<PAGE>
As filed with the Securities and Exchange Commission on March 16, 1994
Registration No. 33-52177
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------
Amendment No. 1
to
FORM S-3
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
incorporation or organization) Identification No.)
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 Jeffrey J. Murphy
Dorsey & Whitney Thacher Proffitt & Wood
220 South Sixth Street Two 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.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the
following box. [_]
If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box. [_]
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
====================================================================================================================================
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
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<S> <C> <C> <C> <C>
Certificates for Home
Improvement Loans........................ $1,000,000 100% $1,000,000 $344.83 (2)
Limited Guaranty of Green Tree
Financial Corporation.................... (3) (3) (3) (3)
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</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).
(2) Previously paid.
(3) No additional consideration will be paid for the Limited Guaranty;
accordingly, no separate filing fee is being paid herewith pursuant to
Rule 457(n).
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>
SUBJECT TO COMPLETION MARCH 16, 1994
********************************************************************************
* 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. *
********************************************************************************
PROSPECTUS
$_______________ (Approximate)
Green Tree Financial Corporation
Seller and Servicer
Certificates for Home Improvement Loans
Home Improvement Loan Trust 1994-A
_____ % Pass-Through Rate
(Principal and interest payable on the 15th day of each month
beginning ______, 1994)
----------------------
The Certificates for Home Improvement Loans offered hereby (the
"Certificates") are issued by Home Improvement Loan Trust 1994-A (the "Trust")
and evidence fractional undivided interests in the Trust. The Trust will be
created by Green Tree Financial Corporation (the "Company") pursuant to a
Pooling and Servicing Agreement, dated as of __________, 1994 (the "Agreement"),
between the Company and First Trust National Association, as Trustee (the
"Trustee"). The Trust property consists of a pool of home improvement retail
installment sales contracts and promissory notes (the "Contracts") including all
rights to receive payments due on such Contracts on and after March 1, 1994 (the
"Cutoff Date") and liens on certain of the related real estate, amounts held for
the Trust in the Collection Account, as described in "Structure of the
Transaction," and the right to demand payments from the Cash Collateral Account.
Approximately ___ % of the Contracts (by principal balance as of the Cutoff
Date) are insured by the Federal Housing Administration ("FHA") to the extent
described in "Description of FHA Insurance." Approximately __% of the Contracts
(by principal balance as of the Cutoff Date) are not secured by any mortgage or
other lien on the related improved real estate. The Trustee will make payments
out of a cash collateral account (the "Cash Collateral Account") to cover
certain delinquencies and certain losses due to defaults on the Contracts. The
amount of the Cash Collateral Account initially equals $_____. See "Description
of the Cash Collateral Account."
Principal and interest with respect to the Certificates are payable on the
fifteenth day of each month or, if such fifteenth day is not a business day, the
first business day thereafter, beginning _____ 15, 1994. The Initial Principal
Amount of the Certificates represents the aggregate of the principal payments
due on the Contracts on and after the Cutoff Date. The Company will act as
servicer of the Contracts and will have certain other limited obligations with
respect thereto. The final scheduled payment date of the Certificates is in
_______. See "Description of the Certificates."
There is currently no secondary market for the Certificates offered hereby
and there is no assurance that any such market will develop. Merrill Lynch,
Pierce, Fenner & Smith Incorporated expects, but is not obligated, to make a
market in the Certificates. There is no assurance that any such market will
develop or, if it does develop, that it will continue.
For a discussion of certain factors which should be considered by
prospective purchasers of the Certificates, see "Special Considerations" herein.
THE CERTIFICATES REPRESENT INTERESTS IN THE TRUST AND DO NOT REPRESENT INTERESTS
IN OR OBLIGATIONS OF THE COMPANY, EXCEPT TO THE LIMITED EXTENT DESCRIBED HEREIN.
THE CERTIFICATES DO NOT REPRESENT OBLIGATIONS OF, AND WILL NOT BE INSURED OR
GUARANTEED BY, FHA OR ANY OTHER GOVERNMENTAL AGENCY OR INSTRUMENTALITY OR ANY
OTHER PERSON OR ENTITY.
----------------------
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>
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Underwriting Proceeds to
Price to Public Discount Company(1)
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<S> <C> <C> <C>
Per Certificate............
- --------------------------------------------------------------------------------
Total......................
================================================================================
</TABLE>
(1) Before deducting expenses, estimated to be $__________.
----------------------
The Certificates are offered subject to prior sale, when, as and if issued
by the Trust and accepted by Merrill Lynch, Pierce, Fenner & Smith Incorporated
(the "Underwriter") and subject to their right to reject orders in whole or in
part. It is expected that delivery of the Certificates will be made by book-
entry form only through the Same Day Funds Settlement system of The Depository
Trust Company on or about _________, 1994.
----------------------
Merrill Lynch & Co.
----------------------
The date of this Prospectus is , 1994
<PAGE>
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICES OF THE 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
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 CERTIFICATEHOLDERS
The Company will cause to be provided to the holders of the Certificates
(which so long as the Certificates are held in book_entry form will be DTC)
certain monthly and annual reports concerning such Certificates and the Trust as
further described in this Prospectus under "Description of the Certificates --
Reports to Certificateholders."
AVAILABLE INFORMATION
The Company is subject to the information requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports and other information with the Securities and Exchange
Commission (the "Commission"). Information concerning the Company can be
inspected and copied at the public reference facilities maintained by the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, and at the
regional offices of the Commission located at Suite 1400, 500 West Madison
Street, Chicago, Illinois 60661 and Seven World Trade Center, New York, New York
10007. Copies of such material can be obtained from the Public Reference Section
of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at
prescribed rates. The Company's Common Stock and associated rights to purchase
preferred shares are listed on the New York Stock Exchange ("NYSE") and on the
Pacific Stock Exchange ("PSE"). Reports and other information concerning the
Company can be inspected at the offices of the New York Stock Exchange, Inc., 20
Broad Street, New York, New York and the Pacific Stock Exchange, Inc., 115
Sansome Street, San Francisco, California.
The Company has filed with the Commission a registration statement on Form
S-3 (herein, together with all amendments and exhibits, referred to as the
"Registration Statement") under the Securities Act of 1933, as amended (the
"Securities Act"). This Prospectus does not contain all the information set
forth in the Registration Statement, certain parts of which are omitted in
accordance with the rules and regulations of the Commission. For further
information, reference is hereby made to the Registration Statement.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents of the Company which have been filed with the
Commission are hereby incorporated by reference in this Prospectus:
(a) Annual Report on Form 10-K for the year ended December 31, 1992;
(b) Quarterly Reports on Form 10-Q for the periods ended March 31,
June 30 and September 30, 1993; and
(c) Current Report on Form 8-K dated April 26, 1993.
-2-
<PAGE>
All documents filed by the Company pursuant to Section 13(a), 13(c), 14 or
15(d) of the Securities Exchange Act of 1934, as amended, subsequent to the date
of this Prospectus and prior to the termination of the offering of the
Certificates shall be deemed to be incorporated by reference into this
Prospectus and to be a part thereof from the respective dates of filing of such
documents. Any statement contained herein or in a document all or any portion of
which is incorporated or deemed to be incorporated by reference herein shall be
deemed to be modified or superseded for purposes of this Prospectus to the
extent that a statement contained herein or in any other subsequently filed
document which also is or is deemed to be incorporated by reference herein
modifies or supersedes such statement. Any statement so modified or superseded
shall not be deemed, except as so modified or superseded, to constitute a part
of this Prospectus.
The Company will provide without charge to any person to whom this
Prospectus is delivered, upon the written or oral request of such person, a copy
of any or all of the foregoing documents incorporated herein by reference (other
than certain exhibits to such documents). Requests for such copies should be
directed to Drew S. Backstrand, 1100 Landmark Towers, 345 St. Peter Street, St.
Paul, Minnesota 55102-1639, telephone number (612) 293-3400.
-3-
<PAGE>
SUMMARY OF THE TERMS OF THE 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.......... Certificates for Home Improvement Loans. Each
Certificate represents a fractional undivided
interest in the Trust. The Trust property
consists primarily of the pool of Contracts,
having an aggregate principal balance as of the
Cutoff Date of $ , and all rights, benefits,
obligations and proceeds arising therefrom or in
connection therewith, including rights under
applicable FHA insurance only with respect to
the FHA-insured Contracts, liens on the related
real estate in the case of Secured Contracts,
amounts held for the Trust in the Collection
Account, and the right to receive payments from
the Cash Collateral Account.
Issuer...................... Home Improvement Loan Trust 1994-A, created by
the Company pursuant to the Agreement.
Initial Principal Amount.... $____________, representing the aggregate
principal payments due on the Contracts on and
after the Cutoff Date.
Trustee..................... First Trust National Association, St. Paul,
Minnesota.
Seller and Servicer......... Green Tree Financial Corporation.
Payment Date................ The fifteenth day of each month or, if such day
is not a business day, the next succeeding
business day, commencing ______ 15, 1994.
Pass-Through Rate........... ____% per annum.
Monthly Interest............ To the extent funds available in the Collection
Account, including any funds withdrawn from the
Cash Collateral Account, are sufficient therefor,
Certificateholders will be entitled to receive
monthly on each Payment Date an amount equal to 30
days' interest accrued at the Pass-Through Rate on
the Principal Balance immediately prior to such
Payment Date. See "Yield and Prepayment
Considerations." In the event the funds available
in the Collection Account, including any funds
withdrawn from the Cash Collateral Account, are
insufficient to pay Monthly Interest on any
Payment Date, such deficiency will be added to
Monthly Interest on the following Payment Date and
will, to the extent legally permissible, accrue
interest at the Pass-Through Rate.
Monthly Principal........... To the extent funds available in the Collection
Account, including any funds withdrawn from the
Cash Collateral
-4-
<PAGE>
Account, are sufficient therefor,
Certificateholders will be entitled to receive
monthly on each Payment Date an amount equal to
the sum of (a) the amount of regular principal
payments on Contracts paid or applied during the
prior calendar month (a "Due Period"); (b) the
amount of full Principal Prepayments received and
partial Principal Prepayments applied during the
prior Due Period; (c) the principal portion of all
payments that were Delinquent Payments as of the
end of the prior Due Period; (d) the unpaid
principal balance of all Contracts that became
Liquidated Contracts during the prior Due Period;
(e) the principal portion of the Repurchase Price
paid by the Company to repurchase Contracts for
breach of representations and warranties during
the prior Due Period, as described in this Summary
under "Repurchases by the Company"; (f) the amount
of any reduction in the principal amount deemed
owed on any Contract as a result of the Obligor's
bankruptcy; and (g) any principal amount specified
in clauses (a) through (f) that was not previously
distributed because of an insufficient amount of
funds available in the Collection Account. See
"Yield and Prepayment Considerations."
Registration of
Certificates................ The Certificates initially will be represented
by one or more certificates registered in the name
of Cede & Co. ("Cede") as the nominee of The
Depository Trust Company ("DTC"), and will only be
available in the form of book_entries on the
records of DTC and participating members thereof
in minimum denominations of $ and integral
multiples thereof. Certificates will be issued 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 "Description of
the Certificates_Registration of the
Certificates."
The Contracts............... ____ conventional and _____ FHA-insured home
improvement installment sales agreements and
promissory notes, including any and all rights to
receive payments due thereunder on and after the
Cutoff Date. The obligations of the Obligor under
each Contract are either secured by the related
real estate (each a "Secured Contract") or are
unsecured (each an "Unsecured Contract"). By
principal balance as of the Cutoff Date,
approximately % of the Contracts (which includes
all of the FHA_insured Contracts) are Secured
Contracts and approximately % of the Contracts are
Unsecured Contracts. The Contracts arise from
loans relating to the improvement of real estate
located in __ states and the District of Columbia.
The contractual percentage rate of interest on the
Contracts as of the Cutoff Date ranges from ___%
to ___% with a weighted average of ____%. The
Contracts had a weighted average term to scheduled
maturity, as of origination, of ___ months, and a
weighted average term to scheduled maturity, as of
the Cutoff Date, of ___ months. The final
scheduled payment date
-5-
<PAGE>
on the Contract with the latest maturity is in
_____. See "The Contracts."
FHA Insurance............... Approximately __% of the Contracts, by principal
balance as of the Cutoff Date, are insured by FHA
against Obligor defaults pursuant to Title I of
the National Housing Act ("FHA Insurance").
Following a default on an FHA-insured Contract, if
a claim is submitted to FHA, FHA will (subject to
certain conditions, including a limitation on the
aggregate insurance coverage available with
respect to all FHA Title I loans then owned and
reported for FHA Insurance by the Company) pay 90%
of the sum of (i) the unpaid principal, (ii) up to
nine months' unpaid interest on the Contract
(computed at 7% per annum) and (iii) certain
liquidation expenses. See "Description of FHA
Insurance."
Advances.................... The Company, as Servicer, is obligated to make
Advances each month of any scheduled payments on
the Contracts that were due but not received
during the prior Due Period. The Servicer will be
entitled to reimbursement of Advances from
payments on the Contracts and from the Cash
Collateral Account. The Servicer will be obligated
to make an Advance only to the extent that it
expects to recoup such Advance from collections on
such Contract. If the Servicer fails to make any
Advance required under the Agreement, the Trustee
will be obligated (subject to certain conditions)
to make such Advance. See "Description of the
Certificates--Advances."
Cash Collateral Account..... The Trust will have the benefit of the right
to demand payments under certain circumstances
described below, under a cash collateral guaranty
(the "Cash Collateral Guaranty") issued pursuant
to the cash collateral trust agreement described
below. The Cash Collateral Guaranty will be
secured by an account (the "Cash Collateral
Account"), which will be held in the name of First
Bank National Association, Minneapolis, Minnesota,
as cash collateral trustee (the "Cash Collateral
Trustee"). Pursuant to the cash collateral trust
agreement (the "Cash Collateral Trust Agreement")
among a financial institution selected by the
Company (the "Cash Collateral Depositor"), the
Cash Collateral Trustee and the Company, as Seller
and Servicer, the Cash Collateral Account will be
funded on the date of the issuance of the
Certificates (the "Closing Date") in the amount of
$__________ (the "Initial Cash Collateral Amount")
from the proceeds of a loan to be made by the Cash
Collateral Depositor. The Cash Collateral Guaranty
will not be an obligation of the Cash Collateral
Depositor (beyond the amount included in the Cash
Collateral Account), the Cash Collateral Trustee
or the Company, as Seller and Servicer, and will
be secured solely with amounts, if any, on deposit
in the Cash Collateral Account. The Cash
Collateral Account and any amounts therein will
not be property of the Trust, but will be held in
accordance with the Cash Collateral Trust
Agreement for the benefit of the Trustee and the
Cash Collateral Depositor, as secured parties and
as
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<PAGE>
provided in the Cash Collateral Trust Agreement,
and for the benefit of the beneficiary of the Cash
Collateral Trust.
On each Payment Date, the amount available in the
Cash Collateral Account (the "Available Cash
Collateral Amount") will equal the lesser of (i)
the amount on deposit in the Cash Collateral
Account (exclusive of investment earnings) and
(ii) the Requisite Amount.
If the Servicer's monthly report as of any
Determination Date indicates that a Shortfall (the
difference, if any, between (a) the sum of (i) the
Collected Amount in the Collection Account, plus
(ii) any Advances required to be deposited in the
Collection Account by the Servicer, plus (iii) the
aggregate of the Repurchase Prices for Contracts
to be repurchased by the Company for breach of
representations and warranties, and (b) the sum of
(i) the Monthly Interest and Monthly Principal to
be paid to Certificateholders on the related
Payment Date, (ii) the Monthly Servicing Fee to be
paid to the Servicer, (iii) any amounts required
to reimburse the Trustee for FHA Insurance
premiums paid by the Trustee, and (iv) any amounts
required to reimburse the Servicer or the Trustee
for Uncollectible Advances) will occur on the
related Payment Date, then the Trustee shall on
the Business Day preceding such Payment Date
withdraw from the Cash Collateral Account the
amount of such Shortfall (or the Available Cash
Collateral Amount, if less) and deposit such funds
in the Collection Account. Demands under the Cash
Collateral Guaranty will be funded solely from
amounts, if any, on deposit in the Cash Collateral
Account. If the amount deposited in the Cash
Collateral Account is reduced to zero on any
Payment Date, Certificateholders will bear the
credit and other risks associated with ownership
of the Contracts. See "Certain Legal Aspects of
the Contracts; Repurchase Obligations."
On any Payment Date when the amount held in the
Cash Collateral Account equals or exceeds the
Requisite Amount, any funds paid to the Cash
Collateral Trustee by the Trustee, and any funds
in the Cash Collateral Account in excess of the
Requisite Amount, will be applied by the Cash
Collateral Trustee (a) first to repay the loan
made to the Cash Collateral Trust by the Cash
Collateral Depositor, and (b) thereafter will be
paid to the beneficiary of the Cash Collateral
Trust. In no event will the Trust or the
Certificateholders be obligated in respect of any
loan made by the Cash Collateral Depositor to the
Cash Collateral Trust. Funds on deposit in the
Cash Collateral Account will be invested in
certain permitted investments. All income on such
investments will be retained in the Cash
Collateral Account, to the extent necessary to
increase the balance therein to the Requisite
Amount, and thereafter will be applied as
described in the preceding clauses (a) and (b).
See "Description of the Cash Collateral Account."
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<PAGE>
Requisite Amount............ The Requisite Amount of the Cash Collateral
Account on the initial Payment Date will be
$__________. On each Payment Date thereafter, the
Requisite Amount will equal __% of the Principal
Balance as of the first day of the preceding Due
Period, but in any event not less than
$__________.
Repurchases by the Company.. The Company has agreed to repurchase any Contract
that is materially and adversely affected by a
breach of a representation and warranty with
respect to such Contract made in the Agreement if
such breach has not been cured within 90 days. See
"Description of the Certificates--Conveyance of
Contracts."
Repurchase Option........... The Servicer will have the option to repurchase
all of the outstanding Contracts on any Payment
Date on which the Principal Balance is less than
10% of the Initial Principal Amount of the
Certificates. See "Description of the
Certificates_Repurchase Option."
Monthly Servicing Fee....... The Company will be entitled to monthly
compensation for servicing the Contracts (the
"Monthly Servicing Fee"), payable only after
Monthly Interest and Monthly Principal have been
paid to Certificateholders. See "Description of
the Certificates--Servicing Compensation and
Payment of Expenses," and "--Rights upon an Event
of Termination."
Tax Status.................. In the opinion of counsel, the Trust will be
classified as a grantor trust for federal income
tax purposes and not as an association which is
taxable as a corporation. Each Certificateholder
will be treated for such purposes as the owner of
an undivided interest in the Contracts.
Accordingly, each such Certificateholder must
report on its federal income tax return its share
of the income from the Contracts and, subject to
limitations on deductions by individuals, estates
and trusts, may deduct its share of the reasonable
fees paid by the Trust, determined in accordance
with such Certificateholder's tax accounting
method. Certificateholders will not be treated as
the owners of the Cash Collateral Account for
federal income tax purposes. See "Certain Federal
Income Tax Consequences."
ERISA Considerations........ No transfer of a 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 Considerations."
Rating...................... It is a condition precedent to the issuance of
the Certificates offered pursuant to this
Prospectus that they be rated in one of the four
highest rating categories (within which there may
be sub-categories or gradations indicating
relative standing) of Standard & Poor's
Corporation ("S&P"). S&P's ratings on certificates
for home improvement loans address the
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<PAGE>
likelihood of receipt by certificateholders of
payments required under the operative documents.
The rating of the Certificates offered hereby
should be evaluated independently from similar
ratings on other types of securities. 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 assigning rating
agency. See "Ratings" herein.
Legal Investment
Considerations.............. The Certificates will not constitute "mortgage
related securities" for purposes of the Secondary
Mortgage Market Enhancement Act of 1984 ("SMMEA")
because there are a substantial number of
Contracts that are either unsecured or secured by
liens on real estate that are not first liens, as
required by SMMEA. Accordingly, many institutions
with legal authority to invest in "mortgage
related securities" may not be legally authorized
to invest in the Certificates.
Glossary of Terms........... Certain terms defined and used in this Prospectus
are also defined in Article I of the Agreement, a
copy of which is available upon request.
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<PAGE>
SPECIAL CONSIDERATIONS
Prospective Certificateholders should consider, among other things, the
following factors in connection with the purchase of the Certificates:
1. Limitations on Availability of FHA Insurance. Approximately __ % of the
Contracts, by principal balance as of the Cutoff Date, are insured by FHA. The
availability of FHA Insurance following a default on a Contract is subject to a
number of conditions, including strict compliance by the Company with FHA
regulations in originating and servicing the Contract. Although the Company is
an FHA-approved lender and believes, and represents and warrants in the
Agreement, that it has complied with FHA regulations, such regulations are
susceptible to substantial interpretation. The Company is not required to
obtain, and has not obtained, approval from FHA of its origination and servicing
practices. Failure to comply with FHA regulations may result in a denial of FHA
Insurance claims, and there can be no assurance that FHA's enforcement of its
regulations will not become stricter in the future. From time to time the
Company is engaged in disputes with FHA over the validity of claims submitted
and the Company's compliance with FHA regulations in servicing FHA Title I
loans, such as the FHA_insured Contracts. In addition, any insurance claim paid
by FHA will cover only 90% of the sum of the unpaid principal on the Contract,
up to nine months' unpaid interest (computed at 7% per annum) and certain
liquidation costs.
The amount of FHA Insurance available to the Trust at any given time is
limited to the balance of a reserve amount determined with respect to all FHA
Title I loans originated and reported for insurance by the Company and not sold,
or sold with recourse, by the Company, including manufactured housing contracts
as well as home improvement loans. Such reserve amount, as of December 31, 1993,
was equal to approximately $134,383,000, but will be reduced by the amount of
all FHA Insurance claims paid and by an annual reduction in the reserve amount
equal to 10% of the reserve amount, and will be increased by an amount equal to
10% of the unpaid principal balance of FHA Title I loans subsequently originated
and reported for insurance by the Company. Severe losses on the Company's FHA-
insured manufactured housing contracts, or on other FHA-insured home improvement
loans originated by the Company, could reduce or eliminate the Company's FHA
Insurance reserves, in which event FHA Insurance would not be available to cover
losses on FHA-insured Contracts. To the extent losses on FHA-Insured Contracts
are not covered by FHA Insurance, such losses will be absorbed by the excess
cashflow otherwise payable to the Cash Collateral Account, or, if funds in the
Collection Account are not sufficient to pay Monthly Interest and Monthly
Principal, such losses will be covered by funds withdrawn from the Cash
Collateral Account. See "Description of FHA Insurance."
2. Limited Obligations. The Certificates will not represent an interest in
or obligation of the Company except to the limited extent described herein. The
Certificates will not be insured or guaranteed by any governmental agency or
instrumentality, the Underwriter or its affiliates, the Servicer or (except as
otherwise specified in this Prospectus) by the Company.
3. Junior Mortgage Liens; Value of Mortgaged Property. Approximately __% of
the Contracts, by principal balance as of the Cutoff Date, are Secured
Contracts. Approximately __% of the Secured Contracts, by principal balance as
of the Cutoff Date, are secured by mortgages or deeds of trust that are second
or third mortgages or deeds of trust which are junior to mortgages or deeds of
trust held by other lenders or institutional investors. The rights of the Trust
(and therefore the Certificateholders), as beneficiary under a conventional
junior deed of trust or as mortgagee under a conventional junior mortgage, are
subordinate to those of the mortgagee or beneficiary under the senior mortgage
or deed of trust, including the prior rights of the senior mortgagee or
beneficiary to cause the property securing the Contract to be sold upon default
of the mortgagor or trustor, thereby extinguishing the junior mortgagee's or
junior beneficiary's lien unless the Servicer on behalf of the Trust asserts its
subordinate interest in
-10-
<PAGE>
the property in foreclosure litigation and, possibly, satisfies the defaulted
senior loan or loans. See "Certain Legal Aspects of the Contracts - Repurchase
Obligations."
Approximately __% of the Secured Contracts, by principal balance as of the
Cutoff Date, have loan-to-value ratios of 90% or more, based on the aggregate of
the outstanding principal balances of all senior mortgages or deeds of trust and
of the Secured Contract on the one hand, and the value of the home and an
estimate of the value of the financed improvement, on the other. See "Green Tree
Financial Corporation - Contract Origination." An overall decline in the
residential real estate market, the general condition of a property securing a
Contract or other factors could adversely affect the value of the property
securing a conventional Contract such that the remaining balance of the
conventional Contract, together with that of any senior liens on the related
property, could equal or exceed the value of the property. While the same
economic decline could effect the value of property securing an FHA-insured
Contract, assuming compliance with other FHA regulations, an FHA claim would
still be payable to the Company, notwithstanding the decline in property value
below the aggregate outstanding principal balances of the Contract and of all
senior liens on the property.
4. Non-recordation of Mortgage Assignments. Because of the expense and
administrative inconvenience involved, the Company has not recorded, and will
not record, the assignment to the Trustee of the mortgage or deed of trust
securing any Secured Contract. In some states, in the absence of such
recordation the assignment to the Trustee of the mortgage or deed of trust
securing a Contract may not be effective against creditors of or purchasers from
the Company or a trustee in bankruptcy of the Company.
5. Unsecured Contracts. Approximately __% of the Contracts, by principal
balance as of the Cutoff Date, are Unsecured Contracts. The obligations of the
Obligor under each such Unsecured Contract are not secured by an interest in the
related real estate or otherwise, and the Trust, as the owner of such Contracts,
is a general unsecured creditor as to such obligations. As a consequence, in the
event of a default under an Unsecured Contract, the Trust will have recourse
only against the Obligor's assets generally, along with all other general
unsecured creditors of the Obligor. In a bankruptcy or insolvency proceeding
relating to an Obligor on an Unsecured Contract, the obligations of the Obligor
under such Unsecured Contract may be discharged in their entirety,
notwithstanding the fact that the portion of such Obligor's assets made
available to the Trust as a general unsecured creditor to pay amounts due and
owing thereunder are insufficient to pay all such amounts. Based on the
foregoing, an Obligor on an Unsecured Contract may not demonstrate the same
degree of concern over performance of the Obligor's obligations under such
Contract as if such obligations were secured by the related real estate.
6. Limited Historical Data With Respect to Home Improvement Loans. The Company
began purchasing and servicing FHA-insured home improvement contracts in April
1989, and conventional home improvement contracts in September 1992, and thus
has limited historical experience with respect to the performance, including
prepayments, of home improvement loans. Accordingly, the Company's delinquency
experience and loan loss and liquidation experience set forth under "The
Contracts" may not be indicative of the performance of the Contracts held by the
Trust.
7. Limited Liquidity. The Certificates are subject to restrictions on
transfer to employee benefit plans, trusts or accounts subject to ERISA and
described in Section 4975 of the Code, as described under "ERISA
Considerations." There is currently no market for the Certificates, and there
can be no assurance that a secondary market will develop or, if it does develop,
that it will provide Certificateholders with liquidity of investment or will
continue for the life of the Certificates. The Certificates will not be listed
on any securities exchange.
8. Considerations in the Event of Company Insolvency. In the event of the
Company's insolvency, if the transfer of the Contracts from the Company to the
Trust were treated as a pledge to secure
-11-
<PAGE>
borrowings by the Company rather than a sale, the distribution of proceeds of
the Contracts to the Trust might be subject to the automatic stay provisions of
the United States Bankruptcy Code, which would delay the distribution of such
proceeds for an uncertain period of time. In addition, a bankruptcy trustee
would have the power to sell the Contracts if the proceeds of such sale could
satisfy the amount of the debt deemed owed by the Company, or the bankruptcy
trustee could substitute other collateral in lieu of the Contracts to secure
such debt, or such debt could be subject to adjustment by the bankruptcy trustee
if the Company were to file for reorganization under Chapter 11 of the United
States Bankruptcy Code. See "Description of the Certificates_Conveyance of
Contracts."
In the event of the Company's insolvency, if the Cash Collateral Account
were somehow deemed to be property of the Company's bankruptcy estate, a
bankruptcy trustee might attempt to reduce amounts retained or required to be
deposited by the Trustee into the Cash Collateral Account if those amounts were
determined by the bankruptcy trustee to exceed amounts reasonably necessary or
adequate to cover Shortfalls which might become payable to Certificateholders
out of the Cash Collateral Account.
STRUCTURE OF THE TRANSACTION
On ________, 1994 (the "Closing Date"), the Company will establish the
Trust pursuant to a Pooling and Servicing Agreement to be dated as of ________
1, 1994 (the "Agreement"), between the Company, as Seller and Servicer, and the
Trustee.
The Certificates will represent fractional undivided interests in the
Trust ("Fractional Interests"), the corpus of which consists of the Contracts,
including all rights to receive payments due on such Contracts on and after
March 1, 1994 (the "Cutoff Date"), all rights under FHA Insurance with respect
to the FHA-insured Contracts, liens on the related real estate (in the case of
Secured Contracts), amounts held for the Trust in the Collection Account (as
defined below), and rights to payments from a cash collateral account (the
"Cash Collateral Account") described in "Description of the Cash Collateral
Account."
Payments and recoveries in respect of principal and interest on the
Contracts will be paid into a separate trust account maintained at an Eligible
Institution (initially First Bank National Association, Minneapolis, Minnesota)
in the name of the Trust (the "Collection Account"), no later than one Business
Day after receipt. Payments deposited in the Collection Account in respect of
each Due Period will be applied on the fifteenth day of the next month (or if
such day is not a business day, the next succeeding business day) (each a
"Payment Date") to pay Monthly Interest and Monthly Principal (each as defined
below under "Yield and Prepayment Considerations") to Certificateholders, to pay
certain monthly fees to the Company as compensation for its servicing of the
Contracts (the "Monthly Servicing Fee"), and to pay any remaining amounts in the
Collection Account to the Cash Collateral Trustee for disposition in accordance
with Cash Collateral Trust Agreement.
The Company, as Servicer, will be obligated to advance any scheduled
payments on the Contracts that were due but not received during the prior Due
Period ("Advances"). The Servicer will be entitled to reimbursement of Advances
from payments on the Contracts and the Cash Collateral Account. The Servicer
will not be required to make any Advance to the extent that it does not expect
to recoup the Advance from subsequent collections on the Contract or from
liquidation proceeds thereof. If the Servicer fails to make any Advance required
under the Agreement, the Trustee is obligated (subject to certain conditions) to
make such Advance.
The Trust will have the benefit of the right to demand payments from the
Cash Collateral Account. Subject to the limit of the amount available in the
Cash Collateral Account, on the Business Day prior to any Payment Date in which
a Shortfall (the difference (if any) between (a) the funds in the Collection
Account available for distribution on such Payment Date (including any Advances)
and (b) the sum of (i) Monthly Principal and Monthly Interest required to be
paid to Certificateholders on
-12-
<PAGE>
such Payment Date, (ii) the Monthly Servicing Fee to be paid to the Servicer,
(iii) any amounts required to reimburse the Trustee for FHA Insurance premiums
paid by the Trustee, and (iv) any amounts required to reimburse the Servicer or
the Trustee for Uncollectible Advances) occurs the Trustee shall withdraw the
amount of such Shortfall (or the funds in the Cash Collateral Account, if less)
from the Cash Collateral Account and deposit such amount in the Collection
Account. On the Closing Date the Cash Collateral Depositor will deposit
$_________ in cash in the Cash Collateral Account. On each Payment Date, the
Cash Collateral Trustee will deposit any funds received by it from the Trustee
in the Cash Collateral Account, unless the amount on deposit in the Cash
Collateral Account equals the Requisite Amount (as defined below under
"Description of the Cash Collateral Account").
Following the transfer of the Contracts from the Company to the Trust, the
obligations of the Company are limited to (a) the obligation to service the
Contracts, (b) certain representations and warranties in the Agreement and (c)
certain indemnities. The Company is obligated under the Agreement to repurchase
at the Repurchase Price any Contract on the first Payment Date which is more
than 90 days after the Company becomes aware, or the Company's receipt of
written notice from the Trustee, of breach of any such representation and
warranty in the Agreement that materially adversely affects the
Certificateholders' interest in any Contract if such breach has not been cured
prior to such date. Such repurchase obligation is not covered by the Cash
Collateral Account. The Agreement also provides that the Company has certain
obligations to repurchase Contracts and to indemnify the Trustee and
Certificateholders with respect to certain other matters.
USE OF PROCEEDS
The Company will use the net proceeds received from the sale of the
Certificates for working capital and general corporate purposes, including
building a portfolio of home improvement retail installment contracts and
promissory notes, providing warehouse financing for the purchase of contracts
and other costs of maintaining such contracts until they are pooled and sold to
other investors.
THE CONTRACTS
Each Contract is a home improvement retail installment sales contract
originated by a Company-approved home improvement contractor and purchased by
the Company, or a home improvement promissory note originated by the Company
directly. Each Contract finances improvements to a single-family residential
property, up to a four unit multiple-family residence, an owner-occupied
condominium or town house or a manufactured home which qualifies as real estate
under state law and is either secured by such real estate or is unsecured.
The Company has represented and warranted in the Agreement that (a) each
Contract is fully amortizing with a fixed contractual rate of interest and
provides for level payments over the term of such loan, computed on the simple
interest method, (b) each Contract has its last scheduled payment due no later
than ______, (c) each FHA-insured Contract was originated in accordance with
applicable FHA regulations and is insured, without set-off, surcharge or
defense, by FHA Insurance, and (d) each Secured Contract is secured by a first,
second, or third priority lien on the improved real estate. The Contracts were
originated or acquired by the Company in the ordinary course of the Company's
business. A detailed listing of the Contracts is appended to the Agreement. See
"Description of the Certificates." By principal balance as of the Cutoff Date,
approximately % of the Contracts are Secured Contracts and approximately % of
the Contracts are Unsecured Contracts. Approximately __% of the Contracts, by
principal balance as of the Cutoff Date, are insured by FHA, to the extent
described in "Description of FHA Insurance." All Contracts have a contractual
rate of interest of at least ___% and not more than ____% and the weighted
average contractual rate of interest of the Contracts as of the Cutoff Date is
____%. The Contracts have remaining maturities of at least __ months but not
more than 240 months and original maturities of at least 24 months but not more
than 240
-13-
<PAGE>
months. The Contracts had a weighted average term to scheduled maturity, as of
origination, of ___ months, and a weighted average term to scheduled maturity,
as of the Cutoff Date, of ___ months. The average principal balance per Contract
as of the Cutoff Date was $________ and the principal balances on the Contracts
as of the Cutoff Date ranged from $________ to $________. The Contracts arise
from loans relating to real property located in __ states and the District of
Columbia. None of the Contracts provide for recourse to the originating
contractor in the event of a default by the Obligor. The Contracts constitute
substantially all of the home improvement loans owned by the Company as of the
Cutoff Date, meeting the criteria stated under "Description of the Certificates
- -- Consequence of Contracts."
The following table sets forth certain statistical information regarding
the FHA-insured Contracts, the conventional Contracts and all Contracts in the
Trust as of the Cutoff Date.
<TABLE>
<CAPTION>
Certain Contract Characteristics
Conventional
------------
FHA-insured Secured Unsecured Total Pool
---------------------------------------------
<S> <C> <C> <C> <C>
Principal Balance
Percentage of Principal Balance
Weighted Average Contract Rate
Range of Contract Rates
Weighted Average Remaining
Term to Scheduled Maturity (Months)
Range of Remaining Maturities (Months)
Weighted Average Original Term
to Scheduled Maturity (Months)
Range of Original Maturities (Months)
Average Principal Balance
Highest Principal Balance
Lowest Principal Balance
</TABLE>
Set forth below is a description of certain additional characteristics of
the Contracts.
-14-
<PAGE>
Geographical Distribution of Improved Real Estate
<TABLE>
<CAPTION>
% of Contract
Pool by
Number of % of Contract Aggregate Principal Outstanding
Contracts Pool by Number Balance Principal
as of Cut- of Contracts as Outstanding as of Balance as of
off Date of Cut-off Date Cut-off Date Cut-off Date
---------- --------------- ------------------- ----------------
<S> <C> <C> <C> <C>
Alabama.........................
Alaska..........................
Arizona.........................
Arkansas........................
California......................
Colorado........................
Connecticut.....................
Delaware........................
District of Columbia............
Florida.........................
Georgia.........................
Hawaii..........................
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.........................
</TABLE>
-15-
<PAGE>
<TABLE>
<CAPTION>
% of Contract
Pool by
Number of % of Contract Aggregate Principal Outstanding
Contracts Pool by Number Balance Principal
as of Cut- of Contracts as Outstanding as of Balance as of
off Date of Cut-off Date Cut-off Date Cut-off Date
---------- --------------- ------------------- ----------------
<S> <C> <C> <C> <C>
Virginia........................
Washington......................
West Virginia...................
Wisconsin.......................
Wyoming.........................
Total...........................
</TABLE>
Years of Origination of Contracts
<TABLE>
<CAPTION>
% of Contract Pool by
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>
1989............................
1990............................
1991............................
1992............................
1993............................
1994............................
</TABLE>
Distribution of Original Contract Amounts
<TABLE>
<CAPTION>
% of Contract Pool by
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..........
$110,000 - $119,999.99..........
$120,000 - $125,000(1)..........
Total...................
- ------------
</TABLE>
(1) The largest original contract amount may not exceed $125,000 under the
Company's 75% loan-to-value program, unless a higher amount financed is
approved by senior management.
-16-
<PAGE>
Contract Rates
<TABLE>
<CAPTION>
Aggregate Principal % of Contract Pool by
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......................
</TABLE>
Remaining Months to Maturity
<TABLE>
<CAPTION>
Months Remaining to Aggregate Principal % of Contract Pool by
Scheduled Maturity 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........................
Total........................
</TABLE>
-17-
<PAGE>
Delinquency, Loan Default and Loss Information
The following tables set forth the delinquency experience and loan default
and loss experience for the past __ months of the portfolio of FHA-insured and
conventional home improvement loans serviced by the Company.
Delinquency Experience
<TABLE>
<CAPTION>
At December 31,
--------------------
1993 1992 1991
---- ---- ----
<S> <C> <C> <C>
Number of Contracts
Outstanding(1)
Period of Delinquency(2):
30-59 Days
60-89 Days
90 Days or More
Total Home Improvement
Contracts Delinquent
Delinquencies as a Percent of
Contracts Outstanding
</TABLE>
(1) Excludes defaulted contracts not yet liquidated.
(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.
Loan Default and Loss Experience
(Dollars in thousands)
<TABLE>
<CAPTION>
Twelve Months
Ended December 31,
---------------------------
1993 1992 1991
---- ---- ----
<S> <C> <C> <C>
Principal Balance of Contracts
Serviced(1)
Contract Defaults(2)
Net Losses:
Dollars(3)
Percentage(4)
- ---------------
</TABLE>
(1) As of period end. Includes defaulted contracts not yet liquidated.
(2) As a percentage of the total number of contracts being serviced as of
period end.
(3) Does not include any estimated losses for defaulted contracts not yet
liquidated. The calculation of net loss on FHA-insured Contracts includes
unpaid interest to the date of FHA claim submission and all expenses of
liquidation, and reflects proceeds of FHA Insurance claims paid.
(4) As a percentage of the principal amount of contracts being serviced as of
period end.
The Company's management is not aware of any trends or anomalies which have
adversely affected the delinquency, loan default and loss experience of its
portfolio of home improvement contracts.
The data presented in the foregoing tables are for illustrative purposes
only and there is no assurance that the delinquency, loan loss or liquidation
experience of the Contracts will be similar to
-18-
<PAGE>
that set forth above. Moreover, since the Company began originating and
purchasing FHA-insured home improvement contracts in April 1989, and secured and
unsecured conventional home improvement contracts in September 1992, it is
likely that the Company's portfolio is not yet sufficiently seasoned to show the
delinquencies and losses that would be experienced if such data were collected
over a longer period of time. Because the Company began originating and
purchasing conventional home improvement contracts in September 1992, the data
presented in the foregoing tables do not reflect any significant experience with
conventional home improvement contracts. Moreover, such data have not been
presented separately for conventional home improvement contracts based upon the
Company's determination that such data would not be indicative of future
performance.
YIELD AND PREPAYMENT CONSIDERATIONS
The yield on any Certificate will depend on the price paid by the
Certificateholder, the effective interest rate of the Certificates and the
average life of the Contracts.
The "Initial Principal Amount" of the Certificates ($__________) equals the
aggregate of principal payments due on the Contracts as of the Cutoff Date. The
"Monthly Principal" distributable to Certificateholders on any Payment Date will
be, subject to the limit of available funds in the Collection Account (including
funds in the Cash Collateral Account) after taking into account the distribution
of Monthly Interest, the sum of (a) the amount of regular principal payments on
Contracts paid or applied in respect of the prior Due Period; (b) the amount of
full Principal Prepayments received and partial Principal Prepayments applied
during the prior Due Period; (c) the principal portion of all payments that were
Delinquent Payments as of the end of the prior Due Period; (d) the unpaid
principal balance of all Contracts that became Liquidated Contracts during the
prior Due Period; (e) the principal portion of the Repurchase Price paid by the
Company to repurchase Contracts for breach of representations and warranties, as
described in this Summary under "Repurchases by the Company"; (f) the amount of
any reduction in the principal amount deemed owed on a Contract as a result of
the Obligor's bankruptcy; and (g) any principal amount specified in clauses (a)
through (f) that was not previously distributed because of an insufficient
amount of funds available in the Collection Account. The "Principal Balance" at
any time means the Initial Principal Amount minus all prior payments of Monthly
Principal.
"Principal Prepayments" (payments received from Obligors, other than
regular payments of principal, which are applied upon receipt or, in the case of
partial prepayments, upon the next scheduled payment date for such Contract, to
reduce the outstanding principal balance on the Contracts) will increase the
yield on Certificates purchased at a price less than the undivided ownership
interest in the aggregate principal balance of the Contracts represented by such
Certificates and will decrease the yield on Certificates purchased at a price
greater than the undivided ownership interest in the aggregate principal balance
of the Contracts represented by such Certificates. The Company has no
significant experience with respect to the rate of Principal Prepayments on home
improvement contracts. Because the Contracts have scheduled due dates throughout
the calendar month, and because all Principal Prepayments are passed through to
Certificateholders on the Payment Date following the Due Period in which such
Principal Prepayment occurred, prepayments on the Contracts would affect the
amount of funds available to make distributions on the Certificates on any
Payment Date only if a substantial portion of the Contracts prepaid prior to
their respective due dates in a particular month (thus paying less than 30 days'
interest for that Due Period) while very few Contracts prepaid after their
respective due dates in that month. In addition, liquidations of Defaulted
Contracts or the Company's exercise of its option to repurchase the entire
remaining pool of Contracts (see "Description of the Certificates_Repurchase
Option") will reduce the average life of the Certificates.
The amount of "Monthly Interest" passed through to Certificateholders on
any Payment Date will be, subject to the limit of available funds in the
Collection Account (including funds in the Cash Collateral Account), the product
of the Pass-Through Rate and the Principal Balance immediately following the
preceding Payment Date, based on a 360-day year consisting of 12 months of 30
days each.
-19-
<PAGE>
As required by applicable state laws, interest paid by Obligors on the Contracts
is computed according to the simple interest method. Principal and interest
payable on the Certificates will be computed according to the actuarial method.
The yield to Certificateholders will be below that otherwise produced by
the Pass-Through Rate because, while Monthly Interest will accrue in respect of
30-day periods ending in each Due Period, the distribution of Monthly Interest
will be made no earlier than the fifteenth day of the month (or the next
business day thereafter) following the Due Period in which it accrues.
The final scheduled payment date on the Contract with the latest maturity
is in ________.
GREEN TREE FINANCIAL CORPORATION
General
The Company is a Minnesota corporation which, as of December 31, 1993, had
total assets of approximately $__________ and stockholders' equity of
approximately $_________. The Company purchases, pools, sells and services
conditional sales contracts for manufactured homes and other consumer
installment sales contracts. The Company is currently the largest servicer of
government-insured manufactured housing contracts, and is one of the largest
servicers of conventional manufactured housing contracts, in the United States.
The Company began financing FHA-insured home improvement loans in April 1989 and
conventional home improvement loans in September 1992. Currently, the Company
also purchases, pools and services installment sales contracts for motorcycles
and continues to service recreational vehicle installment sales contracts
previously originated. It also finances certain recreational sports vehicles
manufactured by Polaris Industries, L.P., Limited Partnership, and horse
trailers produced by other manufacturers. 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 quarterly and
annual reports are available from the Company upon written request.
Contract Origination
Through its centralized loan processing operations, the Company arranges to
purchase certain contracts from home improvement contractors located throughout
the United States. The Company's business development managers contact home
improvement contractors and explain the Company's available financing plans,
terms, prevailing rates and credit and financing policies. If the contractor
wishes to utilize the Company's available customer financing, the contractor
must make an application for contractor approval. The Company has a contractor
approval process pursuant to which the financial condition, business experience
and qualifications of the contractor are reviewed prior to his or her approval
to sell Contracts to the Company. In addition, the Company has a centralized
compliance group which reviews and updates contractor financial condition and
reviews contractors on an annual basis to determine whether such contractor's
approval will be continued. The Company also reviews monthly contractor trend
reports which show the default and delinquency trends of the particular
contractor with respect to contracts sold to the Company. The Company
occasionally will originate directly a home improvement promissory note
involving a home improvement transaction.
All contracts that the Company originates are written on forms provided by
the Company and are purchased on an individually approved basis in accordance
with the Company's guidelines. The contractor submits the customer's credit
application and construction contract to the Company's office where an analysis
of the creditworthiness of the proposed buyer is made. The analysis includes a
review of the applicant's paying habits, length and likelihood of continued
employment and certain other procedures, including the percentage of the
applicant's monthly payments on long term debts to gross monthly income, which
may not exceed 45%.
-20-
<PAGE>
The original principal amount of a single-family FHA-insured home
improvement contract currently may not exceed $25,000, with a maximum term of 20
years. FHA will insure loans of up to $17,500 for manufactured homes which
qualify as real estate under applicable state law and loans of up to $12,000 per
unit or a $48,000 limit for four units of owner-occupied multiple-family homes.
The original principal amount of a conventional secured home improvement loan
may not exceed $30,000 for the Company's secured 100% loan-to-value program;
$30,000 for the Company's secured 90% loan-to-value program, $50,000 for the
Company's secured 80% loan-to-value program and $125,000 for the Company's
secured 75% loan-to-value program, unless a higher amount financed is approved
by senior management. The original principal amount of a conventional unsecured
home improvement loan may not exceed $10,000. The Company requires that any
secured home improvement contract be secured by a recorded lien (which may be a
first, second or third lien for FHA-insured loans or up to a second lien for
secured conventional loans) on the improved real estate. Certain other criteria
for home improvement contracts eligible for FHA Insurance are described under
the caption "Description of FHA Insurance." If the Company determines that the
application meets the Company's underwriting guidelines and applicable FHA
regulations (for FHA-insured contracts) and the credit is approved, the Company
purchases the contract from the contractor when the customer verifies
satisfactory completion of the work, or, in the case of direct origination, the
Company advances funds to the customer when the credit is approved and requires
verification of completion of the work within six months.
The Company began financing conventional home improvement loans in
September 1992. Conventional home improvement loans are not insured by FHA. Many
of the conventional Contracts in the Trust are either secured 90% loan-to-value
Contracts or secured 80% loan-to-value Contracts. The Company also has special
secured programs of 75% and 100% loan-to-value Contracts for certain types of
larger remodeling projects. The secured 90% loan-to-value program generally
allows a maximum loan amount of up to $30,000, on an owner-occupied single
family home, with a first or second lien on the real estate. The value of the
home is determined by an appraisal as described below, with an additional 70% of
the loan amount added to the appraisal to reflect the value of the improvement
financed. For loan amounts under $20,000, a drive-by appraisal by a state
certified and licensed appraiser is required. For loan amounts of $20,000 or
more, a full Uniform Residential Appraisal Report ("URAR") is required. Title
insurance is required on all loan amounts of $20,000 or more. The total monthly
long term debt to gross monthly income ratio of the borrowers may not exceed
45%.
The secured 80% loan-to-value program is similar to the secured 90%
program, with the following modifications. The maximum loan amount may be up to
$50,000. The eligible homes also include owner-occupied multiple-family homes of
up to four units. The loan-to-value ratio may not exceed 80% of the home's
market value. Finally, the appraisal requirement is broadened for loans under
$20,000 under this program to include a drive-by appraisal from a state
certified and licensed appraiser, the current real estate tax assessment or a
full URAR report within the last 12 months.
The secured 75% loan-to-value program allows an amount financed of up to
$50,000, and up to $125,000 upon senior management approval. Eligible property
includes an owner-occupied single family home or up to a four unit owner-
occupied multiple-family dwelling. The appraisal standards are the same as for
the secured 90% loan-to-value program. This program is available to finance
certain specified large remodeling projects like garages and room additions.
The secured 100% loan-to-value program allows an amount financed of up to
$50,000, and up to $125,000 upon senior management approval. Eligible property
includes an owner-occupied single family home or up to a four unit multiple-
family dwelling. Appraisal standards are the same as for the secured 75% loan-to
value program.
The unsecured conventional program allows for an amount financed from
$2,500 to $10,000. The allowable term of unsecured contracts is 24 to 120
months. Eligible property includes an owner-occupied
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single family home, up to a four unit multiple-family dwelling or owner-occupied
condomiums and town houses.
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 provisions of the
Agreement, reference to which is hereby made for a complete recital of its
terms.
General
The Certificates will be issued in fully registered, certificated form only
and will represent fractional undivided interests in the Trust. The Certificates
will be issued in denominations of $1,000 and any integral multiple thereof,
except for one Certificate with a denomination representing the remainder of the
Initial Principal Amount. The Certificates initially will be represented by one
or more certificates registered in the name of Cede as the nominee of DTC, and
will only be available in the form of book-entries on the records of DTC and
participating members thereof. See "Description of Certificates--Registration of
the Certificates." The Trust consists of the Contracts and the rights, benefits,
obligations and proceeds arising therefrom or in connection therewith,
including, with respect to the Secured Contracts, liens on the related real
estate, rights under applicable FHA Insurance for FHA-insured Contracts, amounts
held for the Trust in the Collection Account, amounts held for the Trust in the
Cash Collateral Account and the Limited Guaranty of the Company.
Distributions of Monthly Principal and Monthly Interest on the Certificates
will be made by the Paying Agent on each Payment Date to persons in whose names
the Certificates are registered as of the last Business Day of the calendar
month immediately preceding such Payment Date. See "Description of
Certificates_Registration of the Certificates." The first Payment Date for the
Certificates will be _______ 15, 1994. Payments of Monthly Principal and Monthly
Interest will be made by check mailed to such Certificateholder at the address
appearing on the Certificate Register (except that a Certificateholder may
request payment by wire transfer). Final payments of Monthly Principal and
Monthly Interest will be made only upon tender of the Certificates to the
Trustee for cancellation.
Conveyance of Contracts
On the Closing Date, the Company will establish the Trust and transfer,
assign, set over and otherwise convey to the Trust all right, title and interest
of the Company in the Contracts, including 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 Cutoff Date). On behalf of the Trust,
as the issuer of the Certificates offered hereby, the Trustee, concurrently with
such conveyance, will execute and deliver the Certificates to the Company. The
Contracts are described on a list delivered to the Trustee and certified by a
duly authorized officer of the Company. Such list includes the amount of monthly
payments due on each Contract as of the date of issuance of the Certificates,
the Contract Interest Rate on each Contract and the maturity date of each
Contract. Such list is available for inspection by any Certificateholder at the
principal office of the Company. Prior to the conveyance of the Contracts to the
Trust, the Company's internal audit department will have completed a review of
all the Contract files, confirming the accuracy of each item on 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, if the discrepancy
relates to the unpaid principal balance of a Contract, the Company may deposit
cash in the Collection Account in an amount sufficient to offset such
discrepancy.
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The Trustee will maintain possession of the Contracts and any other
documents contained in the Contract files. A Uniform Commercial Code financing
statement will be filed in Minnesota, reflecting the conveyance and assignment
of the Contracts to the Trustee, and the Company's accounting records and
computer systems will also reflect such conveyance and assignment.
Dorsey & Whitney, counsel to the Company, will render an opinion to the
Trustee that the transfer of the Contracts from the Company to the Trust would,
in the event the Company became a debtor under the United States Bankruptcy
Code, be treated as a true sale and not as a pledge to secure borrowings. If,
however, the transfer of the Contracts from the Company to the Trust were
treated as a pledge to secure borrowings by the Company, the distribution of
proceeds of the Contracts to the Trust might be subject to the automatic stay
provisions of the United States Bankruptcy Code, which would delay the
distribution of such proceeds for an uncertain period of time. In addition, a
bankruptcy trustee would have the power to sell the Contracts if the proceeds of
such sale could satisfy the amount of the debt deemed owed by the Company, or
the bankruptcy trustee could substitute other collateral in lieu of the
Contracts to secure such debt, or such debt could be subject to adjustment by
the bankruptcy trustee if the Company were to file for reorganization under
Chapter 11 of the United States Bankruptcy Code.
The Company will make certain representations and warranties in the
Agreement with respect to each Contract, including that: (a) as of the Cutoff
Date 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 included in the Contract file
and reflected on the list of Contracts delivered to the Trustee; (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 (if an FHA-
insured Contract) was originated in accordance with applicable FHA regulations
and is insured, without set-off, surcharge or defense, by FHA Insurance; (f)
each Contract was originated by a home improvement contractor in the ordinary
course of such contractor's business or was originated by the Company directly;
(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
pursuant to the Agreement or 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; (j) each Secured Contract creates
a valid and perfected lien on the related improved real estate; (k) all parties
to each Contract had full legal capacity to execute such Contract; (l) no
Contract has been sold, conveyed and assigned or pledged to any other person and
the Company has good and marketable title to each Contract free and clear of any
encumbrance, equity, loan, pledge, charge, claim or security interest, and is
the sole owner and has full right to transfer such Contract to the Trustee; (m)
as of the Cutoff Date there was no default, breach, violation or event
permitting acceleration under any Contract (except for payment delinquencies
permitted by clause (a) above), no event that 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) each Contract is a fully-amortizing loan with a fixed rate
of interest and provides for level payments over the term of such Contract; (o)
each Secured Contract contains customary and enforceable provisions such as to
render the rights and remedies of the holder thereof adequate for realization
against the collateral; (p) the description of each Contract set forth in the
list delivered to the Trustee is true and correct; (q) there is only one
original of each Contract; and (r) each Contract was originated or purchased in
accordance with the Company's then-current underwriting guidelines. The Company
will also make certain representations and warranties with respect to the
Contracts in the aggregate, including that (i) the aggregate principal amount
payable by the Obligors as of the Cutoff Date equals the Initial Principal
Amount of the Certificates, and each Contract has a contractual rate of interest
of at least ____%; (ii) no Contract has a remaining maturity of more than 240
months; (iii) no more than 5% of the Contracts, by principal balance as of the
Cutoff Date, were secured by properties located in an area with the same zip
code; and (iv) no adverse selection procedures were employed in selecting the
Contracts from the Company's portfolio.
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Under the terms of the Agreement, the Company has agreed to repurchase,
at the Repurchase Price, any Contract that is materially and adversely affected
by a breach of a representation and warranty with respect to such Contract made
in the Agreement if such breach has not been cured within 90 days. This
repurchase obligation constitutes the sole remedy available to the Trust and the
Certificateholders for a breach of a representation or 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).
Pursuant to the Agreement, the Company will service and administer the
Contracts conveyed and assigned to the Trustee as more fully set forth below.
Payments on Contracts; Distributions on Certificates
The Company, on behalf of the Trust, will establish and maintain the
Collection Account at a depository institution (initially First Bank National
Association, Minneapolis, Minnesota) with trust powers 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 Federal Deposit Insurance Corporation (the
"FDIC"), whose short-term debt (or, in the case of the principal bank in a bank
holding company system, the short-term debt of such bank or the bank holding
company) has a rating of A-1 or higher from S&P, and which is subject to
examination by federal or state authorities (an "Eligible Institution"). The
Company may authorize the Trustee to invest the funds in the Collection Account
in Eligible Investments (as defined in the Agreement) that will mature not later
than the business day preceding the applicable monthly Payment Date. Such
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 commercial banks; any other demand or time
deposit or certificate of deposit fully insured by the FDIC; investments in
certain money-market funds; certain repurchase agreements of United States
government securities with eligible commercial banks; corporate securities
assigned the highest rating by S&P not in excess of 10% of amounts in the
Collection Account at the time of such investment or pledge as security; and
commercial paper assigned a rating of at least A-1 by S&P. Any losses on such
investments will be deducted from other investment earnings or from other funds
in the Collection Account.
All receipts by the Company of payments with respect to the Contracts,
including Principal Prepayments and advance payments by Obligors not
constituting Principal Prepayments ("Advance Payments"), shall be paid into the
Collection Account no later than one business day following receipt thereof,
except amounts received as extension fees not allocated to regular installments
due on Contracts, which are retained by the Company as part of its servicing
fees and are not paid into the Collection Account. See "Description of the
Certificates--Servicing Compensation and Payment of Expenses." In addition, all
payments under FHA Insurance received by the Servicer, any Advances by the
Servicer or the Trustee as described under "Description of the
Certificates--Advances," amounts withdrawn by the Trustee out of the Cash
Collateral Account as described under "Description of the Cash Collateral
Account," and amounts paid by the Company for Contracts repurchased as a result
of breach of warranties under the Agreement as described under "Description of
the Certificates--Conveyance of Contracts," shall be paid into the Collection
Account.
On the seventh Business Day of each month (the "Determination Date"), the
Company will determine the amount of funds in the Collection Account (other than
amounts attributable to Advance Payments and regular payments received
subsequent to the end of the immediately preceding Due Period) (the "Collected
Amount") and the amount of funds necessary to make all payments to be made on
the next Payment Date from the Collection Account. Not later than one Business
Day after the Determination Date, the Company will deposit in the Collection
Account the Repurchase Price of any Contracts required to be repurchased on such
Payment Date as a result of a breach of representations and warranties.
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On each Payment Date the Trustee will withdraw such funds from the
Collection Account as are necessary to make the following payments, in the
following order of priority:
(a) to pay Monthly Interest;
(b) to pay Monthly Principal;
(c) to pay the Monthly Servicing Fee to the Servicer;
(d) to reimburse the Trustee or any successor Servicer for any payments
of FHA Insurance premiums not paid by the Company and for which the
Trustee or such successor Servicer has not been reimbursed by the
Company;
(e) to reimburse the Servicer or the Trustee, as applicable, for
Uncollectible Advances and prior Advances that have been recovered;
(f) to pay the remainder, if any, of the Available Funds to the
Cash Collateral Trustee for disposition in accordance with the Cash
Collateral Trust Agreement.
Advances
To the extent that collections on a Contract in any Due Period are less
than the scheduled payment due thereon, the Company, as Servicer, will be
obligated to make an advance of the uncollected portion of such scheduled
payment. The Servicer will be obligated to advance a delinquent payment on a
Contract only to the extent that the Servicer, in its sole discretion, expects
to recoup such Advance from subsequent collections on the Contract or from
liquidation proceeds thereof. The Servicer will deposit any Advances in the
Collection Account no later than one Business Day before the following Payment
Date. The Servicer will be entitled to recoup its advances on a Contract from
subsequent payments by or on behalf of the Obligor and from liquidation proceeds
(including FHA Insurance payments, if applicable, or foreclosure resale
proceeds) of the Contract, and will release its right to reimbursements in
conjunction with the purchase of the Contract by the Company for breach of
representations and warranties. If the Servicer determines in good faith that an
amount previously advanced will not ultimately be recoverable from payments by
or on behalf of the Obligor or from liquidation proceeds (including FHA
Insurance payments or foreclosure resale proceeds) of the Contract (an
"Uncollectible Advance"), the Servicer will be entitled to reimbursement from
payments on other Contracts or from the Cash Collateral Account.
If the Servicer fails to make an Advance required under the Agreement, the
Trustee will be obligated to deposit the amount of such Advance in the
Collection Account on the Payment Date. The Trustee will not, however, be
obligated to deposit any such amount if (i) the Trustee does not expect to
recoup such Advance, or (ii) the Trustee determines that it is not legally able
to make such Advance.
Reports to Certificateholders
The Company will include with each distribution to a Certificateholder a
statement as of such Payment Date setting forth:
(a) the amount of such distribution which constitutes Monthly Principal,
specifying the amounts constituting scheduled payments by Obligors,
Principal Prepayments on the Contracts, and other payments with respect
to the Contracts;
(b) the amount of such distribution which constitutes Monthly Interest;
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(c) the remaining Principal Balance represented by such
Certificateholder's interest;
(d) the Company's FHA Insurance reserve amount;
(e) the Cumulative Delinquency Amount, the Required Cash Collateral
Account Amount, the amount deposited in the Cash Collateral Account
(if any) and the amount of funds in the Cash Collateral Account;
(f) the amount of fees payable out of the Trust;
(g) the Pool Factor (a percentage derived from a fraction the numerator
of which is the remaining Principal Balance of the Certificates and
the denominator of which is the Initial Principal Amount of the
Certificates) immediately before and immediately after such Payment Date;
(h) the number and aggregate principal balance of Contracts delinquent (i)
31-59 days, (ii) 60-89 and (iii) 90 or more days;
(i) the number of Contracts liquidated during the Due Period ending
immediately before such Payment Date;
(j) such customary factual information as is necessary to enable
Certificateholders to prepare their tax returns; and
(k) such other customary factual information available to the Company
without unreasonable expense as is necessary to enable Certificateholders
to comply with regulatory requirements.
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Repurchase Option
The Agreement provides that on any Payment Date on which the Principal
Balance is less than 10% of the Initial Principal Amount of the Certificates,
the Servicer will have the option to repurchase, on 20 days' prior written
notice to the Trustee, all outstanding Contracts at a price equal to the
principal balance of the Contracts on the prior Payment Date plus accrued
interest thereon, plus the fair market value (as determined by the Servicer) of
any acquired properties. Such price will be paid on the Payment Date to the
Certificateholders of record on the last Business Day of the immediately
preceding Due Period in immediately available funds against the Trustee's
delivery of the Contracts to the Servicer.
Collection and Other Servicing Procedures
The Company will manage, administer, service and make collections on the
Contracts, exercising the degree of skill and care required by FHA and otherwise
consistent with the highest degree of skill and care that the Company exercises
with respect to similar contracts (including manufactured housing contracts)
serviced by the Company. The Company will not be required to cause to be
maintained, or otherwise monitor the maintenance of, hazard insurance on the
improved properties, but is required under FHA regulations to monitor and ensure
the maintenance of flood insurance on properties securing FHA-insured Contracts
located in federally designated special flood hazard areas. The Company does,
however, as a matter of its own policy, monitor proof of hazard insurance
coverage (other than flood insurance) and require that it be named as an
additional loss payee on all first lien secured contracts and all junior lien
secured contracts with amounts financed of over $20,000.
Servicing Compensation and Payment of Expenses
The Company will receive a Monthly Servicing Fee for each Due Period (paid
on the next succeeding Payment Date) equal to one-twelfth of the product of .75%
and the remaining Principal Balance.
The Monthly Servicing Fee provides compensation for customary third-party
servicing activities to be performed by the Company for the Trust, for
additional administrative services performed by the Company on behalf of the
Trust and for expenses paid by the Company 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 Company on
behalf of the Trust include selecting and packaging the Contracts, 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 servicing of the Contracts and paid by the Company
from its servicing fees include payment of FHA Insurance premiums, payment of
fees and expenses of accountants, payments of all fees and expenses incurred in
connection with the enforcement of Contracts or foreclosure on collateral
relating thereto (including submission of FHA Insurance claims, if applicable),
payment of Trustee's fees, and payment of expenses incurred in connection with
distributions and reports to Certificateholders.
Evidence as to Compliance
The Agreement provides for delivery to the Trustee of a monthly report by
the Servicer no later than one Business Day following each Determination Date,
setting forth the following information as adjusted to reflect payments and
distributions to be made on the immediately following Payment Date: (a) the
amount of Monthly Principal paid on such Payment Date; (b) the amount of Monthly
Interest
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paid on such Payment Date; (c) the remaining Principal Balance; (d) the
Collected Amount for the prior Due Period; (e) the amount of the Monthly
Servicing Fee paid on such Payment Date; (f) the Pool Factor before and after
such Payment Date; (g) the number and aggregate principal balance of Contracts
delinquent (i) 31-59, (ii) 60-89 and (iii) 90 or more days; (h) the number of
Contracts which became Liquidated Contracts during the Due Period ending
immediately before such Payment Date, and the Net Liquidation Losses on all such
Liquidated Contracts; (i) the Company's FHA Insurance reserve amount, and (j)
the Cumulative Delinquency Amount, the Required Cash Collateral Account Amount,
the amount (if any) to be deposited in the Cash Collateral Account and the
amount of funds in the Cash Collateral Account. Each report to the Trustee will
be accompanied by a statement from an appropriate officer of the Company
certifying the accuracy of such report and stating that the Company has not
defaulted in the performance of its obligations under the Agreement. On or
before May 1 of each year, beginning in 1994, the Company will deliver to the
Trustee a report of KPMG Peat Marwick, or another nationally recognized
accounting firm, stating that such firm has examined the Company's servicing
records with respect to home improvement contracts serviced by the Company and
stating that, on the basis of such examination, such servicing has been
conducted in compliance with the Agreement, except for any exceptions set forth
in such report.
The Agreement provides that the Company shall furnish to the Trustee such
reasonably pertinent underlying data as can be generated by the Company's
existing data processing system without undue modification or expense.
The Agreement provides that a Certificateholder holding Certificates
evidencing at least 5% of the interests in the Trust will have the same rights
of inspection as the Trustee and may upon written request receive copies of all
reports provided to the Trustee.
Transferability
The certificates are subject to certain restrictions on transfer to
employee benefit plans, trusts or accounts subject to ERISA and described in
Section 4975 of the Code. See "ERISA Considerations."
Certain Matters Relating to the Company
The Agreement provides that the Company may not resign from its obligations
and duties as Servicer thereunder, except upon a determination that the
Company's performance of such duties is no longer permissible under the
Agreement or applicable law, and prohibits the Company from extending credit to
any Certificateholder for the purchase of a Certificate, purchasing Certificates
in any agency or trustee capacity or lending money to the Trust. The Company can
be removed as Servicer only pursuant to an Event of Termination as discussed
below.
Events of Termination
An Event of Termination under the Agreement will occur if (a) the Company
fails to make any payment or deposit required under the Agreement (including an
Advance) and such failure continues for four business days; (b) the Company
fails to observe or perform in any material respect any other covenant or
agreement in the Agreement which continues unremedied for thirty days; (c) the
Company conveys, assigns or delegates its duties or rights under the Agreement,
except as specifically permitted under the Agreement, or attempts to make such a
conveyance, assignment or delegation; (d) a court having jurisdiction in the
premises enters a decree or order for relief in respect of the Company in an
involuntary case under any applicable bankruptcy, insolvency or other similar
law now or hereafter in effect, or appoints a receiver, liquidator, assignee,
custodian, trustee, or sequestrator (or similar official) of the Company, as the
case may be, or enters a decree or order for any substantial liquidation of its
affairs; (e) the Company commences a voluntary case under any applicable
bankruptcy, insolvency or similar law, or consents to the entry of an order for
relief in an involuntary case under any such law, or consents to the appointment
of or taking possession by a receiver, liquidator, assignee, trustee, custodian
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or its creditors, or fails to, or admits in writing its inability to, pay its
debts as they become due, or takes any corporate action in furtherance of the
foregoing; (f) the Company fails to be an Eligible Servicer; or (g) the
Company's seller-servicer contract with GNMA is terminated. The Company will be
required under the Agreement to give the Trustee and the Certificateholders
notice of an Event of Termination promptly upon the occurrence of such Event.
Rights Upon an Event of Termination
If an Event of Termination has occurred and is continuing, either the
Trustee or holders of Certificates evidencing 25% or more of the Trust may
terminate all of the Company's management, administrative, servicing and
collection functions under the Agreement. Upon such termination, the Trustee or
its designee will succeed to all the responsibilities, duties and liabilities of
the Company as 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 accrued obligation of the Company or any
obligation to repurchase Contracts for breach of representations and warranties,
and the Trustee will not be liable for any acts or omissions of the Company
occurring prior to a transfer of the Company's servicing and related functions
or for any breach by the Company of any of its representations and warranties
contained in the Agreement or any related document or agreement. In addition,
the Trustee will notify FHA of the Company's termination as Servicer of the
Contracts and will request that the portion of the Company's FHA Insurance
reserves allocable to the FHA-insured Contracts be transferred to the Trustee or
a successor Servicer. See "Description of FHA Insurance." Notwithstanding such
termination, the Company 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 warranties under the
Agreement. In the event that the Trustee is unwilling or unable so to act, it
may appoint, or petition a court of competent jurisdiction for the appointment
of, an Eligible Servicer to act as successor to the Company in its capacity as
servicer under the Agreement. The Trustee and such successor may agree upon the
servicing compensation to be paid (after receiving comparable bids from other
Eligible Servicers), which may not be greater than the Monthly Servicing Fee
payable to the Company under the Agreement.
Termination of the Agreement
The Agreement will terminate (after distribution of all Monthly Principal
and Monthly Interest then due to Certificateholders) on the earlier of (a) the
Payment Date on which the Principal Balance is reduced to zero; or (b) the
Payment Date on which the Company repurchases the Contracts as described under
"Description of the Certificates_Repurchase Option." However, the Company's
representations, warranties and indemnities will survive any termination of the
Agreement.
Amendment; Waiver
The Agreement may be amended by agreement of the Trustee and the Company at
any time without the consent of the Certificateholders to cure any ambiguity, to
correct or supplement any provision which may be inconsistent with any other
provision or to add other provisions not inconsistent with the Agreement, upon
receipt of an opinion of counsel to the Company that such amendment will not
adversely affect in any material respect the interests of any Certificateholder.
The Agreement may also be amended by agreement of the Trustee and the
Company at any time without the consent of the Certificateholders to effect the
transfer of FHA Insurance reserves to another entity in compliance with
revisions to FHA regulations, or to change the provisions of the Agreement
relating to the Cash Collateral Account, provided that prior to any such
amendment S&P shall have confirmed that the rating of the Certificates will not
be lowered or withdrawn following such amendment.
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The Agreement may also be amended from time to time by the Trustee and the
Company with the consent of holders of Certificates evidencing 66 2/3% or more
of the Trust, and holders of Certificates representing 66 2/3% of the Trust may
vote to waive any Event of Termination, provided that no such amendment or
waiver 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, or (b) reduce the aggregate amount of Certificates
required for any amendment of the Agreement, without unanimous consent of the
Certificateholders.
The Trustee is required under the Agreement to furnish Certificateholders
with notice promptly upon execution of any amendment to the Agreement.
Indemnification
The Agreement provides that the Company will defend and indemnify the
Trust, the Trustee (including any agent of the Trustee) and the
Certificateholders 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
Company or any affiliate thereof of any real estate securing a Contract, (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), and (c) with respect to certain other tax matters.
The Agreement also provides that the Company, in connection with its duties
as servicer of the Contracts, will defend and indemnify the Trust, 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, in respect of any action taken by the
Company as Servicer with respect to any Contract.
Duties and Immunities of the Trustee
The Trustee will make no representations as to the validity or sufficiency
of the Agreement, the Certificates or of 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 in consideration of the conveyance of the
Contracts, or deposited into the Collection Account by the Company. 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.
Under the Agreement the Company will agree (a) to pay to the Trustee from
time to time reasonable compensation for all services rendered by it thereunder
(which compensation shall not be limited by any provision of law in regard to
the compensation of a trustee of an express trust); (b) to reimburse the Trustee
upon its request for all reasonable expenses, disbursements and advances
incurred or made by the Trustee in accordance with any provision of the
Agreement (including FHA Insurance premiums not paid by the Servicer and
reasonable compensation and the expenses and disbursements of its agents and
counsel), except any such expense, disbursement or advance as may be
attributable to its negligence or bad faith; and (c) 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 its 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 its powers or
duties thereunder.
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The Trustee is not obligated to expend or risk its own funds or otherwise
incur financial liability in the performance of its duties under the Agreement
if there is a reasonable ground for believing that the repayment of such funds
or adequate indemnity against such risk or liability is not reasonably assured.
The Agreement also provides that the Trustee will maintain at its expense
in Minneapolis or St. Paul, Minnesota, an office or agency 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 office for such purposes is located at 180 East
Fifth Street, St. Paul, Minnesota 55101. The Trustee will promptly give written
notice to the Company and the Certificateholders of any change thereof.
The Trustee
First Trust National Association has its corporate trust offices at 180
East Fifth Street, St. Paul, Minnesota 55101.
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. In such circumstances, the
Company will also be obligated to appoint a successor Trustee. 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. Any
successor Trustee must be an FHA Title I approved lender.
Registration of the Certificates
The Certificates initially will be registered in the name of Cede & Co.,
the nominee of DTC. The Certificates may be held by investors though the book-
entry facilities of DTC in minimum denominations of $_________ and integral
multiples thereof. 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").
Certificateholders who are not Participants but desire to purchase, sell or
otherwise transfer ownership of the Certificates may do so only through
Participants (unless and until Definitive Certificates, as defined below, are
issued). In addition, Certificateholders will receive all distributions of
principal of, and interest on, the Certificates from the Trustee through DTC and
Participants. Certificateholders will not receive or be entitled to receive
certificates representing their respective interests in the Certificates, except
under the limited circumstances described below.
Unless and until Definitive Certificates (as defined below) are issued, it
is anticipated that the only "Certificateholder" of the Certificates will be
Cede & Co., as nominee of DTC. Certificateholders will not be recognized by the
Trustee as Certificateholders as that term is used in the Trust Agreement.
Certificateholders are only permitted to exercise the rights of
Certificateholders indirectly through Participants and DTC.
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While 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
Certificates and is required to receive and transmit distributions of principal
of, and interest on, the Certificates. Participants with whom Certificateholders
have accounts with respect to Certificates are similarly required to make book-
entry transfers and receive and transmit such distributions on behalf of their
respective Certificateholders. Accordingly, although Certificateholders will not
possess certificates, the Rules provide a mechanism by which Certificateholders
will receive distributions and will be able to transfer their interests.
Certificates will be issued in registered form to Certificateholders, or
their nominees, rather than to DTC (such Certificates being referred to herein
as "Definitive Certificates"), only if (i) DTC or _______________ advise 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 Certificates
and the _______________ or the Trustee is unable to locate a qualified successor
or (ii) the _______________ at its sole option advises the Trustee in writing
that it elects to terminate the book-entry system through DTC. Upon issuance of
Definitive Certificates to Certificateholders, 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 _______________ that, unless and until Definitive
Certificates are issued, DTC will take any action permitted to be taken by a
Certificateholder under the Pooling and Servicing Agreement only at the
direction of one or more Participants to whose DTC accounts the Certificates are
credited. DTC has advised _______________ that DTC will take such action with
respect to any fractional interest of the Certificates only at the direction of
and on behalf of such Participants beneficially owning a corresponding
fractional interest of the Certificates. DTC may take actions, at the direction
of the related Participants, with respect to some Certificates which conflict
with actions taken with respect to other Certificates.
Issuance of Certificates in book-entry form rather than as physical
certificates may adversely affect the liquidity of the Certificates in the
secondary market and the ability of Certificateholders to pledge them. In
addition, since distributions on the Certificates will be made by the Trustee to
DTC and DTC will credit such distributions to the accounts of its Participants,
with the Participants further crediting such distributions to the accounts of
indirect participants or Certificateholders, Certificateholders may experience
delays in the receipt of such distributions.
DESCRIPTION OF FHA INSURANCE
Approximately __% of the Contracts, by principal balance as of the Cutoff
Date, are insured by FHA under Title I of the National Housing Act, which
authorizes FHA to insure loans made for the alteration, repair or improvement of
residential single-family and multiple-family real estate and manufactured homes
which qualify as real estate under applicable state law, and loans for the
purchase of a manufactured home.
The insurance available to the Trust is subject to the limit of a reserve
amount equal to 10% of the principal balance of all Title I insured loans
originated or purchased and reported for FHA Insurance by the Company, which
amount will be reduced by all FHA Insurance claims paid to the Company and by an
annual reduction in the reserve amount of 10% of the reserve amount, and which
will be increased by an amount equal to 10% of the lesser of the principal
balance or the purchase price of insured loans subsequently originated or
purchased of record by the Company. The Company's reserve amount may also be
reduced by 10% of the principal balance of any loans reported to FHA as sold
without recourse by the Company. The Company will pay all FHA Insurance premiums
required by FHA Regulations. If the Company fails to pay any such premium, the
Trustee or the successor Servicer
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(if any) is obligated to pay such premium and is entitled to be reimbursed by
the Company and from collections on the Contracts.
As of December 31, 1993, the Company's FHA Insurance reserve amount was
equal to approximately $134,383,000. These insurance reserves were available to
cover losses on approximately $1,783,263,000 of FHA-insured manufactured housing
contracts and approximately $237,800,000 of FHA-insured home improvement loans,
including the FHA-insured Contracts owned by the Trust. If an Event of
Termination (as defined under "Description of the Certificates_Events of
Termination") occurs, the Trustee will notify FHA of the Company's termination
as Servicer of the FHA-insured Contracts and will request that the portion of
the Company's FHA Insurance reserves allocable to the FHA-insured Contracts be
transferred to the Trustee or a successor Servicer. Although the Trustee will
request such a transfer of reserves, FHA is not obligated to comply with such a
request, and may determine that it is not in FHA's interest to permit such
transfer of reserves. In addition, FHA has not specified how insurance reserves
might be allocated in such event, and there can be no assurance that any reserve
amount, if transferred to the Trustee or a successor Servicer, would not be
substantially less than 10% of the outstanding principal amount of the FHA-
insured Contracts. It is likely that the Trustee or any successor Servicer would
be the lender of record on other FHA Title I loans, so that any reserves that
are so permitted to be transferred would become commingled with reserves
available for other FHA Title I loans. FHA also reserves the right to transfer
reserves with "earmarking" (segregating such reserves so that they will not be
commingled with the reserves of the transferee) if it is in FHA's interest to do
so.
In general, FHA will insure property improvement loans up to $25,000 for a
single-family property, with a maximum term of 20 years. FHA will insure loans
of up to $17,500 for manufactured homes which qualify as real estate under
applicable state law and loans of up to $12,000 per unit for a $48,000 limit for
four units for owner-occupied multiple-family homes. If the loan amount is
$15,000 or more, FHA requires a drive-by appraisal, the current tax assessment
value, or a full Uniform Residential Appraisal Report dated within 12 months of
the closing to verify the property's value. The maximum loan amount on
transactions requiring an appraisal is the amount of equity in the property
shown by the market value determination of the property. The loan proceeds must
be used for the purposes described in the loan application, and those
improvements must substantially protect or improve the basic livability or
utility of the property. The Secretary of HUD from time to time publishes a list
of ineligible items and activities which may not be financed with the proceeds
of an FHA-insured home improvement loan.
Following a default on an FHA-insured Contract the Servicer may, subject to
certain conditions, either commence foreclosure proceedings against the improved
property securing the loan or submit a claim to FHA, but may submit a claim to
FHA after proceeding against the improved property only with the prior approval
of the Secretary of HUD. The availability of FHA Insurance following a default
on an FHA-insured Contract is subject to a number of conditions, including
strict compliance by the Company with FHA regulations in originating and
servicing the Contract. Failure to comply with FHA regulations may result in a
denial of or surcharge on the FHA Insurance claim. Prior to declaring an FHA-
insured Contract in default and submitting a claim to FHA, the Servicer must
take certain steps to attempt to cure the default, including personal contact
with the borrower either by telephone or in a meeting and providing the borrower
with 30 days' written notice prior to declaration of default. FHA may deny
insurance coverage if the borrower's nonpayment is related to a valid objection
to faulty contractor performance. In such event, the Company will seek to obtain
payment by or a judgment against the borrower, and may resubmit the claim to FHA
following such a judgment. As described under "Green Tree Financial
Corporation_Contract Origination," the Company does not purchase a Contract
until the customer verifies satisfactory completion of the work.
Upon submission of a claim to FHA, the Trust must assign its entire
interest in the Contract to the United States. In general, the claim payment
will equal 90% of the sum of (i) the unpaid principal amount of the Contract at
the date of default and uncollected interest computed at the
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Contract rate earned to the date of default, (ii) accrued and unpaid interest on
the unpaid amount of the Contract from the date of default to the date of
submission of the claim plus 15 calendar days (but in no event more than nine
months) computed at a rate of 7% per annum, (iii) uncollected court costs, (iv)
legal fees, not to exceed $500, and (v) expenses for recording the assignment of
the lien on the improved property to the United States. Any losses on FHA-
insured Contracts not covered by FHA Insurance will be covered by amounts
available therefor in the Collection Account, including any funds withdrawn from
the Cash Collateral Account, and otherwise will be borne by Certificateholders.
FHA's regulations provide that, in order for the FHA-insurance reserve
amount allocable to the Contracts to remain in the Company's aggregate insurance
reserve amount, the transfer of the Contracts to the Trust must be "with
recourse." Accordingly, the Company will provide a Limited Guaranty to the
Trust. Under the terms of the Limited Guaranty if the amount held in the Cash
Collateral Account equals zero and the Monthly Report as of any Determination
Date indicates a Shortfall, the Company is obligated, subject to the limit of
the Guaranty Amount, to pay into the Collection Account not later than one
Business Day after such Determination Date the lesser of such Shortfall or the
Guaranty Amount. The Guaranty Amount prior to the first Payment Date will equal
$_________. Thereafter, the Guaranty Amount on each subsequent Payment Date will
equal the lesser of (i) $________ minus all Limited Guaranty payments made prior
to such Payment Date or (ii) 1% of the principal balance of the FHA_insured
Contracts as of such Payment Date. The Limited Guaranty will be an unfunded
general obligation of the Company.
DESCRIPTION OF THE CASH COLLATERAL ACCOUNT
On the Closing Date, the Cash Collateral Guaranty will be issued pursuant
to the Cash Collateral Trust Agreement among the Cash Collateral Depositor, the
Cash Collateral Trustee and the Company, as Seller and Servicer. The Cash
Collateral Guaranty will be secured by the Cash Collateral Account, which will
be established pursuant to the Cash Collateral Trust Agreement, and the Cash
Collateral Account will be funded on the Closing Date in the amount of
$__________ (the "Initial Cash Collateral Amount") from the proceeds of a loan
to be made by the Cash Collateral Depositor to the Cash Collateral Trust. The
Cash Collateral Guaranty will be strictly an obligation to make payments from
amounts deposited in the Cash Collateral Account in accordance with the terms of
the Agreement and the Cash Collateral Trust Agreement, will be secured solely
with the amounts on deposit in the Cash Collateral Account, if any, and will not
be a personal obligation of the Cash Collateral Trustee. The Cash Collateral
Guaranty will not be an obligation of the Cash Collateral Depositor (beyond the
Initial Cash Collateral Amount), the Cash Collateral Trustee or the Company, as
Seller and Servicer. The Cash Collateral Account will be maintained with the
Cash Collateral Trustee or its designee at an Eligible Institution (initially
First Bank National Association, Minneapolis, Minnesota). The Cash Collateral
Account and any amount therein is not and will not under any circumstances be
deemed to be property of the Trust, but will be held in accordance with the Cash
Collateral Trust Agreement for the benefit of the Trustee and the Cash
Collateral Depositor, as secured parties and as provided in the Cash Collateral
Trust Agreement, and Green Tree Finance Corp. -- Two, as beneficiary of the Cash
Collateral Trust (the "Cash Collateral Beneficiary"). Any amounts remaining in
the Cash Collateral Trust upon its termination will be paid to the Cash
Collateral Beneficiary.
In the event of the Company's insolvency, if the Cash Collateral Account
were somehow deemed to be property of the Company's bankruptcy estate, a
bankruptcy trustee might attempt to reduce amounts retained or required to be
deposited by the Trustee into the Cash Collateral Account if those amounts were
determined by the bankruptcy trustee to exceed amounts reasonably necessary or
adequate to cover Shortfalls which might become payable to Certificateholders
out of the Cash Collateral Account.
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On each Payment Date on which the amount held in the Cash Collateral
Account is less than the Requisite Amount (as defined below), the Cash
Collateral Trustee will deposit all funds paid to it by the Trustee (as
described above under "Payments on Contracts; Distributions on Certificates"),
or the amount necessary to cause the amount on deposit in the Cash Collateral
Account to equal the Requisite Amount, if less, in the Cash Collateral Account.
On any Payment Date when the amount held in the Cash Collateral Account equals
or exceeds the Requisite Amount, any funds paid to the Cash Collateral Trustee
by the Trustee, and any funds in the Cash Collateral Account in excess of the
Requisite Amount, will be applied by the Trustee (i) first to repay the loan
made to the Cash Collateral Trust by the Cash Collateral Depositor, and (ii)
thereafter will be paid to the Cash Collateral Beneficiary. In no event will the
Trust or Certificateholders be obligated in respect of any loan made by the Cash
Collateral Depositor to the Cash Collateral Trust.
If the Servicer's monthly report as of any Determination Date indicates
that a Shortfall (the difference, if any, between (a) the sum of (i) the
Collected Amount in the Collection Account, plus (ii) any Advances required to
be deposited in the Collection Account by the Servicer, plus (iii) the aggregate
of the Repurchase Prices for Contracts to be repurchased by the Company for
breach of representations and warranties, and (b) the sum of (i) the Monthly
Interest and Monthly Principal to be paid to Certificateholders on the related
Payment Date, (ii) the Monthly Servicing Fee to be paid to the Servicer, (iii)
any amounts required to reimburse the Trustee for FHA Insurance premiums paid by
the Trustee, and (iv) any amounts required to reimburse the Servicer or the
Trustee for Uncollectible Advances) will occur on the related Payment Date, then
the Trustee shall on the Business Day preceding such Payment Date withdraw from
the Cash Collateral Account the amount of such Shortfall (or the funds in the
Cash Collateral Account, if less) and deposit such funds in the Collection
Account.
The "Requisite Amount" on the initial Payment Date will be $__________ . On
each Payment Date thereafter, the Requisite Amount will equal __% of the
Principal Balance as of the first day of the preceding Due Period, but in any
event will not be less than $__________.
Funds on deposit in the Cash Collateral Account will be invested in
Eligible Investments (as described herein under "Description of the
Certificates_Payments on Contracts; Distributions on Certificates"). All income
on such investments will be retained therein, to the extent necessary to
increase the balance therein to the Requisite Amount, and thereafter applied to
repay the loan made by the Cash Collateral Depositor or paid to the Cash
Collateral Beneficiary. Any losses on such investments will be deducted from
other investment earnings or from other funds in the Cash Collateral Account.
All such income or loss will be allocable to the Cash Collateral Beneficiary for
tax purposes.
At any time after the first Payment Date on which the funds in the Cash
Collateral Account equal or exceed the Requisite Amount, the Cash Collateral
Beneficiary may obtain the release to the Cash Collateral Depositor or itself of
all or a portion of the cash on deposit in the Cash Collateral Account, by
delivering to the Cash Collateral Trustee (i) a Letter of Credit that satisfies
the conditions set forth in the Cash Collateral Trust Agreement or (ii) any
other form of credit enhancement that satisfies the conditions set forth in the
Cash Collateral Trust Agreement. The cost of obtaining and maintaining any
initial or replacement Letter of Credit shall be borne solely by the Cash
Collateral Beneficiary. If the Cash Collateral Trustee receives notice that the
institution issuing such Letter of Credit is no longer a Qualified Bank and its
short-term debt is rated below A-1 by S&P, the Collateral Agent shall
immediately notify the Cash Collateral Beneficiary. On the 30th day following
such notice (or the next Business Day thereafter, if such day is not a Business
Day), the Cash Collateral Trustee shall draw under the Letter of Credit the full
amount available under such Letter of Credit and deposit the proceeds thereof in
the Cash Collateral Account, unless prior to such date the Cash Collateral
Beneficiary shall have delivered to the Collateral Agent a replacement or
confirming Letter of Credit issued by a Qualified Bank.
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CERTAIN LEGAL ASPECTS OF THE CONTRACTS;
REPURCHASE OBLIGATIONS
As a result of the Company's conveyance and assignment of the Contracts to
the Trust, the Certificateholders, as the beneficial owners of the Trust, will
succeed collectively to all of the rights thereunder (including the right to
receive payment on the Contracts). _____ of the Contracts evidence both the
obligation of the Obligor to repay the loan evidenced thereby, and the grant of
a lien on the improved property to secure repayment of such loan (the "Secured
Contracts"). The remaining _____ Contracts evidence only the obigation of the
Obligor to repay the loan evidenced thereby (the "Unsecured Contracts"). With
respect to the Secured Contracts, the borrower also executes a separate
mortgage, deed of trust or security deed upon the real estate. Certain aspects
of both features of the Contracts are more fully described below.
The following discussion contains summaries of certain legal aspects of
home improvement contracts which are general in nature. These legal aspects are
in addition to the requirements of FHA regulations described in "Description of
FHA Insurance" with respect to the FHA-insured Contracts. 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 real estate securing the Secured Contracts is situated. The summaries are
qualified in their entirety by reference to the applicable federal and state
laws governing the Contracts.
Mortgages and Deeds of Trust
The Secured Contracts are secured by either mortgages or deeds of trust,
depending upon the prevailing practice in the state in which the underlying
property is located, and may have first, second or third priority. A mortgage
creates a lien upon the real property described in the mortgage or deed of
trust. There are two parties to a mortgage: the 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 retail installment contract
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, or trustor, the
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. The trustee's authority under a
deed of trust and the mortgagee's authority under a mortgage are governed by
law, the express provisions of the deed of trust or mortgage, and, in some
cases, the directions of the beneficiary. Some states use a security deed or
deed to secure debt which is similar to a deed of trust except that is has only
two parties; a grantor (similar to a mortgagor) and a grantee (similar to a
mortgagee). Mortgages, deeds of trust and deeds to secure debt are not prior to
liens for real estate taxes and assessments and other charges imposed under
governmental police powers. Priority between mortgages, deeds of trust and
deeds to secure debt and other encumbrances depends on their terms in some cases
and generally on the order of recordation of the mortgage, deed of trust or the
deed to secure debt in the appropriate recording office.
Subordinate Mortgages; Rights of Senior Mortgagees or Beneficiaries
A substantial number of the mortgages and deeds of trust securing the
Secured Contracts are second or third mortgages or deeds of trust which are
junior to mortgages or deeds of trust held by other lenders or institutional
investors. The rights of the Trust (and therefore the Certificateholders), as
beneficiary under a junior deed of trust or as mortgagee under a junior
mortgage, are subordinate to those
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of the mortgagee or beneficiary under the senior mortgage or deed of trust,
including the prior rights of the senior mortgagee or beneficiary to receive
hazard insurance and condemnation proceeds and to cause the property securing
the Contract to be sold upon default of the mortgagor or trustor, thereby
extinguishing the junior mortgagee's or junior beneficiary's lien unless the
Servicer on behalf of the Trust asserts its subordinate interest in the property
in foreclosure litigation and, possibly, satisfies the defaulted senior loan or
loans. As discussed more fully below, a junior mortgagee or beneficiary may
satisfy a defaulted senior loan in full, or in some states, may cure such
default and bring the senior loan current, in either event adding the amounts
expended to the balance due on the junior loan. Although the Company generally
does not cure defaults under a senior mortgage or deed of trust, it is the
Company's standard practice to protect its interest by attending any foreclosure
sale and bidding for property only if it is in the Company's best interests to
do so.
The standard form of the mortgage or deed of trust used by most
institutional lenders, like that of the Company, confers on the mortgagee or
beneficiary the right both to receive all proceeds collected under any hazard
insurance policy and all awards made in connection with any condemnation
proceedings, and to apply such proceeds and awards to any indebtedness secured
by the mortgage or deed of trust, in such order as the mortgagee or beneficiary
may determine. Thus, in the event improvements on the property are damaged or
destroyed by fire or other casualty, or in the event the property is taken by
condemnation, the mortgagee or beneficiary under the underlying first mortgage
or deed of trust will have the prior right to collect any insurance proceeds
payable under a hazard insurance policy and any award of damages in connection
with the condemnation and to apply the same to the indebtedness secured by the
first mortgage or deed of trust. Proceeds in excess of the amount of first
mortgage indebtedness, in most cases, may be applied to the indebtedness of a
junior mortgage or deed of trust.
The form of mortgage or deed of trust used by institutional lenders may
contain a "future advance" clause, which provides, in essence, that additional
amounts advanced to or on behalf of the mortgagor or trustor by the mortgagee or
beneficiary are to be secured by the mortgage or deed of trust. The priority of
any advance made under the clause depends, in some states, on whether the
advance was an "obligatory" or "optional" advance. If the mortgagee or
beneficiary is obligated to advance the additional amounts, the advance is
entitled to receive the same priority as amounts initially advanced under the
mortgage or deed of trust, notwithstanding the fact that there may be junior
mortgages or deeds of trust and other liens which intervene between the date of
recording of the mortgage or deed of trust and the date of the future advance,
and, in some states, notwithstanding that the senior mortgagee or beneficiary
had actual knowledge of such intervening junior mortgages or deeds of trust and
other liens at the time of the advance. Where the mortgagee or beneficiary is
not obligated to advance additional amounts or, in some states, has actual
knowledge of the intervening junior mortgages or deeds of trust and other liens,
the advance will be subordinate to such intervening junior mortgages or deeds of
trust and other liens. Priority of advances under the clause rests, in some
states, on state statutes giving priority to all advances made under the loan
agreement to a "credit limit" amount stated in the recorded mortgage.
Another provision typically found in the form of the mortgage or deed of
trust used by most institutional lenders obligates the mortgagor or trustor to
pay before delinquency all taxes and assessments on the property and, when due,
all encumbrances, charges and liens on the property which appear prior to the
mortgage or deed of trust, to provide and maintain fire insurance on the
property, to maintain and repair the property and not to commit or permit any
waste thereof, and to appear in and defend any action or proceeding purporting
to affect the property or the rights of the mortgagee or beneficiary under the
mortgage or deed of trust. Upon a failure of the mortgagor or trustor to
perform any of these obligations, the mortgagee or beneficiary is given the
right under the mortgage or deed of trust to perform the obligation itself, at
its election, with the mortgagor or trustor agreeing to reimburse the mortgagee
or beneficiary for any sums expended by the mortgagee or beneficiary on behalf
of the trustor. All sums so expended by a senior mortgagee or beneficiary
become part of the indebtedness secured by the senior mortgage or deed of trust.
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Foreclosure
Foreclosure is a legal procedure that allows the mortgagor to recover its
mortgage debt by enforcing its rights and available remedies under the mortgage,
deed of trust, or security deed. 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. After the completion of a judicial foreclosure
proceeding, the court may issue a judgment of foreclosure and appoint a referee
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 or a deed to secure debt 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, deed of trust, or
deed to secure debt. 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 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, which may be recovered by a lender.
In the case of foreclosure under either a mortgage or a deed of trust, the
sale by the referee 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.
In some states, potential buyers may further be unwilling to purchase a property
at a foreclosure sale as a result of the 1980 decision of the United States
Court of Appeals for the Fifth Circuit in Durrett v. Washington National
Insurance Company. The court in Durrett held that even a non-collusive,
regularly conducted foreclosure sale was a fraudulent transfer under section 67d
of the former Bankruptcy Act (section 548 of the current United States
Bankruptcy Code) and, therefore, could be rescinded in favor of the bankrupt's
estate, if (i) the foreclosure sale was held while the debtor was insolvent and
not more than one year prior to the filing of the bankruptcy petition, and (ii)
the price paid for the foreclosed property did not represent "fair
consideration" ("reasonably equivalent value" under the United States Bankruptcy
Code). Therefore, the lender generally purchases the property from the trustee
or referee 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
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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.
A second or third mortgagee (junior mortgagee) may not foreclose on the
property securing a second or first mortgage (senior mortgages) unless it
forecloses subject to the senior mortgages, in which case it must either pay the
entire amount due on the senior mortgages or make payments on the senior
mortgages in the event the mortgagor is in default thereunder, in either event
adding the amounts expended to the balance due on the junior loan, and may be
subrogated to the rights of the senior mortgagees. In addition, in the event
that the foreclosure by a junior mortgagee triggers the enforcement of a
"due-on-sale" clause in a senior mortgage, the junior mortgagee may be required
to pay the full amount of the senior mortgages to the senior mortgagees.
Accordingly, with respect to those Contracts which are second or third mortgage
loans, if the lender purchases the property, the lender's title will be subject
to all senior liens and claims and certain governmental liens.
The proceeds received by the referee or trustee from the sale are applied
first to the costs, fees, and expenses of sale and then in satisfaction of the
indebtedness secured by the mortgage or deed of trust under which the sale was
conducted. Any remaining proceeds are generally payable to the holders of
junior mortgages or deeds of trust and other liens and claims in order of their
priority, whether or not the borrower is in default. Any additional proceeds
are generally payable to the mortgagor or trustor. The payment of the proceeds
to the holders of junior mortgages may occur in the foreclosure action of the
senior mortgagee or may require the institution of separate legal proceeding.
Some states impose prohibitions or limitations on remedies available to the
mortgagee, including the right to recover the debt from the mortgagor. See
"--Anti-Deficiency Legislation and Other Limitations on Lenders" herein.
In certain jurisdictions, real property transfer or recording taxes or fees
may be imposed on the Trust with respect to its acquisition (by foreclosure or
otherwise) and disposition of real property securing a Contract, and any such
taxes or fees imposed may reduce liquidation proceeds with respect to such
property, as well as distributions payable to the Certificateholders.
Second or Third Mortgages
The Secured Contracts may be secured by second or third mortgages or deeds
of trust, which are junior to first or second mortgages or deeds of trust held
by other lenders. The rights of the Certificateholders as the holders of a
junior deed of trust, junior mortgage, or junior security deed are subordinate
in lien and in payment to those of the holder of the senior mortgage, deed of
trust, or security deed including the prior rights of the senior mortgagee or
beneficiary to receive and apply hazard insurance and condemnation proceeds and,
upon default of the mortgagor, to cause a foreclosure on the property. Upon
completion of the foreclosure proceedings by the holder of the senior mortgage
or the sale pursuant to the senior deed of trust, the junior mortgagee's or
junior beneficiary's lien will be extinguished unless the junior lienholder
satisfies the defaulted senior loan or asserts its subordinate interest in a
property in foreclosure proceedings. Such extinguishment will eliminate access
to the collateral for the Secured Contract. See "--Foreclosure" herein.
Furthermore, the terms of the junior mortgage, deed of trust, or security
deed are subordinate to the terms of the first mortgage, deed of trust, or
security deed. In the event of a conflict between the terms of the first
mortgage, deed of trust, or security deed and the junior mortgage, deed of
trust, or security deed, the terms of the first mortgage, deed of trust, or
security deed will govern generally. Upon a failure of the mortgagor or trustor
to perform any of its obligations, the senior mortgagee or beneficiary, subject
to the terms of the senior mortgage or deed of trust, may have the right to
perform the obligation itself. Generally, all sums so expended by the mortgagee
or beneficiary become part of the indebtedness secured by the mortgage or deed
of trust. To the extent a first mortgagee expends such
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sums, such sums will generally have priority over all sums due under a junior
mortgage, deed of trust or security deed.
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 following
judicial foreclosure, and not to 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. 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, in a Chapter
13 proceeding, the holder may not be able to obtain a lift of the automatic stay
to foreclose if the borrower has equity and the home is necessary to the
bankruptcy reorganization. A bankruptcy court may also 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, may also reduce the monthly
payments due under such mortgage loan, change the rate of interest and alter the
mortgage loan repayment schedule.
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The Internal Revenue Code of 1986, as amended, provides priority to certain
federal tax liens over the lien of the mortgage or deed of trust. The laws of
some states provide priority to certain state 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 Credit Billing Act, Fair Credit Reporting
Act, state licensing requirements, 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 mortgage loans.
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 a Contract to all claims and defenses which the debtor could assert
against the home improvement contractor. 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.
The obligations of the Obligor under each Unsecured Contract are not
secured by an interest in the related real estate or otherwise, and the Trust,
as the owner of each unsecured Contract, is a general unsecured creditor as to
such obligations. As a consequence, in the event of a default under an
Unsecured Contract, the Trust will have recourse only against the Obligor's
assets generally, along with all other general unsecured creditors of the
Obligor. In a bankruptcy or insolvency proceeding relating to an Obligor on an
Unsecured Contract, the obligations of the Obligor under such Unsecured Contract
may be discharged in their entirety, notwithstanding the fact that the portion
of such Obligor's assets made available to the Trust as a general unsecured
creditor to pay amounts due and owing thereunder are insufficient to pay all
such amounts.
Enforceability of Certain Provisions
The standard forms of note, mortgage and deed of trust generally contain
provisions obligating the borrower to pay a late charge if payments are not
timely made. In addition to limitations imposed by FHA regulations with respect
to FHA-insured Contracts, in certain states there are or may be specific
limitations upon late charges which a lender may collect from a borrower for
delinquent payments. Under the Agreement, late charges (to the extent permitted
by law and not waived by the Company) will be retained by the Company as
additional servicing compensation.
Courts have imposed general equitable principles upon foreclosure. These
equitable principles are generally designed to relieve the borrower from the
legal effect of defaults under the loan documents. Examples of judicial
remedies that may be fashioned include judicial requirements that the lender
undertake affirmative actions to determine the causes for the borrower's default
and the likelihood that the borrower will be able to reinstate the loan. In
some cases, courts have required lenders to reinstate loans or recast payment
schedules to accommodate borrowers who are suffering from temporary financial
disability. In some cases, courts have limited the right of lenders to
foreclose if the default under the mortgage instrument is not monetary, such as
the borrower failing to adequately maintain the property or the borrower
executing a junior mortgage or deed of trust affecting the property. In other
cases, some courts have been faced with the issue whether federal or state
constitutional provisions reflecting due process concerns for adequate notice
require that borrowers under mortgages or the deeds of trust receive notices in
addition to statutorily-prescribed minimum requirements. For the most part,
these cases have upheld the notice provisions as being reasonable or
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have found that the sale by a trustee under a deed of trust or under a
mortgage having a power of sale does not involve sufficient state action to
afford constitutional protection to the borrower.
It is the Company's practice with some of the Contracts to defer the first
payment thereon for up to 90 days, and to charge the home improvement contractor
points to cover the lost interest due to collecting only 30 days interest on the
first payment on these deferred payment contracts.
"Due-on-Sale" Clauses
All of the Contract documents contain due-on-sale clauses. These clauses
permit the Servicer to accelerate the maturity of the loan on notice, which is
usually thirty days, if the borrower sells, transfers or conveys the property.
In recent years, court decisions and legislative actions placed substantial
restrictions on the right of lenders to enforce such clauses in many states.
However, effective October 15, 1982, Congress enacted the Garn-St Germain
Depository Institutions Act of 1982 (the "Act"), which, after a 3-year grace
period, preempts state laws which prohibit the enforcement of due-on-sale
clauses by providing, among other matters, that "due-on-sale" clauses in certain
loans (including the Contracts) made after the effective date of the Act are
enforceable within certain limitations as set forth in the Act and the
regulations promulgated thereunder.
By virtue of the Act, the Servicer generally may be permitted to accelerate
any Contract which contains a "due-on-sale" clause upon transfer of an interest
in the mortgaged property. This ability to accelerate will not apply to certain
types of transfers, including (i) the granting of a leasehold interest which has
a term of three years or less and which does not contain an option to purchase,
(ii) a transfer to a relative resulting from the death of a mortgagor or
trustor, or a transfer where the spouse or child(ren) becomes an owner of the
mortgaged property in each case where the transferee(s) will occupy the
mortgaged property, (iii) a transfer resulting from a decree of dissolution of
marriage, legal separation agreement or from an incidental property settlement
agreement by which the spouse becomes an owner of the mortgaged property, (iv)
the creation of a lien or other encumbrance subordinate to the lender's security
instrument which does not relate to a transfer of rights of occupancy in the
mortgaged property (provided that such lien or encumbrance is not created
pursuant to a contract for deed), (v) a transfer by devise, descent or operation
of law on the death of a joint tenant or tenant by the entirety, and (vi) other
transfers as set forth in the Act and the regulations thereunder. As a result,
a lesser number of Contracts which contain "due-on-sale" clauses may extend to
full maturity than earlier experience would indicate with respect to
single-family mortgage loans. The extent of the effect of the Act on the
average lives and delinquency rates of the Contracts, however, cannot be
predicted.
The inability to enforce a due-on-sale clause may result in Contracts
bearing an interest rate below the current market rate being assumed by a new
home buyer rather than being paid off, which may have an impact upon the average
life of the Contracts and the number of Contracts which may be outstanding until
maturity.
Although Title V of the Depository Institutions Deregulation and Monetary
Control Act of 1980, as amended ("Title V"), provides that, subject to certain
conditions, state usury limitations shall not apply to FHA-insured loans and to
first mortgage secured conventional contracts if the contract is defined as a
"federally related mortgage loan," a number of states have adopted legislation
overriding Title V's exemptions, as permitted by Title V. The Company has
represented and warranted in the Agreement that all Contracts comply with any
applicable usury limitations.
Environmental Legislation
Certain states impose a statutory lien for associated costs on property
that is the subject of a cleanup action by the state on account of hazardous
wastes or hazardous substances released or disposed of on the property. Such a
lien will generally have priority over all subsequent liens on the property and,
in certain of these states, will have priority over prior recorded liens,
including the lien of a
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mortgage. In addition, under federal environmental legislation and possibly
under state law in a number of states, a secured party which takes a deed in
lieu of foreclosure or acquires a mortgaged property at a foreclosure sale may
be liable for the costs of cleaning up a contaminated site. Although such costs
could be substantial, it is unclear whether they would be imposed on a lender
secured by residential property (such as the Trust). In the event that title to
a property securing a Contract was acquired by the Trust and cleanup costs were
incurred in respect of the mortgaged property, the holders of the Certificates
might incur a loss if such costs were required to be paid by the Trust.
Soldiers' and Sailors' Civil Relief Act
Application of the Soldiers' and Sailors' Civil Relief Act of 1940, as
amended (the "Relief Act"), would adversely affect, for an indeterminate period
of time, 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 or similar legislation, which would not be
recoverable from the related Contracts, would result in a reduction of the
amounts distributable to the Certificateholders. In addition, the Relief Act
imposes limitations that would impair the ability of the Servicer to foreclose
on an affected mortgage, deed of trust or security deed during the mortgagor's
period of active duty status, and, under certain circumstances, during an
additional three month period thereafter. Thus, in the event that the Relief
Act or similar legislation applies to any Contract which goes into default,
there may be delays in payment on the Certificates in connection therewith. Any
other interest shortfalls, deferrals or forgiveness of payments on the Contracts
resulting from similar legislation or regulations may result in delays in
payments or losses to Certificateholders.
Repurchase Obligations
Under the Agreement, the Company will represent and warrant that each
FHA-insured Contract was originated in compliance with FHA regulations and is
covered by FHA Insurance. In the event FHA were to deny insurance coverage on
an FHA-insured Contract due to a violation of FHA regulations in originating or
servicing such Contracts, such violation would constitute a breach of a
representation and warranty under the Agreement and would create an obligation
of the Company to repurchase such Contract unless the breach is cured. See
"Description of the Certificates--Conveyance of Contracts."
In addition, the Company will also represent and warrant under the
Agreement that each Contract complies with all requirements of law.
Accordingly, if any Obligor has a claim against the Trust for violation of any
law and such claim materially adversely affects the Trust's interest in a
Contract, such violation would constitute a breach of a representation and
warranty under the Agreement and would create an obligation to repurchase such
Contract unless the breach is cured. See "Description of the
Certificates--Conveyance of Contracts."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a general discussion of the anticipated federal income tax
consequences of the purchase, ownership and disposition of the Certificates,
based upon laws, regulations, rulings and decisions now in effect, all of which
are subject to change or possibly differing interpretations. The discussion
below 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 or
elections. Investors should consult their own tax advisors in determining the
Federal, state, local and any other tax consequences to them of the purchase,
ownership and disposition of the Certificates.
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Tax Status of the Trust
Dorsey & Whitney, counsel to the Company, have advised the Company that, in
their opinion, the Trust will be classified as a grantor trust for federal
income tax purposes and not as an association which is taxable as a corporation.
The Trust will be classified as a trust despite the fact that the Cash
Collateral Beneficiary will be considered to retain an interest in a second
class of beneficial interest in the Trust. While Treasury Regulations Section
301.7701-4(c) generally provides that an investment trust with more than one
class of ownership interest will be classified as an association taxable as a
corporation or a partnership, that regulation would treat the Trust as a grantor
trust because there will be no power under the Agreement to vary the investment
of the Certificateholders, the purpose of the Trust will be to facilitate direct
investment in the Contracts, and the existence of multiple classes of ownership
interests in the Trust will be incidental to that purpose.
Tax Treatment of Certificateholders
Because the Trust will be classified as a grantor trust, each
Certificateholder will be treated for federal income tax purposes as the owner
of an undivided interest in the Contracts and other Trust property.
Accordingly, subject to the discussion below of certain limitations on
deductions and the "stripped bond" rules of the Internal Revenue Code of 1986,
as amended (the "Code"), each Certificateholder must report on its federal
income tax return its pro rata share of the entire income from the Contracts and
other Trust property, and may deduct its pro rata share of the fees paid by the
Trust, at the same time as such items would be reported under the
Certificateholder's tax accounting method if it held directly a pro rata
interest in the assets of the Trust and received and paid directly the amounts
received and paid by the Trust.
Section 67(a) of the Code limits the deductibility of expenses incurred for
the production of income by individuals, estates and trusts under Section 212 of
the Code. Such expenses will be deductible only to the extent that, in the
aggregate and combined with certain other itemized deductions, they exceed 2% of
adjusted gross income. 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 ($111,800
in 1994, 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. These limitations will apply to deductions derived either
directly or indirectly through certain pass-through entities (including grantor
trusts such as the Trust) and may have the effect of limiting the extent to
which Servicing Fees can be deducted by Certificateholders which are
individuals, trusts or estates. To the extent that a Certificateholder is not
permitted to deduct the portion of Servicing Fees allocable to a Certificate,
the taxable income of the Certificateholder attributable to that Certificate
will exceed the net cash distributions related to such income. These provisions
of the Code will not affect the deductibility of Servicing Fees allocable to a
Certificate held by a corporation.
A purchaser of a Certificate will be treated as purchasing an interest in
each Contract in the Trust at a price determined by allocating the purchase
price paid for the Certificate among all Contracts in proportion to their fair
market values at the time of purchase of the Certificate. To the extent that
the portion of the purchase price of a Certificate allocated to a Contract is
greater than or less than the portion of the principal balance of the Contract
allocable to the Certificate, that interest in the Contract will be deemed to
have been acquired with premium or discount, respectively.
Amortizable Premium
With respect to premium, under the rules of Section 171 of the Code, a
Certificateholder who holds a Certificate as a capital asset may elect to deduct
any "amortizable bond premium" attributable to a taxable year. The amount of
amortizable bond premium, if any, attributable to a taxable year will
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be computed under a constant yield method. Generally, a Certificateholder
electing under Section 171 to deduct amortizable bond premium in respect of the
Contracts must use the constant yield method in respect of all obligations to
which the special rules of Section 171 may apply. Under the Code, amortizable
bond premium in respect of a Contract will be treated as an offset to interest
income in respect of such Contract and, accordingly, a Certificateholder's
deduction for amortizable bond premium in respect of a Contract will be limited
in each taxable year to the amount of interest income derived by that
Certificateholder in respect of that Contract for that taxable year.
Amortizable bond premium in respect of a Contract will not be treated as a
separate item of interest deduction subject to the tax rules and limitations
governing interest deductions. Absent such an election to deduct currently any
premium, the premium will be deductible as a short-term or long-term capital
loss only upon a disposition of the Certificate or payment of the underlying
Contract (assuming the Certificate is a capital asset).
Market Discount
In general, a Certificateholder will be considered as having acquired a
Contract at a market discount if, at the time the Certificate is acquired, the
unpaid principal balance on such Contract exceeds the portion of the price paid
for the Certificate by such Certificateholder that is allocated to that
Contract. However, market discount with respect to a Contract will be
considered zero if it amounts to less than 0.25% of the Contract's stated
redemption price at maturity times the number of years to maturity (computed on
a weighted average basis). Certificateholders will be required (i) to include
accrued market discount as ordinary income upon receipt of principal payments on
the Contracts or upon the sale, exchange or redemption of the Certificates and
to defer a portion of the interest deductions for any period attributable to any
indebtedness incurred or continued to purchase or carry the Certificates until
the time such market discount is includable as income, to the extent such
interest deductions exceed the amount of interest (including market discount)
included as income for such period, or (ii) to elect to include such market
discount in income as it accrues in which case interest deductions would not be
deferred. Market discount will be recognized and taxable to the holder as
ordinary income as payments of principal are received on the Contracts to the
extent the amount of such payments does not exceed the accrued market discount
on such Contracts.
The Treasury Department has been instructed by Congress to issue
regulations providing for the computation of accrued market discount on debt
instruments such as the Contracts. Until such time as regulations are issued by
the Treasury Department, the holder of a market discount bond may elect to
accrue market discount either on the basis of a constant interest rate or in the
ratio that stated interest paid in the relevant accrual period on the Contract
bears to the total stated interest on such Contract as of the beginning of such
accrued period.
The treatment of any discount will depend on whether the discount
represents original issue discount or market discount. It is not anticipated
that the Contracts will have original issue discount, unless they are subject to
the "stripped bond" rules of the Code described below. If the Contracts are
subject to the stripped bond rules of the Code, the market discount rules
discussed above may not apply.
Stripped Bond Certificates
The Cash Collateral Beneficiary will be treated as having retained an
ownership interest in the Trust represented by a portion of the interest
payments to be made pursuant to the Contracts. In such event, the Contracts are
likely to be treated as "stripped bonds" within the meaning of Section 1286 of
the Code, and Certificates that represent an interest in "stripped bonds"
purchased at a discount ("Stripped Bond Certificates") may be subject to the
original issue discount rules of the Code rather than to the market discount and
premium rules discussed above.
Original issue discount generally must be included in ordinary gross income
as it accrues in accordance with the constant yield method that takes into
account the compounding of interest,
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regardless of the overall method of accounting of a Certificateholder. Such
accrual of income may accrue in advance of the receipt of cash attributable to
such income. Under rules similar to those provided in Rev. Proc. 91-49
applicable to mortgages secured by real property, a Certificateholder may be
required to account for any discount on a Stripped Bond Certificate as market
discount rather than original issue discount if either (i) the amount of
original issue discount with respect to the Certificate was treated as zero
under the original issue discount de minimis rule when the Certificate was
stripped or (ii) no more than 100 basis points (including any amount of
servicing in excess of reasonable servicing) is stripped off the Receivables.
Certificateholders are advised to consult their tax advisors concerning the
application of the original issue discount rules to Stripped Bond Certificates.
Gain or Loss on Disposition
If a Certificate is sold, gain or loss will be recognized equal to the
difference between the amount realized on the sale and the Certificateholder's
adjusted tax basis in the Certificate. Such tax basis will equal the
Certificateholder's cost for the Certificate, increased by any discount
previously included in income, and decreased by any deduction previously allowed
for premium and by the amount of principal payments previously received on the
Certificate. Any such gain or loss will be capital gain or loss if the
Certificate was held as a capital asset, except that gain may be treated in
whole or in part as ordinary interest income under the market discount or
original issue discount rules of the Code. Under the Code, long-term capital
gains (gains on capital assets held for more than one year) are currently taxed
at a rate which for some taxpayers is less than the rates applicable to ordinary
income.
Tax Treatment of Certain Foreign Investors
Generally, interest paid to a Certificateholder who is a nonresident alien
individual or a foreign corporation and who does not hold a Certificate in
connection with a United States trade or business will be treated as "portfolio
interest" and therefore will be exempt from the 30% withholding tax. Such a
Certificateholder will be entitled to receive interest payments on Certificates
free of United States federal income tax, provided that such Certificateholder
periodically provides the Trustee (or other person who would otherwise be
required to withhold tax) with a statement certifying under penalty of perjury
that such Certificateholder is not a United States person and providing the name
and address of such Certificateholder.
Tax Administration and Reporting
The Trustee will furnish to each Certificateholder with each distribution a
statement setting forth the amount of such distribution allocable to principal
and to interest. In addition, the Trustee will furnish, within a reasonable
time after the end of each calendar year, to each Certificateholder who was a
Certificateholder at any time during such year, information regarding the amount
of servicing compensation received by the Servicer and such other factual
information as the Seller deems necessary to enable Certificateholders to
prepare their tax returns. Reports will be made annually to the Internal
Revenue Service and to holders of record that are not excepted from the
reporting requirements regarding information as may be required with respect to
interest and original issue discount, if any, with respect to the Certificates.
Backup Withholding
Under certain circumstances, a Certificateholder may be subject to "backup
withholding" at a 31% rate. Backup withholding may apply to a 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
Certificateholder who is a foreign person if the Certificateholder fails to
provide the Trustee or the Certificateholder's securities broker with the
statement necessary to establish the exemption from federal income and
withholding tax on interest on the Certificate. Backup withholding, however,
does
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not apply to payments on a Certificate made to certain exempt recipients,
such as corporations and tax-exempt organizations, and to certain foreign
persons. 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.
Other Tax Consequences
No advice has been given as to local income, franchise, personal property
or other taxation in any state or locality, or as to the tax effect of ownership
of Certificates in any state or locality. 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 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 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.
No transfer of 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 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 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.
RATINGS
It is a condition precedent to the issuance of any Certificates offered
hereby that they be rated by Standard & Poor's Corporation ("S&P") in one of its
four highest rating categories (within which there may be sub-categories or
gradations indicating relative standing). S&P's ratings on certificates for
home improvement loans address the likelihood of receipt by certificateholders
of payments required under the operative agreements. S&P's ratings take into
consideration the credit quality of the pool of contracts, including any credit
support providers, structural and legal aspects associated with the certificates
and the extent to which the payment stream of the pool of contracts is adequate
to make payments required under the certificates. S&P's rating on the
Certificates does not, however, constitute a statement regrding frequency of
prepayments on the Contracts, nor does it address the possibility that investors
may suffer a lower than anticipated yield.
The rating of the Certificates offered hereby should be evaluated
independently from similar ratings on other types of securities. A security is
not a recommendation to buy, sell or hold securities and may be subject to
revision or withdrawal at any time by the assigning rating agency.
-47-
<PAGE>
UNDERWRITING
The Underwriter has agreed, subject to the terms and conditions of the
Underwriting Agreement, to purchase from the Company the principal amount of the
Certificates.
In the Underwriting Agreement, the Underwriter has agreed, subject to the
terms and conditions set forth therein, to purchase all of the Certificates
offered hereby if any Certificates are purchased. In the event of a default by
Merrill Lynch, the Underwriting Agreement provides that, in certain
circumstances, the Underwriting Agreement may be terminated.
The Underwriter proposes to offer the 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 of such prices less
concessions not to exceed ___% of the Initial Principal Amount. The Underwriter
may allow, and such dealers may reallow, concessions not to exceed ___% of the
Initial Principal Amount to certain brokers and dealers. [After the
Certificates are released for sale to the public, the offering price and other
selling terms may be varied by the Underwriter.]
The Underwriting Agreement provides that the Company will indemnify Merrill
Lynch against certain liabilities, including liabilities under the Securities
Act of 1933, or contribute to payments the Underwriter may be required to make
in respect thereof.
The Company has agreed that for a period of ____ days from the date of this
Prospectus it will not offer or sell publicly any other home improvement loan
contract pass-through certificates without the consent of the Underwriter.
LEGAL MATTERS
Certain legal matters relating to the issuance of the Certificates will be
passed upon for the Company and the Trust by Dorsey & Whitney (a partnership
including professional associations), Minneapolis, Minnesota. The material
federal income tax consequences of the Certificates will be passed upon for the
Company by Dorsey & Whitney.
-48-
<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 authorized
by the Company or the Underwriter. This Prospectus does not constitute an offer
to sell, or a solicitation of an offer to buy, the Certificates in any
jurisdiction where, or to any person to whom, it is unlawful to make such offer
or solicitation. Neither the delivery of this Prospectus nor any sale made
hereunder shall, under any circumstances, create an implication that there has
not been any change in the facts set forth in this Prospectus or in affairs of
the Trust since the date hereof.
TABLE OF CONTENTS
Prospectus
<TABLE>
<CAPTION>
Page
----
<S> <C>
Reports to Certificateholders.. 2
Available Information.......... 2
Incorporation of Certain
Documents by Reference........ 2
Summary of the Terms of the
Certificates................. 4
Special Considerations......... 10
Structure of the Transaction... 12
Use of Proceeds................ 13
The Contracts.................. 13
Yield and Prepayment
Considerations................ 19
Green Tree Financial
Corporation................... 20
Description of the Certificates 22
Description of FHA Insurance... 32
Description of the Cash
Collateral Account............. 34
Certain Legal Aspects of the
Contracts;
Repurchase Obligations......... 36
Certain Federal Income Tax
Consequences................. 43
ERISA Considerations........... 47
Ratings........................ 47
Underwriting................... 48
Legal Matters.................. 48
Index of Principal Terms.......
</TABLE>
Green Tree
Financial Corporation,
Seller and Servicer
$__________ (Approximate)
Certificates for Home Improvement Loans
Home Improvement Loan Trust 1994-A
___% Pass-Through Rate
-------------
PROSPECTUS
March , 1994
-------------
MERRILL LYNCH & CO.
================================================================================
<PAGE>
PART II.
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other expenses of Issuance and Distribution
<TABLE>
<S> <C>
SEC registration fee........... $344.83
Blue Sky fees and expenses..... *
Accountant's fee and expenses.. *
Attorney's fees and expenses... *
Trustee's fees and expenses.... *
Printing and engraving expenses *
Rating Agency fee.............. *
Miscellaneous.................. *
---------
Total..................... * $
</TABLE>
- -----------------
* To be filed by amendment
Item 15. 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 be 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.
II-1
<PAGE>
Pursuant to the form of Underwriting Agreement, a copy of which is included
as Exhibit I.I hereto, the Underwriter 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 16. Exhibits
Exhibits:
*1.1 Proposed form of Underwriting Agreement
*4.1 Form of Pooling and Servicing Agreement
*4.2 Form of Collateral Cash Account Trust Agreement
*5.1 Opinion and consent of Dorsey & Whitney as to legality
*8.1 Opinion of Dorsey & Whitney as to tax matters
*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)
- ------------
* To be filed by amendment.
Item 17. 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-2
<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-3 and has duly caused this Amendment No. 1 to
the Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Saint Paul, State of Minnesota, on
March 16, 1994.
GREEN TREE FINANCIAL CORPORATION
By: /s/ John W. Brink
------------------------------------------
John W. Brink
Executive Vice President, Treasurer and Chief
Financial Officer
Pursuant to the requirements of the Securities Act, this Amendment No. 1
to the Registration Statement has been signed by the following persons in the
capacities and on the date indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
*
- ------------------------ Chairman of the Board and Chief March 16, 1994
Lawrence M. Coss Executive Officer (Principal
Executive Officer) and Director
/s/ John W. Brink
- ------------------------ Executive Vice President, March 16, 1994
John W. Brink Treasurer and Chief Financial
Officer (Principal Financial
Officer)
*
- ------------------------ Vice President and Controller March 16, 1994
Robley D. Evans (Principal Accounting Officer)
*
- ------------------------ Director March 16, 1994
Richard G. Evans
*
- ------------------------ Director March 16, 1994
C. Thomas May, Jr.
*
- ------------------------ Director March 16, 1994
W. Max McGee
*
- ------------------------ Director March 16, 1994
Robert S. Nickoloff
*
- ------------------------ Director March 16, 1994
Kenneth S. Roberts
- ------------------------------------------------------------------------------------------------------
*By
--------------------- Attorney-in-fact March 16, 1994
John W. Brink
</TABLE>
II-3
