of the Contracts had loan-to-value ratios at the time of origination of % or
less. "Value" in such calculation is equal to (i) in the case of a new
Manufactured Home, the total cost of such Manufactured Home, including sales
and other taxes, filing and recording fees imposed by law, and premiums for
related insurance, (ii) in the case of a used Manufactured Home, either the
total delivered sales price for such Manufactured Home, if available, or else
its appraised market value, plus, in either case, sales and other taxes, filing
and recording fees imposed by law and premiums for related insurance, or (iii)
in the case of real estate securing a Land-and-Home Contract, the total sales
price of the real estate and the Manufactured Home together. (With respect to
approximately % of the Contracts by Cut-off Date Pool Principal Balance,
"Value" includes the value of land in respect of which the Obligor has granted
a lien to the Company in lieu of a down payment, which lien is not being
transferred to the Trust. Such Contracts are not Land-and-Home Contracts.)
Appraisals are made by employees of the Company. Manufactured Homes,
16
<PAGE>
unlike site-built homes, generally depreciate in value. Consequently, at any
time after origination it is possible, especially in the case of Contracts with
high loan-to-value ratios at origination, that the market value of a
Manufactured Home may be lower than the principal amount outstanding under the
related Contract. The Contracts are secured by Manufactured Homes located in
states and the District of Columbia, of which approximately % of the
Contracts by remaining principal balance are secured by Manufactured Homes
located in , % in , % in and % in
. No other state represented more than % of the Contracts.
17
<PAGE>
Set forth below is a description of certain additional characteristics of the
Contracts.
GEOGRAPHICAL DISTRIBUTION OF MANUFACTURED HOMES
<TABLE>
<CAPTION>
% OF CONTRACT
NUMBER OF % OF CONTRACT AGGREGATE POOL BY
CONTRACTS POOL BY NUMBER PRINCIPAL OUTSTANDING
AS OF OF CONTRACTS BALANCE PRINCIPAL
CUT-OFF AS OF CUT-OFF OUTSTANDING AS BALANCE AS OF
DATE DATE OF CUT-OFF DATE CUT-OFF DATE
--------- -------------- --------------- -------------
<S> <C> <C> <C> <C>
Alabama.................. % $ %
Alaska...................
Arizona..................
Arkansas.................
California...............
Colorado.................
Connecticut..............
Delaware.................
District of Columbia.....
Florida..................
Georgia..................
Idaho....................
Illinois.................
Indiana..................
Iowa.....................
Kansas...................
Kentucky.................
Louisiana................
Maine....................
Maryland.................
Massachusetts............
Michigan.................
Minnesota................
Mississippi..............
Missouri.................
Montana..................
Nebraska.................
Nevada...................
New Hampshire............
New Jersey...............
New Mexico...............
New York.................
North Carolina...........
North Dakota.............
Ohio.....................
Oklahoma.................
Oregon...................
Pennsylvania.............
Rhode Island.............
South Carolina...........
South Dakota.............
Tennessee................
Texas....................
Utah.....................
Vermont..................
Virginia.................
Washington...............
West Virginia............
Wisconsin................
Wyoming..................
------ ------ --------------- ------
Total.................... % $ %
====== ====== =============== ======
</TABLE>
18
<PAGE>
YEARS OF ORIGINATION OF CONTRACTS
<TABLE>
<CAPTION>
% OF CONTRACT POOL
AGGREGATE PRINCIPAL OUTSTANDING PRINCIPAL
NUMBER OF CONTRACTS BALANCE OUTSTANDING BALANCE AS OF
YEAR OF ORIGINATION AS OF CUT-OFF DATE AS OF CUT-OFF DATE CUT-OFF DATE
------------------- ------------------- ------------------- ---------------------
<S> <C> <C> <C>
1980.................... $ %
1981....................
1982....................
1983....................
1984....................
1985....................
1986....................
1987....................
1988....................
1989....................
1990....................
1991....................
1992....................
1993....................
1994....................
------ ------- ------
Total................ 100.00%
====== ======= ======
</TABLE>
DISTRIBUTION OF ORIGINAL CONTRACT AMOUNTS
<TABLE>
<CAPTION>
% OF CONTRACT POOL
AGGREGATE PRINCIPAL OUTSTANDING PRINCIPAL
ORIGINAL CONTRACT NUMBER OF CONTRACTS BALANCE OUTSTANDING BALANCE AS OF
AMOUNT (IN DOLLARS)(1) AS OF CUT-OFF DATE AS OF CUT-OFF DATE CUT-OFF DATE
---------------------- ------------------- ------------------- ---------------------
<S> <C> <C> <C>
Less than $10,000....... $ %
$10,000-$19,999.99......
$20,000-$29,999.99......
$30,000-$39,999.99......
$40,000-$49,999.99......
$50,000-$59,999.99......
$60,000-$69,999.99......
$70,000-$79,999.99......
$80,000-$89,999.99......
$90,000-$99,999.99......
$100,000-$109,999.99....
------ ------- ------
Total................ 100.00%
====== ======= ======
</TABLE>
- --------
(1) The largest original Contract amount is $ , which represents %
of the Cut-off Date Pool Principal Balance.
DISTRIBUTION OF ORIGINAL LOAN-TO-VALUE RATIOS
<TABLE>
<CAPTION>
AGGREGATE PRINCIPAL % OF CONTRACT POOL
NUMBER OF CONTRACTS BALANCE OUTSTANDING OUTSTANDING PRINCIPAL
LOAN-TO-VALUE RATIO(1) AS OF CUT-OFF DATE AS OF CUT-OFF DATE BALANCE AS OF CUT-OFF DATE
- ---------------------- ------------------- ------------------- --------------------------
<S> <C> <C> <C>
Less than 61%........... $ %
61-65%..................
66-70%..................
71-75%..................
76-80%..................
81-85%..................
86-90%..................
91-95%..................
Over 95%................
------ ------- ------
Total................ 100.00%
====== ======= ======
</TABLE>
- --------
(1) Rounded to the nearest 1%. The term "Value" as used in this table is
defined above. The loan-to-value ratios on the Contracts may be subject to
a variance of up to 5% from the tabular presentation. Such variances were
caused by information input by Company personnel in regional offices with
respect to incidental items financed in the loans, such as dealer-installed
equipment, the costs of which were estimated at the time the loan
applications were approved.
19
<PAGE>
CONTRACT RATES
<TABLE>
<CAPTION>
AGGREGATE PRINCIPAL % OF CONTRACT POOL
RANGE OF CONTRACTS BY NUMBER OF CONTRACTS BALANCE OUTSTANDING OUTSTANDING PRINCIPAL
CONTRACT RATE AS OF CUT-OFF DATE AS OF CUT-OFF DATE BALANCE AS OF CUT-OFF DATE
--------------------- ------------------- ------------------- --------------------------
<S> <C> <C> <C>
7.00%-8.00%............. $ %
8.01%-9.00%.............
9.01%-10.00%............
10.01%-11.00%...........
11.01%-12.00%...........
12.01%-13.00%...........
13.01%-14.00%...........
14.01%-15.00%...........
15.01%-16.00%...........
---- ---- ------
Total............... $ 100.00%
==== ==== ======
</TABLE>
REMAINING MONTHS TO MATURITY
<TABLE>
<CAPTION>
AGGREGATE PRINCIPAL % OF CONTRACT POOL
MONTHS REMAINING NUMBER OF CONTRACTS BALANCE OUTSTANDING OUTSTANDING PRINCIPAL
AS OF CUT-OFF DATE AS OF CUT-OFF DATE AS OF CUT-OFF DATE BALANCE AS OF CUT-OFF DATE
------------------ ------------------- ------------------- --------------------------
<S> <C> <C> <C>
Less than 31............ $ %
31-60...................
61-90...................
91-120..................
121-150.................
151-180.................
181-210.................
211-240.................
Over 240................
---- ---- ------
Total............... $ 100.00%
==== ==== ======
</TABLE>
20
<PAGE>
GREEN TREE FINANCIAL CORPORATION
GENERAL
The Company is a Minnesota corporation which, as of December 31, 1993, had
stockholders' equity of approximately $ . The Company purchases,
pools, sells and services conditional sales contracts for manufactured housing
throughout the nation. The Company is currently the largest servicer of
manufactured housing government insured or guaranteed contracts, and is one of
the largest servicers of conventional manufactured housing contracts, in the
United States. The Company operates its business through 40 regional service
centers throughout the United States, serving the 48 contiguous states and
Alaska. The Company's principal executive offices are located at 1100 Landmark
Towers, 345 St. Peter Street, St. Paul, Minnesota 55102-1639 (telephone (612)
293-3400). The Company's Annual Report on Form 10-K for the year ended December
31, 1992, most recent Proxy Statement and, when available, subsequent quarterly
and annual reports are available from the Company upon written request.
CONTRACT ORIGINATION
Through its regional service centers, the Company arranges to purchase
manufactured housing contracts from manufactured housing dealers located
throughout the United States. The Company's regional service center personnel
contact dealers located in their region and explain the Company's available
financing plans, terms, prevailing rates and credit and financing policies. If
the dealer wishes to use the Company's available customer financing, the dealer
must make an application for dealer approval. Upon satisfactory results of the
Company's investigation of the dealer's creditworthiness and general business
reputation, the Company and the dealer execute a dealer agreement. The Company
also originates manufactured housing installment loan agreements directly with
customers.
All contracts that the Company originates are written on forms provided by
the Company and are originated on an individually approved basis in accordance
with the Company's guidelines. The dealer or the customer submits the
customer's credit application and purchase order to a regional service center
where Company personnel make an analysis of the creditworthiness of the
proposed buyer. The analysis includes a review of the applicant's paying
habits, length and likelihood of continued employment, and certain other
factors. The Company's current underwriting guidelines for conventional
contracts require that the monthly payment on the contract not exceed 29% of
the obligor's monthly income and that the monthly payment on the contract,
together with the obligor's other fixed monthly obligations, not exceed 41% of
the obligor's monthly income (net of federal and state income taxes).
Manufactured housing contracts are assumable by any individual who meets the
Company's then-current underwriting criteria. With respect to conventional
contracts for new manufactured homes, the Company may finance up to the lesser
of (a) 95% of the cash sale price (including taxes, fees and insurance) or (b)
125% of the manufacturer's invoice price plus 100% of taxes and license fees,
100% of freight charges, 100% of the dealer's cost of additional dealer-
installed equipment (not to exceed 20% of the amount financed in all states
except California; not to exceed 70% of the manufacturer's invoice price in
California if required to meet park requirements), and up to $900 of set-up
costs per module. With respect to used manufactured homes, the Company may
finance up to 90% of the lesser of (a) the total delivered sales price of the
unit (including taxes, fees, insurance and up to $900 of set-up costs per
module), or (b) the appraised value of the unit plus taxes, fees, and
insurance. Such appraisals on used manufactured homes are performed by
employees of the Company. If the application meets the Company's guidelines and
the credit is approved, the Company purchases the contract after the
manufactured home is delivered and set up and the customer has moved in. The
guidelines in this paragraph may be exceeded when the Company's underwriters
deem it appropriate. For the definition of "Value" used in calculating the
loan-to-value ratios of the Contracts, see "The Contract Pool."
21
<PAGE>
The volume of manufactured housing contracts purchased or originated by the
Company for the past five years and certain other information at the end of
such years were as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------
1989 1990 1991 1992 1993
--------- --------- --------- ----------- ---------
(DOLLARS IN THOUSANDS EXCEPT FOR AVERAGE SIZE)
<S> <C> <C> <C> <C> <C>
Principal balance of
contracts purchased:
FHA/VA................ $ 324,137 $ 426,689 $ 507,879 $ 265,992 $
Conventional.......... 446,728 459,466 432,060 942,874
--------- --------- --------- ----------- -------
Total............. $ 770,865 $ 886,155 $ 939,939 $1,208,866 $
========= ========= ========= =========== =======
Number of contracts pur-
chased................. 37,651 42,396 43,842 53,484
Average contract size... $ 20,474 $ 20,902 $ 21,439 $ 22,602 $
Average interest rate... 13.6% 13.6% 12.7% 11.5% %
Weighted average remain-
ing term at purchase
(months)............... 188 193 192 199
</TABLE>
POOLING AND DISPOSITION OF CONTRACTS
The Company generally pools contracts for sale to investors within 15 to 120
days of purchase. In the case of FHA-insured and VA-guaranteed manufactured
housing contracts, the Company generally issues modified pass-through
certificates secured by the contracts and guaranteed by the Government National
Mortgage Association ("GNMA certificates"). The GNMA certificates provide for
the payment by the Company to registered holders of GNMA certificates of
monthly payments of principal and interest and the "pass-through" of any
prepayments of the contracts.
In the case of conventional manufactured housing contracts, the Company sells
pools of contracts through asset securitization vehicles such as the Trust
described herein. The Company establishes a specified level of recourse (which
may take the form of a subordinated right to interest payments on the
Contracts, payable after the payment of scheduled principal and interest on the
related investor interests) or a cash reserve fund for losses on the contracts
comprising the pools. Upon a default under a contract and a liquidation of the
underlying collateral, any net losses are charged against the established
recourse amount or the reserve fund.
SERVICING
The Company services all of the manufactured housing contracts it originates
or purchases from other originators, collecting loan payments, taxes and
insurance payments where applicable and other payments from borrowers and
remitting principal and interest payments to the holders of the conventional
contracts or of the GNMA certificates backed by FHA-insured and VA-guaranteed
contracts.
The following table shows the composition of the Company's servicing
portfolio of contracts that the Company originated, including manufactured
housing contracts, recreational vehicle contracts, motorcycle contracts and
FHA-insured home improvement contracts, on the dates indicated:
<TABLE>
<CAPTION>
AT DECEMBER 31,
---------------------------------------------------
1989 1990 1991 1992 1993
---------- ---------- ---------- ---------- -------
<S> <C> <C> <C> <C> <C>
Unpaid principal balance of
contracts being serviced
(in thousands)............ $3,599,216 $4,098,091 $4,753,650 $5,278,370 $
Average unpaid balance..... $ 16,589 $ 16,456 $ 16,394 $ 16,638 $
Number of contracts serv-
iced...................... 216,962 249,038 289,960 317,251
</TABLE>
In 1990, the Company began subservicing manufactured housing contracts
originated by other lenders. These subserviced contracts are not reflected in
the foregoing table.
22
<PAGE>
DELINQUENCY, LOAN LOSS AND REPOSSESSION EXPERIENCE
The following table sets forth the delinquency experience at December 31 for
each of the past five years of the portfolio of conventional manufactured
housing contracts serviced by the Company (other than contracts already in
repossession). All of the Contracts in the Trust are conventional Contracts.
In 1990, the Company began subservicing manufactured housing contracts
originated by other lenders. These subserviced contracts are not reflected in
the following table.
DELINQUENCY EXPERIENCE
<TABLE>
<CAPTION>
AT DECEMBER 31,
-----------------------------------------
1989 1990 1991 1992 1993
------- ------- ------- ------- -----
<S> <C> <C> <C> <C> <C>
Number of Contracts Outstanding (1). 122,187 134,867 151,779 175,730
Number of Contracts Delinquent (2):
30-59 Days........................ 2,002 1,795 2,161 1,849
60-89 Days........................ 607 656 705 603
90 Days or More................... 714 874 1,194 1,110
Total Contracts Delinquent.......... 3,323 3,325 4,060 3,562
Delinquencies as a Percent of
Contracts Outstanding (3).......... 2.72% 2.47% 2.67% 2.03% %
</TABLE>
- --------
(1)Excludes contracts already in repossession.
(2) The period of delinquency is based on the number of days payments are
contractually past due (assuming 30-day months). Consequently, a contract
due on the first day of a month is not 30 days delinquent until the first
day of the next month.
(3)By number of contracts.
The following table sets forth the loan loss and repossession experience for
the periods indicated of the portfolio of conventional manufactured housing
contracts serviced by the Company. In 1990, the Company began subservicing
manufactured housing contracts originated by other lenders. These subserviced
contracts are not reflected in the following table.
LOAN LOSS/REPOSSESSION EXPERIENCE
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------
1989 1990 1991 1992 1993
---------- ---------- ---------- ---------- -------
<S> <C> <C> <C> <C> <C>
Number of Contracts
Serviced (1)........... 123,425 136,331 153,435 176,925
Principal Balance of
Contracts Serviced (1). $2,002,150 $2,200,196 $2,477,595 $2,996,582 $
Contract Liquidations
(2).................... 3.44% 2.79% 2.82% 2.75% %
Net Losses:
Dollars (3)........... $ 35,614 $ 30,053 $ 34,842 $ 47,817
Percentage (4)........ 1.78% 1.37% 1.41% 1.60% %
</TABLE>
- --------
(1)As of period end.
(2)As a percentage of the total number of contracts being serviced as of
period end.
(3)The calculation of net loss includes unpaid interest to the date of
repossession and all expenses of repossession and liquidation.
(4)As a percentage of the principal balance of contracts being serviced as of
period end.
The data presented in the foregoing tables are for illustrative purposes
only and there is no assurance that the delinquency, loan loss or repossession
experience of the Contracts will be similar to that set forth above. The
delinquency, loan loss and repossession experience of manufactured housing
contracts historically has been sharply affected by a downturn in regional or
local economic conditions. In recent years, such a
23
<PAGE>
downturn and higher levels of delinquency, loan loss and repossession were
experienced in areas dependent on the oil and gas industry, notably certain
areas of Texas, Oklahoma and Louisiana. These regional or local economic
conditions are often volatile, and no predictions can be made regarding future
economic conditions in Texas, Oklahoma or Louisiana or any other particular
area. These downturns have tended to increase the severity of loss on
repossession because of the increased supply of used units, which in turn may
affect the supply in other regions. In order to achieve geographic dispersion
and to limit the effect of regional and local economic conditions on the
Contract Pool, Contracts originated in any one state will not exceed 10% of the
Cut-off Date Pool Principal Balance.
YIELD, PREPAYMENT AND MATURITY CONSIDERATIONS
The Contracts have maturities at origination ranging from months to 300
months, but may be prepaid in full or in part at any time. The prepayment
experience of the Contracts (including prepayments due to liquidations of
defaulted Contracts) will affect the average life of the Class B-2
Certificates. Based on the Company's experience with the portfolio of
manufactured housing contracts serviced by it, the Company anticipates that a
number of the Contracts will be prepaid prior to their maturity. A number of
factors, including homeowner mobility, general and regional economic conditions
and prevailing interest rates, may influence prepayments. In addition,
repurchases of Contracts on account of certain breaches of representations and
warranties have the effect of prepaying such Contracts and therefore would
affect the average life of the Class B-2 Certificates. The prepayment
experience on manufactured housing contracts varies greatly. Most of the
Contracts contain a "due-on-sale" clause that would permit the Servicer to
accelerate the maturity of a Contract upon the sale of the related Manufactured
Home. In the case of those Contracts that do contain due-on-sale clauses, the
Company will permit assumptions of such Contracts if the purchaser of the
related Manufactured Home satisfies the Company's then-current underwriting
standards.
Until the Class B Cross-over Date, and on any Remittance Date on or after the
Class B Cross-over Date on which a Class B Principal Distribution Test is not
satisfied, the Class A Certificateholders will receive all payments of
principal which are made on the Contracts. All distributions of principal on
the Class B Certificates will be paid to the Class B-1 Certificateholders until
the Class B-1 Principal Balance is reduced to zero. The rate of principal
payments on the Class B-2 Certificates and the aggregate amount of
distributions on the Class B-2 Certificates will be affected by the rate of
Obligor defaults resulting in delinquencies on the Contracts and losses on
Liquidated Contracts, by the severity of those losses and by the timing of
those delinquencies and losses. See "Description of the Certificates--
Subordination of Class B-2 Certificates and Class C Certificates" for a
description of the manner in which such losses are borne by the Class B-2
Certificateholders. If the Class B-2 Certificates are purchased at a discount
and the purchaser calculates its anticipated yield to maturity based on an
assumed rate of payment of principal on the Class B-2 Certificates that is
faster than the rate actually realized, such purchaser's actual yield to
maturity will be lower than the yield so calculated by such purchaser. See
"Description of the Certificates--Principal."
There can be no assurance that the delinquency or repossession experience set
forth under "Green Tree Financial Corporation--Loan Loss and Repossession
Experience" will be representative of the results that may be experienced with
respect to the Contracts.
The Servicer and the Company each have the option to purchase from the Trust
all remaining Contracts, and thereby effect early retirement of the
Certificates, on any Remittance Date when the Pool Scheduled Principal Balance
is less than 10% of the Cut-off Date Pool Principal Balance. See "Description
of the Certificates--Repurchase Option."
Although partial prepayments of principal on Contracts are applied on
scheduled payment dates for such Contracts, Obligors are not required to pay
interest on Contracts after the date of a full prepayment of principal. As a
result, full prepayments on Contracts in advance of the scheduled payment dates
for such Contracts in any Due Period will reduce the amount of interest
received from Obligors during such Due Period and available to be passed
through to holders of Certificates on the following Remittance Date.
24
<PAGE>
The final scheduled payment date on the Contract with the latest maturity is
in December 2018.
Certain statistical information relating to the prepayment behavior of
certain pools of manufactured housing contracts sold and serviced by the
Company is set forth below. The following table relates to the Company's eleven
sold pools for which prepayment information is available covering a period of
at least 36 months and which pools had an aggregate principal balance as of the
first day of the month of sale of at least $100,000,000. In evaluating the
information contained in this table and its relationship to the expected
prepayment behavior of the Contracts, prospective Class B-2 Certificateholders
should consider the following: the Company has performed no statistical
analysis to determine whether the contracts to which the table relates
constitute a statistically significant sample of manufactured housing contracts
for purposes of determining expected prepayment behavior. Furthermore, the
Contracts in the Contract Pool may have an average age as of the Cut-off Date
substantially different than the average ages (as of the first day of the month
of sale) of the contracts in the sold pool to which the following table relates
and may have other characteristics substantially different than the contracts
in any sold pool. For these reasons, and because of the unpredictable nature of
the factors described under "Weighted Average Life of the Class B-2
Certificates" as influencing the amount of prepayments of manufactured housing
contracts, no assurance can be given that the prepayment experience of the
Contracts will exhibit prepayment behavior similar to the behavior summarized
in the following table for the periods covered thereby. In addition to the
foregoing, prospective Class B-2 Certificateholders should consider that the
table set forth below is limited to the periods covered therein and thus cannot
reflect the effects, if any, of aging on the prepayment behavior of
manufactured housing contracts beyond such periods.
The following table sets forth with respect to each sold pool an initial
aggregate principal balance (calculated as of the first day of the month of the
sale), the decline in outstanding aggregate principal balance for each
subsequent month (whether due to liquidations, scheduled principal payments,
principal prepayments or repurchases) and the weighted average Contract Rate
("WAC") of the contracts in each pool as of the first day of the month of the
sale of each pool and as of March 1, 1994. The percentage of the Manufactured
Housing Prepayment Model ("MHP") (as described in "Weighted Average Life of the
Class B-2 Certificates" below) for the life of each sold pool through March 1,
1994 (calculated as the annual rate of the decline in the outstanding aggregate
principal balance exhibited over the life of the pool, and using the WAC as of
the first day of the month of the sale of each pool) was the following: % of
the MHP for Pool #1; % of the MHP for Pool #2; % of the MHP for Pool #3;
% of the MHP for Pool #4; % of the MHP for Pool #5; % of the MHP for Pool
#6; % of the MHP for Pool #7; % of the MHP for Pool #8; % of the MHP for
Pool #9; % of the MHP for Pool #10; and % of the MHP for Pool #11. In
addition, Pool #1 had an estimated average age of 15 months as of the first day
of the month of sale and an original weighted average maturity ("WAM") of
months; Pool #2 had an estimated average age of 2 months as of the first day of
the month of sale and an original WAM of months; Pool #3 had an estimated
average age of 8 months as of the first day of the month of sale and an
original WAM of months; Pool #4 had an estimated average age of 1 month as
of the first day of the month of sale and an original WAM of months; Pool #5
had an estimated average age of 1 month as of the first day of the month of
sale and an original WAM of months; Pool #6 had an estimated average age of
0 months as of the first day of the month of sale and an original WAM of
months; Pool #7 had an estimated average age of 4 months as of the first day of
the month of sale and an original WAM of months; Pool #8 had an estimated
average age of 1 month as of the first day of the month of sale and an original
WAM of months; Pool #9 had an estimated average age of 1 month as of the
first day of the month of sale and an original WAM of months; Pool #10 had
an estimated average age of 1 month as of the first day of the month of sale
and an original WAM of months; and Pool #11 had an estimated average age of
2 months as of the first day of the month of sale and an original WAM of
months. By comparison, the Contracts in the Contract Pool have an estimated
average age of month as of the Cut-off Date and an original WAM of months.
25
<PAGE>
INFORMATION REGARDING SELECTED POOLS OF MANUFACTURED HOUSING CONTRACTS
<TABLE>
<CAPTION>
POOL #1 POOL #2 POOL #3 POOL #4 POOL #5
------------------- ------------------- ------------------- ------------------- ------------------
AGGREGATE AGGREGATE AGGREGATE AGGREGATE AGGREGATE
PRINCIPAL PRINCIPAL PRINCIPAL PRINCIPAL PRINCIPAL
BALANCE WAC BALANCE WAC BALANCE WAC BALANCE WAC BALANCE WAC
------------ ------ ------------ ------ ------------ ------ ------------ ------ ------------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
June 1987.......... $150,002,024 14.09%
July 1987.......... 148,570,607
August 1987........ 147,416,832
September 1987..... 146,067,294
October 1987....... 144,462,628
November 1987...... 142,859,082
December 1987...... 141,504,979 $112,294,744 13.68%
January 1988....... 139,909,863 111,564,231
February 1988...... 138,230,608 110,959,130
March 1988......... 137,054,052 110,158,592 $106,739,475 13.56%
April 1988......... 135,321,739 109,301,576 106,223,037
May 1988........... 133,734,529 108,408,172 105,534,716
June 1988.......... 132,186,564 107,509,701 104,702,409
July 1988.......... 130,488,347 106,644,630 103,756,166
August 1988........ 129,307,834 105,806,177 102,846,872
September 1988..... 127,718,336 104,930,189 101,894,145 $132,287,851 13.64%
October 1988....... 126,246,584 103,740,306 101,020,931 131,632,149
November 1988...... 124,511,650 102,784,208 100,161,691 130,957,623
December 1988...... 122,962,573 101,801,837 99,205,495 130,379,138 $105,566,962 13.76%
January 1989....... 121,615,458 100,781,280 98,284,587 129,738,726 105,207,877
February 1989...... 120,513,719 99,900,514 97,210,555 128,858,457 104,682,072
March 1989......... 119,260,068 99,094,959 96,296,636 128,200,908 104,130,477
April 1989......... 117,814,726 97,904,714 95,404,068 127,488,457 103,542,004
May 1989........... 116,364,769 96,684,420 94,564,930 126,889,002 102,653,070
June 1989.......... 115,232,291 95,908,062 93,701,727 125,900,040 102,097,431
July 1989.......... 114,011,414 94,940,842 92,729,644 125,044,160 101,349,305
August 1989........ 112,911,186 93,912,508 91,737,435 124,031,897 100,586,806
September 1989..... 111,216,196 92,713,651 90,837,699 123,165,353 99,698,668
October 1989....... 109,954,911 91,769,472 89,974,610 122,116,060 98,924,607
November 1989...... 108,547,979 90,767,147 88,990,538 121,098,455 98,171,602
December 1989...... 107,236,278 89,884,950 88,113,642 119,857,703 97,434,609
January 1990....... 106,186,096 88,836,423 87,009,120 118,883,983 96,618,000
February 1990...... 105,059,437 87,869,426 86,279,171 118,083,854 95,929,936
March 1990......... 104,001,861 86,861,946 85,374,419 117,365,279 95,143,376
April 1990......... 102,821,481 85,901,514 84,531,680 116,113,249 94,192,288
May 1990........... 101,684,273 84,863,747 83,410,417 114,765,754 93,272,683
June 1990.......... 100,581,33 83,907,938 82,087,398 113,507,435 92,350,000
July 1990.......... 99,200,173 82,778,771 81,088,923 111,918,831 91,332,224
August 1990........ 97,996,005 81,580,222 80,290,213 110,524,701 90,523,030
September 1990..... 96,731,179 80,512,419 79,271,725 109,257,964 89,540,257
October 1990....... 95,723,713 79,377,536 78,435,152 108,356,070 88,577,911
November 1990...... 94,608,622 78,316,168 77,579,778 107,166,109 87,462,010
December 1990...... 93,300,020 77,309,480 76,885,835 106,034,096 86,324,903
January 1991....... 92,383,777 76,329,095 76,161,168 105,132,684 85,666,145
February 1991...... 91,270,191 75,368,267 75,382,761 104,278,161 84,828,593
March 1991......... 90,217,514 74,600,685 74,568,758 103,416,278 83,926,678
April 1991......... 88,903,182 73,533,774 73,763,400 102,375,383 82,871,571
May 1991........... 87,737,009 72,558,959 72,777,745 100,913,362 81,980,444
June 1991.......... 86,755,716 71,537,912 72,065,159 99,702,358 80,799,137
July 1991.......... 85,486,181 70,634,217 71,195,597 98,558,265 79,782,492
August 1991........ 83,985,497 69,667,258 70,212,900 97,424,170 78,496,352
September 1991..... 83,012,816 68,783,320 69,314,080 96,061,529 77,531,890
October 1991....... 81,786,450 67,962,267 68,368,876 94,759,840 76,689,165
November 1991...... 80,696,933 67,031,927 67,523,237 93,697,559 75,646,133
December 1991...... 79,606,603 66,126,209 66,542,668 92,654,711 74,715,672
January 1992....... 78,506,973 65,210,496 65,642,672 91,609,082 73,898,243
February 1992...... 77,341,248 64,101,129 64,776,537 90,383,639 72,994,567
March 1992......... 76,057,478 63,112,555 63,580,748 89,304,664 72,119,199
April 1992......... 74,953,850 62,142,028 62,609,837 87,900,385 70,888,314
May 1992........... 73,563,143 61,218,299 61,454,751 86,485,433 69,700,344
June 1992.......... 72,574,042 60,180,132 60,542,799 85,407,102 68,620,733
July 1992.......... 71,338,444 59,105,077 59,632,342 83,894,785 67,520,749
August 1992........ 70,403,384 58,030,585 58,760,983 82,688,906 66,394,217
September 1992..... 69,118,385 56,973,265 57,987,836 81,379,506 65,459,438
October 1992....... 68,087,038 56,113,844 56,913,562 80,311,428 64,410,681
November 1992...... 67,081,471 55,055,097 56,046,666 78,909,384 63,423,300
December 1992...... 65,898,230 54,076,802 55,130,414 77,855,313 62,419,877
January 1993....... 64,885,781 53,339,615 54,207,265 76,627,167 61,331,737
February 1993...... 63,921,467 52,534,394 53,534,143 75,860,353 60,520,406
March 1993......... 63,017,441 51,824,838 52,844,431 75,064,486 59,859,818
April 1993......... 61,926,618 51,010,651 51,973,010 73,896,389 59,025,174
May 1993........... 60,823,318 50,033,483 51,010,673 72,705,887 58,022,176
June 1993.......... 59,816,112 49,112,439 50,116,296 71,640,147 57,204,456
July 1993.......... 58,740,781 47,949,760 49,276,183 70,318,424 56,013,829
August 1993........ 57,403,489 47,093,773 48,429,392 68,905,390 54,918,745
September 1993..... 56,104,318 46,163,341 47,270,827 67,396,418 53,662,303
October 1993....... 54,967,798 45,015,682 46,345,045 65,979,912 52,300,659
November 1993...... 53,694,235 43,780,593 45,237,469 64,595,039 51,029,959
December 1993...... 52,641,642 42,596,425 44,443,890 63,284,418 50,008,613
January 1994.......
February 1994......
March 1994......... % % % % %
</TABLE>
26
<PAGE>
INFORMATION REGARDING SELECTED POOLS OF MANUFACTURED HOUSING CONTRACTS
<TABLE>
<CAPTION>
POOL #6 POOL #7 POOL #8 POOL #9 POOL #10
------------------ ------------------ ------------------ ------------------ ------------------
AGGREGATE AGGREGATE AGGREGATE AGGREGATE AGGREGATE
PRINCIPAL PRINCIPAL PRINCIPAL PRINCIPAL PRINCIPAL
BALANCE WAC BALANCE WAC BALANCE WAC BALANCE WAC BALANCE WAC
------------ ----- ------------ ----- ------------ ----- ------------ ----- ------------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
June 1987.......
July 1987.......
August 1987.....
September 1987..
October 1987....
November 1987...
December 1987...
January 1988....
February 1988...
March 1988......
April 1988......
May 1988........
June 1988.......
July 1988.......
August 1988.....
September 1988..
October 1988....
November 1988...
December 1988...
January 1989....
February 1989...
March 1989......
April 1989......
May 1989........
June 1989....... $121,205,258 14.39%
July 1989....... 120,791,096
August 1989..... 120,208,326
September 1989.. 119,476,151 $153,845,599 13.93%
October 1989.... 118,943,749 153,031,948
November 1989... 118,183,572 152,285,093
December 1989... 117,465,674 151,426,499 $127,799,125 13.74%
January 1990.... 116,918,168 150,534,240 127,024,450
February 1990... 116,164,551 149,739,836 126,192,365
March 1990...... 115,348,266 149,131,864 125,315,041
April 1990...... 114,390,687 148,093,304 124,605,798
May 1990........ 113,352,336 147,070,634 124,002,851
June 1990....... 112,246,343 146,056,885 123,333,588 $118,256,826 14.23%
July 1990....... 110,959,809 144,956,420 122,576,969 117,572,123
August 1990..... 110,083,602 143,672,440 121,784,943 116,892,713
September 1990.. 109,180,538 142,648,941 121,069,805 116,248,572 $133,311,855 14.21%
October 1990.... 108,268,685 141,647,307 120,055,001 115,726,182 132,708,128
November 1990... 107,128,784 140,382,797 119,105,339 115,054,486 131,124,784
December 1990... 106,169,197 139,346,989 118,324,747 114,478,143 131,480,071
January 1991.... 105,110,111 138,364,955 117,582,547 113,896,272 130,784,049
February 1991... 104,533,870 137,309,065 116,914,932 113,273,369 130,075,857
March 1991...... 103,358,519 136,126,195 116,204,284 112,686,192 129,353,288
April 1991...... 102,186,034 134,620,928 115,089,088 111,804,737 128,469,170
May 1991........ 100,923,270 132,989,000 113,944,914 110,887,705 127,597,801
June 1991....... 99,466,155 131,478,011 112,524,530 109,854,875 126,662,575
July 1991....... 98,218,803 130,020,761 111,320,624 108,972,638 125,738,135
August 1991..... 96,816,151 128,492,699 110,210,362 107,815,634 124,763,526
September 1991.. 95,430,796 126,806,793 109,025,041 106,893,442 123,709,097
October 1991.... 94,227,470 125,422,408 108,059,740 106,029,033 122,649,124
November 1991... 92,831,020 123,970,374 106,638,729 104,758,418 121,707,958
December 1991... 91,674,429 122,625,208 105,397,317 103,574,625 120,906,527
January 1992.... 90,646,936 121,205,901 104,200,220 102,731,705 119,916,542
February 1992... 89,335,995 119,604,050 103,046,534 101,588,643 118,870,421
March 1992...... 88,070,469 117,824,457 101,898,130 100,422,070 117,461,999
April 1992...... 86,749,880 116,113,836 100,278,052 98,668,389 115,959,521
May 1992........ 85,021,420 113,895,774 99,131,345 97,276,621 114,090,029
June 1992....... 83,796,442 112,240,635 97,500,236 96,126,963 112,468,590
July 1992....... 82,441,965 110,477,143 96,045,128 94,689,879 111,032,856
August 1992..... 81,029,966 108,677,315 94,947,812 93,473,752 109,610,542
September 1992.. 79,859,886 107,072,555 93,643,469 92,053,601 108,522,457
October 1992.... 78,393,946 105,524,278 92,055,076 90,514,939 107,162,382
November 1992... 76,958,320 103,775,864 90,669,591 89,075,320 105,554,653
December 1992... 75,595,677 101,942,908 89,178,551 87,683,257 104,001,403
January 1993.... 74,123,924 100,371,451 87,640,944 86,089,289 102,403,932
February 1993... 73,190,804 99,317,882 86,615,871 85,148,397 101,285,823
March 1993...... 72,179,190 98,094,643 85,418,495 83,997,960 100,317,469
April 1993...... 70,916,961 96,592,784 84,246,254 82,979,797 98,712,066
May 1993........ 69,426,154 94,804,085 82,694,815 81,240,329 97,129,803
June 1993....... 68,276,240 93,398,394 81,384,135 79,974,583 95,450,491
July 1993....... 66,830,487 91,519,311 79,889,722 78,376,568 93,462,086
August 1993..... 65,292,851 89,875,783 78,405,244 76,677,151 91,418,348
September 1993.. 63,952,533 87,947,992 76,783,169 75,029,431 89,368,644
October 1993.... 62,488,729 85,942,018 74,840,365 73,206,867 87,181,228
November 1993... 60,947,191 84,094,341 72,729,693 71,338,398 85,286,039
December 1993... 59,700,188 82,230,041 71,119,700 69,780,172 83,531,009
January 1994....
February 1994...
March 1994...... % % % % %
<CAPTION>
POOL #11
-------------------
AGGREGATE
PRINCIPAL
BALANCE WAC
------------ ------
<S> <C> <C>
June 1987.......
July 1987.......
August 1987.....
September 1987..
October 1987....
November 1987...
December 1987...
January 1988....
February 1988...
March 1988......
April 1988......
May 1988........
June 1988.......
July 1988.......
August 1988.....
September 1988..
October 1988....
November 1988...
December 1988...
January 1989....
February 1989...
March 1989......
April 1989......
May 1989........
June 1989.......
July 1989.......
August 1989.....
September 1989..
October 1989....
November 1989...
December 1989...
January 1990....
February 1990...
March 1990......
April 1990......
May 1990........
June 1990.......
July 1990.......
August 1990.....
September 1990..
October 1990....
November 1990...
December 1990... $117,246,945 14.07%
January 1991.... 116,685,698
February 1991... 116,205,141
March 1991...... 115,652,098
April 1991...... 114,961,106
May 1991........ 114,240,314
June 1991....... 113,523,797
July 1991....... 112,782,291
August 1991..... 112,044,738
September 1991.. 110,903,273
October 1991.... 110,221,842
November 1991... 109,207,436
December 1991... 108,606,380
January 1992.... 107,749,403
February 1992... 106,650,322
March 1992...... 105,757,820
April 1992...... 104,231,643
May 1992........ 103,065,191
June 1992....... 101,733,540
July 1992....... 100,373,468
August 1992..... 99,312,952
September 1992.. 98,163,283
October 1992.... 96,855,020
November 1992... 95,388,400
December 1992... 94,056,996
January 1993.... 92,180,094
February 1993... 91,306,816
March 1993...... 90,172,103
April 1993...... 88,715,509
May 1993........ 87,194,683
June 1993....... 85,389,950
July 1993....... 83,689,863
August 1993..... 81,937,783
September 1993.. 79,983,850
October 1993.... 77,865,034
November 1993... 75,635,478
December 1993... 74,101,263
January 1994....
February 1994...
March 1994...... %
</TABLE>
27
<PAGE>
WEIGHTED AVERAGE LIFE OF THE CLASS B-2 CERTIFICATES
The following information is given solely to illustrate the effect of
prepayments of the Contracts on the weighted average life of the Class B-2
Certificates under the stated assumptions and is not a prediction of the
prepayment rate that might actually be experienced by the Contracts.
Weighted average life refers to the average amount of time from the date of
issuance of a security until each dollar of principal of such security will be
repaid to the investor. The weighted average life of the Class B-2 Certificates
will be influenced by the rate at which principal on the Contracts is paid.
Principal payments on Contracts may be in the form of scheduled amortization or
prepayments (for this purpose, the term "prepayment" includes repayments and
liquidations due to default or other dispositions of Contracts). Prepayments on
Contracts may be measured by a prepayment standard or model. The model used in
this Prospectus, the Manufactured Housing Prepayment Model is based on an
assumed rate of prepayment each month of the then unpaid principal balance of a
pool of new contracts. A prepayment assumption of 100% MHP assumes constant
prepayment rates of 3.7% per annum of the then unpaid principal balance of such
Contracts in the first month of the life of the Contracts and an additional
0.1% per annum in each month thereafter until the 24th month. Beginning in the
24th month and in each month thereafter during the life of all of the
Contracts, 100% MHP assumes a constant prepayment rate of 6.0% per annum each
month.
As used in the following tables "0% MHP" assumes no prepayments on the
Contracts; "50% MHP" assumes the Contracts will prepay at rates equal to 50% of
the MHP assumed prepayment rates, and so forth.
There is no assurance, however, that prepayment of the Contracts will conform
to any level of the MHP, and no representation is made that the Contracts will
prepay at the prepayment rates shown or any other prepayment rate. The rate of
principal payments on pools of manufactured housing contracts is influenced by
a variety of economic, geographic, social and other factors, including the
level of interest rates and the rate at which manufactured homeowners sell
their manufactured homes or default on their contracts. Other factors affecting
prepayment of contracts include changes in obligors' housing needs, job
transfers, unemployment and obligors' net equity in the manufactured homes. In
the case of mortgage loans secured by site-built homes, in general, if
prevailing interest rates fall significantly below the interest rates on such
mortgage loans, the mortgage loans are likely to be subject to higher
prepayment rates than if prevailing interest rates remained at or above the
rates borne by such mortgage loans. Conversely, if prevailing interest rates
rise above the interest rates on such mortgage loans, the rate of prepayment
would be expected to decrease. In the case of manufactured housing contracts,
however, because the outstanding principal balances are, in general, much
smaller than mortgage loan balances and the original term to maturity of each
such contract is generally shorter, the reduction or increase in the size of
the monthly payment on a contract arising from a change in the interest rate
thereon is generally much smaller. Consequently, changes in prevailing interest
rates may not have a similar effect, or may have a similar effect, but to a
smaller degree, on the prepayment rates on manufactured housing contracts.
As described under "Description of the Certificates--Principal," payments of
principal on the Class B-2 Certificates will not commence until the Sixth
Cross-over Date, and will not be made on that Remittance Date or any subsequent
Remittance Date on which a Class B Principal Distribution Test is not satisfied
(unless the Class A Principal Balance has been reduced to zero). This will have
the effect of accelerating the amortization of the Class A Certificates while
increasing the respective interest in the Trust of the Class B Certificates.
The percentages and weighted average lives in the following table were
determined assuming that (i) scheduled interest and principal payments on the
Contracts are received in a timely manner and prepayments are made at the
indicated percentages of the MHP set forth in the table; (ii) either the
Servicer or the Company exercises its right of optional termination described
above; (iii) the Cut-off Date Pool Principal
28
<PAGE>
Balance is $ , and the Contracts have the characteristics
described under "The Contract Pool," except that the weighted average term to
scheduled maturity, as of origination, and the weighted average remaining term
to scheduled maturity, as of the Cut-off Date, were calculated for this purpose
on the basis of a 360-day year of twelve 30-day months, rather than a year of
actual days elapsed, which resulted in an assumed weighted average term to
scheduled maturity, as of origination, of months and an assumed weighted
average remaining term to scheduled maturity, as of the Cut-off Date, of
months; (iv) the Class A-1 Certificates initially represent $ of the
Cut-off Date Pool Principal Balance and will have a constant Class A-1
Remittance Rate of %, the Class A-2 Certificates initially represent
$ of the Cut-off Date Pool Principal Balance and will have a Class
A-2 Remittance Rate of %, the Class A-3 Certificates initially represent
$ of the Cut-off Date Pool Principal Balance and will have a Class A-
3 Remittance Rate of %, the Class A-4 Certificates initially represent
$ of the Cut-off Date Pool Principal Balance and will have a Class
A-4 Remittance Rate of %, the Class A-5 Certificates initially represent
$ of the Cut-off Date Pool Principal Balance and will have a
Class A-5 Remittance Rate of %, the Class B-1 Certificates initially
represent $ of the Cut-off Date Pool Principal Balance and will have
a Class B-1 Remittance Rate of % and the Class B-2 Certificates initially
represent $ of the Cut-off Date Pool Principal Balance and will
have a Class B-2 Remittance Rate of %; (v) no interest shortfalls will
arise in connection with prepayment in full of the Contracts; (vi) no
delinquencies or losses are experienced on the Contracts; (vii) distributions
are made on the Certificates on the 15th day of each month (or, if the 15th day
is not a business day, the next business day thereafter), commencing April 15,
1994; and (viii) the Certificates are issued on March , 1994. No
representation is made that the Contracts will not experience delinquencies or
losses.
It is not likely that the Contracts will prepay at any constant percentage of
the MHP to maturity or that all Contracts will prepay at the same rate.
Investors are urged to make their investment decisions on a basis that
includes their determination as to anticipated prepayment rates under a variety
of the assumptions discussed herein.
29
<PAGE>
Based on the foregoing assumptions, the following table indicates the
projected weighted average life of the Class B-2 Certificates and sets forth
the percentages of the Original Class B-2 Principal Balance that would be
outstanding after each of the dates shown at the indicated percentages of the
MHP.
PERCENTAGE OF THE ORIGINAL PRINCIPAL BALANCE OF THE CLASS B-2
CERTIFICATES AT THE RESPECTIVE PERCENTAGES OF THE
MHP SET FORTH BELOW:
<TABLE>
<CAPTION>
DATE 0% 50% 75% 100% 125% 150% 200% 300%
- ---- --- --- --- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Initial Percentage................. 100% 100% 100% 100% 100% 100% 100% 100%
December 15, 1994..................
December 15, 1995..................
December 15, 1996..................
December 15, 1997..................
December 15, 1998..................
December 15, 1999..................
December 15, 2000..................
December 15, 2001..................
December 15, 2002..................
December 15, 2003..................
December 15, 2004..................
December 15, 2005..................
December 15, 2006..................
December 15, 2007..................
December 15, 2008..................
December 15, 2009..................
December 15, 2010..................
December 15, 2011..................
December 15, 2012..................
Weighted Average Life (1)
(years)...........................
</TABLE>
- --------
(1) The weighted average life of a Class B-2 Certificate is determined by (i)
multiplying the amount of cash distributions in reduction of the principal
balance of such Certificate by the number of years from the date of
issuance of such Class B-2 Certificate to the stated Remittance Date, (ii)
adding the results, and (iii) dividing the sum by the initial principal
balance of such Class B-2 Certificate.
DESCRIPTION OF THE CERTIFICATES
The Certificates will be issued pursuant to the Agreement between the
Company, as Seller and Servicer, and the Trustee. A copy of the execution form
of the Agreement will be filed in a Current Report on Form 8-K with the
Securities and Exchange Commission after the initial issuance of the
Certificates. The following summary describes certain terms of the Agreement,
does not purport to be complete and is qualified in its entirety by the
Agreement, which is incorporated herein by reference. Wherever provisions of
the Agreement are referred to, such provisions are incorporated herein by
reference.
GENERAL
The Class B-2 Certificates will be issued in fully registered form only in
denominations equal to $1,000 or any integral multiple of $1,000 in excess
thereof, except for one Class B-2 Certificate with a denomination representing
the remainder of the Original Class B-2 Principal Balance. The Percentage
Interest of a Class
30
<PAGE>
B-2 Certificate will be equal to the percentage obtained from dividing its
denomination by the Original Class B-2 Principal Balance. The Class B-2
Certificates will represent an initial % (approximate) undivided interest in
the Trust. The Trust will consist of the Contracts and the rights, benefits,
obligations and proceeds arising therefrom or in connection therewith, proceeds
from certain hazard insurance on individual Manufactured Homes, proceeds from
the errors and omissions protection policy to the extent such proceeds relate
to the Contracts, amounts held for the Trust in the Certificate Account, funds
held in the Liquidity Reserve for the benefit of the Class B-2
Certificateholders and all proceeds in any way derived from any of the
foregoing. (Section 1.02.)
Distributions on the Certificates will be made by the Paying Agent on each
Remittance Date to persons in whose names the Certificates are registered as of
the preceding Record Date. The Remittance Date for the Certificates will be the
15th day of each month (or if such 15th day is not a business day, the next
succeeding business day) commencing April 15, 1994. Payments will be made by
check mailed to such Certificateholder at the address appearing on the
Certificate Register; provided that a Certificateholder who holds an aggregate
Percentage Interest of at least 5% of a Class of Certificates may request
payment by wire transfer of immediately available funds pursuant to written
instructions delivered to the Trustee at least 10 days prior to such Remittance
Date. Final payments will be made only upon tender of the Certificates to the
Paying Agent for cancellation. (Articles I and VIII.)
CONVEYANCE OF CONTRACTS
The Company will transfer, assign, set over and otherwise convey to the
Trustee all right, title and interest of the Company in the Contracts,
including all security interests created thereby and any related mortgages or
deeds of trust, all principal and interest received on or with respect to the
Contracts (other than receipts of principal and interest due on the Contracts
before the Cut-off Date), all rights under certain hazard insurance policies on
the related Manufactured Homes, all documents contained in the Contract files
and all proceeds derived from any of the foregoing. (Section 2.01.) On behalf
of the Trust, as the issuer of the Certificates, the Trustee, concurrently with
such conveyance, will execute and deliver the Certificates to the order of the
Company. The Contracts will be as described on a list attached to the
Agreement. (Sections 1.02 and 2.02.) Such list will include the amount of
monthly payments due on each Contract as of the date of issuance of the
Certificates, the Contract Rate on each Contract and the maturity date of each
Contract. Such list will be available for inspection by any Certificateholder
at the principal executive office of the Servicer. (Sections 1.02 and 5.04.)
Prior to the conveyance of the Contracts to the Trust, the Company's internal
audit department will complete a review of all of the Contract files, including
the certificates of title to, or other evidence of a perfected security
interest in, the Manufactured Homes, confirming the accuracy of the list of
Contracts delivered to the Trustee. Any Contract discovered not to agree with
such list in a manner that is materially adverse to the interests of the
Certificateholders will be repurchased by the Company or replaced with another
Contract, or, if the discrepancy relates to the unpaid principal balance of a
Contract, the Company may deposit cash in the separate account maintained at an
Eligible Institution in the name of the Trustee (the "Certificate Account") in
an amount sufficient to offset such discrepancy. (Section 3.05.)
The Agreement will designate the Company as custodian to maintain possession,
as the Trustee's agent, of the Contracts and any other documents related to the
Manufactured Homes (other than the Land-and-Home Contracts and related
documents). (Sections 2.03 and 4.01.) To facilitate servicing and save
administrative costs, the documents will not be physically segregated from
other similar documents that are in the Company's possession. Uniform
Commercial Code financing statements will be filed in Minnesota reflecting the
sale and assignment of the Contracts to the Trustee, and the Company's
accounting records and computer systems will also reflect such sale and
assignment. In addition, the Contracts will be stamped to reflect their
assignment to the Trustee. However, if through fraud, negligence or otherwise,
a subsequent purchaser were able to take physical possession of the Contracts
without knowledge of the assignment, the Trustee's interest in the Contracts
could be defeated. See "Special Considerations--Security Interests and Certain
Other Aspects of the Contracts." The Agreement will designate the Trustee or
another independent custodian, as the Trustee's agent, to maintain possession
of the documents relating to all Land-and-Home Contracts.
31
<PAGE>
As Seller of the Contracts, the Company will make certain warranties in the
Agreement with respect to each Contract as of the Closing Date, including that:
(a) as of the Cut-off Date, or the date of origination, if later, the most
recent scheduled payment was made or was not delinquent more than 59 days; (b)
no provision of a Contract has been waived, altered or modified in any respect,
except by instruments or documents contained in the Contract file or the Land-
and-Home Contract file; (c) each Contract is a legal, valid and binding
obligation of the Obligor and is enforceable in accordance with its terms
(except as may be limited by laws affecting creditors' rights generally); (d)
no Contract is subject to any right of rescission, set-off, counterclaim or
defense; (e) each Contract is covered by hazard insurance described under
"Servicing--Hazard Insurance"; (f) each Contract has been originated by a
manufactured housing dealer or the Company in the ordinary course of such
dealer's or the Company's business and, if originated by a manufactured housing
dealer, was purchased by the Company in the ordinary course of business; (g) no
Contract was originated in or is subject to the laws of any jurisdiction whose
laws would make the transfer of the Contract or an interest therein to the
Trustee pursuant to the Agreement or pursuant to the Certificates unlawful; (h)
each Contract complies with all requirements of law; (i) no Contract has been
satisfied, subordinated in whole or in part or rescinded and the Manufactured
Home securing the Contract has not been released from the lien of the Contract
in whole or in part; (j) each Contract creates a valid and enforceable first
priority security interest in favor of the Company in the Manufactured Home
covered thereby and, with respect to each Land-and-Home Contract, the lien
created thereby has been recorded or will be recorded within six months, and
such security interest or lien has been assigned by the Company to the Trustee;
(k) all parties to each Contract had capacity to execute such Contract; (l) no
Contract has been sold, assigned or pledged to any other person and prior to
the transfer of the Contracts by the Company to the Trustee, the Company had
good and marketable title to each Contract free and clear of any encumbrance,
equity, loan, pledge, charge, claim or security interest, and was the sole
owner and had full right to transfer such Contract to the Trustee; (m) as of
the Cut-off Date, or the date of origination, if later, there was no default,
breach, violation or event permitting acceleration under any Contract (except
for payment delinquencies permitted by clause (a) above), no event which with
notice and the expiration of any grace or cure period would constitute a
default, breach, violation or event permitting acceleration under such
Contract, and the Company has not waived any of the foregoing; (n) as of the
Closing Date there were, to the best of the Company's knowledge, no liens or
claims which have been filed for work, labor or materials affecting a
Manufactured Home or any related Mortgaged Property securing a Contract, which
are or may be liens prior or equal to the lien of the Contract; (o) each
Contract other than a step-up rate Contract is a fully-amortizing loan with a
fixed Contract Rate and provides for level payments over the term of such
Contract; (p) each Contract contains customary and enforceable provisions such
as to render the rights and remedies of the Holder thereof adequate for
realization against the collateral of the benefits of the security; (q) the
description of each Contract set forth in the list delivered to the Trustee is
true and correct; (r) there is only one original of each Contract; (s) no more
than % of the Contracts by remaining principal balance as of the Cut-off
Date had a Loan-to-Value Ratio at origination greater than 90% and, if the
related Manufactured Home was new at the time such Contract was originated, the
original principal balance of such Contract did not exceed 125% of the
manufacturer's invoice price plus 100% of taxes and license fees, freight
charges, the dealer's cost of dealer-installed equipment and up to $750 of set-
up costs per module; (t) at the time of origination of each Contract the
Obligor was the primary resident of the related Manufactured Home; (u) other
than the Land-and-Home Contracts, the related Manufactured Home is not
considered or classified as part of the real estate on which it is located
under the laws of the jurisdiction in which it is located, and as of the
Closing Date such Manufactured Home was, to the best of the Company's
knowledge, free of damage and in good repair; (v) the related Manufactured Home
is a "manufactured home" within the meaning of 42 United States Code, Section
5402(6) and each manufactured housing dealer from whom the Company purchased a
Contract was approved by the Company in accordance with the requirements of the
Secretary of Housing and Urban Development; (w) each Contract is a "qualified
mortgage" under Section 860G(a)(3) of the Code and each Manufactured Home is
"manufactured housing" within the meaning of Section 25(e)(10) of the Code; and
(x) if a Contract is an FHA/VA Contract, the Contract has been serviced in
accordance with FHA/VA Regulations, the insurance or guarantee of the Contract
under the FHA/VA Regulations and related laws is in full force and effect, and
no event has occurred which, with or without notice or lapse of time or both,
would impair such insurance or guarantee.
32
<PAGE>
The Company has also made certain warranties with respect to the Contracts in
the aggregate, including that (i) the aggregate principal amount payable by the
Obligors as of the Cut-off Date equals the Cut-off Date Pool Principal Balance;
(ii) as of the Cut-off Date, no more than 10% of the Contracts by Cut-off Date
Pool Principal Balance are secured by Manufactured Homes located in any one
state, no more than 5% of the Contracts by remaining principal balance are
secured by Manufactured Homes located in an area with the same zip code and not
more than 1% of the Contracts by remaining principal balance are secured by
Manufactured Homes located in California in an area with the same zip code;
(iii) approximately % of the Cut-off Date Pool Principal Balance is
attributable to loans to purchase new Manufactured Homes and approximately %
of the Cut-off Date Pool Principal Balance is attributable to loans to purchase
used Manufactured Homes; (iv) no Contract has a remaining maturity of more than
300 months; (v) the date of each Contract is on or after ; and (vi)
no adverse selection procedures were employed in selecting the Contracts.
(Article III.)
Under the terms of the Agreement, and subject to the conditions specified in
the preceding paragraph and to the Company's option to effect a substitution as
described in the next paragraph, the Company will be obligated to repurchase
for the Repurchase Price (as defined below) any Contract on the first business
day after the first Determination Date which is more than 90 days after the
Company becomes aware, or should have become aware, or the Company's receipt of
written notice from the Trustee or the Servicer, of a breach of any
representation or warranty of the Company in the Agreement that materially
adversely affects the Trust's interest in any Contract if such breach has not
been cured. (Section 3.05.) The Repurchase Price for any Contract will be the
remaining principal amount outstanding on such Contract on the date of
repurchase plus accrued and unpaid interest thereon at its Contract Rate to the
date of such repurchase. (Section 1.02.) This repurchase obligation constitutes
the sole remedy available to the Trust and the Certificateholders for a breach
of a warranty under the Agreement with respect to the Contracts (but not with
respect to any other breach by the Company of its obligations under the
Agreement). If a prohibited transaction tax under the REMIC provisions of the
Code is incurred in connection with such repurchase, distributions otherwise
payable to Class C Certificateholders will be applied to pay such tax. The
Company will be required to pay the amount of such tax that is not funded out
of such distributions. (Section 6.06.)
In lieu of purchasing a Contract as specified in the preceding paragraph,
during the two-year period following the Closing Date, the Company may, at its
option, substitute an Eligible Substitute Contract (as defined below) for the
Contract that it is otherwise obligated to repurchase (referred to herein as
the "Replaced Contract"). An Eligible Substitute Contract is a Contract that
satisfies, as of the date of its substitution, the representations and
warranties specified in Article III of the Agreement, has a Scheduled Principal
Balance that is not greater than the Scheduled Principal Balance of the
Replaced Contract, has a Contract Rate that is at least equal to the Contract
Rate of the Replaced Contract, has a remaining term to scheduled maturity that
is not greater than the remaining term to scheduled maturity of the Replaced
Contract and is secured by a Manufactured Home that is not located in Texas,
Oklahoma or Louisiana. (Section 1.02.) The Company will be required to deposit
in the Certificate Account cash in the amount, if any, by which the Scheduled
Principal Balance of the Replaced Contract exceeds the Scheduled Principal
Balance of the Contract being substituted. Such deposit will be deemed to be a
Partial Principal Prepayment. (Sections 1.02 and 3.05.)
PAYMENTS ON CONTRACTS; DISTRIBUTIONS ON CERTIFICATES
The Trustee, on behalf of the Trust, will establish and maintain the
Certificate Account at a depository institution organized under the laws of the
United States or any state, the deposits of which are insured to the full
extent permitted by law by the Bank Insurance Fund (currently administered by
the Federal Deposit Insurance Corporation), whose short-term securities or
unsecured long-term debt (or, in the case of the principal bank of a bank
holding company system, the short-term securities or unsecured long-term debt
of such bank holding company) has a rating of P-1 by Moody's in the case of
short-term securities, or in one of the two highest rating categories by
Moody's in the case of unsecured long-term debt, and which is subject to
examination by federal or state authorities (an "Eligible Institution").
(Section 1.02.) The Servicer may
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authorize the Trustee to invest the funds in the Certificate Account in
Eligible Investments (as defined in the Agreement) that will mature not later
than the business day preceding the applicable monthly Remittance Date.
Eligible Investments include, among other investments, obligations of the
United States or of any agency thereof backed by the full faith and credit of
the United States; federal funds, certificates of deposit, time deposits and
bankers' acceptances sold by eligible financial institutions; certain
repurchase agreements with eligible institutions; corporate securities assigned
at least an Aa rating by Moody's not in excess of 10% of amounts in the
Certificate Account at the time of such investment; commercial paper assigned a
P-1 rating by Moody's at the time of such investment; and shares of a
registered investment company, whose shares are registered under the Securities
Act of 1933 and which are rated by Moody's in its highest rating category.
(Section 5.05.)
All payments from Obligors on the Contracts received by the Servicer,
including Principal Prepayments and advance payments by Obligors not
constituting Principal Prepayments ("Advance Payments"), shall be paid into the
Certificate Account no later than one business day following receipt thereof,
except amounts received as late payment fees, extension fees, assumption fees
or similar fees. Such fees are included as part of the Servicer's servicing
fees. See "Servicing Compensation and Payment of Expenses." In addition,
amounts paid by the Company for Contracts repurchased as a result of breach of
warranties under the Agreement, and amounts required to be deposited upon
substitution of a Contract because of breach of warranties, as described under
"Conveyance of Contracts" shall be paid into the Certificate Account. The
Servicer will not make any advances in respect of delinquent payments on the
Contracts.
On the third business day prior to each Remittance Date (the "Determination
Date"), the Servicer will determine the Amount Available and the amounts to be
distributed on the Certificates for such Remittance Date. The Amount Available
is the amount in the Certificate Account on the last day of the preceding Due
Period less the following amounts: any repossession profits on defaulted
Contracts (of which there are expected to be none); Advance Payments in respect
of the Due Period just ended; amounts payable to the Servicer to reimburse it
for any REMIC "prohibited transaction" tax imposed on the Trust and paid by the
Servicer; Liquidation Expenses incurred and taxes and insurance (on repossessed
Manufactured Homes) advanced by the Servicer in respect of Manufactured Homes
that are reimbursable to the Servicer under the Agreement; and any amounts
incorrectly deposited in the Certificate Account. "Liquidation Expenses" are
out-of-pocket expenses incurred by the Servicer in connection with the
liquidation of a defaulted Contract, including, without limitation, legal fees
and disbursements. (Sections 1.02 and 8.02.)
The Trustee will withdraw funds from the Certificate Account to make payments
to Certificateholders. From time to time, as provided in the Agreement, the
Trustee will also withdraw funds from the Certificate Account to make payments
to the Servicer. (Sections 1.02 and 8.02.)
DISTRIBUTIONS
On each Remittance Date, distributions on the Certificates will be made first
to the holders of the Class A Certificates, then to the holders of the Class B-
1 Certificates and then to the holders of the Class B-2 Certificates, as
described below.
Distributions of interest and principal to holders of the Class B-2
Certificates will be made on each Remittance Date in an amount equal to their
respective Percentage Interests of the Class B-2 Distribution Amount. The Class
B-2 Distribution Amount for any Remittance Date is intended to be equal to the
sum (referred to as the "Class B-2 Formula Distribution Amount") of (a) the
amount of interest calculated as set forth under "Interest" below and (b) on
and after the Sixth Cross-over Date, if each Class B Principal Distribution
Test was satisfied on such Remittance Date, an amount equal to the Class B
Percentage of the Formula Principal Distribution Amount, calculated as
described under "Principal" below. Distributions on the Class B-2 Certificates
will be applied first to the payment of interest and then to the payment of
principal. If the Amount Available in the Certificate Account available for
distribution to the Class B-2 Certificateholders (after giving effect to
distributions made to Class A and Class B-1 Certificateholders on
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such Remittance Date) (the "Remaining Amount Available") is not sufficient to
make a full distribution of the Class B-2 Formula Distribution Amount to the
Class B-2 Certificateholders, then the Class B-2 Distribution Amount will equal
the sum of the Remaining Amount Available and the Reserve Draw Amount. If the
amount of funds on deposit in the Liquidity Reserve is less than the Reserve
Draw Amount, the amount of such deficiency will be carried forward and added to
the amount such holders will be entitled to receive from the Remaining Amount
Available on the next Remittance Date. (Sections 1.02 and 8.03.)
Each distribution with respect to a Book-Entry Certificate will be paid to
DTC, which will credit the amount of such distribution to the accounts of its
Participants in accordance with its normal procedures. Each Participant will be
responsible for disbursing such distribution to the Certificate Owners that it
represents and to each indirect participating brokerage firm (a "brokerage
firm" or "indirect participating firm") for which it acts as agent. Each
brokerage firm will be responsible for disbursing funds to the Certificate
Owners that it represents. All such credits and disbursements with respect to a
Book-Entry Certificate are to be made by DTC and the Participants in accordance
with DTC's rules.
The Servicer will furnish to the Trustee, and the Trustee will send with each
distribution on a Remittance Date to each holder of the Class B-2 Certificates,
a statement or statements setting forth, among other things, (i) the amount of
such distribution allocable to principal (including Principal Prepayments, if
any) and (ii) the amount of such distribution allocable to interest. Such
amounts will be expressed as a dollar amount per Class B-2 Certificate with a
1% Percentage Interest or per $1,000 denomination of Class B-2 Certificate.
(Section 6.05.)
INTEREST
Interest will be paid to the Class B-2 Certificateholders on each Remittance
Date, to the extent of (i) the Remaining Amount Available, if any and (ii) the
amount, if any, paid pursuant to the Liquidity Reserve. Interest on the
outstanding Class B-2 Principal Balance will accrue from March , 1994 or from
the most recent Remittance Date on which interest has been paid to but
excluding the following Remittance Date. The Class B-2 Principal Balance is the
Original Class B-2 Principal Balance less the sum of all amounts previously
distributed to Class B-2 Certificateholders on account of principal. In the
event that, on a particular Remittance Date, the Remaining Amount Available in
the Certificate Account, plus the amount of any funds in the Liquidity Reserve,
is not sufficient to make a full distribution of interest to the Class B-2
Certificateholders, the amount of such deficiency will be carried forward and
added to the amount such holders will be entitled to receive on the next
Remittance Date. Any such amount so carried forward will bear interest at the
Class B-2 Remittance Rate, to the extent permitted by law.
The Class B-2 Remittance Rate on each Remittance Date will be % per
annum, subject to a maximum rate equal to the weighted average of the Contract
Rates on each Contract in the Contract Pool, computed on the basis of a 360-day
year of twelve 30-day months. In all but the most unusual prepayment scenarios,
it is anticipated that the Class B-2 Remittance Rate will be %. In the
unlikely event that a large number of Contracts having Contract Rates equal to
or higher than % (which Contracts represent approximately % of the
Cut-off Date Pool Principal Balance) were to prepay while the Contracts having
Contract Rates lower than % did not prepay, with the result that the
interest collections on the remaining Contracts were not sufficient to support
a Class B-2 Remittance Rate of %, then the Class B-2 Remittance Rate would
be equal to the weighted average of the Contract Rates on each Contract
remaining in the Contract Pool. The weighted average Contract Rate of all
Contracts in the Contract Pool as of the Cut-off Date was approximately %.
PRINCIPAL
Except for distributions of any amounts representing a Class B-2 Principal
Liquidation Loss Amount withdrawn from the Liquidity Reserve, prior to the
Remittance Date on which the Class B-1 Principal Balance is reduced to zero
(the "Sixth Cross-over Date"), there will be no distributions of principal on
the Class
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B-2 Certificates. Prior to the Class B Cross-over Date there will be no
distributions of principal on the Class B-1 Certificates. The Class B Cross-
over Date will be the later of (A) the Remittance Date in April 1999, and (B)
the first Remittance Date on which the Class B Principal Balance represents 22%
or more of the Pool Scheduled Principal Balance.
On each Remittance Date on or after the Class B Cross-over Date and prior to
the Remittance Date on which the Class A Principal Balance is reduced to zero,
holders of Class B-1 Certificates will be entitled to distributions of
principal only if each of the following tests (each a "Class B Principal
Distribution Test") is satisfied on such Remittance Date: (i) the Average
Sixty-Day Delinquency Ratio (as defined in the Agreement) as of such Remittance
Date must not exceed 4%; (ii) the Average Thirty-Day Delinquency Ratio (as
defined in the Agreement) as of such Remittance Date must not exceed 6%; (iii)
the Cumulative Realized Losses (as defined in the Agreement) as of such
Remittance Date must not exceed a certain specified percentage of the Cut-off
Date Pool Principal Balance, depending on the year in which such Remittance
Date occurs; (iv) the Current Realized Loss Ratio (as defined in the Agreement)
as of such Remittance Date must not exceed 2.75%; and (v) the Class B Principal
Balance Test (as defined in the Agreement) must be equal to or greater than
22%.
On each Remittance Date on or after the Sixth Cross-over Date, if each Class
B Principal Distribution Test is satisfied on such Remittance Date, Class B-2
Certificateholders will be entitled to receive, as payments of principal, the
Class B Percentage of the Formula Principal Distribution Amount to the extent
of the Remaining Amount Available in the Certificate Account on such date.
In the event that, on a particular Remittance Date, the Remaining Amount
Available in the Certificate Account, plus the amount of any funds in the
Liquidity Reserve, is not sufficient to make a full distribution of principal
to the Class B-2 Certificateholders, the amount of such deficiency will be
carried forward and added to the amount such holders will be entitled to
receive on the next Remittance Date.
The Class B Percentage for any Remittance Date on or after the Class B Cross-
over Date on which each Class B Principal Distribution Test has been satisfied
will be equal to 100% minus the Class A Percentage. The Class A Percentage for
any Remittance Date prior to the Class B Cross-over Date, and for any
Remittance Date on or after the Class B Cross-over Date on which each Class B
Principal Distribution Test has not been satisfied, will equal 100%. On each
Remittance Date on or after the Class B Cross-over Date, if each Class B
Principal Distribution Test has been satisfied on such Remittance Date, the
Class A Percentage will equal a fraction, expressed as a percentage, the
numerator of which is the Class A Principal Balance for such Remittance Date
and the denominator of which is the Pool Scheduled Principal Balance for the
immediately preceding Remittance Date. The Class B Percentage for any
Remittance Date on or after the Class B Cross-over Date on which each Class B
Principal Distribution Test is satisfied will be equal to 100% minus the Class
A Percentage.
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THE LIQUIDITY RESERVE
A liquidity reserve fund (the "Liquidity Reserve") will be established on the
Closing Date by the Company for the benefit of the Class B-2
Certificateholders. The Trustee will hold the Liquidity Reserve pursuant to the
terms of the Agreement.
No funds will be deposited in the Liquidity Reserve on the Closing Date. On
each Remittance Date, unless the amount on deposit in the Liquidity Reserve
equals the Requisite Reserve Amount, the Trustee will deposit in the Liquidity
Reserve, from any Amount Available remaining in the Certificate Account after
distributing all amounts due to the Class A Certificateholders, the Class B-1
Certificateholders and the Class B-2 Certificateholders, but before payment of
the Monthly Servicing Fee to the Company, an amount equal to the product of
1/12 and 0.2% of the Pool Scheduled Principal Balance for such Remittance Date
(or the amount necessary to make the amount on deposit in the Liquidity Reserve
equal to the Requisite Reserve Amount, if less). The "Requisite Reserve Amount"
will be equal to $ . All net investment income that is paid on amounts
held in the Liquidity Reserve will be paid to the Class C Certificateholders.
If on any Remittance Date the Remaining Amount Available is less than the
Class B-2 Formula Principal Distribution Amount the Trustee will withdraw from
the Liquidity Reserve the lesser of the amount on deposit in the Liquidity
Reserve or an amount (the "Reserve Draw Amount") equal to the amount by which
the Class B-2 Formula Distribution Amount (including any Class B-2 Principal
Liquidation Loss Amount) exceeds the Remaining Amount Available.
On any Remittance Date on which the amount on deposit in the Liquidity
Reserve is greater than the Requisite Reserve Amount, the Trustee will
distribute the amount of such excess to the Class C Certificateholders.
The Class C Certificateholders may authorize the Trustee to invest the funds
in the Liquidity Reserve in Eligible Investments. See "Description of the
Certificates--Payments on Contracts; Distributions on Certificates."
The Class C Certificateholders may, but are not obligated to, obtain the
release of any cash on deposit in the Liquidity Reserve by delivering to the
Trustee an irrevocable letter of credit or other form of credit enhancement
which satisfies the requirements of the Agreement. Any such letter of credit or
other form of credit enhancement must be in an amount equal to the amount on
deposit in the Liquidity Reserve as of the date of delivery of the letter of
credit or other form of credit enhancement to the Trustee. If a letter of
credit or other form of credit enhancement has been delivered to the Trustee
and the monthly report for a Remittance Date indicates a Reserve Draw Amount
for such Remittance Date, the Trustee will draw the Reserve Draw Amount under
such letter of credit or other form of credit enhancement.
If the expiration date of a letter of credit is anticipated to occur before
the termination of the Agreement, the holders of Class C Certificates will use
their best efforts to obtain a replacement letter of credit that satisfies the
requirements of the Agreement. If the Class C Certificateholders have not
delivered to the Trustee a replacement letter of credit on or before the fifth
business day prior to the expiration date thereof, the Trustee will, on the
fifth business day prior to such expiration date, draw under such letter of
credit the amount available thereunder and deposit such amount in the Liquidity
Reserve. Upon the delivery to the Trustee by the Class C Certificateholders of
a replacement letter of credit that satisfies the requirements of the Agreement
on or before such fifth business day, the Trustee will replace the related
letter of credit with such replacement letter of credit.
The Agreement provides that any letter of credit delivered to the Trustee
must (i) be issued or confirmed by a bank whose unsecured long-term debt (or,
in the case of the principal bank in a bank holding company system, the
unsecured long-term debt of such holding company) is rated Aa by Moody's, (ii)
be in the amount
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specified above, (iii) be in such form and substance as is acceptable to the
Trustee, (iv) not cause the Trust to fail to qualify as a REMIC under
applicable REMIC Provisions and (v) not cause the rating on the Class B-2
Certificates to be reduced or withdrawn by Moody's. The Agreement provides that
any other form of credit enhancement delivered to the Trustee must (i) be in
the amount specified above or any other acceptable amount; (ii) be in such form
and substance as is acceptable to the Trustee; (iii) not cause the Trust to
fail to qualify as a REMIC under applicable REMIC provisions and (iv) not cause
the rating on the Class B-2 Certificates to be reduced or withdrawn by Moody's.
SUBORDINATION OF CLASS B-2 CERTIFICATES AND CLASS C CERTIFICATES
The rights of the holders of the Class B Certificates and the Class C
Certificates to receive distributions with respect to the Contracts in the
Trust will be subordinated to such rights of the Class A Certificateholders. In
addition, the rights of the holders of the Class B-2 Certificates to receive
distributions with respect to the Contracts in the Trust will be subordinate to
such rights of the Class B-1 Certificateholders. This subordination is intended
to enhance the likelihood of regular receipt by the holders of the Class A and
Class B-1 Certificates of the full amount of their scheduled monthly payments
of principal and interest and to afford such holders protection against losses
on Liquidated Contracts. The protection afforded to the Class A and Class B-1
Certificateholders by means of the subordination feature will be accomplished
by the preferential right of the Class A and Class B-1 Certificateholders to
receive, prior to any distribution being made on a Remittance Date in respect
of the Class B-2 Certificates and the Class C Certificates, the amount of
principal and interest due them on each Remittance Date out of the Amount
Available on deposit on such date in the Certificate Account and by the right
of the Class A and Class B-1 Certificateholders to receive future distributions
on the Contracts that would otherwise be payable to the holders of Class B-2
Certificates. On each Remittance Date the Class B-2 Certificateholders will be
entitled to receive only amounts described above under "Interest" and
"Principal."
The rights of the Class C Certificateholders to receive distributions with
respect to the Contracts in the Trust will be subordinated to the rights of the
Class B-2 Certificateholders. On each Remittance Date the Class C
Certificateholders will receive the Remaining Amount Available, if any, after
payment of the amount distributed to the Class A Certificateholders and Class B
Certificateholders as described above (less the Monthly Servicing Fee and less
amounts retained by the Servicer to reimburse itself for taxes paid in respect
of prohibited transactions) plus aggregate Repossession Profits (as defined in
the Agreement).
Prior to the time that the Class A Principal Balance is reduced to zero, the
distribution of principal to the Class A Certificateholders is intended to
include the Class A Percentage of the Scheduled Principal Balance of each
Contract that became a Liquidated Contract during the month next preceding the
month of such distribution. If the Liquidation Proceeds, net of related
Liquidation Expenses, from such Liquidated Contract are less than its Scheduled
Principal Balance plus accrued interest thereon, the deficiency will, in
effect, be absorbed by the Class B and the Class C Certificateholders and the
Company, since a portion of the Amount Available equal to such deficiency and
otherwise distributable to them will be paid to the Class A Certificateholders.
If the Amount Available is not sufficient to cover the amounts distributable in
respect of principal to the Class A Certificateholders on a particular
Remittance Date, then the Class A Percentage on future Remittance Dates will be
increased and the Class B Percentage on future Remittance Dates will be reduced
as a result of such deficiency. Consequently, but for the effect of the
relative subordination of the Monthly Servicing Fee and amounts otherwise
distributable to the Class C Certificateholders on each Remittance Date, the
Class B-2 Certificateholders will absorb (i) all losses on each Liquidated
Contract in the amount by which its Liquidation Proceeds, net of the related
Liquidation Expenses, are less than its unpaid principal balance plus accrued
and unpaid interest thereon less the Monthly Servicing Fee and (ii) all
delinquent payments on the Contracts. Class B-2 Certificateholders, however,
will be entitled to receive Reserve Draw Amounts and amounts otherwise
distributable as the Monthly Servicing Fee payable to the Company and the Class
C Distribution Amount.
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EXAMPLE OF DISTRIBUTIONS
The following is an example of the flow of funds as it would relate to the
Class B-2 Certificates:
<TABLE>
<S> <C> <C>
March 1......................................... (1) Cut-off Date.
March 1-31...................................... (2) Due Period. Servicer
receives scheduled payments
on the Contracts and any
Principal Prepayments made
by Obligors and applicable
interest thereon.
March 31........................................ (3) Record Date.
April 12........................................ (4) Determination Date.
Distribution amount
determined.
April 15........................................ (5) Remittance Date.
</TABLE>
Succeeding months follow the pattern of (2) through (5).
- --------
(1) The initial principal balance of the Contract Pool will be the aggregate
principal balance of the Contracts at the close of business on the Cut-off
Date, after deducting principal payments due on or before such date, which,
together with corresponding interest payments, are not part of the Contract
Pool and will not be passed through to Certificateholders.
(2) Scheduled payments and Principal Prepayments may be received at any time
during this period and will be deposited in the Certificate Account by the
Servicer for distribution to Certificateholders. When a Contract is prepaid
in full, interest on the amount prepaid is collected from the Obligor only
to the date of payment.
(3) Distributions on April 15 will be made to Certificateholders of record at
the close of business on the last Business Day of the month immediately
preceding the month of distribution.
(4) On April 12 (the third Business Day prior to the Remittance Date), the
Servicer will determine the amounts of principal and interest which will be
passed through on April 15. In addition, the Servicer may advance funds to
cover any delinquencies, in which event the distribution to
Certificateholders on April 15 will include the full amounts of principal
and interest due during March. The Servicer will also calculate any changes
in the relative interests evidenced by the Senior Certificates and the
Subordinated Certificates in the Trust Fund.
(5) On April 15, the amounts determined on April 12 will be distributed to
Certificateholders.
REPORTS TO CLASS B-2 CERTIFICATEHOLDERS
The Servicer will furnish to the Trustee, and the Trustee will include with
each distribution to a Class B-2 Certificateholder, a statement in respect of
the related Remittance Date setting forth, among other things:
(a) the amount of such distribution to Class B-2 Certificateholders
allocable to interest;
(b) the amount of such distribution to Class B-2 Certificateholders
allocable to principal, identifying separately the aggregate amount of any
Principal Prepayments included therein;
(c) the amount, if any, by which the Class B-2 Formula Distribution
Amount exceeds the Remaining Amount Available for such Remittance Date;
(d) the Class B-2 Principal Balance after giving effect to the
distribution of principal on such Remittance Date;
(e) the Class B Percentage for the following Remittance Date;
(f) the Pool Scheduled Principal Balance of the Contracts for the
following Remittance Date;
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(g) the Pool Factor (a percentage derived from a fraction the numerator
of which is the sum of the Principal Balance of each Class of Class A
Certificates and the Principal Balance of each Class of Class B
Certificates and the denominator of which is the Cut-off Date Pool
Principal Balance);
(h) the number and aggregate principal balance of Contracts delinquent
(i) 30-59 days and (ii) 60 or more days;
(i) the number of Manufactured Homes that were repossessed during the Due
Period ending immediately prior to such Remittance Date;
(j) the number of Manufactured Homes that were repossessed but remain in
inventory as of the last day of the Due Period ending immediately prior to
such Remittance Date;
(k) the weighted average Contract Rate of all outstanding Contracts; and
(l) the Reserve Draw Amount, if any, for such Remittance Date and the
remaining amount on deposit in the Liquidity Reserve.
Information furnished pursuant to clauses (a) through (c) will be expressed as
dollar amounts for a Class B-2 Certificate with a 1% Percentage Interest or per
$1,000 denomination of Class B Certificate. (Section 6.05.)
In addition, within a reasonable period of time after the end of each
calendar year, the Servicer will furnish a report to each Class B-2
Certificateholder of record at any time during such calendar year as to the
aggregate of amounts reported pursuant to (a) and (b) above for such calendar
year.
INDEMNIFICATION
The Agreement requires the Company to defend and indemnify the Trust, the
Trustee (including any agent of the Trustee) and the Certificateholders (which
indemnification will survive any removal of the Company as servicer of the
Contracts) against any and all costs, expenses, losses, damages, claims and
liabilities, including reasonable fees and expenses of counsel and expenses of
litigation (a) arising out of or resulting from the use or ownership by the
Servicer or any affiliate thereof of any Manufactured Home and (b) for any
taxes which may at any time be asserted with respect to, and as of the date of,
the conveyance of the Contracts to the Trust (but not including any federal,
state or other tax arising out of the creation of the Trust and the issuance of
the Certificates). (Article X).
The Agreement also requires the Servicer, in connection with its duties as
servicer of the Contracts, to defend and indemnify the Trust, the Trustee and
the Certificateholders (which indemnification will survive any removal of the
Servicer as servicer of the Contracts) against any and all costs, expenses,
losses, damages, claims and liabilities, including reasonable fees and expenses
of counsel and expenses of litigation, in respect of any action taken by the
Servicer with respect to any Contract while it was the Servicer. (Section
10.04.)
SERVICING
Pursuant to the Agreement, the Servicer will service and administer the
Contracts assigned to the Trustee as more fully set forth below. The Servicer
will perform diligently all services and duties specified in each Agreement, in
the same manner as prudent lending institutions of manufactured housing
installment sales contracts of the same type as the Contracts in those
jurisdictions where the related Manufactured Homes are located or as otherwise
specified in the Agreement. The duties to be performed by the Servicer will
include collection and remittance of principal and interest payments,
collection of insurance claims and, if necessary, repossession.
The Servicer will make reasonable efforts to collect all payments called for
under the Contracts and, consistent with the Agreement and any FHA insurance
and VA guaranty, will follow such collection procedures as it follows with
respect to mortgage loans or contracts serviced by it that are comparable to
the Contracts.
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Hazard Insurance. The terms of the Agreement will require the Servicer to
cause to be maintained with respect to each Contract one or more Hazard
Insurance Policies which provide, at a minimum, the same coverage as a standard
form fire and extended coverage insurance policy that is customary for
manufactured housing, issued by a company authorized to issue such policies in
the state in which the Manufactured Home is located, and in an amount which is
not less than the maximum insurable value of such Manufactured Home or the
principal balance due from the Obligor on the related Contract, whichever is
less; provided, however, that the amount of coverage provided by each Hazard
Insurance Policy shall be sufficient to avoid the application of any co-
insurance clause contained therein. When a Manufactured Home's location was, at
the time of origination of the related Contract, within a federally designated
special flood hazard area, the Servicer also shall cause such flood insurance
to be maintained, which coverage shall be at least equal to the minimum amount
specified in the preceding sentence or such lesser amount as may be available
under the federal flood insurance program. Each Hazard Insurance Policy caused
to be maintained by the Servicer shall contain a standard loss payee clause in
favor of the Servicer and its successors and assigns. If any Obligor is in
default in the payment of premiums on its Hazard Insurance Policy or Policies,
the Servicer shall pay such premiums out of its own funds, and may add
separately such premium to the Obligor's obligation as provided by the
Contract, but may not add such premium to the remaining principal balance of
the Contract.
The Servicer may maintain, in lieu of causing individual Hazard Insurance
Policies to be maintained with respect to each Manufactured Home, and shall
maintain, to the extent that the related Contract does not require the Obligor
to maintain a Hazard Insurance Policy with respect to the related Manufactured
Home, one or more blanket insurance policies covering losses on the Obligor's
interest in the Contracts resulting from the absence or insufficiency of
individual Hazard Insurance Policies. Any such blanket policy shall be
substantially in the form and in the amount carried by the Servicer as of the
date of the Agreement. The Servicer shall pay the premium for such policy on
the basis described therein and shall pay any deductible amount with respect to
claims under such policy relating to the Contracts. If the insurer thereunder
shall cease to be acceptable to the Servicer, the Servicer shall exercise its
best reasonable efforts to obtain from another insurer a replacement policy
comparable to such policy.
If the Servicer shall have repossessed a Manufactured Home on behalf of the
Trustee, the Servicer shall either (i) maintain at its expense hazard insurance
with respect to such Manufactured Home, or (ii) indemnify the Trustee against
any damage to such Manufactured Home prior to resale or other disposition.
Evidence as to Compliance. The Agreement will require the Servicer to deliver
to the Trustee a monthly report prior to each Remittance Date, setting forth
certain information regarding the Contract Pool and the Certificates. Each such
report to the Trustee will be accompanied by a statement from an appropriate
officer of the Servicer certifying the accuracy of such report and stating that
the Servicer has not defaulted in the performance of its obligations under the
Agreement. On or before May 1 of each year, the Servicer will deliver to the
Trustee a report of a nationally recognized accounting firm stating that such
firm has examined certain documents and records relating to the servicing of
manufactured housing contracts serviced by the Servicer under pooling and
servicing agreements similar to the Agreement and stating that, on the basis of
such procedures, such servicing has been conducted in compliance with the
Agreement, except for any exceptions set forth in such report. (Article VI.)
Certain Matters Regarding the Servicer. The Servicer may not resign from its
obligations and duties under the Agreement except upon a determination that its
duties thereunder are no longer permissible under applicable law. No such
resignation will become effective until the Trustee or a successor servicer has
assumed the Servicer's obligations and duties under such Agreement. The
Servicer can only be removed as servicer pursuant to an Event of Termination as
discussed below. Any person with which the Servicer is merged or consolidated,
or any corporation resulting from any merger, conversion or consolidation to
which the Servicer is a party, or any person succeeding to the business of the
Servicer, will be the successor to the Servicer under the Agreement so long as
such successor services at least $100 million of manufactured housing
contracts. (Section 12.01.)
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The Agreement will also provide that neither the Servicer, nor any director,
officer, employee or agent of the Servicer, will be under any liability to the
Trust or the Certificateholders for any action taken or for restraining from
the taking of any action in good faith pursuant to the Agreement, or for errors
in judgment; provided, however, that neither the Servicer nor any such person
will be protected against any liability which would otherwise be imposed by
reason of the failure to perform its obligations in strict compliance with the
standards of care set forth in the Agreement. The Servicer may, in its
discretion, undertake any such action which it may deem necessary or desirable
with respect to the Agreement and the rights and duties of the parties thereto
and the interests of the Certificateholders thereunder. In such event, the
legal expenses and costs of such action and any liability resulting therefrom
will be expenses, costs and liabilities of the Trust and the Servicer will be
entitled to be reimbursed therefor out of the Certificate Account.
The Servicer shall keep in force throughout the term of this Agreement (i) a
policy or policies of insurance covering errors and omissions for failure to
maintain insurance as required by this Agreement, and (ii) a fidelity bond.
Such policy or policies and such fidelity bond shall be in such form and amount
as is generally customary among persons which service a portfolio of
manufactured housing contracts having an aggregate principal amount of $100
million or more and which are generally regarded as servicers acceptable to
institutional investors.
The Servicer, to the extent practicable, shall cause the Obligors to pay all
taxes and similar governmental charges when and as due. To the extent that
nonpayment of any taxes or charges would result in the creation of a lien upon
any Manufactured Home having a priority equal or senior to the lien of the
related Contract, the Servicer shall advance any such delinquent tax or charge.
Servicing Compensation and Payment of Expenses. For its servicing of the
Contracts, the Servicer will receive servicing fees ("Servicing Fees") which
include a Monthly Servicing Fee (which the Company may assign) for each Due
Period (paid on the next succeeding Remittance Date) equal to 1/12th of the
product of 1% and the Pool Scheduled Principal Balance for such Remittance
Date. As long as the Company is the Servicer the Trustee will pay the Company
its Monthly Servicing Fee from any monies remaining after the
Certificateholders have received all payments of principal and interest for
such Remittance Date.
The Monthly Servicing Fee provides compensation for customary manufactured
housing contract third-party servicing activities to be performed by the
Servicer for the Trust and for additional administrative services performed by
the Servicer on behalf of the Trust. Customary servicing activities include
collecting and recording payments, communicating with Obligors, investigating
payment delinquencies, providing billing and tax records to Obligors and
maintaining internal records with respect to each Contract. Administrative
services performed by the Servicer on behalf of the Trust include calculating
distributions to Certificateholders and providing related data processing and
reporting services for Certificateholders and on behalf of the Trustee.
Expenses incurred in connection with the servicing of the Contracts and paid by
the Servicer from its Servicing Fees include, without limitation, payment of
fees and expenses of accountants, payments of all fees and expenses incurred in
connection with the enforcement of Contracts (except Liquidation Expenses) and
payment of expenses incurred in connection with distributions and reports to
Certificateholders. The Servicer will be reimbursed out of the Liquidation
Proceeds of a Liquidated Contract for all ordinary and necessary Liquidation
Expenses incurred by it in realization upon the related Manufactured Home.
(Section 5.08.)
As part of its Servicing Fees the Servicer will also be entitled to retain,
as compensation for the additional services provided in connection therewith,
any fees for late payments made by Obligors, extension fees paid by Obligors
for the extension of scheduled payments and assumption fees for permitted
assumptions of Contracts by purchasers of the related Manufactured Homes.
(Section 1.02.)
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Events of Termination. Events of Termination under the Agreement will include
(i) any failure by the Servicer to distribute to the Certificateholders any
required payment which continues unremedied for 5 days after the giving of
written notice; (ii) any failure by the Servicer duly to observe or perform in
any material respect any other of its covenants or agreements in the Agreement
that materially and adversely affects the interests of Certificateholders,
which, in either case, continues unremedied for 30 days after the giving of
written notice of such failure of breach; (iii) any assignment or delegation by
the Servicer of its duties or rights under the Agreement, except as
specifically permitted under the Agreement, or any attempt to make such an
assignment or delegation; (iv) certain events of insolvency, readjustment of
debt, marshalling of assets and liabilities or similar proceedings regarding
the Servicer; and (v) the Servicer is no longer an Eligible Servicer (as
defined in the Agreement). Notice as used herein shall mean notice to the
Servicer by the Trustee or the Company, or to the Company, the Servicer (if
other than the Company) and the Trustee by the Holders of Certificates
representing interests aggregating not less than 25% of the Trust.
Rights Upon Event of Termination. So long as an Event of Default remains
unremedied, the Trustee may, and at the written direction of the
Certificateholders evidencing interests aggregating 25% or more of the Trust,
shall, terminate all of the rights and obligations of the Servicer under the
Agreement and in and to the Contracts, and the proceeds thereof, whereupon
(subject to applicable law regarding the Trustee's ability to make advances)
the Trustee or a successor Servicer under the Agreement will succeed to all the
responsibilities, duties and liabilities of the Servicer under the Agreement
and will be entitled to similar compensation arrangements; provided, however,
that neither the Trustee nor any successor servicer will assume any obligation
of the Company to repurchase Contracts for breaches of representations or
warranties, and the Trustee will not be liable for any acts or omissions of the
Servicer occurring prior to a transfer of the Servicer's servicing and related
functions or for any breach by the Servicer of any of its obligations contained
in the Agreement. Notwithstanding such termination, the Servicer shall be
entitled to payment of certain amounts payable to it prior to such termination,
for services rendered prior to such termination. No such termination will
affect in any manner the Company's obligation to repurchase certain Contracts
for breaches of representations or warranties under the Agreement. In the event
that the Trustee would be obligated to succeed the Servicer but is unwilling or
unable so to act, it may appoint, or petition to a court of competent
jurisdiction for the appointment of a Servicer. Pending such appointment, the
Trustee is obligated to act in such capacity. The Trustee and such successor
may agree upon the servicing compensation to be paid, which in no event may be
greater than the compensation to the Servicer under the Agreement.
No Certificateholder will have any right under the Agreement to institute any
proceeding with respect to such Agreement unless such Holder previously has
given to the Trustee written notice of default and unless the Holders of
Certificates evidencing interests aggregating not less than 25% of the related
Trust requested the Trustee in writing to institute such proceeding in its own
name as Trustee and have offered to the Trustee reasonable indemnity and the
Trustee for 60 days has neglected or refused to institute any such proceeding.
The Trustee will be under no obligation to take any action or institute,
conduct or defend any litigation under the Agreement at the request, order or
direction of any of the Holders of Certificates, unless such Certificateholders
have offered to the Trustee reasonable security or indemnity against the costs,
expenses and liabilities which the Trustee may incur.
REPURCHASE OPTION
The Agreement provides that on any Remittance Date on which the Pool
Scheduled Principal Balance is less than 10% of the Cut-off Date Pool Principal
Balance, the Company or the Servicer will have the option to repurchase, upon
the Company or the Servicer giving notice mailed no earlier than the 15th day
and no later than the 25th day of the month next preceding the month of such
final distribution, all outstanding Contracts at a price equal to the greater
of (a) the sum of (x) 100% of the Scheduled Principal Balance of each Contract
(other than any Contract as to which the related Manufactured Home has been
repossessed and whose fair market value is included pursuant to clause (y)
below) as of the final Remittance Date, and (y) the fair market value of such
acquired property (as determined by the Company), and (b) the aggregate
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fair market value (as determined by the Company) of all of the assets of the
Trust, plus, in each case, any Unpaid Class A-1 Interest Shortfall, any Unpaid
Class A-2 Interest Shortfall, any Unpaid Class A-3 Interest Shortfall, any
Unpaid Class A-4 Interest Shortfall, any Unpaid Class A-5 Interest Shortfall,
any Unpaid Class B-1 Interest Shortfall and any Unpaid Class B-2 Interest
Shortfall, as well as one month's interest at the applicable Contract Rate on
the Scheduled Principal Balance of each Contract (including any Contract as to
which the related Manufactured Home has been repossessed). (Section 8.05.)
TERMINATION OF THE AGREEMENT
The Agreement will terminate upon the last action required to be taken by the
Trustee on the final Remittance Date following the later of (i) the purchase by
the Company or the Servicer of all Contracts and all property acquired in
respect of any Contract remaining in the Trust as described under "Repurchase
Option" or (ii) the final payment or other liquidation of the last Contract
remaining in the Trust or the disposition of all property acquired upon
repossession of any Manufactured Home.
Upon presentation and surrender of the Certificates, the Trustee shall cause
to be distributed, in the following order of priority, to Certificateholders on
the final Remittance Date in proportion to their respective Percentage
Interests an amount equal to (i) as to the Class A Certificates, any unpaid
interest at the related Remittance Rates, (ii) as to the Class A Certificates,
the outstanding Principal Balances thereof, (iii) as to the Class B-1
Certificates, any unpaid interest at the Class B-1 Remittance Rate, (iv) as to
the Class B-1 Certificates, the outstanding Class B-1 Principal Balance, (v) as
to the Class B-2 Certificates, any unpaid interest at the Class B-2 Remittance
Rate, (vi) as to the Class B-2 Certificates, the Class B-2 Principal Balance
and (vii) as to the Class C Certificates, the amount which remains on deposit
in the Certificate Account (other than amounts retained to meet claims) after
application pursuant to clauses (i)-(vi) above. (Section 12.03.)
AMENDMENT
The Agreement may be amended by agreement of the Trustee, the Company and the
Servicer at any time, without the consent of the Certificateholders, to correct
manifest error, to cure any ambiguity, to correct or supplement any provision
which may be inconsistent with any other provision, to add or amend any
provision as required by Moody's or any other nationally recognized statistical
rating organization in order to improve or maintain the rating of any Class of
Class A Certificates or any Class of Class B Certificates or to add other
provisions not inconsistent with the Agreement upon receipt of an Opinion of
Counsel to the Servicer that such amendment will not adversely affect in any
material respect the interests of any Certificateholder. (Section 12.07.)
Neither the Company nor the Servicer is obligated to take any action to
maintain or improve the rating given any Class of Class A Certificates or any
Class of Class B Certificates.
The Agreement may also be amended from time to time by the Trustee, the
Company and the Servicer, with the consent of the holders of Certificates of
each Class affected thereby evidencing, as to each such Class, Percentage
Interests aggregating at least 51%, provided that no such amendment shall (a)
reduce in any manner the amount of, or delay the timing of, collections of
payments on Contracts or distributions which are required to be made on any
Certificate without the consent of the holder of each Certificate affected
thereby, (b) reduce the aforesaid percentages of Certificateholders required
for any amendment of the Agreement, without the unanimous consent of the
Certificateholders, (c) adversely affect the status of the Trust as a REMIC or
the status of the Certificates as "regular interests" therein, or cause any tax
to be imposed on the Trust, or (d) modify in any manner the rights of the Class
C Certificateholders, without the unanimous consent of the Class C
Certificateholders. (Section 12.07.)
The Agreement may also be amended from time to time, without the consent of
any Certificateholders, by the Company, the Trustee and the Servicer to modify,
eliminate or add to the provisions of the Agreement (i) to maintain the
qualification of the Trust as a REMIC under the Code or avoid, or reduce the
risk of, the imposition of any tax on the Trust under the Code that would be a
claim against the Trust assets, provided that (a) an Opinion of Counsel is
delivered to the Trustee to the effect that such action is necessary to
maintain
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such qualification or avoid any such tax or reduce the risk of its imposition
and (b) such amendment shall not materially adversely affect the interests of
any Certificateholder or (ii) to prevent the Trust from entering into any
"prohibited transaction" as defined in Section 860F of the Code.
The Trustee is required under the Agreement to furnish Certificateholders
affected thereby with notice promptly upon execution of any amendment to the
Agreement. (Section 12.07.)
DUTIES AND IMMUNITIES OF THE TRUSTEE
The Trustee may resign at any time, in which event the Company will be
obligated to appoint a successor Trustee. The Company may also remove the
Trustee if the Trustee ceases to be eligible to continue as such under the
Agreement or if the Trustee becomes insolvent. The Trustee may also be removed
at any time by the holders of Certificates evidencing interests aggregating
over 50% of the Trust as specified in the Agreement. Any resignation or
removal of the Trustee and appointment of a successor Trustee will not become
effective until acceptance of the appointment by the successor Trustee.
The Trustee will make no representation as to the validity or sufficiency of
the Agreement, the Certificates, any Contract, Contract file or related
documents, and will not be accountable for the use or application by the
Company of any funds paid to the Company, as Seller, in consideration of the
conveyance of the Contracts, or deposited into or withdrawn from the
Certificate Account by the Company, as Servicer. (Section 11.03.) If no Event
of Termination has occurred, the Trustee will be required to perform only
those duties specifically required of it under the Agreement. However, upon
receipt of the various certificates, reports or other instruments required to
be furnished to it, the Trustee will be required to examine them to determine
whether they conform as to form to the requirements of the Agreement. (Section
11.01.) Whether or not an Event of Termination has occurred, the Trustee is
not required to expend or risk its own funds or otherwise incur any financial
liability in the performance of its duties or the exercise of its powers if it
has reasonable grounds to believe that repayment of such funds or adequate
indemnity against such risk or liability is not reasonably assured to it.
(Section 11.01.)
Under the Agreement, the Company, as Servicer, agrees to pay to the Trustee
on each Remittance Date (a) reasonable compensation for all services rendered
by it hereunder (which compensation shall not be limited by any provision of
law in regard to the compensation of a trustee of an express trust) and (b)
reimbursement for all reasonable expenses, disbursements and advances incurred
or made by the Trustee in accordance with any provision of the Agreement
(including the reasonable compensation and the expenses and disbursements of
its agents and counsel), except any such expense, disbursement or advance as
may be attributable to the Trustee's negligence or bad faith. The Company has
agreed to indemnify the Trustee for, and to hold it harmless against, any
loss, liability or expense incurred without negligence or bad faith on its
part, arising out of or in connection with the acceptance or administration of
the Trust and the Trustee's duties thereunder, including the costs and
expenses of defending itself against any claim or liability in connection with
the exercise or performance of any of the Trustee's powers or duties
thereunder. (Section 11.05.)
THE TRUSTEE
First Bank National Association (the "Trustee") has its corporate trust
offices at 180 East Fifth Street, St. Paul, Minnesota 55102. The Trustee and
certain of its affiliates maintain commercial banking relationships with the
Company.
The Agreement requires the Trustee to maintain, at its own expense, an
office or agency in Minneapolis or St. Paul, Minnesota where Certificates may
be surrendered for registration of transfer or exchange and where notices and
demands to or upon the Trustee and the certificate registrar and transfer
agent in respect of the Certificates pursuant to the Agreement may be served.
On the date hereof, the Trustee's offices for such purposes are located at 180
East Fifth Street, St. Paul, Minnesota 55102. The Trustee will promptly give
written notice to the Certificateholders of any change thereof. (Section
12.02.)
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REGISTRATION OF THE CLASS B-2 CERTIFICATES
The Class B-2 Certificates will initially be registered in the name of Cede &
Co., the nominee of DTC. DTC is a limited-purpose trust company organized under
the laws of the State of New York, a member of the Federal Reserve System, a
"clearing corporation" within the meaning of the New York Uniform Commercial
Code, and a "clearing agency" registered pursuant to the provisions of Section
17A of the 1934 Act. DTC accepts securities for deposit from its participating
organizations ("Participants") and facilitates the clearance and settlement of
securities transactions between Participants in such securities through
electronic book-entry changes in accounts of Participants, thereby eliminating
the need for physical movement of certificates. Participants include securities
brokers and dealers, banks and trust companies and clearing corporations and
may include certain other organizations. Indirect access to the DTC system is
also available to others such as banks, brokers, dealers and trust companies
that clear through or maintain a custodial relationship with a Participant,
either directly or indirectly ("indirect participants").
Certificate Owners who are not Participants but desire to purchase, sell or
otherwise transfer ownership of the Class B-2 Certificates may do so only
through Participants (unless and until Definitive Class B-2 Certificates, as
defined below, are issued). In addition, Certificate Owners will receive all
distributions of principal of, and interest on, the Class B-2 Certificates from
the Trustee through DTC and Participants. Certificate Owners will not receive
or be entitled to receive certificates representing their respective interests
in the Class B-2 Certificates, except under the limited circumstances described
below.
Unless and until Definitive Class B-2 Certificates (as defined below) are
issued, it is anticipated that the only "Certificateholder" of the Class B-2
Certificates will be Cede & Co., as nominee of DTC. Certificate Owners will not
be Certificateholders as that term is used in the Agreement. Certificate Owners
are only permitted to exercise the rights of Certificateholders indirectly
through Participants and DTC.
While the Class B-2 Certificates are outstanding (except under the
circumstances described below), under the rules, regulations and procedures
creating and affecting DTC and its operations (the "Rules"), DTC is required to
make book-entry transfers among Participants on whose behalf it acts with
respect to the Class B-2 Certificates and is required to receive and transmit
distributions of principal of, and interest on, the Class B-2 Certificates.
Participants with whom Certificate Owners have accounts with respect to Class
B-2 Certificates are similarly required to make book-entry transfers and
receive and transmit such distributions on behalf of their respective
Certificate Owners. Accordingly, although Certificate Owners will not possess
certificates, the Rules provide a mechanism by which Certificate Owners will
receive distributions and will be able to transfer their interests.
Class B-2 Certificates will be issued in registered form to Certificate
Owners, or their nominees, rather than to DTC (such Certificates being referred
to herein as "Definitive Class B-2 Certificates"), only if (i) DTC or the
Company advises the Trustee in writing that DTC is no longer willing or able to
discharge properly its responsibilities as nominee and depository with respect
to the Class B-2 Certificates and the Company or the Trustee is unable to
locate a qualified successor or (ii) the Company at its sole option advises the
Trustee in writing that it elects to terminate the book-entry system through
DTC. Upon issuance of Definitive Class B-2 Certificates to Certificate Owners,
such Certificates will be transferable directly (and not exclusively on a book-
entry basis) and registered holders will deal directly with the Trustee with
respect to transfers, notices and distributions.
DTC has advised the Company and the Trustee that, unless and until Definitive
Class B-2 Certificates are issued, DTC will take any action permitted to be
taken by a Certificateholder under the Agreement only at the direction of one
or more Participants to whose DTC accounts the Class B-2 Certificates are
credited. DTC has advised the Company that DTC will take such action with
respect to any Percentage Interests of the Class B-2 Certificates only at the
direction of and on behalf of such Participants with respect to such Percentage
Interests of the Class B-2 Certificates. DTC may take actions, at the direction
of the related Participants, with respect to some Class B-2 Certificates which
conflict with actions taken with respect to other Class B-2 Certificates.
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Issuance of Class B-2 Certificates in book-entry form rather than as physical
certificates may adversely affect the liquidity of the Class B-2 Certificates
in the secondary market and the ability of Certificate Owners to pledge them.
In addition, since distributions on the Class B-2 Certificates will be made by
the Trustee to DTC and DTC will credit such distributions to the accounts of
its Participants, which will further credit them to the accounts of indirect
participants or Certificate Owners, Certificate Owners may experience delays in
the receipt of such distributions.
CERTAIN LEGAL ASPECTS OF THE CONTRACTS
The following discussion contains summaries of certain legal aspects of
manufactured housing contracts, including Land-and-Home Contracts, which are
general in nature. Because such legal aspects are governed by applicable state
law (which laws may differ substantially), the summaries do not purport to be
complete nor to reflect the laws of any particular state, nor to encompass the
laws of all states in which the security for the Contracts or Land-and-Home
Contracts is situated. The summaries are qualified in their entirety by
reference to the applicable federal and state laws governing the Contracts or
Land-and-Home Contracts.
THE CONTRACTS (OTHER THAN LAND-AND-HOME CONTRACTS)
General. As a result of the assignment of the Contracts to the Trustee, the
Trust will succeed collectively to all of the rights (including the right to
receive payment on the Contracts) and will assume the obligations of the
obligee under the Contracts. Each Contract evidences both (a) the obligation of
the Obligor to repay the loan evidenced thereby, and (b) the grant of a
security interest in the Manufactured Home to secure repayment of such loan.
Certain aspects of both features of the Contracts are described more fully
below.
The Contracts generally are "chattel paper" as defined in the Uniform
Commercial Code (the "UCC") in effect in the states in which the Manufactured
Homes initially were registered. Pursuant to the UCC, the sale of chattel paper
is treated in a manner similar to perfection of a security interest in chattel
paper. Under the Agreement, the Company will retain possession of the Contracts
as custodian for the Trustee, and will make an appropriate filing of a UCC-1
financing statement in Minnesota to give notice of the Trustee's ownership of
the Contracts. The Contracts will be stamped to reflect their assignment from
the Company to the Trustee. However, if through negligence, fraud or otherwise,
a subsequent purchaser were able to take physical possession of the Contracts
without notice of such assignment, the Trustee's interest in the Contracts
could be defeated.
Security Interests in the Manufactured Homes. The Manufactured Homes securing
the Contracts may be located in all 50 states and the District of Columbia.
Security interests in manufactured homes may be perfected either by notation of
the secured party's lien on the certificate of title or by delivery of the
required documents and payment of a fee to the state motor vehicle authority,
depending on state law. In some nontitle states, perfection pursuant to the
provisions of the UCC is required. The Company effects such notation or
delivery of the required documents and fees, and obtains possession of the
certificate of title, as appropriate under the laws of the state in which a
Manufactured Home is registered. In the event the Company fails, due to
clerical errors, to effect such notation or delivery, or files the security
interest under the wrong law (for example, under a motor vehicle title statute
rather than under the UCC, in a few states), the Certificateholders may not
have a first priority security interest in the Manufactured Home securing a
Contract. As manufactured homes have become larger and often have been attached
to their sites without any apparent intention to move them, courts in many
states have held that manufactured homes, under certain circumstances, may
become subject to real estate title and recording laws. As a result, a security
interest in a manufactured home could be rendered subordinate to the interests
of other parties claiming an interest in the home under applicable state real
estate law. In order to perfect a security interest in a manufactured home
under real estate laws, the holder of the security interest must file either a
"fixture filing" under the provisions of the UCC or a real estate mortgage
under the real estate laws of the state where the home is located. See "Land-
and-Home Contracts" below. These filings must be made in the real estate
records office of the county
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where the home is located. Substantially all of the Contracts contain
provisions prohibiting the borrower from permanently attaching the Manufactured
Home to its site. So long as the borrower does not violate this agreement, a
security interest in the Manufactured Home will be governed by the certificate
of title laws or the UCC, and the notation of the security interest on the
certificate of title or the filing of a UCC financing statement will be
effective to maintain the priority of the security interest in the Manufactured
Home. If, however, a Manufactured Home becomes permanently attached to its
site, other parties could obtain an interest in the Manufactured Home which is
prior to the security interest originally retained by the seller and
transferred to the Company. The Company will represent that at the date of the
initial issuance of the related Certificates it has obtained a perfected first
priority security interest by proper notation or delivery of the required
documents and fees with respect to substantially all of the Manufactured Homes
securing the Contracts.
The Company will assign the security interest in the Manufactured Homes to
the Trustee on behalf of the Certificateholders. Neither the Company nor the
Trustee will amend the certificates of title to identify the Trustee as the new
secured party, and neither the Company nor the Servicer will deliver the
certificates of title to the Trustee or note thereon the interest of the
Trustee. Accordingly, the Company will continue to be named as the secured
party on the certificates of title relating to the Manufactured Homes. In some
states, such assignment is an effective conveyance of such security interest
without amendment of any lien noted on the related certificate of title and the
new secured party succeeds to the Servicer's rights as the secured party.
However, in some states in the absence of an amendment to the certificate of
title, such assignment of the security interest in the Manufactured Home may
not be held effective or such security interests may not be perfected and in
the absence of such notation or delivery to the Trustee, the assignment of the
security interest in the Manufactured Home may not be effective against
creditors of the Company or a trustee in bankruptcy of the Company.
In the absence of fraud, forgery or permanent affixation of the Manufactured
Home to its site by the Manufactured Home owner, or administrative error by
state recording officials, the notation of the lien of the Company on the
certificate of title or delivery of the required documents and fees will be
sufficient to protect the Certificateholders against the rights of subsequent
purchasers of a Manufactured Home or subsequent lenders who take a security
interest in the Manufactured Home. If there are any Manufactured Homes as to
which the Company's security interest is not perfected, such security interest
would be subordinate to, among others, subsequent purchasers for value of the
Manufactured Homes and holders of perfected security interests. There also
exists a risk in not identifying the Trustee as the new secured party on the
certificate of title that, through fraud or negligence, the security interest
of the Trustee could be released.
In the event that the owner of a Manufactured Home moves it to a state other
than the state in which such Manufactured Home initially is registered, under
the laws of most states the perfected security interest in the Manufactured
Home would continue for four months after such relocation and thereafter only
if and after the owner re-registers the Manufactured Home in such state. If the
owner were to relocate a Manufactured Home to another state and not re-register
the Manufactured Home in such state, and if steps were not taken to re-perfect
the Trustee's security interest in such state, the security interest in the
Manufactured Home would cease to be perfected. A majority of states generally
require surrender of a certificate of title to re-register a Manufactured Home;
accordingly, the Company must surrender possession if it holds the certificate
of title to such Manufactured Home or, in the case of Manufactured Homes
registered in states which provide for notation of lien, the Company would
receive notice of surrender if the security interest in the Manufactured Home
is noted on the certificate of title. Accordingly, the Company would have the
opportunity to re-perfect its security interest in the Manufactured Home in the
state of relocation. In states which do not require a certificate of title for
registration of a manufactured home, re-registration could defeat perfection.
In the ordinary course of servicing the manufactured housing conditional sales
contracts, the Company takes steps to effect such re-perfection upon receipt of
notice of re-registration or information from the Obligor as to relocation.
Similarly, when an Obligor under a Contract sells a Manufactured Home, the
Company must surrender possession of the certificate of title or will receive
notice as a result of its lien noted thereon and accordingly will have an
opportunity to require satisfaction of the related manufactured
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housing conditional sales contract before release of the lien. Under the
Agreement, the Servicer is obligated to take such steps, at the Servicer's
expense, as are necessary to maintain perfection of security interests in the
Manufactured Homes.
Under the laws of most states, liens for repairs performed on a Manufactured
Home and liens for personal property taxes take priority over a perfected
security interest. The Company will represent in the Agreement that it has no
knowledge of any such liens with respect to any Manufactured Home securing
payment on any Contract. However, such liens could arise at any time during the
term of a Contract. No notice will be given to the Trustee or
Certificateholders in the event such a lien arises.
Enforcement of Security Interests in Manufactured Homes. The Servicer on
behalf of the Trustee, to the extent required by the Agreement, may take action
to enforce the Trustee's security interest with respect to Contracts in default
by repossession and resale of the Manufactured Homes securing such Defaulted
Contracts. So long as the Manufactured Home has not become subject to real
estate laws, a creditor can repossess a Manufactured Home securing a Contract
by voluntary surrender, by "self-help" repossession that is "peaceful" (i.e.,
without breach of the peace) or, in the absence of voluntary surrender and the
ability to repossess without breach of the peace, by judicial process. The
holder of a Contract must give the debtor a number of days' notice, which
varies from 10 to 30 days depending on the state, prior to commencement of any
repossession. The UCC and consumer protection laws in most states place
restrictions on repossession sales, including requiring prior notice to the
debtor and commercial reasonableness in effecting such a sale. The law in most
states also requires that the debtor be given notice of any sale prior to
resale of the unit so that the debtor may redeem at or before such resale. In
the event of such repossession and resale of a Manufactured Home, the Trustee
would be entitled to be paid out of the sale proceeds before such proceeds
could be applied to the payment of the claims of unsecured creditors or the
holders of subsequently perfected security interests or, thereafter, to the
debtor.
Under the laws applicable in most states, a creditor is entitled to obtain a
deficiency judgment from a debtor for any deficiency on repossession and resale
of the manufactured home securing such a debtor's loan. However, some states
impose prohibitions or limitations on deficiency judgments, and in many cases
the defaulting borrower would have no assets with which to pay a judgment.
Certain other statutory provisions, including federal and state bankruptcy
and insolvency laws and general equitable principles, may limit or delay the
ability of a lender to repossess and resell collateral or enforce a deficiency
judgment.
Under the terms of the federal Soldiers' and Sailors' Civil Relief Act of
1940, as amended (the "Relief Act"), an Obligor who enters military service
after the origination of such Obligor's Contract (including an Obligor who is a
member of the National Guard or is in reserve status at the time of the
origination of the Contract and is later called to active duty) may not be
charged interest above an annual rate of 6% during the period of such Obligor's
active duty status, unless a court orders otherwise upon application of the
lender. It is possible that such action could have an effect, for an
indeterminate period of time, on the ability of the Servicer to collect full
amounts of interest on certain of the Contracts. Any shortfall in interest
collections resulting from the application of the Relief Act, to the extent not
covered by the subordination of a Class of Subordinated Certificates, could
result in losses to the holders of a Series of Certificates. In addition, the
Relief Act imposes limitations which would impair the ability of the Servicer
to foreclose on an affected Contract during the Obligor's period of active duty
status. Thus, in the event that such a Contract goes into default, there may be
delays and losses occasioned by the inability to realize upon the Manufactured
Home in a timely fashion.
LAND-AND-HOME CONTRACTS
General. The Land-and-Home Contracts will be secured by either first
mortgages or deeds of trust, depending upon the prevailing practice in the
state in which the underlying property is located. A mortgage creates a lien
upon the real property described in the mortgage. There are two parties to a
mortgage: the
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mortgagor, who is the borrower, and the mortgagee, who is the lender. In a
mortgage state, the mortgagor delivers to the mortgagee a note or bond
evidencing the loan and the mortgage. Although a deed of trust is similar to a
mortgage, a deed of trust has three parties: the borrower, a lender as
beneficiary, and a third-party grantee called the trustee. Under a deed of
trust, the borrower grants the property, irrevocably until the debt is paid, in
trust, generally with a power of sale, to the trustee to secure payment of the
loan. The trustee's authority under a deed of trust and the mortgagee's
authority under a mortgage are governed by the express provisions of the deed
of trust or mortgage, applicable law, and, in some cases, with respect to the
deed of trust, the directions of the beneficiary.
Foreclosure. Foreclosure of a mortgage is generally accomplished by judicial
action. Generally, the action is initiated by the service of legal pleadings
upon all parties having an interest of record in the real property. Delays in
completion of the foreclosure occasionally may result from difficulties in
locating necessary parties defendant. When the mortgagee's right to foreclosure
is contested, the legal proceedings necessary to resolve the issue can be time-
consuming and expensive. After the completion of a judicial foreclosure
proceeding, the court may issue a judgment of foreclosure and appoint a
receiver or other officer to conduct the sale of the property. In some states,
mortgages may also be foreclosed by advertisement, pursuant to a power of sale
provided in the mortgage. Foreclosure of a mortgage by advertisement is
essentially similar to foreclosure of a deed of trust by non-judicial power of
sale.
Foreclosure of a deed of trust is generally accomplished by a non-judicial
trustee's sale under a specific provision in the deed of trust that authorizes
the trustee to sell the property to a third party upon any default by the
borrower under the terms of the note or deed of trust. In certain states, such
foreclosure also may be accomplished by judicial action in the manner provided
for foreclosure of mortgages. In some states the trustee must record a notice
of default and send a copy to the borrower-trustor and to any person who has
recorded a request for a copy of a notice of default and the notice of sale. In
addition, the trustee must provide notice in some states to any other
individual having an interest of record in the real property, including any
junior lienholders. If the deed of trust is not reinstated within any
applicable cure period, a notice of sale must be posted in a public place and,
in most states, published for a specified period of time in one or more
newspapers. In addition, some state laws require that a copy of the notice of
sale be posted on the property and sent to all parties having an interest of
record in the property.
In some states, the borrower-trustor has the right to reinstate the loan at
any time following default until shortly before the trustee's sale. In general,
the borrower, or any other person having a junior encumbrance on the real
estate, may, during a reinstatement period, cure the default by paying the
entire amount in arrears plus the costs and expenses incurred in enforcing the
obligation. Certain state laws control the amount of foreclosure expenses and
costs, including attorneys' fees, that may be recovered by a lender.
In the case of foreclosure under either a mortgage or a deed of trust, the
sale by the receiver or other designated officer, or by the trustee, is a
public sale. However, because of the difficulty a potential buyer at the sale
would have in determining the exact status of title and because the physical
condition of the property may have deteriorated during the foreclosure
proceedings, it is not common for a third party to purchase the property at the
foreclosure sale. Rather, the lender generally purchases the property from the
trustee or receiver for an amount equal to the unpaid principal amount of the
note, accrued and unpaid interest and the expenses of foreclosure. Thereafter,
subject to the right of the borrower in some states to remain in possession
during the redemption period, the lender will assume the burdens of ownership,
including obtaining hazard insurance and making such repairs at its own expense
as are necessary to render the property suitable for sale. The lender commonly
will obtain the services of a real estate broker and pay the broker a
commission in connection with the sale of the property. Depending upon market
conditions, the ultimate proceeds of the sale of the property may not equal the
lender's investment in the property.
Rights of Redemption. In some states, after sale pursuant to a deed of trust
or foreclosure of a mortgage, the borrower and certain foreclosed junior
lienors are given a statutory period in which to redeem the property from the
foreclosure sale. In certain other states, this right of redemption applies
only to sale
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following judicial foreclosure, and not sale pursuant to a non-judicial power
of sale. In most states where the right of redemption is available, statutory
redemption may occur upon payment of the foreclosure purchase price, accrued
interest and taxes. In some states the right to redeem is an equitable right.
The effect of a right of redemption is to diminish the ability of the lender to
sell the foreclosed property. The exercise of a right of redemption would
defeat the title of any purchaser at a foreclosure sale, or of any purchaser
from the lender subsequent to judicial foreclosure or sale under a deed of
trust. Consequently, the practical effect of the redemption right is to force
the lender to maintain the property and pay the expenses of ownership until the
redemption period has run.
Anti-Deficiency Legislation and Other Limitations on Lenders. Certain states
have imposed statutory restrictions that limit the remedies of a beneficiary
under a deed of trust or a mortgagee under a mortgage relating to a single
family residence. In some states, statutes limit the right of the beneficiary
or mortgagee to obtain a deficiency judgment against the borrower following
foreclosure or sale under a deed of trust. A deficiency judgment is a personal
judgment against the borrower equal in most cases to the difference between the
amount due to the lender and the net amount realized upon the foreclosure sale.
Some state statutes may require the beneficiary or mortgagee to exhaust the
security afforded under a deed of trust or mortgage by foreclosure in an
attempt to satisfy the full debt before bringing a personal action against the
borrower. In certain other states, the lender has the option of bringing a
personal action against the borrower on the debt without first exhausting such
security; however, in some of these states, the lender, following judgment on
such personal action, may be deemed to have elected a remedy and may be
precluded from exercising remedies with respect to the security. Consequently,
the practical effect of the election requirement, when applicable, is that
lenders will usually proceed first against the security rather than bringing a
personal action against the borrower.
Other statutory provisions may limit any deficiency judgment against the
former borrower following a foreclosure sale to the excess of the outstanding
debt over the fair market value of the property at the time of such sale. The
purpose of these statutes is to prevent a beneficiary or a mortgagee from
obtaining a large deficiency judgment against the former borrower as a result
of low or no bids at the foreclosure sale.
In some states, exceptions to the anti-deficiency statutes are provided for
in certain instances where the value of the lender's security has been impaired
by acts or omissions of the borrower, for example, in the event of waste of the
property.
In addition to anti-deficiency and related legislation, numerous other
federal and state statutory provisions, including the federal bankruptcy laws,
the federal Soldiers' and Sailors' Civil Relief Act of 1940 and state laws
affording relief to debtors, may interfere with or affect the ability of a
secured mortgage lender to realize upon its security. For example, with respect
to a Land-and-Home Contract, in a Chapter 13 proceeding under the federal
Bankruptcy Code, when a court determines that the value of a home is less than
the principal balance of the loan, the court may prevent a lender from
foreclosing on the home, and, as part of the rehabilitation plan, reduce the
amount of the secured indebtedness to the value of the home as it exists at the
time of the proceeding, leaving the lender as a general unsecured creditor for
the difference between that value and the amount of outstanding indebtedness. A
bankruptcy court may grant the debtor a reasonable time to cure a payment
default, and in the case of a mortgage loan not secured by the debtor's
principal residence, also may reduce the monthly payments due under such
mortgage loan, change the rate of interest and alter the mortgage loan
repayment schedule. Certain court decisions have applied such relief to claims
secured by the debtor's principal residence.
The Code provides priority to certain tax liens over the lien of the mortgage
or deed of trust. The laws of some states provide priority to certain tax liens
over the lien of the mortgage or deed of trust. Numerous federal and some state
consumer protection laws impose substantive requirements upon mortgage lenders
in connection with the origination, servicing and the enforcement of mortgage
loans. These laws include the federal Truth in Lending Act, Real Estate
Settlement Procedures Act, Equal Credit Opportunity Act, Fair
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Credit Billing Act, Fair Credit Reporting Act, and related statutes and
regulations. These federal laws and state laws impose specific statutory
liabilities upon lenders who originate or service mortgage loans and who fail
to comply with the provisions of the law. In some cases, this liability may
affect assignees of the Contracts.
CERTAIN MATTERS RELATING TO INSOLVENCY
The Company intends that each transfer of the Contracts to the Trust will
constitute a sale rather than a pledge of the Contracts to secure indebtedness
of the Company. However, if the Company were to become a debtor under the
federal bankruptcy code, it is possible that a creditor, receiver, conservator
or trustee in bankruptcy of the Company or the Company as a debtor-in-
possession may argue that the sale of the Contracts by the Company was a pledge
of the Contracts rather than a sale. This position, if argued or accepted by a
court, could result in a delay in or reduction of distributions to the related
Certificateholders.
CONSUMER PROTECTION LAWS
The so-called "Holder-in-Due-Course" rule of the Federal Trade Commission is
intended to defeat the ability of the transferor of a consumer credit contract
which is the seller of goods which gave rise to the transaction (and certain
related lenders and assignees) to transfer such contract free of notice of
claims by the debtor thereunder. The effect of this rule is to subject the
assignee of such a Contract (such as the Trust) to all claims and defenses
which the Obligor could assert against the seller of the Manufactured Home.
Liability under this rule is limited to amounts paid under a contract; however,
the Obligor also may be able to assert the rule to set off remaining amounts
due as a defense against a claim brought by the Trust against such Obligor.
Numerous other federal and state consumer protection laws impose requirements
applicable to the origination and lending pursuant to the Contracts, including
the Truth in Lending Act, the Federal Trade Commission Act, the Fair Credit
Billing Act, the Fair Credit Reporting Act, the Equal Credit Opportunity Act,
the Fair Debt Collection Practices Act and the Uniform Consumer Credit Code. In
the case of some of these laws, the failure to comply with their provisions may
affect the enforceability of the related Contract.
TRANSFERS OF MANUFACTURED HOMES; ENFORCEABILITY OF "DUE-ON-SALE" CLAUSES
The Contracts, in general, prohibit the sale or transfer of the related
Manufactured Homes without the consent of the Servicer and permit the
acceleration of the maturity of the Contracts by the Servicer upon any such
sale or transfer that is not consented to. The Company expects that it will
permit most transfers of Manufactured Homes and not accelerate the maturity of
the related Contracts. In certain cases, the transfer may be made by a
delinquent Obligor in order to avoid a repossession proceeding with respect to
a Manufactured Home.
In the case of a transfer of a Manufactured Home after which the Servicer
desires to accelerate the maturity of the related Contract, the Servicer's
ability to do so will depend on the enforceability under state law of the "due-
on-sale" clause. The Garn-St. Germain Depositary Institutions Act of 1982
preempts, subject to certain exceptions and conditions, state laws prohibiting
enforcement of "due-on-sale" clauses applicable to the Manufactured Homes.
Consequently, in some states the Servicer may be prohibited from enforcing a
"due-on-sale" clause in respect of certain Manufactured Homes.
APPLICABILITY OF USURY LAWS
Title V of the Depository Institutions Deregulation and Monetary Control Act
of 1980, as amended ("Title V"), provides that, subject to the following
conditions, state usury limitations shall not apply to any loan which is
secured by a first lien on certain kinds of manufactured housing. The Contracts
would be covered if they satisfy certain conditions, among other things,
governing the terms of any prepayments, late charges and deferral fees and
requiring a 30-day notice period prior to instituting any action leading to
repossession of or foreclosure with respect to the related unit.
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Title V authorized any state to reimpose limitations on interest rates and
finance charges by adopting before April 1, 1983 a law or constitutional
provision which expressly rejects application of the federal law. Fifteen
states adopted such a law prior to the April 1, 1983 deadline. In addition,
even where Title V was not so rejected, any state is authorized by the law to
adopt a provision limiting discount points or other charges on loans covered by
Title V. The Company will represent in the applicable Agreement that all of the
Contracts comply with applicable usury law.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
GENERAL
The following is a general discussion of certain federal income tax
consequences relating to the purchase, ownership, and disposition of the Class
B-2 Certificates. The discussion is based upon laws, regulations, rulings, and
decisions now in effect, including Treasury Regulations issued on December 23,
1992, and generally effective for REMICs with startup days on or after November
12, 1991 (the "REMIC Regulations"), all of which are subject to change or
possibly differing interpretations. The discussion does not purport to deal
with federal income tax consequences applicable to all categories of investors,
some of which may be subject to special rules. Investors should consult their
own tax advisors to determine the federal, state, local, and any other tax
consequences of the purchase, ownership, and disposition of the Certificates.
REMIC
The Company, as the holder of the Class C Certificates, has determined that
the federal tax return of the Trust for its first taxable year will provide
that the Trust elects to be taxed as a REMIC within the meaning of Section
860D(a) of the Code for such tax year and all subsequent tax years. Upon the
issuance of the Certificates, Dorsey & Whitney will have advised the Company
that in its opinion, assuming (i) the making of that election in accordance
with the requirements of the Code and (ii) ongoing compliance with the
applicable Agreement, at the initial issuance of the Certificates the Trust
will qualify as a REMIC and the Certificates ("REMIC Certificates") will be
treated either as regular interests in the REMIC within the meaning of Section
860G(a)(1) of the Code ("Regular Certificates") or as residual interests in the
REMIC within the meaning of Section 860G(a)(2) of the Code ("Residual
Certificates").
Qualification as a REMIC. Qualification as a REMIC involves ongoing
compliance with certain requirements and the following discussion assumes that
such requirements will be satisfied by the Trust so long as there are any REMIC
Certificates outstanding. Substantially all of the assets of the REMIC must
consist of "qualified mortgages" and "permitted investments" as of the close of
the third month beginning after the day on which the REMIC issues all of its
regular and residual interests (the "Startup Day") and at all times thereafter.
The term "qualified mortgage" means any obligation (including a participation
or certificate of beneficial ownership in such obligation) which is principally
secured by an interest in real property that is transferred to the REMIC on the
Startup Day in exchange for regular or residual interests in the REMIC or is
purchased by the REMIC within the three-month period beginning on the Startup
Day if such purchase is pursuant to a fixed price contract in effect on the
Startup Day. The REMIC Regulations provide that a Contract is principally
secured by an interest in real property if the fair market value of the real
property securing the Contract is at least equal to either (i) 80% of the issue
price (generally, the principal balance) of the Contract at the time it was
originated or (ii) 80% of the adjusted issue price (the then-outstanding
principal balance, with certain adjustments) of the Contract at the time it is
contributed to a REMIC. The fair market value of the underlying real property
is to be determined after taking into account other liens encumbering that real
property. Alternatively, a Contract is principally secured by an interest in
real property if substantially all of the proceeds of the Contract were used to
acquire or to improve or protect an interest in real property that, at the
origination date, is the only security for the Contract (other than the
personal liability of the obligor). The REMIC Regulations provide that
obligations secured by manufactured
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housing or mobile homes (not including recreational vehicles, campers or
similar vehicles) which are "single family residences" under Section 25(e)(10)
of the Code will qualify as obligations secured by real property without regard
to state law classifications. See the discussion below under "REMIC--Status of
Manufactured Housing Contracts." A qualified mortgage also includes a qualified
replacement mortgage that is used to replace any qualified mortgage within
three months of the Startup Day or to replace a defective mortgage within two
years of the Startup Day.
"Permitted investments" consist of (a) temporary investments of cash received
under qualified mortgages before distribution to holders of interests in the
REMIC ("cash-flow investments"), (b) amounts, such as a Reserve Fund, if any,
reasonably required to provide for full payment of expenses of the REMIC, the
principal and interest due on regular or residual interests in the event of
defaults on qualified mortgages, lower than expected returns on cash-flow
investments, prepayment interest shortfalls or certain other contingencies
("qualified reserve assets"), and (c) certain property acquired as a result of
foreclosure of defaulted qualified mortgages ("foreclosure property"). A
reserve fund will not be qualified if more than 30% of the gross income from
the assets in the reserve fund is derived from the sale or other disposition of
property held for three months or less, unless such sale is necessary to
prevent a default in payment of principal or interest on Regular Certificates.
In accordance with Section 860G(a)(7) of the Code, a reserve fund must be
"promptly and appropriately" reduced as payments on contracts are received.
Foreclosure property will be a permitted investment only to the extent that
such property is not held for more than two years.
The Code requires that in order to qualify as a REMIC an entity must make
reasonable arrangements designed to ensure that certain specified entities,
generally including governmental entities or other entities that are exempt
from United States tax, including the tax on unrelated business income
("Disqualified Organizations"), not hold residual interests in the REMIC.
Consequently, the transfer, sale, or other disposition of a Residual
Certificate to a Disqualified Organization will be prohibited and the ability
of a Residual Certificate to be transferred will be conditioned on the
Trustee's receipt of a certificate or other document representing that the
proposed transferee is not a Disqualified Organization. The transferor of a
Residual Certificate must not, as of the time of the transfer, have actual
knowledge that such representation is false. The Code further requires that
reasonable arrangements must be made to enable a REMIC to provide the Internal
Revenue Service (the "Service") and certain other parties, including
transferors of residual interests in a REMIC, with the information needed to
compute the tax imposed by Section 860E(e)(1) of the Code if, in spite of the
steps taken to prevent Disqualified Organizations from holding residual
interests, such an organization does, in fact, acquire a residual interest. See
"REMIC--Restrictions on Transfer of Residual Certificates" below.
If the Trust Fund fails to comply with one or more of the ongoing
requirements for qualification as a REMIC, the Trust will not be treated as a
REMIC for the year during which such failure occurs and thereafter unless the
Service determines, in its discretion, that such failure was inadvertent (in
which case, the Service may require any adjustments which it deems
appropriate). If the ownership interests in the assets of the Trust consist of
multiple classes, failure to treat the Trust as a REMIC may cause the Trust to
be treated as an association taxable as a corporation. Such treatment could
result in income of the Trust being subject to corporate tax in the hands of
the Trust and in a reduced amount being available for distribution to
Certificateholders as a result of the payment of such taxes.
Status of Manufactured Housing Contracts. The REMIC Regulations as well as a
Notice issued by the Service provide that obligations secured by interests in
manufactured housing, which qualify as "single family residences" within the
meaning of Section 25(e)(10) of the Code, are to be treated as "qualified
mortgages" for a REMIC. Under Section 25(e)(10) of the Code, the term "single
family residence" includes any manufactured home which has a minimum of 400
square feet of living space and a minimum width in excess of 102 inches and
which is of a kind customarily used at a fixed location. The Company will
represent and warrant that each of the manufactured homes securing the
Contracts which are a part of a Trust meets this definition of a "single family
residence." See the discussion above under "REMIC--Qualification as a REMIC."
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Taxation of Regular Interests. Regular Certificates will be treated as new
debt instruments issued by the REMIC on the Startup Day. If a Regular
Certificate represents an interest in a REMIC that consists of a specified
portion of the interest payments on the REMIC's qualified mortgages, the stated
principal amount with respect to that Regular Certificate may be zero. Such a
specified portion may consist of a fixed number of basis points, a fixed
percentage of interest or a qualified variable rate on some or all of the
qualified mortgages. Stated interest on a Regular Certificate will be taxable
as ordinary income. Holders of Regular Certificates that would otherwise report
income under a cash method of accounting will be required to report income with
respect to such Regular Certificates under the accrual method. Under Temporary
Treasury Regulations, if the Trust is considered to be a "single-class REMIC,"
a portion of the REMIC's servicing fees, administrative and other non-interest
expenses, including assumption fees and late payment charges retained by the
Company, will be allocated as a separate item to those Regular
Certificateholders that are "pass-through interest holders." Generally, a
single-class REMIC is defined as a REMIC that would be treated as a fixed
investment trust under applicable law but for its qualification as a REMIC, or
a REMIC that is substantially similar to an investment trust but is structured
with the principal purpose of avoiding this allocation requirement imposed by
the Temporary Treasury Regulations. Generally, a pass-through interest holder
refers to individuals, entities taxed as individuals, such as certain trusts
and estates, and regulated investment companies. An individual, an estate, or a
trust that holds a Regular Certificate in such a REMIC will be allowed to
deduct the foregoing expenses under Section 212 of the Code only to the extent
that, in the aggregate and combined with certain other itemized deductions,
they exceed 2% of the adjusted gross income of the holder. In addition, Section
68 of the Code provides that the amount of itemized deductions (including those
provided for in Section 212 of the Code) otherwise allowable for the taxable
year for an individual whose adjusted gross income exceeds a threshold amount
specified in the Code ($100,000 in the case of a joint return) will be reduced
by the lesser of (i) 3% of the excess of adjusted gross income over the
specified threshold amount or (ii) 80% of the amount of itemized deductions
otherwise allowable for such taxable year. As a result of the foregoing
limitations, certain holders of Regular Certificates in "single-class REMICs"
may not be entitled to deduct all or any part of the foregoing expenses.
Tax Status of REMIC Certificates. In general, (i) Regular Certificates held
by a financial institution as described in Section 593(a) of the Code will
represent interests in "qualifying real property loans" within the meaning of
Section 593(d) of the Code; (ii) Regular Certificates held by a thrift
institution taxed as a "domestic building and loan association" within the
meaning of Section 7701(a)(19) of the Code will constitute "a regular ...
interest in a REMIC" within the meaning of Section 7701(a)(19)(C)(xi) of the
Code; and (iii) Regular Certificates held by a real estate investment trust
will constitute "real estate assets" within the meaning of Section 856(c)(5)(A)
of the Code and interest thereon will be considered "interest on obligations
secured by mortgages on real property" within the meaning of Section
856(c)(3)(B) of the Code. If less than 95% of the average adjusted basis of the
assets comprising the REMIC are assets qualifying under any of the foregoing
Sections of the Code (including assets described in Section 7701(a)(19)(C) of
the Code), then the Regular Certificates will be qualifying assets only to the
extent that the assets comprising the REMIC are qualifying assets. Treasury
Regulations promulgated pursuant to Section 593 of the Code define "qualifying
real property loans" to include a loan secured by a mobile home unit
"permanently fixed to real property" except during a brief period in which the
unit is transported to its site. Section 7701(a)(19)(C)(v) of the Code provides
that "loans secured by an interest in real property" includes loans secured by
mobile homes not used on a transient basis. Treasury Regulations promulgated
pursuant to Section 856 of the Code state that local law definitions are not
controlling in determining the meaning of the term "real property" for purposes
of that section, and the Service has ruled that obligations secured by
permanently installed mobile home units qualify as "real estate assets" under
this provision. Furthermore, interest paid with respect to Certificates held by
a real estate investment trust will be considered "interest on obligations
secured by mortgages on real property or on interests in real property" within
the meaning of Section 856(c)(3)(B) of the Code to the same extent that the
Certificates themselves are treated as real estate assets. Regular Certificates
held by a regulated investment company or a real estate investment trust will
not constitute "Government securities" within the meaning of Sections
851(b)(4)(A)(i) and 856(c)(5)(A) of the Code, respectively. In addition, the
REMIC Regulations provide that payments on Contracts held and reinvested
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pending distribution to Certificateholders will be considered to be "qualifying
real property loans" within the meaning of Section 593(b) of the Code and "real
estate assets" within the meaning of Section 856(c)(5)(A) of the Code. Entities
affected by the foregoing provisions of the Code that are considering the
purchase of Certificates should consult their own tax advisors regarding these
provisions.
Original Issue Discount. Regular Certificates may be issued with "original
issue discount." Rules governing original issue discount are set forth in
Sections 1271-1273 and 1275 of the Code and the proposed Treasury Regulations
issued thereunder in December 1992 (the "Proposed OID Regulations"). The
discussion herein is based in part on the Proposed OID Regulations, which are
subject to change before being adopted as final regulations. Moreover, although
the rules relating to original issue discount contained in the Code were
modified by the Tax Reform Act of 1986 specifically to address the tax
treatment of securities, such as the Regular Certificates, on which principal
is required to be prepaid based on prepayments of the underlying assets,
regulations under that legislation have not yet been finalized, and the
Proposed OID Regulations are proposed to be effective only for debt instruments
issued on or after the date which is 60 days after the date such regulations
are finalized and prior proposed regulations have been withdrawn.
In general, in the hands of the original holder of a Regular Certificate,
original issue discount, if any, is the difference between the "stated
redemption price at maturity" of the Regular Certificate and its "issue price."
The original issue discount with respect to a Regular Certificate will be
considered to be zero if it is less than .25% of the Regular Certificate's
stated redemption price at maturity multiplied by the number of complete years
from the date of issue of such Regular Certificate to its maturity date. The
Proposed OID Regulations, however, provide a special de minimis rule to apply
to obligations such as the Regular Certificates that have more than one
principal payment or that have interest payments that are not qualified stated
interest as defined in the Proposed OID Regulations, payable before maturity
("installment obligations"). Under the special rule, original issue discount on
an installment obligation is generally considered to be zero if it is less than
.25% of the principal amount of the obligation multiplied by the weighted
average maturity of the obligation as defined in the Proposed OID Regulations.
Because of the possibility of prepayments, it is not clear whether or how the
de minimis rules will apply to the Regular Certificates. It is possible that
the anticipated rate of prepayments assumed in pricing the debt instrument (the
"Prepayment Assumption") will be required to be used in determining the
weighted average maturity of the Regular Certificates. In the absence of
authority to the contrary, the Company expects to apply the de minimis rule
applicable to installment obligations by using the Prepayment Assumption. The
Proposed OID Regulations provide a further special de minimis rule applicable
to any Regular Certificates that are "self-amortizing installment obligations,"
i.e., Regular Certificates that provide for equal payments composed of
principal and qualified stated interest payable unconditionally at least
annually during its entire term, with no significant additional payment
required at maturity. Under this special rule, original issue discount on a
self-amortizing installment obligation is generally considered to be zero if it
is less than .167% of the principal amount of the obligation multiplied by the
number of complete years from the date of issue of such a Regular Certificate
to its maturity date.
Generally, the original holder of a Regular Certificate that includes a de
minimis amount of original issue discount includes that original issue discount
in income as principal payments are made. The amount includable in income with
respect to each principal payment equals a pro rata portion of the entire
amount of de minimis original issue discount with respect to that Regular
Certificate. Any de minimis amount of original issue discount includable in
income by a holder of a Regular Certificate is generally treated as a capital
gain if the Regular Certificate is a capital asset in the hands of the holder
thereof. Pursuant to the Proposed OID Regulations, a holder of a Regular
Certificate that uses the accrual method of tax accounting may, however, elect
to include in gross income all interest that accrues on a Regular Certificate,
including any de minimis original issue discount and market discount, by using
the constant yield method described below with respect to original issue
discount.
The stated redemption price at maturity of a Regular Certificate generally
will be equal to the sum of all payments, whether denominated as principal or
interest, to be made with respect thereto other than "qualified
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stated interest." Pursuant to the Proposed OID Regulations, qualified stated
interest is stated interest that is unconditionally payable at least annually
at a single fixed rate of interest (or, under certain circumstances, a variable
rate tied to an objective index) during the entire term of the Regular
Certificate (including short periods). Under the Proposed OID Regulations,
certain variable interest rates payable on Regular Certificates, including
rates based upon the weighted average interest rate of a Pool of Contracts, may
not be treated as qualified stated interest. In such case, the Proposed OID
Regulations would treat interest under such rates as contingent interest which
generally must be included in income by the Regular Certificateholder when the
interest becomes fixed, as opposed to when it accrues. Until further guidance
is issued concerning the treatment of such interest payable on Regular
Certificates, the REMIC will treat such interest as being payable at a variable
rate tied to a single objective index of market rates. Prospective investors
should consult their tax advisors regarding the treatment of such interest
under the Proposed OID Regulations. In the absence of authority to the contrary
and if otherwise appropriate, the Company expects to determine the stated
redemption price at maturity of a Regular Certificate by assuming that the
anticipated rate of prepayment for all Contracts will occur in such a manner
that the initial Remittance Rate for a Certificate will not change.
Accordingly, interest at the initial Remittance Rate will constitute qualified
stated interest payments for purposes of applying the original issue discount
provisions of the Code. In general, the issue price of a Regular Certificate is
the price paid by the first buyer of the particular Regular Certificate or, in
the case of a Regular Certificate included in a class that is publicly offered,
the initial offering price to the public at which a substantial amount of the
Regular Certificates of such class are sold to the public (excluding bond
houses, brokers or similar persons or organizations acting in the capacity of
underwriters or wholesalers). If a portion of the initial offering price of a
Regular Certificate is allocable to interest that has accrued prior to its date
of issue, the issue price of such a Regular Certificate includes that pre-
issuance accrued interest.
If the Regular Certificates are determined to be issued with original issue
discount, a holder of a Regular Certificate must generally include the original
issue discount in ordinary gross income for federal income tax purposes as it
accrues in advance of the receipt of any cash attributable to such income. The
amount of original issue discount, if any, required to be included in a Regular
Certificateholder's ordinary gross income for federal income tax purposes in
any taxable year will be computed in accordance with Section 1272(a) of the
Code and the Proposed OID Regulations. Under such Section and the Proposed OID
Regulations, original issue discount accrues on a daily basis under a constant
yield method that takes into account the compounding of interest. The amount of
original issue discount to be included in income by a holder of a debt
instrument, such as a Regular Certificate, under which principal payments may
be subject to acceleration because of prepayments of other debt obligations
securing such instruments, is computed by taking into account the Prepayment
Assumption.
The amount of original issue discount includable in income by a holder of a
Regular Certificate is the sum of the "daily portions" of the original issue
discount for each day during the taxable year on which the holder held the
Regular Certificate. The daily portions of original issue discount are
determined by allocating to each day in any "accrual period" a pro rata portion
of the excess, if any, of the sum of (i) the present value of all remaining
payments to be made on the Regular Certificate as of the close of the "accrual
period" and (ii) the payments during the "accrual period" of amounts included
in the stated redemption price of the Regular Certificate over the "adjusted
issue price" of the Regular Certificate at the beginning of the "accrual
period." Generally, the "accrual period" for the Regular Certificates
corresponds to the intervals at which amounts are paid or compounded with
respect to such Regular Certificate, beginning with their date of issuance and
ending with the maturity date. The "adjusted issue price" of a Regular
Certificate at the beginning of any accrual period is the sum of the issue
price and accrued original issue discount for each prior accrual period reduced
by the amount of payments other than payments of qualified stated interest made
during each prior accrual period. The Code requires the present value of the
remaining payments to be determined on the bases of (a) the original yield to
maturity (determined on the basis of compounding at the close of each accrual
period and properly adjusted for the length of the accrual period), (b) events,
including actual prepayments, which have occurred before the close of the
accrual period, and (c) the assumption that
57
<PAGE>
the remaining payments will be made in accordance with the original Prepayment
Assumption. The effect of this method is to increase the portions of original
issue discount that a Regular Certificateholder must include in income to take
into account prepayments with respect to the Contracts held by the Trust that
occur at a rate that exceeds the Prepayment Assumption and to decrease (but not
below zero for any period) the portions of original issue discount that a
Regular Certificateholder must include in income to take into account
prepayments with respect to the Contracts that occur at a rate that is slower
than the Prepayment Assumption. Although original issue discount will be
reported to Regular Certificateholders based on the Prepayment Assumption, no
representation is made to Regular Certificateholders that the Contracts will be
prepaid at that rate or at any other rate.
A subsequent purchaser of a Regular Certificate will also be required to
include in such purchaser's ordinary gross income for federal income tax
purposes the original issue discount, if any, accruing with respect to such
Regular Certificate, unless the price paid equals or exceeds the Regular
Certificate's outstanding principal amount. If the price paid exceeds the sum
of the Regular Certificate's issue price plus the aggregate amount of original
issue discount accrued with respect to the Regular Certificate, but does not
equal or exceed the outstanding principal amount of the Regular Certificate,
the amount of original issue discount to be accrued will be reduced in
accordance with a formula set forth in Section 1272(a)(7)(B) of the Code.
The Company believes that the holder of a Regular Certificate determined to
be issued with non-de minimis original issue discount will be required to
include the original issue discount in ordinary gross income for federal income
tax purposes computed in the manner described above. However, the Proposed OID
Regulations, which are not binding authority and are subject to change, either
do not address or are subject to varying interpretations with respect to
several issues concerning the computation of original issue discount for
obligations such as the Regular Certificates.
Market Discount. Regular Certificates, whether or not issued with original
issue discount, will be subject to the market discount rules of the Code. A
purchaser of a Regular Certificate who purchases the Regular Certificate at a
market discount (i.e., a discount from its original issue price plus any
accrued original issue discount, if any, as described above) will be required
to recognize accrued market discount as ordinary income as payments of
principal are received on such Regular Certificate or upon the sale or exchange
of the Regular Certificate. In general, the holder of a Regular Certificate may
elect to treat market discount as accruing either (i) under a constant yield
method that is similar to the method for the accrual of original issue discount
or (ii) in proportion to accruals of original issue discount (or, if there is
no original issue discount, in proportion to accruals of stated interest), in
each case computed taking into account the Prepayment Assumption.
The Code provides that the market discount in respect of a Regular
Certificate will be considered to be zero if the amount allocable to the
Regular Certificate is less than 0.25% of the Regular Certificate's stated
redemption price at maturity multiplied by the number of complete years
remaining to its maturity after the holder acquired the obligation. If market
discount is treated as de minimis under this rule, the actual discount would be
allocated among a portion of each scheduled distribution representing the
stated redemption price of such Regular Certificate and that portion of the
discount allocable to such distribution would be reported as income when such
distribution occurs or is due.
The Code further provides that any principal payment with respect to a
Regular Certificate acquired with market discount or any gain on disposition of
such a Regular Certificate shall be treated as ordinary income to the extent it
does not exceed the accrued market discount at the time of such payment. The
amount of accrued market discount for purposes of determining the amount of
ordinary income to be recognized with respect to subsequent payments on such a
Regular Certificate is to be reduced by the amount previously treated as
ordinary income.
58
<PAGE>
The Code grants authority to the Treasury Department to issue regulations
providing for the computation of accrued market discount on debt instruments
such as the Regular Certificates. Until such time as regulations are issued,
rules described in the legislative history for these provisions of the Code
will apply. Under those rules, as described above, the holder of a Regular
Certificate with market discount may elect to accrue market discount either on
the basis of a constant interest rate or according to certain other methods.
Certificateholders who acquire a Regular Certificate at a market discount
should consult their tax advisors concerning various methods which are
available for accruing that market discount.
In general, limitations imposed by the Code that are intended to match
deductions with the taxation of income may require a holder of a Regular
Certificate having market discount to defer a portion of the interest
deductions attributable to any indebtedness incurred or continued to purchase
or carry such Regular Certificate. Alternatively, a holder of a Regular
Certificate may elect to include market discount in gross income as it accrues
and, if he makes such an election, is exempt from this rule. The adjusted basis
of a Regular Certificate subject to such election will be increased to reflect
market discount included in gross income, thereby reducing any gain or
increasing any loss on a sale or taxable disposition.
Amortizable Premium. A holder of a Regular Certificate who holds the Regular
Certificate as a capital asset and who purchased the Regular Certificate at a
cost greater than its outstanding principal amount will be considered to have
purchased the Regular Certificate at a premium. In general, the Regular
Certificateholder may elect to deduct the amortizable bond premium as it
accrues under a constant yield method. A Regular Certificateholder's tax basis
in the Regular Certificate will be reduced by the amount of the amortizable
bond premium deducted. In addition, it appears that the same methods which
apply to the accrual of market discount on installment obligations are intended
to apply in computing the amortizable bond premium deduction with respect to a
Regular Certificate. It is not clear, however, (i) whether the alternatives to
the constant-yield method which may be available for the accrual of market
discount are available for amortizing premium on Regular Certificates and (ii)
whether the Prepayment Assumption should be taken into account in determining
the term of a Regular Certificate for this purpose. Certificateholders who pay
a premium for a Regular Certificate should consult their tax advisors
concerning such an election and rules for determining the method for amortizing
bond premium.
Gain or Loss on Disposition. If a Regular Certificate is sold, the seller
will recognize gain or loss equal to the difference between the amount realized
from the sale and the seller's adjusted basis in such Regular Certificate. The
adjusted basis generally will equal the cost of such Regular Certificate to the
seller, increased by any original issue discount included in the seller's
ordinary gross income with respect to such Regular Certificate and reduced (but
not below zero) by any payments on the Regular Certificate previously received
or accrued by the seller (other than qualified stated interest payments) and
any amortizable premium. Similarly, a Regular Certificateholder who receives a
principal payment with respect to a Regular Certificate will recognize gain or
loss equal to the difference between the amount of the payment and the holder's
allocable portion of his or her adjusted basis in the Regular Certificate.
Except as discussed below or with respect to market discount, any gain or loss
recognized upon a sale, exchange, retirement, or other disposition of a Regular
Certificate will be capital gain if the Regular Certificate is held as a
capital asset.
Gain from the disposition of a Regular Certificate that might otherwise be
capital gain, including any gain attributable to de minimis original issue
discount, will be treated as ordinary income to the extent of the excess, if
any, of (i) the amount that would have been includable in the holder's income
if the yield on such Regular Certificate had equaled 110% of the applicable
federal rate determined as of the beginning of such holder's holding period,
over (ii) the amount of ordinary income actually recognized by the holder with
respect to such Regular Certificate.
If the Company is determined to have intended on the date of issue of the
Regular Certificates to call all or any portion of the Regular Certificates
prior to their stated maturity within the meaning of Section 1271(a)(2)(A) of
the Code, any gain realized upon a sale, exchange, retirement, or other
disposition of a Regular Certificate would be considered ordinary income to the
extent it does not exceed the unrecognized
59
<PAGE>
portion of the original issue discount, if any, with respect to the Regular
Certificate. The Proposed OID Regulations provide that the intention to call
rule will not be applied to mortgage-backed securities such as the Regular
Certificates. In addition, under the Proposed OID Regulations, a mandatory
sinking fund or call option is not evidence of an intention to call.
Taxation of Residual Interests. Generally, the "daily portions" of the
taxable income or net loss of a REMIC will be includable as ordinary income or
loss in determining the taxable income of holders of Residual Certificates
("Residual Holders"), and will not be taxed separately to the REMIC. The daily
portions are determined by allocating the REMIC's taxable income or net loss
for each calendar quarter ratably to each day in such quarter and by allocating
such daily portion among the Residual Holders in proportion to their respective
holdings of Residual Certificates in the REMIC on such day.
REMIC taxable income is generally determined in the same manner as the
taxable income of an individual using the accrual method of accounting except
that (i) the limitation on deductibility of investment interest expense and
expenses for the production of income do not apply, (ii) all bad loans will be
deductible as business bad debts, and (iii) the limitation on the deductibility
of interest and expenses related to tax-exempt income will apply. REMIC taxable
income generally means a REMIC's gross income, including interest, original
issue discount income, and market discount income, if any, on the Contracts,
plus income on reinvestment of cash flows and reserve assets, minus deductions,
including interest and original issue discount expense on the Regular
Certificates, servicing fees on the Contracts, other administrative expenses of
a REMIC, and amortization of premium, if any, with respect to the Contracts.
Treatment of Certain Items of REMIC Income and Expense. Generally, a REMIC's
deductions for original issue discount will be determined in the same manner as
original issue discount income on Regular Certificates as described above under
"REMIC--Original Issue Discount," without regard to the de minimis rule
described therein.
The REMIC will have market discount income in respect of the Contracts if, in
general, the basis of the REMIC in such Contracts is exceeded by their unpaid
principal balances. The REMIC's basis in such Contracts is generally the fair
market value of the Contracts immediately after the transfer thereof to the
REMIC (which may equal a proportionate part of the aggregate fair market value
of the REMIC Certificates). In respect of the Contracts that have market
discount to which Code Section 1276 applies, the accrued portion of such market
discount would be recognized currently as an item of ordinary income. Market
discount income generally should accrue in the manner described above under
"REMIC--Market Discount."
Generally, if the basis of a REMIC in the Contracts exceeds the unpaid
principal balances thereof, the REMIC will be considered to have acquired such
Contracts at a premium equal to the amount of such excess. As stated above, the
REMIC's basis in the Contracts is the fair market value of the Contracts
immediately after the transfer thereof to the REMIC. Generally, a person that
holds a Contract as a capital asset may elect to amortize premium on the
Contracts under a constant interest method. See the discussion under "REMIC--
Amortizable Premium."
Certain Other Taxes on the REMIC. The REMIC provisions of the Code impose a
100% tax on any net income derived by a REMIC from certain prohibited
transactions. Such transactions are: (i) any disposition of a qualified
mortgage, other than pursuant to the substitution of a qualified replacement
mortgage for a qualified mortgage (or the repurchase in lieu of substitution of
a defective obligation), a disposition incident to the foreclosure, default, or
imminent default of a mortgage, the bankruptcy or insolvency of the REMIC, or a
qualified liquidation of the REMIC; (ii) the receipt of income from assets
other than qualified mortgages and permitted investments; (iii) the receipt of
compensation for services; and (iv) the receipt of gain from the dispositions
of cash flow investments. The REMIC Regulations provide that the modification
of the terms of a Contract occasioned by default or a reasonably foreseeable
default of the Contract, the assumption of the Contract, the waiver of a due-
on-sale clause or the conversion of an interest rate by an Obligor pursuant to
60
<PAGE>
the terms of a convertible adjustable-rate Contract will not be treated as a
disposition of the Contract. In the event that a REMIC holds Convertible ARM
Loans which are convertible at the option of the Obligor into fixed-rate, fully
amortizing, level payment Contracts, a sale of such Contracts by the REMIC
pursuant to a purchase agreement or other contract with the Company or other
party, if and when the Obligor elects to so convert the terms of the Contract,
is not expected to result in a prohibited transaction for the REMIC. The Code
also imposes a 100% tax on contributions to a REMIC made after the Startup Day,
unless such contributions are payments made to facilitate a cleanup call or a
qualified liquidation of the REMIC, payments in the nature of a guaranty,
contributions during the three-month period beginning on the Startup Day or
contributions to a qualified reserve fund of the REMIC by a holder of a
residual interest in the REMIC. The Code also imposes a tax on a REMIC at the
highest corporate rate on certain net income from foreclosure property that the
REMIC derives from the management, sale, or disposition of any real property,
or any personal property incident thereto, acquired by the REMIC in connection
with the default or imminent default of a loan. Generally, it is not
anticipated that a REMIC will generate a significant amount of such income.
Liquidation of the REMIC. A REMIC may liquidate without the imposition of
entity-level tax only in a "qualified liquidation." A liquidation is considered
qualified if a REMIC adopts a plan of complete liquidation (which may be
accomplished by designating in the REMIC's final tax return a date on which
such adoption is deemed to occur) and sells all of its assets (other than cash)
within the ninety-day period beginning on the date of the adoption of the plan
of liquidation, provided that it distributes to holders of Regular or Residual
Certificates, on or before the last day of the ninety-day liquidation period,
all the proceeds of the liquidation (including all cash), less amounts retained
to meet claims.
Taxation of Certain Foreign Investors. For purposes of this discussion, a
"Foreign Holder" is a Certificateholder who holds a Regular Certificate and who
is not (i) a citizen or resident of the United States, (ii) a corporation,
partnership, or other entity organized in or under the laws of the United
States or a political subdivision thereof or (iii) an estate or trust the
income of which is includible in gross income for United States tax purposes
regardless of its source. Unless the interest on a Regular Certificate is
effectively connected with the conduct by the Foreign Holder of a trade or
business within the United States, the Foreign Holder is not subject to federal
income or withholding tax on interest (or original issue discount, if any) on a
Regular Certificate (subject to possible backup withholding of tax, discussed
below), provided the Foreign Holder is not a controlled foreign corporation
related to the Company and does not own actually or constructively 10% or more
of the voting stock of the Company. To qualify for this tax exemption, the
Foreign Holder will be required to provide periodically a statement signed
under penalties of perjury certifying that the Foreign Holder meets the
requirements for treatment as a Foreign Holder and providing the Foreign
Holder's name and address. The statement, which may be made on a Form W-8 or
substantially similar substitute form, generally must be provided in the year a
payment occurs or in either of the two preceding years. The statement must be
provided, either directly or through clearing organization or financial
institution intermediaries, to the person that otherwise would withhold tax.
This exemption may not apply to a Foreign Holder that owns both Regular
Certificates and Residual Certificates. If the interest on a Regular
Certificate is effectively connected with the conduct by a Foreign Holder of a
trade or business within the United States, then the Foreign Holder will be
subject to tax at regular graduated rates. Foreign Holders should consult their
own tax advisors regarding the specific tax consequences of their owning a
Regular Certificate.
Any gain recognized by a Foreign Holder upon a sale, retirement or other
taxable disposition of a Regular Certificate generally will not be subject to
United States federal income tax unless either (i) the Foreign Holder is a
nonresident alien individual who holds the Regular Certificate as a capital
asset and who is present in the United States for 183 days or more in the
taxable year of the disposition and either the gain is attributable to an
office or other fixed place of business maintained in the U.S. by the
individual or the individual has a "tax home" in the United States, or (ii) the
gain is effectively connected with the conduct by the Foreign Holder of a trade
or business within the United States.
A Regular Certificate will not be includible in the estate of a Foreign
Holder who does not own actually or constructively 10% or more of the voting
stock of the Company.
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<PAGE>
Backup Withholding. Under certain circumstances, a REMIC Certificateholder
may be subject to "backup withholding" at a 31% rate. Backup withholding may
apply to a REMIC Certificateholder who is a United States person if the holder,
among other circumstances, fails to furnish his Social Security number or other
taxpayer identification number to the Trustee. Backup withholding may apply,
under certain circumstances, to a REMIC Certificateholder who is a foreign
person if the REMIC Certificateholder fails to provide the Trustee or the REMIC
Certificateholder's securities broker with the statement necessary to establish
the exemption from federal income and withholding tax on interest on the REMIC
Certificate. Backup withholding, however, does not apply to payments on a
Certificate made to certain exempt recipients, such as corporations and tax-
exempt organizations, and to certain foreign persons. REMIC Certificateholders
should consult their tax advisors for additional information concerning the
potential application of backup withholding to payments received by them with
respect to a Certificate.
Reporting Requirements and Tax Administration. The Company will report
annually to the Service, holders of record of the Regular Certificates that are
not excepted from the reporting requirements and, to the extent required by the
Code, other interested parties, information with respect to the interest paid
or accrued on the Regular Certificates, original issue discount, if any,
accruing on the Regular Certificates and information necessary to compute the
accrual of any market discount or the amortization of any premium on the
Regular Certificates.
The Treasury Department has issued temporary regulations concerning certain
aspects of REMIC tax administration. Under those regulations, a Residual
Certificateholder must be designated as the REMICs "tax matters person." The
tax matters person, generally, has responsibility for overseeing and providing
notice to the other Residual Certificateholders of certain administrative and
judicial proceedings regarding the REMIC's tax affairs. The Company will be
designated as tax matters person for the Trust, and in conjunction with the
Trustee will act as the agent of the Residual Certificateholders in the
preparation and filing of the REMIC's federal and state income tax and other
information returns.
OTHER TAX CONSEQUENCES
No advice has been received as to local income, franchise, personal property,
or other taxation in any state or locality, or as to the tax effect of
ownership of the Class B-2 Certificates in any state or locality. Class B-2
Certificateholders are advised to consult their own tax advisors with respect
to any state or local income, franchise, personal property, or other tax
consequences arising out of their ownership of the Class B-2 Certificates.
USE OF PROCEEDS
Substantially all of the net proceeds to be received from the sale of the
Certificates will be used by the Company for general corporate purposes,
including the purchase of the Contracts, the costs of carrying the Contracts
until the sale of the Certificates, and to pay other expenses connected with
pooling the Contracts and issuing the Certificates.
ERISA CONSIDERATIONS
The Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
imposes certain restrictions on employee benefit plans that are subject to
ERISA ("Plans") and on persons who are fiduciaries with respect to such Plans.
Employee benefit plans that are governmental plans (as defined in section 3(32)
of ERISA) and certain church plans (as defined in Section 3(33) of ERISA) are
not subject to ERISA requirements. Accordingly, assets of such plans may be
invested in the Class A Certificates without regard to the ERISA restrictions
described above, subject to applicable provisions of other federal and state
laws. However, any such governmental or church plan which is qualified under
section 401(a) of the Code and exempt from taxation under section 501(a) of the
Code is subject to the prohibited transaction rules set forth in section 503 of
the Code.
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No transfer of Class B-2 Certificates will be permitted to be made to a Plan
unless such Plan, at its expense, delivers to the Trustee and the Company an
opinion of counsel (in form satisfactory to the Trustee and the Company) to the
effect that the purchase or holding of a Class B-2 Certificate by such Plan
will not result in the assets of the Trust being deemed to be "plan assets" and
subject to the prohibited transaction provisions of ERISA and the Code and will
not subject the Trustee, the Company or the Servicer to any obligation or
liability in addition to those undertaken in the Agreement. Unless such opinion
is delivered, each person acquiring a Class B-2 Certificate will be deemed to
represent to the Trustee, the Company and the Servicer that such person is
neither a Plan, nor acting on behalf of a Plan, subject to ERISA or to Section
4975 of the Code.
LEGAL INVESTMENT CONSIDERATIONS
The Class B-2 Certificates will not constitute "mortgage related securities"
under the Secondary Mortgage Market Enhancement Act of 1984. The appropriate
characterization of the Class B-2 Certificates under various legal investment
restrictions, and thus the ability of investors subject to these restrictions
to purchase Class B-2 Certificates, may be subject to significant interpretive
uncertainties. All investors whose investment authority is subject to legal
restrictions should consult their own legal advisors to determine whether, and
to what extent, the Class B-2 Certificates will constitute legal investments
for them.
The Company makes no representation as to the proper characterization of the
Class B-2 Certificates for legal investment or financial institution regulatory
purposes, or as to the ability of particular investors to purchase Class B-2
Certificates under applicable legal investment restrictions. The uncertainties
described above (and any unfavorable future determinations concerning legal
investment or financial institution regulatory characteristics of the Class B-2
Certificates) may adversely affect the liquidity of the Class B-2 Certificates.
UNDERWRITING
The Underwriters named below have severally agreed, subject to the terms and
conditions of the Underwriting Agreement, to purchase from the Company the
respective principal amounts of the Class B-2 Certificates set forth opposite
their names below.
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT OF
CLASS B-2
UNDERWRITER CERTIFICATES
----------- --------------
<S> <C>
--------------
Total....................................................... $
==============
</TABLE>
In the Underwriting Agreement, the Underwriters have agreed, subject to the
terms and conditions set forth therein, to purchase all of the Class B-2
Certificates offered hereby if any Class B-2 Certificates are purchased. In the
event of default by an Underwriter, the Underwriting Agreement provides that,
in certain circumstances, the Underwriting Agreement may be terminated.
The Underwriters propose to offer the Class B-2 Certificates in part directly
to purchasers at the initial public offering price set forth on the cover page
of this Prospectus and in part to certain securities dealers at such prices
less concessions not to exceed % of the Class B-2 Principal Balance. The
Underwriters may allow, and such dealers may reallow, concessions not to exceed
% of the Class B-2 Principal Balance to certain brokers and dealers. After
the Class B-2 Certificates are released for sale to the public, the offering
price and other selling terms may be varied by the Underwriters.
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The Underwriting Agreement provides that the Company will indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, or contribute to payments the Underwriters may be
required to make in respect thereof.
The Company has agreed that for a period of 30 days from the date of this
Prospectus it will not offer or sell publicly any other manufactured housing
contract pass-through certificates without the consent of the Underwriters.
LEGAL MATTERS
Certain legal matters relating to the Class B-2 Certificates will be passed
upon for the Company by Dorsey & Whitney, Minneapolis, Minnesota, and for the
Underwriters by Brown & Wood, New York, New York. The material federal income
tax consequences of the Class B-2 Certificates will be passed upon for the
Company by Dorsey & Whitney.
64
<PAGE>
INDEX OF PRINCIPAL TERMS
<TABLE>
<CAPTION>
DEFINITION PAGE
- ---------- ----
<S> <C>
Advance Payments........................................................... 34
Agreement.................................................................. 4
Amount Available........................................................... 34
Approximate................................................................ 1
Cede....................................................................... 12
Certificate Account........................................................ 16
Certificateholder.......................................................... 13
Certificate Owners......................................................... 1
Certificates............................................................... 1
Class A Certificates....................................................... 1
Class A Percentage......................................................... 6
Class A Principal Balance.................................................. 7
Class B-1 Certificates..................................................... 1
Class B-2 Certificates..................................................... 1
Class B Cross-over Date.................................................... 6
Class B-2 Distribution Amount.............................................. 5
Class B-2 Formula Distribution Amount...................................... 5
Class B-2 Principal Liquidation Loss Amount................................ 8
Class B Percentage......................................................... 6
Class B Principal Balance.................................................. 7
Class B Principal Distribution Test........................................ 36
Class C Certificates....................................................... 1
Code....................................................................... 12
Commission................................................................. 2
Company.................................................................... 1
Contract Pool.............................................................. 1
Contract Rate.............................................................. 16
Contracts.................................................................. 1
Cut-off Date............................................................... 1
Cut-off Date Pool Principal Balance........................................ 16
Definitive Class B-2 Certificates.......................................... 46
Determination Date......................................................... 34
Disqualified Organizations................................................. 54
DTC........................................................................ 13
Due Date................................................................... 7
Due Period................................................................. 16
Eligible Institution....................................................... 33
Eligible Investments....................................................... 34
Eligible Substitute Contract............................................... 33
ERISA...................................................................... 12
Foreign Holder............................................................. 61
Formula Principal Distribution Amount...................................... 7
GNMA certificates.......................................................... 22
Holders.................................................................... 13
Land-and-Home Contracts.................................................... 10
Liquidated Contract........................................................ 8
Liquidation Expenses....................................................... 34
Liquidity Reserve.......................................................... 9
Manufactured Home.......................................................... 8
</TABLE>
65
<PAGE>
<TABLE>
<CAPTION>
DEFINITION PAGE
- ---------- ----
<S> <C>
MHP........................................................................ 25
Monthly Report............................................................. 2
Monthly Servicing Fee...................................................... 42
Moody's.................................................................... 12
Original Class A Principal Balance......................................... 3
Original Class A-1 Principal Balance....................................... 3
Original Class A-2 Principal Balance....................................... 3
Original Class A-3 Principal Balance....................................... 3
Original Class A-4 Principal Balance....................................... 3
Original Class A-5 Principal Balance....................................... 3
Original Class B-1 Principal Balance....................................... 3
Original Class B-2 Principal Balance....................................... 3
Participants............................................................... 46
Percentage Interest........................................................ 4
Plans...................................................................... 62
Pool Factor................................................................ 40
Pool Scheduled Principal Balance........................................... 7
Prepayment Assumption...................................................... 56
Principal Balance.......................................................... 7
Proposed OID Regulations................................................... 56
Record Date................................................................ 4
Registration Statement..................................................... 2
Regular Certificates....................................................... 53
Relief Act................................................................. 49
Remaining Amount Available................................................. 5
REMIC...................................................................... 1
REMIC Certificates......................................................... 53
REMIC Regulations.......................................................... 53
Remittance Date............................................................ 1
Replaced Contract.......................................................... 33
Requisite Reserve Amount................................................... 37
Reserve Draw Amount........................................................ 9
Residual Certificates...................................................... 53
Rules...................................................................... 46
Scheduled Principal Balance................................................ 7
Senior Certificates........................................................ 4
Service.................................................................... 54
Servicer................................................................... 1
Servicing Fees............................................................. 42
Sixth Cross-over Date...................................................... 6
SMMEA...................................................................... 12
Startup Day................................................................ 53
Subordinated Certificates.................................................. 4
Title V.................................................................... 52
Trust...................................................................... 1
Trustee.................................................................... 1
UCC........................................................................ 14
Underwriters............................................................... 1
Value...................................................................... 16
WAC........................................................................ 25
WAM........................................................................ 25
</TABLE>
66
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
No dealer, salesperson or other individual has been authorized to give any
information or make any representations not contained in this Prospectus in
connection with the offering covered by this Prospectus. If given or made,
such information or representations must not be relied upon as having been au-
thorized by the Company or the Underwriters. This Prospectus does not consti-
tute an offer to sell, or a solicitation of an offer to buy, the Class B-2
Certificates in any jurisdiction where, or to any person to whom, it is unlaw-
ful to make such offer or solicitation. Neither the delivery of this Prospec-
tus nor any sale made hereunder shall, under any circumstances, create an im-
plication that there has not been any change in the facts set forth in this
Prospectus or in the affairs of the Company since the date hereof.
----------------
TABLE OF CONTENTS
PROSPECTUS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Reports to Class B-2 Certificateholders.................................... 2
Additional Information..................................................... 2
Summary of Terms of the Class B-2 Certificates............................. 3
Special Considerations..................................................... 14
Structure of the Transaction............................................... 15
The Contract Pool.......................................................... 16
Green Tree Financial Corporation........................................... 21
Yield, Prepayment and Maturity Considerations.............................. 24
Description of the Certificates............................................ 30
Certain Legal Aspects of the Contracts..................................... 47
Certain Federal Income Tax Consequences.................................... 53
Use of Proceeds............................................................ 62
ERISA Considerations....................................................... 62
Legal Investment Considerations............................................ 63
Underwriting............................................................... 63
Legal Matters.............................................................. 64
Index of Principal Terms................................................... 65
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
GREEN TREE
FINANCIAL CORPORATION,
SELLER AND SERVICER
$ (APPROXIMATE)
% MANUFACTURED HOUSING CONTRACT
SENIOR/SUBORDINATE PASS-THROUGH
CERTIFICATES, SERIES 1994-1
CLASS B-2 (SUBORDINATE)
------------------
PROSPECTUS
March , 1994
------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II.
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 30. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
<TABLE>
<S> <C>
SEC registration fee.......................................... $ 344.83
Blue Sky fees and expenses.................................... 500.00
Accountant's fee and expenses................................. 10,000.00
Attorneys' fees and expenses.................................. 15,000.00
Trustee's fees and expenses................................... 2,200.00
Printing and engraving expenses............................... 17,500.00
Rating Agency fee............................................. 8,900.00
Miscellaneous................................................. 3,975.00
----------
Total..................................................... $58,419.83
==========
</TABLE>
- --------
ITEM 31. SALES TO SPECIAL PARTIES
Not Applicable
ITEM 32. RECENT SALES OF UNREGISTERED SECURITIES
Listed below are the unregistered securities sold by the Company since
February 1991. These Certificates were distributed by the underwriters listed
below and privately placed by such underwriters with institutional investors in
transactions exempt from the registration provisions of the Securities Act of
1933, as amended. In the table below, the Series entitled "RV" refers to
Recreational Vehicle Asset Backed Certificates, "MC" refers to Certificates for
Motorcycle Contracts and "HI" refers to Certificates for FHA Title I Home
Improvement Loans.
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT UNDERWRITERS AND
SERIES ISSUE DATE OF CERTIFICATES OTHER PURCHASERS
------ ---------- ---------------- ----------------
<S> <C> <C> <C>
1.HI 1991-A...... March 21, 1991 $22,975,523 The First Boston Corporation
2.MC 1991-1...... June 1, 1991 9,404,535 The First Boston Corporation
3.HI 1991-B...... June 17, 1991 32,413,677 The First Boston Corporation
4.HI 1991-C...... Sept. 19, 1991 33,057,595 The First Boston Corporation
5.HI 1991-D...... Dec. 12, 1991 23,539,578 The First Boston Corporation
6.RV 1991-1...... Dec. 13, 1991 19,104,810 Lehman Brothers
7.MC 1991-2...... Jan. 15, 1992 10,857,622 The First Boston Corporation
8.RV 1992-1...... Feb. 26, 1992 20,517,379 Lehman Brothers
9.MC 1992-1...... June 12, 1992 14,007,114 The First Boston Corporation
10.HI 1992-A...... June 18, 1992 32,489,932 The First Boston Corporation
11.RV 1992-2...... June 19, 1992 14,858,272 Lehman Brothers
12.HI 1992-B...... Sept. 17, 1992 21,135,359 The First Boston Corporation
13.MC 1992-2...... Oct. 9, 1992 10,542,200 The First Boston Corporation
14.HI 1992-C...... Dec. 15, 1992 18,720,675 The First Boston Corporation
15.MC 1992-3...... Dec. 17, 1992 7,461,646 The First Boston Corporation
16.HI 1993-A...... March 30, 1993 14,428,655 Merrill Lynch & Co.
17.HI 1993-B...... June 29, 1993 28,416,577 Merrill Lynch & Co.
</TABLE>
II-1
<PAGE>
ITEM 33. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 302A.521 of the Minnesota Statutes requires the Company to indemnify
a person made or threatened to be made a party to a proceeding by reason of the
former or present official capacity of the person with respect to the Company,
against judgments, penalties, fines, including reasonable expenses, if such
person (1) has not been indemnified by another organization or employee benefit
plan for the same judgments, penalties, fines, including without limitations,
excise taxes assessed against the person with respect to an employee benefit
plan, settlements, and reasonable expenses, including attorneys' fees and
disbursements, incurred by the person in connection with the proceeding with
respect to the same acts or omissions; (2) acted in good faith; (3) received no
improper personal benefit, and statutory procedure has been followed in the
case of any conflict of interest by a director; (4) in the case of a criminal
proceeding, had no reasonable cause to believe the conduct was unlawful; and
(5) in the case of acts or omissions occurring in the person's performance in
the official capacity of director or, for a person not a director, in the
official capacity of officer, committee member, employee or agent, reasonably
believed that the conduct was in the best interests of the Company, or, in the
case of performance by a director, officer, employee or agent of the Company as
a director, officer, partner, trustee, employee or agent of another
organization or employee benefit plan, reasonably believed that the conduct was
not opposed to the best interests of the Company, unless otherwise limited by
the Articles of Incorporation or Bylaws of the Company. In addition, Section
302A.521, subd. 3, requires payment by the Company, upon written request, of
reasonable expenses in advance of final disposition in certain instances, upon
receipt of a written undertaking by the person to repay all amounts so paid if
it is ultimately determined that the person is not entitled to indemnification,
unless otherwise limited by the Articles of Incorporation or Bylaws of the
Company. A decision as to required indemnification is made by a disinterested
majority of the Board of Directors present at a meeting at which a
disinterested quorum is present, or by a designated committee of the Board, by
special legal counsel, by the shareholders, or by a court.
The Company's Articles of Incorporation provide that a director is not liable
to the Company or its shareholders for monetary damages for a breach of
fiduciary duty as a director, except for liability (i) for any breach of the
director's duty of loyalty to the Company or its shareholders; (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a
knowing violation of the law; (iii) under Sections 302A.559 or 80A.23 of the
Minnesota Statutes; (iv) for any transaction from which the director derived an
improper personal benefit; or (v) for any act or omission occurring prior to
the date such indemnification provision became effective.
The Company maintains a directors' and officers' insurance policy.
Pursuant to the form of Underwriting Agreement, a copy of which is included
as Exhibit I.I hereto, the Underwriters will agree, subject to certain
conditions, to indemnify the Company, its directors, certain of its officers
and persons who control the Company within the meaning of the Securities Act of
1933, as amended (the "Securities Act"), against certain liabilities.
ITEM 34. TREATMENT OF PROCEEDS FROM STOCK BEING REGISTERED
Not Applicable
ITEM 35. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements:
Not Applicable
II-2
<PAGE>
(b) Exhibits:
<TABLE>
<C> <S>
*1.1 Proposed form of Underwriting Agreement
*3.1 Articles of Incorporation of Green Tree Financial Corporation
*3.2 Bylaws of Green Tree Financial Corporation
**4.1 Form of Pooling and Servicing Agreement
5.1 Opinion and consent of Dorsey & Whitney as to legality
8.1 Opinion of Dorsey & Whitney as to tax matters
***21.1 Subsidiaries of the Registrant
23.1 Consent of Dorsey & Whitney (included as part of Exhibit 5.1)
24.1 Power of attorney from officers and directors of the Registrant
signed by an attorney-in-fact (included on page II-4)
</TABLE>
- --------
*Incorporated by reference to the similarly numbered exhibit to the
Registrant's Registration Statement on Form S-11 (File No. 33-50236), as
amended, which became effective on September 11, 1992.
**Incorporated by reference to the similarly numbered exhibit to the
Registrant's Current Report on Form 8-K dated December 22, 1993.
***Incorporated by reference to Exhibit 22.1 of the Registrant's Annual Report
on Form 10-K for the year ended December 31, 1992.
ITEM 36. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers, and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that, in the opinion of the Securities and Exchange
Commission, such indemnification is against public policy as expressed in the
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against liabilities (other than the payment by the registrant
of expenses incurred or paid by a director, officer or controlling person of
the registrant in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with the
securities being registered, the registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as a part
of this registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the Securities Exchange Act
of 1934) that is incorporated by reference in the registration statement shall
be deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-11 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Saint Paul, State of Minnesota, on February 2, 1994.
GREEN TREE FINANCIAL CORPORATION
/s/ Lawrence M. Coss
By: _________________________________
Lawrence M. Coss
Chairman, President and Chief
Executive Officer
POWER OF ATTORNEY
Pursuant to the requirements of the Securities Act, this Registration
Statement has been signed by the following persons in the capacities and on the
date indicated. Each person whose signature to this Registration Statement
appears below hereby constitutes and appoints John W. Brink and Richard G.
Evans, and each of them, as his true and lawful attorney-in-fact and agent,
with full power of substitution, to sign on his behalf individually and in the
capacity stated below and to perform any acts necessary to be done in order to
file all amendments and post-effective amendments to this Registration
Statement, and any and all instruments or documents filed as part of or in
connection with this Registration Statement or the amendments thereto and each
of the undersigned does hereby ratify and conform all that said attorney-in-
fact and agent, or his substitutes, shall do or cause to be done by virtue
hereof.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Lawrence M. Coss
- ------------------------------------
Lawrence M. Coss Chairman of the Board and February 2, 1994
Chief Executive Officer
(Principal Executive
Officer) and Director
/s/ John W. Brink
- ------------------------------------
John W. Brink Executive Vice President, February 4, 1994
Treasurer and Chief
Financial Officer
(Principal Financial
Officer)
/s/ Robley D. Evans
- ------------------------------------
Robley D. Evans Vice President and February 2, 1994
Controller (Principal
Accounting Officer)
/s/ Richard G. Evans
- ------------------------------------
Richard G. Evans Director February 2, 1994
/s/ C. Thomas May, Jr.
- ------------------------------------
C. Thomas May, Jr. Director February 2, 1994
/s/ W. Max McGee
- ------------------------------------
W. Max McGee Director February 2, 1994
/s/ Robert S. Nickoloff
- ------------------------------------
Robert S. Nickoloff Director February 2, 1994
/s/ Kenneth S. Roberts
- ------------------------------------
Kenneth S. Roberts Director February 2, 1994
</TABLE>
II-4
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
*1.1 Proposed form of Underwriting Agreement
*3.1 Articles of Incorporation of Green Tree Financial Corporation
*3.2 Bylaws of Green Tree Financial Corporation
**4.1 Form of Pooling and Servicing Agreement
5.1 Opinion and consent of Dorsey & Whitney as to legality
8.1 Opinion of Dorsey & Whitney as to tax matters
***21.1 Subsidiaries of the Registrant
23.1 Consent of Dorsey & Whitney (included as part of Exhibit 5.1)
24.1 Power of attorney from officers and directors of the
Registrant signed by an attorney-in-fact (included on page
II-4)
</TABLE>
- --------
*Incorporated by reference to the similarly numbered exhibit to the
Registrant's Registration Statement on Form S-11 (File No. 33-50236), as
amended, which became effective on September 11, 1992.
**Incorporated by reference to the similarly numbered exhibit to the
Registrant's Current Report on Form 8-K dated December 22, 1993.
***Incorporated by reference to Exhibit 22.1 of the Registrant's Annual Report
on Form 10-K for the year ended December 31, 1992.
<PAGE>
EXHIBIT 5.1
[Letterhead of Dorsey & Whitney]
Green Tree Financial Corporation
1100 Landmark Towers
345 St. Peter Street
St. Paul, Minnesota 55102-1639
Re: Registration Statement on Form S-11
Gentlemen:
We have acted as counsel to Green Tree Financial Corporation, a
Minnesota corporation (the "Company"), in connection with the preparation of a
Registration Statement on Form S-11 filed by the Company with the Securities and
Exchange Commission on February 3, 1994 (the "Registration Statement"), relating
to the registration by the Company of Manufactured Housing Contract
Senior/Subordinate Pass-Through Certificates, Series 1994-1, Class B-2 (the
"Class B-2 Certificates"). The Class B-2 Certificates are to be issued under a
Pooling and Servicing Agreement (the "Pooling and Servicing Agreement")
substantially in the form incorporated as an exhibit to the Registration
Statement, between the Company, as seller and servicer, and First Bank National
Association, as trustee (the "Trustee").
We have examined the Registration Statement, and such other
documents, and have reviewed such questions of law, as we have considered
necessary and appropriate for the purposes of this opinion. Based on the
foregoing, we are of the opinion that:
1. The Pooling and Servicing Agreement has been duly authorized by
the Company and, when it has been duly executed and delivered by the Company and
the Trustee, will constitute the valid and binding obligation of the Company.
2. The Class B-2 Certificates, when duly executed and delivered in
accordance with the terms of the Pooling and Servicing Agreement, will be
legally and validly issued, and the holders of such Class B-2 Certificates will
be entitled to the benefits of that Pooling and Servicing Agreement.
The opinions set forth above are subject to the following
qualifications and exceptions:
<PAGE>
Green Tree Financial Corporation
February 4, 1994
Page 2
(a) Our opinion in paragraph 1 above is subject to the
effect of any applicable bankruptcy, insolvency, reorganization,
moratorium or other similar law of general application affecting
creditors' rights.
(b) Our opinion in paragraph 1 above is subject to the
effect of general principles of equity, including (without limitation)
concepts of materiality, reasonableness, good faith and fair dealing,
and other similar doctrines affecting the enforceability of agreements
generally (regardless of whether considered in a proceeding in equity
or at law).
(c) Minnesota Statutes (S) 290.371, Subd. 4, provides that
any corporation required to file a Notice of Business Activities
Report does not have a cause of action upon which it may bring suit
under Minnesota law unless the corporation has filed a Notice of
Business Activities Report and provides that the use of the courts of
the State of Minnesota for all contracts executed and all causes of
action that arose before the end of any period for which a corporation
failed to file a required report is precluded. Insofar as our opinion
may relate to the valid, binding and enforceable character of any
agreement under Minnesota law or in a Minnesota court, we have assumed
that any party seeking to enforce such agreement has at all times
been, and will continue at all times to be, exempt from the
requirement of filing a Notice of Business Activities Report or, if
not exempt, has duly filed, and will continue to duly file, all Notice
of Business Activities Reports.
Our opinions expressed above are limited to the laws of the State of
Minnesota.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement, and to the reference to our firm under the heading
"Legal Matters" in the Prospectus comprising part of the Registration Statement.
Dated: February 4, 1994
Very truly yours,
/s/ Dorsey & Whitney
CFS
<PAGE>
EXHIBIT 8.1
[Letterhead of Dorsey & Whitney]
Green Tree Financial Corporation
1100 Landmark Towers
345 St. Peter Street
St. Paul, MN 55102-1639
Re: Federal Income Tax Consequences of Manufactured Housing
Contract Senior/Subordinate Pass-Through Certificates
Series 1994-1, Class B-2
Gentlemen:
We have acted as counsel to Green Tree Financial Corporation (the
"Company") in connection with the proposed registration under the Securities
Act of 1933, as amended, by the Company of Manufactured Housing Contract
Senior/Subordinate Pass-Through Certificates, Series 1994-1, Class B-2 (the
"Class B-2 Certificates"), and the related preparation and filing of a
registration statement on Form S-11 filed by the Company with the Securities and
Exchange Commission on the date hereof (the "Registration Statement"). The
Class B-2 Certificates are proposed to be issued under a Pooling and Servicing
Agreement dated as of March 1, 1994 (the "Agreement") between the Company, as
seller and servicer, and First Bank National Association, as trustee (the
"Trustee"). The Class B-2 Certificates are described in the prospectus
constituting Part I of the Registration Statement (the "Prospectus").
You have requested our opinion with respect to certain federal
income tax consequences of the purchase, ownership and disposition of the Class
B-2 Certificates. For purposes of rendering our opinion we have examined the
Registration Statement and the Agreement.
As set forth in the Prospectus, for federal income tax purposes an
election will be made to treat the Trust issuing the Class B-2 Certificates as
a real estate mortgage investment conduit ("REMIC") under the Internal Revenue
Code of 1986, as amended (the "Code").
Our opinion is based upon existing law and currently applicable
Treasury Department regulations, current published administrative positions of
the Internal Revenue Service contained in revenue rulings and revenue
procedures, and judicial decisions, all of which are subject to change, either
prospectively or retroactively, and to possibly differing interpretations, and
is also based on the representations and warranties set forth in the Agreement
and the assumptions that
<PAGE>
Green Tree Financial Corporation
February 4, 1994
Page 2
the Company and the Trustee will at all times comply with the requirements of
the Agreement, including, without limitation, the requirement that a proper
election to be taxed as a REMIC is made in accordance with the Agreement and the
Code, and that the certificates representing interests in the Trust will be
issued as described in the Prospectus relating to the Class B-2 Certificates and
the Prospectus Supplement relating to the Class A and Class B-1 Certificates.
Based upon the foregoing, as of the date hereof it is our opinion that the Trust
created pursuant to the Agreement will qualify as a REMIC under the Code.
We consent to the filing of this opinion as an exhibit to the
Registration Statement and to the use of our name under the heading "Certain
Federal Income Tax Consequences" in the Prospectus, and we hereby confirm that,
insofar as they constitute statements of law or legal conclusions as to the
likely outcome of material issues under the federal income tax laws, the
discussion under such heading accurately sets forth our advice.
Dated: February 4, 1994
Very truly yours,
/s/ Dorsey & Whitney
CFS
