<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 27, 1994
REGISTRATION NO. 33-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM S-11 AND 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 IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
1100 LANDMARK TOWERS
345 ST. PETER STREET
SAINT PAUL, MINNESOTA 55102-1639
(612) 293-3400
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
----------------
DREW S. BACKSTRAND
300 LANDMARK TOWERS
345 ST. PETER STREET
SAINT PAUL, MINNESOTA 55102-1639
(612) 293-3400
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPIES TO:
CHARLES F. SAWYER CATHY M. KAPLAN
DORSEY & WHITNEY BROWN & WOOD
220 SOUTH SIXTH STREET ONE WORLD TRADE CENTER
MINNEAPOLIS, MINNESOTA 55402 NEW YORK, NEW YORK 10048
----------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF SECURITIES TO THE
PUBLIC: As soon as practicable after the effective date of this Registration
Statement.
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. [X]
CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
PROPOSED PROPOSED
AMOUNT MAXIMUM MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF TO BE OFFERING PRICE AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED PER UNIT(1) OFFERING PRICE FEE
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<S> <C> <C> <C> <C>
Manufactured Housing Contract
Pass-Through Certificates....... $2,000,000,000 100% $2,000,000,000 $689,655
Limited Guarantee of Green Tree
Financial Corporation........... (2) (2) (2) (2)
</TABLE>
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(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(o).
(2) No additional consideration will be paid for the Limited Guarantee;
accordingly, no separate filing fee is being paid herewith pursuant to
Rule 457(n).
Pursuant to Rule 429, the Prospectus contained in this Registration
Statement also relates to and constitutes Post-Effective Amendment No.1 to
Registration Statement No. 33-50527, which became effective on October 6,
1993.
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.
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<PAGE>
[FORM OF PROSPECTUS SUPPLEMENT]
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED , 1994)
$ (APPROXIMATE)
GREEN TREE FINANCIAL CORPORATION, SELLER AND SERVICER
MANUFACTURED HOUSING CONTRACT
SENIOR/SUBORDINATE PASS-THROUGH CERTIFICATES,
SERIES 199
$ (APPROXIMATE) % CLASS A-1
$ (APPROXIMATE) % CLASS A-2
$ (APPROXIMATE) % CLASS A-3
$ (APPROXIMATE) % CLASS A-4
$ (APPROXIMATE) % CLASS B
(PRINCIPAL AND INTEREST PAYABLE ON THE 15TH DAY OF EACH MONTH BEGINNING ,
1994)
-----------------
The Manufactured Housing Contract Senior/Subordinate Pass-Through
Certificates, Series 199 (the "Certificates") will represent interests in a
trust (the "Trust") consisting of a pool (the "Contract Pool") of actuarial
manufactured housing installment sale contracts and installment loan
agreements (collectively, the "Contracts") and certain related property
conveyed by Green Tree Financial Corporation (in such capacity referred to
herein as the "Company"). The Company will also act as servicer of the
Contracts (in such capacity referred to herein as the "Servicer"). The
Contracts were originated or purchased by the Company in the ordinary course
of its business. The term "Approximate," with respect to the aggregate
principal amount of the Certificates, means subject to a permitted variance of
plus or minus 5%. Terms used and not otherwise defined herein shall have the
respective meanings ascribed to such terms in the Prospectus dated ,
199 , attached hereto (the "Prospectus").
The Certificates will consist of four classes of Senior Certificates (the
Class A-1 Certificates, the Class A-2 Certificates, the Class A-3 Certificates
and the Class A-4 Certificates) (collectively, the "Class A Certificates"),
and two classes of Subordinated Certificates (the Class B Certificates and the
Class C Certificates). Only the Class A Certificates and Class B Certificates
are being offered hereby (together, the "Offered Certificates"). The Class A
Certificates will evidence in the aggregate an initial % (approximate)
undivided interest in the Trust. The Class B Certificates will evidence in the
aggregate an initial % (approximate) undivided interest in the Trust, and
the Class C Certificates will evidence an interest in a portion of the
interest payments on the Contracts. The Trust will be created in 199 ,
pursuant to a Pooling and Servicing Agreement between the Company, as Seller
and Servicer of the Contracts, and First Bank National Association as trustee
(the "Trustee"). The Trust property will include all rights to receive
payments due on each Contract on or after , 199 (the "Cut-off Date"),
security interests in the manufactured homes securing the Contracts, all
rights under certain hazard insurance policies with respect to the
manufactured homes, rights to amounts in the Certificate Account, and, with
respect to the Class B Certificates, the Limited Guarantee of the Company.
Principal and interest are payable on the 15th day of each month (or, if the
15th day is not a business day, the next business day thereafter) (a
"Remittance Date") beginning in , 199 . On each Remittance Date, holders
of Class A Certificates and Class B Certificates will be entitled to receive,
from and to the extent of funds available in the Certificate Account, the
Class A Distribution Amount or the Class B Distribution Amount, as
appropriate, calculated as set forth herein. The rights of the holders of the
Class B Certificates and the holders of the Class C Certificates to receive
distributions with respect to the Contracts will be subordinated to the rights
of the Class A Certificates, all as described herein.
The Class B Certificateholders will have the benefit of a limited guarantee
(the "Limited Guarantee") of the Company to protect against losses that would
otherwise be absorbed by the Class B Certificateholders. To the extent that
funds in the Certificate Account are insufficient to distribute to the holders
of the Class B Certificates the Class B Formula Distribution Amount (as
described below), the Company will be obligated to pay the Guarantee Payment
(as defined herein). See "Description of the Certificates--Limited Guarantee
of the Company" herein.
An election will be made to treat the Trust as a real estate mortgage
investment conduit ("REMIC") for federal income tax purposes. As described
more fully herein, the Offered Certificates will constitute "regular
interests" in the REMIC and the Class C Certificates will constitute "residual
interests" in the REMIC. See "Certain Federal Income Tax Consequences" in the
Prospectus.
The obligations of the Servicer with respect to the Certificates are limited
to its contractual servicing obligations. The Company, as Seller of the
Contracts, however, will make certain representations and warranties relating
to the Contracts. In the event of an uncured breach of any representation or
warranty that materially adversely affects the Trust's interest in a Contract,
the Company will be obligated to repurchase such Contract or substitute
another contract therefor.
The interests of the owners of the Offered Certificates (the "Certificate
Owners") will be represented by book-entries on the records of The Depository
Trust Company and participating members thereof. See "Description of the
Certificates--Registration of the Offered Certificates" herein.
(the "Underwriters") intend to make a
secondary market in the Offered Certificates, but have no obligation to do so.
There can be no assurance that a secondary market for the Offered Certificates
will develop, or if it does develop, that it will continue.
The Offered Certificates will not be insured or guaranteed by any
governmental agency or instrumentality, the Underwriters or any of their
affiliates or the Company, and will be payable only from amounts held in the
Trust, or, with respect to the Class B Certificates, from the Limited
Guarantee. See "Special Considerations" herein and in the Prospectus.
-----------------
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 SUPPLEMENT OR THE
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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<TABLE>
<CAPTION>
UNDERWRITING PROCEEDS TO
PRICE TO PUBLIC(1) DISCOUNT COMPANY(2)
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<S> <C> <C> <C>
Per Class A-1 Certificate...... % % %
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Per Class A-2 Certificate...... % % %
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Per Class A-3 Certificate...... % % %
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Per Class A-4 Certificate...... % % %
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Per Class B Certificate........ % % %
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Total.......................... $ $ $
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</TABLE>
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(1)Plus accrued interest, if any, at the applicable rate from , 199 .
(2)Before deducting expenses, estimated to be $ .
-----------------
The Offered Certificates are offered subject to prior sale, when, as and if
issued by the Trust and accepted by the Underwriters and subject to their
right to reject orders in whole or in part. It is expected that delivery of
the Offered Certificates will be made in book-entry form only through the Same
Day Funds Settlement system of The Depository Trust Company on or about
, 199 .
-----------------
[UNDERWRITERS]
The date of the prospectus supplement is .
<PAGE>
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICES OF THE OFFERED
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.
This Prospectus Supplement does not contain complete information about the
offering of the Class A and Class B Certificates. Additional information is
contained in the Prospectus and purchasers are urged to read both this
Prospectus Supplement and the Prospectus in full. Sales of the Class A and
Class B Certificates may not be consummated unless the purchaser has received
both this Prospectus Supplement and the Prospectus. To the extent that any
statements in this Prospectus Supplement conflict with statements contained in
the Prospectus, the statements in this Prospectus Supplement shall control.
Until , 199 , all dealers effecting transactions in the Offered
Certificates, whether or not participating in this distribution, may be
required to deliver a Prospectus Supplement and Prospectus. This is in addition
to the obligation of dealers to deliver a Prospectus Supplement and Prospectus
when acting as underwriters and with respect to their unsold allotments or
subscriptions.
----------------
S-2
<PAGE>
SUMMARY OF TERMS OF THE OFFERED CERTIFICATES
This summary is qualified in its entirety by reference to the detailed
information appearing elsewhere in this Prospectus Supplement and in the
accompanying Prospectus. Capitalized terms used herein and not otherwise
defined herein shall have the respective meanings assigned them elsewhere in
this Prospectus Supplement and in the Prospectus.
Securities Offered........... The Class A-1 Certificates, Class A-2 Certifi-
cates, Class A-3 Certificates and Class A-4
Certificates (collectively, the "Class A Cer-
tificates") and the Class B Certificates (the
"Class B Certificates"), (the Class A and Class
B Certificates are collectively referred to
herein as the "Offered Certificates") of the
Manufactured Housing Contract
Senior/Subordinate Pass-Through Certificates,
Series 1994- (the "Certificates"). The Certif-
icates also include the Class C Certificates,
which are not being offered hereby.
Seller....................... Green Tree Financial Corporation (in such capac-
ity referred to herein as the "Company").
Servicer..................... Green Tree Financial Corporation (in such capac-
ity referred to herein as the "Servicer").
Trustee...................... First Bank National Association, Minneapolis,
Minnesota (referred to herein as the "Trust-
ee").
Cut-off Date Pool Principal
Balance..................... $ (Approximate. Subject to permit-
ted variance of plus or minus 5%).
Original Class A Principal
Balance..................... $ (Approximate. Subject to a per-
mitted variance of plus or minus 5%).
Original Class A-1 Principal
Balance..................... $ (Approximate. Subject to permit-
ted variance of plus or minus 5%).
Original Class A-2 Principal
Balance..................... $ (Approximate. Subject to permit-
ted variance of plus or minus 5%).
Original Class A-3 Principal
Balance..................... $ (Approximate. Subject to permit-
ted variance of plus or minus 5%).
Original Class A-4 Principal
Balance..................... $ (Approximate. Subject to permit-
ted variance of plus or minus 5%).
Original Class B Principal
Balance..................... $ (Approximate. Subject to permit-
ted variance of plus or minus 5%).
Class A-1 Remittance Rate.... % per annum, computed on the basis of a 360-
day year of twelve 30-day months.
Class A-2 Remittance Rate.... % per annum, computed on the basis of a 360-
day year of twelve 30-day months.
Class A-3 Remittance Rate.... % per annum, computed on the basis of a 360-
day year of twelve 30-day months.
Class A-4 Remittance Rate.... % per annum, computed on the basis of a 360-
day year of twelve 30-day months.
Class B Remittance Rate...... % per annum, computed on the basis of a 360-
day year of twelve 30-day months.
S-3
<PAGE>
Remittance Date.............. The 15th day of each month (or if such 15th day
is not a business day, the next succeeding
business day), commencing on 15, 199 .
Record Date.................. The business day immediately preceding the re-
lated Remittance Date.
Cut-off Date................. , 199 .
Agreement.................... The Pooling and Servicing Agreement, dated as of
, 199 (the "Agreement"), between the
Company, as Seller and Servicer, and the Trust-
ee.
Description of Certificates.. The Class A-1 Certificates, Class A-2 Certifi-
cates, Class A-3 Certificates and Class A-4
Certificates are Senior Certificates and the
Class B Certificates and Class C Certificates
are Subordinated Certificates, all as described
herein. The Class C Certificates are not being
offered hereby. The undivided percentage inter-
est of any Class A Certificate or Class B Cer-
tificate in the distributions to the holder of
such Certificate (the "Percentage Interest")
will be equal to the percentage obtained from
dividing the denomination specified on such
Certificate by the Original Class A-1 Principal
Balance, the Original Class A-2 Principal Bal-
ance, the Original Class A-3 Principal Balance,
the Original Class A-4 Principal Balance or the
Original Class B Principal Balance, as appro-
priate. The Offered Certificates will be of-
fered in registered form, in denominations of
$1,000 and integral multiples of $1,000 in ex-
cess thereof.
Distributions................ On each Remittance Date, distributions on the
Offered Certificates will be made first to the
holders of the Class A Certificates and then to
the holders of the Class B Certificates, in the
manner described below.
Distributions of interest and principal to the
holders of a Class of Class A Certificates will
be made in an amount equal to the sum of (i)
their respective Percentage Interests of the
amount of interest calculated as described be-
low under "A. Class A Interest" and (ii) their
respective Percentage Interests of the Formula
Principal Distribution Amount (as defined be-
low) for the related Remittance Date, in the
order of priority described below under "B.
Class A Principal." Distributions of interest
and principal to the Class B Certificateholders
will be made in an amount equal to their re-
spective Percentage Interests multiplied by the
Class B Distribution Amount (as described be-
low). The rights of the Class B and Class C
Certificateholders to receive distributions are
subordinated to the rights of the Class A
Certificateholders, and the rights of the Class
C Certificateholders to receive distributions
are subordinated to the rights of the Class B
Certificateholders. Distributions will be made
on each Remittance Date commencing in ,
199 to holders of record on the preceding Rec-
ord Date, except that the final distribution in
respect of the Offered Certificates will only
be made upon presentation and surrender of the
Offered
S-4
<PAGE>
Certificates at the office or agency appointed
by the Trustee for that purpose in Minneapolis
or St. Paul, Minnesota.
Distributions on a Class of Class A Certificates
will be applied first to the payment of inter-
est and then to the payment of principal on
such Class. Distributions in respect of princi-
pal of the Class A Certificates will be allo-
cated to the Class then entitled to such dis-
tributions and will be applied in the amounts
and the order of priority set forth below. When
the Principal Balance of a Class of Class A
Certificates is reduced to zero, no further
distributions will be made to the holders of
such Class.
The Class B Distribution Amount for any Remit-
tance Date is intended to be equal to the
"Class B Formula Distribution Amount," which
equals the sum of (i) the amount of interest
calculated as described under "C. Class B In-
terest" below and (ii) an amount of principal
calculated as described under "D. Class B Prin-
cipal" below.
See "Description of the Certificates" for a de-
tailed description of the amounts on deposit in
the Certificate Account that will constitute
the Amount Available on each Remittance Date.
The Amount Available will include amounts oth-
erwise payable to holders of the Class B Cer-
tificates and the Class C Certificates. The Re-
maining Amount Available will include amounts
otherwise payable to the Company as the Monthly
Servicing Fee, to the Company as the Guarantee
Fee and to the Class C Certificateholders.
A. Class A Interest.......... Interest on the outstanding Principal Balance of
each Class of Class A Certificates will accrue
from , 199 or from the most recent Re-
mittance Date on which interest has been paid
to but excluding the following Remittance Date.
Interest will be paid concurrently on each Class
of Class A Certificates on each Remittance
Date, to the extent of the Amount Available for
such date in the Certificate Account, at the
related Remittance Rate on the then outstanding
Class A-1 Principal Balance, Class A-2 Princi-
pal Balance, Class A-3 Principal Balance and
Class A-4 Principal Balance. The Principal Bal-
ance of a Class of Class A Certificates as of
any Remittance Date is the Original Principal
Balance of such Class less all amounts previ-
ously distributed to holders of such Class on
account of principal.
In the event that, on a particular Remittance
Date, the Amount Available in the Certificate
Account is not sufficient to make a full dis-
tribution of interest to the holders of out-
standing Class A Certificates, the amount of
the shortfall will be carried forward and added
to the amount such holders will be entitled to
receive on the next Remittance Date. Any such
amount so carried forward will bear interest at
the related Remittance Rate, to the extent le-
gally permissible. See "Description of the Cer-
tificates."
S-5
<PAGE>
B. Class A Principal......... Holders of a Class of Class A Certificates will
be entitled to receive on each Remittance Date
as payments of principal, in the order of pri-
ority set forth below and to the extent of the
Amount Available in the Certificate Account af-
ter payment of all interest payable on each
Class of Class A Certificates, the sum (such
sum being hereinafter referred to as the "For-
mula Principal Distribution Amount") of (i) all
scheduled payments of principal due on each
outstanding Contract during the month preceding
the month in which the Remittance Date occurs,
(ii) the Scheduled Principal Balance (as de-
fined below) of each Contract which, during the
month preceding the month of such Remittance
Date, was purchased by the Company pursuant to
the Agreement on account of certain breaches of
its representations and warranties, (iii) all
Partial Principal Prepayments applied and all
Principal Prepayments in Full received during
such preceding month and (iv) the Scheduled
Principal Balance of each Contract that became
a Liquidated Contract (as defined below) during
such preceding month.
The Scheduled Principal Balance of a Contract
for any month is its principal balance as spec-
ified in its amortization schedule, after giv-
ing effect to any previous Partial Principal
Prepayments and to the scheduled payment due on
its scheduled payment date (the "Due Date") in
that month, but without giving effect to any
adjustments due to bankruptcy or similar pro-
ceedings. The Pool Scheduled Principal Balance
is the aggregate of the Scheduled Principal
Balances of Contracts outstanding at the end of
a month. A Liquidated Contract is a defaulted
Contract as to which all amounts that the
Servicer expects to recover through the date of
disposition of the manufactured home securing
such Contract (the "Manufactured Home") have
been received.
The Formula Principal Distribution Amount will
be distributed, to the extent of the Amount
Available after payment of interest on each
Class of Class A Certificates, first, to the
Class A-1 Certificateholders until the Class A-
1 Principal Balance has been reduced to zero,
then to the Class A-2 Certificateholders until
the Class A-2 Principal Balance has been re-
duced to zero, then to the Class A-3
Certificateholders until the Class A-3 Princi-
pal Balance has been reduced to zero and then
to the Class A-4 Certificateholders until the
Class A-4 Principal Balance has been reduced to
zero. The First, Second, Third and Fourth
Cross-over Dates are the Remittance Dates on
which the Principal Balances of the Class A-1,
Class A-2, Class A-3 and Class A-4 Certifi-
cates, respectively, are reduced to zero.
C. Class B Interest.......... Interest on the outstanding Class B Principal
Balance will accrue from , 199 or from
the most recent Remittance Date
S-6
<PAGE>
on which interest has been paid to but exclud-
ing the following Remittance Date.
To the extent of (i) the Amount Available in the
Certificate Account available for distribution
to the Class B Certificateholders after payment
of the Class A Distribution Amount for any Re-
mittance Date (the "Remaining Amount Avail-
able") and (ii) the Guarantee Payment, if any,
for such date, interest will be paid to the
Class B Certificateholders on such Remittance
Date at the Class B Remittance Rate on the then
outstanding Class B Principal Balance. The
Class B Principal Balance is the Original Class
B Principal Balance less all amounts previously
distributed to the Class B Certificateholders
on account of principal.
In the event that, on a particular Remittance
Date, the Remaining Amount Available plus any
amounts actually paid under the Limited Guaran-
tee are not sufficient to make a full distribu-
tion of interest to the Class B
Certificateholders, the amount of the defi-
ciency will be carried forward as an amount
that the Class B Certificateholders are enti-
tled to receive on the next Remittance Date.
Any amount so carried forward will, to the ex-
tent legally permissible, bear interest at the
Class B Remittance Rate. See "Description of
the Certificates."
D. Class B Principal......... Except for payments of the Class B Principal
Liquidation Loss Amount (described below), pay-
ments of principal on the Class B Certificates
will not commence until the Class A
Certificateholders have received principal pay-
ments equal in the aggregate to the sum of the
Original Class A-1 Principal Balance, the Orig-
inal Class A-2 Principal Balance, the Original
Class A-3 Principal Balance and the Original
Class A-4 Principal Balance (such sum being
hereafter referred to as the "Original Class A
Principal Balance"), equal to $ .
On each Remittance Date prior to the Fourth
Cross-over Date, the Class B Certificateholders
will be entitled to receive, pursuant to the
Limited Guarantee, any Class B Principal Liqui-
dation Loss Amount for such Remittance Date.
The "Class B Principal Liquidation Loss Amount"
equals the amount, if any, by which the sum of
the Class A Principal Balance (if greater than
zero) and the Class B Principal Balance for
such Remittance Date exceeds the Pool Scheduled
Principal Balance for such Remittance Date (af-
ter giving effect to all distributions of prin-
cipal on such Remittance Date), and represents
future principal payments on the Contracts
that, because of the subordination of the Class
B Certificates and liquidation losses on Liqui-
dated Contracts, will not be paid to the Class
B Certificateholders.
On each Remittance Date after the Fourth Cross-
over Date, the Formula Principal Distribution
Amount will be paid to the
S-7
<PAGE>
Class B Certificateholders to the extent of (i)
the Remaining Amount Available after payment of
interest on the Class B Certificates and (ii)
the application of the Guarantee Payment, if
any, for such date.
Subordination of Class B and
Class C Certificates........ The rights of holders of the Class B Certifi-
cates and the Class C Certificates to receive
distributions with respect to the Contracts in
the Trust will be subordinated, to the extent
described herein, to such rights of the holders
of the Class A Certificates. This subordination
is intended to enhance the likelihood of regu-
lar receipt by the holders of the Class A Cer-
tificates of the full amount of their scheduled
monthly payments of principal and interest and
to afford such holders protection against
losses on Liquidated Contracts.
The protection afforded to the holders of Class
A Certificates by means of the subordination of
the Class B and Class C Certificates will be
accomplished by the preferential right of the
Class A Certificateholders to receive, prior to
any distribution being made on a Remittance
Date in respect of the Class B and Class C Cer-
tificates, the amounts of principal and inter-
est due them on each Remittance Date out of the
Amount Available on such date in the Certifi-
cate Account and, if necessary, by the right of
such Class A Certificateholders to receive fu-
ture distributions of Amounts Available that
would otherwise be payable to the holders of
the Class B and Class C Certificates. If a
Class B Principal Liquidation Loss Amount is
realized for any Remittance Date and the Com-
pany fails to pay such amount pursuant to its
Limited Guarantee, the Class B
Certificateholders may incur losses on their
investment in the Class B Certificates to the
extent such losses are not made up from future
payments on the Contracts.
The rights of the holders of the Class C Certif-
icates to receive distributions with respect to
the Contracts on each Remittance Date will be
subordinated to the rights of the holders of
the Class A and Class B Certificates. See "De-
scription of the Certificates--Subordination of
Class B Certificates and Class C Certificates."
Guarantee Payments to Class
B Certificateholders under
the Limited Guarantee of
the Company................. In order to mitigate the effect of the subordi-
nation of the Class B Certificates and liquida-
tion losses and delinquencies on the Contracts,
the Class B Certificateholders are entitled to
receive on each Remittance Date the amount
equal to the Guarantee Payment, if any, under
the Limited Guarantee of the Company. Prior to
the Fourth Cross-over Date, the Guarantee Pay-
ment will equal the amount, if any, by which
(a) the sum of (i) the Class B Formula Distri-
bution Amount (which will be equal to one
month's interest on the Class B Principal Bal-
ance) for such Remittance Date and (ii) the
Class B Principal
S-8
<PAGE>
Liquidation Loss Amount, if any, exceeds (b)
the Class B Distribution Amount for such Remit-
tance Date. On each Remittance Date on and af-
ter the Fourth Cross-over Date, the Guarantee
Payment will equal the amount, if any, by which
the Class B Formula Distribution Amount (which
will include both interest and principal) ex-
ceeds the Amount Available for such Remittance
Date.
The Limited Guarantee will be an unsecured gen-
eral obligation of the Company and will not be
supported by any letter of credit or other
credit enhancement arrangement.
Losses on Liquidated
Contracts................... As described above, the distribution of princi-
pal to the Class A Certificateholders is in-
tended to include the Scheduled Principal Bal-
ance of each Contract that became a Liquidated
Contract during the month preceding the month
of such distribution. If the Net Liquidation
Proceeds from such Liquidated Contract are less
than the Scheduled Principal Balance of such
Liquidated Contract, the deficiency will, in
effect, be absorbed by the Class C
Certificateholders and then the Class B
Certificateholders since a portion of the
Amount Available equal to such deficiency and
otherwise distributable to them will be paid to
the Class A Certificateholders.
If the Amount Available is not sufficient to
cover the entire amount distributable to the
Class A Certificateholders on a particular Re-
mittance Date, then the amount of the Pool
Scheduled Principal Balance available to the
Class B Certificates (i.e., such Pool Scheduled
Principal Balance less the Class A Principal
Balance), on future Remittance Dates will be
reduced by the amount of such deficiency and a
Class B Principal Liquidation Loss Amount will
be realized.
But for the effect of the payments under the
Limited Guarantee described above, the subordi-
nation of the Class C Certificates, the Guaran-
tee Fee otherwise payable to the Company and
the Monthly Servicing Fee otherwise payable to
the Company in its capacity as Servicer, the
Class B Certificateholders would absorb (i) all
losses on each Liquidated Contract in the
amount by which its Net Liquidation Proceeds
are less than its unpaid principal balance plus
accrued and unpaid interest thereon less the
Monthly Servicing Fee, and (ii) all delinquent
payments on the Contracts. See "Description of
the Certificates--Subordination of Class B Cer-
tificates and Class C Certificates" and "Yield
and Prepayment Considerations."
Optional Repurchase of the
Contracts by the Servicer
or the Company.............. At its option either the Servicer or the Company
may repurchase from the Trust all remaining
Contracts, and thereby effect early retirement
of the Offered Certificates, on any Remittance
Date when the Pool Scheduled Principal Balance
is less than 10% of the Cut-off Date Pool Prin-
cipal Balance. See "Description of the Certifi-
cates--Repurchase Option."
S-9
<PAGE>
The Contracts................ Fixed rate manufactured housing installment sale
contracts and installment loan agreements in-
cluding any and all rights to receive payments
due thereunder on and after the Cut-off Date
and either (i) security interests in the Manu-
factured Homes purchased with the proceeds of
such contracts or (ii) with respect to certain
of the Contracts ("Land-and-Home Contracts")
liens on the real estate to which the related
Manufactured Homes are deemed permanently af-
fixed. The Contracts are secured by Manufac-
tured Homes or real estate located in states
and have been selected by the Company from its
portfolio of manufactured housing contracts
based on the criteria specified in the Agree-
ment. All of the Contracts are conventional
Contracts (i.e., not insured or guaranteed by
any governmental agency). The annual percentage
rate of interest on the Contracts ranges from
% to % with a weighted average of ap-
proximately %. The Contracts had a
weighted average term to scheduled maturity, as
of origination, of months, and a weighted
average remaining term to scheduled maturity,
as of the Cut-off Date, of months. The fi-
nal scheduled payment date on the Contract with
the latest maturity is in . See "The
Contract Pool."
Security Interests and
Certain Other Aspects of
the Contracts; Repurchase
or Substitution
Obligations................. In connection with the transfer of the Contracts
to the Trust, the Company has assigned the se-
curity interests in the Manufactured Homes or
(with respect to the Land-and-Home Con-
tracts) the liens on the underlying real prop-
erty, as appropriate, to the Trust. Under the
laws of most states Manufactured Homes that
have not been affixed to the real estate con-
stitute personal property, and perfection of a
security interest in the Manufactured Home is
obtained, depending on applicable state law,
either by noting the security interest on the
certificate of title for the Manufactured Home
or by filing a financing statement under the
Uniform Commercial Code. If the Manufactured
Home were relocated to another state without
reperfection of the security interest, or if
the Manufactured Home were to become attached
to its site and a determination were made that
the security interest was subject to real es-
tate title and recording laws, or as a result
of fraud or negligence, the Trust could lose
its prior perfected security interest in a Man-
ufactured Home. Subject to the effect of not
amending certificates of title as discussed un-
der "Special Considerations--Security Interests
and Certain Other Aspects of the Contracts" in
the Prospectus, the Servicer will take such
steps as are necessary to maintain perfection
of the security interest in each Manufactured
Home. Because of the expense and administrative
inconvenience involved, the Company has not re-
corded the assignment to the Trustee of the
mortgage or deed of trust securing each Land-
and-Home Contract. Consequent-
S-10
<PAGE>
ly, in some states in the absence of such rec-
ordation the assignment to the Trustee of the
mortgage or deed of trust securing a Land-and-
Home Contract may not be effective and in the
absence of such recordation the assignment of
the mortgage or deed of trust to the Trustee
may not be effective against creditors of or
purchasers from the Company or a trustee in
bankruptcy of the Company. Federal and state
consumer protection laws impose requirements
upon creditors in connection with extensions of
credit and collections on installment sale or
loan contracts, and certain of these laws make
an assignee of such a contract, such as the
Trust, liable to the obligor thereon for any
violation by the lender. The Company has agreed
to repurchase, or, at its option, to substitute
another contract for, any Contract as to which
it has failed to perfect a security interest in
the Manufactured Home securing such Contract,
or as to which a breach of federal or state
laws exists if such breach materially adversely
affects the Trust's interest in the Contract,
unless such failure or breach has been cured
within 90 days from notice of such breach. See
"Special Considerations--Security Interests and
Certain Other Aspects of the Contracts" in the
Prospectus.
Certain Federal Income Tax
Consequences................ For federal income tax purposes, the Trust will
be treated as a real estate mortgage investment
conduit ("REMIC"). The Class A Certificates and
the Class B Certificates will constitute "regu-
lar interests" in the REMIC and generally will
be treated as debt instruments of the Trust for
federal income tax purposes with payment terms
equivalent to the terms of such Certificates.
The Class B Certificates will be issued with a
de minimis original issue discount. The Class C
Certificates will constitute "residual inter-
ests" in the REMIC. The holders of the Offered
Certificates will be required to include in in-
come interest on such Certificates (including
any original issue discount) in accordance with
the accrual method of accounting. See "Certain
Federal Income Tax Consequences" in the Pro-
spectus.
ERISA Considerations......... Subject to the conditions described herein, the
Class A Certificates may be purchased by em-
ployee benefit plans that are subject to the
Employee Retirement Income Security Act of
1974, as amended ("ERISA"). No transfer of a
Class B Certificate will be permitted to be
made to any employee benefit plan subject to
ERISA or to the Internal Revenue Code of 1986,
as amended (the "Code") unless the opinion of
counsel described under "ERISA Considerations"
is delivered to the Trustee. See "ERISA Consid-
erations" herein and in the Prospectus.
Legal Investment
Considerations.............. The Class A Certificates offered hereby will
constitute "mortgage related securities" under
the Secondary Mortgage Market Enhancement Act
of 1984 and, as such, will be "legal invest-
S-11
<PAGE>
ments" for certain types of institutional in-
vestors to the extent provided in that Act.
Because the Class B Certificates will not be
rated in one of its two highest rating catego-
ries by Moody's Investors Service, Inc.
("Moody's") or by Fitch Investors Service, Inc.
("Fitch"), the Class B Certificates will not
constitute "mortgage related securities" for
purposes of the Secondary Mortgage Market En-
hancement Act of 1984 ("SMMEA"). Accordingly,
many institutions with legal authority to in-
vest in more highly rated securities based on
first mortgage loans may not be legally autho-
rized to invest in the Class B Certificates.
See "Legal Investment Considerations" herein
and in the Prospectus. No representations are
made as to any regulatory requirements or con-
siderations (including without limitation regu-
latory capital requirements) applicable to the
purchase of Class B Certificates by banks, sav-
ings and loan associations or other financial
institutions, which institutions should consult
their own counsel as to such matters.
Rating....................... It is a condition to the issuance of the Certif-
icates that the Class A-1, Class A-2, Class A-3
and Class A-4 Certificates, each be rated at
least " " by Moody's and " " by Fitch. It
is a condition to the issuance of the Class B
Certificates that they be rated at least " "
by Moody's and at least " " by Fitch. The
rating of each Class of the Offered Certifi-
cates addresses the likelihood of the ultimate
payment of principal and interest on each Class
of the Offered Certificates. A security rating
is not a recommendation to buy, sell or hold
securities and may be subject to revision or
withdrawal at any time by the rating agency.
The rating of the Class B Certificates is based
in part on an assessment of the Company's abil-
ity to make payments under the Limited Guaran-
tee. Any reduction in Moody's or Fitch's rat-
ings of the Company's debt securities may re-
sult in a similar reduction in the rating of
the Class B Certificates.
Registration of the Offered
Certificates................ Each Class of the Offered 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 par-
ticipating members thereof. Certificates repre-
senting the Offered Certificates will be issued
in definitive form only under the limited cir-
cumstances described herein. All references
herein to "holders" or "Certificateholders"
shall reflect the rights of Certificate Owners
as they may indirectly exercise such rights
through DTC and participating members thereof,
except as otherwise specified herein. See "De-
scription of the Certificates--Registration of
the Offered Certificates" herein and "Descrip-
tion of the Certificates--Global Certificates"
in the Prospectus.
S-12
<PAGE>
SPECIAL CONSIDERATIONS
Prospective Certificateholders should consider, in addition to the factors
described under "Special Considerations" in the Prospectus, the following
factors in connection with the purchase of the Class A or Class B Certificates,
as appropriate:
1. General. An investment in the Class A or Class B Certificates may be
affected by, among other things, a downturn in regional or local
economic conditions. These regional or local economic conditions are
often volatile and historically have affected the delinquency, loan loss
and repossession experience of pools of manufactured housing installment
sale contracts. See "The Trust Fund--The Contract Pools" in the
Prospectus. Moreover, regardless of its location, manufactured housing
generally depreciates in value. Consequently, the market value of
certain Manufactured Homes could be or become lower than the outstanding
principal balances of the Contracts that they secure. Sufficiently high
delinquencies and liquidation losses on the Contracts will have the
effect of reducing, and could eliminate, with respect to the Class A
Certificates, the protection against loss afforded by the subordination
of the Class C and the Class B Certificates. If such protection is
eliminated, the Class A Certificateholders will bear the risk of losses
on the Contracts. See "Description of the Certificates--Subordination of
Class B Certificates and Class C Certificates." With respect to the
Class B Certificates, sufficiently high delinquencies and liquidation
losses on the Contracts will have the effect of reducing, and could
eliminate, the protection against loss afforded by the amounts otherwise
distributable to the Company and the Class C Certificateholders. If such
protection is eliminated and the Company fails to make payments as
required under the Limited Guarantee, the Class B Certificateholders
will bear the risk of losses on the Contracts.
2. Prepayment Considerations. The prepayment experience on the Contracts
may affect the average life of the Offered Certificates. See "Yield and
Prepayment Considerations" herein and "Maturity and Prepayment
Considerations" in the Prospectus.
3. Limited Liquidity. The Class B Certificates will not constitute
"mortgage related securities" for purposes of the Secondary Mortgage
Market Enhancement Act of 1984 ("SMMEA"). Accordingly, many institutions
with legal authority to invest in SMMEA securities will not be able to
invest in the Class B Certificates, limiting the market for such
securities.
4. Distributions of Principal. The yield to maturity on the Class B
Certificates will be affected by the rate at which Contracts become
Liquidated Contracts and the severity of ensuing losses on such
Liquidated Contracts and the timing thereof. Prior to the time that the
Class A Principal Balance is reduced to zero, the Class A
Certificateholders will receive all payments of principal that are made
on the Contracts, and the Class B Certificateholders will only receive
distributions of principal to the extent that any Guarantee Payments
paid under the Limited Guarantee represent a Class B Principal
Liquidation Loss Amount. It is not possible to predict the timing of the
occurrence of the Remittance Date, if any, on which the Class A
Principal Balance is reduced to zero, which occurrence will be affected
by the rate of voluntary principal prepayments in addition to
prepayments due to default and subsequent liquidation. Prepayments on
Contracts may be influenced by a variety of economic, geographic, social
and other factors, including repossessions, aging, seasonality, market
interest rates, changes in housing needs, job transfers and
unemployment. See "Yield and Prepayment Considerations" herein and
"Maturity and Prepayment Considerations" in the Prospectus.
5. Security Interests and Certain Other Aspects of the Contracts. A variety
of factors may limit the ability of the Certificateholders to realize
upon the Manufactured Homes securing the Contracts or may limit the
amount realized to less than the amount due. See "Special
Considerations" in the Prospectus.
6. Bankruptcy. The bankruptcy of the Company could have certain
consequences for the holders of Class A and Class B Certificates, in
addition to affecting the Company's ability to make payments under the
Limited Guarantee. See "Special Considerations" in the Prospectus.
S-13
<PAGE>
STRUCTURE OF THE TRANSACTION
The Company will establish the Trust and transfer the Contracts and related
rights to the Trust pursuant to the Agreement. The Certificates represent
fractional undivided interests in the Trust, the corpus of which will consist
of the Contracts (including all rights to receive payments due on such
Contracts on and after , 199 (the "Cut-off Date") and security interests
in the Manufactured Homes securing such Contracts), rights under certain hazard
insurance policies with respect to the Manufactured Homes, amounts held for the
Trust in the Certificate Account (as defined below) and all proceeds in any way
derived from any of the foregoing. The Company will also service the Contracts
for the Trust. Except for the Land-and-Home Contracts, the Contracts will be
held by the Company on behalf of the Trustee. First Trust National Association
will act as custodian to hold, as the Trustee's agent, the documents relating
to all Land-and-Home Contracts.
Payments by Obligors will be deposited in a separate account maintained at an
Eligible Institution in the name of the Trustee (the "Certificate Account") no
later than one Business Day after receipt. Certain payments deposited in the
Certificate Account in respect of each calendar month (a "Due Period") will be
applied on the 15th Day of the next month (or, if such day is not a Business
Day, the next succeeding business day) (a "Remittance Date") to make the
distributions to Certificateholders described under "Description of the
Certificates--Distributions" and to pay certain monthly fees to the Company as
compensation for servicing the Contracts and for providing the Limited
Guarantee with respect to the Class B Certificates. The Company, in its
capacity as Servicer of the Contracts, and any successor servicer are referred
to herein as the "Servicer."
The Company's conveyance of the Contracts to the Trust is without recourse,
except for certain warranties made by the Company in the Agreement, the Limited
Guarantee with respect to the Class B Certificates and certain indemnities by
the Servicer described under "Description of the Certificates--Indemnification"
in the Prospectus.
THE CONTRACT POOL
The Contract Pool consists of Contracts having an aggregate principal
balance as of the Cut-off Date of $ (the "Cut-off Date Pool
Principal Balance"). All but of the Contracts, representing % of the Cut-
off Date Pool Principal Balance, are manufactured housing installment sales
contracts originated by a manufactured housing dealer and purchased by the
Company from such dealer, or manufactured housing installment loan agreements
originated by the Company directly. The Contracts were originated between
19 and 199 . Manufactured housing installment sale contracts and
manufactured housing installment loan agreements are hereinafter collectively
referred to as "manufactured housing contracts" or "contracts." All of the
Contracts are conventional manufactured housing contracts, meaning that they
are not insured or guaranteed by any governmental agency.
Each Contract (a) is secured by a Manufactured Home or, in the case of a
Land-and-Home Contract, is secured by a lien on real estate to which the
Manufactured Home is deemed permanently affixed, (b) is fully amortizing with a
fixed contractual rate of interest (the "Contract Rate") and provides for level
payments over the term of such Contract and (c) is dated on or after
19 . The Contracts were originated or acquired by the Company in the ordinary
course of the Company's business. A detailed description of the Contracts is
included in the Agreement. Approximately % of the Cut-off Date Pool Principal
Balance is attributable to loans to purchase Manufactured Homes which were new
and approximately % is attributable to loans to purchase Manufactured Homes
which were used at the time the related Contract was originated. All Contracts
have a Contract Rate of at least %. Approximately % of the Contracts by
Cut-off Date Pool Principal Balance have Contract Rates less than % (equal
to the Class B Remittance Rate). The Contracts have remaining maturities, as of
the Cut-off Date, of at least months but not more than months and
original maturities of at least months but not more than months,
S-14
<PAGE>
and a weighted average remaining term to scheduled maturity, as of the Cut-off
Date, of months. The average remaining principal balance per Contract as of
the Cut-off Date was $ and the outstanding principal balances of the
Contracts as of the Cut-off Date ranged from $ to $ . All but
, or % by Cut-off Date Pool Principal Balance, of the Contracts had
loan-to-value ratios at the time of origination of % or less. "Value" in such
calculation is equal to (i) in the case of a new Manufactured Home, the total
cost of such Manufactured Home, including sales and other taxes, filing and
recording fees imposed by law, and premiums for related insurance, (ii) in the
case of a used Manufactured Home, either the total delivered sales price for
such Manufactured Home, if available, or else its appraised market value, plus,
in either case, sales and other taxes, filing and recording fees imposed by law
and premiums for related insurance, or (iii) in the case of real estate
securing a Land-and-Home Contract, the total sales price of the real estate and
the Manufactured Home together. (With respect to approximately % of the
Contracts by Cut-off Date Pool Principal Balance, "Value" includes the value of
land in respect of which the Obligor has granted a lien to the Company in lieu
of a down payment, which lien is not being transferred to the Trust. Such
Contracts are not Land-and-Home Contracts.) Appraisals are made by employees of
the Company. Manufactured Homes, unlike site-built homes, generally depreciate
in value. Consequently, at any time after origination it is possible,
especially in the case of Contracts with high loan-to-value ratios at
origination, that the market value of a Manufactured Home may be lower than the
principal amount outstanding under the related Contract. The Contracts are
secured by Manufactured Homes located in states, of which, approximately
% of the Contracts by remaining principal balance are secured by
Manufactured Homes located in , , ,
, . No other state represented more than 5%
of the Contracts.
S-15
<PAGE>
Set forth below is a description of certain additional characteristics of the
Contracts.
GEOGRAPHICAL DISTRIBUTION OF MANUFACTURED HOMES
<TABLE>
<CAPTION>
% OF CONTRACT
NUMBER OF AGGREGATE POOL BY
CONTRACTS % OF CONTRACT PRINCIPAL OUTSTANDING
AS OF POOL BY NUMBER BALANCE PRINCIPAL
CUT-OFF OF CONTRACTS AS OUTSTANDING AS BALANCE AS OF
DATE OF CUT-OFF DATE OF CUT-OFF DATE CUT-OFF DATE
--------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Alabama.............. % $ %
Arizona..............
Arkansas.............
California...........
Colorado.............
Connecticut..........
Delaware.............
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..............
Virginia.............
Washington...........
West Virginia........
Wisconsin............
Wyoming..............
------ ------ --------------- ------
Total................ 100.00% $ 100.00%
====== ====== =============== ======
</TABLE>
S-16
<PAGE>
YEARS OF ORIGINATION OF CONTRACTS
<TABLE>
<CAPTION>
% OF CONTRACT POOL
AGGREGATE PRINCIPAL OUTSTANDING PRINCIPAL
NUMBER OF CONTRACTS BALANCE OUTSTANDING BALANCE AS OF
YEAR OF ORIGINATION AS OF CUT-OFF DATE AS OF CUT-OFF DATE CUT-OFF DATE
------------------- ------------------- ------------------- ---------------------
<S> <C> <C> <C>
1982.................... $ %
1983....................
1984....................
1985....................
1986....................
1987....................
1988....................
1989....................
1990....................
1991....................
1992....................
1993....................
------ --------------- ------
Total................ $ 100.00%
====== =============== ======
</TABLE>
DISTRIBUTION OF ORIGINAL CONTRACT AMOUNTS
<TABLE>
<CAPTION>
% OF CONTRACT POOL
AGGREGATE PRINCIPAL OUTSTANDING PRINCIPAL
ORIGINAL CONTRACT NUMBER OF CONTRACTS BALANCE OUTSTANDING BALANCE AS OF
AMOUNT (IN DOLLARS)(1) AS OF CUT-OFF DATE AS OF CUT-OFF DATE CUT-OFF DATE
---------------------- ------------------- ------------------- ---------------------
<S> <C> <C> <C>
Less than $10,000....... $ %
$10,000-$19,999.99......
$20,000-$29,999.99......
$30,000-$39,999.99......
$40,000-$49,999.99......
$50,000-$59,999.99......
$60,000-$69,999.99......
$70,000-$79,999.99......
$80,000-$89,999.99......
$90,000-$99,999.99......
$100,000-$109,999.99....
$110,000-$119,999.99....
$120,000-$129,999.99....
------ --------------- ------
Total................ $ 100.00%
====== =============== ======
</TABLE>
- --------
(1) The largest original Contract amount is $ , which represents %
of the Cut-off Date Pool Principal Balance.
DISTRIBUTION OF ORIGINAL LOAN-TO-VALUE RATIOS
<TABLE>
<CAPTION>
AGGREGATE PRINCIPAL % OF CONTRACT POOL
NUMBER OF CONTRACTS BALANCE OUTSTANDING OUTSTANDING PRINCIPAL
LOAN-TO-VALUE RATIO(1) AS OF CUT-OFF DATE AS OF CUT-OFF DATE BALANCE AS OF CUT-OFF DATE
- ---------------------- ------------------- ------------------- --------------------------
<S> <C> <C> <C>
Less than 61%........... $ %
61-65%..................
66-70%..................
71-75%..................
76-80%..................
81-85%..................
86-90%..................
91-95%..................
Over 95%................
------ --------------- ------
Total................ $ 100.00%
====== =============== ======
</TABLE>
- --------
(1) Rounded to the nearest 1%. The term "Value" as used in this table is
defined above. The loan-to-value ratios on the Contracts may be subject to
a variance of up to 5% from the tabular presentation. Such variances were
caused by information input by Company personnel in regional offices with
respect to incidental items financed in the loans, such as dealer-installed
equipment, the costs of which were estimated at the time the loan
applications were approved.
S-17
<PAGE>
CONTRACT RATES
<TABLE>
<CAPTION>
AGGREGATE PRINCIPAL % OF CONTRACT POOL
RANGE OF CONTRACTS BY NUMBER OF CONTRACTS BALANCE OUTSTANDING OUTSTANDING PRINCIPAL
CONTRACT RATE AS OF CUT-OFF DATE AS OF CUT-OFF DATE BALANCE AS OF CUT-OFF DATE
--------------------- ------------------- ------------------- --------------------------
<S> <C> <C> <C>
7.25%-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%...........
16.01%-16.75%...........
------ --------------- ------
Total............... $ 100.00%
====== =============== ======
</TABLE>
REMAINING MONTHS TO MATURITY
<TABLE>
<CAPTION>
AGGREGATE PRINCIPAL % OF CONTRACT POOL
MONTHS REMAINING NUMBER OF CONTRACTS BALANCE OUTSTANDING OUTSTANDING PRINCIPAL
AS OF CUT-OFF DATE AS OF CUT-OFF DATE AS OF CUT-OFF DATE BALANCE AS OF CUT-OFF DATE
------------------ ------------------- ------------------- --------------------------
<S> <C> <C> <C>
Less than 31............ $ %
31-60...................
61-90...................
91-120..................
121-150.................
151-180.................
181-210.................
211-240.................
Over 240................
------ --------------- ------
Total............... $ 100.00%
====== =============== ======
</TABLE>
S-18
<PAGE>
GREEN TREE FINANCIAL CORPORATION
The following information supplements, and to the extent inconsistent
therewith supersedes, the information in the Prospectus under the heading
"Green Tree Financial Corporation."
DELINQUENCY, LOAN LOSS AND REPOSSESSION EXPERIENCE
The following table sets forth the delinquency experience at December 31 for
each of the past five years and at March 31, 1994 of the portfolio of
conventional manufactured housing contracts serviced by the Company (other
than contracts already in repossession). All of the Contracts in the Trust are
conventional Contracts. In 1990, the Company began subservicing manufactured
housing contracts originated by other lenders. These subserviced contracts are
not reflected in the following table.
DELINQUENCY EXPERIENCE
<TABLE>
<CAPTION>
AT
AT DECEMBER 31, MARCH 31,
---------------------------------------- ---------
1989 1990 1991 1992 1993 1994
------- ------- ------- ------- ---- ---------
<S> <C> <C> <C> <C> <C> <C>
Number of Contracts Out-
standing (1)............... 122,187 134,867 151,779 175,730
Number of Contracts Delin-
quent (2):
30-59 Days................ 2,002 1,795 2,161 1,849
60-89 Days................ 607 656 705 603
90 Days or More........... 714 874 1,194 1,110
Total Contracts Delinquent.. 3,323 3,325 4,060 3,562
Delinquencies as a Percent
of Contracts Outstanding
(3)........................ 2.72% 2.47% 2.67% 2.03%
</TABLE>
- --------
(1)Excludes contracts already in repossession.
(2) The period of delinquency is based on the number of days payments are
contractually past due (assuming 30-day months). Consequently, a contract
due on the first day of a month is not 30 days delinquent until the first
day of the next month.
(3)By number of contracts.
The following table sets forth the loan loss and repossession experience for
the periods indicated of the portfolio of conventional manufactured housing
contracts serviced by the Company. In 1990, the Company began subservicing
manufactured housing contracts originated by other lenders. These subserviced
contracts are not reflected in the following table.
LOAN LOSS/REPOSSESSION EXPERIENCE
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
---------------------------------------------------- ------------
1989 1990 1991 1992 1993 1994
---------- ---------- ---------- ---------- ---- ------------
<S> <C> <C> <C> <C> <C> <C>
Number of Contracts
Serviced (1)........... 123,425 136,331 153,435 176,925
Principal Balance of
Contracts Serviced (1). $2,002,150 $2,200,196 $2,477,595 $2,996,582
Contract Liquidations
(2).................... 3.44% 2.79% 2.82% 2.75%
Net Losses:
Dollars (3)........... $ 35,614 $ 30,053 $ 34,842 $ 47,817
Percentage (4)........ 1.78% 1.37% 1.41% 1.60%
</TABLE>
- --------
(1)As of period end.
(2)As a percentage of the total number of contracts being serviced as of
period end.
(3)The calculation of net loss includes unpaid interest to the date of
repossession and all expenses of repossession and liquidation.
(4)As a percentage of the principal balance of contracts being serviced as of
period end.
S-19
<PAGE>
The data presented in the foregoing tables are for illustrative purposes only
and there is no assurance that the delinquency, loan loss or repossession
experience of the Contracts will be similar to that set forth above. The
delinquency, loan loss and repossession experience of manufactured housing
contracts historically has been sharply affected by a downturn in regional or
local economic conditions. In recent years, such a downturn and higher levels
of delinquency, loan loss and repossession were experienced in areas dependent
on the oil and gas industry, notably certain areas of Texas, Oklahoma and
Louisiana. These regional or local economic conditions are often volatile, and
no predictions can be made regarding future economic conditions in Texas,
Oklahoma or Louisiana or any other particular area. These downturns have tended
to increase the severity of loss on repossession because of the increased
supply of used units, which in turn may affect the supply in other regions. In
order to achieve geographic dispersion and to limit the effect of regional and
local economic conditions on the Contract Pool, Contracts originated in any one
state (except with respect to Contracts secured by Manufactured Homes located
in ) will not exceed 10% of the Cut-off Date Pool Principal Balance.
RATIOS OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------ ------------
1989 1990 1991 1992 1993 1994
---- ---- ---- ---- ---- ------------
<S> <C> <C> <C> <C> <C> <C>
Ratio of Earnings to Fixed Charges........ 2.06 2.14 2.83 3.55
</TABLE>
For the purposes of compiling these ratios, earnings consist of earnings
before income taxes plus fixed charges. Fixed charges consist of interest
expense and the interest portion of rent expense.
YIELD AND PREPAYMENT CONSIDERATIONS
The following information supplements, and to the extent inconsistent
therewith supersedes, the information in the Prospectus under the heading
"Yield Considerations."
The Contracts have maturities at origination ranging from years to
years, but may be prepaid in full or in part at any time. The prepayment
experience of the Contracts (including prepayments due to liquidations of
defaulted Contracts) will affect the average life of the Offered Certificates.
Based on the Company's experience with the portfolio of manufactured housing
contracts serviced by it, the Company anticipates that a number of the
Contracts will be prepaid prior to their maturity. A number of factors,
including homeowner mobility, general and regional economic conditions and
prevailing interest rates, may influence prepayments. In addition, repurchases
of Contracts on account of certain breaches of representations and warranties
have the effect of prepaying such Contracts and therefore would affect the
average life of the Offered Certificates. The prepayment experience on
manufactured housing contracts varies greatly. Most of the Contracts contain a
"due-on-sale" clause that would permit the Servicer to accelerate the maturity
of a Contract upon the sale of the related Manufactured Home. In the case of
those Contracts that do contain due-on-sale clauses, the Company will permit
assumptions of such Contracts if the purchaser of the related Manufactured Home
satisfies the Company's then-current underwriting standards. See "Maturity and
Prepayment Considerations" in the Prospectus.
The allocation of distributions to the Class A Certificateholders on each
Remittance Date will have the effect of accelerating the amortization of the
Class A Certificates from the amortization that would be applicable if the
principal were distributed pro rata according to the Class A-1 Principal
Balance, the Class A-2 Principal Balance, the Class A-3 Principal Balance, the
Class A-4 Principal Balance and the Class B Principal Balance. In addition, the
allocation of distributions among the Class A Certificates will have the effect
of accelerating the amortization of the Class A-1, Class A-2 and Class A-3
Certificates from the amortization that would be applicable if the principal
were distributed pro rata according to the Class A-1 Principal Balance, the
Class A-2 Principal Balance, the Class A-3 Principal Balance and the Class A-4
S-20
<PAGE>
Principal Balance. If a Class of Class A Certificates is purchased at a
discount and the purchaser calculates its anticipated yield to maturity based
on an assumed rate of payment of principal on such Class of Class A
Certificates that is faster than the rate actually realized, such purchaser's
actual yield to maturity will be lower than the yield so calculated by such
purchaser. See "Description of the Certificates--Principal."
Until the Class A Principal Balance has been reduced to zero, the Class A
Certificateholders will receive all payments of principal which are made on the
Contracts, and the Class B Certificateholders will only receive distributions
of principal to the extent that any Guarantee Payments made represent a Class B
Principal Liquidation Loss Amount. The rate of principal payments on the Class
B Certificates and the aggregate amount of distributions on the Class B
Certificates will be affected by the rate of Obligor defaults resulting in
delinquencies on the Contracts and losses on Liquidated Contracts, by the
severity of those losses and by the timing of those delinquencies and losses.
See "Description of the Certificates--Subordination of Class B Certificates and
Class C Certificates" for a description of the manner in which such losses are
borne by the Class B Certificateholders. If the Class B Certificates are
purchased at a discount and the purchaser calculates its anticipated yield to
maturity based on an assumed rate of payment of principal on the Class B
Certificates that is faster than the rate actually realized, such purchaser's
actual yield to maturity will be lower than the yield so calculated by such
purchaser. See "Description of the Certificates--Principal."
There can be no assurance that the delinquency or repossession experience set
forth under "The Contract Pool--Delinquency, Loan Loss and Repossession
Experience" will be representative of the results that may be experienced with
respect to the Contracts.
The Servicer and the Company each have the option to purchase from the Trust
all remaining Contracts, and thereby effect early retirement of the
Certificates, on any Remittance Date when the Pool Scheduled Principal Balance
is less than 10% of the Cut-off Date Pool Principal Balance. See "Description
of the Certificates--Repurchase Option."
Although partial prepayments of principal on Contracts are applied on
scheduled payment dates for such Contracts, Obligors are not required to pay
interest on Contracts after the date of a full prepayment of principal. As a
result, full prepayments on Contracts in advance of the scheduled payment dates
for such Contracts in any Due Period will reduce the amount of interest
received from Obligors during such Due Period. Subject to the availability of
the subordination provided by the Class B and Class C Certificates, such
subordination would apply to the net shortfall of interest received on account
of prepayments in full in any Due Period so that the amount of interest paid on
a Class of Class A Certificates on the following Remittance Date would not be
affected by such shortfall.
The final scheduled payment date on the Contract with the latest maturity is
in .
Certain statistical information relating to the prepayment behavior of
certain pools of manufactured housing contracts sold and serviced by the
Company is set forth below. The following table relates to the Company's nine
sold pools for which prepayment information is available covering a period of
at least 36 months and which pools had an aggregate principal balance as of the
first day of the month of sale of at least $100,000,000. In evaluating the
information contained in this table and its relationship to the expected
prepayment behavior of the Contracts, prospective Certificateholders should
consider the following: the Company has performed no statistical analysis to
determine whether the contracts to which the table relates constitute a
statistically significant sample of manufactured housing contracts for purposes
of determining expected prepayment behavior. Furthermore, the Contracts in the
Contract Pool may have an average age as of the Cut-off Date substantially
different than the average ages (as of the first day of the month of sale) of
the contracts in the sold pool to which the following table relates and may
have other characteristics substantially different than the contracts in any
sold pool. For these reasons, and because of the unpredictable nature of the
factors described under "Weighted Average Life of the Class A and Class B
Certificates" as influencing the amount of prepayments of manufactured housing
contracts, no assurance can be given that the prepayment experience of the
Contracts will exhibit prepayment behavior similar to the behavior
S-21
<PAGE>
summarized in the following table for the periods covered thereby. In addition
to the foregoing, prospective Class A and Class B Certificateholders should
consider that the table set forth below is limited to the periods covered
therein and thus cannot reflect the effects, if any, of aging on the prepayment
behavior of manufactured housing contracts beyond such periods.
The following table sets forth with respect to each sold pool an initial
aggregate principal balance (calculated as of the first day of the month of the
sale), the decline in outstanding aggregate principal balance for each
subsequent month (whether due to liquidations, scheduled principal payments,
principal prepayments or repurchases) and the weighted average Contract Rate
("WAC") of the contracts in each pool as of the first day of the month of the
sale of each pool and as of 1, 1994. The percentage of the Prepayment Model
(as described in "Weighted Average Life of the Class A and Class B
Certificates" below) for the life of each sold pool through 1, 1994
(calculated as the annual rate of the decline in the outstanding aggregate
principal balance exhibited over the life of the pool, and using the WAC as of
the first day of the month of the sale of each pool) was the following: % of
the Prepayment Model for Pool #1; % of the Prepayment Model for Pool #2; %
of the Prepayment Model for Pool #3; % of the Prepayment Model for Pool #4;
% of the Prepayment Model for Pool #5; % of the Prepayment Model for Pool
#6; % of the Prepayment Model for Pool #7; % of the Prepayment Model for
Pool #8; and % of the Prepayment Model for Pool #9. In addition, Pool #1 had
an estimated average age of months as of the first day of the month of sale
and an original weighted average maturity ("WAM") of months; Pool #2 had an
estimated average age of months as of the first day of the month of sale and
an original WAM of months; Pool #3 had an estimated average age of months
as of the first day of the month of sale and an original WAM of months; Pool
#4 had an estimated average age of month as of the first day of the month of
sale and an original WAM of months; Pool #5 had an estimated average age of
month as of the first day of the month of sale and an original WAM of
months; Pool #6 had an estimated average age of months as of the first day
of the month of sale and an original WAM of months; Pool #7 had an estimated
average age of months as of the first day of the month of sale and an
original WAM of months; Pool #8 had an estimated average age of month as
of the first day of the month of sale and an original WAM of months; Pool #9
had an estimated average age of month as of the first day of the month of
sale and an original WAM of months; and Pool #10 had an estimated average
age of month as of the first day of the month of sale and an original WAM of
months. By comparison, the Contracts in the Contract Pool have an estimated
average age of month as of the Cut-off Date and an original WAM of
months.
S-22
<PAGE>
INFORMATION REGARDING SELECTED POOLS OF MANUFACTURED HOUSING CONTRACTS
<TABLE>
<CAPTION>
POOL #1 POOL #2 POOL #3 POOL #4 POOL #5
------------------ ------------------ ------------------ ------------------ ------------------
AGGREGATE AGGREGATE AGGREGATE AGGREGATE AGGREGATE
PRINCIPAL PRINCIPAL PRINCIPAL PRINCIPAL PRINCIPAL
BALANCE WAC BALANCE WAC BALANCE WAC BALANCE WAC BALANCE WAC
------------ ----- ------------ ----- ------------ ----- ------------ ----- ------------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
June 1987.......... $150,002,024 14.09%
July 1987.......... 148,570,607
August 1987........ 147,416,832
September 1987..... 146,067,294
October 1987....... 144,462,628
November 1987...... 142,859,082
December 1987...... 141,504,979 $112,294,744 13.68%
January 1988....... 139,909,863 111,564,231
February 1988...... 138,230,608 110,959,130
March 1988......... 137,054,052 110,158,592 $106,739,475 13.56%
April 1988......... 135,321,739 109,301,576 106,223,037
May 1988........... 133,734,529 108,408,172 105,534,716
June 1988.......... 132,186,564 107,509,701 104,702,409
July 1988.......... 130,488,347 106,644,630 103,756,166
August 1988........ 129,307,834 105,806,177 102,846,872
September 1988..... 127,718,336 104,930,189 101,894,145 $132,287,851 13.64%
October 1988....... 126,246,584 103,740,306 101,020,931 131,632,149
November 1988...... 124,511,650 102,784,208 100,161,691 130,957,623
December 1988...... 122,962,573 101,801,837 99,205,495 130,379,138 $105,566,962 13.76%
January 1989....... 121,615,458 100,781,280 98,284,587 129,738,726 105,207,877
February 1989...... 120,513,719 99,900,514 97,210,555 128,858,457 104,682,072
March 1989......... 119,260,068 99,094,959 96,296,636 128,200,908 104,130,477
April 1989......... 117,814,726 97,904,714 95,404,068 127,488,457 103,542,004
May 1989........... 116,364,769 96,684,420 94,564,930 126,889,002 102,653,070
June 1989.......... 115,232,291 95,908,062 93,701,727 125,900,040 102,097,431
July 1989.......... 114,011,414 94,940,842 92,729,644 125,044,160 101,349,305
August 1989........ 112,911,186 93,912,508 91,737,435 124,031,897 100,586,806
September 1989..... 111,216,196 92,713,651 90,837,699 123,165,353 99,698,668
October 1989....... 109,954,911 91,769,472 89,974,610 122,116,060 98,924,607
November 1989...... 108,547,979 90,767,147 88,990,538 121,098,455 98,171,602
December 1989...... 107,236,278 89,884,950 88,113,642 119,857,703 97,434,609
January 1990....... 106,186,096 88,836,423 87,009,120 118,883,983 96,618,000
February 1990...... 105,059,437 87,869,426 86,279,171 118,083,854 95,929,936
March 1990......... 104,001,861 86,861,946 85,374,419 117,365,279 95,143,376
April 1990......... 102,821,481 85,901,514 84,531,680 116,113,249 94,192,288
May 1990........... 101,684,273 84,863,747 83,410,417 114,765,754 93,272,683
June 1990.......... 100,581,335 83,907,938 82,087,398 113,507,435 92,350,000
July 1990.......... 99,200,173 82,778,771 81,088,923 111,918,831 91,332,224
August 1990........ 97,996,005 81,580,222 80,290,213 110,524,701 90,523,030
September 1990..... 96,731,179 80,512,419 79,271,725 109,257,964 89,540,257
October 1990....... 95,723,713 79,377,536 78,435,152 108,356,070 88,577,911
November 1990...... 94,608,622 78,316,168 77,579,778 107,166,109 87,462,010
December 1990...... 93,300,020 77,309,480 76,885,835 106,034,096 86,324,903
January 1991....... 92,383,777 76,329,095 76,161,168 105,132,684 85,666,145
February 1991...... 91,270,191 75,368,267 75,382,761 104,278,161 84,828,593
March 1991......... 90,217,514 74,600,685 74,568,758 103,416,278 83,926,678
April 1991......... 88,903,182 73,533,774 73,763,400 102,375,383 82,871,571
May 1991........... 87,737,009 72,558,959 72,777,745 100,913,362 81,980,444
June 1991.......... 86,755,716 71,537,912 72,065,159 99,702,358 80,799,137
July 1991.......... 85,486,181 70,634,217 71,195,597 98,558,265 79,782,492
August 1991........ 83,985,497 69,667,258 70,212,900 97,424,170 78,496,352
September 1991..... 83,012,816 68,783,320 69,314,080 96,061,529 77,531,890
October 1991....... 81,786,450 67,962,267 68,368,876 94,759,840 76,689,165
November 1991...... 80,696,933 67,031,927 67,523,237 93,697,559 75,646,133
December 1991...... 79,606,603 66,126,209 66,542,668 92,654,711 74,715,672
January 1992....... 78,506,973 65,210,496 65,642,672 91,609,082 73,898,243
February 1992...... 77,341,248 64,101,129 64,776,537 90,383,639 72,994,567
March 1992......... 76,057,478 63,112,555 63,580,748 89,304,664 72,119,199
April 1992......... 74,953,850 62,142,028 62,609,837 87,900,385 70,888,314
May 1992........... 73,563,143 61,218,299 61,454,751 86,485,433 69,700,344
June 1992.......... 72,574,042 60,180,132 60,542,799 85,407,102 68,620,733
July 1992.......... 71,338,444 59,105,077 59,632,342 83,894,785 67,520,749
August 1992........ 70,403,384 58,030,585 58,760,983 82,688,906 66,394,217
September 1992..... 69,118,385 56,973,265 57,987,836 81,379,506 65,459,438
October 1992....... 68,087,038 56,113,844 56,913,562 80,311,428 64,410,681
November 1992...... 67,081,471 55,055,097 56,046,666 78,909,384 63,423,300
December 1992...... 65,898,230 54,076,802 55,130,414 77,855,313 62,419,877
January 1993....... 64,885,781 53,339,615 54,207,265 76,627,167 61,331,737
February 1993...... 63,921,467 52,534,394 53,534,143 75,860,353 60,520,406
March 1993......... 63,017,441 51,824,838 52,844,431 75,064,486 59,859,818
April 1993......... 61,926,618 51,010,651 51,973,010 73,896,389 59,025,174
May 1993........... 60,823,318 50,033,483 51,010,673 72,705,887 58,022,176
June 1993.......... 59,816,112 49,112,439 50,116,296 71,640,147 57,204,456
July 1993.......... 58,740,781 47,949,760 49,276,183 70,318,424 56,013,829
August 1993........ 57,403,489 47,093,773 48,429,392 68,905,390 54,918,745
September 1993..... 56,104,318 46,163,341 47,270,827 67,396,418 53,662,303
October 1993....... 54,967,798 45,015,682 46,345,045 65,979,912 52,300,659
November 1993...... 53,694,235 43,780,593 45,237,469 64,595,039 51,029,959
December 1993...... 52,641,642 42,596,425 44,443,890 63,284,418 50,008,613
January 1994....... 51,692,915 41,750,161 43,398,005 61,978,163 48,976,620
February 1994...... 50,686,785 40,978,715 42,693,929 60,957,709 47,762,749
March 1994......... 49,786,496 40,127,215 41,706,431 59,666,254 46,712,626
April 1994......... 48,578,398 13.91% 39,398,717 13.67% 40,887,409 13.51% 58,244,881 13.61% 45,493,768 13.73%
</TABLE>
S-23
<PAGE>
INFORMATION REGARDING SELECTED POOLS OF MANUFACTURED HOUSING CONTRACTS
<TABLE>
<CAPTION>
POOL #6 POOL #7 POOL #8 POOL #9
------------------ ------------------ ------------------ ------------------
AGGREGATE AGGREGATE AGGREGATE AGGREGATE
PRINCIPAL PRINCIPAL PRINCIPAL PRINCIPAL
BALANCE WAC BALANCE WAC BALANCE WAC BALANCE WAC
------------ ----- ------------ ----- ------------ ----- ------------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
June 1987...............
July 1987...............
August 1987.............
September 1987..........
October 1987............
November 1987...........
December 1987...........
January 1988............
February 1988...........
March 1988..............
April 1988..............
May 1988................
June 1988...............
July 1988...............
August 1988.............
September 1988..........
October 1988............
November 1988...........
December 1988...........
January 1989............
February 1989...........
March 1989..............
April 1989..............
May 1989................
June 1989............... $121,205,258 14.39%
July 1989............... 120,791,096
August 1989............. 120,208,326
September 1989.......... 119,476,151 $153,845,599 13.93%
October 1989............ 118,943,749 153,031,948
November 1989........... 118,183,572 152,285,093
December 1989........... 117,465,674 151,426,499 $127,799,125 13.74%
January 1990............ 116,918,168 150,534,240 127,024,450
February 1990........... 116,164,551 149,739,836 126,192,365
March 1990.............. 115,348,266 149,131,864 125,315,041
April 1990.............. 114,390,687 148,093,304 124,605,798
May 1990................ 113,352,336 147,070,634 124,002,851
June 1990............... 112,246,343 146,056,885 123,333,588 $118,256,826 14.23%
July 1990............... 110,959,809 144,956,420 122,576,969 117,572,123
August 1990............. 110,083,602 143,672,440 121,784,943 116,892,713
September 1990.......... 109,180,538 142,648,941 121,069,805 116,248,572
October 1990............ 108,268,685 141,647,307 120,055,001 115,726,182
November 1990........... 107,128,784 140,382,797 119,105,339 115,054,486
December 1990........... 106,169,197 139,346,989 118,324,747 114,478,143
January 1991............ 105,110,111 138,364,955 117,582,547 113,896,272
February 1991........... 104,533,870 137,309,065 116,914,932 113,273,369
March 1991.............. 103,358,519 136,126,195 116,204,284 112,686,192
April 1991.............. 102,186,034 134,620,928 115,089,088 111,804,737
May 1991................ 100,923,270 132,989,000 113,944,914 110,887,705
June 1991............... 99,466,155 131,478,011 112,524,530 109,854,875
July 1991............... 98,218,803 130,020,761 111,320,624 108,972,638
August 1991............. 96,816,151 128,492,699 110,210,362 107,815,634
September 1991.......... 95,430,796 126,806,793 109,025,041 106,893,442
October 1991............ 94,227,470 125,422,408 108,059,740 106,029,033
November 1991........... 92,831,020 123,970,374 106,638,729 104,758,418
December 1991........... 91,674,429 122,625,208 105,397,317 103,574,625
January 1992............ 90,646,936 121,205,901 104,200,220 102,731,705
February 1992........... 89,335,995 119,604,050 103,046,534 101,588,643
March 1992.............. 88,070,469 117,824,457 101,898,130 100,422,070
April 1992.............. 86,749,880 116,113,836 100,278,052 98,668,389
May 1992................ 85,021,420 113,895,774 99,131,345 97,276,621
June 1992............... 83,796,442 112,240,635 97,500,236 96,126,963
July 1992............... 82,441,965 110,477,143 96,045,128 94,689,879
August 1992............. 81,029,966 108,677,315 94,947,812 93,473,752
September 1992.......... 79,859,886 107,072,555 93,643,469 92,053,601
October 1992............ 78,393,946 105,524,278 92,055,076 90,514,939
November 1992........... 76,958,320 103,775,864 90,669,591 89,075,320
December 1992........... 75,595,677 101,942,908 89,178,551 87,683,257
January 1993............ 74,123,924 100,371,451 87,640,944 86,089,289
February 1993........... 73,190,804 99,317,882 86,615,871 85,148,397
March 1993.............. 72,179,190 98,094,643 85,418,495 83,997,960
April 1993.............. 70,916,961 96,592,784 84,246,254 82,979,797
May 1993................ 69,426,154 94,804,085 82,694,815 81,240,329
June 1993............... 68,276,240 93,398,394 81,384,135 79,974,583
July 1993............... 66,830,487 91,519,311 79,889,722 78,376,568
August 1993............. 65,292,851 89,875,783 78,405,244 76,677,151
September 1993.......... 63,952,533 87,947,992 76,783,169 75,029,431
October 1993............ 62,488,729 85,942,018 74,840,365 73,206,867
November 1993........... 60,947,191 84,094,341 72,729,693 71,338,398
December 1993........... 59,700,188 82,230,041 71,119,700 69,780,172
January 1994............ 58,415,195 79,969,150 69,486,801 68,465,325
February 1994........... 57,372,578 78,743,838 68,302,925 67,385,608
March 1994.............. 56,048,347 77,442,231 67,017,344 65,936,104
April 1994.............. 54,476,968 14.37% 75,645,774 13.91% 65,531,030 13.71% 64,744,958 14.22%
</TABLE>
S-24
<PAGE>
INFORMATION REGARDING SELECTED POOLS OF MANUFACTURED HOUSING CONTRACTS
<TABLE>
<CAPTION>
POOL #10 POOL #11 POOL #12 POOL #13
------------------ ------------------ ------------------ ------------------
AGGREGATE AGGREGATE AGGREGATE AGGREGATE
PRINCIPAL PRINCIPAL PRINCIPAL PRINCIPAL
BALANCE WAC BALANCE WAC BALANCE WAC BALANCE WAC
------------ ----- ------------ ----- ------------ ----- ------------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
June 1987...............
July 1987...............
August 1987.............
September 1987..........
October 1987............
November 1987...........
December 1987...........
January 1988............
February 1988...........
March 1988..............
April 1988..............
May 1988................
June 1988...............
July 1988...............
August 1988.............
September 1988..........
October 1988............
November 1988...........
December 1988...........
January 1989............
February 1989...........
March 1989..............
April 1989..............
May 1989................
June 1989...............
July 1989...............
August 1989.............
September 1989..........
October 1989............
November 1989...........
December 1989...........
January 1990............
February 1990...........
March 1990..............
April 1990..............
May 1990................
June 1990...............
July 1990...............
August 1990.............
September 1990.......... $133,311,855 14.21%
October 1990............ 132,708,128
November 1990........... 131,124,784
December 1990........... 131,480,071 $117,246,945 14.07%
January 1991............ 130,784,049 116,685,698
February 1991........... 130,075,857 116,205,141
March 1991.............. 129,353,288 115,652,098 $103,147,656 14.09%
April 1991.............. 128,469,170 114,961,106 102,477,605
May 1991................ 127,597,801 114,240,314 101,868,239
June 1991............... 126,662,575 113,523,797 101,149,654 $137,954,723 14.25%
July 1991............... 125,738,135 112,782,291 100,453,306 137,161,898
August 1991............. 124,763,526 112,044,738 99,707,505 136,253,140
September 1991.......... 123,709,097 110,903,273 98,944,627 135,315,291
October 1991............ 122,649,124 110,221,842 98,305,496 134,429,201
November 1991........... 121,707,958 109,207,436 97,495,270 133,335,057
December 1991........... 120,906,527 108,606,380 96,795,908 132,412,083
January 1992............ 119,916,542 107,749,403 95,945,396 131,431,705
February 1992........... 118,870,421 106,650,322 94,987,688 130,217,458
March 1992.............. 117,461,999 105,757,820 93,779,828 128,989,415
April 1992.............. 115,959,521 104,231,643 92,573,506 127,467,332
May 1992................ 114,090,029 103,065,191 91,224,729 125,947,815
June 1992............... 112,468,590 101,733,540 90,208,002 124,665,328
July 1992............... 111,032,856 100,373,468 88,978,015 123,296,077
August 1992............. 109,610,542 99,312,952 87,779,632 122,063,195
September 1992.......... 108,522,457 98,163,283 86,400,033 120,500,056
October 1992............ 107,162,382 96,855,020 85,198,245 118,974,599
November 1992........... 105,554,653 95,388,400 83,960,033 117,376,649
December 1992........... 104,001,403 94,056,996 83,008,690 116,187,136
January 1993............ 102,403,932 92,180,094 82,013,317 114,461,305
February 1993........... 101,285,823 91,306,816 81,113,524 113,370,189
March 1993.............. 100,317,469 90,172,103 80,292,884 112,347,353
April 1993.............. 98,712,066 88,715,509 78,867,167 110,512,535
May 1993................ 97,129,803 87,194,683 77,345,741 108,577,928
June 1993............... 95,450,491 85,389,950 75,873,606 106,815,606
July 1993............... 93,462,086 83,689,863 74,430,783 104,717,520
August 1993............. 91,418,348 81,937,783 72,993,569 102,547,868
September 1993.......... 89,368,644 79,983,850 71,208,057 100,268,883
October 1993............ 87,181,228 77,865,034 69,466,494 98,377,858
November 1993........... 85,286,039 75,635,478 67,941,483 95,953,596
December 1993........... 83,531,009 74,101,263 66,264,904 93,829,333
January 1994............ 81,658,055 72,288,791 64,866,724 92,060,968
February 1994........... 80,072,577 70,718,202 63,662,343 90,119,896
March 1994.............. 78,478,516 69,290,952 62,469,610 88,724,920
April 1994.............. 76,589,608 14.18% 67,667,026 14.05% 61,145,047 14.12% 86,391,960 14.19%
</TABLE>
S-25
<PAGE>
WEIGHTED AVERAGE LIFE OF THE CLASS A AND CLASS B CERTIFICATES
The following information is given solely to illustrate the effect of
prepayments of the Contracts on the weighted average life of each Class of
Class A Certificates and the Class B Certificates under the stated assumptions
and is not a prediction of the prepayment rate that might actually be
experienced by the Contracts.
Weighted average life refers to the average amount of time from the date of
issuance of a security until each dollar of principal of such security will be
repaid to the investor. The weighted average life of the Class A and Class B
Certificates will be influenced by the rate at which principal on the Contracts
is paid. Principal payments on Contracts may be in the form of scheduled
amortization or prepayments (for this purpose, the term "prepayment" includes
repayments and liquidations due to default or other dispositions of Contracts).
Prepayments on Contracts may be measured by a prepayment standard or model. The
model used in this Prospectus ("Prepayment Model") is based on an assumed rate
of prepayment each month of the then unpaid principal balance of a pool of new
Contracts. 100% of the Prepayment Model assumes prepayment rates of 0.2% per
annum of the then unpaid principal balance of such Contracts in the first month
of the life of the Contracts and an additional 0.2% per annum in each month
thereafter (for example, 0.6% per annum in the third month) until the 30th
month. Beginning in the 30th month and in each month thereafter during the life
of all of the Contracts, 100% of the Prepayment Model assumes a constant
prepayment rate of 6.0% per annum.
As used in the following tables "0% of the Prepayment Model" assumes no
prepayments on the Contracts; "100% of the Prepayment Model" assumes the
Contracts will prepay at rates equal to 100% of the Prepayment Model assumed
prepayment rates; "145% of the Prepayment Model" assumes the Contracts will
prepay at rates equal to 145% of the Prepayment Model assumed prepayment rates;
"160% of the Prepayment Model" assumes the Contracts will prepay at rates equal
to 160% of the Prepayment Model assumed prepayment rates; "175% of the
Prepayment Model" assumes the Contracts will prepay at rates equal to 175% of
the Prepayment Model assumed prepayment rates; "200% of the Prepayment Model"
assumes the Contracts will prepay at rates equal to 200% of the Prepayment
Model assumed prepayment rates; "300% of the Prepayment Model" assumes the
Contracts will prepay at rates equal to 300% of the Prepayment Model assumed
prepayment rates; and "400% of the Prepayment Model" assumes the Contracts will
prepay at rates equal to 400% of the Prepayment Model assumed prepayment rates.
There is no assurance, however, that prepayment of the Contracts will conform
to any level of the Prepayment Model, and no representation is made that the
Contracts will prepay at the prepayment rates shown or any other prepayment
rate. The rate of principal payments on pools of manufactured housing contracts
is influenced by a variety of economic, geographic, social and other factors,
including the level of interest rates and the rate at which manufactured
homeowners sell their manufactured homes or default on their contracts. Other
factors affecting prepayment of contracts include changes in obligors' housing
needs, job transfers, unemployment and obligors' net equity in the manufactured
homes. In the case of mortgage loans secured by site-built homes, in general,
if prevailing interest rates fall significantly below the interest rates on
such mortgage loans, the mortgage loans are likely to be subject to higher
prepayment rates than if prevailing interest rates remained at or above the
rates borne by such mortgage loans. Conversely, if prevailing interest rates
rise above the interest rates on such mortgage loans, the rate of prepayment
would be expected to decrease. In the case of manufactured housing contracts,
however, because the outstanding principal balances are, in general, much
smaller than mortgage loan balances and the original term to maturity of each
such contract is generally shorter, the reduction or increase in the size of
the monthly payment on a contract arising from a change in the interest rate
thereon is generally much smaller. Consequently, changes in prevailing interest
rates may not have a similar effect, or may have a similar effect, but to a
smaller degree, on the prepayment rates on manufactured housing contracts.
As described under "Description of the Certificates--Principal," except for
payments, if any, of Guarantee Payments representing Class B Principal
Liquidation Loss Amounts, payments of principal on
S-26
<PAGE>
the Class B Certificates will not commence until the Class A Certificateholders
have received principal payments equal in the aggregate to the Original Class A
Principal Balance, equal to $ . This will have the effect of
accelerating the amortization of the Class A Certificates while, in the absence
of Class B Principal Liquidation Loss Amounts, increasing the respective
interest in the Trust of the Class B Certificates.
The percentages and weighted average lives in the following tables were
determined assuming that (i) scheduled interest and principal payments on the
Contracts are received in a timely manner and prepayments are made at the
indicated percentages of the Prepayment Model set forth in the table; (ii)
neither the Servicer nor the Company exercises its right of optional
termination described above; (iii) the Cut-off Date Pool Principal Balance is
$ , the Contracts have a weighted average term to maturity, as of
origination, of months, a weighted average remaining term to maturity, as
of the Cut-off Date, of months, a weighted average Contract Rate of %;
(iv) the Class A-1 Certificates initially represent $ of the Cut-
off Date Pool Principal Balance and will have a constant Class A-1 Remittance
Rate of %, the Class A-2 Certificates initially represent $
of the Cut-off Date Pool Principal Balance and will have a Class A-2 Remittance
Rate of %, the Class A-3 Certificates initially represent $ of
the Cut-off Date Pool Principal Balance and will have a Class A-3 Remittance
Rate of %, the Class A-4 Certificates initially represent $ of
the Cut-off Date Pool Principal Balance and will have a Class A-4 Remittance
Rate of % and the Class B Certificates initially represent $
of the Cut-off Date Pool Principal Balance and will have a Class B Remittance
Rate of %; (v) no interest shortfalls will arise in connection with
prepayment in full of the Contracts; (vi) no delinquencies or losses are
experienced on the Contracts; (vii) distributions are made on the Certificates
on the 15th day of each month, commencing 15, 199 ; and (viii) the
Certificates are issued on , 199 . No representation is made that the
Contracts will not experience delinquencies or losses.
Since the tables were prepared on the basis of the assumptions in the
preceding paragraph, there are discrepancies between the characteristics of the
actual Contracts and the characteristics of the Contracts assumed in preparing
the tables. Any such discrepancy may have an effect upon the percentages of the
Original Principal Balances outstanding and the weighted average life of the
Class A and Class B Certificates set forth in the tables. In addition, since
the actual Contracts and the Trust have characteristics which differ from those
assumed in preparing the tables set forth below, the distributions of principal
on the Class A and Class B Certificates may be made earlier or later than as
indicated in the tables.
It is not likely that Contracts will prepay at any constant percentage of the
Prepayment Model to maturity or that all Contracts will prepay at the same
rate. In addition, the diverse remaining terms to maturity of the Contracts
(which include recently originated Contracts) could produce slower
distributions of principal than as indicated in the tables at the various
percentages of the Prepayment Model specified even if the weighted average
remaining term to maturity of the Contracts is months.
Investors are urged to make their investment decisions on a basis that
includes their determination as to anticipated prepayment rates under a variety
of the assumptions discussed herein.
Based on the foregoing assumptions, the following tables indicate the
projected weighted average life of the Class A-1 Certificates, the Class A-2
Certificates, the Class A-3 Certificates, the Class A-4 Certificates and the
Class B Certificates and set forth the percentages of the Original Class A-1
Principal Balance, the Original Class A-2 Principal Balance, the Original Class
A-3 Principal Balance, the Original Class A-4 Principal Balance and the
Original Class B Principal Balance that would be outstanding after each of the
dates shown at the indicated percentages of the Prepayment Model.
S-27
<PAGE>
PERCENTAGE OF THE ORIGINAL PRINCIPAL BALANCE OF THE CLASS A-1
CERTIFICATES AT THE RESPECTIVE PERCENTAGES OF THE
PREPAYMENT MODEL SET FORTH BELOW:
<TABLE>
<CAPTION>
DATE 0% 100% 145% 160% 175% 200% 300% 400%
- ---- ----- ----- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Initial Percentage...... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
...........
...........
...........
...........
...........
...........
...........
...........
...........
...........
Weighted Average Life
(1) (years)
</TABLE>
- --------
(1) The weighted average life of a Class A-1 Certificate is determined by (i)
multiplying the amount of cash distributions in reduction of the principal
balance of such Certificate by the number of years from the date of
issuance of such Class A-1 Certificate to the stated Remittance Date, (ii)
adding the results, and (iii) dividing the sum by the initial principal
balance of such Class A-1 Certificate.
PERCENTAGE OF THE ORIGINAL PRINCIPAL BALANCE OF THE CLASS A-2
CERTIFICATES AT THE RESPECTIVE PERCENTAGES OF THE
PREPAYMENT MODEL SET FORTH BELOW:
<TABLE>
<CAPTION>
DATE 0% 100% 145% 160% 175% 200% 300% 400%
- ---- ----- ----- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Initial Percentage...... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
...........
...........
...........
...........
...........
...........
...........
...........
...........
...........
...........
...........
...........
Weighted Average Life
(1) (years)
</TABLE>
- --------
(1) The weighted average life of a Class A-2 Certificate is determined by (i)
multiplying the amount of cash distributions in reduction of the principal
balance of such Certificate by the number of years from the date of
issuance of such Class A-2 Certificate to the stated Remittance Date, (ii)
adding the results, and (iii) dividing the sum by the initial principal
balance of such Class A-2 Certificate.
S-28
<PAGE>
PERCENTAGE OF THE ORIGINAL PRINCIPAL BALANCE OF THE CLASS A-3
CERTIFICATES AT THE RESPECTIVE PERCENTAGES OF THE
PREPAYMENT MODEL SET FORTH BELOW:
<TABLE>
<CAPTION>
DATE 0% 100% 145% 160% 175% 200% 300% 400%
- ---- ----- ----- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Initial Percentage...... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
...........
...........
...........
...........
...........
...........
...........
...........
...........
...........
...........
...........
...........
...........
Weighted Average Life
(1) (years)............
</TABLE>
- --------
(1) The weighted average life of a Class A-3 Certificate is determined by (i)
multiplying the amount of cash distributions in reduction of the principal
balance of such Certificate by the number of years from the date of
issuance of such Class A-3 Certificate to the stated Remittance Date, (ii)
adding the results, and (iii) dividing the sum by the initial principal
balance of such Class A-3 Certificate.
PERCENTAGE OF THE ORIGINAL PRINCIPAL BALANCE OF THE CLASS A-4
CERTIFICATES AT THE RESPECTIVE PERCENTAGES OF THE
PREPAYMENT MODEL SET FORTH BELOW:
<TABLE>
<CAPTION>
DATE 0% 100% 145% 160% 175% 200% 300% 400%
- ---- ----- ----- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Initial Percentage...... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
...........
...........
...........
...........
...........
...........
...........
...........
...........
...........
...........
...........
...........
...........
...........
...........
Weighted Average Life
(1) (years)............
</TABLE>
- --------
(1) The weighted average life of a Class A-4 Certificate is determined by (i)
multiplying the amount of cash distributions in reduction of the principal
balance of such Certificate by the number of years from the date of
issuance of such Class A-4 Certificate to the stated Remittance Date, (ii)
adding the results, and (iii) dividing the sum by the initial principal
balance of such Class A-4 Certificate.
S-29
<PAGE>
PERCENTAGE OF THE ORIGINAL PRINCIPAL BALANCE OF THE CLASS B
CERTIFICATES AT THE RESPECTIVE PERCENTAGES OF THE
PREPAYMENT MODEL SET FORTH BELOW:
<TABLE>
<CAPTION>
DATE 0% 100% 145% 160% 175% 200% 300% 400%
- ---- ----- ----- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Initial Percentage...... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
...........
...........
...........
...........
...........
...........
...........
...........
...........
...........
...........
...........
...........
...........
...........
...........
...........
...........
Weighted Average Life
(1) (years)
</TABLE>
- --------
(1) The weighted average life of a Class B Certificate is determined by (i)
multiplying the amount of cash distributions in reduction of the principal
balance of such Certificate by the number of years from the date of
issuance of such Class B Certificate to the stated Remittance Date, (ii)
adding the results, and (iii) dividing the sum by the initial principal
balance of such Class B Certificate.
DESCRIPTION OF THE CERTIFICATES
The following information supplements, and to the extent inconsistent
therewith supersedes, the information in the Prospectus under "Description of
the Certificates."
The Certificates will be issued pursuant to the Agreement between the
Company, as Seller and Servicer, and the Trustee. A copy of the execution form
of the Agreement will be filed in a Current Report on Form 8-K with the
Securities and Exchange Commission after the initial issuance of the
Certificates. The following summary describes certain terms of the Agreement,
does not purport to be complete and is qualified in its entirety by the
Agreement, which is incorporated herein by reference. Wherever provisions of
the Agreement are referred to, such provisions are incorporated herein by
reference.
GENERAL
The Offered Certificates will be issued in fully registered form only in
denominations equal to $1,000 or any integral multiple of $1,000 in excess
thereof, except for one Certificate of each Class with a denomination
representing any remainder of the Original Principal Balance of such Class. The
Percentage Interest of a Class A Certificate will be equal to the percentage
obtained from dividing its denomination by the Original Class A-1 Principal
Balance, the Original Class A-2 Principal Balance, the Original Class A-3
Principal Balance or the Original Class A-4 Principal Balance, as appropriate.
The Class A Certificates in the aggregate will represent an initial %
(approximate) undivided interest in the Trust. The Percentage Interest of a
Class B Certificate will be equal to the percentage obtained from dividing its
denomination by the Original Class B Principal Balance. The Class B
Certificates will represent an initial % (approximate) undivided interest
in the Trust. The Trust will consist of the Contracts and the rights, benefits,
obligations and proceeds
S-30
<PAGE>
arising therefrom or in connection therewith, proceeds from certain hazard
insurance on individual Manufactured Homes, proceeds from the errors and
omissions protection policy to the extent such proceeds relate to the Contracts
and amounts held for the Trust in the Certificate Account, rights of the Class
B Certificateholders to receive Guarantee Payments pursuant to the Limited
Guarantee of the Company, and all proceeds in any way derived from any of the
foregoing. (Section 1.02.)
Distributions on the Certificates will be made by the Paying Agent on each
Remittance Date to persons in whose names the Certificates are registered as of
the preceding Record Date. The Remittance Date for the Certificates will be the
15th day of each month (or if such 15th day is not a business day, the next
succeeding business day) commencing July 15, 1993. Payments will be made by
check mailed to such Certificateholder at the address appearing on the
Certificate Register; provided that a Certificateholder who holds an aggregate
Percentage Interest of at least 5% of a Class of Certificates may request
payment by wire transfer of immediately available funds pursuant to written
instructions delivered to the Trustee at least 10 days prior to such Remittance
Date. Final payments will be made only upon tender of the Certificates to the
Paying Agent for cancellation. (Articles I and VIII.)
CONVEYANCE OF CONTRACTS
In addition to the representations and warranties described in the Prospectus
under "Description of Certificates--Conveyance of Contracts," the Company has
also made certain warranties with respect to the Contracts in the aggregate,
including that (i) the aggregate principal amount payable by the Obligors as of
the Cut-off Date equals the Cut-off Date Pool Principal Balance; (ii) as of the
Cut-off Date, no more than 10% of the Contracts by Cut-off Date Pool Principal
Balance are secured by Manufactured Homes located in any one state (except with
respect to Contracts secured by Manufactured Homes located in ), no
more than 5% of the Contracts by remaining principal balance are secured by
Manufactured Homes located in an area with the same zip code and not more than
1% of the Contracts by remaining principal balance are secured by Manufactured
Homes located in California in an area with the same zip code; (iii)
approximately % of the Cut-off Date Pool Principal Balance is attributable to
loans to purchase new Manufactured Homes and approximately % of the Cut-off
Date Pool Principal Balance is attributable to loans to purchase used
Manufactured Homes; (iv) no Contract has a remaining maturity of more than
months; (v) the date of each Contract is on or after ; and (vi) no
adverse selection procedures were employed in selecting the Contracts. (Article
III.)
PAYMENTS ON CONTRACTS; DISTRIBUTIONS ON CERTIFICATES
The Trustee, on behalf of the Trust, will establish and maintain the
Certificate Account at a depository institution organized under the laws of the
United States or any state, the deposits of which are insured to the full
extent permitted by law by the Bank Insurance Fund (currently administered by
the Federal Deposit Insurance Corporation), whose short-term securities or
unsecured long-term debt (or, in the case of the principal bank of a bank
holding company system, the short-term securities or unsecured long-term debt
of such bank holding company) has a rating of P-1 by Moody's in the case of
short-term securities, or in one of the two highest rating categories by
Moody's in the case of unsecured long-term debt, and which is subject to
examination by federal or state authorities (an "Eligible Institution").
(Section 1.02.) The Servicer may authorize the Trustee to invest the funds in
the Certificate Account in Eligible Investments (as defined in the Agreement)
that will mature not later than the business day preceding the applicable
monthly Remittance Date. Eligible Investments include, among other investments,
obligations of the United States or of any agency thereof backed by the full
faith and credit of the United States; federal funds, certificates of deposit,
time deposits and bankers' acceptances sold by eligible financial institutions;
certain repurchase agreements with eligible institutions; corporate securities
assigned at least an Aa rating by Moody's not in excess of 10% of amounts in
the Certificate Account at the time of such investment; commercial paper
assigned a P-1 rating by Moody's at the time of such investment; and shares of
a registered investment company, whose shares are registered under the
Securities Act of 1933 and which are rated by Moody's in its highest rating
category. (Section 5.05.)
S-31
<PAGE>
All payments from Obligors on the Contracts received by the Servicer,
including Principal Prepayments and advance payments by Obligors not
constituting Principal Prepayments ("Advance Payments"), shall be paid into the
Certificate Account no later than one business day following receipt thereof,
except amounts received as late payment fees, extension fees, assumption fees
or similar fees. Such fees are included as part of the Servicer's servicing
fees. See "Servicing Compensation and Payment of Expenses" in the Prospectus.
In addition, amounts paid by the Company for Contracts repurchased as a result
of breach of warranties under the Agreement, and amounts required to be
deposited upon substitution of a Contract because of breach of warranties, as
described under "Conveyance of Contracts" in the Prospectus shall be paid into
the Certificate Account. The Servicer will not make any advances in respect of
delinquent payments on the Contracts.
On the third business day prior to each Remittance Date (the "Determination
Date"), the Servicer will determine the Amount Available and the amounts to be
distributed on the Certificates for such Remittance Date. The Amount Available
is the amount in the Certificate Account on the last day of the preceding Due
Period less the following amounts: any repossession profits on defaulted
Contracts (of which there are expected to be none); Advance Payments in respect
of the Due Period just ended; amounts payable to the Servicer to reimburse it
for any REMIC "prohibited transaction" tax imposed on the Trust and paid by the
Servicer; Liquidation Expenses incurred and taxes and insurance (on repossessed
Manufactured Homes) advanced by the Servicer in respect of Manufactured Homes
that are reimbursable to the Servicer under the Agreement; and any amounts
incorrectly deposited in the Certificate Account. "Liquidation Expenses" are
out-of-pocket expenses incurred by the Servicer in connection with the
liquidation of a defaulted Contract, including, without limitation, legal fees
and disbursements. (Sections 1.02 and 8.02.)
The Trustee will withdraw funds from the Certificate Account to make payments
to Certificateholders. From time to time, as provided in the Agreement, the
Trustee will also withdraw funds from the Certificate Account to make payments
to the Servicer and to pay the Guarantee Fee to the Company as compensation for
providing the Limited Guarantee with respect to the Class B Certificates (as
described under "Limited Guarantee of the Company" below). (Sections 1.02 and
8.02.)
DISTRIBUTIONS
On each Remittance Date, distributions on the Offered Certificates will be
made first to the holders of the Class A Certificates and then to the holders
of the Class B Certificates, as described below.
Distributions of interest and principal to holders of a Class of Class A
Certificates will be made on each Remittance Date in an amount equal to the sum
of (i) their respective Percentage Interests of the amount of interest
calculated as described under "Class A Interest" below and (ii) their
respective Percentage Interests, distributed to each Class of Class A
Certificates in the order of priority described under "Class A Principal"
below, of the Formula Principal Distribution Amount. Distributions on the Class
A Certificates will be applied first to the payment of interest and then to the
payment of principal. The Class A Distribution Amount for any Remittance Date
will be equal to the sum (referred to as the "Class A Formula Distribution
Amount") of (i) the amount of interest calculated as set forth under "Class A
Interest" below and (ii) the Formula Principal Distribution Amount, except
that, if the Class A Formula Distribution Amount exceeds the Amount Available
in the Certificate Account on such Remittance Date, then the Class A
Distribution Amount shall instead equal the Amount Available. (Sections 1.02
and 8.01.)
Distributions of interest and principal to holders of Class B Certificates
will be made on each Remittance Date in an amount equal to their respective
Percentage Interests multiplied by the Class B Distribution Amount.
Distributions on the Class B Certificates will be applied first to the payment
of interest and then to the payment of principal. The Class B Distribution
Amount for any Remittance Date is intended to be equal to the sum (referred to
as the "Class B Formula Distribution Amount") of (a) the amount of interest
calculated as set forth under "Class B Interest" below and (b) an amount of
principal equal to (1) if the Class A Principal Balance has not been reduced to
zero on a previous Remittance Date, the Class B Principal
S-32
<PAGE>
Liquidation Loss Amount (described below) for such Remittance Date, and (2) on
and after the Remittance Date on which the Class A Principal Balance has been
reduced to zero, the Formula Principal Distribution Amount calculated as
described under "Principal" below. If the Amount Available in the Certificate
Account available for distribution to the Class B Certificateholders (after
giving effect to any distribution made to Class A Certificateholders on such
Remittance Date) (the "Remaining Amount Available") is less than the Class B
Formula Distribution Amount, then the Class B Distribution Amount will equal
the sum of such Remaining Amount Available and the Company will be obligated to
pay the amount of such deficiency (the "Guarantee Payment") into the
Certificate Account pursuant to the Limited Guarantee. (Sections 1.02 and
8.03.)
Each distribution with respect to a Book-Entry Certificate will be paid to
DTC, which will credit the amount of such distribution to the accounts of its
Participants in accordance with its normal procedures. Each Participant will be
responsible for disbursing such distribution to the Certificate Owners that it
represents and to each indirect participating brokerage firm (a "brokerage
firm" or "indirect participating firm") for which it acts as agent. Each
brokerage firm will be responsible for disbursing funds to the Certificate
Owners that it represents. All such credits and disbursements with respect to a
Book-Entry Certificate are to be made by DTC and the Participants in accordance
with DTC's rules.
The Servicer will furnish to the Trustee, and the Trustee will send with each
distribution on a Remittance Date to each holder of the Offered Certificates, a
statement or statements setting forth, among other things, (i) the amount of
such distribution allocable to principal (including Principal Prepayments, if
any) and (ii) the amount of such distribution allocable to interest. Such
amounts will be expressed as a dollar amount per Class A or Class B Certificate
with a 1% Percentage Interest or per $1,000 denomination of Class A or Class B
Certificate. (Section 6.05.)
On each Remittance Date the Amount Available will be distributed to Class A
Certificateholders and then Class B Certificateholders in the amounts and order
of priority set forth below:
CLASS A INTEREST
One month's interest (computed on the basis of a 360-day year of twelve 30-
day months) will be paid concurrently to the holders of each Class of Class A
Certificates on each Remittance Date, to the extent of the Amount Available in
the Certificate Account on such date, at the related Remittance Rate on the
then outstanding Class A-1 Principal Balance, Class A-2 Principal Balance,
Class A-3 Principal Balance and Class A-4 Principal Balance. Interest on each
Class of Class A Certificates will accrue from , 199 or from the most
recent Remittance Date on which interest has been paid to but excluding the
following Remittance Date. (Sections 1.02 and 8.03.)
The Remittance Rates for the Class A-1, Class A-2, Class A-3 and Class A-4
Certificates are set forth on the cover of this Prospectus Supplement, and in
each case will be computed on the basis of a 360-day year of twelve 30-day
months.
The Class A-1 Principal Balance as of any Remittance Date is the Original
Class A-1 Principal Balance less all amounts previously distributed to holders
of Class A-1 Certificates on account of principal, the Class A-2 Principal
Balance as of any Remittance Date is the Original Class A-2 Principal Balance
less all amounts previously distributed to holders of Class A-2 Certificates on
account of principal, the Class A-3 Principal Balance as of any Remittance Date
is the Original Class A-3 Principal Balance less all amounts previously
distributed to holders of Class A-3 Certificates on account of principal and
the Class A-4 Principal Balance as of any Remittance Date is the Original Class
A-4 Principal Balance less all amounts previously distributed to holders of
Class A-4 Certificates on account of principal. The Class A Principal Balance
as of any Remittance Date is the sum of the Class A-1 Principal Balance, the
Class A-2 Principal Balance, the Class A-3 Principal Balance and the Class A-4
Principal Balance. (Section 1.02.)
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In the event that, on a particular Remittance Date, the Amount Available in
the Certificate Account is not sufficient to make a full distribution of
interest to the holders of a Class of Class A Certificates, the Amount
Available will be distributed among the outstanding Classes of Class A
Certificates pro rata based on the aggregate amount of interest due on each
such Class of Certificates, and the amount of the shortfall will be carried
forward and added to the amount such holders will be entitled to receive on the
next Remittance Date. (Section 1.02.) Such a shortfall could occur, for
example, if delinquencies or losses realized on the Contracts were
exceptionally high and were concentrated in a particular month. Any such amount
so carried forward will bear interest at the Class A-1 Remittance Rate, the
Class A-2 Remittance Rate, the Class A-3 Remittance Rate or the Class A-4
Remittance Rate, as applicable, to the extent permitted by law.
CLASS A PRINCIPAL
Holders of a Class of Class A Certificates will be entitled to receive on
each Remittance Date as payments of principal, in the order of priority set
forth below and to the extent of the Amount Available in the Certificate
Account on such date after payment of interest on each Class of Class A
Certificates, the sum (such sum being referred to hereinafter as the "Formula
Principal Distribution Amount") of (i) all scheduled payments of principal due
on each outstanding contract during the month preceding the month in which the
Remittance Date occurs, (ii) the Scheduled Principal Balance of each Contract
which, during the month preceding the month of such Remittance Date, was
purchased by the Company pursuant to the Agreement on account of certain
breaches of its representations and warranties, (iii) all Partial Principal
Prepayments applied and all Principal Prepayments in Full received during such
preceding month and (iv) the Scheduled Principal Balance of each Contract that
became a Liquidated Contract during such preceding month. When the Principal
Balance of a Class of Class A Certificates is reduced to zero, no further
distributions of principal will be made to the holders of such Class.
The Scheduled Principal Balance of a Contract as of any Remittance Date is
the unpaid principal balance of such Contract as specified in the amortization
schedule at the time relating thereto (before any adjustment to such schedule
by reason of bankruptcy, moratorium or similar waiver or grace period) as of
the Due Date in the Due Period next preceding such Remittance Date, after
giving effect to any previous partial prepayments and to the payment of
principal due on such Due Date and irrespective of any delinquency in payment
on such Contract. The Pool Scheduled Principal Balance is the aggregate of the
Scheduled Principal Balances of Contracts outstanding at the end of a month. A
Liquidated Contract is a defaulted Contract as to which all amounts that the
Servicer expects to recover through the date of disposition of the Manufactured
Home have been received. (Section 1.02.)
The Formula Principal Distribution Amount will be distributed, to the extent
of the Amount Available after payment of interest on each class of Class A
Certificates, first to the Class A-1 Certificateholders until the Class A-1
Principal Balance has been reduced to zero, then to the Class A-2
Certificateholders until the Class A-2 Principal Balance has been reduced to
zero, then to the Class A-3 Certificateholders until the Class A-3 Principal
Balance has been reduced to zero, and then to the Class A-4 Certificateholders
until the Class A-4 Principal Balance has been reduced to zero.
As hereinafter described, all losses on Liquidated Contracts will be
allocated first to the Class B Certificates until the Class B Principal Balance
has been reduced to zero. If at any time the Pool Scheduled Principal Balance
is less than the sum of the Principal Balances of the Class A Certificates and
the Amount Available on any Remittance Date is less than the Class A
Distribution Amount, the Amount Available will be applied first to the payment
of interest pro rata to the outstanding Class A Certificates, based on the
aggregate amount of interest then payable on each Class of Class A Certificates
and then to the payment of principal to the Class of Class A Certificates then
entitled. All additional losses on Liquidated Contracts will then be allocated
among the Class A Certificates on a pro rata basis, according to their then
outstanding Principal Balances.
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CLASS B INTEREST
Interest will be paid to the Class B Certificateholders on each Remittance
Date, to the extent of (i) the Remaining Amount Available, if any, and (ii) the
amount, if any, paid pursuant to the Limited Guarantee, in the amount of one
month's interest at the Class B Remittance Rate on the then outstanding Class B
Principal Balance. Interest on the outstanding Class B Principal Balance will
accrue from , 199 or from the most recent Remittance Date on which
interest has been paid to but excluding the following Remittance Date. The
Class B Principal Balance is the Original Class B Principal Balance less the
sum of all amounts previously distributed to Class B Certificateholders on
account of principal. In the event that, on a particular Remittance Date, the
Remaining Amount Available in the Certificate Account is not sufficient to make
a full distribution of interest to the Class B Certificateholders and the
Company fails to pay such amount under the Limited Guarantee, the amount of
such deficiency will be carried forward and added to the amount such holders
will be entitled to receive on the next Remittance Date. Any such amount so
carried forward will bear interest at the Class B Remittance Rate, to the
extent permitted by law.
CLASS B PRINCIPAL
Except for distributions of any amounts representing a Class B Principal
Liquidation Loss Amount as described below, prior to the Remittance Date on
which the Class A Principal Balance is reduced to zero (the "Fourth Cross-over
Date"), there will be no distributions of principal on the Class B
Certificates. The First, Second, Third and Fourth Cross-over Dates are the
Remittance Dates on which the Principal Balances of the Class A-1, Class A-2,
Class A-3 and Class A-4 Certificates, respectively, are reduced to zero.
On each Remittance Date prior to the Fourth Cross-over Date, the Class B
Certificateholders will be entitled to receive pursuant to the Limited
Guarantee the amount (the "Class B Principal Liquidation Loss Amount"), if any,
by which the sum of Class A Principal Balance (if greater than zero) and the
Class B Principal Balance for such Remittance Date exceeds the Pool Scheduled
Principal Balance for such Remittance Date (after giving effect to all
distributions of principal on such Remittance Date). The Class B Principal
Liquidation Loss Amount represents future principal payments on the Contracts
that, because of the subordination of the Class B Certificates and Liquidation
Losses on Liquidated Contracts, will not be paid to the Class B
Certificateholders.
On each Remittance Date on and after the Fourth Cross-over Date, Class B
Certificateholders will be entitled to receive, as payments of principal, the
Formula Principal Distribution Amount (reduced, on the Fourth Cross-over Date,
by the amount of any Formula Principal Distribution Amount paid to the Class
A-4 Certificateholders on such date) to the extent of the Remaining Amount
Available in the Certificate Account on such date after payment of all interest
payable on the Class B Certificates and the Guarantee Payment, if any.
SUBORDINATION OF CLASS B CERTIFICATES AND CLASS C CERTIFICATES
The rights of the holders of the Class B Certificates and the Class C
Certificates to receive distributions with respect to the Contracts in the
Trust will be subordinated to such rights of the Class A Certificateholders.
This subordination is intended to enhance the likelihood of regular receipt by
the holders of the Class A Certificates of the full amount of their scheduled
monthly payments of principal and interest and to afford such holders
protection against losses on Liquidated Contracts. The protection afforded to
the Class A Certificateholders by means of the subordination feature will be
accomplished by the preferential right of the Class A Certificateholders to
receive, prior to any distribution being made on a Remittance Date in respect
of the Class B Certificates and the Class C Certificates, the amount of
principal and interest due them on each Remittance Date out of the Amount
Available on deposit on such date in the Certificate Account and by the right
of the Class A Certificateholders to receive future distributions on the
Contracts that would otherwise be payable to the holders of Class B
Certificates. On each Remittance Date the Class B Certificateholders will be
entitled to receive only amounts described above under "Class B Interest" and
"Class B Principal."
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The rights of the Class C Certificateholders to receive distributions with
respect to the Contracts in the Trust will be subordinated to the rights of the
Class B Certificateholders. On each Remittance Date the Class C
Certificateholders will receive the Remaining Amount Available, if any, after
payment of the amount distributed to the Class A Certificateholders and Class B
Certificateholders as described above (less the Monthly Servicing Fee, the
Guarantee Fee payable to the Company and less amounts retained by the Servicer
to reimburse itself for taxes paid in respect of prohibited transactions) plus
aggregate Repossession Profits (as defined in the Agreement).
As described above, prior to the time that the Class A Principal Balance is
reduced to zero, the distribution of principal to the Class A
Certificateholders is intended to include the Scheduled Principal Balance of
each Contract that became a Liquidated Contract during the month next preceding
the month of such distribution. If the Liquidation Proceeds, net of related
Liquidation Expenses, from such Liquidated Contract are less than its Scheduled
Principal Balance plus accrued interest thereon, the deficiency will, in
effect, be absorbed by the Class B and the Class C Certificateholders and the
Company, since a portion of the Amount Available equal to such deficiency and
otherwise distributable to them will be paid to the Class A Certificateholders.
If the Amount Available is not sufficient to cover the amounts distributable to
the Class A Certificateholders on a particular Remittance Date, then the amount
of the Pool Scheduled Principal Balance available to the Class B Certificates
(i.e., such Pool Scheduled Principal Balance less the Class A Principal
Balance) on future Remittance Dates will be reduced. Consequently, but for the
effect of the relative subordination of the Monthly Servicing Fee and the
Guarantee Fee payable to the Company, amounts otherwise distributable to the
Class C Certificateholders and amounts paid under the Limited Guarantee as
described below, the Class B Certificateholders would absorb (i) all losses on
each Liquidated Contract in the amount by which its Liquidation Proceeds, net
of the related Liquidation Expenses, are less than its unpaid principal balance
plus accrued and unpaid interest thereon less the Monthly Servicing Fee and
(ii) all delinquent payments on the Contracts. If the Company fails to make a
payment required under the Limited Guarantee, the Class B Certificateholders
will therefore incur a loss on their investment in the Class B Certificates.
LIMITED GUARANTEE OF THE COMPANY
In order to mitigate the effect of the subordination of the Class B
Certificates and liquidation losses and delinquencies on the Contracts, the
Company will provide a guarantee (the "Limited Guarantee") against losses that
would otherwise be absorbed by the Class B Certificates. Each payment required
to be made under the Limited Guarantee is referred to as a "Guarantee Payment."
Prior to the Fourth Cross-over Date, the Guarantee Payment will equal the
amount, if any, by which (i) the sum of (a) the Class B Formula Distribution
Amount for such Remittance Date (which will be one month's interest at the
Class B Remittance Rate on the Class B Principal Balance) and (b) the Class B
Principal Liquidation Loss Amount for such Remittance Date exceeds (ii) the
Class B Distribution Amount for such Remittance Date. The Class B Principal
Liquidation Loss Amount for any Remittance Date equals the amount, if any, by
which the sum of the Class A Principal Balance and the Class B Principal
Balance for such Remittance Date exceeds the Pool Scheduled Principal Balance
for such Remittance Date. The Class B Principal Liquidation Loss Amount is, in
substance, the amount of delinquencies and losses experienced on the Contracts
during the related due period that was not absorbed by the Guarantee Fee or the
Class C Certificates. On each Remittance Date after the Remittance Date on
which the Class A Principal Balance is reduced to zero, the Guarantee Payment
will equal the amount, if any, by which (i) the Class B Formula Distribution
Amount for such Remittance Date (which will include both interest and
principal) exceeds (ii) the Amount Available for such Remittance Date.
The Limited Guarantee will be an unsecured general obligation of the Company
and will not be supported by any letter of credit or other credit enhancement
arrangement. The Limited Guarantee will not benefit in any way, or result in
any payment to, the Class A or Class C Certificateholders.
As compensation for providing the Limited Guarantee, the Company will be
entitled to receive a Guarantee Fee on each Remittance Date equal to the lesser
of (a) the Amount Available less the Class A
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Distribution Amount, the Class B Distribution Amount, the Monthly Servicing Fee
and any other amounts required to be paid to the Servicer, and (b) an amount
equal to 1/12 of the product of 3% and the Pool Scheduled Principal Balance for
such Remittance Date.
REPORTS TO CERTIFICATEHOLDERS
The Servicer will furnish to the Trustee, and the Trustee will include with
each distribution to a Class A Certificateholder, a statement in respect of the
related Remittance Date setting forth, among other things:
(a) the amount of such distribution to holders of each Class of Class A
Certificates allocable to interest (separately identifying any Unpaid
Interest Shortfall included);
(b) the amount of such distribution to holders of each Class of Class A
Certificates allocable to principal (separately identifying the aggregate
amount of any Principal Prepayments included);
(c) the amount, if any, by which the Class A Formula Distribution Amount
exceeds the Class A Distribution Amount for such Remittance Date;
(d) the Class A-1 Principal Balance, the Class A-2 Principal Balance, the
Class A-3 Principal Balance, the Class A-4 Principal Balance and the Class
B Principal Balance after giving effect to the distribution of principal on
such Remittance Date;
(e) the Class A-1 Remittance Rate for the following Remittance Date;
(f) the Pool Scheduled Principal Balance of the Contracts for the
following Remittance Date;
(g) the Pool Factor (a percentage derived from a fraction the numerator
of which is the amount specified in (e) and the denominator of which is the
Cut-off Date Pool Principal Balance);
(h) the number and aggregate principal balance of Contracts delinquent
(i) 30-59 days and (ii) 60 or more days;
(i) the number of Manufactured Homes that were repossessed during the Due
Period ending immediately prior to such Remittance Date; and
(j) the number of Manufactured Homes that were repossessed but remain in
inventory as of the last day of the Due Period ending immediately prior to
such Remittance Date.
Information furnished pursuant to clauses (a) through (d) will be expressed
as dollar amounts for a Class A Certificate with a 1% Percentage Interest or
per $1,000 denomination of Class A Certificate. (Section 6.05.)
In addition, within a reasonable period of time after the end of each
calendar year, the Servicer will furnish a report to each Class A
Certificateholder of record at any time during such calendar year as to the
aggregate of amounts reported pursuant to (a) and (b) above for such calendar
year.
The Servicer will furnish to the Trustee, and the Trustee will include with
each distribution to a Class B Certificateholder, a statement in respect of the
related Remittance Date setting forth, among other things:
(a) the amount of such distribution to holders of Class B Certificates
allocable to interest;
(b) the amount of such distribution to holders of Class B Certificates
allocable to principal, identifying separately the aggregate amount of any
principal prepayments included therein;
(c) the amount, if any, by which the Class B Formula Distribution Amount
exceeds the Remaining Amount Available for such Remittance Date;
(d) the Class B Principal Liquidation Loss Amount, if any, for such
Remittance Date;
(e) the Guarantee Payment, if any, for such Remittance Date;
(f) the Class B Principal Balance after giving effect to the distribution
of principal on such Remittance Date;
(g) the Pool Scheduled Principal Balance of the Contracts for the
following Remittance Date;
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(h) the Pool Factor (a percentage derived from a fraction the numerator
of which is the sum of the Principal Balance of each Class of Class A
Certificates and the Class B Principal Balance and the denominator of which
is the Cut-off Date Pool Principal Balance);
(i) the number and aggregate principal balance of Contracts delinquent
(i) 30-59 days and (ii) 60 or more days;
(j) the number of Manufactured Homes that were repossessed during the Due
Period ending immediately prior to such Remittance Date;
(k) the number of Manufactured Homes that were repossessed but remain in
inventory as of the last day of the Due Period ending immediately prior to
such Remittance Date; and
(l) the weighted average Contract Rate of all outstanding Contracts.
Information furnished pursuant to clauses (a) through (d) will be expressed as
dollar amounts for a Class B Certificate with a 1% Percentage Interest or per
$1,000 denomination of Class B Certificate. (Section 6.05.)
In addition, within a reasonable period of time after the end of each
calendar year, the Servicer will furnish a report to each Class B
Certificateholder of record at any time during such calendar year as to the
aggregate of amounts reported pursuant to (a) and (b) above for such calendar
year.
REPURCHASE OPTION
The Agreement provides that on any Remittance Date on which the Pool
Scheduled Principal Balance is less than 10% of the Cut-off Date Pool Principal
Balance, the Company or the Servicer will have the option to repurchase, upon
the Company or the Servicer giving notice mailed no earlier than the 15th day
and no later than the 25th day of the month next preceding the month of such
final distribution, all outstanding Contracts at a price equal to the greater
of (a) the sum of (x) 100% of the Scheduled Principal Balance of each Contract
(other than any Contract as to which the related Manufactured Home has been
repossessed and whose fair market value is included pursuant to clause (y)
below) as of the final Remittance Date, and (y) the fair market value of such
acquired property (as determined by the Company), and (b) the aggregate fair
market value (as determined by the Company) of all of the assets of the Trust,
plus, in each case, any Unpaid Class A-1 Interest Shortfall, any Unpaid Class
A-2 Interest Shortfall, any Unpaid Class A-3 Interest Shortfall, any Unpaid
Class A-4 Interest Shortfall and any Unpaid Class B Interest Shortfall, as well
as one month's interest at the applicable Contract Rate on the Scheduled
Principal Balance of each Contract (including any Contract as to which the
related Manufactured Home has been repossessed). (Section 8.05.)
TERMINATION OF THE AGREEMENT
The Agreement will terminate upon the last action required to be taken by the
Trustee on the final Remittance Date following the later of (i) the purchase by
the Company or the Servicer of all Contracts and all property acquired in
respect of any Contract remaining in the Trust as described under "Repurchase
Option" or (ii) the final payment or other liquidation of the last Contract
remaining in the Trust or the disposition of all property acquired upon
repossession of any Manufactured Home.
Upon presentation and surrender of the Certificates, the Trustee shall cause
to be distributed, in the following order of priority, to Certificateholders on
the final Remittance Date in proportion to their respective Percentage
Interests an amount equal to (i) as to the Class A Certificates, any unpaid
interest at the related Remittance Rates, (ii) as to the Class A Certificates,
the outstanding Principal Balances thereof, (iii) as to the Class B
Certificates, the Class B Principal Balance together with any Unpaid Class B
Interest Shortfall and one month's interest at the Class B Remittance Rate on
the Class B Principal Balance, and (iv) as to the Class C Certificates, the
amount which remains on deposit in the Certificate Account (other than amounts
retained to meet claims) after application pursuant to clauses (i)-(iii) above.
(Section 12.03.)
AMENDMENT
The Agreement may be amended by agreement of the Trustee, the Company and the
Servicer at any time, without the consent of the Certificateholders, to correct
manifest error, to cure any ambiguity, to correct
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or supplement any provision which may be inconsistent with any other provision,
to add or amend any provision as required by Moody's, Duff & Phelps or any
other nationally recognized statistical rating organization in order to improve
or maintain the rating of any Class of Class A Certificates or the Class B
Certificates or to add other provisions not inconsistent with the Agreement
upon receipt of an Opinion of Counsel to the Servicer that such amendment will
not adversely affect in any material respect the interests of any
Certificateholder. (Section 12.07.) Neither the Company nor the Servicer is
obligated to take any action to maintain or improve the rating given any Class
of Class A Certificates or the Class B Certificates.
The Agreement may also be amended from time to time by the Trustee, the
Company and the Servicer, with the consent of the holders of Certificates of
each Class affected thereby evidencing, as to each such Class, Percentage
Interests aggregating at least 51%, provided that no such amendment shall (a)
reduce in any manner the amount of, or delay the timing of, collections of
payments on Contracts or distributions which are required to be made on any
Certificate without the consent of the holder of each Certificate affected
thereby, (b) reduce the aforesaid percentages of Certificateholders required
for any amendment of the Agreement, without the unanimous consent of the
Certificateholders, (c) adversely affect the status of the Trust as a REMIC or
the status of the Certificates as "regular interests" therein, or cause any tax
to be imposed on the Trust, or (d) modify in any manner the rights of the Class
C Certificateholders, without the unanimous consent of the Class C
Certificateholders. (Section 12.07.)
The Agreement may also be amended from time to time, without the consent of
any Certificateholders, by the Company, the Trustee and the Servicer to modify,
eliminate or add to the provisions of the Agreement (i) to maintain the
qualification of the Trust as a REMIC under the Code or avoid, or reduce the
risk of, the imposition of any tax on the Trust under the Code that would be a
claim against the Trust assets, provided that (a) an Opinion of Counsel is
delivered to the Trustee to the effect that such action is necessary to
maintain such qualification or avoid any such tax or reduce the risk of its
imposition and (b) such amendment shall not materially adversely affect the
interests of any Certificateholder or (ii) to prevent the Trust from entering
into any "prohibited transaction" as defined in Section 860F of the Code.
The Trustee is required under the Agreement to furnish Certificateholders
affected thereby with notice promptly upon execution of any amendment to the
Agreement. (Section 12.07.)
THE TRUSTEE
First Bank National Association (the "Trustee") has its corporate trust
offices at 180 East Fifth Street, St. Paul, Minnesota 55102. The Trustee and
certain of its affiliates maintain commercial banking relationships with the
Company.
The Agreement requires the Trustee to maintain, at its own expense, an office
or agency in Minneapolis or St. Paul, Minnesota where Certificates may be
surrendered for registration of transfer or exchange and where notices and
demands to or upon the Trustee and the certificate registrar and transfer agent
in respect of the Certificates pursuant to the Agreement may be served. On the
date hereof, the Trustee's offices for such purposes are located at 180 East
Fifth Street, St. Paul, Minnesota 55102. The Trustee will promptly give written
notice to the Certificateholders of any change thereof. (Section 12.02.)
REGISTRATION OF THE OFFERED CERTIFICATES
The Offered Certificates will initially be registered in the name of Cede &
Co., the nominee of DTC. DTC is a limited-purpose trust company organized under
the laws of the State of New York, a member of the Federal Reserve System, a
"clearing corporation" within the meaning of the New York Uniform Commercial
Code, and a "clearing agency" registered pursuant to the provisions of Section
17A of the 1934 Act. DTC accepts securities for deposit from its participating
organizations ("Participants") and facilitates the clearance and settlement of
securities transactions between Participants in such securities through
electronic book-entry changes in accounts of Participants, thereby eliminating
the need for physical
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movement of certificates. Participants include securities brokers and dealers,
banks and trust companies and clearing corporations and may include certain
other organizations. Indirect access to the DTC system is also available to
others such as banks, brokers, dealers and trust companies that clear through
or maintain a custodial relationship with a Participant, either directly or
indirectly ("indirect participants").
Certificate Owners who are not Participants but desire to purchase, sell or
otherwise transfer ownership of the Offered Certificates may do so only through
Participants (unless and until Definitive Class A and Class B Certificates, as
defined below, are issued). In addition, Certificate Owners will receive all
distributions of principal of, and interest on, the Offered Certificates from
the Trustee through DTC and Participants. Certificate Owners will not receive
or be entitled to receive certificates representing their respective interests
in the Class A and Class B Certificates, except under the limited circumstances
described below.
Unless and until Definitive Class A and Class B Certificates (as defined
below) are issued, it is anticipated that the only "Certificateholder" of the
Class A and Class B Certificates will be Cede & Co., as nominee of DTC.
Certificate Owners will not be Certificateholders as that term is used in the
Agreement. Certificate Owners are only permitted to exercise the rights of
Certificateholders indirectly through Participants and DTC.
While the Class A and Class B Certificates are outstanding (except under the
circumstances described below), under the rules, regulations and procedures
creating and affecting DTC and its operations (the "Rules"), DTC is required to
make book-entry transfers among Participants on whose behalf it acts with
respect to the Class A and Class B Certificates and is required to receive and
transmit distributions of principal of, and interest on, the Class A and Class
B Certificates. Participants with whom Certificate Owners have accounts with
respect to Class A and Class B Certificates are similarly required to make
book-entry transfers and receive and transmit such distributions on behalf of
their respective Certificate Owners. Accordingly, although Certificate Owners
will not possess certificates, the Rules provide a mechanism by which
Certificate Owners will receive distributions and will be able to transfer
their interests.
Class A and Class B Certificates will be issued in registered form to
Certificate Owners, or their nominees, rather than to DTC (such Certificates
being referred to herein as "Definitive Class A and Class B Certificates"),
only if (i) DTC or the Company advises the Trustee in writing that DTC is no
longer willing or able to discharge properly its responsibilities as nominee
and depository with respect to the Class A and Class B Certificates and the
Company or the Trustee is unable to locate a qualified successor or (ii) the
Company at its sole option advises the Trustee in writing that it elects to
terminate the book-entry system through DTC. Upon issuance of Definitive Class
A and Class B Certificates to Certificate Owners, such Certificates will be
transferable directly (and not exclusively on a book-entry basis) and
registered holders will deal directly with the Trustee with respect to
transfers, notices and distributions.
DTC has advised the Company and the Trustee that, unless and until Definitive
Class A and Class B Certificates are issued, DTC will take any action permitted
to be taken by a Certificateholder under the Agreement only at the direction of
one or more Participants to whose DTC accounts the Class A and Class B
Certificates are credited. DTC has advised the Company that DTC will take such
action with respect to any Percentage Interests of the Class A and Class B
Certificates only at the direction of and on behalf of such Participants with
respect to such Percentage Interests of the Class A and Class B Certificates.
DTC may take actions, at the direction of the related Participants, with
respect to some Class A and Class B Certificates which conflict with actions
taken with respect to other Class A and Class B Certificates.
Issuance of Class A and Class B Certificates in book-entry form rather than
as physical certificates may adversely affect the liquidity of the Class A and
Class B Certificates in the secondary market and the ability of Certificate
Owners to pledge them. In addition, since distributions on the Class A and
Class B Certificates will be made by the Trustee to DTC and DTC will credit
such distributions to the accounts of its Participants, which will further
credit them to the accounts of indirect participants or Certificate Owners,
Certificate Owners may experience delays in the receipt of such distributions.
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USE OF PROCEEDS
Substantially all of the net proceeds to be received from the sale of the
Offered Certificates will be used by the Company for general corporate
purposes, including the purchase of the Contracts, the costs of carrying the
Contracts until the sale of the Certificates, and to pay other expenses
connected with pooling the Contracts and issuing the Certificates.
ERISA CONSIDERATIONS
The following information supplements, and to the extent inconsistent
therewith supersedes, the information in the Prospectus under "ERISA
Considerations."
The Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
imposes certain restrictions on employee benefit plans that are subject to
ERISA ("Plans") and on persons who are fiduciaries with respect to such Plans.
Employee benefit plans that are governmental plans (as defined in section 3(32)
of ERISA) and certain church plans (as defined in Section 3(33) of ERISA) are
not subject to ERISA requirements. Accordingly, assets of such plans may be
invested in the Class A Certificates without regard to the ERISA restrictions
described above, subject to applicable provisions of other federal and state
laws. However, any such governmental or church plan which is qualified under
section 401(a) of the Code and exempt from taxation under section 501(a) of the
Code is subject to the prohibited transaction rules set forth in section 503 of
the Code.
The U.S. Department of Labor ("DOL") has granted substantially identical
administrative exemptions to(collectively referred to as the "Exemption") from
certain of the prohibited transaction rules of ERISA and the Code with respect
to the initial purchase, the holding, and the subsequent resale by Plans of
certificates representing interests in asset-backed pass-through trusts that
consist of certain receivables, loans and other obligations that meet the
conditions and requirements of the Exemption. The receivables covered by the
Exemption include manufactured housing installment sales contracts and
installment loan agreements such as the Contracts. The Exemption will apply to
the acquisition, holding, and resale of the Class A Certificates by a Plan,
provided that specified conditions (certain of which are described below) are
met.
Among the conditions which must be satisfied for the Exemption to apply to
the Class A Certificates are the following:
(1) The acquisition of the Class A Certificates by a Plan is on terms
(including the price for the Class A Certificates) that are at least as
favorable to the Plan as they would be in an arm's-length transaction with
an unrelated party;
(2) The rights and interests evidenced by the Class A Certificates
acquired by the Plan are not subordinated to the rights and interests
evidenced by other certificates of the Trust;
(3) The Class A Certificates acquired by the Plan have received a rating
at the time of such acquisition that is in one of the three highest generic
rating categories from either Standard & Poor's Corporation, Moody's, Duff
& Phelps or Fitch Investors Service, Inc.;
(4) The Trustee is not an affiliate of any member of the Restricted Group
(as defined below);
(5) The sum of all payments made to the Underwriters in connection with
the distribution of the Class A Certificates represents not more than
reasonable compensation for underwriting the Class A Certificates. The sum
of all payments made to and retained by the Company pursuant to the sale of
the Contracts to the Trust represents not more than the fair market value
of such Contracts. The sum of all payments made to and retained by the
Servicer represents not more than reasonable compensation for the
Servicer's services under the Agreement and reimbursement of the Servicer's
reasonable expenses in connection therewith; and
S-41
<PAGE>
(6) The Plan investing in the Class A Certificates is an "accredited
investor" as defined in Rule 501(a)(1) of Regulation D of the Securities
and Exchange Commission under the Securities Act of 1933.
Moreover, the Exemption would provide relief from certain self-
dealing/conflict of interest prohibited transactions only if, among other
requirements, (i) in the case of the acquisition of Class A Certificates in
connection with the initial issuance, at least fifty (50) percent of the Class
A Certificates are acquired by persons independent of the Restricted Group (as
defined below), (ii) the Plan's investment in Class A Certificates does not
exceed twenty-five (25) percent of all of the Class A Certificates outstanding
at the time of the acquisition and (iii) immediately after the acquisition, no
more than twenty-five (25) percent of the assets of the Plan are invested in
certificates representing an interest in one or more trusts containing assets
sold or serviced by the same entity. The Exemption does not apply to Plans
sponsored by the Company, the Underwriters, the Trustee, the Servicer, any
obligor with respect to Contracts included in the Trust constituting more than
five percent of the aggregate unamortized principal balance of the assets in
the Trust, or any affiliate of such parties (the "Restricted Group").
The Company believes that the Exemption will apply to the acquisition and
holding of Class A Certificates sold by the Underwriters and by Plans and that
all conditions of the Exemption other than those within the control of the
investors have been met. In addition, as of the date hereof, no obligor with
respect to Contracts included in the Trust constitutes more than five percent
of the aggregate unamortized principal balance of the assets of the Trust. Any
Plan fiduciary who proposes to cause a Plan to purchase Class A Certificates
should consult with its own counsel with respect to the potential consequences
under ERISA and the Code of the Plan's acquisition and ownership of the Class A
Certificates. Assets of a Plan or individual retirement account should not be
invested in the Class A Certificates unless it is clear that the assets of the
Trust will not be plan assets or unless it is clear that the Exemption or a
prohibited transaction class exemption will apply and exempt all potential
prohibited transactions. See "ERISA Considerations" in the Prospectus.
No transfer of Class B Certificates will be permitted to be made to a Plan
unless such Plan, at its expense, delivers to the Trustee and the Company an
opinion of counsel (in form satisfactory to the Trustee and the Company) to the
effect that the purchase or holding of a Class B Certificate by such Plan will
not result in the assets of the Trust being deemed to be "plan assets" and
subject to the prohibited transaction provisions of ERISA and the Code and will
not subject the Trustee, the Company or the Servicer to any obligation or
liability in addition to those undertaken in the Agreement. Unless such opinion
is delivered, each person acquiring a Class B Certificate will be deemed to
represent to the Trustee, the Company and the Servicer that such person is
neither a Plan, nor acting on behalf of a Plan, subject to ERISA or to Section
4975 of the Code.
LEGAL INVESTMENT CONSIDERATIONS
The Class B Certificates will not constitute "mortgage related securities"
under the Secondary Mortgage Market Enhancement Act of 1984. The appropriate
characterization of the Class B Certificates under various legal investment
restrictions, and thus the ability of investors subject to these restrictions
to purchase Class B Certificates, may be subject to significant interpretive
uncertainties. All investors whose investment authority is subject to legal
restrictions should consult their own legal advisors to determine whether, and
to what extent, the Class B Certificates will constitute legal investments for
them.
The Company makes no representation as to the proper characterization of the
Class B Certificates for legal investment or financial institution regulatory
purposes, or as to the ability of particular investors to purchase Class B
Certificates under applicable legal investment restrictions. The uncertainties
described above (and any unfavorable future determinations concerning legal
investment or financial institution regulatory characteristics of the Class B
Certificates) may adversely affect the liquidity of the Class B Certificates.
S-42
<PAGE>
UNDERWRITING
The Underwriters named below have severally agreed, subject to the terms and
conditions of the Underwriting Agreement, to purchase from the Company the
respective principal amounts of the Offered Certificates set forth opposite
their names below.
<TABLE>
<CAPTION>
PRINCIPAL PRINCIPAL PRINCIPAL PRINCIPAL PRINCIPAL
AMOUNT OF AMOUNT OF AMOUNT OF AMOUNT OF AMOUNT OF
CLASS A-1 CLASS A-2 CLASS A-3 CLASS A-4 CLASS B
UNDERWRITER CERTIFICATES CERTIFICATES CERTIFICATES CERTIFICATES CERTIFICATES
----------- ------------ ------------ ------------ ------------ --------------
<S> <C> <C> <C> <C> <C>
$ $ $ $ $
$ $ $ $ $
$ $ $ $ $
----------- ----------- ----------- ----------- --------------
Totals.............. $ $ $ $ $
=========== =========== =========== =========== ==============
</TABLE>
In the Underwriting Agreement, the Underwriters have agreed, subject to the
terms and conditions set forth therein, to purchase all of the Offered
Certificates offered hereby if any Offered Certificates are purchased. In the
event of default by an Underwriter, the Underwriting Agreement provides that,
in certain circumstances, the Underwriting Agreement may be terminated.
The Underwriters propose to offer the Offered Certificates in part directly
to purchasers at the initial public offering price set forth on the cover page
of this Prospectus and in part to certain securities dealers at such prices
less concessions not to exceed % of the Class A-1 Principal Balance, % of
the Class A-2 Principal Balance, % of the Class A-3 Principal Balance, %
of the Class A-4 Principal Balance, and % of the Class B Principal Balance.
The Underwriters may allow, and such dealers may reallow, concessions not to
exceed % of the Class A-1 Principal Balance, % of the Class A-2
Principal Balance, % of the Class A-3 Principal Balance, % of the Class
A-4 Principal Balance, and % of the Class B Principal Balance to certain
brokers and dealers. After the Offered Certificates are released for sale to
the public, the offering price and other selling terms may be varied by the
Underwriters.
The Underwriting Agreement provides that the Company will indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, or contribute to payments the Underwriters may be
required to make in respect thereof.
The Company has agreed that for a period of 30 days from the date of this
Prospectus Supplement it will not offer or sell publicly any other manufactured
housing contract pass-through certificates without the consent of the
Underwriters.
LEGAL MATTERS
Certain legal matters relating to the Certificates will be passed upon for
the Company by Dorsey & Whitney, Minneapolis, Minnesota, and for the
Underwriters by , . The material federal income
tax consequences of the Certificates will be passed upon for the Company by
Dorsey & Whitney.
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 Offered
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 the affairs of the Company since the date hereof.
S-43
<PAGE>
GREEN TREE FINANCIAL CORPORATION, SELLER AND SERVICER
MANUFACTURED HOUSING CONTRACT PASS-THROUGH CERTIFICATES
(ISSUABLE IN SERIES)
Manufactured Housing Contract Pass-Through Certificates ("Certificates") of
one or more series (each, a "Series") may be sold from time to time under this
Prospectus and a Prospectus Supplement for each such Series. The Certificates
of each Series may be issued in one or more classes or subclasses (each, a
"Class"), as further described herein. If the Certificates of a Series are
issued in more than one Class, all or less than all of such Classes may be
sold under this Prospectus, and there may be separate Prospectus Supplements
for one or more of such Classes so sold. Any reference herein to the
Prospectus Supplement relating to a Series comprised of more than one Class
should be understood to refer to each of the Prospectus Supplements relating
to the Classes sold hereunder.
The Certificates evidence specified interests in separate pools of
manufactured housing installment sales contracts and installment loan
agreements (the "Contracts"), as more particularly described herein, and in
certain other property conveyed by Green Tree Financial Corporation (the
"Company"). The Contracts included in any Contract Pool will be described in
the related Prospectus Supplement. Except as otherwise specified in the
related Prospectus Supplement, the Contracts will have been originated in the
ordinary course of business by the Company. Specific information, to the
extent available, regarding the size and composition of the pool of Contracts
relating to each Series of Certificates will be set forth in the related
Prospectus Supplement. If specified in the related Prospectus Supplement, a
pool insurance policy, letter of credit, surety bond, guarantee of the
Company, cash reserve fund, or other form of credit enhancement, or any
combination thereof, may be provided with respect to a Series of Certificates,
or one or more Classes of such Series, evidencing interests in the Contracts.
The Company will act as Servicer (in such capacity referred to herein as the
"Servicer") of the Contracts.
Each Series of Certificates will consist of one or more Classes of
Certificates, which may include one or more senior Classes of Certificates
(the "Senior Certificates") and one or more subordinate Classes of
Certificates (the "Subordinated Certificates"). Certificates of a Series may
be divided into two or more Classes or sub-classes representing interests in
specified percentages (which may be 0%) of principal or interest, or both, in
distributions on the pool of Contracts relating to such Series, as specified
in the related Prospectus Supplement. Each Prospectus Supplement will describe
the Series and Class or Classes of Certificates offered thereby.
The Prospectus Supplement will set forth the Remittance Rate that will be
paid to Certificateholders of each Class or sub-class of such Series. Such
Remittance Rate may be fixed, variable or adjustable, as specified in the
related Prospectus Supplement.
Except as otherwise specified in the related Prospectus Supplement, the only
obligations of the Company with respect to a Series of Certificates will be
pursuant to certain limited representations and warranties. Except for certain
representations and warranties relating to the Contracts and certain other
exceptions, the Servicer's obligations with respect to the Certificates
evidencing interests in a pool of Contracts are limited to its contractual
servicing obligations. If so specified in the related Prospectus Supplement,
the Servicer may be obligated, under certain terms and conditions, to advance
the amount of any delinquent payments of principal and interest during the
immediately preceding Due Period (as defined herein), but only to the extent
the Servicer determines such advances are recoverable from future payments and
collections on the Contracts or otherwise. See "Description of the
Certificates--Advances" and "--Distributions on Certificates."
There will have been no public market for any Certificates sold hereunder
prior to the offering thereof and there is no assurance that any such market
will develop. The Underwriters named in the Prospectus Supplement relating to
a Series may from time to time buy and sell Certificates of such Series, but
there can be no assurance that an active secondary market therefor will
develop, and there is no assurance that any such market, if established, will
continue.
The Company may elect to cause the Trust Fund relating to a Series of
Certificates to be treated as a "Real Estate Mortgage Investment Conduit" (a
"REMIC") for federal income tax purposes. See "Certain Federal Income Tax
Consequences" herein.
THE CERTIFICATES WILL NOT REPRESENT INTERESTS IN OR OBLIGATIONS OF THE
COMPANY OR ANY OF ITS AFFILIATES, EXCEPT TO THE LIMITED EXTENT DESCRIBED
HEREIN. THE CERTIFICATES WILL NOT BE INSURED OR GUARANTEED BY ANY GOVERNMENTAL
AGENCY OR INSTRUMENTALITY, OR (EXCEPT AS OTHERWISE SPECIFIED IN THE RELATED
PROSPECTUS SUPPLEMENT) BY 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.
This Prospectus may not be used to consummate sales of a Series of
Certificates unless accompanied by a Prospectus Supplement.
The date of this Prospectus is May , 1994.
<PAGE>
REPORTS TO CERTIFICATEHOLDERS
The Company will cause to be provided to the holders of the Certificates of
each Series certain monthly and annual reports concerning such Certificates and
the related Trust Funds as further described in the related Prospectus
Supplement 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 (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 500 West Madison Street, Chicago, Illinois 60661-2511 and
Seven World Trade Center, 13th Floor, New York, New York 10048. 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 rights to purchase preferred shares are listed on
the New York Stock Exchange ("NYSE") and on the Pacific Stock Exchange ("PSE").
The Company's Senior Subordinated Debentures are also listed on the NYSE and
the PSE. The Company's Senior Subordinated Notes are listed on the NYSE.
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.
ADDITIONAL INFORMATION
This Prospectus contains, and the Prospectus Supplement for each Series of
Certificates will contain, a summary of certain material terms of certain of
the documents referred to herein and therein, but neither contains nor will
contain all of the information set forth in the Registration Statement of which
this Prospectus is a part (the "Registration Statement"). For further
information, reference is made to such Registration Statement and the exhibits
thereto which the Company has filed with the Securities and Exchange Commission
(the "Commission"), under the Securities Act of 1933, as amended. Statements
contained in this Prospectus and any Prospectus Supplement describing a
provision of any contract or other document referred to are summaries, and if
this Prospectus or such Prospectus Supplement indicates that such contract or
other document has been filed as an exhibit to the Registration Statement,
reference is made to the copy of the contract or other document filed as an
exhibit, each such statement being qualified in all respects by reference to
the actual provision being described. Copies of the Registration Statement can
be inspected and, upon payment of the Commission's prescribed charges, copied
at the public reference facilities maintained by the Commission at Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and at certain of its
Regional Offices located as follows: New York Regional Office, Seven World
Trade Center, 13th Floor, New York, New York 10048, and Chicago Regional
Office, Suite 1400, 500 West Madison Street, Chicago, Illinois 60661.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
With respect to any Class of Certificates that is supported by a guarantee of
the Company, the Company's Annual Report on Form 10-K for the year ended
December 31, 1993 which has been filed with the Commission is hereby
incorporated by reference in this Prospectus and the related Prospectus
Supplement.
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 the Prospectus Supplement relating to a Class of Certificates
that is supported by a guarantee of the Company, and to be a part thereof from
the respective dates of filing of such documents. Any statement contained
herein
2
<PAGE>
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, Vice President and General Counsel, 1100
Landmark Towers, 345 St. Peter Street, St. Paul, Minnesota 55102-1639,
telephone number (612) 293-3400.
3
<PAGE>
SUMMARY OF TERMS
This summary is qualified in its entirety by reference to the detailed
information appearing elsewhere in this Prospectus and in the accompanying
Prospectus Supplement. Capitalized terms used herein shall have the respective
meanings assigned them in the "Glossary."
Title of Securities.......... Manufactured Housing Contract Pass-Through Cer-
tificates (Issuable in Series) (the "Certifi-
cates").
Seller....................... Green Tree Financial Corporation (in such capac-
ity referred to herein as the "Company").
Servicer..................... Green Tree Financial Corporation (in such capac-
ity referred to herein as the "Servicer").
Special Considerations....... Certain special considerations are particularly
relevant to a decision to invest in any Certif-
icates sold hereunder. See "Special Considera-
tions" herein.
Securities Offered........... Certificates evidencing interests in pools of
Contracts (as defined herein) may be issued
from time to time in Series pursuant to sepa-
rate Pooling and Servicing Agreements (each, an
"Agreement") between the Company, as Seller and
Servicer, and the Trustee specified in the re-
lated Prospectus Supplement for such Series of
Certificates (the "Trustee").
The Contracts................ The Contracts evidenced by a Series of Certifi-
cates (the "Contract Pool") will be fixed or
variable rate Contracts. Such Contracts, as
specified in the related Prospectus Supplement,
will consist of manufactured housing install-
ment sales contracts and installment loan
agreements and will be conventional contracts
or contracts insured by the Federal Housing Ad-
ministration ("FHA") or partially guaranteed by
the Veterans Administration ("VA"). Each Con-
tract will be secured by a new or used Manufac-
tured Home (as defined herein) or, in certain
cases, by a mortgage or deed of trust on the
real estate to which the manufactured home is
deemed permanently affixed (a "Land-and-Home
Contract").
The Prospectus Supplement for each Series will
provide information with respect to (i) the ag-
gregate principal balance of the Contracts com-
prising the Contract Pool, as of the date spec-
ified in the Prospectus Supplement (the "Cut-
off Date"); (ii) the weighted average contrac-
tual rate of interest (the "Contract Rate") on
the Contracts; (iii) the weighted average term
to scheduled maturity as of origination; (iv)
the weighted average term to scheduled maturity
as of the Cut-off Date and the range of terms
to maturity; (v) the percentage amount of Con-
tracts secured by new or used Manufactured
Homes; (vi) the average outstanding principal
balance of the Contracts as of the Cut-off
Date; (vii) the range of Loan-to-Value Ratios;
and (viii) the geographic location and types of
Manufactured Homes securing the Contracts. In
addition, if so specified in the related Pro-
spectus Supplement, additional Contracts may be
purchased from the Company during the Pre-Fund-
ing Pe-
4
<PAGE>
riod specified in the related Prospectus Sup-
plement, from funds on deposit in a Pre-Funding
Account.
Except as otherwise specified in the related
Prospectus Sup-plement, the Contracts will have
been originated by the Company on an individual
basis in the ordinary course of its business.
Description of Certificates.. Each Class of Certificates within a Series will
evidence the interest specified in the related
Prospectus Supplement in the Contract Pool and
certain other property held in trust for the
benefit of the Certificateholders (the "Trust
Fund").
Each Series of Certificates may consist of one
or more Classes, one or more of which may be
Senior Certificates ("Senior Certificates") and
one or more of which may be Subordinated Cer-
tificates ("Subordinated Certificates"). A
Class of Certificates of a Series may be di-
vided into two or more sub-classes, as and on
the terms specified in the related Prospectus
Supplement. Each Class or sub-class of a Series
may evidence the right to receive a specified
portion (which may be 0%) of each distribution
of principal or interest or both, on the Con-
tracts. Each Class or sub-class of a Series may
be assigned a principal balance (the "Stated
Balance") based on the cash flow from the as-
sets in the Trust Fund, and a fixed, variable
or adjustable stated annual interest rate, and
may be entitled to receive distributions in re-
duction of Stated Balance to the extent avail-
able therefor in the manner, priority and
amounts specified in the related Prospectus
Supplement. A Class or sub-class of Certifi-
cates may be Compound Interest Certificates on
which interest will accrue, but not be paid for
the period set forth in the related Prospectus
Supplement. The Certificates will be issuable
in fully registered form in the authorized de-
nominations specified in the related Prospectus
Supplement. See "Description of the Certifi-
cates." The Subordinated Certificates of a Se-
ries will be subordinated in certain respects
to the Senior Certificates of the same Series.
If a Series of Certificates contains more than
one Class of Subordinated Certificates, distri-
butions and losses will be allocated among such
Classes in the manner specified in the related
Prospectus Supplement. The Certificates will
not be guaranteed or insured by any government
agency or, unless otherwise specified in the
related Prospectus Supplement, other insurer
and, except as described below and in the re-
lated Prospectus Supplement, the Contracts will
not be guaranteed or insured by any government
agency or other insurer.
Subordinated Certificates.... One or more Classes of any Series may be Subor-
dinated Certificates, as specified in the re-
lated Prospectus Supplement. The rights of the
Subordinated Certificateholders to receive any
or a specified portion of distributions with
respect to the Contracts will be subordinated
to the rights of Senior
5
<PAGE>
Certificateholders to the extent and in the
manner specified in the related Prospectus Sup-
plement. If a Series of Certificates contains
more than one Class of Subordinated Certifi-
cates, distributions and losses will be allo-
cated among such classes in the manner speci-
fied in the related Prospectus Supplement. The
rights of the Subordinated Certificateholders,
to the extent not subordinated, may be on a
parity with those Senior Certificateholders.
This subordination is intended to enhance the
likelihood of regular receipt by Senior
Certificateholders of the full amount of sched-
uled monthly payments of principal and interest
due them and to protect the Senior
Certificateholders against losses.
Credit Enhancement........... As an alternative, or in addition, to the credit
enhancement afforded by subordination of the
Subordinated Certificates, credit enhancement
with respect to a Series of Certificates may be
provided by pool insurance, letters of credit,
surety bonds, a guarantee of the Company, cash
reserve funds or other forms of enhancement ac-
ceptable to each nationally recognized rating
agency rating a Series of Certificates, in each
case as described in the related Prospectus
Supplement.
Interest..................... Except as otherwise set forth in the related
Prospectus Supplement, interest on the Certifi-
cates will be paid on the dates specified in
the related Prospectus Supplement (each a "Re-
mittance Date"), commencing on the date speci-
fied in the related Prospectus Supplement. The
related Prospectus Supplement will set forth
for each Class or sub-class of Certificates the
interest rate, if any, for each such Class or
sub-class or the method of determining such in-
terest rate. See "Yield Considerations" and
"Description of the Certificates." As specified
in the related Prospectus Supplement, Classes
of a Series of Certificates or sub-classes
within a Class may be entitled to receive no
interest or interest which is not proportionate
to the principal allocable to such Certifi-
cates.
Principal (Including
Prepayments)................ Except as otherwise set forth in the related
Prospectus Supple-ment, principal on each Con-
tract, including any principal prepayments,
will be passed through on each Remittance Date.
See "Maturity and Prepayment Considerations"
and "Description of the Certificates." If so
specified in the Prospectus Supplement with re-
spect to a Class or sub-class of a Series hav-
ing a Stated Balance, such distributions may be
made in reduction of the Stated Balance, in an
amount equal to the Certificate Remittance
Amount or such other amounts as are specified
in the related Prospectus Supplement. See "Ma-
turity and Prepayment Considerations" and "De-
scription of the Certificates--Distributions on
Certificates" and "--Payments on Contracts."
Optional Termination......... If so specified in the related Prospectus Sup-
plement, each of the Company or the Servicer
may at its option repurchase all Contracts re-
lating to a Series of Certificates remaining
outstanding at such time and under the circum-
stances specified
6
<PAGE>
in such Prospectus Supplement. Unless otherwise
provided in the related Prospectus Supplement,
the repurchase price will equal the principal
amount of such Contracts plus accrued interest
from the first day of the month of repurchase
to the first day of the next succeeding month
at the Contract Rates borne by such Contracts.
See "Description of the Certificates--Termina-
tion of the Agreement."
Global Certificates.......... If so specified in the related Prospectus Sup-
plement, the Certificates of a Series, or of
one or more Classes within a Series, will be
issuable in the form of one or more global cer-
tificates (each, a "Global Certificate") to be
held by a depositary (each, a "Depositary") on
behalf of the beneficial owners of the Certifi-
cates, as described herein under "Description
of the Certificates--Global Certificates." The
description of the Certificates in this Pro-
spectus assumes that the Certificates of a Se-
ries will not be issued in the form of Global
Certificates. If some or all of the Certifi-
cates of a Series are issued in the form of one
or more Global Certificates, the term "Global
Certificateholder," as used herein, will refer
to such beneficial owners of such Certifi-
cates, and the rights of such
Certificateholders will be limited as described
herein under "Description of the Certificates--
Global Certificates."
Representations and
Warranties of the Company... As a condition to the Company's conveyance of
any Contract Pool to the Trust Fund, the Com-
pany will be required to make certain represen-
tations and warranties in the related Agreement
regarding the Contracts. Under the terms of the
Agreement, if the Company becomes aware of a
breach of any such representation or warranty
that materially adversely affects the Trust
Fund's interest in any Contract or receives
written notice of such a breach from the
Trustee or the Servicer, then the Company will
be obligated either to cure such breach or to
repurchase or substitute for the affected Con-
tract, in each case under the conditions fur-
ther described herein. See "Description of the
Certificates--Conveyance of Contracts" herein.
Federal Income Tax
Considerations.............. If an election (a "REMIC Election") is made to
treat the Trust Fund represented by a series of
Certificates or a segregated portion thereof as
a "real estate mortgage investment conduit" (a
"REMIC") under the Internal Revenue Code of
1986, as amended (the "Code"), each class of
Certificates which are offered hereby may con-
stitute "regular interests" or "residual inter-
ests" in such REMIC under the Code, with the
tax consequences under the Code described
herein and in such Prospectus Supplement. If so
specified in the applicable Prospectus Supple-
ment, a Class of Certificates offered hereby
may represent interests in a "two-tier" REMIC,
but all interests in the first and second tier
REMIC will be created under the
7
<PAGE>
same Pooling and Servicing Agreement. See "Cer-
tain Federal Income Tax Consequences--REMIC Se-
ries."
If a REMIC Election is not made with respect to
a Series of Certificates, the Trust Fund repre-
sented by such Certificates will be treated as
a grantor trust for federal income tax purposes
and will not be classified as an association
taxable as a corporation. In such event, each
Certificateholder will be treated as the owner
of an undivided pro rata interest in income and
corpus attributable to the related Contract
Pool and any other assets held by the Trust
Fund and will be considered the equitable owner
of an undivided interest in the Contracts in-
cluded in such Contract Pool. See "Certain Fed-
eral Income Tax Consequences--Non-REMIC Se-
ries."
ERISA Considerations......... A fiduciary of any employee benefit plan subject
to the Employee Retirement Income Security Act
of 1974, as amended ("ERISA"), or the Code,
should review carefully with its legal advisors
whether the purchase or holding of Certificates
could give rise to a transaction prohibited or
otherwise impermissible under ERISA or the
Code. See "ERISA Considerations" herein.
Legal Investment............. Unless otherwise indicated in the applicable
Prospectus Supplement, any Certificates offered
hereby that are rated by at least one nation-
ally recognized statistical rating organization
in one of its two highest rating categories
will constitute "mortgage related securities"
under the Secondary Mortgage Market Enhancement
Act of 1984, as amended, and as such (unless
otherwise indicated in the applicable Prospec-
tus Supplement) will be "legal investments" for
certain types of institutional investors to the
extent provided in that Act. Some Classes of
Certificates offered hereby may not be rated in
one of the two highest rating categories and
thus would not constitute "mortgage related se-
curities." See "Legal Investment" herein.
Ratings...................... It is a condition precedent to the issuance of
any Class of Certificates sold under this Pro-
spectus 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 at least one nationally
recognized statistical rating organization. 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 as-
signing rating agency. See "Ratings" herein.
8
<PAGE>
SPECIAL CONSIDERATIONS
Prospective investors in Certificates should consider, among other things,
the following factors in connection with the purchase of the Certificates:
1. General. An investment in Certificates may be affected by, among other
things, a downturn in regional or local economic conditions. These regional
or local economic conditions are often volatile, and historically have
affected the delinquency, loan loss and repossession experience of the
Contracts. Moreover, regardless of its location, manufactured housing
generally depreciates in value. Consequently, the market value of certain
Manufactured Homes could be or become lower than the outstanding principal
balances of the Contracts that they secure. To the extent that losses on
the Contracts are not covered by the subordination of other Classes of
Certificates, if any, or by any other form of credit enhancement, Holders
of the Certificates of a Series evidencing interests in such Contracts will
bear all risk of loss resulting from default by obligors and will have to
look primarily to the value of the Manufactured Homes for recovery of the
outstanding principal and unpaid interest on the defaulted Contracts. See
"The Trust Fund--The Contract Pools."
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, any Underwriter or its affiliates,
the Servicer or (except as otherwise specified in the related Prospectus
Supplement) by the Company.
3. Limited Liquidity. There can be no assurance that a secondary market
will develop for the Certificates of any Series, or, if it does develop,
that it will provide the holders of any of the Certificates with liquidity
of investment or that it will remain for the term of any Series of
Certificates.
4. Prepayment Considerations. The prepayment experience on the related
Contracts will affect the average life of each Class of Certificates.
Prepayments on the Contracts (which include both voluntary prepayments and
liquidations following default) may be influenced by a variety of economic,
geographic, social and other factors, including repossessions, aging,
seasonality, market interest rates, changes in housing needs, job transfers
and unemployment. In the event a Contract is prepaid in full, interest on
such Contract will accrue only to the date of prepayment. If the
Certificates of any Series are purchased at a discount and the purchaser
calculates its anticipated yield to maturity based on an assumed rate of
payment of principal on such Certificates that is faster than the rate
actually realized, such purchaser's actual yield to maturity will be lower
than the yield so calculated by such purchaser. See "Maturity and
Prepayment Considerations."
5. Security Interests and Certain Other Aspects of the Contracts. Each
Contract will be secured by a security interest in a Manufactured Home (or,
in the case of a Land-and-Home Contract, by a mortgage or deed of trust on
the real estate to which the Manufactured Home is permanently affixed).
Perfection of security interests in the Manufactured Homes and enforcement
of rights to realize upon the value of the Manufactured Homes as collateral
for the Contracts are subject to a number of federal and state laws,
including the Uniform Commercial Code (the "UCC") as adopted in each state
and, in most states, certificate of title statutes, but generally not state
real estate laws. The steps necessary to perfect the security interest in a
Manufactured Home will vary from state to state. Because of the expense and
administrative inconvenience involved, the Company will not amend any
certificate of title to name the Trustee as the lienholder and will not
deliver any certificate of title to the Trustee or note thereon the
Trustee's interest. Consequently, in some states in the absence of such an
amendment to the certificate of title the assignment to the Trustee of the
security interest in the Manufactured Home may not be effective or such
security interest may not be perfected and in the absence of such notation
or delivery to the Trustee the assignment of the security interest in the
Manufactured Home to the Trustee may not be effective against creditors of
the Company or a trustee in bankruptcy of the Company. Because of the
expense and administrative inconvenience involved, the Company will not
record the assignment to the Trustee of the mortgage or deed of trust
securing each Land-and-Home Contract. Consequently, in some states in the
absence of such recordation the assignment to the Trustee of the mortgage
or deed of trust
9
<PAGE>
securing a Land-and-Home Contract may not be effective, and in the absence
of such recordation the assignment of the mortgage or deed of trust to the
Trustee may not be effective against creditors of or purchasers from the
Company or a trustee in bankruptcy of the Company. In addition, numerous
federal and state consumer protection laws impose requirements on lenders
under installment sales contracts and installment loan agreements such as
the Contracts, and the failure by the lender or seller of goods to comply
with such requirements could give rise to liabilities of assignees for
amounts due under such agreements and the right of set-off against claims
by such assignees. These laws would apply to the Trust Fund as assignee of
the Contracts. From time to time, the Company has been involved in
litigation under consumer or debtor protection laws, some of which have
been class actions. Pursuant to the Agreement, the Company will represent
and warrant that each Contract complies with all requirements of law and
will provide certain warranties relating to the validity, perfection and
priority of the security interest in each Manufactured Home securing a
Contract. A breach by the Company of any such warranty that materially
adversely affects any Contract would require the Company to repurchase, or
at its option substitute another manufactured housing contract for, such
Contract unless such breach is cured within 90 days. If the Company does
not honor its repurchase obligation in respect of a Contract and such
Contract were to become defaulted, recovery of amounts due on such Contract
would be dependent on repossession and resale of the Manufactured Home
securing such Contract. Certain other factors may limit the ability of the
Certificateholders to realize upon the Manufactured Homes or may limit the
amount realized to less than the amount due. See "Certain Legal Aspects of
the Contracts" herein.
6. Certain Matters Relating to Insolvency. The Company intends that each
transfer of Contracts to the related Trust Fund constitute a sale, rather
than a pledge of the Contracts to secure indebtedness of the Company.
However, if the Company were to become a debtor under the federal
bankruptcy code, it is possible that a creditor or trustee in bankruptcy of
the Company or the Company as debtor-in-possession may argue that the sale
of the Contracts by the Company was a pledge of the Contracts rather than a
sale. This position, if presented to or accepted by a court, could result
in a delay in or reduction of distributions to the Certificateholders.
A case recently decided by the United States Court of Appeals for the
Tenth Circuit contains language to the effect that accounts sold by an
entity which subsequently became bankrupt remained property of the debtor's
bankruptcy estate. Although the Contracts constitute chattel paper rather
than accounts under the UCC, sales of chattel paper, like sales of
accounts, are governed by Article 9 of the UCC. If the Company were to
become a debtor under the federal bankruptcy code and a court were to
follow the reasoning of the Tenth Circuit and apply such reasoning to
chattel paper, Certificateholders could experience a delay or reduction in
distributions.
THE TRUST FUND
GENERAL
Each Trust Fund will include (i) a Contract Pool, (ii) the amounts held from
time to time in a trust account (the "Certificate Account") maintained by the
Trustee pursuant to the Agreement, (iii) proceeds from certain hazard insurance
on individual Manufactured Homes and Manufactured Homes (or the related real
estate, in the case of Land-and-Home Contracts) acquired by repossession, (iv)
any letter of credit, guarantee, surety bond, insurance policy, cash reserve
fund or other credit enhancement securing payment of all or part of a Series of
Certificates, and (v) such other property as may be specified in the related
Prospectus Supplement.
Each Certificate will evidence the interest specified in the related
Prospectus Supplement in one Trust Fund, containing one Contract Pool comprised
of Contracts having the aggregate principal balance as of the specified day of
the month of the creation of the pool (the "Cut-off Date") specified in the
related Prospectus Supplement. Holders of Certificates of a Series will have
interests only in such Contract Pool and will have no interest in the Contract
Pool created with respect to any other Series of Certificates. If so specified
in the related Prospectus Supplement, the Trust Fund may include a Pre-Funding
Account which would be used to
10
<PAGE>
purchase additional Contracts ("Subsequent Contracts") from the Company during
the Pre-Funding Period specified in the related Prospectus Supplement. The
related Prospectus Supplement will specify the conditions that must be
satisfied prior to any transfer of Subsequent Contracts, including the
requisite characteristics of the Subsequent Contracts.
Except as otherwise specified in the related Prospectus Supplement, all of
the Contracts will have been originated by the Company in the ordinary course
of its business. The following is a brief description of the Contracts expected
to be included in the Trust Fund. Specific information respecting the Contracts
will be provided in the Prospectus Supplement and, to the extent not contained
in the related Prospectus Supplement, in a report on Form 8-K to be filed with
the Securities and Exchange Commission within fifteen days after the initial
issuance of such Certificates. A copy of the Agreement with respect to each
Series of Certificates will be attached to the Form 8-K and will be available
for inspection at the corporate trust office of the Trustee specified in the
related Prospectus Supplement. A schedule of the Contracts relating to such
Series will be attached to the Agreement delivered to the Trustee upon delivery
of the Certificates.
Whenever in this Prospectus terms such as "Contract Pool," "Trust Fund,"
"Agreement" or "Remittance Rate" are used, those terms respectively apply,
unless the context otherwise indicates, to one specific Contract Pool, Trust
Fund, each Agreement and the Remittance Rate applicable to the related Series
of Certificates.
THE CONTRACT POOLS
Except as otherwise specified in the related Prospectus Supplement, each pool
of Contracts with respect to a Series of Certificates (the "Contract Pool")
will consist of manufactured housing installment sales contracts and
installment loan agreements (collectively, the "Contracts") originated by the
Company on an individual basis in the ordinary course of business. The
Contracts may be conventional manufactured housing contracts or contracts
insured by the FHA or partially guaranteed by the VA. Each Contract will be
secured by a Manufactured Home (as defined below) or by a mortgage or deed of
trust relating to the real estate to which the Manufactured Home is deemed
permanently affixed (a "Land-and-Home Contract"). Except as otherwise specified
in the related Prospectus Supplement, the Contracts will be fully amortizing
and will bear interest at a fixed or variable annual percentage rate (the
"Contract Rate") or at a Contract Rate which steps up on a particular date (a
"step-up rate").
The Company, as seller of the Contracts, will represent that the Manufactured
Homes securing the Contracts consist of manufactured homes within the meaning
of 42 United States Code, Section 5402(6), which defines a "manufactured home"
as "a structure, transportable in one or more sections, which in the traveling
mode, is eight body feet or more in width or forty body feet or more in length,
or, when erected on site, is three hundred twenty or more square feet, and
which is built on a permanent chassis designed to be used as a dwelling with or
without a permanent foundation when connected to the required utilities, and
includes the plumbing, heating, air-conditioning, and electrical systems
contained therein; except that such term shall include any structure which
meets all the requirements of (this) paragraph except the size requirements and
with respect to which the manufacturer voluntarily files a certification
required by the Secretary of Housing and Urban Development and complies with
the standards established under [this] chapter."
For each Series of Certificates, the Company will assign the Contracts
constituting the Contract Pool to the trustee named in the related Prospectus
Supplement (the "Trustee"). The Company, as Servicer (in such capacity referred
to herein as the "Servicer"), will service the Contracts pursuant to the
Agreement. See "Description of the Certificates--Servicing." Unless otherwise
specified in the related Prospectus Supplement, the Contract documents (other
than the documents relating to Land-and-Home Contracts) will be held by the
Servicer as custodian for the Trustee. The documents relating to any Land-and-
Home Contracts will be held for the benefit of the Trustee by a Custodian (the
"Custodian") appointed pursuant to a Custodial Agreement (the "Custodial
Agreement") between the Trustee and the Custodian
11
<PAGE>
Each Contract Pool will be composed of Contracts bearing interest at the
annual fixed or variable Contract Rates or step-up rates specified in the
Prospectus Supplement. Unless otherwise specified in the related Prospectus
Supplement, the Monthly Payments for Contracts bearing interest at a step-up
rate (sometimes referred to herein as "step-up rate Contracts") will increase
on the dates on which the Contract Rates are stepped up. Unless otherwise
stated in the related Prospectus Supplement, each registered holder of a
Certificate will be entitled to receive periodic distributions, which will be
monthly unless otherwise specified in the related Prospectus Supplement, of all
or a portion of principal on the underlying Contracts or interest on the
principal balance of such Certificate at the Remittance Rate, or both.
The related Prospectus Supplement will specify for the Contracts contained in
the related Contract Pool, among other things, the range of the dates of
origination of the Contracts; the range of the Contract Rates and the weighted
average Contract Rate; the Loan-to-Value Ratios; the minimum and maximum
outstanding principal balances as of the Cut-off Date and the average
outstanding principal balance as of the Cut-off Date; the aggregate principal
balances of the Contracts included in the Contract Pool as of the Cut-off Date;
the weighted average and range of scheduled terms to maturity as of origination
and as of the Cut-off Date; the original maturities of the Contracts and the
last maturity date of any Contract; and the locations of the Manufactured Homes
securing the Contracts. If the Trust Fund includes a Pre-Funding Account, the
related Prospectus Supplement will specify the conditions that must be
satisfied prior to any transfer of Subsequent Contracts, including the
requisite characteristics of the Subsequent Contracts.
The Company will make representations and warranties as to the types and
geographical distribution of the Contracts included in a Contract Pool and as
to the accuracy in all material respects of certain information furnished to
the Trustee in respect of each such Contract. Upon a breach of any
representation that materially and adversely affects the interests of the
Certificateholders in a Contract, the Company will be obligated either to cure
the breach in all material respects, to purchase the Contract or to substitute
another Contract as described below. This repurchase or substitution obligation
constitutes the sole remedy available to the Certificateholders or the Trustee
for a breach of representation by the Company. See "Description of the
Certificates--Conveyance of Contracts."
USE OF PROCEEDS
Unless otherwise specified in an applicable Prospectus Supplement,
substantially all of the net proceeds to be received from the sale of each
Series of Certificates will be used by the Company for general corporate
purposes, including the purchase of the Contracts, costs of carrying the
Contracts until sale of the related Certificates and to pay other expenses
connected with pooling the Contracts and issuing the Certificates.
GREEN TREE FINANCIAL CORPORATION
GENERAL
The Company is a Minnesota corporation which, as of December 31, 1993, had
stockholders' equity of approximately $549,429,000. The Company purchases,
pools, sells and services conditional sales contracts for manufactured housing
throughout the nation. The Company is currently the largest servicer of
manufactured housing government insured or guaranteed contracts, and is one of
the largest servicers of conventional manufactured housing contracts, in the
United States. The Company operates its business through 40 regional service
centers throughout the United States, serving the 48 contiguous states and
Alaska. The Company's principal executive offices are located at 1100 Landmark
Towers, 345 St. Peter Street, St. Paul, Minnesota 55102-1639 (telephone (612)
293-3400). The Company's Annual Report on Form 10-K for the year ended December
31, 1993, most recent Proxy Statement and, when available, subsequent quarterly
and annual reports are available from the Company upon written request.
CONTRACT ORIGINATION
Through its regional service centers, the Company arranges to purchase
manufactured housing contracts from manufactured housing dealers located
throughout the United States. The Company's regional service
12
<PAGE>
center personnel contact dealers located in their region and explain the
Company's available financing plans, terms, prevailing rates and credit and
financing policies. If the dealer wishes to use the Company's available
customer financing, the dealer must make an application for dealer approval.
Upon satisfactory results of the Company's investigation of the dealer's
creditworthiness and general business reputation, the Company and the dealer
execute a dealer agreement. The Company also originates manufactured housing
installment loan agreements directly with customers.
All contracts that the Company originates are written on forms provided by
the Company and are originated on an individually approved basis in accordance
with the Company's guidelines. The dealer or the customer submits the
customer's credit application and purchase order to a regional service center
where Company personnel make an analysis of the creditworthiness of the
proposed buyer. The analysis includes a review of the applicant's paying
habits, length and likelihood of continued employment, and certain other
factors. The Company's current underwriting guidelines for conventional
contracts require that the monthly payment on the contract not exceed 29% of
the obligor's monthly income and that the monthly payment on the contract,
together with the obligor's other fixed monthly obligations, not exceed 41% of
the obligor's monthly income (net of federal and state income taxes).
Manufactured housing contracts are assumable by any individual who meets the
Company's then-current underwriting criteria. With respect to conventional
contracts for new manufactured homes, the Company may finance up to the lesser
of (a) 95% of the cash sale price (including taxes, fees and insurance) or (b)
125% of the manufacturer's invoice price plus 100% of taxes and license fees,
100% of freight charges, 100% of the dealer's cost of additional dealer-
installed equipment (not to exceed 20% of the amount financed in all states
except California; not to exceed 70% of the manufacturer's invoice price in
California if required to meet park requirements), and up to $750 of set-up
costs per module. With respect to used manufactured homes, the Company may
finance up to 90% of the lesser of (a) the total delivered sales price of the
unit (including taxes, fees, insurance and up to $750 of set-up costs per
module), or (b) the appraised value of the unit plus taxes, fees, and
insurance. Such appraisals on used manufactured homes are performed by
employees of the Company. If the application meets the Company's guidelines and
the credit is approved, the Company purchases the contract after the
manufactured home is delivered and set up and the customer has moved in. The
guidelines in this paragraph may be exceeded when the Company's underwriters
deem it appropriate. For the definition of "value" used in calculating the
loan-to-value ratios of the Contracts, see "The Trust Fund--The Contract
Pools."
The volume of manufactured housing contracts purchased or originated by the
Company for the past five years and certain other information at the end of
such years were as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------
1989 1990 1991 1992 1993
-------- -------- -------- ---------- ----------
(DOLLARS IN THOUSANDS EXCEPT FOR AVERAGE SIZE)
<S> <C> <C> <C> <C> <C>
Principal balance of con-
tracts purchased:
FHA/VA................. $324,137 $426,689 $507,879 $ 265,992 $ 252,466
Conventional........... 446,728 459,466 432,060 942,874 2,196,655
-------- -------- -------- ---------- ----------
Total.............. $770,865 $886,155 $939,939 $1,208,866 $2,449,121
======== ======== ======== ========== ==========
Number of contracts pur-
chased.................. 37,651 42,396 43,842 53,484 96,934
Average contract size.... $ 20,474 $ 20,902 $ 21,439 $ 22,602 $ 25,266
Average interest rate.... 13.6% 13.6% 12.7% 11.5% 10.1%
Weighted average remain-
ing term at purchase
(months)................ 188 193 192 199 205
</TABLE>
POOLING AND DISPOSITION OF CONTRACTS
The Company generally pools contracts for sale to investors within 15 to 120
days of purchase. In the case of FHA-insured and VA-guaranteed manufactured
housing contracts, the Company generally issues modified pass-through
certificates secured by the contracts and guaranteed by the Government National
Mortgage Association ("GNMA certificates"). The GNMA certificates provide for
the payment by the Company to registered holders of GNMA certificates of
monthly payments of principal and interest and the "pass-through" of any
prepayments of the contracts.
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<PAGE>
In the case of conventional manufactured housing contracts, the Company sells
pools of contracts through asset securitization vehicles such as the Trust
Funds described herein. The Company establishes a specified level of recourse
(which may take the form of a subordinated right to interest payments on the
Contracts, payable after the payment of scheduled principal and interest on the
related investor interests) or a cash reserve fund for losses on the contracts
comprising the pools. Upon a default under a contract and a liquidation of the
underlying collateral, any net losses are charged against the established
recourse amount or the reserve fund.
SERVICING
The Company services all of the manufactured housing contracts it originates
or purchases from other originators, collecting loan payments, taxes and
insurance payments where applicable and other payments from borrowers and
remitting principal and interest payments to the holders of the conventional
contracts or of the GNMA certificates backed by FHA-insured and VA-guaranteed
contracts.
The following table shows the composition of the Company's servicing
portfolio of contracts that the Company originated, including manufactured
housing contracts, recreational vehicle contracts, motorcycle contracts,
special product contracts and home improvement contracts, on the dates
indicated:
<TABLE>
<CAPTION>
AT DECEMBER 31,
------------------------------------------------------
1989 1990 1991 1992 1993
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Unpaid principal balance
of contracts being
serviced (in thou-
sands)................. $3,599,216 $4,098,091 $4,753,650 $5,278,370 $6,922,340
Average unpaid balance.. $ 16,589 $ 16,456 $ 16,394 $ 16,638 $ 17,864
Number of contracts
serviced............... 216,962 249,038 289,960 317,251 387,509
</TABLE>
In 1990, the Company began subservicing manufactured housing contracts
originated by other lenders. These subserviced contracts are not reflected in
the foregoing table.
YIELD CONSIDERATIONS
The Remittance Rates and the weighted average Contract Rate of the Contracts
relating to each Series of Certificates will be set forth in the related
Prospectus Supplement.
Unless otherwise specified in the related Prospectus Supplement, each monthly
accrual of interest on a Contract is calculated at one-twelfth of the product
of the Contract Rate and the principal balance outstanding on the scheduled
payment date for such Contract in the preceding month. Unless otherwise
specified in the related Prospectus Supplement, the Remittance Rate with
respect to each Certificate will be calculated similarly.
The Prospectus Supplement for each Series will indicate that a lower rate of
principal prepayments than anticipated would negatively affect the total return
to investors of any Class or such sub-class of Certificates that is offered at
a discount to its principal amount, and a higher rate of principal prepayments
than anticipated would negatively affect the total return to investors of any
such Class or sub-class of Certificates that is offered at a premium to its
principal amount or without any principal amount.
If a Series of Certificates contains Classes or sub-classes of Certificates
entitled to receive distributions of principal or interest or both, in a
specified order other than as a specified percentage of each distribution of
principal or interest or both, the Prospectus Supplement will set forth
information, measured relative to a prepayment standard or model specified in
such Prospectus Supplement, with respect to the projected weighted average life
of each such Class or sub-class and the percentage of the original Stated
Balance of each such Class or sub-class that would be outstanding on specified
Remittance Dates for such Series based on the assumptions stated in such
Prospectus Supplement, including assumptions that prepayments on the Contracts
in the related Trust Fund are made at rates corresponding to the various
percentages of such prepayment standard or model.
14
<PAGE>
MATURITY AND PREPAYMENT CONSIDERATIONS
MATURITY
Unless otherwise described in an applicable Prospectus Supplement, all of the
Contracts will have maturities at origination of not more than 25 years.
PREPAYMENT CONSIDERATIONS
Contracts generally may be prepaid in full or in part without penalty. FHA
Contracts and VA Contracts may be prepaid at any time without penalty. Based on
the Company's experience with the portfolio of manufactured housing contracts
serviced by it, the Company anticipates that a number of the Contracts will be
prepaid prior to their maturity. A number of factors, including homeowner
mobility, general and regional economic conditions and prevailing interest
rates, may influence prepayments. In addition, repurchases of Contracts on
account of certain breaches of representations and warranties have the effect
of prepaying such Contracts and therefore would affect the average life of the
Certificates. Most of the Contracts contain a "due-on-sale" clause that would
permit the Servicer to accelerate the maturity of a Contract upon the sale of
the related Manufactured Home. In the case of those Contracts that do contain
due-on-sale clauses, the Servicer will permit assumptions of such Contracts if
the purchaser of the related Manufactured Home satisfies the Company's then-
current underwriting standards.
Information regarding the Prepayment Model or any other rate of assumed
prepayment, as applicable, will be set forth in the Prospectus Supplement with
respect to a Series of Certificates.
See "Description of the Certificates--Termination of the Agreement" for a
description of the Company's or Servicer's option to repurchase the Contracts
comprising part of a Trust Fund when the aggregate outstanding principal
balance of such Contracts is less than a specified percentage of the initial
aggregate outstanding principal balance of such Contracts as of the related
Cut-off Date. See also "The Trust Fund--The Contract Pools" for a description
of the obligations of the Company to repurchase a Contract in case of a breach
of a representation or warranty relative to such Contract.
DESCRIPTION OF THE CERTIFICATES
Each Series of Certificates will be issued pursuant to a separate pooling and
servicing agreement (each, an "Agreement") to be entered into among the
Company, as Seller and Servicer, and the trustee named in the related
Prospectus Supplement (the "Trustee"), and such other parties, if any, as are
described in the applicable Prospectus Supplement. The following summaries
describe certain provisions expected to be common to each Agreement and the
related Certificates, but do not purport to be complete and are subject to, and
are qualified in their entirety by reference to, the provisions of the related
Agreement and the description set forth in the related Prospectus Supplement.
Section references contained herein refer to sections of the form of Agreement
filed as an exhibit to the Registration Statement of which this Prospectus is a
part (the "Registration Statement"). The portions of such sections described
herein may be contained in different numbered sections in the actual Agreement
pursuant to which any Series of Certificates is issued. The provisions of the
form of Agreement filed as an exhibit to the Registration Statement that are
not described herein may differ from the provisions of any actual Agreement.
The material differences will be described in the related Prospectus
Supplement. Capitalized terms used herein and not otherwise defined herein
shall have the meanings assigned to them in the form of Agreement filed as an
exhibit to the Registration Statement.
Each Series of Certificates will have been rated in the rating category by
the rating agency or agencies specified in the related Prospectus Supplement.
GENERAL
The Certificates may be issued in one or more Classes or sub-classes. If the
Certificates of a Series are issued in more than one Class, the Certificates of
all or less than all of such Classes may be sold pursuant to
15
<PAGE>
this Prospectus, and there may be separate Prospectus Supplements relating to
one or more of such Classes so sold. Any reference herein to the Prospectus
Supplement relating to a Series comprised of more than one Class should be
understood as a reference to each of the Prospectus Supplements relating to the
Classes sold hereunder. Any reference herein to the Certificates of a Class
should be understood to refer to the Certificates of a Class within a Series,
the Certificates of a sub-class within a Class or all of the Certificates of a
single-Class Series, as the context may require.
The Certificates of each Series will be issued in fully registered form only
and will represent the interests specified in the related Prospectus Supplement
in a separate trust fund (the "Trust Fund") created pursuant to the related
Agreement. The Trust Fund will be held by the Trustee for the benefit of the
Certificateholders. Each Trust Fund, to the extent specified in the related
Prospectus Supplement, will include (i) Contracts (the "Contract Pool") which
are subject to the Agreement from time to time, (ii) the amounts held in the
Certificate Account from time to time, (iii) proceeds from certain hazard
insurance on individual Manufactured Homes and Manufactured Homes (or the
related real estate, in the case of Land-and-Home Contracts) acquired by
repossession, (iv) any letter of credit, guarantee, surety bond, insurance
policy, cash reserve fund or other credit enhancement securing payment of all
or part of a Series of Certificates and (v) such other property as may be
specified in the related Prospectus Supplement. Except as otherwise specified
in the related Prospectus Supplement, the Certificates will be freely
transferable and exchangeable at the corporate trust office of the Trustee at
the address set forth in the related Prospectus Supplement. No service charge
will be made for any registration of exchange or transfer of Certificates, but
the Trustee may require payment of a sum sufficient to cover any tax or other
governmental charge.
Ownership of each Contract Pool may be evidenced by one or more Classes of
Certificates, each representing the interest in the Contract Pool specified in
the related Prospectus Supplement. One or more Classes of Certificates
evidencing interests in Contracts may be Subordinated Certificates, evidencing
the right of the Holders thereof to receive any or a portion of distributions
of principal or interest or both on the Contracts subordinate to the rights of
the Holders of other Classes of Certificates ("Senior Certificates") as
provided in the related Prospectus Supplement. If a Series of Certificates
contains more than one Class of Subordinated Certificates, losses will be
allocated among such Classes in the manner described in the Prospectus
Supplement.
A Series of Certificates may consist of Classes of Certificates evidencing
the right to receive distributions of principal or interest or both in the
order specified in the related Prospectus Supplement. A Class of Certificates
of a Series may be divided into two or more sub-classes. The related Prospectus
Supplement will specify whether a Class has been so divided and the terms of
each sub-class. The Holders of each sub-class of a Class of Certificates will
be entitled to the percentages (which may be 0%) of principal or interest
payments or both on the related Contracts as specified in the related
Prospectus Supplement. The related Prospectus Supplement will specify the
minimum denomination or initial principal amount of Contracts evidenced by a
single Certificate of each Class of Certificates of a Series (a "Single
Certificate").
Distributions of principal and interest on the Certificates will be made on
the payment dates set forth in the related Prospectus Supplement (each, a
"Remittance Date") to the persons in whose names the Certificates are
registered at the close of business on the related record date specified in the
related Prospectus Supplement (the "Record Date"). Distributions will be made
by check mailed to the address of the person entitled thereto as it appears on
the Certificate Register, or, to the extent described in the related Agreement,
by wire transfer, except that the final distribution in retirement of
Certificates will be made only upon presentation and surrender of the
Certificates at the office or agency of the Trustee specified in the final
distribution notice to Certificateholders.
GLOBAL CERTIFICATES
The Certificates of a Class may be issued in whole or in part in the form of
one or more global certificates (each, a "Global Certificate") that will be
deposited with, or on behalf of, and registered in the name of a nominee for, a
depositary (the "Depositary") identified in the related Prospectus Supplement.
The description of the Certificates contained in this Prospectus assumes that
the Certificates will be issued in definitive form.
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If the Certificates of a Class are issued in the form of one or more Global
Certificates, the term "Certificateholder" should be understood to refer to the
beneficial owners of the Global Certificates, and the rights of such
Certificateholders will be limited as described under this subheading.
Global Certificates will be issued in registered form. Unless and until it is
exchanged in whole or in part for Certificates in definitive form, a Global
Certificate may not be transferred except as a whole by the Depositary for such
Global Certificate to a nominee of such Depositary or by a nominee of such
Depositary to such Depositary or another nominee of such Depositary or by such
Depositary or any such nominee to a successor of such Depositary or a nominee
of such successor.
The specific terms of the depositary arrangement with respect to any
Certificates of a Class will be described in the related Prospectus Supplement.
It is anticipated that the following provisions will apply to all depositary
arrangements:
Upon the issuance of a Global Certificate, the Depositary for such Global
Certificate will credit, on its book-entry registration and transfer system,
the respective denominations of the Certificates represented by such Global
Certificate to the accounts of institutions that have accounts with such
Depositary ("participants"). Ownership of beneficial interests in a Global
Certificate will be limited to participants or persons that may hold interests
through participants. Ownership of beneficial interests in such Global
Certificate will be shown on, and the transfer of that ownership will be
effected only through, records maintained by the Depositary for such Global
Certificate or by participants or persons that hold through participants. The
laws of some states require that certain purchasers of securities take physical
delivery of such securities in definitive form. Such limits and such laws may
impair the ability to transfer beneficial interests in a Global Certificate.
So long as the Depositary for a Global Certificate, or its nominee, is the
owner of such Global Certificate, such Depositary or such nominee, as the case
may be, will be considered the sole owner or holder of the Certificates
represented by such Global Certificate for all purposes under the Agreement
relating to such Certificates. Except as set forth below, owners of beneficial
interests in a Global Certificate will not be entitled to have Certificates of
the Series represented by such Global Certificate registered in their names,
will not receive or be entitled to receive physical delivery of Certificates of
such Series in definitive form and will not be considered the owners or holders
thereof under the Agreement governing such Certificates.
Distributions or payments on Certificates registered in the name of or held
by a Depositary or its nominee will be made to the Depositary or its nominee,
as the case may be, as the registered owner for the holder of the Global
Certificate representing such Certificates. In addition, all reports required
under the applicable Agreement to be made to Certificateholders (as described
below under "Reports to Certificateholders") will be delivered to the
Depositary or its nominee, as the case may be. None of the Company, Servicer,
Trustee, or any agent thereof (including any applicable Certificate Registrar
or Paying Agent), will have any responsibility or liability for any aspect of
the records relating to or payments made on account of beneficial ownership
interests in a Global Certificate or for maintaining, supervising or reviewing
any records relating to such beneficial ownership interests or for providing
reports to the related beneficial owners.
The Company expects that the Depositary for Certificates of a Class, upon
receipt of any distribution or payment in respect of a Global Certificate, will
credit immediately participants' accounts with payments in amounts
proportionate to their respective beneficial interest in such Global
Certificate as shown on the records of such Depositary. The Company also
expects that payments by participants to owners of beneficial interests in such
Global Certificate held through such participants will be governed by standing
instructions and customary practices, as is now the case with securities held
for the accounts of customers registered in "street name," and will be the
responsibility of such participants.
If a Depositary for Certificates of a Class is at any time unwilling or
unable to continue as Depositary and a successor depositary is not appointed by
or on behalf of the Company within the time period specified in the Agreement,
the Company will cause to be issued Certificates of such Class in definitive
form in
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exchange for the related Global Certificate or Certificates. In addition, the
Company may at any time and in its sole discretion determine not to have any
Certificates of a Class represented by one or more Global Certificates and, in
such event, will cause to be issued Certificates of such Class in definitive
form in exchange for the related Global Certificate or Certificates. Further,
if the Company so specifies with respect to the Certificates of a Class, an
owner of a beneficial interest in a Global Certificate representing
Certificates of such Class may, on terms acceptable to the Company and the
Depositary for such Global Certificate, receive Certificates of such Class in
definitive form. In any such instance, an owner of a beneficial interest in a
Global Certificate will be entitled to physical delivery in definitive form of
Certificates of the Class represented by such Global Certificate equal in
denominations to such beneficial interest and to have such Certificates
registered in its name.
CONVEYANCE OF CONTRACTS
The Company will transfer, assign, set over and otherwise convey to the
Trustee all right, title and interest of the Company in the Contracts,
including all security interests created thereby and any related mortgages or
deeds of trust, all principal and interest received on or with respect to the
Contracts (other than receipts of principal and interest due on the Contracts
before the Cut-off Date), all rights under certain hazard insurance policies on
the related Manufactured Homes, all documents contained in the Contract files
and all proceeds derived from any of the foregoing. (Section 2.01.) On behalf
of the Trust, as the issuer of the related Series of Certificates, the Trustee,
concurrently with such conveyance, will execute and deliver the Certificates to
the order of the Company. The Contracts will be as described on a list attached
to the Agreement. (Sections 1.02 and 2.02.) Such list will include the amount
of monthly payments due on each Contract as of the date of issuance of the
Certificates, the Contract Rate on each Contract and the maturity date of each
Contract. Such list will be available for inspection by any Certificateholder
at the principal executive office of the Servicer. (Sections 1.02 and 5.04.)
Prior to the conveyance of the Contracts to the Trust, the Company's internal
audit department will complete a review of all of the Contract files, including
the certificates of title to, or other evidence of a perfected security
interest in, the Manufactured Homes, confirming the accuracy of the list of
Contracts delivered to the Trustee. Any Contract discovered not to agree with
such list in a manner that is materially adverse to the interests of the
Certificateholders will be repurchased by the Company or replaced with another
Contract, or, if the discrepancy relates to the unpaid principal balance of a
Contract, the Company may deposit cash in the separate account maintained at an
Eligible Institution in the name of the Trustee (the "Certificate Account") in
an amount sufficient to offset such discrepancy. If the Trust Fund includes a
Pre-Funding Account, the related Prospectus Supplement will specify the
conditions that must be satisfied prior to any transfer of Subsequent
Contracts, including the requisite characteristics of the Subsequent Contracts.
The Agreement will designate the Company as custodian to maintain possession,
as the Trustee's agent, of the Contracts and any other documents related to the
Manufactured Homes (other than the Land-and-Home Contracts and related
documents). (Sections 2.03 and 4.01.) To facilitate servicing and save
administrative costs, the documents will not be physically segregated from
other similar documents that are in the Company's possession. Uniform
Commercial Code financing statements will be filed in Minnesota reflecting the
sale and assignment of the Contracts to the Trustee, and the Company's
accounting records and computer systems will also reflect such sale and
assignment. In addition, the Contracts will be stamped to reflect their
assignment to the Trustee. However, if through fraud, negligence or otherwise,
a subsequent purchaser were able to take physical possession of the Contracts
without knowledge of the assignment, the Trustee's interest in the Contracts
could be defeated. See "Special Considerations--Security Interests and Certain
Other Aspects of the Contracts." The Agreement will designate the Trustee or
another independent custodian, as the Trustee's agent, to maintain possession
of the documents relating to all Land-and-Home Contracts.
Except as otherwise specified in the related Prospectus Supplement, the
Company will make certain warranties in the Agreement with respect to each
Contract as of the Closing Date, including that: (a) as of the Cut-off Date, or
the date of origination, if later, the most recent scheduled payment was made
or was not delinquent more than 59 days; (b) no provision of a Contract has
been waived, altered or modified in any
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respect, except by instruments or documents contained in the Contract file or
the Land-and-Home Contract file; (c) each Contract is a legal, valid and
binding obligation of the Obligor and is enforceable in accordance with its
terms (except as may be limited by laws affecting creditors' rights generally);
(d) no Contract is subject to any right of rescission, set-off, counterclaim or
defense; (e) each Contract is covered by hazard insurance described under "--
Servicing--Hazard Insurance"; (f) each Contract has been originated by a
manufactured housing dealer or the Company in the ordinary course of such
dealer's or the Company's business and, if originated by a manufactured housing
dealer, was purchased by the Company in the ordinary course of business; (g) no
Contract was originated in or is subject to the laws of any jurisdiction whose
laws would make the transfer of the Contract or an interest therein to the
Trustee pursuant to the Agreement or pursuant to the Certificates unlawful; (h)
each Contract complies with all requirements of law; (i) no Contract has been
satisfied, subordinated in whole or in part or rescinded and the Manufactured
Home securing the Contract has not been released from the lien of the Contract
in whole or in part; (j) each Contract creates a valid and enforceable first
priority security interest in favor of the Company in the Manufactured Home
covered thereby and, with respect to each Land-and-Home Contract, the lien
created thereby has been recorded or will be recorded within six months, and
such security interest or lien has been assigned by the Company to the Trustee;
(k) all parties to each Contract had capacity to execute such Contract; (l) no
Contract has been sold, assigned or pledged to any other person and prior to
the transfer of the Contracts by the Company to the Trustee, the Company had
good and marketable title to each Contract free and clear of any encumbrance,
equity, loan, pledge, charge, claim or security interest, and was the sole
owner and had full right to transfer such Contract to the Trustee; (m) as of
the Cut-off Date, or the date of origination, if later, there was no default,
breach, violation or event permitting acceleration under any Contract (except
for payment delinquencies permitted by clause (a) above), no event which with
notice and the expiration of any grace or cure period would constitute a
default, breach, violation or event permitting acceleration under such
Contract, and the Company has not waived any of the foregoing; (n) as of the
Closing Date there were, to the best of the Company's knowledge, no liens or
claims which have been filed for work, labor or materials affecting a
Manufactured Home or any related Mortgaged Property securing a Contract, which
are or may be liens prior or equal to the lien of the Contract; (o) each
Contract other than a step-up rate Contract is a fully-amortizing loan with a
fixed Contract Rate and provides for level payments over the term of such
Contract; (p) each Contract contains customary and enforceable provisions such
as to render the rights and remedies of the Holder thereof adequate for
realization against the collateral of the benefits of the security; (q) the
description of each Contract set forth in the list delivered to the Trustee is
true and correct; (r) there is only one original of each Contract; (s) except
as specified in the related Prospectus Supplement, none of the Contracts had a
Loan-to-Value Ratio at origination greater than 90% and, if the related
Manufactured Home was new at the time such Contract was originated, the
original principal balance of such Contract did not exceed 125% of the
manufacturer's invoice price plus 100% of taxes and license fees, freight
charges, the dealer's cost of dealer-installed equipment and up to $750 of set-
up costs per module; (t) at the time of origination of each Contract the
Obligor was the primary resident of the related Manufactured Home; (u) other
than the Land-and-Home Contracts, the related Manufactured Home is not
considered or classified as part of the real estate on which it is located
under the laws of the jurisdiction in which it is located, and as of the
Closing Date such Manufactured Home was, to the best of the Company's
knowledge, free of damage and in good repair; (v) the related Manufactured Home
is a "manufactured home" within the meaning of 42 United States Code, Section
5402(6) and each manufactured housing dealer from whom the Company purchased a
Contract was approved by the Company in accordance with the requirements of the
Secretary of Housing and Urban Development; (w) each Contract is a "qualified
mortgage" under Section 860G(a)(3) of the Code and each Manufactured Home is
"manufactured housing" within the meaning of Section 25(e)(10) of the Code; and
(x) if a Contract is an FHA/VA Contract, the Contract has been serviced in
accordance with FHA/VA Regulations, the insurance or guarantee of the Contract
under the FHA/VA Regulations and related laws is in full force and effect, and
no event has occurred which, with or without notice or lapse of time or both,
would impair such insurance or guarantee. (Article III.)
Under the terms of the Agreement, and subject to the conditions specified in
the preceding paragraph and to the Company's option to effect a substitution as
described in the next paragraph, the Company will be
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obligated to repurchase for the Repurchase Price (as defined below) any
Contract on the first business day after the first Determination Date which is
more than 90 days after the Company becomes aware, or should have become aware,
or the Company's receipt of written notice from the Trustee or the Servicer, of
a breach of any representation or warranty of the Company in the Agreement that
materially adversely affects the Trust's interest in any Contract if such
breach has not been cured. (Section 3.05.) The Repurchase Price for any
Contract will be the remaining principal amount outstanding on such Contract on
the date of repurchase plus accrued and unpaid interest thereon at its Contract
Rate to the date of such repurchase. (Section 1.02.) This repurchase obligation
constitutes the sole remedy available to the Trust Fund and the
Certificateholders for a breach of a warranty under the Agreement with respect
to the Contracts (but not with respect to any other breach by the Company of
its obligations under the Agreement). If a prohibited transaction tax under the
REMIC provisions of the Code is incurred in connection with such repurchase,
distributions otherwise payable to Residual Certificateholders will be applied
to pay such tax. The Company will be required to pay the amount of such tax
that is not funded out of such distributions. (Section 6.06.)
In lieu of purchasing a Contract as specified in the preceding paragraph,
during the two-year period following the Closing Date, the Company may, at its
option, substitute an Eligible Substitute Contract (as defined below) for the
Contract that it is otherwise obligated to repurchase (referred to herein as
the "Replaced Contract"). An Eligible Substitute Contract is a Contract that
satisfies, as of the date of its substitution, the representations and
warranties specified in Article III of the Agreement, has a Scheduled Principal
Balance that is not greater than the Scheduled Principal Balance of the
Replaced Contract, has a Contract Rate that is at least equal to the Contract
Rate of the Replaced Contract and has a remaining term to scheduled maturity
that is not greater than the remaining term to scheduled maturity of the
Replaced Contract. (Section 1.02.) The Company will be required to deposit in
the Certificate Account cash in the amount, if any, by which the Scheduled
Principal Balance of the Replaced Contract exceeds the Scheduled Principal
Balance of the Contract being substituted. Such deposit will be deemed to be a
Partial Principal Prepayment. (Sections 1.02 and 3.05.)
PAYMENTS ON CONTRACTS
Each Certificate Account will be a trust account established by the Servicer
as to each Series of Certificates in the name of the Trustee (i) with a
depository institution, the long-term unsecured debt obligations of which at
the time of any deposit therein are rated within the two highest rating
categories or such other rating category as will not adversely affect the
ratings assigned to the Certificates by each rating agency rating the
Certificates of such Series, (ii) with the trust department of a national bank,
(iii) in an account or accounts the deposits in which are fully insured by the
FDIC, (iv) in an account or accounts the deposits in which are insured by the
FDIC (to the limits established by the FDIC), the uninsured deposits in which
are otherwise secured such that, as evidenced by an opinion of counsel, the
Certificateholders have a claim with respect to the funds in the Certificate
Account or a perfected first priority security interest against any collateral
securing such funds that is superior to the claims of any other depositors or
general creditors of the depository institution with which the Certificate
Account is maintained or (v) otherwise acceptable to the rating agency without
reduction or withdrawal of the rating assigned to the relevant certificates.
The collateral eligible to secure amounts in the Certificate Account is limited
to United States government securities and certain other high-quality
investments specified in the applicable agreement ("Eligible Investments"). A
Certificate Account may be maintained as an interest bearing account, or the
funds held therein may be invested pending each succeeding Remittance Date in
Eligible Investments.
Unless otherwise specified in the related Prospectus Supplement, the Servicer
will deposit in the Certificate Account on a daily basis the following payments
and collections received or made by it subsequent to the Cut-off Date
(including scheduled payments of principal and interest due after the Cut-off
Date but received by the Servicer on or before the Cut-off Date):
(i) all Obligor payments on account of principal, including principal
prepayments, on the Contracts;
(ii) all Obligor payments on account of interest on the Contracts;
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(iii) all amounts received and retained in connection with the
liquidation of defaulted Contracts, net of liquidation expenses ("Net
Liquidation Proceeds");
(iv) all proceeds received under any hazard or other insurance policy
covering any Contract, other than proceeds to be applied to the restoration
or repair of the Manufactured Home or released to the Obligor;
(v) any Advances made as described under "Advances" and certain other
amounts required under the Agreement to be deposited in the Certificate
Account;
(vi) all amounts received from any credit enhancement provided with
respect to a Series of Certificates; and
(vii) all proceeds of any Contract or property acquired in respect
thereof repurchased by the Servicer, or the Company, or otherwise as
described above or under "Termination" below.
DISTRIBUTIONS ON CERTIFICATES
Except as otherwise provided in the related Prospectus Supplement, on each
Remittance Date, the Trustee will withdraw from the applicable Certificate
Account and distribute to the Certificateholders of each Class (other than a
Series having a Class of Subordinated Certificates, as described below), either
the specified interest of such Class in the Contract Pool times the aggregate
of all amounts on deposit in the Certificate Account as of the third Business
Day preceding the Remittance Date or such other date as may be specified in the
related Prospectus Supplement (the "Determination Date"), or, in the case of a
Series of Certificates comprised of Classes which have been assigned a Stated
Balance, payments of interest and payments in reduction of the Stated Balance
from all amounts on deposit in the Certificate Account on the Determination
Date, in the priority and calculated in the manner set forth in the related
Prospectus Supplement, except, in each case: (i) all payments on the Contracts
that were due on or before the Cut-off Date; (ii) all payments or collections
received after the Due Period preceding the month in which the Remittance Date
occurs; (iii) all scheduled payments of principal and interest due on a date or
dates subsequent to the Due Period preceding the Determination Date; (iv)
amounts representing reimbursement for Advances, such reimbursement being
limited, if so specified in the related Prospectus Supplement, to amounts
received on particular Contracts as late collections of principal or interest
as to which the Servicer has made an unreimbursed Advance; and (v) amounts
representing reimbursement for any unpaid Servicing Fee and expenses from
Liquidation Proceeds, condemnation proceeds and proceeds of insurance policies
with respect to the related Contracts. The amount of principal and interest
specified in the related Prospectus Supplement to be distributed to
Certificateholders is referred to herein as the "Certificate Distribution
Amount." The amounts on deposit in the Certificate Account on a Determination
Date, less the amounts specified in (i) through (v) above, are referred to
herein as the "Amount Available."
Unless otherwise specified in the related Prospectus Supplement, with respect
to a Series of Certificates having a Class of Subordinated Certificates, on
each Remittance Date, the Trustee will withdraw from the applicable Certificate
Account and distribute to the Holders of Senior Certificates, in the aggregate,
the lesser of (i) the Senior Distribution Amount plus the Outstanding Senior
Shortfall (each defined below), or (ii) the percentage interest (which may vary
as specified in the related Prospectus Supplement) of the Classes of Senior
Certificates times the Amount Available plus (a) the percentage interest (which
may vary as specified in the related Prospectus Supplement) of the Classes of
Subordinated Certificates times the Amount Available, not to exceed the
Available Subordination Amount, if any, as defined in the related Prospectus
Supplement, and (b) Advances, if any, made by the Servicer. The distribution
made to the Certificateholders of each Class or sub-class of Senior
Certificates shall be calculated as described in the related Prospectus
Supplement and may vary as to the allocation of principal or interest or both.
Unless otherwise specified in the related Prospectus Supplement, the Senior
Distribution Amount is an amount equal to the percentage interest of the
Classes of Senior Certificates times:
(i) all regularly scheduled payments of principal of and interest which
were due on Contracts during the related Due Period, whether or not
received, with the interest portions thereof adjusted to the Remittance
Rate;
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(ii) all Principal Prepayments made by the Obligor during the prior Due
Period;
(iii) with respect to each Contract not described in (iv) below, all
insurance proceeds, all condemnation awards and any other cash proceeds
from a source other than the Obligor, to the extent required to be
deposited in the Certificate Account, which were received during the prior
Due Period, net of related unreimbursed Advances and net of any portion
thereof which, as to any Contract, constitutes late collections;
(iv) with respect to each Contract as to which a receipt of Liquidation
Proceeds has been received during the prior Due Period or other event of
termination of the Contract has occurred during the prior Due Period, an
amount equal to the principal amount of the Contract outstanding
immediately prior to the date of receipt of such Liquidation Proceeds or
such other event of termination, reduced by the principal portion of any
unpaid payments due on or before such date to the extent previously
advanced against or otherwise received by the Certificateholder, plus
interest thereon from the most recent Due Date at the Remittance Rate; and
(v) with respect to each Contract repurchased by the Company for which
the repurchase price was not distributed previously, an amount equal to the
principal amount of the Contract outstanding on the date of such repurchase
reduced by the principal portion of any unpaid payments due on or before
such date (but only to the extent advanced against or otherwise received by
the Certificateholders), plus interest thereon to the most recent Due Date.
The Outstanding Senior Shortfall for any Class or sub-class of Senior
Certificates means as of any date, to the extent not previously paid, the
aggregate of the amounts by which the Senior Distribution Amount for such sub-
class for any Remittance Date exceeded the amount actually paid on such
Remittance Date plus interest at the Remittance Rate.
Unless otherwise specified in the related Prospectus Supplement, on each
Remittance Date, the Servicer shall distribute to the Classes of Subordinated
Certificateholders, in the order set forth in the related Prospectus
Supplement, the balance of the Amount Available, if any, after the payment to
the Senior Certificateholders, as described above.
Unless otherwise specified in the Prospectus Supplement relating to a Series
of Certificates, one or more Classes or sub-classes of which have been assigned
a Stated Balance, distributions in reduction of the Stated Balance of such
Certificates will be made on each Remittance Date to the Certificateholders of
the Class or sub-class then entitled to receive such Certificate distributions
until the aggregate amount of such distributions have reduced the Stated
Balance of the Certificates of such Class or sub-class to zero or a specified
percentage. Allocation of distributions in reduction of Stated Balance will be
made to each Class or sub-class of such Certificates in the order specified in
the related Prospectus Supplement, which, if so specified in such Prospectus
Supplement, may be concurrently. Unless otherwise specified in the related
Prospectus Supplement, distributions in reduction of the Stated Balance of each
Certificate of a Class or sub-class then entitled to receive such distributions
will be made pro rata among the Certificates of such Class or sub-class.
Unless otherwise specified in the related Prospectus Supplement, the maximum
amount which will be distributed in reduction of Stated Balance to holders of
Certificates of a Class or Sub-class then entitled thereto on any Remittance
Date will equal, to the extent funds are available, the sum of (i) the amount
of the interest, if any, that has accrued but is not yet payable on the
Compound Interest Certificates of such Series, if any, from the prior
Remittance Date (or since the date specified in the related Prospectus
Supplement in the case of first Remittance Date) (the "Accrual Remittance
Amount"); (ii) the Certificate Remittance Amount; and (iii) the applicable
percentage of the Excess Cash Flow, if any, specified in such Prospectus
Supplement.
Unless otherwise specified in the related Prospectus Supplement, the
Certificate Remittance Amount with respect to a Remittance Date will equal the
amount, if any, by which the then outstanding Stated Balance of the
Certificates of the related Classes or sub-classes of such Series (before
taking into account the amount of interest accrued on any Class or sub-class of
Compound Interest Certificates of such Series to be
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added to the Stated Balance thereof on such Remittance Date) exceeds the Asset
Value, as defined in the related Prospectus Supplement, of the Contracts in the
Contract Pool underlying such Series as of the end of the applicable Due Period
specified in the related Prospectus Supplement. For purposes of determining the
Certificate Remittance Amount with respect to a Remittance Date, the Asset
Value of the Contracts will be reduced to take into account the interest
evidenced by such Classes or sub-classes of Certificates in the principal
distributions on or with respect to such Contracts received by the Trustee
during the preceding Due Period.
Unless otherwise specified in the Prospectus Supplement relating to a Series
of Certificates, one or more Classes or sub-classes of which have been assigned
a Stated Balance, Excess Cash Flow represents the excess of (i) the interest
evidenced by such Classes or sub-classes of Certificates in the distributions
received on the Contracts underlying such Series in the Due Period preceding a
Remittance Date for such Series (and, in the case of the first Due Period, the
amount deposited in the Certificate Account on the closing date for the sale of
such Certificates), together with income from the reinvestment thereof, (ii)
the sum of all interest accrued, whether or not then payable, on the
Certificates of such Classes or sub-classes since the preceding Remittance Date
(or since the date specified in the related Prospectus Supplement in the case
of the first Remittance Date), the Certificate Remittance Amount for the then
current Remittance Date and, if applicable, any payments made on any
Certificates of such Class or sub-class pursuant to any special distributions
in reduction of Stated Balance during such Due Period.
Within the time specified in the Agreement and described in the related
Prospectus Supplement, the Servicer will furnish a statement to the Trustee
setting forth the amount to be distributed on the related Remittance Date on
account of principal and interest, stated separately, and a statement setting
forth certain information with respect to the Contracts.
If there are not sufficient funds in the Certificate Account to make the full
distribution to Certificateholders described above on any Remittance Date, the
Servicer will distribute the funds available for distribution to the
Certificateholders of each Class in accordance with the respective interests
therein, except that Subordinated Certificateholders, if any, will not, subject
to the limitations described in the related Prospectus Supplement, receive any
distributions until Senior Certificateholders receive the Senior Distribution
Amount plus the Outstanding Senior Shortfall. The difference between the amount
which the Certificateholders would have received if there had been sufficient
eligible funds in the Certificate Account and the amount actually distributed,
plus interest at the Remittance Rates of the respective Contracts to which such
shortfall is attributable, will be added to the amount which the
Certificateholders are entitled to receive on the next Remittance Date.
Special Distributions. To the extent specified in the Prospectus Supplement
relating to a Series of Certificates, one or more Classes or sub-classes of
which have been assigned a Stated Balance and having less frequent than monthly
Remittance Dates, such Classes or sub-classes may receive Special Distributions
in reduction of Stated Balance ("Special Distributions") in any month, other
than a month in which a Remittance Date occurs, if, as a result of principal
prepayments on the Contracts in the related Contract Pool or low reinvestment
yields, the Trustee determines, based on assumptions specified in the related
Agreement, that the amount of cash anticipated to be on deposit in the
Certificate Account on the next Remittance Date for such Series and available
to be distributed to the Holders of the Certificates of such Classes or sub-
classes may be less than the sum of (i) the interest scheduled to be
distributed to holders of the Certificates of such Classes or sub-classes and
(ii) the amount to be distributed in reduction of Stated Balance of such
Certificates on such Remittance Date. Any such Special Distributions will be
made in the same priority and manner as distributions in reduction of Stated
Balance would be made on the next Remittance Date.
Subordinated Certificates. The rights of a Class of Certificateholders of a
Series to receive any or a specified portion of distributions of principal or
interest or both with respect to the Contracts, to the extent specified in the
related Agreement and described in the related Prospectus Supplement, may be
subordinated to such rights of other Certificateholders. The Prospectus
Supplement with respect to a Series of Certificates
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having a Class of Subordinated Certificates will set forth, among other things,
the extent to which such Class is subordinated (which may include a formula for
determining the subordinated amount or for determining the allocation of the
Amount Available among Senior Certificates and Subordinated Certificates), the
allocation of losses among the Classes of Subordinated Certificates, the period
or periods of such subordination, the minimum subordinated amount, if any, and
any distributions or payments which will not be affected by such subordination.
The protection afforded to the Senior Certificateholders from the subordination
feature described above will be effected by the preferential right of such
Certificateholders to receive current distributions from the Contract Pool.
ADVANCES
To the extent provided in the related Prospectus Supplement, the Servicer is
obligated to make periodic Advances of cash from its own funds or, if so
specified in the related Prospectus Supplement, from excess funds in the
Certificate Account not then required to be distributed to Certificateholders,
for distribution to the Certificateholders (other than Subordinated
Certificateholders) in an amount equal to the difference between the amount due
to them and the amount in the Certificate Account, eligible for distribution to
them pursuant to the Agreement, but only to the extent such difference is due
to delinquent payments of principal and interest for the preceding Due Period
and only to the extent the Servicer determines such advances are recoverable
from future payments and collections on the delinquent Contracts. The
Servicer's obligation to make Advances, if any, may, as specified in the
related Prospectus Supplement, be limited in amount. If so specified in the
related Prospectus Supplement, the Servicer will not be obligated to make
Advances until all or a specified portion of the Reserve Fund, if any, is
depleted. Advances are intended to maintain a regular flow of scheduled
interest and principal payments to the Senior Certificateholders, not to
guarantee or insure against losses. Accordingly, any funds so advanced are
recoverable by the Servicer out of amounts received on particular Contracts
which represent late recoveries of principal or interest respecting which any
such Advance was made.
EXAMPLE OF DISTRIBUTIONS
The following is an example of the flow of funds as it would relate to a
hypothetical series of Certificates issued, and with a Cut-off Date occurring,
in March 1994 (all days are assumed to be business days):
<TABLE>
<S> <C> <C>
April 1......................................... (1) Cut-off Date.
April 1-30...................................... (2) Due Period. Servicer
receives scheduled payments
on the Contracts and any
Principal Prepayments made
by Obligors and applicable
interest thereon.
March 31........................................ (3) Record Date.
April 12........................................ (4) Determination Date.
Distribution amount
determined.
April 15........................................ (5) Remittance Date.
</TABLE>
Succeeding months follow the pattern of (2) through (5). The flow of funds
with respect to any Series of Certificates may differ from the above example,
as specified in the related Prospectus Supplement.
- --------
(1) The initial principal balance of the Contract Pool will be the aggregate
principal balance of the Contracts at the close of business on the Cut-off
Date, after deducting principal payments due on or before such date, which,
together with corresponding interest payments, are not part of the Contract
Pool and will not be passed through to Certificateholders.
(2) Scheduled payments and Principal Prepayments may be received at any time
during this period and will be deposited in the Certificate Account by the
Servicer for distribution to Certificateholders. When a Contract is prepaid
in full, interest on the amount prepaid is collected from the Obligor only
to the date of payment.
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(3) Distributions on April 15 will be made to Certificateholders of record at
the close of business on the last Business Day of the month immediately
preceding the month of distribution.
(4) On April 12 (the third Business Day prior to the Remittance Date), the
Servicer will determine the amounts of principal and interest which will be
passed through on April 15. In addition, the Servicer may advance funds to
cover any delinquencies, in which event the distribution to
Certificateholders on April 15 will include the full amounts of principal
and interest due during March. The Servicer will also calculate any changes
in the relative interests evidenced by the Senior Certificates and the
Subordinated Certificates in the Trust Fund.
(5) On April 15, the amounts determined on April 12 will be distributed to
Certificateholders.
INDEMNIFICATION
The Agreement requires the Company to defend and indemnify the Trust Fund,
the Trustee (including any agent of the Trustee) and the Certificateholders
(which indemnification will survive any removal of the Servicer as servicer of
the Contracts) against any and all costs, expenses, losses, damages, claims and
liabilities, including reasonable fees and expenses of counsel and expenses of
litigation (a) arising out of or resulting from the use or ownership by the
Company or the Servicer or any affiliate thereof of any Manufactured Home and
(b) for any taxes which may at any time be asserted with respect to, and as of
the date of, the conveyance of the Contracts to the Trust Fund (but not
including any federal, state or other tax arising out of the creation of the
Trust Fund and the issuance of the Certificates). (Article X).
The Agreement also requires the Servicer, in connection with its duties as
servicer of the Contracts, to defend and indemnify the Trust Fund, the Trustee
and the Certificateholders (which indemnification will survive any removal of
the Servicer as servicer of the Contracts) against any and all costs, expenses,
losses, damages, claims and liabilities, including reasonable fees and expenses
of counsel and expenses of litigation, in respect of any action taken by the
Servicer with respect to any Contract while it was the Servicer. (Section
10.04.)
SERVICING
Pursuant to the Agreement, the Servicer will service and administer the
Contracts assigned to the Trustee as more fully set forth below. The Servicer
will perform diligently all services and duties specified in each Agreement, in
the same manner as prudent lending institutions of manufactured housing
contracts of the same type as the Contracts in those jurisdictions where the
related Manufactured Homes are located or as otherwise specified in the
Agreement. The duties to be performed by the Servicer will include collection
and remittance of principal and interest payments, collection of insurance
claims and, if necessary, repossession.
The Servicer will make reasonable efforts to collect all payments called for
under the Contracts and, consistent with the Agreement and any FHA insurance
and VA guaranty, will follow such collection procedures as it follows with
respect to mortgage loans or contracts serviced by it that are comparable to
the Contracts.
Hazard Insurance. Except as otherwise specified in the related Prospectus
Supplement, the terms of the Agreement will require the Servicer to cause to be
maintained with respect to each Contract one or more Hazard Insurance Policies
which provide, at a minimum, the same coverage as a standard form fire and
extended coverage insurance policy that is customary for manufactured housing,
issued by a company authorized to issue such policies in the state in which the
Manufactured Home is located, and in an amount which is not less than the
maximum insurable value of such Manufactured Home or the principal balance due
from the Obligor on the related Contract, whichever is less; provided, however,
that the amount of coverage provided by each Hazard Insurance Policy shall be
sufficient to avoid the application of any co-insurance clause contained
therein. When a Manufactured Home's location was, at the time of origination of
the related Contract, within a federally designated special flood hazard area,
the Servicer also shall cause such flood insurance to be maintained, which
coverage shall be at least equal to the minimum amount
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specified in the preceding sentence or such lesser amount as may be available
under the federal flood insurance program. Each Hazard Insurance Policy caused
to be maintained by the Servicer shall contain a standard loss payee clause in
favor of the Servicer and its successors and assigns. If any Obligor is in
default in the payment of premiums on its Hazard Insurance Policy or Policies,
the Servicer shall pay such premiums out of its own funds, and may add
separately such premium to the Obligor's obligation as provided by the
Contract, but may not add such premium to the remaining principal balance of
the Contract.
The Servicer may maintain, in lieu of causing individual Hazard Insurance
Policies to be maintained with respect to each Manufactured Home, and shall
maintain, to the extent that the related Contract does not require the Obligor
to maintain a Hazard Insurance Policy with respect to the related Manufactured
Home, one or more blanket insurance policies covering losses on the Obligor's
interest in the Contracts resulting from the absence or insufficiency of
individual Hazard Insurance Policies. Any such blanket policy shall be
substantially in the form and in the amount carried by the Servicer as of the
date of this Agreement. The Servicer shall pay the premium for such policy on
the basis described therein and shall pay any deductible amount with respect to
claims under such policy relating to the Contracts. If the insurer thereunder
shall cease to be acceptable to the Servicer, the Servicer shall exercise its
best reasonable efforts to obtain from another insurer a replacement policy
comparable to such policy.
If the Servicer shall have repossessed a Manufactured Home on behalf of the
Trustee, the Servicer shall either (i) maintain at its expense hazard insurance
with respect to such Manufactured Home, or (ii) indemnify the Trustee against
any damage to such Manufactured Home prior to resale or other disposition.
Evidence as to Compliance. Unless otherwise specified in the related
Prospectus Supplement, each Agreement will require the Servicer to deliver to
the Trustee a monthly report prior to each Remittance Date, setting forth
certain information regarding the Contract Pool and the Certificates of such
Series as is specified in the related Prospectus Supplement. Each such report
to the Trustee will be accompanied by a statement from an appropriate officer
of the Servicer certifying the accuracy of such report and stating that the
Servicer has not defaulted in the performance of its obligations under the
Agreement. On or before May 1 of each year, the Servicer will deliver to the
Trustee a report of a nationally recognized accounting firm stating that such
firm has examined certain documents and records relating to the servicing of
manufactured housing contracts serviced by the Servicer under pooling and
servicing agreements similar to the Agreement and stating that, on the basis of
such procedures, such servicing has been conducted in compliance with the
Agreement, except for any exceptions set forth in such report. (Article VI.)
Certain Matters Regarding the Servicer. The Servicer may not resign from its
obligations and duties under an Agreement except upon a determination that its
duties thereunder are no longer permissible under applicable law. No such
resignation will become effective until the Trustee or a successor servicer has
assumed the Servicer's obligations and duties under such Agreement. The
Servicer can only be removed as servicer pursuant to an Event of Termination as
discussed below. Any person with which the Servicer is merged or consolidated,
or any corporation resulting from any merger, conversion or consolidation to
which the Servicer is a party, or any person succeeding to the business of the
Servicer, will be the successor to the Servicer under the Agreement so long as
such successor services at least $100 million of manufactured housing
contracts. (Section 12.01.)
Unless otherwise specified in the related Prospectus Supplement, each
Agreement will also provide that neither the Servicer, nor any director,
officer, employee or agent of the Servicer, will be under any liability to the
Trust Fund or the Certificateholders for any action taken or for restraining
from the taking of any action in good faith pursuant to the Agreement, or for
errors in judgment; provided, however, that neither the Servicer nor any such
person will be protected against any liability which would otherwise be imposed
by reason of the failure to perform its obligations in strict compliance with
the standards of care set forth in the Agreement. The Servicer may, in its
discretion, undertake any such action which it may deem necessary or desirable
with respect to the Agreement and the rights and duties of the parties thereto
and the interests of the Certificateholders thereunder. In such event, the
legal expenses and costs of such action and any liability
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<PAGE>
resulting therefrom will be expenses, costs and liabilities of the Trust Fund
and the Servicer will be entitled to be reimbursed therefor out of the
Certificate Account.
The Servicer shall keep in force throughout the term of this Agreement (i)
policy or policies of insurance covering errors and omissions for failure to
maintain insurance as required by this Agreement, and (ii) a fidelity bond.
Such policy or policies and such fidelity bond shall be in such form and amount
as is generally customary among persons which service a portfolio of
manufactured housing contracts having an aggregate principal amount of $100
million or more and which are generally regarded as servicers acceptable to
institutional investors.
The Servicer, to the extent practicable, shall cause the Obligors to pay all
taxes and similar governmental charges when and as due. To the extent that
nonpayment of any taxes or charges would result in the creation of a lien upon
any Manufactured Home having a priority equal or senior to the lien of the
related Contract, the Servicer shall advance any such delinquent tax or charge.
Servicing Compensation and Payment of Expenses. For its servicing of the
Contracts, the Servicer will receive servicing fees ("Servicing Fees") which
include a Monthly Servicing Fee (which the Company may assign) for each Due
Period (paid on the next succeeding Remittance Date) equal to 1/12th of the
product of 0.50% and the Pool Scheduled Principal Balance for such Remittance
Date. As long as the Company is the Servicer the Trustee will pay the Company
its Monthly Servicing Fee from any monies remaining after the
Certificateholders have received all payments of principal and interest for
such Remittance Date.
The Monthly Servicing Fee provides compensation for customary manufactured
housing contract third-party servicing activities to be performed by the
Servicer for the Trust Fund and for additional administrative services
performed by the Servicer on behalf of the Trust Fund. Customary servicing
activities include collecting and recording payments, communicating with
obligors, investigating payment delinquencies, providing billing and tax
records to obligors and maintaining internal records with respect to each
Contract. Administrative services performed by the Servicer on behalf of the
Trust Fund include calculating distributions to Certificateholders and
providing related data processing and reporting services for Certificateholders
and on behalf of the Trustee. Expenses incurred in connection with the
servicing of the Contracts and paid by the Servicer from its Servicing Fees
include, without limitation, payment of fees and expenses of accountants,
payments of all fees and expenses incurred in connection with the enforcement
of Contracts (except Liquidation Expenses) and payment of expenses incurred in
connection with distributions and reports to Certificateholders. The Servicer
will be reimbursed out of the Liquidation Proceeds of a Liquidated Contract for
all ordinary and necessary Liquidation Expenses incurred by it in realization
upon the related Manufactured Home. (Section 5.08.)
As part of its Servicing Fees the Servicer will also be entitled to retain,
as compensation for the additional services provided in connection therewith,
any fees for late payments made by Obligors, extension fees paid by Obligors
for the extension of scheduled payments and assumption fees for permitted
assumptions of Contracts by purchasers of the related Manufactured Homes.
(Section 1.02.)
Events of Termination. Except as otherwise specified in the related
Prospectus Supplement, Events of Termination under each Agreement will include
(i) any failure by the Servicer to distribute to the Certificateholders any
required payment which continues unremedied for 5 days (or such other period
specified in the related Prospectus Supplement) after the giving of written
notice; (ii) any failure by the Servicer duly to observe or perform in any
material respect any other of its covenants or agreements in the Agreement that
materially and adversely affects the interests of Certificateholders, which, in
either case, continues unremedied for 30 days after the giving of written
notice of such failure of breach; (iii) any assignment or delegation by the
Servicer of its duties or rights under the Agreement, except as specifically
permitted under the Agreement, or any attempt to make such an assignment or
delegation; (iv) certain events of insolvency, readjustment of debt,
marshalling of assets and liabilities or similar proceedings regarding the
Servicer; and (v) the Servicer is no longer an Eligible Servicer (as defined in
the applicable Agreement). Notice as used herein shall mean notice to the
Servicer by the Trustee or the Company, or to the Company, the
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<PAGE>
Servicer, if any, and the Trustee by the Holders of Certificates representing
interests aggregating not less than 25% of the Trust Fund.
Rights Upon Event of Termination. Except as otherwise specified in the
related Prospectus Supplement, so long as an Event of Termination remains
unremedied, the Trustee may, and at the written direction of the
Certificateholders of a Series evidencing interests aggregating 25% or more of
the related Trust Fund, shall, terminate all of the rights and obligations of
the Servicer under the related Agreement and in and to the Contracts, and the
proceeds thereof, whereupon (subject to applicable law regarding the Trustee's
ability to make advances) the Trustee or a successor Servicer under the
Agreement will succeed to all the responsibilities, duties and liabilities of
the Servicer under the Agreement and will be entitled to similar compensation
arrangements; provided, however, that neither the Trustee nor any successor
Servicer will assume any obligation of the Company to repurchase Contracts for
breaches of representations or warranties, and the Trustee and such successor
Servicer will not be liable for any acts or omissions of the prior Servicer
occurring prior to a transfer of the Servicer's servicing and related functions
or for any breach by such Servicer of any of its obligations contained in the
Agreement. Notwithstanding such termination, the Servicer shall be entitled to
payment of certain amounts payable to it prior to such termination, for
services rendered prior to such termination. No such termination will affect in
any manner the Company's obligation to repurchase certain Contracts for
breaches of representations or warranties under the Agreement. In the event
that the Trustee would be obligated to succeed the Servicer but is unwilling or
unable so to act, it may appoint, or petition to a court of competent
jurisdiction for the appointment of a Servicer. Pending such appointment, the
Trustee is obligated to act in such capacity. The Trustee and such successor
may agree upon the servicing compensation to be paid, which in no event may be
greater than the compensation to the Servicer under the Agreement.
No Certificateholder will have any right under an Agreement to institute any
proceeding with respect to such Agreement unless such Holder previously has
given to the Trustee written notice of default and unless the Holders of
Certificates evidencing interests aggregating not less than 25% of the related
Trust Fund requested the Trustee in writing to institute such proceeding in its
own name as Trustee and have offered to the Trustee reasonable indemnity and
the Trustee for 60 days has neglected or refused to institute any such
proceeding. The Trustee will be under no obligation to take any action or
institute, conduct or defend any litigation under the Agreement at the request,
order or direction of any of the Holders of Certificates, unless such
Certificateholders have offered to the Trustee reasonable security or indemnity
against the costs, expenses and liabilities which the Trustee may incur.
REPORTS TO CERTIFICATEHOLDERS
The Trustee will forward to each Certificateholder on each Remittance Date,
or as soon thereafter as is practicable, as specified in the related Prospectus
Supplement, a statement setting forth, among other things:
(i) the amount of such distribution allocable to principal on the
Contracts;
(ii) the amount of such distribution allocable to interest on the
Contracts;
(iii) if the distribution to the Certificateholders is less than the full
amount that would be distributable to such Certificateholders if there were
sufficient eligible funds in the Certificate Account, the difference
between the aggregate amounts of principal and interest which
Certificateholders would have received if there were sufficient eligible
funds in the Certificate Account and the amounts actually distributed;
(iv) the aggregate amount of Advances, if any, by the Servicer included
in the amounts actually distributed to the Certificateholders;
(v) the outstanding principal balance of the Contracts; and
(vi) the approximate weighted average Remittance Rate of the Contracts
during the Due Period immediately preceding such Remittance Date.
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In addition, not more than 90 days after the end of each calendar year, the
Servicer will furnish a report to each Certificateholder of record at any time
during such calendar year (a) as to the aggregate of amounts reported pursuant
to (i) through (v) above for such calendar year or, in the event such person
was a Certificateholder of record during a portion of such calendar year, for
the applicable portion of such year, (b) such information as the Servicer deems
necessary or desirable for Certificateholders to prepare their tax returns and
(c) if so specified in the related Prospectus Supplement, a listing of the
principal balances of the Contracts outstanding at the end of such calendar
year. Information in the monthly and annual reports provided to the
Certificateholders will not have been examined and reported upon by an
independent public accountant. However, the Servicer will provide to the
Trustee annually a report by independent public accountants with respect to the
servicing of the Contracts as described under "Evidence as to Compliance"
above.
In addition, to the extent applicable, such report shall include:
(i) in the case of Certificates which are assigned a Stated Balance, the
amount of the distribution being made in reduction of Stated Balance
specified in the related Prospectus Supplement, and the Stated Balance of
each such Class of Certificates and a Single Certificate of the Holder's
Class after giving effect to the distribution in reduction of Stated
Balance made on such Remittance Date and after giving effect to all Special
Distributions since the preceding Remittance Date or since the Closing Date
in the case of the first Remittance Date; and
(ii) with respect to Compound Interest Certificates (but only if the
Holders thereof shall not have received on such Remittance Date a
distribution of interest equal to the entire amount of interest accrued on
such Certificate during the related Due Period with respect to such
Remittance Date):
(a) the interest accrued on such Class of Compound Interest
Certificates and on a Single Certificate of such Class during the Due
Period (or specified interest accrual period) with respect to such
Remittance Date and added to the principal of such Compound Interest
Certificates; and
(b) the Stated Balance of such Class of Compound Interest
Certificates and of a Single Certificate of such Class after giving
effect to the addition thereto of all interest accrued thereon during
the Due Period (or specified interest accrual period) with respect to
such Remittance Date.
AMENDMENT
Unless otherwise specified in the related Prospectus Supplement, the
Agreement may be amended by the Company, the Servicer and the Trustee without
the consent of the Certificateholders, (i) to cure any ambiguity, (ii) to
correct or supplement any provision therein that may be inconsistent with any
other provision therein, (iii) if an election has been made with respect to a
particular Series of Certificates to treat the Trust Fund as a real estate
mortgage investment conduit ("REMIC") within the meaning of Section 860D(a) of
the Internal Revenue Code of 1986, as amended, to maintain the REMIC status of
the Trust Fund and to avoid the imposition of certain taxes on the REMIC or
(iv) to make any other provisions with respect to matters or questions arising
under such Agreement that are not inconsistent with the provisions thereof,
provided that such action will not adversely affect in any material respect the
interests of the Certificateholders of the related Series. Unless otherwise
specified in the related Prospectus Supplement, the Agreement may also be
amended by the Company, the Servicer and the Trustee with the consent of the
Certificateholders (other than holders of Residual Certificates) evidencing
interests aggregating not less than 51% of the Trust Fund for the purpose of
adding any provisions to or changing in any manner or eliminating any of the
provisions of such Agreement or of modifying in any manner the rights of the
Certificateholders; provided, however, that no such amendment that reduces in
any manner the amount of, or delay the timing of, any payment received on or
with respect to Contracts which are required to be distributed on any
Certificate may be effective without the consent of the Holders of each such
Certificate.
TERMINATION OF THE AGREEMENT
The obligations created by each Agreement will terminate upon the date
calculated as specified in the Agreement, generally upon (i) the later of the
final payment or other liquidation of the last Contracts subject
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thereto and the disposition of all property acquired upon foreclosure of any
Land-and-Home Contract or repossession of any Manufactured Home and (ii) the
payment to the Certificateholders of all amounts held by the Servicer or the
Trustee and required to be paid to it pursuant to the Agreement. In addition,
unless otherwise specified in the related Prospectus Supplement, the Company
or the Servicer may at its option with respect to any Series of Certificates,
repurchase all Certificates or Contracts remaining outstanding at such time as
the aggregate unpaid principal balance of such Contracts is less than the
percentage of the aggregate unpaid principal balance of the Contracts on the
Cut-off Date specified with respect to such Series in the related Prospectus
Supplement. Unless otherwise provided in the related Prospectus Supplement,
the repurchase price will equal the principal amount of such Contracts plus
accrued interest from the first day of the month of repurchase to the first
day of the next succeeding month at the Contract Rates borne by such
Contracts.
THE TRUSTEE
The Prospectus Supplement for a Series of Certificates will specify the
Trustee under the related Agreement. The Trustee may have normal banking
relationships with the Company or its affiliates and the Servicer or its
affiliates.
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. Unless otherwise specified in
the related Prospectus Supplement, the Trustee may also be removed at any time
by the Holders of Certificates evidencing interests aggregating over 50% of
the related Trust Fund as specified in the Agreement. Any resignation or
removal of the Trustee and appointment of a successor Trustee will not become
effective until acceptance of the appointment by the successor Trustee.
The Trustee will make no representation as to the validity or sufficiency of
the Agreement, the Certificates, any Contract, Contract file or related
documents, and will not be accountable for the use or application by the
Company of any funds paid to the Company, as Seller, in consideration of the
conveyance of the Contracts, or deposited into or withdrawn from the
Certificate Account by the Servicer. (Section 11.03.) If no Event of
Termination has occurred, the Trustee will be required to perform only those
duties specifically required of it under the Agreement. However, upon receipt
of the various certificates, reports or other instruments required to be
furnished to it, the Trustee will be required to examine them to determine
whether they conform as to form to the requirements of the Agreement. (Section
11.01.) Whether or not an Event of Termination has occurred, the Trustee is
not required to expend or risk its own funds or otherwise incur any financial
liability in the performance of its duties or the exercise of its powers if it
has reasonable grounds to believe that repayment of such funds or adequate
indemnity against such risk or liability is not reasonably assured to it.
(Section 11.01.)
Under the Agreement, the Servicer agrees to pay to the Trustee on each
Remittance Date (a) reasonable compensation for all services rendered by it
hereunder (which compensation shall not be limited by any provision of law in
regard to the compensation of a trustee of an express trust) and (b)
reimbursement for all reasonable expenses, disbursements and advances incurred
or made by the Trustee in accordance with any provision of the Agreement
(including the reasonable compensation and the expenses and disbursements of
its agents and counsel), except any such expense, disbursement or advance as
may be attributable to the Trustee's negligence or bad faith. The Company has
agreed to indemnify the Trustee for, and to hold it harmless against, any
loss, liability or expense incurred without negligence or bad faith on its
part, arising out of or in connection with the acceptance or administration of
the Trust Fund and the Trustee's duties thereunder, including the costs and
expenses of defending itself against any claim or liability in connection with
the exercise or performance of any of the Trustee's powers or duties
thereunder. (Section 11.05.)
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DESCRIPTION OF FHA INSURANCE AND VA GUARANTEES
Certain of the Contracts may be FHA-insured or VA-guaranteed, the payments
upon which, subject to the following discussion, are insured by the FHA under
Title I of the National Housing Act or partially guaranteed by the VA.
The regulations governing FHA manufactured home insurance provide that
insurance benefits are payable upon the repossession and resale of the
collateral and assignment of the contract to HUD. With respecting to a
defaulted FHA contract, the servicer must follow applicable regulations before
initiating repossession procedures. These regulations include requirements that
the lender arrange a face-to-face meeting with the borrower, initiate a
modification or repayment plan, if feasible, and give the borrower 30 days'
notice of default prior to any repossession. The insurance claim is paid in
cash by HUD. For manufactured housing contracts, the amount of insurance
benefits generally paid by FHA is equal to 90% of the sum of (i) the unpaid
principal amount of the Contract at the date of default and uncollected
interest earned to the date of default computed at the Contract rate, after
deducting the best price obtainable for the collateral (based in part on a HUD-
approved appraisal) and all amounts retained or collected by the lender from
other sources with respect to the Contract, (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) costs paid to a dealer or
other third party to repossess and preserve the Manufactured Home, (iv) the
amount of any sales commission paid to a dealer or other third party for the
resale of the property, (v) with respect to a Land-and-Home Contract, property
taxes, special assessments and other similar charges and hazard insurance
premiums, prorated to the date of disposition of the property, (vi) uncollected
court costs, (vii) legal fees, not to exceed $500, and (viii) expenses for
recording the assignment of the lien on the collateral to the United States.
The insurance available to a lender under FHA Title I insurance is subject to
the limit of a reserve amount equal to ten percent of the original principal
balance of all Title I insured loans originated by the lender, which amount is
reduced by all claims paid to the lender and by an annual reduction in the
reserve amount of ten percent of the reserve amount, and which is increased by
an amount equal to ten percent of the original principal balance of insured
loans subsequently originated by the lender. As of March 31, 1994, the
Company's Title I reserve amount was approximately $125,033,000, which amount
was available to pay claims in respect of approximately $1,947,000,000 of FHA-
insured home improvement loans and manufactured housing contracts serviced by
the Company. If the Company were replaced as Servicer of the Contracts under
the Agreement, it is not clear from the FHA regulations what portion of this
reserve amount would be available for claims in respect of the FHA-insured
Contracts. The obligation to pay insurance premiums to FHA is the obligation of
the Company, as Servicer of the FHA-insured Contracts.
The maximum guarantee that may be issued by the VA for a VA-guaranteed
contract is the lesser of (a) the lesser of $20,000 and 40% of the principal
amount of the contract and (b) the maximum amount of guaranty entitlement
available to the obligor veteran (which may range from $20,000 to zero). The
amount payable under the guarantee will be the percentage of the VA contract
originally guaranteed applied to indebtedness outstanding as of the applicable
date of computation specified in the VA regulations, interest accrued on the
unpaid balance of the loan to the appropriate date of computation and limited
expenses of the contract holder, but in each case only to the extent that such
amounts have not been recovered through resale of the manufactured home. The
amount payable under the guarantee may in no event exceed the amount of the
original guarantee.
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CERTAIN LEGAL ASPECTS OF THE CONTRACTS
The following discussion contains summaries of certain legal aspects of
manufactured housing contracts, including Land-and-Home Contracts, which are
general in nature. Because such legal aspects are governed by applicable state
law (which laws may differ substantially), the summaries do not purport to be
complete nor to reflect the laws of any particular state, nor to encompass the
laws of all states in which the security for the Contracts or Land-and-Home
Contracts is situated. The summaries are qualified in their entirety by
reference to the applicable federal and state laws governing the Contracts or
Land-and-Home Contracts.
THE CONTRACTS (OTHER THAN LAND-AND-HOME CONTRACTS)
General. As a result of the assignment of the Contracts to the Trustee, the
Trust Fund will succeed collectively to all of the rights (including the right
to receive payment on the Contracts) and will assume the obligations of the
obligee under the Contracts. Each Contract evidences both (a) the obligation of
the Obligor to repay the loan evidenced thereby, and (b) the grant of a
security interest in the Manufactured Home to secure repayment of such loan.
Certain aspects of both features of the Contracts are described more fully
below.
The Contracts generally are "chattel paper" as defined in the Uniform
Commercial Code (the "UCC") in effect in the states in which the Manufactured
Homes initially were registered. Pursuant to the UCC, the sale of chattel paper
is treated in a manner similar to perfection of a security interest in chattel
paper. Under the Agreement, the Company will retain possession of the Contracts
as custodian for the Trustee, and will make an appropriate filing of a UCC-1
financing statement in Minnesota to give notice of the Trustee's ownership of
the Contracts. The Contracts will be stamped to reflect their assignment from
the Company to the Trustee. However, if through negligence, fraud or otherwise,
a subsequent purchaser were able to take physical possession of the Contracts
without notice of such assignment, the Trustee's interest in the Contracts
could be defeated.
Security Interests in the Manufactured Homes. The Manufactured Homes securing
the Contracts may be located in all 50 states and the District of Columbia.
Security interests in manufactured homes may be perfected either by notation of
the secured party's lien on the certificate of title or by delivery of the
required documents and payment of a fee to the state motor vehicle authority,
depending on state law. In some nontitle states, perfection pursuant to the
provisions of the UCC is required. The Company effects such notation or
delivery of the required documents and fees, and obtains possession of the
certificate of title, as appropriate under the laws of the state in which a
Manufactured Home is registered. In the event the Company fails, due to
clerical errors, to effect such notation or delivery, or files the security
interest under the wrong law (for example, under a motor vehicle title statute
rather than under the UCC, in a few states), the Certificateholders may not
have a first priority security interest in the Manufactured Home securing a
Contract. As manufactured homes have become larger and often have been attached
to their sites without any apparent intention to move them, courts in many
states have held that manufactured homes, under certain circumstances, may
become subject to real estate title and recording laws. As a result, a security
interest in a manufactured home could be rendered subordinate to the interests
of other parties claiming an interest in the home under applicable state real
estate law. In order to perfect a security interest in a manufactured home
under real estate laws, the holder of the security interest must file either a
"fixture filing" under the provisions of the UCC or a real estate mortgage
under the real estate laws of the state where the home is located. See "Land-
and-Home Contracts" below. These filings must be made in the real estate
records office of the county where the home is located. Substantially all of
the Contracts contain provisions prohibiting the borrower from permanently
attaching the Manufactured Home to its site. So long as the borrower does not
violate this agreement, a security interest in the Manufactured Home will be
governed by the certificate of title laws or the UCC, and the notation of the
security interest on the certificate of title or the filing of a UCC financing
statement will be effective to maintain the priority of the security interest
in the Manufactured Home. If, however, a Manufactured Home becomes permanently
attached to its site, other parties could obtain an interest in the
Manufactured Home which is prior to the security interest originally retained
by the seller and transferred to the Company. The Company will represent that
at the date of the initial issuance of the related
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Certificates it has obtained a perfected first priority security interest by
proper notation or delivery of the required documents and fees with respect to
substantially all of the Manufactured Homes securing the Contracts.
The Company will assign the security interest in the Manufactured Homes to
the Trustee on behalf of the Certificateholders. Unless otherwise specified in
the related Prospectus Supplement, neither the Company nor the Trustee will
amend the certificates of title to identify the Trustee as the new secured
party, and neither the Company nor the Servicer will deliver the certificates
of title to the Trustee or note thereon the interest of the Trustee.
Accordingly, the Company will continue to be named as the secured party on the
certificates of title relating to the Manufactured Homes. In some states, such
assignment is an effective conveyance of such security interest without
amendment of any lien noted on the related certificate of title and the new
secured party succeeds to the Servicer's rights as the secured party. However,
in some states in the absence of an amendment to the certificate of title, such
assignment of the security interest in the Manufactured Home may not be held
effective or such security interests may not be perfected and in the absence of
such notation or delivery to the Trustee, the assignment of the security
interest in the Manufactured Home may not be effective against creditors of the
Company or a trustee in bankruptcy of the Company.
In the absence of fraud, forgery or permanent affixation of the Manufactured
Home to its site by the Manufactured Home owner, or administrative error by
state recording officials, the notation of the lien of the Company on the
certificate of title or delivery of the required documents and fees will be
sufficient to protect the Certificateholders against the rights of subsequent
purchasers of a Manufactured Home or subsequent lenders who take a security
interest in the Manufactured Home. If there are any Manufactured Homes as to
which the Company's security interest is not perfected, such security interest
would be subordinate to, among others, subsequent purchasers for value of the
Manufactured Homes and holders of perfected security interests. There also
exists a risk in not identifying the Trustee as the new secured party on the
certificate of title that, through fraud or negligence, the security interest
of the Trustee could be released.
In the event that the owner of a Manufactured Home moves it to a state other
than the state in which such Manufactured Home initially is registered, under
the laws of most states the perfected security interest in the Manufactured
Home would continue for four months after such relocation and thereafter only
if and after the owner re-registers the Manufactured Home in such state. If the
owner were to relocate a Manufactured Home to another state and not re-register
the Manufactured Home in such state, and if steps were not taken to re-perfect
the Trustee's security interest in such state, the security interest in the
Manufactured Home would cease to be perfected. A majority of states generally
require surrender of a certificate of title to re-register a Manufactured Home;
accordingly, the Company must surrender possession if it holds the certificate
of title to such Manufactured Home or, in the case of Manufactured Homes
registered in states which provide for notation of lien, the Company would
receive notice of surrender if the security interest in the Manufactured Home
is noted on the certificate of title. Accordingly, the Company would have the
opportunity to re-perfect its security interest in the Manufactured Home in the
state of relocation. In states which do not require a certificate of title for
registration of a manufactured home, re-registration could defeat perfection.
In the ordinary course of servicing the manufactured housing conditional sales
contracts, the Company takes steps to effect such re-perfection upon receipt of
notice of re-registration or information from the obligor as to relocation.
Similarly, when an obligor under a Contract sells a Manufactured Home, the
Company must surrender possession of the certificate of title or will receive
notice as a result of its lien noted thereon and accordingly will have an
opportunity to require satisfaction of the related manufactured housing
conditional sales contract before release of the lien. Under the Agreement, the
Servicer is obligated to take such steps, at the Servicer's expense, as are
necessary to maintain perfection of security interests in the Manufactured
Homes.
Under the laws of most states, liens for repairs performed on a Manufactured
Home and liens for personal property taxes take priority over a perfected
security interest. The Company will represent in the Agreement that it has no
knowledge of any such liens with respect to any Manufactured Home securing
payment on any Contract. However, such liens could arise at any time during the
term of a Contract. No notice will be given to the Trustee or
Certificateholders in the event such a lien arises.
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Enforcement of Security Interests in Manufactured Homes. The Servicer on
behalf of the Trustee, to the extent required by the related Agreement, may
take action to enforce the Trustee's security interest with respect to
Contracts in default by repossession and resale of the Manufactured Homes
securing such Defaulted Contracts. So long as the Manufactured Home has not
become subject to real estate laws, a creditor can repossess a Manufactured
Home securing a Contract by voluntary surrender, by "self-help" repossession
that is "peaceful" (i.e., without breach of the peace) or, in the absence of
voluntary surrender and the ability to repossess without breach of the peace,
by judicial process. The holder of a Contract must give the debtor a number of
days' notice, which varies from 10 to 30 days depending on the state, prior to
commencement of any repossession. The UCC and consumer protection laws in most
states place restrictions on repossession sales, including requiring prior
notice to the debtor and commercial reasonableness in effecting such a sale.
The law in most states also requires that the debtor be given notice of any
sale prior to resale of the unit so that the debtor may redeem at or before
such resale. In the event of such repossession and resale of a Manufactured
Home, the Trustee would be entitled to be paid out of the sale proceeds before
such proceeds could be applied to the payment of the claims of unsecured
creditors or the holders of subsequently perfected security interests or,
thereafter, to the debtor.
Under the laws applicable in most states, a creditor is entitled to obtain a
deficiency judgment from a debtor for any deficiency on repossession and resale
of the manufactured home securing such a debtor's loan. However, some states
impose prohibitions or limitations on deficiency judgments, and in many cases
the defaulting borrower would have no assets with which to pay a judgment.
Certain other statutory provisions, including federal and state bankruptcy
and insolvency laws and general equitable principles, may limit or delay the
ability of a lender to repossess and resell collateral or enforce a deficiency
judgment.
Under the terms of the federal Soldiers' and Sailors' Civil Relief Act of
1940, as amended (the "Relief Act"), an Obligor who enters military service
after the origination of such Obligor's Contract (including an Obligor who is a
member of the National Guard or is in reserve status at the time of the
origination of the Contract and is later called to active duty) may not be
charged interest above an annual rate of 6% during the period of such Obligor's
active duty status, unless a court orders otherwise upon application of the
lender. It is possible that such action could have an effect, for an
indeterminate period of time, on the ability of the Servicer to collect full
amounts of interest on certain of the Contracts. Any shortfall in interest
collections resulting from the application of the Relief Act, to the extent not
covered by the subordination of a Class of Subordinated Certificates, could
result in losses to the holders of a Series of Certificates. In addition, the
Relief Act imposes limitations which would impair the ability of the Servicer
to foreclose on an affected Contract during the Obligor's period of active duty
status. Thus, in the event that such a Contract goes into default, there may be
delays and losses occasioned by the inability to realize upon the Manufactured
Home in a timely fashion.
LAND-AND-HOME CONTRACTS
General. The Land-and-Home Contracts will be secured by either first
mortgages or deeds of trust, depending upon the prevailing practice in the
state in which the underlying property is located. A mortgage creates a lien
upon the real property described in the mortgage. There are two parties to a
mortgage: the mortgagor, who is the borrower, and the mortgagee, who is the
lender. In a mortgage state, the mortgagor delivers to the mortgagee a note or
bond evidencing the loan and the mortgage. Although a deed of trust is similar
to a mortgage, a deed of trust has three parties: the borrower, a lender as
beneficiary, and a third-party grantee called the trustee. Under a deed of
trust, the borrower grants the property, irrevocably until the debt is paid, in
trust, generally with a power of sale, to the trustee to secure payment of the
loan. The trustee's authority under a deed of trust and the mortgagee's
authority under a mortgage are governed by the express provisions of the deed
of trust or mortgage, applicable law, and, in some cases, with respect to the
deed of trust, the directions of the beneficiary.
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Foreclosure. Foreclosure of a mortgage is generally accomplished by judicial
action. Generally, the action is initiated by the service of legal pleadings
upon all parties having an interest of record in the real property. Delays in
completion of the foreclosure occasionally may result from difficulties in
locating necessary parties defendant. When the mortgagee's right to foreclosure
is contested, the legal proceedings necessary to resolve the issue can be time-
consuming and expensive. After the completion of a judicial foreclosure
proceeding, the court may issue a judgment of foreclosure and appoint a
receiver or other officer to conduct the sale of the property. In some states,
mortgages may also be foreclosed by advertisement, pursuant to a power of sale
provided in the mortgage. Foreclosure of a mortgage by advertisement is
essentially similar to foreclosure of a deed of trust by non-judicial power of
sale.
Foreclosure of a deed of trust is generally accomplished by a non-judicial
trustee's sale under a specific provision in the deed of trust that authorizes
the trustee to sell the property to a third party upon any default by the
borrower under the terms of the note or deed of trust. In certain states, such
foreclosure also may be accomplished by judicial action in the manner provided
for foreclosure of mortgages. In some states the trustee must record a notice
of default and send a copy to the borrower-trustor and to any person who has
recorded a request for a copy of a notice of default and the notice of sale. In
addition, the trustee must provide notice in some states to any other
individual having an interest of record in the real property, including any
junior lienholders. If the deed of trust is not reinstated within any
applicable cure period, a notice of sale must be posted in a public place and,
in most states, published for a specified period of time in one or more
newspapers. In addition, some state laws require that a copy of the notice of
sale be posted on the property and sent to all parties having an interest of
record in the property.
In some states, the borrower-trustor has the right to reinstate the loan at
any time following default until shortly before the trustee's sale. In general,
the borrower, or any other person having a junior encumbrance on the real
estate, may, during a reinstatement period, cure the default by paying the
entire amount in arrears plus the costs and expenses incurred in enforcing the
obligation. Certain state laws control the amount of foreclosure expenses and
costs, including attorneys' fees, that may be recovered by a lender.
In the case of foreclosure under either a mortgage or a deed of trust, the
sale by the receiver or other designated officer, or by the trustee, is a
public sale. However, because of the difficulty a potential buyer at the sale
would have in determining the exact status of title and because the physical
condition of the property may have deteriorated during the foreclosure
proceedings, it is not common for a third party to purchase the property at the
foreclosure sale. Rather, the lender generally purchases the property from the
trustee or receiver for an amount equal to the unpaid principal amount of the
note, accrued and unpaid interest and the expenses of foreclosure. Thereafter,
subject to the right of the borrower in some states to remain in possession
during the redemption period, the lender will assume the burdens of ownership,
including obtaining hazard insurance and making such repairs at its own expense
as are necessary to render the property suitable for sale. The lender commonly
will obtain the services of a real estate broker and pay the broker a
commission in connection with the sale of the property. Depending upon market
conditions, the ultimate proceeds of the sale of the property may not equal the
lender's investment in the property.
Rights of Redemption. In some states, after sale pursuant to a deed of trust
or foreclosure of a mortgage, the borrower and certain foreclosed junior
lienors are given a statutory period in which to redeem the property from the
foreclosure sale. In certain other states, this right of redemption applies
only to sale following judicial foreclosure, and not sale pursuant to a non-
judicial power of sale. In most states where the right of redemption is
available, statutory redemption may occur upon payment of the foreclosure
purchase price, accrued interest and taxes. In some states the right to redeem
is an equitable right. The effect of a right of redemption is to diminish the
ability of the lender to sell the foreclosed property. The exercise of a right
of redemption would defeat the title of any purchaser at a foreclosure sale, or
of any purchaser from the lender subsequent to judicial foreclosure or sale
under a deed of trust. Consequently, the practical effect of the redemption
right is to force the lender to maintain the property and pay the expenses of
ownership until the redemption period has run.
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Anti-Deficiency Legislation and Other Limitations on Lenders. Certain states
have imposed statutory restrictions that limit the remedies of a beneficiary
under a deed of trust or a mortgagee under a mortgage relating to a single
family residence. In some states, statutes limit the right of the beneficiary
or mortgagee to obtain a deficiency judgment against the borrower following
foreclosure or sale under a deed of trust. A deficiency judgment is a personal
judgment against the borrower equal in most cases to the difference between the
amount due to the lender and the net amount realized upon the foreclosure sale.
Some state statutes may require the beneficiary or mortgagee to exhaust the
security afforded under a deed of trust or mortgage by foreclosure in an
attempt to satisfy the full debt before bringing a personal action against the
borrower. In certain other states, the lender has the option of bringing a
personal action against the borrower on the debt without first exhausting such
security; however, in some of these states, the lender, following judgment on
such personal action, may be deemed to have elected a remedy and may be
precluded from exercising remedies with respect to the security. Consequently,
the practical effect of the election requirement, when applicable, is that
lenders will usually proceed first against the security rather than bringing a
personal action against the borrower.
Other statutory provisions may limit any deficiency judgment against the
former borrower following a foreclosure sale to the excess of the outstanding
debt over the fair market value of the property at the time of such sale. The
purpose of these statutes is to prevent a beneficiary or a mortgagee from
obtaining a large deficiency judgment against the former borrower as a result
of low or no bids at the foreclosure sale.
In some states, exceptions to the anti-deficiency statutes are provided for
in certain instances where the value of the lender's security has been impaired
by acts or omissions of the borrower, for example, in the event of waste of the
property.
In addition to anti-deficiency and related legislation, numerous other
federal and state statutory provisions, including the federal bankruptcy laws,
the federal Soldiers' and Sailors' Civil Relief Act of 1940 and state laws
affording relief to debtors, may interfere with or affect the ability of a
secured mortgage lender to realize upon its security. For example, with respect
to a Land-and-Home Contract, in a Chapter 13 proceeding under the federal
Bankruptcy Code, when a court determines that the value of a home is less than
the principal balance of the loan, the court may prevent a lender from
foreclosing on the home, and, as part of the rehabilitation plan, reduce the
amount of the secured indebtedness to the value of the home as it exists at the
time of the proceeding, leaving the lender as a general unsecured creditor for
the difference between that value and the amount of outstanding indebtedness. A
bankruptcy court may grant the debtor a reasonable time to cure a payment
default, and in the case of a mortgage loan not secured by the debtor's
principal residence, also may reduce the monthly payments due under such
mortgage loan, change the rate of interest and alter the mortgage loan
repayment schedule. Certain court decisions have applied such relief to claims
secured by the debtor's principal residence.
The Code provides priority to certain tax liens over the lien of the mortgage
or deed of trust. The laws of some states provide priority to certain tax liens
over the lien of the mortgage or deed of trust. Numerous federal and some state
consumer protection laws impose substantive requirements upon mortgage lenders
in connection with the origination, servicing and the enforcement of mortgage
loans. These laws include the federal Truth in Lending Act, Real Estate
Settlement Procedures Act, Equal Credit Opportunity Act, Fair Credit Billing
Act, Fair Credit Reporting Act, and related statutes and regulations. These
federal laws and state laws impose specific statutory liabilities upon lenders
who originate or service mortgage loans and who fail to comply with the
provisions of the law. In some cases, this liability may affect assignees of
the Contracts.
CERTAIN MATTERS RELATING TO INSOLVENCY
The Company intends that each transfer of the Contracts to a Trust Fund will
constitute a sale rather than a pledge of the Contracts to secure indebtedness
of the Company. However, if the Company were to become a debtor under the
federal bankruptcy code, it is possible that a creditor, receiver, conservator
or
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trustee in bankruptcy of the Company or the Company as a debtor-in-possession
may argue that the sale of the Contracts by the Company was a pledge of the
Contracts rather than a sale. This position, if argued or accepted by a court,
could result in a delay in or reduction of distributions to the related
Certificateholders.
CONSUMER PROTECTION LAWS
The so-called "Holder-in-Due-Course" rule of the Federal Trade Commission is
intended to defeat the ability of the transferor of a consumer credit contract
which is the seller of goods which gave rise to the transaction (and certain
related lenders and assignees) to transfer such contract free of notice of
claims by the debtor thereunder. The effect of this rule is to subject the
assignee of such a Contract (such as the Trust Fund) to all claims and defenses
which the Obligor could assert against the seller of the Manufactured Home.
Liability under this rule is limited to amounts paid under a contract; however,
the Obligor also may be able to assert the rule to set off remaining amounts
due as a defense against a claim brought by the Trust Fund against such
Obligor. Numerous other federal and state consumer protection laws impose
requirements applicable to the origination and lending pursuant to the
Contracts, including the Truth in Lending Act, the Federal Trade Commission
Act, the Fair Credit Billing Act, the Fair Credit Reporting Act, the Equal
Credit Opportunity Act, the Fair Debt Collection Practices Act and the Uniform
Consumer Credit Code. In the case of some of these laws, the failure to comply
with their provisions may affect the enforceability of the related Contract.
TRANSFERS OF MANUFACTURED HOMES; ENFORCEABILITY OF "DUE-ON-SALE" CLAUSES
The Contracts, in general, prohibit the sale or transfer of the related
Manufactured Homes without the consent of the Servicer and permit the
acceleration of the maturity of the Contracts by the Servicer upon any such
sale or transfer that is not consented to. The Company expects that it will
permit most transfers of Manufactured Homes and not accelerate the maturity of
the related Contracts. In certain cases, the transfer may be made by a
delinquent Obligor in order to avoid a repossession proceeding with respect to
a Manufactured Home.
In the case of a transfer of a Manufactured Home after which the Servicer
desires to accelerate the maturity of the related Contract, the Servicer's
ability to do so will depend on the enforceability under state law of the "due-
on-sale" clause. The Garn-St. Germain Depositary Institutions Act of 1982
preempts, subject to certain exceptions and conditions, state laws prohibiting
enforcement of "due-on-sale" clauses applicable to the Manufactured Homes.
Consequently, in some states the Servicer may be prohibited from enforcing a
"due-on-sale" clause in respect of certain Manufactured Homes.
APPLICABILITY OF USURY LAWS
Title V of the Depository Institutions Deregulation and Monetary Control Act
of 1980, as amended ("Title V"), provides that, subject to the following
conditions, state usury limitations shall not apply to any loan which is
secured by a first lien on certain kinds of manufactured housing. The Contracts
would be covered if they satisfy certain conditions, among other things,
governing the terms of any prepayments, late charges and deferral fees and
requiring a 30-day notice period prior to instituting any action leading to
repossession of or foreclosure with respect to the related unit.
Title V authorized any state to reimpose limitations on interest rates and
finance charges by adopting before April 1, 1983 a law or constitutional
provision which expressly rejects application of the federal law. Fifteen
states adopted such a law prior to the April 1, 1983 deadline. In addition,
even where Title V was not so rejected, any state is authorized by the law to
adopt a provision limiting discount points or other charges on loans covered by
Title V. The Company will represent in the applicable Agreement that all of the
Contracts comply with applicable usury law.
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ERISA CONSIDERATIONS
The Employee Retirement Income Security Act of 1974, as amended ("ERISA")
imposes certain requirements on employee benefit plans subject to ERISA
("Plans") and on persons who are fiduciaries with respect to such Plans.
Generally, ERISA applies to investments made by such Plans. Among other
requirements, ERISA mandates that the assets of Plans be held in trust and that
the trustee, or other duly authorized fiduciary, have exclusive authority and
discretion to manage and control the assets of such Plans. ERISA also imposes
certain duties on persons who are fiduciaries of such Plans. Under ERISA, any
person who exercises any authority or control with respect to the management or
disposition of the assets of a Plan is considered to be a fiduciary of such
Plan, subject to the standards of fiduciary conduct under ERISA. These
standards include the requirements that the assets of Plans be invested and
managed for the exclusive benefit of Plan participants and beneficiaries, a
determination by the Plan fiduciary that any such investment is permitted under
the governing Plan instruments and is prudent and appropriate for the Plan in
view of its overall investment policy and the composition and diversification
of its portfolio. Certain employee benefit plans, such as governmental plans
(as defined in ERISA Section 3(32)) and certain church plans (as defined in
ERISA Section 3(33)), are not subject to ERISA. Accordingly, assets of such
plans may be invested in Certificates without regard to the ERISA
considerations described above and below, subject to the provisions of
applicable state law. Any such plan which is qualified and exempt from taxation
under Sections 401(a) and 501(a) of the Internal Revenue Code of 1986, as
amended (the "Code"), however, is subject to the prohibited transaction rules
set forth in Section 503 of the Code.
In addition to the imposition of general fiduciary standards of investment
prudence and diversification, ERISA, and the corresponding provisions of the
Code, prohibit a broad range of transactions involving Plan assets and persons
having certain specified relationships to a Plan ("parties in interest" and
"disqualified persons"). Such transactions are treated as "prohibited
transactions" under Sections 406 and 407 of ERISA and excise taxes are imposed
upon such persons by Section 4975 of the Code. An investment in the
Certificates by a Plan might constitute prohibited transactions under the
foregoing provisions unless an administrative exemption applies. In addition,
if an investing Plan's assets were deemed to include an interest in the assets
of the Contract Pool and not merely an interest in the Certificates,
transactions occurring in the operation of the Contract Pool might constitute
prohibited transactions unless an administrative exemption applies. Certain
such exemptions which may be applicable to the acquisition and holding of the
Certificates or to the servicing and operation of the Contract Pool are noted
below.
The Department of Labor ("DOL") has issued a regulation (29 C.F.R. Section
2510.3-101) (the "Regulation") concerning the definition of what constitutes
the assets of a Plan. This regulation provides that, as a general rule, the
underlying assets and properties of corporations, partnerships, trusts and
certain other entities in which a Plan makes an "equity" investment will be
deemed for purposes of ERISA to be assets of the investing plan unless certain
exceptions apply. However, the Regulation provides that, generally, the assets
of a corporation or partnership in which a Plan invests will not be deemed for
purposes of ERISA to be assets of such Plan if the equity interest acquired by
the investing Plan is a publicly-offered security. A publicly-offered security,
as defined under the Regulation, is a security that is widely held, freely
transferable, and registered under the Securities Exchange Act of 1934, as
amended. The Certificates are not expected to be publicly-offered securities
under the terms of the Regulation.
Relief from the prohibited transaction rules of Section 406 and 407 of ERISA
(and from the prohibited transaction excise provisions of Section 4975 of the
Code) may be found under the provisions of specific statutory or administrative
exemptive relief authorized under Section 408 of ERISA. In Prohibited
Transaction Exemption 83-1 ("PTE 83-1"), which amended Prohibited Transaction
Exemption 81-7, the DOL exempted from ERISA's prohibited transaction rules
certain transactions relating to the operation of residential mortgage pool
investment trusts and the purchase, sale and holding of "mortgage pool pass-
through certificates" in the initial issuance of such certificates. PTE 83-1
permits, subject to certain conditions, transactions which might otherwise be
prohibited between Plans and parties in interest with
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respect to those Plans related to the origination, maintenance and termination
of mortgage pools consisting of mortgage loans secured by first or second
mortgages or deeds of trust on single-family residential property, and the
acquisition and holding of certain mortgage pool pass-through certificates
representing an interest in such mortgage pools by Plans. If the general
conditions of PTE 83-1 are satisfied, investments by a Plan in certificates
that represent interests in a mortgage pool consisting of single family loans
will be exempt from the prohibitions of Sections 406(a) and 407 of ERISA
(relating generally to transactions with parties in interest who are not
fiduciaries) if the Plan purchases such certificates at no more than fair
market value, and will be exempt from the prohibitions of Section 406(b)(1) and
(2) of ERISA (relating generally to transactions with fiduciaries) if, in
addition, the purchase is approved by an independent fiduciary, no sales
commission is paid to the pool sponsor, the Plan does not purchase more than 25
percent of such certificates, and at least 50 percent of all such certificates
are purchased by persons independent of the pool sponsor or pool trustee.
However, PTE 83-1 does not provide an exemption for transactions involving
subordinate certificates or for certificates representing an interest in
conditional sales contracts and installment sales or loan agreements secured by
manufactured housing like the Contracts.
There can be no assurance that any of the exceptions set forth in the
Regulation, PTE 83-1 or any other administrative exemption under ERISA, will
apply to the purchase of Certificates offered hereby, and, as a result, an
investing Plan's assets could be considered to include an undivided interest in
the Contracts and any other assets held in the Contract Pool. In the event that
assets of a Contract Pool are considered assets of an investing Plan, the
Company, the Servicer, the Trustee and other persons, in providing services
with respect to the Contracts, may be considered fiduciaries to such Plan and
subject to the fiduciary responsibility provisions of Title I of ERISA and the
prohibited transaction provisions of Section 4975 of the Code with respect to
transactions involving such assets unless a statutory or administrative
exemption applies.
Any Plan fiduciary considering the purchase of a Certificate should consult
with its counsel with respect to the potential applicability of ERISA and the
Code to such investment. Moreover, each Plan fiduciary should determine
whether, under the general fiduciary standards of investment prudence and
diversification, an investment in the Certificates is appropriate for the Plan,
taking into account the overall investment policy of the Plan and the
composition of the Plan's investment portfolio.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
GENERAL
The following is a general discussion of certain federal income tax
consequences relating to the purchase, ownership, and disposition of the
Certificates. The discussion is based upon laws, regulations, rulings, and
decisions now in effect, including Treasury Regulations issued on December 23,
1992, and generally effective for REMICs with startup days on or after November
12, 1991 (the "REMIC Regulations"), all of which are subject to change or
possibly differing interpretations. The discussion does not purport to deal
with federal income tax consequences applicable to all categories of investors,
some of which may be subject to special rules. Investors should consult their
own tax advisors to determine the federal, state, local, and any other tax
consequences of the purchase, ownership, and disposition of the Certificates.
Many aspects of the federal tax treatment of the purchase, ownership, and
disposition of the Certificates will depend upon whether an election is made to
treat the Trust Fund or a segregated portion thereof evidenced by a particular
series or sub-series of Certificates as a REMIC within the meaning of Section
860D(a) of the Code. The Prospectus Supplement for each series will indicate
whether or not an election to be treated as a REMIC has been or will be made
with respect thereto. The following discussion deals first with Series with
respect to which a REMIC Election is made and then with Series with respect to
which a REMIC Election is not made.
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REMIC SERIES
With respect to each Series of Certificates for which a REMIC Election is
made, Dorsey & Whitney or other counsel to the Company identified in the
applicable Prospectus Supplement will have advised the Company that in its
opinion, assuming (i) the making of that election in accordance with the
requirements of the Code and (ii) ongoing compliance with the applicable
Agreement, at the initial issuance of the Certificates in such series the Trust
Fund will qualify as a REMIC and the Certificates in such a Series ("REMIC
Certificates") will be treated either as regular interests in the REMIC within
the meaning of Section 860G(a)(1) of the Code ("Regular Certificates") or as
residual interests in the REMIC within the meaning of Section 860G(a)(2) of the
Code ("Residual Certificates").
Qualification as a REMIC. Qualification as a REMIC involves ongoing
compliance with certain requirements and the following discussion assumes that
such requirements will be satisfied by the Trust Fund so long as there are any
REMIC Certificates outstanding. Substantially all of the assets of the REMIC
must consist of "qualified mortgages" and "permitted investments" as of the
close of the third month beginning after the day on which the REMIC issues all
of its regular and residual interests (the "Startup Day") and at all times
thereafter. The term "qualified mortgage" means any obligation (including a
participation or certificate of beneficial ownership in such obligation) which
is principally secured by an interest in real property that is transferred to
the REMIC on the Startup Day in exchange for regular or residual interests in
the REMIC or is purchased by the REMIC within the three-month period beginning
on the Startup Day if such purchase is pursuant to a fixed price contract in
effect on the Startup Day. The REMIC Regulations provide that a Contract is
principally secured by an interest in real property if the fair market value of
the real property securing the Contract is at least equal to either (i) 80% of
the issue price (generally, the principal balance) of the Contract at the time
it was originated or (ii) 80% of the adjusted issue price (the then-outstanding
principal balance, with certain adjustments) of the Contract at the time it is
contributed to a REMIC. The fair market value of the underlying real property
is to be determined after taking into account other liens encumbering that real
property. Alternatively, a Contract is principally secured by an interest in
real property if substantially all of the proceeds of the Contract were used to
acquire or to improve or protect an interest in real property that, at the
origination date, is the only security for the Contract (other than the
personal liability of the obligor). The REMIC Regulations provide that
obligations secured by manufactured housing or mobile homes (not including
recreational vehicles, campers or similar vehicles) which are "single family
residences" under Section 25(e)(10) of the Code will qualify as obligations
secured by real property without regard to state law classifications. See the
discussion below under "REMIC Series--Status of Manufactured Housing
Contracts." A qualified mortgage also includes a qualified replacement mortgage
that is used to replace any qualified mortgage within three months of the
Startup Day or to replace a defective mortgage within two years of the Startup
Day.
"Permitted investments" consist of (a) temporary investments of cash received
under qualified mortgages before distribution to holders of interests in the
REMIC ("cash-flow investments"), (b) amounts, such as a Reserve Fund, if any,
reasonably required to provide for full payment of expenses of the REMIC, the
principal and interest due on regular or residual interests in the event of
defaults on qualified mortgages, lower than expected returns on cash-flow
investments, prepayment interest shortfalls or certain other contingencies
("qualified reserve assets"), and (c) certain property acquired as a result of
foreclosure of defaulted qualified mortgages ("foreclosure property"). A
reserve fund will not be qualified if more than 30% of the gross income from
the assets in the reserve fund is derived from the sale or other disposition of
property held for three months or less, unless such sale is necessary to
prevent a default in payment of principal or interest on Regular Certificates.
In accordance with Section 860G(a)(7) of the Code, a reserve fund must be
"promptly and appropriately" reduced as payments on contracts are received.
Foreclosure property will be a permitted investment only to the extent that
such property is not held for more than two years.
The Code requires that in order to qualify as a REMIC an entity must make
reasonable arrangements designed to ensure that certain specified entities,
generally including governmental entities or other entities that are exempt
from United States tax, including the tax on unrelated business income
("Disqualified
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Organizations"), not hold residual interests in the REMIC. Consequently, it is
expected that in the case of any Trust Fund for which a REMIC Election is made
the transfer, sale, or other disposition of a Residual Certificate to a
Disqualified Organization will be prohibited and the ability of a Residual
Certificate to be transferred will be conditioned on the Trustee's receipt of a
certificate or other document representing that the proposed transferee is not
a Disqualified Organization. The transferor of a Residual Certificate must not,
as of the time of the transfer, have actual knowledge that such representation
is false. The Code further requires that reasonable arrangements must be made
to enable a REMIC to provide the Internal Revenue Service (the "Service") and
certain other parties, including transferors of residual interests in a REMIC,
with the information needed to compute the tax imposed by Section 860E(e)(1) of
the Code if, in spite of the steps taken to prevent Disqualified Organizations
from holding residual interests, such an organization does, in fact, acquire a
residual interest. See "REMIC Series--Restrictions on Transfer of Residual
Certificates" below.
If the Trust Fund fails to comply with one or more of the ongoing
requirements for qualification as a REMIC, the Trust Fund will not be treated
as a REMIC for the year during which such failure occurs and thereafter unless
the Service determines, in its discretion, that such failure was inadvertent
(in which case, the Service may require any adjustments which it deems
appropriate). If the ownership interests in the assets of the Trust Fund
consist of multiple classes, failure to treat the Trust Fund as a REMIC may
cause the Trust Fund to be treated as an association taxable as a corporation.
Such treatment could result in income of the Trust Fund being subject to
corporate tax in the hands of the Trust Fund and in a reduced amount being
available for distribution to Certificateholders as a result of the payment of
such taxes.
Status of Manufactured Housing Contracts. The REMIC Regulations as well as a
Notice issued by the Service provide that obligations secured by interests in
manufactured housing, which qualify as "single family residences" within the
meaning of Section 25(e)(10) of the Code, are to be treated as "qualified
mortgages" for a REMIC. Under Section 25(e)(10) of the Code, the term "single
family residence" includes any manufactured home which has a minimum of 400
square feet of living space and a minimum width in excess of 102 inches and
which is of a kind customarily used at a fixed location. The Company will
represent and warrant that each of the manufactured homes securing the
Contracts which are a part of a Trust Fund meets this definition of a "single
family residence." See the discussion above under "REMIC Series--Qualification
as a REMIC."
Two-Tier REMIC Structures. For certain series of Certificates, two separate
elections may be made to treat segregated portions of the assets of a single
Trust Fund as REMICs for federal income tax purposes (respectively, the
"Subsidiary REMIC" and the "Master REMIC"). Upon the issuance of any such
series of Certificates, Counsel will have advised the Company, as described
above, that at the initial issuance of the Certificates, the Subsidiary REMIC
and the Master REMIC will each qualify as a REMIC for federal income tax
purposes, and that the Certificates in such a series will be treated either as
Regular Certificates or Residual Certificates of the appropriate REMIC. Only
REMIC Certificates issued by the Master REMIC will be offered hereunder. Solely
for the purpose of determining whether such Regular Certificates will
constitute qualifying real estate or real property assets for certain
categories of financial institutions or real estate investment trusts as
described below, both REMICs in a two-tier REMIC structure will be treated as
one. See the discussion below under "REMIC Series--Taxation of Regular
Interests."
Taxation of Regular Interests. Regular Certificates will be treated as new
debt instruments issued by the REMIC on the Startup Day. If a Regular
Certificate represents an interest in a REMIC that consists of a specified
portion of the interest payments on the REMIC's qualified mortgages, the stated
principal amount with respect to that Regular Certificate may be zero. Such a
specified portion may consist of a fixed number of basis points, a fixed
percentage of interest or a qualified variable rate on some or all of the
qualified mortgages. Stated interest on a Regular Certificate will be taxable
as ordinary income. Holders of Regular Certificates that would otherwise report
income under a cash method of accounting will be required to report income with
respect to such Regular Certificates under the accrual method. Under Temporary
Treasury Regulations, if a Trust Fund, with respect to which a REMIC Election
is made, is considered to be a "single-
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class REMIC," a portion of the REMIC's servicing fees, administrative and other
non-interest expenses, including assumption fees and late payment charges
retained by the Company, will be allocated as a separate item to those Regular
Certificateholders that are "pass-through interest holders." Generally, a
single-class REMIC is defined as a REMIC that would be treated as a fixed
investment trust under applicable law but for its qualification as a REMIC, or
a REMIC that is substantially similar to an investment trust but is structured
with the principal purpose of avoiding this allocation requirement imposed by
the Temporary Treasury Regulations. Generally, a pass-through interest holder
refers to individuals, entities taxed as individuals, such as certain trusts
and estates, and regulated investment companies. An individual, an estate, or a
trust that holds a Regular Certificate in such a REMIC will be allowed to
deduct the foregoing expenses under Section 212 of the Code only to the extent
that, in the aggregate and combined with certain other itemized deductions,
they exceed 2% of the adjusted gross income of the holder. In addition, Section
68 of the Code provides that the amount of itemized deductions (including those
provided for in Section 212 of the Code) otherwise allowable for the taxable
year for an individual whose adjusted gross income exceeds a threshold amount
specified in the Code ($100,000 in the case of a joint return) will be reduced
by the lesser of (i) 3% of the excess of adjusted gross income over the
specified threshold amount or (ii) 80% of the amount of itemized deductions
otherwise allowable for such taxable year. As a result of the foregoing
limitations, certain holders of Regular Certificates in "single-class REMICs"
may not be entitled to deduct all or any part of the foregoing expenses.
Tax Status of REMIC Certificates. In general, (i) Regular Certificates held
by a financial institution as described in Section 593(a) of the Code will
represent interests in "qualifying real property loans" within the meaning of
Section 593(d) of the Code; (ii) Regular Certificates held by a thrift
institution taxed as a "domestic building and loan association" within the
meaning of Section 7701(a)(19) of the Code will constitute "a regular ...
interest in a REMIC" within the meaning of Section 7701(a)(19)(C)(xi) of the
Code; and (iii) Regular Certificates held by a real estate investment trust
will constitute "real estate assets" within the meaning of Section 856(c)(5)(A)
of the Code and interest thereon will be considered "interest on obligations
secured by mortgages on real property" within the meaning of Section
856(c)(3)(B) of the Code. If less than 95% of the average adjusted basis of the
assets comprising the REMIC are assets qualifying under any of the foregoing
Sections of the Code (including assets described in Section 7701(a)(19)(C) of
the Code), then the Regular Certificates will be qualifying assets only to the
extent that the assets comprising the REMIC are qualifying assets. Treasury
Regulations promulgated pursuant to Section 593 of the Code define "qualifying
real property loans" to include a loan secured by a mobile home unit
"permanently fixed to real property" except during a brief period in which the
unit is transported to its site. Section 7701(a)(19)(C)(v) of the Code provides
that "loans secured by an interest in real property" includes loans secured by
mobile homes not used on a transient basis. Treasury Regulations promulgated
pursuant to Section 856 of the Code state that local law definitions are not
controlling in determining the meaning of the term "real property" for purposes
of that section, and the Service has ruled that obligations secured by
permanently installed mobile home units qualify as "real estate assets" under
this provision. Furthermore, interest paid with respect to Certificates held by
a real estate investment trust will be considered "interest on obligations
secured by mortgages on real property or on interests in real property" within
the meaning of Section 856(c)(3)(B) of the Code to the same extent that the
Certificates themselves are treated as real estate assets. Regular Certificates
held by a regulated investment company or a real estate investment trust will
not constitute "Government securities" within the meaning of Sections
851(b)(4)(A)(i) and 856(c)(5)(A) of the Code, respectively. In addition, the
REMIC Regulations provide that payments on Contracts held and reinvested
pending distribution to Certificateholders will be considered to be "qualifying
real property loans" within the meaning of Section 593(b) of the Code and "real
estate assets" within the meaning of Section 856(c)(5)(A) of the Code. Entities
affected by the foregoing provisions of the Code that are considering the
purchase of Certificates should consult their own tax advisors regarding these
provisions.
Original Issue Discount. Regular Certificates may be issued with "original
issue discount." Rules governing original issue discount are set forth in
Sections 1271-1273 and 1275 of the Code and the Treasury Regulations issued
thereunder in January 1994 (the "OID Regulations"). The discussion herein is
based in
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part on the OID Regulations, which generally apply to debt instruments issued
on or after April 4, 1994, but which generally may be relied upon for debt
instruments issued after December 21, 1992. Moreover, although the rules
relating to original issue discount contained in the Code were modified by the
Tax Reform Act of 1986 specifically to address the tax treatment of securities,
such as the Regular Certificates, on which principal is required to be prepaid
based on prepayments of the underlying assets, regulations under that
legislation have not yet been finalized. Certificateholders also should be
aware that the OID Regulations do not address certain issues relevant to
prepayable securities such as the Regular Certificates.
In general, in the hands of the original holder of a Regular Certificate,
original issue discount, if any, is the difference between the "stated
redemption price at maturity" of the Regular Certificate and its "issue price."
The original issue discount with respect to a Regular Certificate will be
considered to be zero if it is less than .25% of the Regular Certificate's
stated redemption price at maturity multiplied by the number of complete years
from the date of issue of such Regular Certificate to its maturity date. The
OID Regulations, however, provide a special de minimis rule to apply to
obligations such as the Regular Certificates that have more than one principal
payment or that have interest payments that are not qualified stated interest
as defined in the OID Regulations, payable before maturity ("installment
obligations"). Under the special rule, original issue discount on an
installment obligation is generally considered to be zero if it is less than
.25% of the principal amount of the obligation multiplied by the weighted
average maturity of the obligation as defined in the OID Regulations. Because
of the possibility of prepayments, it is not clear whether or how the de
minimis rules will apply to the Regular Certificates. It is possible that the
anticipated rate of prepayments assumed in pricing the debt instrument (the
"Prepayment Assumption") will be required to be used in determining the
weighted average maturity of the Regular Certificates. In the absence of
authority to the contrary, the Company expects to apply the de minimis rule
applicable to installment obligations by using the Prepayment Assumption. The
OID Regulations provide a further special de minimis rule applicable to any
Regular Certificates that are "self-amortizing installment obligations," i.e.,
Regular Certificates that provide for equal payments composed of principal and
qualified stated interest payable unconditionally at least annually during its
entire term, with no significant additional payment required at maturity. Under
this special rule, original issue discount on a self-amortizing installment
obligation is generally considered to be zero if it is less than .167% of the
principal amount of the obligation multiplied by the number of complete years
from the date of issue of such a Regular Certificate to its maturity date.
Generally, the original holder of a Regular Certificate that includes a de
minimis amount of original issue discount includes that original issue discount
in income as principal payments are made. The amount includable in income with
respect to each principal payment equals a pro rata portion of the entire
amount of de minimis original issue discount with respect to that Regular
Certificate. Any de minimis amount of original issue discount includable in
income by a holder of a Regular Certificate is generally treated as a capital
gain if the Regular Certificate is a capital asset in the hands of the holder
thereof. Pursuant to the OID Regulations, a holder of a Regular Certificate
that uses the accrual method of tax accounting or that acquired such Regular
Certificate on or after April 4, 1994, may, however, elect to include in gross
income all interest that accrues on a Regular Certificate, including any de
minimis original issue discount and market discount, by using the constant
yield method described below with respect to original issue discount.
The stated redemption price at maturity of a Regular Certificate generally
will be equal to the sum of all payments, whether denominated as principal or
interest, to be made with respect thereto other than "qualified stated
interest." Pursuant to the OID Regulations, qualified stated interest is stated
interest that is unconditionally payable at least annually at a single fixed
rate of interest (or, under certain circumstances, a variable rate tied to an
objective index) during the entire term of the Regular Certificate (including
short periods). Under the OID Regulations, certain variable interest rates
payable on Regular Certificates, including rates based upon the weighted
average interest rate of a Pool of Contracts, may not be treated as qualified
stated interest. In such case, the OID Regulations would treat interest under
such rates as contingent interest which generally must be included in income by
the Regular Certificateholder when the interest
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becomes fixed, as opposed to when it accrues. Until further guidance is issued
concerning the treatment of such interest payable on Regular Certificates, the
REMIC will treat such interest as being payable at a variable rate tied to a
single objective index of market rates. Prospective investors should consult
their tax advisors regarding the treatment of such interest under the OID
Regulations. In the absence of authority to the contrary and if otherwise
appropriate, the Company expects to determine the stated redemption price at
maturity of a Regular Certificate by assuming that the anticipated rate of
prepayment for all Contracts will occur in such a manner that the initial
Remittance Rate for a Certificate will not change. Accordingly, interest at the
initial Remittance Rate will constitute qualified stated interest payments for
purposes of applying the original issue discount provisions of the Code. In
general, the issue price of a Regular Certificate is the first price at which a
substantial amount of the Regular Certificates of such class are sold for money
to the public (excluding bond houses, brokers or similar persons or
organizations acting in the capacity of underwriters, placement agents or
wholesalers). If a portion of the initial offering price of a Regular
Certificate is allocable to interest that has accrued prior to its date of
issue, the issue price of such a Regular Certificate includes that pre-issuance
accrued interest.
If the Regular Certificates are determined to be issued with original issue
discount, a holder of a Regular Certificate must generally include the original
issue discount in ordinary gross income for federal income tax purposes as it
accrues in advance of the receipt of any cash attributable to such income. The
amount of original issue discount, if any, required to be included in a Regular
Certificateholder's ordinary gross income for federal income tax purposes in
any taxable year will be computed in accordance with Section 1272(a) of the
Code and the OID Regulations. Under such Section and the OID Regulations,
original issue discount accrues on a daily basis under a constant yield method
that takes into account the compounding of interest. The amount of original
issue discount to be included in income by a holder of a debt instrument, such
as a Regular Certificate, under which principal payments may be subject to
acceleration because of prepayments of other debt obligations securing such
instruments, is computed by taking into account the Prepayment Assumption.
The amount of original issue discount includable in income by a holder of a
Regular Certificate is the sum of the "daily portions" of the original issue
discount for each day during the taxable year on which the holder held the
Regular Certificate. The daily portions of original issue discount are
determined by allocating to each day in any "accrual period" a pro rata portion
of the excess, if any, of the sum of (i) the present value of all remaining
payments to be made on the Regular Certificate as of the close of the "accrual
period" and (ii) the payments during the "accrual period" of amounts included
in the stated redemption price of the Regular Certificate over the "adjusted
issue price" of the Regular Certificate at the beginning of the "accrual
period." Generally, the "accrual period" for the Regular Certificates
corresponds to the intervals at which amounts are paid or compounded with
respect to such Regular Certificate, beginning with their date of issuance and
ending with the maturity date. The "adjusted issue price" of a Regular
Certificate at the beginning of any accrual period is the sum of the issue
price and accrued original issue discount for each prior accrual period reduced
by the amount of payments other than payments of qualified stated interest made
during each prior accrual period. The Code requires the present value of the
remaining payments to be determined on the bases of (a) the original yield to
maturity (determined on the basis of compounding at the close of each accrual
period and properly adjusted for the length of the accrual period), (b) events,
including actual prepayments, which have occurred before the close of the
accrual period, and (c) the assumption that the remaining payments will be made
in accordance with the original Prepayment Assumption. The effect of this
method is to increase the portions of original issue discount that a Regular
Certificateholder must include in income to take into account prepayments with
respect to the Contracts held by the Trust Fund that occur at a rate that
exceeds the Prepayment Assumption and to decrease (but not below zero for any
period) the portions of original issue discount that a Regular
Certificateholder must include in income to take into account prepayments with
respect to the Contracts that occur at a rate that is slower than the
Prepayment Assumption. Although original issue discount will be reported to
Regular Certificateholders based on the Prepayment Assumption, no
representation is made to Regular Certificateholders that the Contracts will be
prepaid at that rate or at any other rate.
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A subsequent purchaser of a Regular Certificate will also be required to
include in such purchaser's ordinary gross income for federal income tax
purposes the original issue discount, if any, accruing with respect to such
Regular Certificate, unless the price paid equals or exceeds the Regular
Certificate's outstanding principal amount. If the price paid exceeds the sum
of the Regular Certificate's issue price plus the aggregate amount of original
issue discount accrued with respect to the Regular Certificate, but does not
equal or exceed the outstanding principal amount of the Regular Certificate,
the amount of original issue discount to be accrued will be reduced in
accordance with a formula set forth in Section 1272(a)(7)(B) of the Code.
The Company believes that the holder of a Regular Certificate determined to
be issued with non-de minimis original issue discount will be required to
include the original issue discount in ordinary gross income for federal income
tax purposes computed in the manner described above. However, the OID
Regulations either do not address or are subject to varying interpretations
with respect to several issues concerning the computation of original issue
discount for obligations such as the Regular Certificates.
Variable Rate Regular Certificates. Regular Certificates may bear interest at
a variable rate. Under the OID Regulations, if a variable rate Regular
Certificate provides for qualified stated interest payments computed on the
basis of certain qualified floating rates or objective rates, then any original
issue discount on such a Regular Certificate is computed and accrued under the
same methodology that applies to Regular Certificates paying qualified stated
interest at a fixed rate. See the discussion above under "REMIC Series--
Original Issue Discount." Accordingly, if the issue price of such a Regular
Certificate is equal to its stated redemption price at maturity, the Regular
Certificate will not have any original issue discount.
For purposes of applying the original issue discount provisions of the Code,
all or a portion of the interest payable with respect to a variable rate
Regular Certificate may not be treated as qualified stated interest in certain
circumstances, including the following: (i) if the variable rate of interest is
subject to one or more minimum or maximum rate floors or ceilings which are not
fixed throughout the term of the Regular Certificate and which are reasonably
expected as of the issue date to cause the rate in certain accrual periods to
be significantly higher or lower than the overall expected return on the
Regular Certificate determined without such floor or ceiling; (ii) if it is
reasonably expected that the average value of the variable rate during the
first half of the term of the Regular Certificate will be either significantly
less than or significantly greater than the average value of the rate during
the final half of the term of the Regular Certificate; or (iii) if interest is
not payable in all circumstances. In these situations, as well as others, it is
unclear under the OID Regulations whether such interest payments constitute
qualified stated interest payments, or must be treated either as part of a
Regular Certificate's stated redemption price at maturity resulting in original
issue discount, or represent contingent payments which are recognized as
ordinary gross income for federal income tax purposes only as the interest
payments become fixed in each accrual period.
If a variable rate Regular Certificate is deemed to have been issued with
original issue discount, as described above, the amount of original issue
discount accrues on a daily basis under a constant yield method that takes into
account the compounding of interest; provided, however, that the interest
associated with such a Regular Certificate generally is assumed to remain
constant throughout the term of the Regular Certificate at a rate that, in the
case of a qualified floating rate, equals the value of such qualified floating
rate as of the issue date of the Regular Certificate, or, in the case of an
objective rate, at a fixed rate that reflects the yield that is reasonably
expected for the Regular Certificate. A holder of such a Regular Certificate
would then recognize original issue discount during each accrual period which
is calculated based upon such Regular Certificate's assumed yield to maturity,
adjusted to reflect the difference between the assumed and actual interest
rate.
The OID Regulations either do not address or are subject to varying
interpretations with respect to several issues concerning the computation of
original issue discount with respect to the Regular Certificates, including
variable rate Regular Certificates. Additional information regarding the manner
of reporting original issue discount to the Service and to holders of variable
rate Regular Certificates will be set forth in the Prospectus Supplement
relating to the issuance of such Regular Certificates.
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Market Discount. Regular Certificates, whether or not issued with original
issue discount, will be subject to the market discount rules of the Code. A
purchaser of a Regular Certificate who purchases the Regular Certificate at a
market discount (i.e., a discount from its original issue price plus any
accrued original issue discount, if any, as described above) will be required
to recognize accrued market discount as ordinary income as payments of
principal are received on such Regular Certificate or upon the sale or exchange
of the Regular Certificate. In general, the holder of a Regular Certificate may
elect to treat market discount as accruing either (i) under a constant yield
method that is similar to the method for the accrual of original issue discount
or (ii) in proportion to accruals of original issue discount (or, if there is
no original issue discount, in proportion to accruals of stated interest), in
each case computed taking into account the Prepayment Assumption.
The Code provides that the market discount in respect of a Regular
Certificate will be considered to be zero if the amount allocable to the
Regular Certificate is less than 0.25% of the Regular Certificate's stated
redemption price at maturity multiplied by the number of complete years
remaining to its maturity after the holder acquired the obligation. If market
discount is treated as de minimis under this rule, the actual discount would be
allocated among a portion of each scheduled distribution representing the
stated redemption price of such Regular Certificate and that portion of the
discount allocable to such distribution would be reported as income when such
distribution occurs or is due.
The Code further provides that any principal payment with respect to a
Regular Certificate acquired with market discount or any gain on disposition of
such a Regular Certificate shall be treated as ordinary income to the extent it
does not exceed the accrued market discount at the time of such payment. The
amount of accrued market discount for purposes of determining the amount of
ordinary income to be recognized with respect to subsequent payments on such a
Regular Certificate is to be reduced by the amount previously treated as
ordinary income.
The Code grants authority to the Treasury Department to issue regulations
providing for the computation of accrued market discount on debt instruments
such as the Regular Certificates. Until such time as regulations are issued,
rules described in the legislative history for these provisions of the Code
will apply. Under those rules, as described above, the holder of a Regular
Certificate with market discount may elect to accrue market discount either on
the basis of a constant interest rate or according to certain other methods.
Certificateholders who acquire a Regular Certificate at a market discount
should consult their tax advisors concerning various methods which are
available for accruing that market discount.
In general, limitations imposed by the Code that are intended to match
deductions with the taxation of income may require a holder of a Regular
Certificate having market discount to defer a portion of the interest
deductions attributable to any indebtedness incurred or continued to purchase
or carry such Regular Certificate. Alternatively, a holder of a Regular
Certificate may elect to include market discount in gross income as it accrues
and, if he makes such an election, is exempt from this rule. The adjusted basis
of a Regular Certificate subject to such election will be increased to reflect
market discount included in gross income, thereby reducing any gain or
increasing any loss on a sale or taxable disposition.
Amortizable Premium. A holder of a Regular Certificate who holds the Regular
Certificate as a capital asset and who purchased the Regular Certificate at a
cost greater than its outstanding principal amount will be considered to have
purchased the Regular Certificate at a premium. In general, the Regular
Certificateholder may elect to deduct the amortizable bond premium as it
accrues under a constant yield method. A Regular Certificateholder's tax basis
in the Regular Certificate will be reduced by the amount of the amortizable
bond premium deducted. In addition, it appears that the same methods which
apply to the accrual of market discount on installment obligations are intended
to apply in computing the amortizable bond premium deduction with respect to a
Regular Certificate. It is not clear, however, (i) whether the alternatives to
the constant-yield method which may be available for the accrual of market
discount are available for amortizing premium on Regular Certificates and (ii)
whether the Prepayment Assumption should be taken into account in determining
the term of a Regular Certificate for this purpose.
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Certificateholders who pay a premium for a Regular Certificate should consult
their tax advisors concerning such an election and rules for determining the
method for amortizing bond premium.
Gain or Loss on Disposition. If a Regular Certificate is sold, the seller
will recognize gain or loss equal to the difference between the amount realized
from the sale and the seller's adjusted basis in such Regular Certificate. The
adjusted basis generally will equal the cost of such Regular Certificate to the
seller, increased by any original issue discount included in the seller's
ordinary gross income with respect to such Regular Certificate and reduced (but
not below zero) by any payments on the Regular Certificate previously received
or accrued by the seller (other than qualified stated interest payments) and
any amortizable premium. Similarly, a Regular Certificateholder who receives a
principal payment with respect to a Regular Certificate will recognize gain or
loss equal to the difference between the amount of the payment and the holder's
allocable portion of his or her adjusted basis in the Regular Certificate.
Except as discussed below or with respect to market discount, any gain or loss
recognized upon a sale, exchange, retirement, or other disposition of a Regular
Certificate will be capital gain if the Regular Certificate is held as a
capital asset.
Gain from the disposition of a Regular Certificate that might otherwise be
capital gain, including any gain attributable to de minimis original issue
discount, will be treated as ordinary income to the extent of the excess, if
any, of (i) the amount that would have been includable in the holder's income
if the yield on such Regular Certificate had equaled 110% of the applicable
federal rate determined as of the beginning of such holder's holding period,
over (ii) the amount of ordinary income actually recognized by the holder with
respect to such Regular Certificate.
If the Company is determined to have intended on the date of issue of the
Regular Certificates to call all or any portion of the Regular Certificates
prior to their stated maturity within the meaning of Section 1271(a)(2)(A) of
the Code, any gain realized upon a sale, exchange, retirement, or other
disposition of a Regular Certificate would be considered ordinary income to the
extent it does not exceed the unrecognized portion of the original issue
discount, if any, with respect to the Regular Certificate. The OID Regulations
provide that the intention to call rule will not be applied to mortgage-backed
securities such as the Regular Certificates. In addition, under the OID
Regulations, a mandatory sinking fund or call option is not evidence of an
intention to call.
Taxation of Residual Interests. Generally, the "daily portions" of the
taxable income or net loss of a REMIC will be includable as ordinary income or
loss in determining the taxable income of holders of Residual Certificates
("Residual Holders"), and will not be taxed separately to the REMIC. The daily
portions are determined by allocating the REMIC's taxable income or net loss
for each calendar quarter ratably to each day in such quarter and by allocating
such daily portion among the Residual Holders in proportion to their respective
holdings of Residual Certificates in the REMIC on such day.
REMIC taxable income is generally determined in the same manner as the
taxable income of an individual using the accrual method of accounting except
that (i) the limitation on deductibility of investment interest expense and
expenses for the production of income do not apply, (ii) all bad loans will be
deductible as business bad debts, and (iii) the limitation on the deductibility
of interest and expenses related to tax-exempt income will apply. REMIC taxable
income generally means a REMIC's gross income, including interest, original
issue discount income, and market discount income, if any, on the Contracts,
plus income on reinvestment of cash flows and reserve assets, minus deductions,
including interest and original issue discount expense on the Regular
Certificates, servicing fees on the Contracts, other administrative expenses of
a REMIC, and amortization of premium, if any, with respect to the Contracts.
The taxable income recognized by a Residual Holder in any taxable year will
be affected by, among other factors, the relationship between the timing of
interest, original issue discount or market discount income, or amortization of
premium with respect to the Contracts, on the one hand, and the timing of
deductions for interest (including original issue discount) on the Regular
Certificates, on the other hand. In the event that an interest in the Contracts
is acquired by a REMIC at a discount, and one or more of such Contracts is
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prepaid, the Residual Holder may recognize taxable income without being
entitled to receive a corresponding cash distribution because (i) the
prepayment may be used in whole or in part to make distributions on Regular
Certificates, and (ii) the discount on the Contracts which is includable in a
REMIC's income may exceed its deduction with respect to the distributions on
those Regular Certificates. When there is more than one class of Regular
Certificates that receive payments sequentially (i.e., a fast-pay, slow-pay
structure), this mismatching of income and deductions is particularly likely to
occur in the early years following issuance of the Regular Certificates, when
distributions are being made in respect of earlier classes of Regular
Certificates to the extent that such classes are not issued with substantial
discount. If taxable income attributable to such a mismatching is realized, in
general, losses would be allowed in later years as distributions on the later
classes of Regular Certificates are made. Taxable income may also be greater in
earlier years than in later years as a result of the fact that interest expense
deductions, expressed as a percentage of the outstanding principal amount of
Regular Certificates, may increase over time as distributions are made on the
lower yielding classes of Regular Certificates, whereas interest income with
respect to any given Contract will remain constant over time as a percentage of
the outstanding principal amount of that loan (assuming it bears interest at a
fixed rate). Consequently, Residual Holders must have sufficient other sources
of cash to pay any federal, state, or local income taxes due as a result of
such mismatching, or such holders must have unrelated deductions against which
to offset such income, subject to the discussion of "excess inclusions" below
under "REMIC Series--Limitations on Offset or Exemption of REMIC Income." The
mismatching of income and deductions described in this paragraph, if present
with respect to a series of Certificates, may have a significant adverse effect
upon the Residual Holder's after-tax rate of return.
The amount of any net loss of a REMIC that may be taken into account by the
Residual Holder is limited to the adjusted basis of the Residual Certificate as
of the close of the quarter (or time of disposition of the Residual Certificate
if earlier), determined without taking into account the net loss for the
quarter. The initial adjusted basis of a purchaser of a Residual Certificate is
the amount paid for such Residual Certificate. Such adjusted basis will be
increased by the amount of taxable income of the REMIC reportable by the
Residual Holder and decreased by the amount of loss of the REMIC reportable by
the Residual Holder. A cash distribution from the REMIC also will reduce such
adjusted basis (but not below zero). Any loss that is disallowed on account of
this limitation may be carried over indefinitely by the Residual Holder for
whom such loss was disallowed and may be used by such Residual Holder only to
offset any income generated by the same REMIC.
If a Residual Certificate has a negative value, it is not clear whether its
issue price would be considered to be zero or such negative amount for purposes
of determining the REMIC's basis in its assets. The REMIC Regulations imply
that residual interests cannot have a negative basis or a negative issue price.
However, the preamble to the REMIC Regulations indicates that, while existing
tax rules do not accommodate such concepts, the Service is considering the tax
treatment of these types of residual interests, including the proper tax
treatment of a payment made by the transferor of such a residual interest to
induce the transferee to acquire that interest. Absent regulations or
administrative guidance to the contrary, the Company does not intend to treat a
class of Residual Certificates as having a value of less than zero for purposes
of determining the basis of the related REMIC in its assets.
Further, to the extent that the initial adjusted basis of a Residual Holder
(other than an original holder) in the Residual Certificate is greater than the
corresponding portion of the REMIC's basis in the Contracts, the Residual
Holder will not recover a portion of such basis until termination of the REMIC
unless Treasury Regulations yet to be issued provide for periodic adjustments
to the REMIC income otherwise reportable by such holder.
Treatment of Certain Items of REMIC Income and Expense. Generally, a REMIC's
deductions for original issue discount will be determined in the same manner as
original issue discount income on Regular Certificates as described above under
"REMIC Series--Original Issue Discount" and "--Variable Rate Regular
Certificates," without regard to the de minimis rule described therein.
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The REMIC will have market discount income in respect of the Contracts if, in
general, the basis of the REMIC in such Contracts is exceeded by their unpaid
principal balances. The REMIC's basis in such Contracts is generally the fair
market value of the Contracts immediately after the transfer thereof to the
REMIC (which may equal a proportionate part of the aggregate fair market value
of the REMIC Certificates). In respect of the Contracts that have market
discount to which Code Section 1276 applies, the accrued portion of such market
discount would be recognized currently as an item of ordinary income. Market
discount income generally should accrue in the manner described above under
"REMIC Series--Market Discount."
Generally, if the basis of a REMIC in the Contracts exceeds the unpaid
principal balances thereof, the REMIC will be considered to have acquired such
Contracts at a premium equal to the amount of such excess. As stated above, the
REMIC's basis in the Contracts is the fair market value of the Contracts
immediately after the transfer thereof to the REMIC. Generally, a person that
holds a Contract as a capital asset may elect to amortize premium on the
Contracts under a constant interest method. See the discussion under "REMIC
Series--Amortizable Premium."
Limitations on Offset or Exemption of REMIC Income. If the aggregate value of
the Residual Certificates relative to the aggregate value of the Regular
Certificates and Residual Certificates is considered to be "significant," as
described below, then a portion (but not all) of the REMIC taxable income
includable in determining the federal income tax liability of a Residual Holder
will be subject to special treatment. That portion, referred to as the "excess
inclusion," is equal to the excess of REMIC taxable income for the calendar
quarter allocable to a Residual Certificate over the daily accruals for such
quarterly period of (i) 120% of the long-term applicable Federal rate that
would have applied to the Residual Certificate (if it were a debt instrument)
on the Startup Day under Section 1274(d) of the Code, multiplied by (ii) the
adjusted issue price of such Residual Certificate at the beginning of such
quarterly period. For this purpose, the adjusted issue price of a Residual
Certificate at the beginning of a quarter is the issue price of the Residual
Certificate, plus the amount of such daily accruals of REMIC income described
in this paragraph for all prior quarters, decreased by any distributions made
with respect to such Residual Certificate prior to the beginning of such
quarterly period. The value of the Residual Certificates would be considered
significant in cases where the aggregate issue price of the Residual
Certificates is at least 2% of the aggregate issue price of the Regular
Certificates and Residual Certificates, and the anticipated weighted average
life of the Residual Certificates is at least 20% of the anticipated weighted
average life of the REMIC.
The portion of a Residual Holder's REMIC taxable income consisting of the
excess inclusions generally may not be offset by other deductions on such
Residual Holder's tax return, including net operating loss carry forwards.
Further, if the Residual Holder is an organization subject to the tax on
unrelated business income imposed by Section 511 of the Code, the Residual
Holder's excess inclusions will be treated as unrelated business taxable income
of such Residual Holder for purposes of Section 511. Finally, if a real estate
investment trust or regulated investment company owns a Residual Certificate, a
portion (allocated under Treasury Regulations yet to be issued) of dividends
paid by such real estate investment trust or regulated investment company could
not be offset by net operating losses of its shareholders, would constitute
unrelated business taxable income for tax-exempt shareholders, and would be
ineligible for reduction of withholding to certain persons who are not U.S.
persons.
An exception to the inability of a Residual Holder to offset excess
inclusions with unrelated deductions and net operating losses applies to
certain financial institutions described in Section 593 of the Code ("thrift
institutions"). For purposes of applying this rule, all members of an
affiliated group filing a consolidated return are treated as one taxpayer,
except that thrift institutions to which Section 593 applies and each of their
subsidiaries formed to issue REMICs are treated as separate corporations.
Furthermore, the Code provides that regulations may be issued to disallow the
ability of a thrift institution to use deductions to offset excess inclusions
if necessary or appropriate to prevent the avoidance of tax. A thrift
institution may not so offset its excess inclusions unless the Residual
Certificates have "significant value," which requires that (i)
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the Residual Certificates have an issue price that is at least equal to 2% of
the aggregate of the issue prices of all Residual Certificates and Regular
Certificates with respect to the REMIC, and (ii) the anticipated weighted
average life of the Residual Certificates is at least 20% of the anticipated
weighted average life of the REMIC. The anticipated weighted average life of
the Residual Certificates is based on all anticipated payments to be received
with respect thereto (using the Prepayment Assumption). The anticipated
weighted average life of the REMIC is the weighted average of the anticipated
weighted average lives of all classes of Certificates in the REMIC (computed
using all anticipated payments on a Regular Certificate with nominal or no
principal). Finally, an ordering rule under the REMIC Regulations provides that
a thrift institution may only offset its excess inclusion income with
deductions after it has first applied its deductions against income that is not
excess inclusion income. If applicable, the Prospectus Supplement with respect
to a series will set forth whether the Residual Certificates are expected to
have "significant value."
Restrictions on Transfer of Residual Certificates. As described above under
"REMIC Series--Qualification as a REMIC," an interest in a Residual Certificate
may not be transferred to a Disqualified Organization. If any legal or
beneficial interest in a Residual Certificate is, nonetheless, transferred to a
Disqualified Organization, a tax would be imposed in an amount equal to the
product of (i) the present value of the total anticipated excess inclusions
with respect to such Residual Certificate for periods after the transfer, and
(ii) the highest marginal federal income tax rate applicable to corporations.
The anticipated excess inclusions are based on actual prepayment experience to
the date of the transfer and projected payments based on the Prepayment
Assumption. The present value rate equals the applicable federal rate under
Section 1274(d) of the Code as of the date of the transfer for a term ending on
the close of the last quarter in which excess inclusions are expected to
accrue. Such rate is applied to the anticipated excess inclusions from the end
of the remaining calendar quarters in which they arise to the date of the
transfer. Such a tax generally would be imposed on the transferor of the
Residual Certificate, except that where such transfer is through an agent
(including a broker, nominee, or other middleman) for a Disqualified
Organization, the tax would instead be imposed on such agent. However, a
transferor of a Residual Certificate would in no event be liable for such tax
with respect to a transfer if the transferee furnishes to the transferor an
affidavit, under penalties of perjury, that the transferee is not a
Disqualified Organization and, as of the time of the transfer, the transferor
does not have actual knowledge that such affidavit is false. The tax also may
be waived by the Treasury Department if the Disqualified Organization promptly
disposes of the residual interest and the transferor pays such amount of tax as
the Treasury Department may require (presumably, a corporate tax on the excess
inclusion for the period the residual interest is actually held by the
Disqualified Organization).
In addition, if a "Pass-Through Entity" (as defined below) has excess
inclusion income with respect to a Residual Certificate during a taxable year
and a Disqualified Organization is the record holder of an equity interest in
such entity, then a tax is imposed on such entity equal to the product of (i)
the amount of excess inclusions on the Residual Certificate that are allocable
to the interest in the Pass-Through Entity during the period such interest is
held by such Disqualified Organization, and (ii) the highest marginal federal
income tax rate imposed on corporations. Such tax would be deductible from the
ordinary gross income of the Pass-Through Entity for the taxable year. The
Pass-Through Entity would not be liable for such tax if it has received an
affidavit from such record holder that it is not a Disqualified Organization
and, during the period such person is the record holder of the Residual
Certificate, the Pass-Through Entity does not have actual knowledge that such
affidavit is false.
For these purposes, a "Pass-Through Entity" means any regulated investment
company, real estate investment trust, common trust fund, partnership, trust or
estate and certain corporations operating on a cooperative basis. Except as may
be provided in Treasury Regulations, any person holding an interest in a Pass-
Through Entity as a nominee for another will, with respect to such interest, be
treated as a Pass-Through Entity.
Noneconomic Residual Interests. The REMIC Regulations would disregard certain
transfers of Residual Certificates, in which case the transferor would continue
to be treated as the owner of the Residual Certificates and thus would continue
to be subject to tax on its allocable portion of the net income of the REMIC.
Under
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the REMIC Regulations, a transfer of a "noneconomic residual interest" (as
defined below) to a Residual Holder is disregarded for all federal income tax
purposes if a significant purpose of the transfer is to enable the transferor
to impede the assessment or collection of tax. A residual interest in a REMIC
(including a residual interest with a positive value at issuance) is a
"noneconomic residual interest" unless, at the time of transfer, (i) the
present value of the expected future distributions on the residual interest at
least equals the product of the present value of the anticipated excess
inclusions and the highest corporate income tax rate in effect for the year in
which the transfer occurs, and (ii) the transferor reasonably expects that the
transferee will receive distributions from the REMIC at or after the time at
which taxes accrue on the anticipated excess inclusions in an amount sufficient
to satisfy the accrued taxes. The anticipated excess inclusions and the present
value rate are determined in the same manner as set forth above. The REMIC
Regulations explain that a significant purpose to impede the assessment or
collection of tax exists if the transferor, at the time of the transfer, either
knew or should have known that the transferee would be unwilling or unable to
pay taxes due on its share of the taxable income of the REMIC. A safe harbor is
provided if (i) the transferor conducted, at the time of the transfer, a
reasonable investigation of the financial condition of the transferee and found
that the transferee historically had paid its debts as they came due and found
no significant evidence to indicate that the transferee would not continue to
pay its debts as they came due in the future, and (ii) the transferee
represents to the transferor that it understands that, as the holder of a non-
economic residual interest, the transferee may incur tax liabilities in excess
of any cash flows generated by the interest and that the transferee intends to
pay taxes associated with holding the residual interest as they become due. The
Pooling and Servicing Agreement with respect to each series of REMIC
Certificates will require the transferee of a Residual Certificate to certify
to the statements in clause (ii) of the preceding sentence as part of the
affidavit described above under "Restrictions on Transfer of Residual
Certificates."
Sale or Exchange of a Residual Certificate. Upon the sale or exchange of a
Residual Certificate, the Residual Holder will recognize gain or loss equal to
the excess, if any, of the amount realized over the adjusted basis as described
above of such Residual Holder in such Residual Certificate at the time of the
sale or exchange. In addition to reporting the taxable income of the REMIC, a
Residual Holder will have taxable income to the extent that any cash
distribution to him from the REMIC exceeds such adjusted basis on that
Distribution Date. Such income will be treated as gain from the sale or
exchange of the Residual Certificate. It is possible that the termination of
the REMIC may be treated as a sale or exchange of a Residual Holder's Residual
Certificate, in which case, if the Residual Holder has an adjusted basis in his
Residual Certificate remaining when his interest in the REMIC terminates, and
if he holds such Residual Certificate as a capital asset, then he will
recognize a capital loss at that time in the amount of such remaining adjusted
basis.
The Conference Committee Report to the Tax Reform Act of 1986 provides that,
except as provided in Treasury Regulations, the wash sale rules of Code Section
1091 will apply to dispositions of Residual Certificates where the seller of
the Residual Certificate, during the period beginning six months before the
sale or disposition of the Residual Certificate and ending six months after
such sale or disposition, acquires (or enters into any other transaction that
results in the application of Code Section 1091) any residual interest in any
REMIC or any interest in a "taxable mortgage pool" (such as a non-REMIC owner
trust) that is economically comparable to a Residual Certificate.
Certain Other Taxes on the REMIC. The REMIC provisions of the Code impose a
100% tax on any net income derived by a REMIC from certain prohibited
transactions. Such transactions are: (i) any disposition of a qualified
mortgage, other than pursuant to the substitution of a qualified replacement
mortgage for a qualified mortgage (or the repurchase in lieu of substitution of
a defective obligation), a disposition incident to the foreclosure, default, or
imminent default of a mortgage, the bankruptcy or insolvency of the REMIC, or a
qualified liquidation of the REMIC; (ii) the receipt of income from assets
other than qualified mortgages and permitted investments; (iii) the receipt of
compensation for services; and (iv) the receipt of gain from the dispositions
of cash flow investments. The REMIC Regulations provide that the modification
of the terms of a Contract occasioned by default or a reasonably foreseeable
default of the Contract, the assumption of the Contract, the waiver of a due-
on-sale clause or the conversion of an interest rate by an Obligor pursuant to
the terms of a convertible adjustable-rate Contract will not be treated as a
disposition of the Contract. In the
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event that a REMIC holds Convertible ARM Loans which are convertible at the
option of the Obligor into fixed-rate, fully amortizing, level payment
Contracts, a sale of such Contracts by the REMIC pursuant to a purchase
agreement or other contract with the Company or other party, if and when the
Obligor elects to so convert the terms of the Contract, is not expected to
result in a prohibited transaction for the REMIC. The Code also imposes a 100%
tax on contributions to a REMIC made after the Startup Day, unless such
contributions are payments made to facilitate a cleanup call or a qualified
liquidation of the REMIC, payments in the nature of a guaranty, contributions
during the three-month period beginning on the Startup Day or contributions to
a qualified reserve fund of the REMIC by a holder of a residual interest in the
REMIC. The Code also imposes a tax on a REMIC at the highest corporate rate on
certain net income from foreclosure property that the REMIC derives from the
management, sale, or disposition of any real property, or any personal property
incident thereto, acquired by the REMIC in connection with the default or
imminent default of a loan. Generally, it is not anticipated that a REMIC will
generate a significant amount of such income.
Liquidation of the REMIC. A REMIC may liquidate without the imposition of
entity-level tax only in a "qualified liquidation." A liquidation is considered
qualified if a REMIC adopts a plan of complete liquidation (which may be
accomplished by designating in the REMIC's final tax return a date on which
such adoption is deemed to occur) and sells all of its assets (other than cash)
within the ninety-day period beginning on the date of the adoption of the plan
of liquidation, provided that it distributes to holders of Regular or Residual
Certificates, on or before the last day of the ninety-day liquidation period,
all the proceeds of the liquidation (including all cash), less amounts retained
to meet claims.
Taxation of Certain Foreign Investors. For purposes of this discussion, a
"Foreign Holder" is a Certificateholder who holds a Regular Certificate and who
is not (i) a citizen or resident of the United States, (ii) a corporation,
partnership, or other entity organized in or under the laws of the United
States or a political subdivision thereof or (iii) an estate or trust the
income of which is includible in gross income for United States tax purposes
regardless of its source. Unless the interest on a Regular Certificate is
effectively connected with the conduct by the Foreign Holder of a trade or
business within the United States, the Foreign Holder is not subject to federal
income or withholding tax on interest (or original issue discount, if any) on a
Regular Certificate (subject to possible backup withholding of tax, discussed
below), provided the Foreign Holder is not a controlled foreign corporation
related to the Company and does not own actually or constructively 10% or more
of the voting stock of the Company. To qualify for this tax exemption, the
Foreign Holder will be required to provide periodically a statement signed
under penalties of perjury certifying that the Foreign Holder meets the
requirements for treatment as a Foreign Holder and providing the Foreign
Holder's name and address. The statement, which may be made on a Form W-8 or
substantially similar substitute form, generally must be provided in the year a
payment occurs or in either of the two preceding years. The statement must be
provided, either directly or through clearing organization or financial
institution intermediaries, to the person that otherwise would withhold tax.
This exemption may not apply to a Foreign Holder that owns both Regular
Certificates and Residual Certificates. If the interest on a Regular
Certificate is effectively connected with the conduct by a Foreign Holder of a
trade or business within the United States, then the Foreign Holder will be
subject to tax at regular graduated rates. Foreign Holders should consult their
own tax advisors regarding the specific tax consequences of their owning a
Regular Certificate.
Any gain recognized by a Foreign Holder upon a sale, retirement or other
taxable disposition of a Regular Certificate generally will not be subject to
United States federal income tax unless either (i) the Foreign Holder is a
nonresident alien individual who holds the Regular Certificate as a capital
asset and who is present in the United States for 183 days or more in the
taxable year of the disposition and either the gain is attributable to an
office or other fixed place of business maintained in the U.S. by the
individual or the individual has a "tax home" in the United States, or (ii) the
gain is effectively connected with the conduct by the Foreign Holder of a trade
or business within the United States.
A Regular Certificate will not be includible in the estate of a Foreign
Holder who does not own actually or constructively 10% or more of the voting
stock of the Company.
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Backup Withholding. Under certain circumstances, a REMIC Certificateholder
may be subject to "backup withholding" at a 31% rate. Backup withholding may
apply to a REMIC Certificateholder who is a United States person if the holder,
among other circumstances, fails to furnish his Social Security number or other
taxpayer identification number to the Trustee. Backup withholding may apply,
under certain circumstances, to a REMIC Certificateholder who is a foreign
person if the REMIC Certificateholder fails to provide the Trustee or the REMIC
Certificateholder's securities broker with the statement necessary to establish
the exemption from federal income and withholding tax on interest on the REMIC
Certificate. Backup withholding, however, does not apply to payments on a
Certificate made to certain exempt recipients, such as corporations and tax-
exempt organizations, and to certain foreign persons. REMIC Certificateholders
should consult their tax advisors for additional information concerning the
potential application of backup withholding to payments received by them with
respect to a Certificate.
Reporting Requirements and Tax Administration. The Company will report
annually to the Service, holders of record of the Regular Certificates that are
not excepted from the reporting requirements and, to the extent required by the
Code, other interested parties, information with respect to the interest paid
or accrued on the Regular Certificates, original issue discount, if any,
accruing on the Regular Certificates and information necessary to compute the
accrual of any market discount or the amortization of any premium on the
Regular Certificates.
The Treasury Department has issued temporary regulations concerning certain
aspects of REMIC tax administration. Under those regulations, a Residual
Certificateholder must be designated as the REMICs "tax matters person." The
tax matters person, generally, has responsibility for overseeing and providing
notice to the other Residual Certificateholders of certain administrative and
judicial proceedings regarding the REMIC's tax affairs. Unless otherwise
indicated in the related Prospectus Supplement, the Company will be designated
as tax matters person for each REMIC, and in conjunction with the Trustee will
act as the agent of the Residual Certificateholders in the preparation and
filing of the REMIC's federal and state income tax and other information
returns.
NON-REMIC SERIES
Tax Status of the Trust Fund. In the case of a Trust Fund evidenced by a
series or sub-series of Certificates, or a segregated portion thereof, with
respect to which a REMIC Election is not made ("Non-REMIC Certificates"),
Counsel will have advised the Company that, in their opinion, each Contract
Pool and the arrangement to be administered by the Company under which the
Trustee will hold and the Company will be obligated to service the Contracts
and pursuant to which Non-REMIC Certificates will be issued to Non-REMIC
Certificateholders will not be classified as an association taxable as a
corporation or a "taxable mortgage pool, within the meaning of Code Section
7701(i), but rather will be classified as a grantor trust under Subpart E, Part
1 of Subchapter J of the Code. Each Non-REMIC Certificateholder will be treated
as the owner of a pro rata undivided interest in the ordinary income and corpus
portions of the trust attributable to the Contract Pool in which its
Certificate evidences an ownership interest and will be considered the
equitable owner of a pro rata undivided interest in each of the Contracts
included therein.
Tax Status of Non-REMIC Certificates. In general, (i) Certificates held by a
financial institution taxed as described in Section 593(a) of the Code may
represent interests in "qualifying real property loans" within the meaning of
Section 593(d) of the Code; (ii) Certificates held by a "domestic building and
loan association" within the meaning of Section 7701(a)(19) of the Code may be
considered to represent "qualifying real property loans" within the meaning of
Section 7701(a)(19)(C)(v) of the Code; and (iii) Certificates held by a real
estate investment trust may constitute "real estate assets" within the meaning
of Section 856(c)(5)(A) of the Code and interest thereon may be considered
"interest on obligations secured by mortgages on real property" within the
meaning of Section 856(c)(3)(B) of the Code. See the discussions of such Code
provisions above under "REMIC Series Tax Status of REMIC Certificates."
Investors should review the related Prospectus Supplement for a discussion of
the treatment of Non-REMIC Certificates and Contracts under these Code sections
and should, in addition, consult with their own tax advisors with respect to
these matters.
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Tax Treatment of Non-REMIC Certificates. Non-REMIC Certificateholders will be
required to report on their federal income tax returns, and in a manner
consistent with their respective methods of accounting, their pro rata share of
the entire income arising from the Contracts comprising such Contract Pool,
including interest, original issue discount, if any, prepayment fees,
assumption fees, and late payment charges received by the Company, and any gain
upon disposition of such Contracts. (For purposes of this discussion, theterm
"disposition," when used with respect to the Contracts, includes scheduled or
prepaid collections with respect to the Contracts, as well as the sale or
exchange of a Non-REMIC Certificate.) Non-REMIC Certificateholders will be
entitled under Section 162 or 212 of the Code to deduct their pro rata share of
related servicing fees, administrative and other non-interest expenses,
including assumption fees and late payment charges retained by the Company. An
individual, an estate, or a trust that holds a Non-REMIC Certificate either
directly or through a pass-through entity will be allowed to deduct such
expenses under Section 212 of the Code only to the extent that, in the
aggregate and combined with certain other itemized deductions, they exceed 2%
of the adjusted gross income of the holder. In addition, Section 68 of the Code
provides that the amount of itemized deductions (including those provided for
in Section 212 of the Code) otherwise allowable for the taxable year for an
individual whose adjusted gross income exceeds a threshold amount specified in
the Code ($100,000 in the case of a joint return) will be reduced by the lesser
of (i) 3% of the excess of adjusted gross income over the specified threshold
amount or (ii) 80% of the amount of itemized deductions otherwise allowable for
such taxable year. To the extent that a Non-REMIC Certificateholder is not
permitted to deduct servicing fees allocable to a Non-REMIC Certificate, the
taxable income of the Non-REMIC Certificateholder attributable to that Non-
REMIC Certificate will exceed the net cash distributions related to such
income. Non-REMIC Certificateholders may deduct any loss on disposition of the
Contracts to the extent permitted under the Code.
Under current Service interpretations of applicable Treasury Regulations the
Company would be able to sell or otherwise dispose of any subordinated Non-
REMIC Certificates. Accordingly, the Company expects to offer subordinated Non-
REMIC Certificates for sale to investors. In general, such subordination should
not affect the federal income tax treatment of either the subordinated or
senior Certificates. Holders of subordinated classes of Certificates should be
able to recognize any losses allocated to such class when and if losses are
realized.
To the extent that any of the Contracts comprising a Contract Pool were
originated on or after March 2, 1984 and under circumstances giving rise to
original issue discount, Certificateholders will be required to report annually
an amount of additional interest income attributable to such discount in such
Contracts prior to receipt of cash related to such discount. See the discussion
above under "REMIC Series--Original Issue Discount." Similarly, Code provisions
concerning market discount and amortizable premium will apply to the Contracts
comprising a Contract Pool to the extent that the loans were originated after
July 18, 1984 and September 27, 1985, respectively. See the discussions above
under "REMIC Series--Market Discount" and "REMIC Series--Amortizable Premium."
Stripped Non-REMIC Certificates. Certain classes of Non-REMIC Certificates
may be subject to the stripped bond rules of Section 1286 of the Code and for
purposes of this discussion will be referred to as "Stripped Certificates." In
general, a Stripped Certificate will be subject to the stripped bond rules
where there has been a separation of ownership of the right to receive some or
all of the principal payments on a Contract from ownership of the right to
receive some or all of the related interest payments. Non-REMIC Certificates
will constitute Stripped Certificates and will be subject to these rules under
various circumstances, including the following: (i) if any servicing
compensation is deemed to exceed a reasonable amount; (ii) if the Company or
any other party retains a Retained Yield with respect to the Contracts
comprising a Contract Pool; (iii) if two or more classes of Non-REMIC
Certificates are issued representing the right to non-pro rata percentages of
the interest or principal payments on the Contracts; or (iv) if Non-REMIC
Certificates are issued which represent the right to interest only payments or
principal only payments.
Although not entirely clear, each Stripped Certificate should be considered
to be a single debt instrument issued on the day it is purchased for purposes
of calculating any original issue discount. Original issue
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<PAGE>
discount with respect to a Stripped Certificate, if any, must be included in
ordinary gross income for federal income tax purposes as it accrues in
accordance with the constant-yield method that takes into account the
compounding of interest and such accrual of income may be in advance of the
receipt of any cash attributable to such income. See "REMIC Series--Original
Issue Discount" above. For purposes of applying the original issue discount
provisions of the Code, the issue price of a Stripped Certificate will be the
purchase price paid by each holder thereof and the stated redemption price at
maturity may include the aggregate amount of all payments to be made with
respect to the Stripped Certificate whether or not denominated as interest. The
amount of original issue discount with respect to a Stripped Certificate may be
treated as zero under the original issue discount de minimis rules described
above. A purchaser of a Stripped Certificate will be required to account for
any discount on the 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 of the Contracts. See "REMIC Series--Market Discount" above.
When an investor purchases more than one class of Stripped Certificates it is
currently unclear whether for federal income tax purposes such classes of
Stripped Certificates should be treated separately or aggregated for purposes
of applying the original issue discount rules described above.
It is possible that the Service may take a contrary position with respect to
some or all of the foregoing tax consequences. For example, a holder of a
Stripped Certificate may be treated as the owner of (i) as many stripped bonds
or stripped coupons as there are scheduled payments of principal and/or
interest on each Contract or (ii) a separate installment obligation for each
Contract representing the Stripped Certificate's pro rata share of principal
and/or interest payments to be made with respect thereto. As a result of these
possible alternative characterizations, investors should consult their own tax
advisors regarding the proper treatment of Stripped Certificates for federal
income tax purposes.
Gain or Loss on Disposition. Upon sale or exchange of a Non-REMIC
Certificate, a Non-REMIC Certificateholder will recognize gain or loss equal to
the difference between the amount realized in the sale and its aggregate
adjusted basis in the Contracts represented by the Non-REMIC Certificate.
Generally, the aggregate adjusted basis will equal the Non-REMIC
Certificateholder's cost for the Non-REMIC Certificate increased by the amount
of any previously reported gain with respect to the Non-REMIC Certificate and
decreased by the amount of any losses previously reported with respect to the
Non-REMIC Certificate and the amount of any distributions received thereon.
Except as provided above with respect to the original issue discount and market
discount rules, any such gain or loss would be capital gain or loss if the Non-
REMIC Certificate was held as a capital asset.
Recharacterization of Servicing Fees. The servicing compensation to be
received by the Company may be questioned by the Service with respect to
certain Certificates or Contracts as exceeding a reasonable fee for the
services being performed in exchange therefor, and a portion of such servicing
compensation could be recharacterized as an ownership interest retained by the
Company or other party in a portion of the interest payments to be made
pursuant to the Contracts. In this event, a Certificate might be treated as a
Stripped Certificate subject to the stripped bond rules of Section 1286 of the
Code and the original issue discount provisions rather than to the market
discount and premium rules. See the discussion above under "Non-REMIC Series--
Stripped Non-REMIC Certificates."
Tax Treatment of Certain Foreign Investors. Generally, interest or original
issue discount paid to or accruing for the benefit of a Non-REMIC
Certificateholder who is a Foreign Holder (as defined in "REMIC Series--
Taxation of Certain Foreign Investors") will be treated as "portfolio interest"
and therefore will be exempt from the 30% withholding tax. Such Non-REMIC
Certificateholder will be entitled to receive interest payments and original
issue discount on the Non-REMIC Certificates free of United States federal
income tax, but only to the extent the Contracts were originated after July 18,
1984 and provided that such Non-REMIC Certificateholder periodically provides
the Trustee (or other person who would otherwise be required
55
<PAGE>
to withhold tax) with a statement certifying under penalty of perjury that such
Non-REMIC Certificateholder is not a United States person and providing the
name and address of such Non-REMIC Certificateholder. For additional
information concerning interest or original issue discount paid by the Company
to a Foreign Holder and the treatment of a sale or exchange of a Non-REMIC
Certificate by a Foreign Holder, which will generally have the same tax
consequences as the sale of a Regular Certificate, see the discussion above
under "REMIC Series--Taxation of Certain Foreign Investors".
Tax Administration and Reporting. The Company will furnish to each Non-REMIC
Certificateholder with each distribution a statement setting forth the amount
of such distribution allocable to principal and to interest. In addition, the
Company will furnish, within a reasonable time after the end of each calendar
year, to each Non-REMIC Certificateholder who was a Certificateholder at any
time during such year, information regarding the amount of servicing
compensation received by the Company and any sub-servicer and such other
customary factual information as the Company deems necessary or desirable to
enable Certificateholders to prepare their tax returns. Reports will be made
annually to the 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 Non-REMIC
Certificates.
OTHER TAX CONSEQUENCES
No advice has been received as to local income, franchise, personal property,
or other taxation in any state or locality, or as to the tax effect of
ownership of 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.
LEGAL INVESTMENT CONSIDERATIONS
Unless otherwise indicated in the applicable Prospectus Supplement, any
Certificates offered hereby that are rated in one of the two highest rating
categories by at least one nationally recognized statistical rating
organization will constitute "mortgage related securities" for purposes of the
Secondary Mortgage Market Enhancement Act of 1984 ("SMMEA") and, as such, will
be legal investments for persons, trusts, corporations, partnerships,
associations, business trusts and business entities (including depository
institutions, life insurance companies and pension funds) created pursuant to
or existing under the laws of the United States or of any state whose
authorized investments are subject to state regulation to the same extent as,
under applicable law, obligations issued by or guaranteed as to principal and
interest by the United States or any such entities. Under SMMEA, certain states
have created legislation specifically limiting the legal investment authority
of any such entities with respect to "mortgage related securities," in which
case the Certificates will constitute legal investments for entities subject to
such legislation only to the extent provided therein. SMMEA provides, however,
that in no event will the enactment of any such legislation affect the validity
of any contractual commitment to purchase, hold or invest in Certificates, or
require the sale or other disposition of Certificates, so long as such
contractual commitment was made or such Certificates were acquired prior to the
enactment of such legislation.
SMMEA also amended the legal investment authority of federally-chartered
depository institutions as follows: federal savings and loan associations and
federal savings banks may invest in, sell or otherwise deal in Certificates
without limitation as to the percentage of their assets represented thereby;
federal credit unions may invest in Certificates; and national banks may
purchase Certificates for their own account without regard to the limitations
generally applicable to investment securities set forth in 12 U.S.C. (S)24
(Seventh), subject in each case to such regulations as the applicable federal
regulatory authority may prescribe.
Some Classes of Certificates offered hereby may not be rated in one of the
two highest rating categories and thus would not constitute "mortgage related
securities" for purposes of SMMEA.
56
<PAGE>
The Federal Financial Institutions Examination Council, The Federal Deposit
Insurance Corporation, the Office of Thrift Supervision, the Office of the
Comptroller of the Currency and the National Credit Union Administration have
proposed or adopted guidelines regarding investment in various types of
mortgage-backed securities. In addition, certain state regulators have taken
positions that may prohibit regulated institutions subject to their
jurisdiction from holding securities representing residual interests, including
securities previously purchased. There may be other restrictions on the ability
of certain investors, including depository institutions, either to purchase
Certificates or to purchase Certificates representing more than a specified
percentage of the investor's assets. Investors should consult their own legal
advisors in determining whether and to what extent the Certificates constitute
legal investments for such investors.
RATINGS
It is a condition precedent to the issuance of any Class of Certificates sold
under this Prospectus that they be rated by at least one nationally recognized
statistical rating organization in one of its four highest rating categories
(within which there may be sub-categories or gradations indicating relative
standing). 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. The security rating of any Series of Certificates
should be evaluated independently of similar security ratings assigned to other
kinds of securities.
UNDERWRITING
The Company may sell Certificates of each Series to or through underwriters
(the "Underwriters") by a negotiated firm commitment underwriting and public
reoffering by the Underwriters, and also may sell and place Certificates
directly to other purchasers or through agents. The Company intends that
Certificates will be offered through such various methods from time to time and
that offerings may be made concurrently through more than one of these methods
or that an offering of a particular Series of Certificates may be made through
a combination of such methods.
The distribution of the Certificates may be effected from time to time in one
or more transactions at a fixed price or prices, which may be changed, or at
market prices prevailing at the time of sale, at prices related to such
prevailing market prices or at negotiated prices.
If so specified in the Prospectus Supplement relating to a Series of
Certificates, the Company or any affiliate thereof may purchase some or all of
one or more Classes of Certificates of such Series from the Underwriter or
Underwriters at a price specified in such Prospectus Supplement. Such purchaser
may thereafter from time to time offer and sell, pursuant to this Prospectus,
some or all of such Certificates so purchased directly, through one or more
Underwriters to be designated at the time of the offering of such Certificates
or through broker-dealers acting as agent and/or principal. Such offering may
be restricted in the manner specified in such Prospectus Supplement. Such
transactions may be effected at market prices prevailing at the time of sale,
at negotiated prices or at fixed prices.
In connection with the sale of the Certificates, Underwriters may receive
compensation from the Company or from purchasers of Certificates for whom they
may act as agents in the form of discounts, concessions or commissions.
Underwriters may sell the Certificates of a Series to or through dealers and
such dealers may receive compensation in the form of discounts, concessions or
commissions from the Underwriters and/or commissions from the purchasers for
whom they may act as agents. Underwriters, dealers and agents that participate
in the distribution of the Certificates of a Series may be deemed to be
Underwriters, and any discounts or commissions received by them from the
Company and any profit on the resale of the Certificates by them may be deemed
to be underwriting discounts and commissions, under the Securities Act of 1933,
as amended (the "Act"). Any such Underwriters or agents will be identified, and
any such compensation received from the Company will be described, in the
Prospectus Supplement.
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<PAGE>
Under agreements which may be entered into by the Company, Underwriters and
agents who participate in the distribution of the Certificates may be entitled
to indemnification by the Company against certain liabilities, including
liabilities under the Act.
If so indicated in the Prospectus Supplement, the Company will authorize
Underwriters or other persons acting as the Company's agents to solicit offers
by certain institutions to purchase the Certificates from the Company pursuant
to contracts providing for payment and delivery on a future date. Institutions
with which such contracts may be made include commercial and savings banks,
insurance companies, pension funds, investment companies, educational
charitable institutions and others, but in all cases such institutions must be
approved by the Company. The obligation of any purchaser under any such
contract will be subject to the condition that the purchaser of the offered
Certificates shall not at the time of delivery be prohibited under the laws of
the jurisdiction to which such purchaser is subject from purchasing such
Certificates. The Underwriters and such other agents will not have
responsibility in respect of the validity or performance of such contracts.
The Underwriters may, from time to time, buy and sell Certificates, but there
can be no assurance that an active secondary market will develop and there is
no assurance that any such market, if established, will continue.
Certain of the Underwriters and their associates may engage in transactions
with and perform services for the Company in the ordinary course of business.
LEGAL MATTERS
The legality of the Certificates will be passed upon for the Company by
Dorsey & Whitney, Minneapolis, Minnesota. The material federal income tax
consequences of the Certificates will be passed upon for the Company by Dorsey
& Whitney.
EXPERTS
The consolidated financial statements of the Company as of December 31, 1992
and 1993 and for each of the three years in the period ended December 31, 1993
incorporated by reference herein have been audited by KPMG Peat Marwick,
independent accountants, as stated in their opinion given upon their authority
as experts in accounting and auditing.
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<PAGE>
GLOSSARY
There follows abbreviated definitions of certain capitalized terms used in
this Prospectus and the Prospectus Supplement. The Agreement may contain a more
complete definition of certain of the terms defined herein and reference should
be made to the Agreement for a more complete definition of all such terms.
"Accrual Remittance Amount" means, with respect to the Compound Interest
Certificates of a Series of Certificates providing for sequential distributions
in reduction of the Stated Balance of the Classes of such Series, as of any
Remittance Date, the amount of interest, calculated at the Interest Rate, which
has accrued on such Compound Interest Certificates from the prior Remittance
Date.
"Adjustable Rate Certificates" means Certificates which evidence the right to
receive distributions of income at a variable Remittance Rate.
"Advances" means the advances made by a Servicer (including from advances
made by a Sub-servicer) on any Remittance Date pursuant to an Agreement.
"Agreement" means each Pooling and Servicing Agreement by and among the
Company, the Trustee and any other party specified in the related Prospectus
Supplement.
"Asset Value" means the Asset Value of the Contracts included in a Trust
Fund, determined in the manner set forth in the related Agreement.
"Amount Available" means, with respect to each Series of Certificates,
certain amounts on deposit in the Certificate Account on a Determination Date.
"Available Subordination Amount" means, with respect to a Series of
Certificates having a Class of Subordinated Certificates, unless otherwise
provided in the related Prospectus Supplement, as of any Remittance Date, the
excess, if any, of the then applicable Maximum Subordination Amount over the
Cumulative Subordination Payments as of the preceding Remittance Date.
"Certificate Account" means the account maintained by the Servicer or the
Trustee, as specified in the related Prospectus Supplement.
"Certificate Distribution Amount" means, unless otherwise specified in the
related Prospectus Supplement, with respect to a Series of Certificates
evidencing an interest in a Contract Pool, the amount of interest (calculated
as specified in such Prospectus Supplement) and the amount of Principal
(calculated as specified in such Prospectus Supplement) to be distributed to
Certificateholders on each Remittance Date.
"Certificate Remittance Amount" means, unless otherwise specified in the
related Prospectus Supplement, with respect to a Series of Certificates
providing for sequential distributions in reduction of the Stated Balance of
the Classes of such Series, as of any Remittance Date, the amount, if any, by
which the then outstanding Stated Balance of the Classes of Certificates of
such Series (before taking into account the amount of interest accrued on any
Class of Compound Interest Certificates to be added to the Stated Balance
thereof on such Remittance Date) exceeds the Asset Value (as defined in the
related Prospectus Supplement) of the Contracts included in the Trust Fund for
such Series as of the end of the related Due Period.
"Certificates" means the Manufactured Housing Contract Pass-Through
Certificates issued pursuant to an Agreement.
"Code" means the Internal Revenue Code of 1986, as amended, and any
regulations promulgated thereunder.
"Company" means Green Tree Financial Corporation.
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<PAGE>
"Compound Interest Certificates" means Certificates on which interest may
accrue but not be paid for the period described in the related Prospectus
Supplement.
"Contract Pool" means, with respect to each Series of Certificates, the pool
of manufactured housing conditional sales contracts and installment loan
agreements transferred by the Company to the Trustee.
"Contract Rate" means, with respect to each Contract, the interest rate
specified in the Contract.
"Contracts" means manufactured housing installment sales contracts and
installment loan agreements, including any and all rights to receive payments
due thereunder on and after the Cut-off Date and security interests in
Manufactured Homes purchased with the proceeds of such contracts.
"Cumulative Subordination Payments" means, with respect to a Series of
Certificates having a class of Subordinated Certificates, unless otherwise
provided in the related Prospectus Supplement as of any Remittance Date, the
cumulative amount equal to (i) the total of all amounts distributed to the
Senior Certificateholders, exclusive of Advances made by the Servicer and the
Initial Deposit to the Reserve Fund, up to and including such Remittance Date
minus (ii) the Senior Percentage times the Available Distribution Amount for
all Remittance Dates up to and including such Remittance Date.
"Cut-off Date" means the date specified in the related Prospectus Supplement
as the date from which principal and interest payments on the Contracts are
included in the Trust Fund.
"Determination Date" means, unless otherwise specified in the related
Prospectus Supplement, the third Business Day immediately preceding the related
Remittance Date.
"Due Period" means, unless otherwise provided in a related Prospectus
Supplement, with respect to any Remittance Date, the period beginning on the
second day of the month preceding the month of the Remittance Date and ending
on the first day of the month of the Remittance Date.
"Eligible Investments" means one or more of the investments specified in the
Agreement in which moneys in the Certificate Account and certain other accounts
are permitted to be invested.
"Excess Interest or Excess Interest Rate" means, with respect to any
Contract, the per annum percentage of the principal balance from time to time
outstanding, which may be retained by a seller, the Company or the Servicer or
allocated to a designated Class of Certificates, as specified in the related
Prospectus Supplement.
"FDIC" means the Federal Deposit Insurance Corporation.
"FHA" means the Federal Housing Administration.
"Final Scheduled Remittance Date" means, with respect to a Series of
Certificates providing for sequential distributions in reduction of the Stated
Balance of the Classes of each Series, the date, based on the assumptions set
forth in the related Prospectus Supplement, on which the Stated Balance of all
Certificates of each Class shall have been reduced to zero.
"FNMA" means the Federal National Mortgage Association.
"GNMA" means the Government National Mortgage Association.
"GNMA Certificates" means individual mortgage pass-through securities issued
or guaranteed by GNMA.
"HUD" means the United States Department of Housing and Urban Development.
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<PAGE>
"Initial Deposit" means, with respect to a Series of Certificates, the
amount, if any, deposited into the Reserve Fund on the date of the initial
issuance of the Certificates.
"Interest Rate" means, with respect to a Series of Certificates providing for
sequential distributions in reduction of the Stated Balance of the Classes of
such Series, the interest payable on the Principal Balance outstanding of each
such Class.
"Late Collections" means, with respect to any Contract, amounts received
during any Due Period, whether as late payments of Monthly Payments, or as
Liquidation Proceeds, condemnation awards, proceeds of insurance policies or
otherwise, which represent late payments or collections of Monthly Payments due
but delinquent for a previous Due Period and not previously recovered.
"Liquidation Proceeds" means cash (including insurance proceeds) received in
connection with the repossession of a Manufactured Home.
"Loan-to-Value Ratio" means the loan-to-value ratio at the time of
origination of the Contract.
"Manufactured Home" means a unit of manufactured housing, including all
accessions thereto, securing the indebtedness of the Obligor under the related
Contract.
"Maximum Subordination Amount" means, with respect to a Series of
Certificates having a Class of Subordinated Certificates, the amount specified
in the related Prospectus Supplement, representing the maximum amount of
Cumulative Subordination Payments which may be required to be made over the
term of the related Agreement.
"Monthly Payment" means the scheduled monthly payment of principal and
interest on a Contract.
"Obligor" means each person who is indebted under a Contract or who has
acquired a Manufactured Home subject to a Contract.
"Record Date" means the date specified in the related Prospectus Supplement
for the list of Certificateholders entitled to distributions on the
Certificates.
"REMIC" means a "real estate mortgage investment conduit" as defined in the
Code.
"Remittance Date" means the date specified in the related Prospectus
Supplement for payments on the Certificates.
"Remittance Rate" means, as to a Certificate, the rate or rates of interest
thereon specified in the related Prospectus Supplement.
"Senior Certificates" means, with respect to each Series of Certificates, the
Class or Classes which have rights senior to another Class or Classes in such
Series.
"Senior Distribution Amount" means, with respect to a Series of Certificates
having Subordinated Certificates, as of each Remittance Date and for each Class
of Senior Certificates, the amount due the holders of such Class of Senior
Certificates.
"Senior Percentage" means, with respect to a Series of Certificates having
Subordinated Certificates, the percentage specified in the related Prospectus
Supplement.
"Senior Shortfall" means, with respect to a Series of Certificates having
Subordinated Certificates, as of any date, to the extent not previously paid,
the aggregate of the amounts by which the Senior Distribution Amount for any
Remittance Date exceeds the amount actually paid on such date.
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<PAGE>
"Servicer" means, with respect to each Series of Certificates evidencing
interests in Contracts, the Servicer specified in the related Prospectus
Supplement.
"Servicing Fee" means the amount of the annual fee paid to the Servicer or
the Trustee as specified in the related Prospectus Supplement.
"Single Certificate" means, unless otherwise specified in the related
Prospectus Supplement, for each Class of Certificates of any Series, the
initial principal amount of Contracts evidenced by a single Certificate of such
Class.
"Stated Balance" means, with respect to a Series of Certificates providing
for sequential distributions in reduction of Stated Balance of the Classes of
such Series, the maximum specified dollar amount (exclusive of interest at the
related Interest Rate) to which the Holder thereof is entitled from the cash
flow of the Trust Fund.
"Subordinated Certificates" means, with respect to each Series of
Certificates, the Class or Classes with rights subordinate to another Class or
Classes of such Series.
"Subordinated Percentage" means, with respect to a Series of Certificates
having Subordinated Certificates, the percentage specified in the related
Prospectus Supplement.
"Trust Fund" means, with respect to each Series of Certificates, the corpus
of the trust created by the related Agreement, to the extent described in such
Agreement, consisting of, among other things, Contracts, such assets as shall
from time to time be identified as deposited in the Certificate Account, the
Manufactured Home which secured a Contract, insurance, a reserve fund and other
forms of credit enhancement, if any.
"Trustee" means the Trustee for a Series of Certificates specified in the
related Prospectus Supplement.
"VA" means the Veterans' Administration.
"Variable Rate Certificates" means Certificates which evidence the right to
receive distributions of income at a variable Remittance Rate.
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PART II.
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 30. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
<TABLE>
<S> <C>
SEC registration fee.......................................... $ 689,655
Blue Sky fees and expenses.................................... 5,000
Accountant's fee and expenses................................. 20,000
Attorneys' fees and expenses.................................. 168,000
Trustee's fees and expenses................................... 22,000
Printing and engraving expenses............................... 100,000
Rating Agency fee............................................. 180,000
Miscellaneous................................................. 22,500
----------
Total..................................................... $1,207,155
==========
</TABLE>
ITEM 31. SALES TO SPECIAL PARTIES
Not Applicable
ITEM 32. RECENT SALES OF UNREGISTERED SECURITIES
Listed below are the unregistered securities sold by the Company since April
1990. These Certificates were distributed by the underwriters listed below and
privately placed by such underwriters with institutional investors in
transactions exempt from the registration provisions of the Securities Act of
1933, as amended. In the table below, the Series entitled "RV" refers to
Recreational Vehicle Asset Backed Certificates, "MC" refers to Certificates for
Motorcycle Contracts and "HI" refers to Certificates for FHA Title I Home
Improvement Loans.
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT UNDERWRITERS AND
SERIES ISSUE DATE OF CERTIFICATES OTHER PURCHASERS
------ ---------- ---------------- ----------------
<S> <C> <C> <C>
1.MC 1990-1..... April 6, 1990 $ 9,189,829 The First Boston Corporation
2.MC 1990-2..... June 1, 1990 7,016,969 The First Boston Corporation
3.HI 1990-A..... July 17, 1990 34,760,962 Merrill Lynch Capital Markets
4.HI 1990-B..... Sept. 28, 1990 22,623,804 The First Boston Corporation
5.HI 1990-C..... Dec. 28, 1990 23,208,473 The First Boston Corporation
6.MC 1990-3..... Dec. 31, 1990 6,894,260 The First Boston Corporation
7.HI 1991-A..... March 21, 1991 22,975,523 The First Boston Corporation
8.MC 1991-1..... June 1, 1991 9,404,535 The First Boston Corporation
9.HI 1991-B..... June 17, 1991 32,413,677 The First Boston Corporation
10.HI 1991-C..... Sept. 19, 1991 33,057,595 The First Boston Corporation
11.HI 1991-D..... Dec. 12, 1991 23,539,578 The First Boston Corporation
12.RV 1991-1..... Dec. 13, 1991 19,104,810 Lehman Brothers
13.MC 1991-2..... Jan. 15, 1992 10,857,622 The First Boston Corporation
14.RV 1992-1..... Feb. 26, 1992 20,517,379 Lehman Brothers
15.MC 1992-1..... June 12, 1992 14,007,114 The First Boston Corporation
16.HI 1992-A..... June 18, 1992 32,489,932 The First Boston Corporation
17.RV 1992-2..... June 19, 1992 14,858,272 Lehman Brothers
18.HI 1992-B..... Sept. 17, 1992 21,135,359 The First Boston Corporation
19.MC 1992-2..... Oct. 9, 1992 10,542,200 The First Boston Corporation
20.HI 1992-C..... Dec. 15, 1992 18,720,675 The First Boston Corporation
21.MC 1992-3..... Dec. 17, 1992 7,461,646 The First Boston Corporation
22.HI 1993-A..... March 30, 1993 14,428,655 Merrill Lynch & Co.
23.HI 1993-B..... June 29, 1993 28,416,577 Merrill Lynch & Co.
</TABLE>
II-1
<PAGE>
ITEM 33. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 302A.521 of the Minnesota Statutes requires the Company to indemnify
a person made or threatened to be made a party to a proceeding by reason of the
former or present official capacity of the person with respect to the Company,
against judgments, penalties, fines, including reasonable expenses, if such
person (1) has not been indemnified by another organization or employee benefit
plan for the same judgments, penalties, fines, including without limitations,
excise taxes assessed against the person with respect to an employee benefit
plan, settlements, and reasonable expenses, including attorneys' fees and
disbursements, incurred by the person in connection with the proceeding with
respect to the same acts or omissions; (2) acted in good faith; (3) received no
improper personal benefit, and statutory procedure has been followed in the
case of any conflict of interest by a director; (4) in the case of a criminal
proceeding, had no reasonable cause to believe the conduct was unlawful; and
(5) in the case of acts or omissions occurring in the person's performance in
the official capacity of director or, for a person not a director, in the
official capacity of officer, committee member, employee or agent, reasonably
believed that the conduct was in the best interests of the Company, or, in the
case of performance by a director, officer, employee or agent of the Company as
a director, officer, partner, trustee, employee or agent of another
organization or employee benefit plan, reasonably believed that the conduct was
not opposed to the best interests of the Company, unless otherwise limited by
the Articles of Incorporation or Bylaws of the Company. In addition, Section
302A.521, subd. 3, requires payment by the Company, upon written request, of
reasonable expenses in advance of final disposition in certain instances, upon
receipt of a written undertaking by the person to repay all amounts so paid if
it is ultimately determined that the person is not entitled to indemnification,
unless otherwise limited by the Articles of Incorporation or Bylaws of the
Company. A decision as to required indemnification is made by a disinterested
majority of the Board of Directors present at a meeting at which a
disinterested quorum is present, or by a designated committee of the Board, by
special legal counsel, by the shareholders, or by a court.
The Company's Articles of Incorporation provide that a director is not liable
to the Company or its shareholders for monetary damages for a breach of
fiduciary duty as a director, except for liability (i) for any breach of the
director's duty of loyalty to the Company or its shareholders; (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a
knowing violation of the law; (iii) under Sections 302A.559 or 80A.23 of the
Minnesota Statutes; (iv) for any transaction from which the director derived an
improper personal benefit; or (v) for any act or omission occurring prior to
the date such indemnification provision became effective.
The Company maintains a directors' and officers' insurance policy.
Pursuant to the form of Underwriting Agreement, a copy of which is included
as Exhibit I.I hereto, the Underwriters will agree, subject to certain
conditions, to indemnify the Company, its directors, certain of its officers
and persons who control the Company within the meaning of the Securities Act of
1933, as amended (the "Securities Act"), against certain liabilities.
ITEM 34. TREATMENT OF PROCEEDS FROM STOCK BEING REGISTERED
Not Applicable
ITEM 35. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements:
Not Applicable
II-2
<PAGE>
(b) Exhibits:
<TABLE>
<C> <S>
*1.1 Proposed form of Underwriting Agreement
Restated Articles of Incorporation of Green Tree Financial
3.1 Corporation
3.1.1 Articles of Amendment to Restated Articles of Incorporation of
Green Tree Financial Corporation, as filed with the Minnesota
Secretary of State on May 20, 1994
*3.2 Bylaws of Green Tree Financial Corporation
**4.1 Form of Pooling and Servicing Agreement
5.1 Opinion and consent of Dorsey & Whitney as to legality
8.1 Opinion of Dorsey & Whitney as to tax matters
***12.1 Computation of Ratio of Earnings to Fixed Charges
****21.1 Subsidiaries of the Registrant
23.1 Consent of KPMG Peat Marwick
23.2 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-5)
</TABLE>
- --------
*Incorporated by reference to the similarly numbered exhibit (unless otherwise
indicated) to the Registrant's Registration Statement on Form S-11 (File No.
33-50236), as amended, which became effective on September 11, 1992.
**Incorporated by reference to the similarly numbered exhibit to the
Registrant's Current Report on Form 8-K dated May 23, 1994.
***Incorporated by reference to the similarly numbered exhibit to the
Registrant's Annual Report on Form 10-K for the year ended December 31, 1993
and its Quarterly Report on Form 10-Q for the Quarter ended March 31, 1994.
****Incorporated by reference to Exhibit 22 of the Registrant's Annual Report
on Form 10-K for the year ended December 31, 1993.
ITEM 36. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers, and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that, in the opinion of the Securities and Exchange
Commission, such indemnification is against public policy as expressed in the
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such 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.
II-3
<PAGE>
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.
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change to the information set forth
in the registration statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement;
Provided, however, that paragraphs (1)(i) and (1)(ii) do not apply if
the registration statement is on Form S-3 or Form S-8, and the
information required to be included in a post-effective amendment by
those paragraphs is contained in periodic reports filed by the
registrant pursuant to section 13 or section 15(d) of the Securities
Exchange Act of 1934 that are incorporated by reference in the
registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment 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.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
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 section 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.
The undersigned registrant hereby undertakes to deliver or cause to be
delivered with the prospectus, to each person to whom the prospectus is sent or
given, the latest annual report to security holders that is incorporated by
reference in the prospectus and furnished pursuant to and meeting the
requirements of Rule 14a-3 or Rule 14c-3 under the Securities Exchange Act of
1934; and, where interim financial information required to be presented by
Article 3 of Regulation S-X are not set forth in the prospectus, to deliver, or
cause to be delivered to each person to whom the prospectus is sent or given,
the latest quarterly report that is specifically incorporated by reference in
the prospectus to provide such interim financial information.
II-4
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT IT MEETS ALL OF THE
REQUIREMENTS FOR FILING ON FORM S-11 AND FORM S-3 AND HAS DULY CAUSED THIS
REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO
DULY AUTHORIZED, IN THE CITY OF SAINT PAUL, STATE OF MINNESOTA, ON MAY 26,
1993.
GREEN TREE FINANCIAL CORPORATION
By: /s/ Lawrence M. Coss
---------------------------------
Lawrence M. Coss
Chairman of the Board and Chief
Executive Officer
POWER OF ATTORNEY
Pursuant to the requirements of the Securities Act, this Registration
Statement has been signed by the following persons in the capacities and on the
date indicated. Each person whose signature to this Registration Statement
appears below hereby constitutes and appoints John W. Brink and Richard G.
Evans, and each of them, as his true and lawful attorney-in-fact and agent,
with full power of substitution, to sign on his behalf individually and in the
capacity stated below and to perform any acts necessary to be done in order to
file all amendments and post-effective amendments to this Registration
Statement, and any and all instruments or documents filed as part of or in
connection with this Registration Statement or the amendments thereto and each
of the undersigned does hereby ratify and conform all that said attorney-in-
fact and agent, or his substitutes, shall do or cause to be done by virtue
hereof.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Lawrence M. Coss Chairman of the Board and May 26, 1994
- ------------------------------------ Chief Executive Officer
Lawrence M. Coss (Principal Executive
Officer) and Director
/s/ John W. Brink Executive Vice President, May 26, 1994
- ------------------------------------ Treasurer and Chief
John W. Brink Financial Officer
(Principal Financial
Officer)
/s/ Robley D. Evans Vice President and May 26, 1994
- ------------------------------------ Controller (Principal
Robley D. Evans Accounting Officer)
/s/ Richard G. Evans Director May 26, 1994
- ------------------------------------
Richard G. Evans
/s/ W. Max McGee Director May 27, 1994
- ------------------------------------
W. Max McGee
Director
- ------------------------------------
Tania A. Modic
/s/ Robert S. Nickoloff Director May 27, 1994
- ------------------------------------
Robert S. Nickoloff
/s/ Robert D. Potts Director May 26, 1994
- ------------------------------------
Robert D. Potts
</TABLE>
II-5
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
*1.1 Proposed form of Underwriting Agreement
Restated Articles of Incorporation of Green Tree Financial
3.1 Corporation
3.1.1 Articles of Amendment to Restated Articles of Incorporation
of Green Tree Financial Corporation, as filed with the
Minnesota Secretary of State on May 20, 1994
*3.2 Bylaws of Green Tree Financial Corporation
**4.1 Form of Pooling and Servicing Agreement
5.1 Opinion and consent of Dorsey & Whitney as to legality
8.1 Opinion of Dorsey & Whitney as to tax matters
***12.1 Computation of Ratio of Earnings to Fixed Charges
****21.1 Subsidiaries of the Registrant
23.1 Consent of KPMG Peat Marwick
23.2 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-5)
</TABLE>
- --------
*Incorporated by reference to the similarly numbered exhibit (unless
otherwise indicated) to the Registrant's Registration Statement on
Form S-11 (File No. 33-50236), as amended, which became effective on
September 11, 1992.
**Incorporated by reference to the similarly numbered exhibit to the
Registrant's Current Report on Form 8-K dated May 23, 1994.
***Incorporated by reference to the similarly numbered exhibit to the
Registrant's Annual Report on Form 10-K for the year ended December 31, 1993
and its Quarterly Report on Form 10-Q for the Quarter ended March 31, 1994.
****Incorporated by reference to Exhibit 22.1 of the Registrant's Annual Report
on Form 10-K for the year ended December 31, 1993.
<PAGE>
EXHIBIT 3.1
ARTICLES OF AMENDMENT
OF
RESTATED ARTICLES OF INCORPORATION
OF
GREEN TREE ACCEPTANCE, INC.
1. The name of the corporation is Green Tree Acceptance, Inc. (the "Company").
2. The document entitled Restated Articles of Incorporation of Green Tree
Financial Corporation attached hereto as Exhibit A, contains the entire
text of the amended Restated Articles of Incorporation of the Company.
3. The attached Restated Articles of Incorporation were duly adopted by the
shareholders of the Company at the 1992 Annual Meeting of Shareholders held
May 27, 1992.
4. The attached Restated Articles of Incorporation amend and restate the
Articles of Incorporation of the Company in their entirety, and the
Restated Articles of Incorporation attached hereto as Exhibit A supersede
the previous Articles of Incorporation and all amendments to and
restatements of such Articles.
5. The attached Restated Articles of Incorporation amend the Articles of
Incorporation of the Company to change the name of the Company from Green
Tree Acceptance, Inc. to Green Tree Financial Corporation.
6. The attached Restated Articles of Incorporation of the Company have been
adopted pursuant to Chapter 302A of the Minnesota Statutes.
IN WITNESS WHEREOF, the undersigned, as Secretary of Green Tree Acceptance,
Inc., being duly authorized on behalf of the Company, has executed this document
this 27th day of May, 1992.
/s/ Richard G. Evans
-------------------------------
RICHARD G. EVANS
Secretary
(Seal)
<PAGE>
RESTATED
ARTICLES OF INCORPORATION
OF
GREEN TREE FINANCIAL CORPORATION
ARTICLE 1. NAME
---------- ----
The name of the Corporation is "Green Tree Financial Corporation."
ARTICLE 2. REGISTERED OFFICE
---------- -----------------
The address of the registered office of the Corporation in Minnesota is
1100 Landmark Towers, 345 St. Peter Street, Saint Paul, Minnesota 55102-1639.
ARTICLE 3. AUTHORIZED SHARES
---------- -----------------
The aggregate number of shares which this Corporation shall have
authority to issue is 165,000,000 shares, divided into 150,000,000 common shares
with a par value of $0.01 per share, which shall be known as "Common Stock" and
15,000,000 preferred shares with a par value of $0.01 per share, which shall be
known as "Preferred Stock".
A. Common Stock. The holders of the Common Stock shall be entitled to
receive, when and as declared by the Board of Directors, out of earnings or
surplus legally available therefore, dividends payable either in cash, in
property, or in shares of the capital stock of the Corporation. Each holder of
record of the Common Stock shall have one vote for each share of Common Stock
standing in such holder's name on the books of the Corporation and entitled to
vote. The Common Stock shall have no special powers, preferences, or rights, or
qualifications, limitations, or restrictions thereof.
B. Preferred Stock. Shares of Preferred Stock may be issued from time
to time in one or more series as the Board of Directors may determine, as
hereinafter provided. The Board of Directors is hereby authorized, by
resolution or resolutions, to provide from time to time, out of the unissued
shares of Preferred Stock not then allocated to any series of Preferred Stock,
for series of the Preferred Stock. Before any shares of any such series of
Preferred Stock are issued, the Board of Directors shall fix and determine, and
is hereby expressly empowered to fix and determine, by resolution or
resolutions, the designations, powers, preferences, and relative participating,
optional, and other special rights, and the qualifications, limitations, and
restrictions thereof, of the shares of such series including, without limiting
the generality of the foregoing, any of the following provisions with respect to
which the Board of Directors shall determine to make affirmative provision:
1. The designation and name of such series and the number of shares that
shall constitute such series;
2. The annual dividend rate or rates payable on shares of such series,
the date or dates from which such dividends shall commence to accrue, and
the dividend payment dates for such dividends;
3. Whether dividends on such series are to be cumulative or
noncumulative, and the participating or other special rights, if any, with
respect to the payment of dividends;
-1-
<PAGE>
4. Whether such series shall be subject to redemption and, if so, the
manner of redemption, the redemption price or prices and the terms and
conditions on which shares of such series may be redeemed;
5. Whether such series shall have a sinking fund or other retirement
provisions for the redemption or purchase of shares of such series, and, if
so, the terms and amount of such sinking fund or other retirement provisions
and the extent to which the charges therefore are to have priority over the
payment of dividends on or the making of sinking fund or other like
retirement provisions for shares of any other series or over the payment of
dividends on the Common Stock;
6. The amounts payable on shares of such series on voluntary or
involuntary dissolution, liquidation, or winding up of the affairs of the
Corporation and the extent to which such payment shall have priority over the
payment of any amount on voluntary or involuntary dissolution, liquidation,
or winding up of affairs of the Corporation on shares of any other series or
on the Common Stock;
7. The terms and conditions, if any, on which shares of such series may
be converted into, or exchanged for, shares of any other series or of
Common Stock;
8. The extent of the voting powers, if any, of the shares of such
series;
9. The stated value, if any, for the shares of such series, the
consideration for which shares of such series may be issued and the amount of
such consideration that shall be credited to the capital account; and
10. Any other preferences and relative, participating, optional, or
other special rights, and qualifications, limitations, or restrictions
thereof, of the shares of such series.
The Board of Directors is expressly authorized to vary the provisions
relating to the foregoing matters between the various series of Preferred Stock.
All shares of Preferred Stock of any one series shall be identical in all
respects with all other shares of such series, except that shares of any one
series issued at different times may differ as to the dates from which dividends
thereon shall be payable, and if cumulative, shall cumulate.
Shares of any series of Preferred Stock that shall be issued and
thereafter acquired by the Corporation through purchase, redemption (whether
through the operation of a sinking fund or otherwise), conversion, exchange, or
otherwise, shall, upon appropriate filing and recording to the extent required
by law, have the status of authorized and unissued shares of Preferred Stock and
may be reissued as part of such series or as part of any other series of
Preferred Stock. Unless otherwise provided in the resolution or resolutions of
the Board of Directors providing for the issuance thereof, the number of
authorized shares of stock of any series of Preferred Stock may be increased or
decreased (but not below the number of shares thereof then outstanding) by
resolution or resolutions of the Board of Directors and appropriate filing and
recording to the extent required by law. In case the number of shares of any
such series of Preferred Stock shall be decreased, the shares representing such
decrease shall, unless otherwise provided in the resolution or resolutions of
the Board of Directors providing for the issuance thereof, resume the status of
authorized but unissued shares of Preferred Stock, undesignated as to series.
-2-
<PAGE>
ARTICLE 4. NO CUMULATIVE VOTING
---------- --------------------
There shall be no cumulative voting by the shareholders of the
Corporation.
ARTICLE 5. NO PREEMPTIVE RIGHTS
---------- --------------------
The shareholders of the Corporation shall not have preemptive rights to
subscribe for or acquire securities or rights to purchase securities of any
kind, class or series of the Corporation.
ARTICLE 6. WRITTEN ACTION BY DIRECTORS
---------- ---------------------------
Any action required or permitted to be taken at a meeting of the Board of
Directors may be taken by written action signed by the number of Directors that
would be required to take the same action at a meeting of the Board at which all
Directors were present.
ARTICLE 7. SHAREHOLDER VOTING REQUIREMENTS
---------- -------------------------------
Except as provided elsewhere in these Restated Articles of Incorporation,
any agreement for consolidation or merger with one or more foreign or domestic
corporations, amendment of these Restated Articles of Incorporation or
dissolution of this Corporation may be authorized by the affirmative vote of the
holders of a majority of the voting power of all shares entitled to vote.
ARTICLE 8. CERTAIN BUSINESS COMBINATIONS
---------- -----------------------------
A. In addition to any affirmative vote required by law or these Restated
Articles of Incorporation, and except as otherwise expressly provided in
paragraph B of this Article 8,
1. any merger or consolidation of the Corporation or any Subsidiary (as
hereinafter defined) with (a) an Interested Shareholder (as hereinafter
defined) or (b) any other corporation (whether or not itself an Interested
Shareholder) which is, or after such merger or consolidation would be, an
Affiliate or Associate (as such terms are hereinafter defined) of an
Interested Shareholder, or
2. any sale, lease, exchange, mortgage, pledge, grant of a security
interest, transfer, or other disposition (in one transaction or a series of
transactions), other than in the ordinary course of business, to or with (a)
an Interested Shareholder or (b) any other person (whether or not itself an
Interested Shareholder) which is, or after such sale, lease, exchange,
mortgage, pledge, grant of a security interest, transfer, or other
disposition would be, an Affiliate or Associate of an Interested Shareholder,
directly or indirectly, of all or any Substantial Part (as hereinafter
defined) of the assets of the Corporation (including, without limitation, any
voting securities of a Subsidiary) or any Subsidiary, or both, or
3. the issuance or transfer by the Corporation or any Subsidiary (in one
transaction or a series of transactions) of any securities (except pursuant
to stock dividends, stock splits, or similar transactions which would not
have the effect of increasing the proportionate voting power of an Interested
Shareholder) of the Corporation or any Subsidiary, or both, to (a) an
Interested Shareholder or (b) any other person (whether or not itself an
Interested Shareholder) which is, or after such issuance or transfer would
be, an Affiliate or Associate of an Interested Shareholder, or
-3-
<PAGE>
4. the adoption of any plan or proposal for the liquidation or
dissolution of the Corporation proposed by or on behalf of an Interested
Shareholder or any Affiliate or Associate of an Interested Shareholder, or
5. any reclassification of securities (including any reverse stock
split), or recapitalization of the Corporation, or any merger or
consolidation of the Corporation with any of its Subsidiaries or any other
transaction (whether or not with or into or otherwise involving an
Interested Shareholder) which has the effect, directly or indirectly, of
increasing the proportionate share of the outstanding shares of any class
of equity or convertible securities of the Corporation or any Subsidiary
directly or indirectly beneficially owned by (a) an Interested Shareholder
or (b) any other person (whether or not itself an Interested Shareholder)
which is, or after such reclassification, recapitalization, merger, or
consolidation, or other transaction would be, an Affiliate or Associate of
an Interested Shareholder,
shall not be consummated unless such consummation shall have been approved by
the affirmative vote of the holders of at least 80% of the combined voting power
of the then outstanding shares of Voting Stock (as hereinafter defined), voting
together as a single class. Such affirmative vote shall be required
notwithstanding the fact that no vote may be required, or that a lesser
percentage may be specified, by law, in these Restated Articles of
Incorporation, in any agreement with any national securities exchange, or
otherwise.
B. The provisions of paragraph (A) of this Article 8 shall not be
applicable to any particular Business Combination (as hereinafter defined) and
such Business Combination shall require only such affirmative vote as is
required by law and any other provision of these Restated Articles of
Incorporation, if the Business Combination shall have been approved by a
majority of the Continuing Directors (as hereinafter defined) or all of the
following conditions shall have been met:
1. The transaction constituting the Business Combination shall provide
for a consideration to be received by all holders of Common Stock in
exchange for all their shares of Common Stock and the aggregate amount of
the cash and the Fair Market Value (as hereinafter defined) as of the date
of the consummation of the Business Combination of consideration other than
cash to be received per share by holders of Common Stock in such Business
Combination shall be at least equal to the higher of the following:
(a) (if applicable) the highest per share price (including any
brokerage commissions, transfer taxes and soliciting dealers' fees) paid
in order to acquire any shares of Common Stock beneficially owned by an
Interested Shareholder (i) within the two-year period immediately prior
to the Announcement Date (as hereinafter defined), (ii) within the two-
year period immediately prior to the Determination Date (as hereinafter
defined), or (iii) in the transaction in which it became an Interested
Shareholder, whichever is highest; or
(b) the Fair Market Value per share of Common Stock on the
Announcement Date or on the Determination Date, whichever is higher;
2. If the transaction constituting the Business Combination shall
provide for a consideration to be received by holders of any class or
series of outstanding Voting Stock other than Common Stock, the aggregate
amount of the cash and the Fair Market Value as
-4-
<PAGE>
of the date of the consummation of the Business Combination of consideration
other than cash to be received per share by holders of shares of such class
or series of Voting Stock shall be at least equal to the highest of the
following (it being intended that the requirements of this subparagraph 2
shall be required to be met with respect to every class and series of
outstanding Voting Stock, whether or not an Interested Shareholder has
previously acquired any shares of a particular class of Voting Stock):
(a) (if applicable) the highest per share price (including any
brokerage commissions, transfer taxes, and soliciting dealers' fees) paid
in order to acquire any shares of such class or series of Voting Stock
beneficially owned by an Interested Shareholder (i) within the two-year
period immediately prior to the Announcement Date, (ii) within the two-
year period immediately prior to the Determination Date, or (iii) in the
transaction in which it became an Interested Shareholder, whichever is
highest; or
(b) the Fair Market Value per share of such class or series of
Voting Stock on the Announcement Date or the Determination Date,
whichever is higher; or
(c) (if applicable) the highest preferential amount per share to
which the holders of shares of such class or series of Voting Stock are
entitled in the event of any voluntary or involuntary liquidation,
dissolution, or winding up of the Corporation;
3. The consideration to be received by holders of a particular class or
series of outstanding Voting Stock (including Common Stock) shall be in cash
or in the same form as was previously paid in order to acquire shares of such
class or series of Voting Stock which are beneficially owned by an Interested
Shareholder and, if an Interested Shareholder beneficially owns shares of any
class or series of Voting Stock which were acquired with varying forms of
consideration, the form of consideration for such class or series of Voting
Stock shall be either cash or the form used to acquire the largest number of
shares of such class or series of Voting Stock beneficially owned by it. The
price determined in accordance with subparagraphs 1 and 2 of this paragraph
shall be subject to appropriate adjustment in the event of any
recapitalization, stock dividend, stock split, combination of shares, or
similar event;
4. After an Interested Shareholder has become an Interested Shareholder
and prior to the consummation of such Business Combination:
(a) except as approved by a majority of the Continuing Directors,
there shall have been no failure to declare and pay at the regular date
therefor the full amount of any dividends (whether or not cumulative)
payable on any outstanding preferred stock;
(b) there shall have been (i) no reduction in the annual rate of
dividends paid on the Common Stock (except as necessary to reflect any
subdivision of the Common Stock) other than as approved by a majority
of the Continuing Directors and (ii) an increase in such annual rate of
dividends as necessary to prevent any such reduction in the event of
any reclassification (including any reverse stock split),
recapitalization, reorganization, or any similar transaction
-5-
<PAGE>
which has the effect of reducing the number of outstanding shares of the
Common Stock, unless the failure so to increase such annual rate is
approved by a majority of the Continuing Directors; and
(c) such Interested Shareholder shall not have become the
beneficial owner of any additional shares of Voting Stock except as
part of the transaction in which it became an Interested Shareholder;
5. After an Interested Shareholder has become an Interested Shareholder,
such Interested Shareholder shall not have received the benefit, directly or
indirectly (except proportionately as a shareholder), of any loans, advances,
guarantees, pledges, or other financial assistance or any tax credits or
other tax advantages provided by the Corporation, whether in anticipation of
or in connection with such Business Combination or otherwise; and
6. A proxy or information statement describing the proposed Business
Combination and complying with the requirements of the Securities Exchange
Act of 1934 and the rules and regulations thereunder (or any subsequent
provisions replacing such Act, rules or regulations) shall be mailed to the
shareholders of the Corporation, no later than the earlier of (a) 30 days
prior to any vote on the proposed Business Combination or (b) if no vote on
such Business Combination is required, 60 days prior to the consummation of
such Business Combination (whether or not such proxy or information statement
is required to be mailed pursuant to such Act or subsequent provisions). Such
proxy statement shall contain at the front thereof, in a prominent place, any
recommendations as to the advisability (or inadvisability) of the Business
Combination which the Continuing Directors, or any of them, may have
furnished in writing and, if deemed advisable by a majority of the Continuing
Directors, an opinion of a reputable investment banking firm as to the
fairness (or lack of fairness) of the terms of such Business Combination,
from the point of view of the holders of Voting Stock other than an
Interested Shareholder (such investment banking firm to be selected by a
majority of the Continuing Directors, to be furnished with all information it
reasonable requests and to be paid a reasonable fee for its services upon
receipt by the Corporation of such opinion).
C. For the purposes of this Article 8:
1. "Business Combination" shall mean any transaction which is referred
to in any one or more of subparagraphs 1 through 5 of paragraph (A) of this
Article 8.
2. "Voting Stock" shall mean stock of all classes and series of the
Corporation entitled to vote generally in the election of directors.
3. "Person" shall mean any individual, firm, trust, partnership,
association, corporation, or other entity.
4. "Interested Shareholder" shall mean any person (other than the
Corporation or any Subsidiary) who or which:
(a) is the beneficial owner, directly or indirectly, of more than
10% of the combined voting power of the then outstanding Voting Stock;
or
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<PAGE>
(b) is an Affiliate or Associate of the Corporation and at any time
within the two-year period immediately prior to the date in question was
the beneficial owner, directly or indirectly, of more than 10% of the
combined voting power of the then outstanding Voting Stock; or
(c) is an assignee of or has otherwise succeeded to the beneficial
ownership of any shares of Voting Stock which were at any time within the
two-year period immediately prior to the date in question beneficially
owned by an Interested
Shareholder, unless such assignment or succession shall have occurred
pursuant to a Public Transaction (as hereinafter defined) or any series
of Public Transactions.
For the purposes of determining whether a person is an Interested
Shareholder, the number of shares of Voting Stock deemed to be outstanding shall
include shares deemed owned through application of subparagraph 6 below but
shall not include any other shares of Voting Stock which may be issuable
pursuant to any agreement, arrangement or understanding, or upon exercise of
conversion rights, warrants or options, or otherwise.
5. "Public Transaction" shall mean any (a) purchase of shares offered
pursuant to an effective registration statement under the Securities Act of
1933 or (b) open-market purchase of shares on a national securities exchange
or in the over-the-counter market if, in either such case, the price and
other terms of sale are not negotiated by the purchaser and the seller of the
beneficial interest in the shares.
6. A person shall be a "beneficial owner" of any Voting Stock:
(a) which such person or any of its Affiliates or Associates
beneficially owns, directly or indirectly; or
(b) which such person or any of its Affiliates or Associates has
(i) the right to acquire (whether such right is exercisable immediately
or only after the passage of time) pursuant to any agreement,
arrangement, or understanding or upon the exercise of conversion
rights, exchange rights, warrants, or options, or otherwise or (ii) the
right to vote or to direct the voting thereof pursuant to any
agreement, arrangement or understanding; or
(c) which is beneficially owned, directly or indirectly, by any
other person with which such person or any of its Affiliates or
Associates has any agreement, arrangement, or understanding for the
purpose of acquiring, holding, voting or disposing of any shares of
Voting Stock.
7. "Affiliate" and "Associate" shall have the respective meanings
ascribed to such terms in Rule 12b-2 of the General Rules and Regulations
under the Securities Exchange Act of 1934, as in effect on January 1, 1985.
8. "Subsidiary" shall mean any corporation of which a majority of any
class of equity security (as defined in Rule 3a11-1 of the General Rules and
Regulations under the Securities Exchange Act of 1934, as in effect on
January 1, 1985) is owned, directly or
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<PAGE>
indirectly, by the Corporation; provided, however, that, for purposes of the
definition of Interested Shareholder set forth in subparagraph 4, the term
"Subsidiary" shall mean only a corporation of which a majority of each class
of equity security is owned, directly or indirectly, by the Corporation.
9. "Continuing Director" shall mean (A) any member of the Board of
Directors of the Corporation who (1) is not an Affiliate or Associate of, and
not a nominee of, an Interested Shareholder, and (2) was a member of the
board prior to the time that any Interested Shareholder became an Interested
Shareholder, and (B) any successor of any such member who is not an Affiliate
or an Associate of, and not a nominee of, such Interested Shareholder and is
recommended to succeed any such member by a majority of all such members then
on the Board of Directors.
10. "Announcement Date" shall mean the date of the first public
announcement of the proposed Business Combination.
11. "Determination Date" shall mean the date on which an Interested
Shareholder became an Interested Shareholder.
12. "Fair Market Value" shall mean: (a) in the case of stock, the
highest closing sale price during the 30-day period immediately preceding
the date in question of a share of such stock on the Composite Tape for New
York Stock Exchange-Listed Stocks, or, if such stock is not quoted on the
Composite Tape, on the New York Stock Exchange, or, if such stock is not
listed on such Exchange, on the principal United States securities exchange
registered under the Securities Exchange Act of 1934 on which such stock is
listed, or, if such stock is not listed on any such exchange, the highest
closing bid quotation or last reported sale price, whichever is applicable,
with respect to a share of such stock during the 30-day period preceding
the date in question on the National Association of Securities Dealers,
Inc. Automated Quotations System or any system then in use, or if no such
quotations are available, the fair market value on the date in question of
a share of such stock as determined by a majority of the Continuing
Directors in good faith; and (b) in the case of property other than cash or
stock, the fair market value of such property on the date in question as
determined by a majority of the Continuing Directors in good faith.
13. "Substantial Part" shall mean more than 30 percent of the fair
market value of the total assets of the Corporation as of the end of its
most recent fiscal year ending prior to the time the determination is being
made.
D. A majority of the Continuing Directors shall have the power and duty
to determine for the purposes of this Article 8, on the basis of information
known to them after reasonable inquiry, all facts necessary to determine
compliance with this Article 8, including, without limitation, (1) whether a
person is an Interested Shareholder, (2) the number of shares of Voting Stock
beneficially owned by any person, (3) whether a person is an Affiliate or
Associate of another, (4) whether the assets which are the subject of any
Business Combination constitute a Substantial Part of the assets of the
Corporation or the Subsidiary, or both, (5) whether the requirements of
paragraph (B) of this Article 8 have been met, and (6) such other matters with
respect to which a determination is required under this Article 8. The good
faith determination of a majority of the Continuing Directors on such matters
shall be conclusive and binding for all purposes of this Article 8.
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<PAGE>
E. Nothing contained in this Article 8 shall be construed to relieve an
Interested Shareholder from any fiduciary obligation imposed by law.
F. Notwithstanding any other provisions of these Restated Articles of
Incorporation or the Bylaws of the Corporation or the fact that a lesser
percentage may be specified by law, these Restated Articles of Incorporation or
the Bylaws of the Corporation, the affirmative vote of the holders of at least
80% of the combined voting power of the then outstanding Voting Stock, voting as
a single class, shall be required to amend, alter, adopt any provision
inconsistent with or repeal this Article 8.
ARTICLE 9. PURCHASES OF STOCK OF THE CORPORATION
---------- -------------------------------------
A. Except as otherwise expressly provided in this Article 9, the
Corporation may not purchase any shares of Common Stock at a per-share price in
excess of the Fair Market Price (as hereinafter defined) as of the time of such
purchase from a person known by the Corporation to be a Substantial Shareholder
(as hereinafter defined), unless such purchase has been approved by the
affirmative vote of the holders of at least two-thirds of the shares of Common
Stock voted thereon held by Disinterested Shareholders (as hereinafter defined).
Such affirmative vote shall be required notwithstanding the fact that no vote
may be required or that a lesser percentage may be specified by law, in these
Restated Articles of Incorporation or in any agreement with any national
securities exchange or otherwise.
B. The provisions of this Article 9 shall not apply to (1) any purchase
pursuant to an offer to purchase which is made on the same terms and conditions
to the holders of all of the outstanding shares of Common Stock, (2) any open
market purchase that constitutes a Public Transaction (as hereinafter defined),
or (3) any purchases pursuant to the Agreement dated May 16, 1985 between the
Corporation, Midwest Federal Savings and Loan Association of Minneapolis and GT
Holdings, Inc.
C. For the purposes of this Article 9:
1. The terms "Person", "Public Transaction", "beneficial owner",
"Affiliate", and "Associate" shall have the meanings given to them in Article
8 of these Restated Articles of Incorporation.
2. "Substantial Shareholder" shall mean any person (other than any
employee benefit plan or trust of the Corporation or any similar entity) who
or which is the beneficial owner of shares of Common Stock constituting more
than 10% of the combined voting power of the then outstanding Common Stock,
and who or which acquired beneficial ownership of any such shares within the
two-year period immediately prior to the date on which the Corporation
purchases any such shares.
For the purposes of determining whether a person is a Substantial
Shareholder, the number of shares of Common Stock deemed to be outstanding
shall include shares deemed owned through application of subparagraph 5 below
but shall not include any other shares of Common Stock which may be issuable
pursuant to any agreement, arrangement or understanding, or upon exercise of
conversion rights, warrants or options, or otherwise.
3. "Disinterested Shareholders" shall mean those holders of Common Stock
who are
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<PAGE>
not Substantial Shareholders.
4. "Fair Market Price" shall mean the highest closing sale price on the
Composite Tape for New York Stock Exchange-Listed Stocks during the 30-day
period immediately preceding the date in question of a share of Common Stock
or, if such stock is not quoted on the Composite Tape, on the New York Stock
Exchange or, if such stock is not listed on such Exchange, on the principal
United States securities exchange registered under the Securities Exchange
Act of 1934 on which such stock is listed, or, if such stock is not listed on
any such exchange, the highest closing bid quotation or last reported sale
price, whichever is applicable, with respect to a share of such stock during
the 30-day period preceding the date in question on the National Association
of Securities Dealers, Inc. Automated Quotations System or any system then in
use, or, if no such quotations are available, the fair market value on the
date in question of a share of such stock as determined by a majority of the
Board of Directors in good faith.
5. A person shall be a "beneficial owner" of any Voting Stock:
(a) which such person or any of its Affiliates of Associates
beneficially owns, directly or indirectly; or
(b) which such person or any of its Affiliates of Associates has
(i) the right to acquire (whether such right is exercisable immediately
or only after the passage of time) pursuant to any agreement,
arrangement, or understanding or upon the exercise of conversion
rights, exchange rights, warrants, or options, or otherwise or (ii) the
right to vote or to direct the voting thereof pursuant to any
agreement, arrangement or understanding; or
(c) which is beneficially owned, directly or indirectly, by any
other person with which such person or any of its Affiliates or
Associates has any agreement, arrangement, or understanding for the
purpose of acquiring, holding, voting or disposing of any shares of
Voting Stock.
D. A majority of the Board of Directors shall have the power and duty to
determine for the purposes of this Article 9, on the basis of information known
to them after reasonable inquiry, all facts necessary to determine compliance
with this Article 9, including without limitation (1) whether a person is a
Substantial Shareholder, (2) the number of shares of Common Stock beneficially
owned by any person, (3) whether a person is an Affiliate or Associate of
another, (4) whether a price is in excess of the Fair Market Price, (5) whether
a purchase constitutes a Public Transaction and (6) such other matters with
respect to which a determination is required under this Article 9. The good
faith determination of a majority of the Board of Directors on such matters
shall be conclusive and binding for all purposes of this Article 9.
E. Nothing contained in this Article 9 shall be construed to relieve a
Substantial Shareholder from any fiduciary obligation imposed by law.
F. Notwithstanding any other provisions of these Restated Articles of
Incorporation or the Bylaws of the Corporation or the fact that a lesser
percentage may be specified by law, these Restated Articles of Incorporation or
the Bylaws of the Corporation, the affirmative vote of the holders of at least
80% of the combined voting powers of the then outstanding voting stock, voting
as a single class, shall be required to amend, alter, adopt any provision
inconsistent with, or repeal this Article 9.
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<PAGE>
ARTICLE 10. BYLAWS
----------- ------
The Board of Directors shall have the power, to the extent permitted by
law, to adopt, amend or repeal the Bylaws of this Corporation, subject to the
power of the shareholders to adopt, amend, or repeal such bylaws. Bylaws fixing
the number of directors or their classifications, qualifications, or terms of
office, or prescribing procedures for removing directors or filling vacancies in
the Board may be adopted, amended or repealed only by (i) the Board of
Directors, to the extent permitted by law, or (ii) the affirmative vote of the
holders of 80% of the combined voting power of the then outstanding voting stock
of this Corporation, voting as a single class, or such lesser percentage of the
outstanding voting stock as may from time to time be provided in such Bylaws.
Notwithstanding any other provisions of these Restated Articles of
Incorporation or the Bylaws of the Corporation or the fact that a lesser
percentage may be specified by law, these Restated Articles of Incorporation or
the Bylaws of the Corporation, the affirmative vote of the holders of at least
80% of the combined voting power of the then outstanding voting stock, voting as
a single class, shall be required to amend, alter, adopt any provision
inconsistent with or repeal this Article 10.
ARTICLE 11. LIMITATION OF DIRECTORS' LIABILITY
----------- ----------------------------------
A Director of this Corporation shall not be personally liable to the
Corporation or its shareholders for monetary damages for breach of fiduciary
duty as a Director, except for liability (i) for any breach of the Director's
duty of loyalty to the Corporation 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
when this Article 11 became effective.
Any repeal or modification of the foregoing provisions of this Article 11
by the shareholders of the Corporation shall not adversely affect any right or
protection of a Director of the Corporation existing at the time of such repeal
or modification.
* * * *
The resolution adopted by the Board of Directors on October 9, 1985
establishing the Series A Junior Participating Preferred Stock, in connection
with the Company's Shareholder Right Plan, also continue in effect as part of
the Restated Articles.
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<PAGE>
CERTIFICATE OF DESIGNATION, PREFERENCES AND
RIGHTS OF SERIES A JUNIOR PARTICIPATING PREFERRED STOCK
of
GREEN TREE ACCEPTANCE, INC.
Pursuant to Section 302A.401 of the Business Corporation Act
of the State of Minnesota
We, Lawrence M. Coss, President and Chief Executive Officer, and
Alan J. Roers, Secretary, of Green Tree Acceptance, Inc., a corporation
organized and existing under the Business Corporation Act of the State of
Minnesota, in accordance with the provisions of Section 302A.401 thereof, DO
HEREBY CERTIFY:
That pursuant to the authority conferred upon the Board of Directors
by the Restated Articles of Incorporation of the said Corporation, the said
Board of Directors on October 9, 1985 adopted the following resolution
creating a series of Five Hundred Thousand (500,000) shares of Preferred Stock
designated as Series A Junior Participating Preferred Stock:
RESOLVED, that pursuant to the authority vested in the Board of
Directors of this Corporation in accordance with the provisions of its
Restated Articles of Incorporation, a series of preferred stock of the
Corporation be, and it hereby is, created, and that the designation and amount
thereof and the voting powers, preferences and relative, participating,
optional and other special rights of the shares of such series, and the
qualifications, limitations or restrictions thereof are as follows:
Section 1. Designation and Amount. The shares of such
----------------------
series shall be designated as "Series A Junior Participating Preferred Stock"
(the "Series A Preferred Stock") having a par value of $.01 per share, and the
number of shares constituting such series shall be 500,000.
Section 2. Dividends and Distributions.
---------------------------
(A) The holders of shares of Series A Preferred Stock shall be
entitled to receive, when, as and if declared by the Board of Directors out
of funds legally available for the purpose, quarterly dividends payable in
cash on the fifteenth day of January, April, July and October in each year
(each such date being referred to herein as a "Quarterly Dividend Payment
Date"), commencing on the first Quarterly Dividend Payment Date after the
first issuance of a share or fraction of a share of Series A Preferred
Stock, in an amount per share (rounded to the nearest cent) equal to the
greater of (a) $25.00 or (b) subject to the provision for adjustment
hereinafter set forth, 100 times the aggregate per share amount of all cash
dividends, and 100 times the aggregate per share amount (payable in kind)
of all non-cash dividends or other distributions other than a dividend
payable in shares of Common Stock or a subdivision of the outstanding
<PAGE>
shares of Common Stock (by reclassification or otherwise), declared on the
Common Stock, par value $.01 per share, of the Corporation (the "Common
Stock") since the immediately preceding Quarterly Dividend Payment Date or,
with respect to the first Quarterly Dividend Payment Date, since the first
issuance of any share or fraction of a share of Series A Preferred Stock,
subject to appropriate adjustments for share splits, share dividends, share
combinations or other recapitalizations as to the Series A Preferred Stock.
ln the event the Corporation shall at any time declare or pay any dividend
on Common Stock payable in shares of Common Stock, or effect a subdivision
or combination or consolidation of the outstanding shares of Common Stock
(by reclassification or otherwise than by payment of a dividend in shares
of Common Stock) into a greater or lesser number of shares of Common Stock,
then in each such case the amount to which holders of shares of Series A
Preferred Stock were entitled immediately prior to such event under clause
(b) of the preceding sentence shall be adjusted by multiplying such amount
by a fraction the numerator of which is the number of shares of Common
Stock outstanding immediately after such event and the denominator of which
is the number of shares of Common Stock that were outstanding , immediately
prior to such event.
(B) The Corporation shall declare a dividend or distribution on the
Series A Preferred Stock as provided in paragraph (A) of this Section
immediately after it declares a dividend or distribution on the Common
Stock (other than a dividend payable in shares of Common Stock); provided
that, in the event no dividend or distribution shall have been declared on
the Common Stock during the period between any Quarterly Dividend Payment
Date and the next subsequent Quarterly Dividend Payment Date, a dividend of
$25.00 per share on the Series A Preferred Stock shall nevertheless be
payable on such subsequent Quarterly Dividend Payment Date.
(C) Dividends shall begin to accrue and be cumulative on outstanding
shares of Series A Preferred Stock from the Quarterly Dividend Payment Date
next preceding the date of issue of such shares of Series A Preferred
Stock, unless the date of issue of such shares is prior to the record date
for the first Quarterly Dividend Payment Date, in which case dividends on
such shares shall begin to accrue from the date of issue of such shares, or
unless the date of issue is a Quarterly Dividend Payment Date or is a date
after the record date for the determination of holders of shares of Series
A Preferred Stock entitled to receive a quarterly dividend and before such
Quarterly Dividend Payment Date, in either of which events such dividends
shall begin to accrue and be cumulative from such Quarterly Dividend
Payment Date. Accrued but unpaid dividends shall not bear interest.
Dividends paid on the shares of Series A Preferred Stock in an amount less
than the total amount of such dividends at the time accrued and payable on
such shares shall be allocated pro rata on a share-by-share basis among all
such shares at the time outstanding. The Board of Directors may fix a
record date for the determination of holders of shares of Series A
Preferred Stock entitled to receive payment of a dividend or distribution
declared thereon, which record date shall be not more than 60 days prior to
the date fixed for the payment thereof.
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<PAGE>
Section 3. Voting Rights. The holders of share Series A Preferred
-------------
Stock shall have the following voting rights:
(A) Subject to the provision for adjustment hereinafter set forth,
each share of Series A Preferred Stock shall entitle the holder thereof to
100 votes on all matters submitted to a vote of the shareholders of the
Corporation. In the event the Corporation shall at any time declare or pay
any dividend on Common Stock payable in shares of Common Stock, or effect a
subdivision or combination or consolidation of the outstanding shares of
Common Stock (by reclassification or otherwise than by payment of a
dividend in shares of Common Stock) into a greater or lesser number of
shares of Common Stock, then in each such case the number of votes per
share to which holders of shares of Series A Preferred Stock were entitled
immediately prior to such event shall be adjusted by multiplying such
number by a fraction the numerator of which is the number of shares of
Common Stock outstanding immediately after such event and the denominator
of which is the number of shares of Common Stock that were outstanding
immediately prior to such event.
(B) Except as otherwise provided herein or by law, the holders of
shares of Series A Preferred Stock and the holders of shares of Common
Stock shall vote together as one class on all matters submitted to a vote
of shareholders of the Corporation.
(C) In the event that any four quarterly cumulative dividends,
whether consecutive or not, upon the Series A Preferred Stock shall be in
arrears, the holders of preferred stock of the Corporation of all series
(including the Series A Preferred Stock), other than series in respect of
which the right is expressly withheld by the authorizing resolutions,
shall have the right, at the next meeting of shareholders called for the
election of directors, to elect one-third of the members of the Board of
Directors out of the number fixed by the by-laws, and the holders of each
preferred stock shall continue to have such right until all unpaid
dividends upon the Series A Preferred Stock shall have been paid in full.
In the event that any eight quarterly cumulative dividends, whether
consecutive or not, upon the Series A Preferred Stock shall be in
arrears, the holders of preferred stock of all series (including the
Series A Preferred Stock), other than series in respect of which the
right is expressly withheld by the authorizing resolutions, shall have
the right, at the next meeting of shareholders called for the election of
directors, to elect a majority of the member of the Board of Directors
out of the number fixed by the by-laws, and the holders of such preferred
stock shall continue to have such right until all unpaid dividends upon
the Series A Preferred Stock shall have been paid in full.
(D) Except as set forth herein, holders of Series A Preferred Stock
shall have no special voting rights and their consent shall not be required
(except to the extent they are entitled to vote with holders of Common
Stock as set forth herein) for taking any corporate action.
Section 4. Certain Restrictions.
--------------------
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<PAGE>
(A) Whenever quarterly dividends or other dividends or distributions
payable on the Series A Preferred Stock as provided in Section 2 are in
arrears, thereafter and until all accrued and unpaid dividends and
distributions, whether or not declared, on shares of Series A Preferred
Stock outstanding shall have been paid in full, the Corporation shall not:
(i) declare or pay dividends on, make any other distributions
on, or redeem or purchase or otherwise acquire for consideration any
shares of stock ranking junior (either as to dividends or upon
liquidation dissolution or winding up) to the Series A Preferred
Stock;
(ii) declare or pay dividends on or make any other
distributions on any shares of stock ranking on a parity (either as
to dividends or upon liquidation, dissolution or winding up) with
the Series A Preferred Stock, except dividends paid ratably on the
Series A Preferred Stock and all such parity stock on which
dividends are payable or in arrears in proportion to the total
amounts to which the holders of all such shares are then entitled;
(iii) redeem or purchase or otherwise acquire for consideration
shares of any stock ranking on a parity (either as to dividends or
upon liquidation, dissolution or winding up) with the Series A
Preferred Stock, provided that the Corporation may at any time redeem,
purchase or otherwise acquire shares of any such parity stock in
exchange for shares of any stock of the Corporation ranking junior
(either as to dividends or upon dissolution, liquidation or winding
up) to the Series A Preferred Stock; or
(iv) purchase or otherwise acquire for consideration any
shares of Series A Preferred Stock, or any shares of stock ranking
on a parity with the Series A Preferred Stock, except in accordance
with a purchase offer made in writing or by publication (as
determined by the Board of Directors) to all holders of such shares
upon such terms as the Board of Directors, after consideration of
the respective annual dividend rates and other relative rights and
preferences of the respective series and classes, shall determine in
good faith will result in fair and equitable treatment among the
respective series of classes.
(B) The Corporation shall not permit any subsidiary of the
Corporation to purchase or otherwise acquire for consideration any shares
of stock of the Corporation unless the Corporation could, under paragraph
(A) of this Section 4, purchase or otherwise acquire such shares at such
time and in such manner.
Section 5. Liquidation, Dissolution or Winding Up.
--------------------------------------
Upon any voluntary liquidation, dissolution or winding up of the Corporation, no
distribution shall be made (1) to the holders of shares of stock ranking junior
(either as to dividends or upon liquidation, dissolution or winding up) to the
Series A Preferred Stock unless, prior thereto, the holders of
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<PAGE>
shares of Series A Preferred Stock shall have received $100.00 per share, plus
an amount equal to accrued and unpaid dividends and distributions thereon,
whether or not declared, to the date of such payment, provided that the
holders of shares of Series A Preferred Stock shall be entitled to receive an
aggregate amount per share, subject to the provision for adjustment
hereinafter set forth, equal to 100 times the aggregate amount to be
distributed per share to holders of Common Stock, subject to appropriate
adjustments for share splits, share dividends, share combinations or other
recapitalizations as to the Series A Preferred Stock, or (2) to the holders of
stock ranking on a parity (either as to dividends or upon liquidation,
dissolution or winding up) with the Series A Preferred Stock, except
distributions made ratably on the Series A Preferred Stock any all other such
parity stock in proportion to the total amounts to which the holders of all
such shares are entitled upon such liquidation, dissolution or winding up. In
the event the Corporation shall at any time declare or pay any dividend on
Common Stock payable in shares of Common Stock, or effect a subdivision or
combination or consolidation of the outstanding shares of Common Stock (by
reclassification or otherwise than by payment of a dividend in shares of
Common Stock) into a greater or lesser number of shares of Common Stock, then
in each such case the aggregate amount to which holders of shares of Series A
Preferred Stock were entitled immediately prior to such event under the
proviso in clause (1) of the preceding sentence shall be adjusted by
multiplying such amount by a fraction the numerator of which is the number of
shares of Common Stock outstanding immediately after such event and the
denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
Section 6. Consolidation, Merger, etc. In case the Corporation shall
--------------------------
enter into any consolidation, merger, combination or other transaction in
which the shares of Common Stock are exchanged for or changed into other stock
or securities, cash and/or any other property, then in any such case the
shares of Series A Preferred Stock shall at the same time be similarly
exchanged or changed in an amount per share (subject to the provision for
adjustment hereinafter set forth) equal to 100 times the aggregate amount of
stock, securities, cash and/or any other property (payable in kind), as the
case may be, into which or for which each share of Common Stock is changed or
exchanged. In the event the Corporation shall at any time declare or pay any
dividend on Common Stock payable in shares of Common Stock, or effect a
subdivision or combination or consolidation of the outstanding shares of
Common Stock (by reclassification or otherwise) into a greater or lesser
number of shares of Common Stock, then in each such case the amount set forth
in the preceding sentence with respect to the exchange or change of shares of
Series A Preferred Stock shall be adjusted by multiplying such amount by a
fraction the numerator of which is the number of shares of Common Stock
outstanding immediately after such event and the denominator of which is the
number of shares of Common Stock that were outstanding immediately prior to
such event.
Section 7. No Redemption. The shares of Series Preferred Stock
-------------
shall not be redeemable.
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<PAGE>
Section 8. Ranking. The Series A Preferred Stock shall rank junior
-------
to all other series of the Corporation's preferred stock outstanding as of
October 21, 1985, as to the payment of dividends and the distribution of
assets.
Section 9. Amendment. The Restated Articles of Incorporation of the
---------
Corporation shall not be amended in any manner which would materially alter or
change the powers, preferences or special rights of the Series A Preferred
Stock so as to affect them adversely without the affirmative vote of the
holders of two-thirds or more of the outstanding shares of Series A Preferred
Stock, voting together as a single class.
-6-
<PAGE>
IN WITNESS WHEREOF, we have executed and subscribed this Certificate
and do affirm the foregoing as true under the penalties of perjury this 17th day
of October, 1985.
/s/ Lawrence M. Coss
-----------------------------------------
President and Chief Executive Officer
(Corporate Seal)
/s/ Alan J. Roers
-----------------------------------------
Secretary
The foregoing instrument was acknowledged before me this 17th day of
October, 1985 by Lawrence M. Coss, President and Chief Executive Officer, and
Alan J. Roers, Secretary, of Green Tree Acceptance, Inc., a Minnesota
corporation, on behalf of said corporation.
/s/ Richard G. Evans
-----------------------------------------
Notary Public
(Notarial Seal)
Richard G. Evans
Notary Public-Minnesota
Hennepin County
My commission expires: September
-7-
<PAGE>
Exhibit 3.1.1
ARTICLES OF AMENDMENT
TO
RESTATED ARTICLES OF INCORPORATION
OF
GREEN TREE FINANCIAL CORPORATION
The undersigned, Robert D. Potts and Richard G. Evans, the President and
Chief Operating Officer and the Secretary, respectively, of Green Tree Financial
Corporation (the "Corporation"), a corporation organized under and subject to
the provisions of the Minnesota Business Corporation Act, Minnesota Statutes
Chapter 302A, do hereby certify that the following Resolution was duly approved
at a meeting of the shareholders of the Corporation which was held on May 18,
1994, and that such Resolution has not been subsequently modified or rescinded:
RESOLVED, that the Restated Articles of Incorporation of the Corporation
shall be amended by restating the first paragraph of "Article 3. Authorized
Shares" as follows:
The aggregate number of shares which this Corporation shall have
authority to issue is 165,000,000 shares, divided into 150,000,000 common
shares with a par value of $0.01 per share, which shall be known as
"Common Stock" and 15,000,000 preferred shares with a par value of $0.01
per share, which shall be known as "Preferred Stock".
The Amendment to Restated Articles of Incorporation stated above has been
adopted pursuant to Chapter 302A of the Minnesota Statutes. The remainder of
the existing Article 3 in the Restated Articles of Incorporation of Green Tree
Financial Corporation is unchanged.
IN WITNESS WHEREOF, we have subscribed our names as President and Chief
Operating Officer and Secretary, respectively, of Green Tree Financial
Corporation, this 20th day of May, 1994.
By: /s/ Robert D. Potts
-------------------------------------
Robert D. Potts
President and Chief Operating Officer
By: /s/ Richard G. Evans
-------------------------------------
Richard G. Evans
Secretary
<PAGE>
STATE OF MINNESOTA )
) ss
COUNTY OF RAMSEY )
One this 20th day of May, 1994, before me, the undersigned, a Notary
Public in and for the State of Minnesota, personally appeared Robert D. Potts
and Richard G. Evans, to me personally known, who being by me duly sworn, stated
that they are the President and Chief Operating Officer and Secretary,
respectively, of Green Tree Financial Corporation, a Minnesota corporation,
executing the foregoing Articles of Amendment of Restated Articles of
Incorporation of Green Tree Financial Corporation, that said Articles of
Amendment were signed on behalf of such corporation by authority of its Board of
Directors; and that Robert D. Potts and Richard G. Evans, as officers
acknowledge the execution of the foregoing Articles of Amendment to Restated
Articles of Incorporation to be the voluntary act and deed of such corporation.
/s/ Wanda J. Lamb Lindow
------------------------------------------
Notary Public
<PAGE>
EXHIBIT 5.1
-----------
Green Tree Financial Corporation
1100 Landmark Towers
345 St. Peter Street
St. Paul, Minnesota 55102-1639
Re: Registration Statement on Form S-11 and Form S-3
Gentlemen:
We have acted as counsel to Green Tree Financial Corporation, a
Minnesota corporation (the "Company"), in connection with the preparation of a
Registration Statement on Form S-11 and Form S-3 filed by the Company with the
Securities and Exchange Commission (the "Commission") on May 27, 1994 (the
"Registration Statement"), relating to the registration by the Company of
$2,000,000,000 of Manufactured Housing Contract Pass-Through Certificates (the
"Certificates"). The Certificates are proposed to be issued from time to time
in series under separate Pooling and Servicing Agreements, each in substantially
the form incorporated as an exhibit to the Registration Statement (each such
agreement, a "Pooling and Servicing Agreement"), between the Company, as seller
and servicer, and a bank or trust company, as trustee (the "Trustee"). The
Company may provide a Limited Guarantee (the "Limited Guarantee") with respect
to one or more classes of any series of Certificates.
We have examined the Registration Statement, and such other documents,
and have reviewed such questions of law, as we have considered necessary and
appropriate for the purposes of this opinion. Based on the foregoing, we are of
the opinion that:
1. Each Pooling and Servicing Agreement, when it has been duly
authorized by the Board of Directors of the Company and duly executed and
delivered by the Company and the Trustee, will constitute the valid and binding
obligation of the Company and the Limited Guarantee of the Company, if any,
provided for therein will constitute the valid and binding obligation of the
Company.
<PAGE>
Green Tree Financial Corporation
May 27, 1994
Page 2
2. Each series of Certificates, when duly executed and delivered in
accordance with the terms of the Pooling and Servicing Agreement relating to
that series, will be legally and validly issued, and the holders of such
Certificates will be entitled to the benefits of that Pooling and Servicing
Agreement.
The opinions set forth above are subject to the following
qualifications and exceptions:
(a) In rendering the opinions set forth above, we have assumed that,
at the time of the execution of the applicable Pooling and Servicing
Agreement and the execution and delivery of the related series of
Certificates, there will not have occurred any change in the law affecting
the authorization, execution, delivery, validity or enforceability of the
Certificates or any Limited Guarantee, the Registration Statement will have
been declared effective by the Commission and will continue to be
effective, the Certificates and the Limited Guarantee will be issued and
sold as described in the Registration Statement, none of the particular
terms of a series of Certificates will violate any applicable law and
neither the issuance and sale thereof nor the compliance by the Company
with the terms thereof will result in a violation of any agreement or
instrument then binding upon the Company or any order of any court or
governmental body having jurisdiction over the Company.
(b) Our opinion in paragraph 1 above is subject to the effect of any
applicable bankruptcy, insolvency, reorganization, moratorium or other
similar law of general application affecting creditors' rights.
(c) Our opinion in paragraph 1 above is subject to the effect of
general principles of equity, including (without limitation) concepts of
materiality, reasonableness, good faith and fair dealing, and other similar
doctrines affecting the enforceability of agreements generally (regardless
of whether considered in a proceeding in equity or at law).
(d) Minnesota Statutes (S) 290.371, Subd. 4, provides that any
corporation required to file a Notice of Business Activities Report does
not have a cause of action upon which it may bring suit under Minnesota law
unless the corporation has filed a Notice of Business Activities Report and
provides that the use of the courts of the State of Minnesota for all
contracts executed and all causes of action that arose before the end of
any period for which a corporation failed to file a required report is
precluded. Insofar as our
<PAGE>
Green Tree Financial Corporation
May 27, 1994
Page 3
opinion may relate to the valid, binding and enforceable character of any
agreement under Minnesota law or in a Minnesota court, we have assumed
that any party seeking to enforce such agreement has at all times been,
and will continue at all times to be, exempt from the requirement of
filing a Notice of Business Activities Report or, if not exempt, has duly
filed, and will continue to duly file, all Notice of Business Activities
Reports.
Our opinions expressed above are limited to the laws of the State of
Minnesota.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement, and to the reference to our firm under the heading
"Legal Matters" in the Prospectus comprising part of the Registration Statement.
Dated: May 27, 1994
Very truly yours,
CFS
<PAGE>
EXHIBIT 8.1
-----------
Green Tree Financial Corporation
1100 Landmark Towers
345 St. Peter Street
St. Paul, MN 55102-1639
Re: Federal Income Tax Consequences of Manufactured
Housing Contract Pass-Through Certificates
Gentlemen:
We have acted as counsel to Green Tree Financial Corporation (the
"Company") in connection with the proposed registration under the Securities Act
of 1933, as amended, by the Company of $2,000,000,000 of Manufactured Housing
Contract Pass-Through Certificates (the "Certificates"), and the related
preparation and filing of a registration statement on Form S-11 and Form S-3,
filed by the Company with the Securities and Exchange Commission on May 27, 1994
(the "Registration Statement"). The Certificates are proposed to be issued in
series under separate Pooling and Servicing Agreements (each, an "Agreement")
between the Company, as seller and servicer, and a bank or trust company, as
trustee (the "Trustee"). The Certificates are described in the prospectus
constituting Part I of the Registration Statement (the "Prospectus"). Each
series of Certificates will be more particularly described in a supplement to
the Prospectus (each, a "Supplement").
You have requested our opinion with respect to certain federal income
tax consequences of the purchase, ownership and disposition of the Certificates.
For purposes of rendering our opinion we have examined the Registration
Statement. Each Supplement and Agreement pertaining to a specific series is to
be completed subsequent to the date of this opinion. Accordingly, we have not
examined any Supplement or Agreement relating to any specific series to be
issued, and our opinion does not address the contents of any such Supplement or
Agreement except as and to the extent that the provisions of same may be
described in the Prospectus. We understand that each Supplement will contain a
discussion of any material federal income tax consequences pertaining to the
series to be offered thereunder which are not addressed in the Prospectus.
As set forth in the Prospectus, for federal income tax purposes each
series of Certificates will be issued as either a grantor trust ("Grantor
Trust") or a real estate mortgage investment conduit ("REMIC") under the
Internal Revenue Code of
<PAGE>
Green Tree Financial Corporation
May 27, 1994
Page 2
1986, as amended (the "Code"). Each series' status as a Grantor Trust or a
REMIC is to be set forth in the Supplement related thereto.
Our opinion is based upon existing law and currently applicable
Treasury Department regulations, current published administrative positions of
the Internal Revenue Service contained in revenue rulings and revenue
procedures, and judicial decisions, all of which are subject to change, either
prospectively or retroactively, and to possibly differing interpretations, and
is also based on the representations and warranties set forth in the applicable
Agreement and the assumptions that the Company and the Trustee will at all times
comply with the requirements of the applicable Agreement, including, without
limitation, in the case of each REMIC series of Certificates, the requirement
that a proper election to be taxed as a REMIC is made in accordance with the
applicable Agreement and the Code and that the certificates of such series will
be issued as described in the related Supplement and any other prospectus
relating to other classes of certificates of such series. Based upon the
foregoing, as of the date hereof it is our opinion that:
(1) With respect to each Grantor Trust series of Certificates, each
pool of manufactured housing contracts and the arrangement to be
administered by the Company under which the Trustee will hold and the
Company will be obligated to service the manufactured housing contracts and
pursuant to which Certificates will be issued to certificateholders, all as
described in the Prospectus, will not be classified as an association
taxable as a corporation or as a "taxable mortgage pool," within the
meaning of Section 7701(i) of the Code, but rather will be classified as a
grantor trust under Subpart E, Part I of Subchapter J of the Code.
(2) With respect to each Grantor Trust series of Certificates, under
Section 671 of the Code, each holder of a Certificate will be treated as
the owner of a pro rata undivided interest in the ordinary income and
corpus portions of the trust attributable to the pool of manufactured
housing contracts in which such Certificate evidences an ownership interest
and will be considered the equitable owner of a pro rata undivided interest
in each of the manufactured housing contracts comprising that pool.
(3) With respect to each REMIC series of Certificates, those assets
constituting the trust fund created pursuant to the related Agreement and
designated as comprising the "real estate mortgage investment conduit"
thereunder will qualify as a REMIC under the Code.
<PAGE>
Green Tree Financial Corporation
May 27, 1994
Page 3
We consent to the filing of this opinion as an exhibit to the
Registration Statement and to the use of our name under the heading "Certain
Federal Income Tax Consequences" in the Prospectus, and we hereby confirm that,
insofar as they constitute statements of law or legal conclusions as to the
likely outcome of material issues under the federal income tax laws, the
discussion under such heading accurately sets forth our advice.
Dated: May 27, 1994
Very truly yours,
CFS
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors
Green Tree Financial Corporation:
We consent to the use of our report incorporated herein by reference and to
the reference to our firm under the heading "EXPERTS" in the prospectus.
KPMG Peat Marwick
Minneapolis, Minnesota
May 27, 1994
